AAC Clyde Space AB

Hello and welcome to the quarterly report with Investor Studios. Today with AAC Clyde Space, a high-end company in the space industry. As always when we send live, you can ask questions directly to management. Do it in the chat field. We will handle the questions after the company leader's presentation. If you do not get your question answered in this case, we refer you to IR and Håkan Trybell. You can find his details on the website. Nice to see you again. How are things? Nice to see you, Carlo.

All good here in Glasgow? I hope things are also good in Stockholm.

Yes, yes, they are. Luis, a busy past quarter and I guess a busy quarter lying ahead of you. So no rest for the wicked, I take it. So please take it away.

Thank you very much. It has been quite a busy quarter. We have had big things, big discussions going on, negotiations, quite a lot to deliver. We had a big launch back in March. We launched two of our own satellites and five satellites for our customers. So it was a busy period during this last quarter. And if we go on to the next slide, We can, of course, see that the highlight was the signing of the Sterna contract. This was something we had been working on since last year, something that we had been really gearing up to. We prepared. We did a lot of preparatory work on this. And it was signed. And we now have an order backlog of about 1.1 billion SEC. largely due to this new contract. It's a very big contract for us, it's very important, and not just for the company, but also for the European space sector. It's about improving the way we monitor and predict weather, and that is an extremely important thing for us over in Europe. And with this, of course, we secure a large share of our revenues, One of the issues we had last year in 2025 was without Stern, our revenues were down a bit, but now we have secure debt. We have actually built up that backlog. And of course, we still have a bit more of these contracts to go, to sign. We still supply computers, power systems, and other equipment to the prime contractor, which is Sweden. So that's a negotiation that is ongoing right now. So this was a very good result for us at Sterna, and we're very thankful to both UMATSAT and the European Space Agency, and which is Sweden for the trust they placed in us. to do this. And this puts us in position to accelerate our growth. But of course, and if we go on to the next slide, the results on quarter one, because we were still waiting for the Sterner contract, are subdued. They are not as good as we wanted. We also had one issue with the supply in our US operation that removed a substantial amount of our net sales for the quarter. and particularly on our EBITDA. Without that, we would have had a nice positive EBITDA. But those things are things that now with the contract signed for Sterna, we can get on with recognizing revenue for the next three quarters of the year. We have also largely solved our problem in the US operations, so we are expecting to recover on quarter two. So although the results were lower than what we wanted, Nevertheless, that revenue didn't disappear. Those net sales didn't disappear. They just moved on to the next quarters. So we are very optimistic about the next few quarters. Just one note on EBITDA and particularly comparisons with last year. Last year, we had a few exceptional items in quarter one. Those did increase our EBITDA. But if you remove those in terms of the operational performance of the company, our EBITDA this year, although lower, doesn't compare so badly with last year. But this, as I say, if we didn't have the issue with the supplier in the US, our EBITDA would have been much better this past quarter. But we expect to recover that on the next quarters. So if we go on to the next slide, in terms of we continue to build our data and services in particular. So now our hardware business through the Sterner contract is now doing well. But in terms of data and services, we launched two satellites, Virion 1 and 2, in one of the last Falcon 9 launches. Those satellites are going through commissioning. The next milestone for us is first images, first light of the imager. As always, we are careful with making sure that the satellites are in good health, that all the software bugs are ironed out before we start imaging with the camera. We do not want to damage it or to do anything to it that we shouldn't. We are always cautious, but the next big milestone of that project is first light on those cameras. And of course, in parallel, we'll continue to build Vireon 3 and 4 and also Sedna 3 and 4. So these will grow our maritime business. They will reinforce our ability to deliver data and insights to our customers. And of course, we are now in the final discussions on inflection, on the next phase, final phase of inflection that will carry us all the way to the end of that program. So this is something that we are now having final discussions. We have presented everything we needed to present, and we are just expecting, waiting for the final decision from the European Space Agency. Something that we expect to come through in this quarter, in the current quarter. So if we go on to the next slide, please. And of course, as we said, we will do after Sedna contract signature, we presented the new guidance for the year. With the basis of Sedna contract, we are now in a better position to give good guidance. And this is guidance that is based already on a lot of these net sales, a lot of the revenues already on our books, the majority, the large majority of that. And that gives us a lot of confidence. We have nevertheless been fairly cautious and we have been, and we have been, I would say almost slightly pessimistic on our forecasts, but the idea there is that we actually, we give a more realistic forecast. So the full guidance now stands at 440 million to 510 million SEC for the year in terms of net sales, on an average of around 10%. And of course, with a positive operational cash flow. As I said, we were cautious on these numbers. We were cautious on the way we approached our planning for the rest of the year. We did analysis using stress testing on our deliveries and everything. And so we give these guidance that we are very comfortable with. So this is, in summary, the quarter. And yes, we have plenty of work. We have a lot of work ahead of us. It's going to be an extremely busy quarter and year. And we have a very strong pipeline right now of opportunities also coming along, something that we are very happy to see. There is very large demand. There is very big demand for our products and for our satellites and also for our data and services. And that's great to see.

