AAC Clyde Space AB

Welcome to Kvartalsrapporter with Investor Studios. Today with AAC Clyde Space, a company active in the space industry. Those of you who watch live can as always ask questions directly to management and you do so in the live chat. We will handle the questions at the end of the presentation. If you do not get an answer to your question, you will then be referred to the company's website. On a link from Glasgow, we have with us Luis Gomez, CEO of AAC Clyde Space. And since the CEO is English speaking, the presentation will now continue in English. Luis, nice to see you. How are things in Glasgow?

Good morning, Carlo. They're okay, they're good. The weather isn't great. Business keeps going.

Excellent. Well, Luis, please walk us through the Q3 and give us a glimpse on the future ahead. The floor is yours.

Thank you very much. Just asking the slides. Thank you very much. If we go on to the next, to the first slide. So we have a strong or reasonably strong third quarter for the year. Our net sales were slightly down on last year for the same quarter, but last year we were coming back off a bad second quarter, so we had a bit of a spike in the third quarter. We usually expect this to be a quarter slightly slower in relation to others because there are holidays, summer holidays, summer breaks for ourselves and for our suppliers and also for our customers. So we usually expect to be a slightly quieter quarter. But nevertheless, we maintained the positive habitat. And the thing that we were less happy about was the cash flow that was very negative. But we expected that to some extent because we had large prepayments on many projects that we were now paying suppliers, we were paying subcontractors. And that is part of the reality of our business that this goes up and down. during this period. Our order backlog has also gone down, mostly because we are now waiting for new orders that we have been working on for quite some time. So we have focused our sales force in addressing those big orders. We are waiting for them. They are later to be contracted than we wanted. They are still there. We are still working with them. We are still going through negotiations. and discussions with the customers. Probably chief among those orders is Sterna that has been commented quite a lot. We are still waiting for that. And because of that, our order backlog is waiting for those large new orders to come on, but they are late. And of course, our sales force has been very focused on that. But overall for the year, we are still ahead of last year. We are doing well. We're doing big net sales. We are still in positive editor territory. So in general, things are going okay, good even. We had to announce a reduction in our guidance. I'll get to that in a bit. But that reflects these later arrival of new orders. We can go to the next slide, please. So as I said, For the year, we have a strong positive habitat ongoing. And a lot of this is coming on the back of our sales of data and services. Not only that is growing in terms of net sales, but we still maintain a very good profitability. And that is contributing very positively to the overall performance of the company and particularly for our positive habitat. And this is now the fifth quarter in a row that we have maintained positive habitat. This is something that for us represents quite a positive outcome over the last few years after many years of very variable results. On to the next slide, please. As I mentioned, we had to announce new guidance for the year. largely due to the fact that one large new order, Sterna, is delayed, but also because we have an issue with one of our suppliers on the SCOW project. And those two things have reduced our guidance for net sales for the year because we have not been able to do or to recognize as much revenue as we would expect. And we also do not believe that we can maintain a positive operational cash flow for the year, but we still maintain the guidance of a positive EBITDA. Now, we have done several actions over the year to mitigate these. We have been waiting until the last quarter was the one, the Q4 was the one where we expected these both Sterner to come on and also to have a big revenue recognition from these one project, Scout project. So when we realized that that was not happening, that we could not meet that, that's when we provided the update. We have nevertheless taken some measures. So there are people that we have not increased Our staff, for instance, in preparation for Sterna, we have delayed hiring people to meet the start of that project. We have also trimmed our workforce across the board throughout the different sites to become more efficient throughout the year. So we have taken a few measures to actually mitigate to some extent these delays that we are seeing. We go on to the next slide, please. So just to give an update on Sterna, this is a big European program. It's a big European project. It requires the agreement of different countries. It requires the agreement of different meteorological services around Europe. And what UMEDSAT, the organization that ultimately is the customer, has told us is that in July, when they tried to actually secure the agreement of all these countries, five countries did not commit, and one in particular needs to commit, because not only of budget, but also of their importance in the European meteorological sector, that is France. So France, as many might know, has had some issues with the government, and there have been a few issues in the country, and this has all made it harder for the for the country to commit to the project. We believe they are still interested, they have committed in the past, said that they would support it, but we have to wait. And what that has meant is that EMATSAT could not actually give the go-ahead to the project. This doesn't mean that we are not working on it with the prime contractor and with ESA, the European Space Agency, that is responsible for the implementation of the Stern project. Discussions, negotiations are ongoing, so there are many, many ongoing activities around Sterner, but the reality is that the project, that the award of contract is late. We expect it to have it in quarter four this year, and we are now expecting it in quarter one next year. Subject, of course, to the UMEDSAC Council agreeing that the project can go ahead. If we go to the next slide. please. Other events. So the other big event that had an impact on our net sales for 2025 is the SCAL project. So this is a program that we are doing supplying equipment for telescopes, radio telescopes, actually on the ground. And what happened there is that one supplier was selected by the customer. The customer said you have to work with the supplier. And there has been a technical disagreement between them in terms of performance about what they are delivering. So we are basically between these two parties. But we believe we are closing on the resolution. But what this has caused is that about 30 million SEC In revenue that we expected to recognize this year, we could not recognize. So this has had a big impact on our net sales for the year. As I say, we are working with both parties to resolve the problem. So we are doing tests, we are doing simulations to show that things work. But this is an ongoing process that we are currently undertaking. So we expect to resolve it, but it's just taking longer than what was planned. And in view of all of these changes, we have actually, and I know that I have mentioned that I will be presenting a long-term outlook for the company, but because of these changes and because of the changes, like for instance, Sterne has quite a big impact on our forward look. We have decided to delay that presentation, that show of where we are going, just to let us to see how things happen, when they happen, what are the timings, as they have quite a lot of impact on our workload.

