AAC Clyde Space AB

Hi and welcome to quarter reports with Investor Studios. Today with AAC Clyde Space. AAC Clyde Space released its second quarter report for 2026 this morning. Those of you who are watching live can interact and ask questions to the management in the chat. We will handle the questions after the presentation. If you do not have an answer, we refer you to AAC Clyde Space IR. Nice to see you again. How are things in Glasgow?

Good to see you, Carlo. It's actually a very nice day here in Glasgow.

For a change. Luis, last time we spoke, you guided for a very busy second quarter or a quarter ahead. And as far as press releases and figures are concerned, I would say that you've been proven right there. So please, take it away.

Thank you, thank you. It was indeed a very very busy quarter. We have decided it was a foundational quarter and if you see if we take a look at the presentation we have we have a slide on listing those. So so we have a not only we finished signing the the second part of the the Sterner contract and effectively the the old payload and avionics contract came into life during this quarter with with the work starting in earnest on all the parts of this contract. So it was a very busy quarter from that perspective. But also it's the quarter where we signed the next phase of inflection for the 12 satellites. This is when we really start the work to build the constellation, the work to actually start preparing all the services. So that's an extremely important milestone for us. And of course we have launched VIRION 1 and 2 back in March through their commissioning. We announced first light on VIRION 1. We are going through the process of focusing, calibrating that camera while we work on VIRION 2 also. And what we saw was growth on both business segments, both on the product submissions and on the data and services. And overall, what this has given us is a backlog that is approaching 1.2 billion sec. So a very busy quarter. And if we go on to the next slide, we can also see that it was a quarter where we achieved good numbers. We achieved good results. very much in line with what we were expecting. So we have growth, about 51% growth on net sales in relation to last year, the same quarter last year. We achieved a positive EBITDA of 2.7 million SEC. Again, quite a big growth in relation to last year. Importantly, it's another strong quarter in terms of EBITDA. we have a very positive operational cash flow, something that we would expect with the kind of contracts we've got right now. But it is something that we have been working towards for some time. And as I said, an order backlog approaching the 1.2 billion sec. It's very healthy. It means that a lot of our revenues are already in our order book. So that's actually a very good position to be in. If we go on to the next slide, We are now very much focusing on execution and expansion. So over the next few months, we will continue to see strong demand for our products and satellites. We are working with potential customers. We are working through our pipeline of opportunities right now. But a lot of our focus is now on expanding our data and services. So bringing VIRION 1 and 2 online, getting SEDN 3 and 4 through their build so that we can reinforce our maritime data intelligence gathering and we can start monetizing those satellites. And of course, focusing on the inflection program and growing our constellation on the maritime side with new services, not just tracking, but also communications and other associated services. We continue to do that, but as I said, we have strong demands and a lot of our focus now is actually on delivering products and missions to customers, governments and commercial customers. We continue to do that. We see strong demand for our products. So. If we go on to the next slide. We keep our full year guidance. As I said before, we this. Quarter two was in line with our expectations, so we keep our guidance of 440 million SEC to 510 million SEC in net sales for the year with an EBITDA of 10% and an operational, positive operational cash flow. So we continue to maintain that guidance. As I say, quarter two was aligned with our expectation, so we are very, very happy to maintain our guidance. And so this is in summary the quarter. I don't know if there are some questions now, but that's very much, it was a positive quarter for us.

So thank you for that short and snappy. And in summary here, if I can just recap the first slides where you're referring to six months being foundationals here, you're talking about two separate things that will be connected. So see if I got this right. Firstly, We have the Sterna orders strengthening the hardware side and proves that you're now operating on a much larger scale, which we can see that the figures here are delivering. And secondly, you have the launch of the Vireon and Progress inflections. So driving future data and service growth. So you have one part that is delivering and another part that will drive the growth. Would you, I mean, do you buy into my interpretation there? Absolutely.

So we very much have that bedrock of our business that is hardware, but we see quite a lot of opportunities on the growth of our data and services business to expand the company, to grow the company. So the first quarter, the first half of the year is very much an example of how we operate, building on our success as a hardware producer and then delivering on data and services as a growth engine for the future.

And would one or the other of those two developments be more important than the other?

I would say they are equally important in their different ways. So when you look at something like Sterna, it's a very large contract. It's technically challenging, but perfectly achievable. We have done a prototype before on the Arctic Weather Satellite. So we are very comfortable with the design and build of this constellation. So it's a big contract, but it is an important contract for Europe. It shows our ability in terms of hardware, our design, engineering, And then and that is something that we will continue to do is something that will continue for the future. As I said, it's very much the foundational of the company, the foundation of the company, the hardware capability, the engineering capability. But then we see huge potential on the growth of data and services. And that, of course, is an area we are investing. It's an area that we expect to grow. And in the long term, we expect those areas to be about 50-50 of our business. And so we are in that journey right now.