Well, thank you, Louise. And as you have been presenting here, there's been a couple of questions coming in from the live viewers and I have have some that have been given ahead. So I'm going to start with one which is more focusing on the margins. And when it comes to the margins, the cost side here. So one question here is, I will just read it here. Important for future margin scalability. How should we think about the cost structure and in this case related to the Sterna contracts? Will the projects primarily drive higher cost of goods sold or should we expect increased OPEX?

So Sterner is a contract, is a fixed price contract that is set up. So a lot of the supply chain is actually established by the time we start the contract. We have contracts with subcontractors already. So a lot of the margins, making good margin on products like those depends very much on our work, internal work, making sure that we actually deliver when we say we will deliver at the right cost, at the right agreed price and cost. Programs of this size usually have some margin for actually to absorb unexpected items and unexpected things that happen on the project. So they are designed to be quite, they're cautious, they're built in a cautious manner. But this is a project that is very much defined at the beginning where the cost structure of the goods is defined at the beginning of the project. Others are different, of course. Other projects we do have more flexibility. There are other things where you have more variability on the cost structure, on the supply chain. Satellite programs, usually on purely commercial terms, tend to be like that. mostly because we don't necessarily go and buy and agree all the prices with all individual suppliers before. So there is a bit more variability in there. And that's what we, of course, we try to make sure that anything that is critical, anything that we expect might rise in price, we buy in advance to reduce our exposure to that. And then again, as I say, it is more about the hours, it's the time that we spend. Data and service is a very different ballgame. That is also about long-term contracts, long-term supply. That's very much about recurring revenue. And their OPEX becomes quite a big driver in terms of the cost structure. So if we are, because it's very much dependent on ground stations, we have to pay for those services. So it becomes more about negotiating continuously with our suppliers of services, people that supply our ground station services, people that supply our traffic control services. our orbital management services. So we have to continuously do that. So they are different types of business, but ultimately they're all based on the same technology, on the same know-how, that's what we are good at. So we can usually control those items very well.

So no additional supply chains related risk at this point?

No, we have, as always, and we have been fairly open about some of the issues we have had with supply chain. It's always something that can happen. A supplier might not be able to deliver something. We tend to be very dependent on one or two suppliers on things. There are not that many options. So we do have, and we have said that, we have one program that has had some issues in our Gothenburg operation with a supplier. Those are being solved now. So tests have started actually or should be about to start on different options and solutions in tests in real life. They are now starting. So that we expect a resolution throughout over the next few months. And then we have an issue in our US operation, a component that is supplied to us externally. We did some tests. We realized that the components The supplier made some changes. The components were no longer meeting the spec of our product to our customers, so we had to suspend deliveries. And the supplier went and changed that component so that it now meets the targets. Tests are ongoing right now. We expect this quarter to resolve that and restart the deliveries to our customers. So it was a big hit for us, but those are things that are unexpected. We manage a lot of that. So our internal controls, we have specialists in our organization in managing our suppliers, our supply chain. They will go and do audits. They will go and work with our suppliers when these problems happen. So we try to minimize that, try to minimize that as much as possible. On some occasions, we can't, but we try to have... as much flexibility as possible and try to absorb those problems.

And now we have discussed a little bit about the cost base. So if we look at the revenue base here, what progress have you made in signing up new customers from Vireon here? As you mentioned, we now have launched the two satellites. Have we seen any progress or is it early days?