And so the way we go forward depends on that.

At the same time, as I mentioned, we have been streamlining throughout this last year our operations on missions and systems and products. As many of you will know, we have shown a reduced order intake, particularly on missions. So we have reduced the amount of stuff that we have dedicated to that part of the business. But at the same time, we have had Quite good news on our product side. So we had the first QCAT delivered earlier this year. So this is our laser communication system. So the first two have been delivered. And looking more towards our services side, things continue to grow, to expand, and to be very successful. EMEA 1, our dedicated VDES testbed satellite, has demonstrated a VDAS link for the first time in orbit. We are now doing several tests and evaluations with potential customers. We are working with some coast guards. We are working with organizations that are trying to bring in VDAS into their operational day-to-day setups. And so we are actually seeing quite a lot of demands for those services. And we see that as a very successful outcome for the last few months for the company. And in that vein, in our maritime intelligence side, we also announced recently that both Sedna 1 and Sedna 2 are now fully operational. So that is quite good for us, particularly our sheet tracking AIS business. That is something that having more data is an important part of our business and to grow that side of the business. So we are seeing quite a lot of success in our data and services business. And also product admissions, although we are in a right now in a bit of a waiting period, we still expect it to be very successful and we have quite a very strong pipeline on that part of our business. We go to the next one, please. So looking ahead, what we expect to see in the next few months coming, we do expect our order backlog to recover in 2026. As I said, we have a strong pipeline, both on the data and services, but also on the products and missions. that we are building, so we expect that recovery to happen. We have launch of Varian 1 forecast for the quarter 1, 2026. So that is something that our teams are focusing very much right now on, preparing the satellites for launch. And Inflation Phase 2 is approaching, so we are now in contract discussions, we are now So we are now just in that final point of security, that second phase with our customers. So all these are quite a lot of, this represents quite a lot of activity for our teams right now.

And next one, please. I think. The next one, please, or is this the last? I believe this might be the last one. This is where we are right now.

And I'll open the floor for questions.

Right. Thank you. Can you hear me now? Yes, exactly. I believe there was a last slide saying that this was the last slide. But we have received a lot of questions ahead of this broadcast and I can see that people are using the live chat as well. But I just make a reflection here. So this result was a bit of a mixed bag because the The Q3 was down year on year, whereas the nine month was up year on year. So what do you think that we in the market should be looking for? Shall we not focus so much on the quarterly and then see this as, let's say, a long term business and perhaps look at the six months and nine months?

I usually say that my preference is to look at it on a yearly basis. When we are just coming from restating our guidance or changing our guidance for the year, this might sound strange, but I still think that as a business, if you look at the types of projects we are working on, the types of deliveries we do for our customers, quarterly tends to be quite a narrow timeframe. Things change quite dramatically in a quarter. So usually I prefer to look at on a yearly basis. That's a more accurate way of seeing how our business is doing. Of course, if a quarter is the last quarter, for some reason, some orders move to the next year, we have a big change. But yearly is a better timescale.

