AAC Clyde Space AB (publ)

Hello and welcome to Investor Update. Today we have the Q1 report from AAC Clyde Space, a company based in the space industry. You who watch live can always ask questions and interact with the management, and you do that in the chat field. We will handle the questions after the presentation. And you who do not receive your question answered can always turn to the company and do so via their website. On the link we will have Louis Gommers from AAC Clyde Space, the CEO of Engelspråket will continue the presentation in English. Louis, such a pleasure. Welcome to Investor Update.

Good morning, Karl. Great to be here.

Excellent. So how are things in Scotland?

Scotland is very nice. We are having very pleasant weather. I would say for the change we have had great sunshine and blue skies. So it's actually a good period.

Excellent. Well, Q1 report, so please walk us through it.

Yes. So we have presented today our report for the first quarter of the year. We have maintained our net sales from last year. We hoped to have grown it a little bit, but as always we are very dependent on external factors like some of our suppliers. Some quarters will be a little bit stronger than others. We maintained a strong EBITDA this quarter, even if there were a few extraordinary values that added to that EBITDA. But in general it maintains our flow of actually growing towards profitability. It is something that we have actually put a lot of effort over the last few years. So that is a good thing. Our cash flow was negative, but that is something we will expect from some quarters. Our business has very variable cash flows quarter to quarter, as always without people judging us on the year rather than on the quarter when it comes to that. And our backlog remains strong. It has reduced to a level where we are now comfortable. Again, it will vary depending on the quarter, depending on the orders. We have a business that sometimes has very large orders coming in, and that kind of changes the value of the order backlog. But all in all it was a quarter that, together with all the issues that we are seeing in the world, together with all the headwinds that the industry is facing, with new tariffs, with uncertainty on the market, it was actually not a bad quarter for us. And we achieved most of the objectives that we set ourselves to. As we are looking towards the rest of the year, we are very much focusing on milestones we have announced in terms of our net sales. We want to grow double digit. We want to continue to be EBITDA positive and also operational cash flow positive. But we are also focusing on some very large milestones for us. We have three main targets, three main things that we set out to do this year. One is to actually launch the first satellite in our new data and services constellation. This is part of the growth of our business. We are expanding, not just delivering hardware, we deliver data and services. And very much our next, our first satellite in this next generation, that is called Virium, will be launched later this year. We are very much focusing on that. We already have contracts to deliver data and services from those satellites. We are also, we started this year a new program on our maritime services, data and services business. Again, something that we are growing and expanding. We already have quite a comprehensive constellation of satellites delivering data. And with that, we secured a contract with the European Space Agency and the UK Space Agency, sponsored by the UK government, to actually develop a new constellation of satellites. We will build 12 to 15 satellites over the next few years. The objective being that together with our partners, we will develop and deliver all new range of services to the maritime industry. And this year is quite critical. We secured the phase one of this contract. This is a 350 million sec overall contract, half of which will be paid by government. The rest, we are working with partners, we are working with customers to actually develop, to raise the rest of the capital. And in this way, develop all new range of services for ships, shipowners, coast guards, navies, all those people that use the oceans. The last big target for this year is securing the work on the stern constellation. Although we focus very much on data and services, the fact is we still produce a lot of hardware. And we are a company that still does a lot of the working hardware. And a very important part of that is weather instruments. So in Gothenburg, we've got a company, a group of people that are specialized in producing payloads, satellite instruments to help forecast weather. And they have been very successful at doing that. And we have done a prototype together with OHB Sweden for a new type of satellite. And that has worked fine. And so the European Meteorological Satellite Organization wants to progress to a full constellation. And that will be a very large contract. We have announced in the past that we expect that to be in excess of 60 million euros. And our objective, our target this year is to secure that contract. So these are the summary of where we are right now. And one thing that we have actually secured, and I'll just talk about this because this has been something that we have had several questions over. We have a program that we have been running with the European Space Agency and also with UK government for expansion. This was for the development of new technology and services. And the objective on this one was to expand our ability, our capability to larger satellites, more complex, and not only support ourselves as a company, but also our customers. And as part of that, we want to demonstrate the technology and those capabilities on new satellites. And we sat with our sponsors in government to actually do that on a series of 10 satellites. And four of those satellites we are building for ourselves, that's the Virian Earth Observation Constellation. We decided that we wanted to build that constellation. And so we are going to use the technologies and we are using those to demonstrate the new developments that we have done under the expansion program. And the other six, we agreed with one of our customers, they have already satellites contracted with us, but we upgraded those. We actually did some extra work as part of the expansion program. And in that way, we were actually able to demonstrate how the technologies, how the procedures and processes that we have developed under the expansion program work well. So, and in this way, we achieved our objective with our sponsors, with the space agencies, to actually demonstrate that what we have done on the expansion program worked. And for our customer, it was good. It improved their satellites, allowed them to actually have a better quality, a better system, so they were happy, the agencies were happy. And so, and this has meant that actually this program is seen as a great success. It's still running, we still have phases to close, we still have things to do, but it has been a success. So I'll stop here. So this was the general description of where we are. Yes, it has been a fun, exciting few months.