And I have some complimentary questions here regarding this from viewers here coming in. And Varian 2, is it doing well?

We're going through its commissioning. We have focused very much on Varian 1 at this stage because we want to start service. So we are putting more effort into that. Varian 2 is going through its commissioning, doing its tests as normal. So yes, but the focus has been on Varian 1 because we want to start revenue from those satellites on quarter three.

So more to come from Varian 2 then. And then we have another viewer questions here. For the product and mission revenue, how much of the revenue came from Sterna for the quarter?

A large amount. It was a big part of our revenue, but it was not the only one. But yes, it was. I couldn't tell you the immediate number off the top of my head, but it was an important part. And it will be the case for the next two years. Always be a big part of our revenue for products. because it is our biggest. It's our biggest contract. It is the dominant contract on our products business line.

Yeah, and I can see that we have some questions about SCAO here, but I'm coming to that a little bit later because I would like to stay on Varyon Satellite. When will Varyon start generating revenue following commission and how would investors think about the commercial ramp up for the first revenues to a more meaningful contribution? If you can elaborate a little bit of that and then we jump into South Africa.

So we expect revenues to start on quarter three. As I said, we're already capturing imagery. We're already doing some of the work in preparation for our customers. So we expect, as I said, Q3 to already start delivering some revenue. And then we expect a normal ramp up on a project. We have customers lined up. We have people wanting to take on contracts on the satellite. We expect what would be a normal ramp up on a data and services project. contract. We expect to be in full in full in full revenue for those satellites towards next year, so there will be a ramp up from here until then. So. It's it's it's difficult to go into that detail without without going through the detail on contracts and customers, but it's what I'd expect the normal approach for a satellite date and services satellite that we see also in our maritime site, for instance.

And if we go back to a press release from last week, I think if you could elaborate a little bit about the SCAO project, what is SCAO and what to expect going forward? And I have some detailed questions here, so we'll see how much you can answer here. But just in round things here, this is a large organization, as I understood.

Yeah, so SCOW stands for Square Kilometer Array Organization. So Square Kilometer Array is a telescope that basically sets several antennas in places in South Africa and Australia. We are working on the one in South Africa. So we provide one equipment, one part of that network of antennas. the receivers for a specific band. So the objective is to look at the universe and measure certain amounts of microwave radiation coming from different stars and different celestial bodies. It's a big international organization. So it's actually at quarter in the UK, but it's financed by many different countries. And as I say, the antennas, the telescopes are based in South Africa, the ones we are working on. And we are supplying the feeds for those. We're building them in Gothenburg. It is a project that has been running for quite some time. What we announced is that we shipped the first of those, the prototypes of those feeds to South Africa. But we are very much dependent on the timelines of that large international organization. So they have to build antennas, they have to expand their site in South Africa. So we have been working on that and we are very happy to have those Those feeds there, they are now being tested. We will have results later this year for those tests. But it just shows the progress that we have done. The design is pretty much done. We are now in a phase where we are just waiting for our customer to say, OK, start delivering these units. And we have quite a lot of those units to deliver. So it's a great start. It's great progress. But we are very much on the timelines of our customer on that.

And we have a more granular question here regarding it. So I'll just read it through. You recently delivered the first pre-production band one feed systems to the observatory as a part of the 12 million euro contract. How much revenue remains for the project? What can you say?

I would say that there is still substantial revenue on that program. We have done the design phase and the production of the first unit. So the bulk of the production is still to be done. So I would say I won't go into the detail of the numbers, but I would say that a large amount of the revenue is still to come.

and coming into the future here though a large European satellite programs like IRIS 2 are increasingly moving towards procurement so how well positioned would you say that AAC Clyde Space power and data handling products would be for larger LEO and MIO platforms?

I think it would be ideal but We will only do that work if it's actually profitable. What we have seen in many of these very large constellations and very large programs is that they are actually quite margins are usually expected to be quite low. They are usually very commercially aggressive. They also tend to attract lots of people, of course, lots of suppliers. So there is huge competition because they are seen as large programs. What depresses margins? And we have walked away in the past from one or two of these opportunities because when we get to the negotiation, the discussion with the customer, effectively they want us to do that at ridiculously low margins that would barely pay our costs. And if there are any problems, any issues on the design, we could actually lose money. So although the promise is good, the reality is that in some cases, this is just not what it seems. So we will, of course, we are in the discussions, we are talking to these potential customers, but we'll only actually do that if the business makes sense. It has to make sense. And in some cases in the past for these kind of things, we prefer to negotiate, for instance, a licensing license agreement with the customer. If they are going to build a lot of satellites, they might be more interested in doing these things themselves, the production themselves. So these are things that we are in discussion right now. But as I say, we are we are part of this conversation. We are talking with the different the different potential customers. And so we are in that phase. As I say, we'll only do it if it makes sense for us. I think we have a very strong product, actually probably the best for what they are looking for, but we'll have to see if the business makes sense.