It's early days, so we are, as I said, we are waiting for first light of those satellites. We then need to go through work with our potential customers, so we have a long list of them. And we have to work with them and they want to see the results, they want to see the data, and then they'll make decisions based on that. But the interest has not gone down in any way, so we continue to have a long list of interested parties. We are working with them, we're doing some tests, we're doing some demonstration phases in some cases. So we are doing all of that. We have some customers already signed up, but other customers are waiting to see the results of the satellites. And we expect to start that very soon, to show them the data so they can evaluate that very soon.

And if we switch our eyes to inflection, could you comment about any customers' interests so far?

So inflection is a slightly more complex program in the sense that there are already customers. We already have a customer base on the ship tracking capability. Inflection adds a whole new layer of capability. So for instance, we now have to work with customers on that new layer of developed services. So for instance, we announced recently that we are doing a cooperative development agreement with the US Coast Guard, where they are testing some of our VDS technology, and they are looking out to integrate that into their systems, their existing capabilities. We are doing that with another national Coast Guard, Also, we have others interested. So what we are seeing is we are building the customer base for when inflection goes online. So what these organizations are doing is evaluating the technology, evaluating the capabilities. And this is about the extension. So as I say, we currently have a business that is growing on the ship tracking data. Inflection will also cover that. But this is about the added capabilities, the extra capabilities. that are of very high interest for organizations like coast guards and navies that really want to access that so we are working with them now we are showing them they are using that our data our existing demonstration data uh our satellites in orbit they are including that in their use cases in their future planning so that we are ready when inflection goes online so that's a very this is a very important step right now for us

So there will be perhaps not more customers, but there will be new orders from existing customers due to the inflection here.

Oh yes, we expect inflection is always based, a large of it is based on existing customers in terms of ship tracking. But what we want is to extend that. We want to actually take it to the next level. Since we have a new technology, we have new capabilities on the satellite, we want to take it to the next level. That's what we are working on right now.

And we will swap over from going from cost to revenue to revenue recognitions. So there are expectations in the market of EPS Sterna revenue recognition to kick in this coming quarter. Could you elaborate a little bit on that? And then I have a more granular questions regarding recognition here. But if we start with the revenue from EPS Sterna,

uh should we watch that as a quarterly revenue and uh when you recognize it is that the same as uh you showing it uh in the result yeah so so we recognize we started recognizing already uh revenue on on the esterna we'll recognize it from quarter two onwards uh we have done quite a lot of work already beforehand in preparation so uh Particularly our suppliers, we have done a lot of the detailed work already. So very quickly onwards, we start being able to actually recognize revenue. And we just needed to sign the contract. We just needed to do that and then sign all the contracts with our subcontractors, major subcontractors and suppliers. And from then onwards, we could actually start. So that's what we have done already. And as I said, we'll start seeing that coming in in quarter two and we'll continue after that.

And then I'll swap up to the viewer question here, which is more granular. And I will just quote here. How come you recognize the account receivables where you got a payment in April, but you did not recognize the revenues in Q1? So for whatever account receivable that would be.

So we get paid on contracts by the head of contracts. So we build our we build our payment profiles to be cashflow positive. So of course, if we have a big project like Sterner coming in, we will actually receive down payments so that we can go and buy all the parts and all the components and all that. So, but there is usually a separate, there's an amount of time between signing a contract and actually getting all that sorted and being able to actually have the invoices and everything and contracts with our suppliers. So, and also receiving invoicing our customers. So there is always a certain separation there. In this case, in the specific case of Sterna, because the signing of the contract is towards the end of quarter one, any payments or any revenues that we can recognize will only start kicking in in April, by the simple reason that there is a certain amount of time between one event and the other events. The event that triggers payments and triggers contracts with customers or with subcontractors, there is some time between those. So it goes over a quarter. This is part of my reason why I say that judging us on quarters is always a difficult thing because we always have these events. If something happens towards the end of the quarter, it might mean that actually revenue recognition payments will move on to the next quarter.

Yeah, exactly. And the fact that it hasn't been recognized the first quarter doesn't necessarily mean it won't be recognized in the second quarter. Exactly. And if we look at the customer conversions or let's say the time it will take from initial discussion to customer conversion. conversion. Could you just elaborate and give us a feel in the market for the pace or timeline when you convert an idea to a customer? And bear in mind that there are different customers for different services, but there is one AAC Clyde space. So would you dare to comment on this one?