Yeah, thank you very much, Luis. So yet another busy quarter here. But for anyone like myself, who is less informed about the goings and goings of a space company here, could you give us a short overview of the company where you can just enlighten us what sets you apart from the competition?

Yes, and actually you show the first slide. We have one slide, and if we could put that one, yes, that one, thank you. Just to say, so we are a company that very much our objective is to actually make, use space for a better life on Earth. And we believe that very much. We believe that space, space technology that we have been developing for many years is actually a plus for all of us, for society. We can actually help the world be a better place for everyone. We can make it safer, we can make it a happier place by using space technology. And we do that by delivering hardware to companies that want to use, that need data, that need to gather data from space. So we deliver components for their satellites or satellites. But we also do that by delivering the data and the service ourselves. So we've got our own satellites and we do that. And a lot of the work we do, for instance, is in the maritime domain. We track ships. We are one of the big suppliers of data that allows people to know which ships are where. We are helping to manage forests. So one of the contracts, one of the first contracts we have for the Virium constellation is to actually manage forests and to look for disease and illness, things that are destroying the forest. It's particularly important now with climate change. We are seeing different types of insects coming to our forest. We are seeing the dieback of many trees. And that is extremely important because not only we need forests for producing oxygen, for making us all live better, but commercially these are extremely important assets. And particularly in Northern Europe, Northern America, North America, these are commercially very important parts of the economy. And of course, we are also looking at how to improve food production. We help to do that. Some of our satellites are being used to do that. And then we monitor climate, as I mentioned. And one dimension that is very important right now is also security and safety, particularly in Europe. We have seen that with the geopolitical changes over the last year, things are becoming, our world is becoming more insecure, it's becoming less well-defined. And as such, space and what we are doing has actually a big role to play in terms of helping us to monitor what's happening, to make better decisions. So what AC Guide Space is doing is providing the tools. We provide the tools either through delivering hardware to companies and organizations to make better decisions or delivering the data and the information they need to make better decisions.

Okay, cool. And if we look at your competitors, because you're addressing different markets, would the competitors be similar companies like yourself or is it old technology? Who do you meet in the door, so to speak?

We meet a variety of companies. There are many companies that compete with us on the hardware business. We have companies actually listed also in Stock Conference, a company like Longspace that competes with us on the hardware business. For many years we have worked in projects, we competed with them in projects. But we also have companies, more traditional space companies like the big primes like Airbus or Lockheed Martin, companies like those that for many years have been delivering data and services. We compete with them. We usually are more agile, we're smaller, we are capable of actually delivering quicker what customers are looking for. And then we have a range of other companies that are delivering information and data in similar industries to us. Now, in many cases we not only compete with them but we also work together with them. That's quite a common thing in the space industry. We are at the same time competitors and partners. So we work with many companies in the space business. But if you look at, for instance, the maritime domain, our biggest competitor until recently was a company called Spire. They have now sold their maritime business for I believe $240 million to another company. That gives you an idea of the importance of this type of data and this type of information for the world at large.

Thank you. I'll throw in a viewer's question here, which is I believe a technical question. Are your own satellites LEO or GEO or in between?

All our satellites at this stage are in LEO. So if we are observing the Earth, we want to be close to the Earth. This is not to say that we want to do satellites in higher orbit. But low Earth orbit is where we are. There is also an aspect in there of making sure that we are good citizens, space citizens. So we want to make sure that our satellites don't stay there for too long after they stop operating. So low Earth orbit allows us to re-enter the satellites, burn them on the atmosphere and dispose of them and avoid them staying there. If we go to higher orbits, you'll stay there for quite some time. For the future, you'll continually be there and we don't want to do that. This said, some of our equipment, some of our subsystems that we produce are on the moon, for instance. We have power systems on the moon. So it shows that our equipment works everywhere on all sorts of orbits. But as a satellite producer, we focus very much on low Earth orbit.

Thank you for that. If we're looking at the key metrics here, because we receive a couple of questions here, which is into the results here. But net sales more or less 4% up versus last year. All in all, are you happy with the results?

Of

course, we

always

want better.