Right. But then again, if you're listed on the market, the curse is the quarterly. So I will just throw in a couple of questions here. So margins in the segments, data and services fluctuated significantly between quarters. Why and how should we think about this as the constellation grows going forward?

So, there have been a few one-offs on our data and services that have improved dramatically our profitability. But it is still a strong profitable business. Our editors there are still in the 36%, I believe. So, there are events sometimes that increase that. On the other hand, we have also increased our sales force, for instance. We have grown our Our team that is actually on the ground talking to customers, selling more services in preparation for the new satellites, for the new constellations. So we expect to maintain a strong profitability and actually grow that profitability in the future. But it will vary, particularly now while we are building the business, that part of the business.

And also, I'll just throw in another question that I just received here from the sideline, and that's a more general question. Would you be able to elaborate a little bit of orders from the defense side? Any comments, any updates? What can you tell us?

We can't talk too much about what we are doing on defense right now. There are several conversations ongoing. It's an area of interest for us. We already do work particularly on our ship tracking business. A lot of it already goes to the security, defense and security markets. Many of our products end up in defense-related satellites, but we do have a few other conversations ongoing. We can't talk much about them right now, but I can assure you that there is quite a lot of interest from that side on our products and our missions and our technology.

Okay, thank you for that. And I have a couple of questions here from Jume Satt and Sterna. And just to recap here, if I understood you correctly here, the delay of the decision is very much out of your hands. So it's more of a European community problem where we have an internal problem in France. So it's not really connected to Sterna. That would be the right interpretation.

Yes, it is. So these big programs usually require full agreement from all countries on the human side, unanimity. And sometimes that is not reached, that cannot be reached. And that does create an issue. I believe this was the first time that in a program of this magnitude that was seen, that happened. So it was a bit unexpected from everyone, but it's something that is outside our control. We can help. by making sure that what we are offering is good and it is appealing, but we can't control politics at European level.

No. Well, maybe they can't either. And also, I'm just reading from one other question here, and I think that that is also connected to Sterna and the contract. Despite the fact that there is no decision, can the contract still be negotiated ahead of any award? What is the process there?

So the process is that we are discussing with the European Space Agency, with our prime. So our prime is OHP Sweden. So we are discussing with the prime and they are discussing with the European Space Agency. So discussions, the setup of the contract, the technical discussions are all ongoing. It's just that we don't have yet the go ahead. But all the preparatory work is being done now.

And I have some cash flow discussions here, but I'll just pop one up that I received ahead of this. And that's you'll be given extended overdraft facility by the banks, I take it. What does that mean? What can we read into it? What would you like us to read into it?

It means that the space business is very, what we call, lumpy. So you have large orders. Sometimes you have to pay suppliers quite a lot. quite a lot of money in time, so you need a certain amount of flexibility. At the same time, we're also investing in our own constellation during that period. Having those facilities gives us the flexibility to be able to manage our cash and not having to stop investing, for instance, because we have a big outflow to our subcontractors. It allows us that flexibility. is that flexibility into the business. That is naturally quite variable in terms of cash.

So it gives you, let's say, a cushion to continue with operations and perhaps expand operations there. And maybe that in a way answer the next question, which is you're not able to have a positive cash flow from operations and the mechanics there. So basically, would that be a quarterly situation that you would have a negative cash flow in one quarter and then you have a positive due to the lumpiness of the business?

Yes, that's usually what happens. So quarters are very variable when it comes to cash. So we expect in our target for, not this year probably, but for the years following, is to continue to have annual positive operational cash flow. So that's something that we want. That's something that we have fought very hard for. But we are still very dependent on large programs coming in, then payments to subcontractors. So it's very variable. And in that context, quarter to quarter, we'll still see some very big variations.

And I would just read a couple of questions here from the chat as well. Although we have talked a little bit of data services net sales, can we expect the data services net sales to stabilize or grow quarter to quarter going forward? Or should we be more patient and perhaps look half year and 12 months?

We expect, in terms of sales, we expect it to start growing next year. I would expect, with new satellites coming online, we have middle next year, I would expect it to start seeing an uptake of our data and services. But that's because new satellites are coming online, and that should also improve our profitability at the time. I do expect it to grow. probably on a quarter to quarter, but you'll see it more on an annual basis.