Of course. And you touched exactly the The hard point of this or the hard reality of these discussions is that we have very different customers. So if you look at one extreme, we've got EPS Sterna. So discussions on these started probably five, six years ago. You go through a demonstration phase with AWS. You then go through negotiations for the contract. So between idea and the contract, you are talking quite long times. On the satellites, we are usually seeing now between idea and the contract about a year. So between the first discussion with customers and actually a contract, we're seeing about nine months to 12 months. Some are being a bit quicker, but there has been an acceleration over the last year or so. So people are more interested, I think, particularly in Europe, With the new realities, geostrategic realities, we are seeing quite a lot of demand for faster pace on this. And then all the products we see there, between first discussion with the customer and actually having your contract, it can be as short as a couple months. So it depends very much on what you are dealing with. Contracts for data and services, that depends on the size of the contract. You can have a very quick thing, signature, if it is a small data supply. If, of course, you are talking about the multi-year, five-year secured supply, that can take about six months to a year of negotiations and discussions. It depends on the customer. Some customers need data very urgently, so they're able to put a contract, as I say, probably not even months, probably a few weeks if we've got the data available. So it's a very It's a very landscape when it comes to how long it takes to secure a customer.

And are you still licensing Avionics power supply to York Space Systems? A viewer question.

We sold the license, so we don't have any ongoing licensing agreements now with them, but we secured We saw licenses in the past, yes, but currently no, there are no licenses, active licenses.

And if we point of view to something else here, so far all eyes and talk have been about Sterna in Flexion and Vireon, but you have other projects and to me they seem to sound the same, Comcube and Comcat and so on. How important are those for us in the market?

So some of those are future problems with European Space Agency and with partners. So they are problems that are dependent on government financing, that will be dependent on decisions that will be taken at an European level between different governments. So they are important for us in the sense we want to do them. They are interesting projects. but we don't rely on them because they are large problems that might come in or not. There are others, and I believe the question might have been about CubeCat, that is about laser communication, so we currently have two of those terminals in orbit. We continue to work with, particularly in our Dutch operation, in our operation in the Netherlands, they are working on that technology, and we continue to have that It's a market, a market for products. It's quite a competitive market right now. So, as always, we look at the market and see where we can actually add value. But it's one of our products. It's one of our many products. And we always look at one. Some of them are very popular and we sell quite a lot. Others, not so much. So, we're always looking at that in terms of the market dynamic. and we adapt our decisions and our strategy for the future, depending on the market dynamic. So we will see where the market is going, and we will then make decisions on that. But right now, we are in a very fast-paced market in the space industry. Things are changing a lot. There is a lot of growth everywhere. So we are looking at which better directions to go and what will bring us better value when it comes to products in the future. So that's an activity we are doing right now.

So to us in the market, it will be focused on Sterna, Inflexion and Vireon and you will keep the other cards closer to your chest and we will see it when it's time.

We have, of course, other programs, other things. We are in discussions with customers. Some of them are quite important strategically for us. Others are quite important financially. So we are doing that, but those we'll announce when they come through and when they happen, we'll announce those.

And if we round off here with your revenue guidance, how much of your 2026 revenues would you say is already underpinned by backlog and contracted businesses?

I would say the large majority. I won't give you a specific number. It also depends on where you put us in that scale. It's a comfortable amount at this stage. I would say that... We are comfortable with that right now. It's a very different picture, for instance, to last year. Last year, because of the impact of things like Sterna, we were very far when we made our forecast around this time of year or our guidance. We're very far from having that on the backlog. This year, we are in a very different position. So I would say the large majority. I would give you a specific number, but the large majority is already on the books.

One can always try.

Yes.

All right. Thank you, Louis. Educational and interesting. And if there are any other questions out there, then feel free to contact the company. So, Louis, thank you so much.

Thank you, Carlo. As always, a pleasure. Thank you very much.

Thank you. And thank you. Tack så mycket till er som har tittat och speciellt ni som har ställt frågor både innan och under. Tack ska ni ha. Så ses vi när vi syns. Hej!