And very much, as I mentioned, in terms of the net sales, we were expecting to do better than this. But we're always constrained because we have suppliers, we have many partners that have to deliver to us. So there is always going to be a variation between quarters. We always want to do better. But nevertheless, we maintain our levels, we maintain our net sales. And that's an important thing for us. As I said, we want to do better. We always strive to do better. That's always our objective. Some quarters will be better than others. But all in all, it wasn't a bad quarter. It was a quarter where we, despite all the issues around us, despite all the uncertainty, we were still able to deliver our business.

And also, you came from a very positive and surprisingly positive quarter previous year. If we look at... There are some concerns about the cash flow. And if I understand it correctly, obviously, there are long lead times here with the contracts. And we will come back to the order backlog and so on and so forth. But there's a question here about the cash flow. Should we have any concerns about the cash flow? Is the straight and honest question here from the viewers?

As we said, we are financed for the year. We actually have the cash position that we need to have. In our kind of business, we are always going to have quite big variations in cash flow. It's the nature. We sometimes have large procurements. We have big projects. When you get a big project, you get large payments upfront. So you have big cashing flows. But then you have to actually pay suppliers. You have to pay partners. So in next quarters, there is always going to be variation. What we make sure is that we have enough facilities in place that we actually plan our cash inflows in such a way that we are never in a bad position, in a difficult position with cash. So very much we plan that. And we expect to see these big variations. So no, we are not particularly concerned. And this is part of the normal operation of the company.

And three business lines merging into two. What is the synergy there? Cost saving synergies? Coming back to the cash flow situation? What can you say?

It's a mixture of several. The main objective was focus. That allows us, that allows the management of the company to actually focus in the two areas of the business that are materially different. One is data and services. That is a very different business from the hardware business. And there is also a management aspect in terms of efficiency. So the hardware business is all very similar, both emissions and products. And what we started seeing is that managing businesses that were overlapping quite a lot in two separate ways was not very effective. So having them under one line of management actually helps to bring out the efficiencies across the companies, across the different sides of the company. And also it allows us, we are very much a vertically integrated company. So it allows us a better integration, a better vertical integration of our hardware. From designing the components of a satellite all the way to delivering a satellite. So it's a mixture of reasons, but it's mostly about focus and efficiency.

Okay. And we got some questions about incoming orders and the inflection project here. So I will try to combine the questions here. But with the inflection project, you seem to be hitting on with the European Space Agency. And am I right in understanding that it came to you via your collaboration with the UK Space Agency? So it seems like you have a strong relationship there, or is this normal for anyone in your sector?

We like to think that we have a particularly good relationship with the space agencies. So we have been working with the UK Space Agency and with European Space Agency on what can we bring to the table from our experience, from our technology. And we brought to them a program called Inflection that is very much based in technology. We have invested quite a lot, which support also of the Swedish government around the VHF data exchange system. So that's the next generation for ship tracking and communications. And we have invested ourselves in this. We have built satellites with payloads. We have engaged with payload developers. We own some IP in that area. And because of that, we were able to put forward what was a very innovative program to the UK government, to the UK Space Agency. They liked it. They think that it is something they want to invest in the country. And so they work through the European Space Agency. That is also very interested in that technology. And we were able to actually put to them a proposition that was valued, that they thought was important for the country and for Europe. And that's how we actually built that. But also we are not just asking them for money because we say it's a public-private partnership effectively. So we will then have to work with ourselves and with our partners and with customers to actually fully finance this project. But this is something that we have a big ambition. We have an ambition to actually do a constellation of satellites for these services. So I very much see this as we were able to actually already finance about half of that. And now we have to work with customers and partners and forward contracts to actually finance the rest. But it's a very good start. And it will be a very unique capability for Europe.

And in this announced 300 million Swedish Corona program, how should we in the market interpret that as monetization for Clidespace into a contract or an order? Is there a timeline? How should we view this?

So the objective is actually so the project is divided in three phases. We are currently in phase one. There will always be gateways between the phases. But we expect the money was allocated. So we are now in phase one. Later this year, beginning of next year, we'll be on phase two and then phase three. The program will run until roughly 2028. It will start now with design. It will then close with the manufacturer and launch of between 12 and 15 satellites. We are still discussing that with the agencies. And the baseline is that half the financing comes from the government and the other half we will look for with partners, with customers for that. But it is a transformational type of system. As I say, it's very unique. It will be very unique in Europe. We are working with partners in Europe and the UK. But partners that actually are international in Europe. And we see that as a very, very positive development in the maritime sector.

And I have a quite detailed question here regarding the data revenue in connection to the Sedna satellite. When that starts to deliver data, do you have a timeline there? Is it coming quarter or what should we watch for?