And we have a technical question here. Well, more or less technical. So have you decided on the number of satellites in inflection yet?

So the baseline continues to be 12, but we do have a few opportunities to grow that number. So we stick to 12 for the time being. That's our design target.

Okay.

There are options for more.

Yeah. So a yes and a no. 12, but it could be increased.

It's a maybe.

Yes.

It's something that we are still in phase two. We are entering phase two of inflection, so this is when we will probably make the decision.

Yeah. Another way to, or a segue to that question would be then, so you have decided on 12, but if there is an opportunity to increase that, you would be able to do that? Yes. All things considered.

And also... Even outside the inflection program, we have options to actually include. We could build more satellites, for instance. So we have been looking at that possibility. So there are opportunities, even without inflection. But within inflection, yes, we could have more satellites if we decided that... There was a market for them.

Yeah. And if we look at the order backlog, you have previously stated that you have a good visitability. And this time it has decreased. And well, connecting that to the visibility, could you just walk us through why? And what can we expect in the future? Do you address that? Do you need to address that?

So, as I say, probably the big item has been Sterner. as I say, because we are in negotiations, we are in discussions, a lot of our sales force, a lot of our people that actually, our sales and business development people have been involved in that. And we have focused on that work. It is the case that sometimes we have to focus on some of these bigger orders. And then if they don't come through, then we have a delay on our reduction on the backlog. But nevertheless, the pipeline remains very strong.

So more to come and I'd just like to highlight and because I observed that D&B Kaniga recently initiated the coverage of you with a fair value of 106 which is above today's print and I don't really need you to comment on their target price but if you don't mind I would like you to comment on one or two of their assumptions if that's okay with you. And in case of Sterna, they expect to mention initial order value of around 5 to 6 million euros for the first six satellites, while you as a company have previously communicated a total project value of around 60 million euros. That doesn't necessarily mean a contradiction in terms because there's a difference between five and six satellites and you are mentioning 12. But could you elaborate a little bit on that?

I would say that that guidance is incorrect. So we stick by the total project is worth a lot more. It's worth more than 60 million euros. So I think they underestimated quite badly the number.

And in the report, they compare you to several international satellite operators. And when you look at the stock market, well, we in the stock market, we like peer groups. Do you agree with their peer groups? And if anyone wants to know them, I refer them to the report because there's a number of peer groups. Are you comfortable with pairing?

In general, yes. I think they are representative of our sector, even if in some cases the mix of their business is a bit different from ours. But they represent different parts we operate in. And in that sense, yes, I'm satisfied with that.

And the key metrics would be EBITDA margins and sales. And yet again, not going into your internal key metrics, but for the market, that would be good metrics to look at, I take it? Yes. And in that case, would it be possible for you to reach some 370, 75 million in sales for the next years? for the next year, I should say.

Yes, I think so. I think that's a perfectly achievable number if we will get the kind of pipeline we've got right now. So yes, I'm fairly comfortable with that assumption.

And also I received an interesting question from many companies listed in Sweden and reporting in Swedish Krona. Do you expect the exchange rate difference to further impact Q4 and 2026?

As always, you're asking me to guess the international markets. That is something that is quite difficult. We try to manage a lot of our bets on currency. We also operate a business that is very varied across different countries. So yes, we expect it to have an impact. But at the same time, we usually are fairly comfortable because as I say, we buy and sell many different currencies and we tend to edge all of those. But when it comes to reporting, yes, we expect that to have an impact.

And one of the key words, there were many currencies and forgive me my ignorance here, but would it be fair to say that particularly towards the Swedish krona, that would be more, let's say, a translation rather than a transaction? EI, you buy and sell in euros or dollars, but you report in krona. Or should I look at it in another way?

No, it's exactly that. So we tend to operate very much in euros, British pounds, even dollars. That is a lot of our operation is in those currencies. So it's more we translate that into our reporting.

All right. All right, Luis, thank you for that. Considering the time here, it was very educational. And there's a lot of questions out there. And any one of you who needs to have more information or granularity when it comes to the satellites and other programs, we would guide them towards yourself. And that will be your web page, I take it.

Yes, that would be a great place to start. And if you want any more, if you want to discuss anything, Håkan will be more than willing to actually... to actually direct you to the right people.

Excellent. And Håkan, that would be the head of IR. So with that, Luís, I thank you so much and wish you the best. Thank you very much. Thank you.