So, coming away not having an order doesn't necessarily mean that... Well, it could mean that you will not suffer margins going forward.

Yeah. As I said, we have in the past, we have been approached for other constellations. We have been asked to bid. And technically, we, of course, offer a very compelling offer to the customers. But the kind of prices they are looking for, the kind of conditions even that they impose on us are such that it becomes, it's a risky business. And you can actually lose quite a lot of money. So in those cases, we walked away. We've got a few others that we are ongoing. on Iris Square. We've got a few other discussions ongoing on products for constellations of tens, probably not hundreds, but tens of satellites. But again, it has to make sense. It is something that it's very appealing because the number is very large, but a lot of revenue with the loss makes no sense. So that's what we are always looking for. Does it actually make sense for us to bid on this or to win these things? So that's always a discussion. We'll see what terms, what conditions we are offered and then we'll decide.

We have another question here regarding this quarter and the EPS Sterna projects. I think that you have partly already replied to on a previous question. The question is how much revenues during the quarter is related to the EPS Sterna project. Could I just add then and say, are you happy with the contribution so far in comparison with other revenue streams on the EPS Sterna project this quarter and so far?

Yes. So we are broadly on target on Sterna. So in general, yes, we are where we plan to be with Sterna and we expect that to continue. So yes, I'm happy with that.

And I'll tie in that to another question, which is easier perhaps to say than answer. And what is the full revenue potential for Orion One?

That would be giving too much information about our business plan. So I will not answer that one. But I would say that it makes economic sense. So of course, We only invest in it because we believe that it will actually make us quite good revenue and quite good profit.

And you are reiterating your full year guidance as you did in the previous quarter. And that's just to remind people 440 to 510 million SEK and a margin of 10%. So I will ask you more or less the same question as I did the previous quarter. What gives you the confidence in the guidance and what are the key things that you would like us to look for and that you need to happen in the second half?

So largely where we are is we are delivering on our plan. So second quarter was quite good. confidence that we're delivering as expected. The third quarter continues to deliver. So that's what is giving us the confidence on the guidance. And we expect to continue to deliver. We've got the backlog. We've got a strong backlog with most of the revenue already booked. It's not close to all, but a large part of the revenue is already on the books. So we have a few more More things to do throughout the year that we need to do, but we are pretty confident on where we are right now.

And would you be so bold so you could give us an expectations of revenue for 2027? It's a viewer question. Not yet.

Too early for that one.

And then I will come back here on products and customers here. How well positioned would you think that AAC Clyde Space would be for the UK Coastal Maritime ISR service procurement?

We are always well placed. It depends very much. Many of these things have a variety of different technologies that are required. So we can actually deliver part of those. together with others, together with other partners, we can deliver full solutions. So yeah, we would be placed to be a part of that, but we would have to see what exactly requirements we are being asked to do and in which parts it makes sense for us to invest in development or development of capability.

So it's a little bit of the iris two here. You are discussing and you think you're well positioned, but it takes two to tango here as well.

It depends. Most of these solutions are, first, if you look at inflection, that is already part of that type of technology. If you look at inflection, we have different partners in different parts of the system. So it depends very much if the requirements, if the demand on us, we can fulfill it all ourselves, if we need to work in partnership with someone. So it depends very much. These are discussions that are always happening. And in some cases we can lead, in some cases we can actually be a follower, can work with someone else. These are all part of life discussions. And until a contract is defined, it's something that we just have to continue talking and discussing.

And just as more or less a wrapping up question here, when you said you have to continue discussing, could you just give us a feel for the timeline from, let's say, initial discussion to actually signing on the dotted line? Are we talking six months, six years?

Depends. Depends very much on the type of contract, the type of customer. It can be very quick. It can be very long. So contracts like Sterna, as everyone knows, take a few years to actually happen from first discussion up until you've got a contract. It can take quite a long time. Other contracts with particularly commercial customers can be much quicker. I would say one year is a good is a good is a good average one to one and a half years between first discussion and a contract. So that's that's an average.

Yeah. Yeah. Of course. Of course.

But there are there are quite extreme cases, particularly if it involves government and governmental organizations. It's not unusual to have a two or three year timeline between the first contact and actually having something Black and white.

Yeah. On the other hand, it's a moral question. If it takes a long time to negotiate, particularly with the state, if you have it, then you know you have it and you know you have a solid customer who will actually pay the bills.

And that's why we do it. Because ultimately, that's why we actually like those contracts and we like to work with government. because ultimately they are a good customer and once we actually although the negotiations can take quite a long time as you point out usually you know very early on if you are the one that has been selected and then you just have to go through the process but those are good it's good business

Excellent. Thank you for that. And last time you predicted a very busy quarter. So could we expect a very busy coming quarter as well?

They're all busy. Very rarely we have a quarter that is not busy. If it's not new contracts delivering on the ones that we've got. So, yes. Thank you very much! Thank you.