So we are expecting, so we are currently going through commissioning. The first satellite should be within the next month, month and a half should be operational. The second one will follow a few months down the line. They are of a new type, a new type of satellite. So they always require a little bit extra work when they're going through their commissioning. But they are, we are close. We are close to the start of revenue operation on those satellites. I always struggle to give an exact date because it is, as a new satellite, there will be an unforeseen event. So it takes a bit of time.

It's a complex material, one could really say. In your comments to the report, you referred to the order backlog. And I have a question here from a viewer regarding the sales and the sales trends. So I thought I'd combine that. You referred to the order backlog of 480 million SEC and that's 80% of 2024 net sales. That's giving you and us in the market a strong earnings visibility. So could you walk us through the thinking behind that and why you seem to be positive and quite confident there?

So our backlog remains strong. So as I usually say, the comfortable place for us and the kind of net sales we want to do is around the 400, 500 million SEC. Above that usually means there is quite a lot of work and we have to run through that. Below that, then we have challenges in meeting our net sales. The current one already gives us 80% of the yearly revenue that we need to achieve. What is quite a good position to be in. We have a few more big orders. We just announced one. And what we see is that that gives us that security for the year in terms of our financial objectives. And that allows us to actually continue with our strategy, continue with our programs of investment, of expansion, particularly when it comes to our data and services. So we see this as quite positive. And when we talk about, since we are on that point, when we are talking about our data and services, for instance, one of the reasons we want to actually accelerate that process and we want to actually speed it up is because to actually build backlog there, we need to have the assets. We need to have the satellites delivering data and services. So that's why we are investing quite a lot so that we can grow that part of the business.

So, and I'll throw in another question here regarding the orders and future orders. It's inflection, if that's your focus now instead of AOS, shall we regard that as AOS and Ofcom not being in the spotlight so to say?

No, we shouldn't actually read too much into that. Inflection is a program, is a very large program. Our work with Orcom and Saab, actually Saab are part of inflection, but our work with those companies continues. But of course, the market is changing. There are many different things happening in the maritime services market. The world is really changing. And that has opened a lot of opportunities. So we are working through those. We continue to work closely with Orcom. They are our biggest customer for maritime data at this stage. Inflection brings a whole new set of capabilities. We will be working with partners and we foresee that Orcom might be also a customer partner on that in the future. But right now it's about building a system for maritime domain awareness that is to keep an eye on what's happening on our oceans. So that's where we are going with inflection. That doesn't preclude us from continuing to work with our partners in other parts of the market.

So it's not either or, it's a combination?

It's a combination,

yes. And on back of this report here, what can you say about your full year's estimates, targets? Have you changed much in your view of the future?

No, we continue to give the same guidance. Our objective is to have a double-digit growth of our net sales, positive EBITDA, positive operational cash flow. So we maintain that for the year. We have a large pipeline towards the end of this year. So we expect that to come through. And so we maintain the same guidance. We haven't changed the guidance.

And when it comes to the variation of sales, because we had a question of someone spotting a trend of sales going down and or up, can you say anything about that? It seems like it's a very long process, but when you're there, you're there.

Yes, we have very large, we usually call it a lumpy business. The space business is traditionally big sales. One big sale makes a big difference. So you can have suddenly a contract that is worth 100 million SEC or 200 million SEC. And that really changes your backlog, your orders. So that is the reality of our business. We have a steady business that is about selling lower value products and data. And that is a much more steady business. But then we tend to have one big order, two big orders per year. But those will come at different periods. So that's not, they don't always come when we plan them. So we expect later this year, we've got some big orders on our pipeline. And I described one, the Sterner Order, for instance. That is a huge value. So that's the reality. I've always been to see these variations. The procurement cycles, particularly when it comes to the bigger systems, satellites, payloads, they can be one year, two years. So you can have these kind of variations from, you can have six months delay on an order coming in, but they will come in.

And that's a good segue to the next question here and final question, conscious of time here. But the next news flow from you, what shall we watch for? Is it the next quarter or do you know that you have something cooking here? You want us to watch this space, so to speak? It's an easy question to ask, perhaps not so to answer.

As always, we are of course very limited on what we can say. But I would nevertheless say to watch this space. There are quite important things that we are going to achieve. You mentioned one of them. That's, for instance, you asked about the start of service of the Saturn satellite. But there are other big things to watch out for in the next quarters. I'd say probably the last quarter of this year is the one that I'm seeing more things happening

on

the last quarter. But nevertheless, we will see news flow throughout the next few quarters that I'm expecting are going to be well received.

Excellent, Luis. Thank you so much. So watch the space of the Clyde space, so to say. Luis, it was an absolute pleasure and it was very educational. Thank you.

Thank you very much. Thank you. Great to talk to you.

We say that we have watched and even more to you who have asked questions. And if there is any question you want more answers on, we will refer you to the company's website. Thank you.