Ovzon AB (publ)

Hello and welcome to today's webcast with Ovzon, where CEO Per Nuren and CFO Victor Bremer will present a report for the second quarter of 2024. After the presentation, there will be a Q&A, so if you're calling in and want to ask a question, please press star 9 to raise your hand and then star 6 to unmute when you're given the word. If you want to type in a question, you can use the form to the right. And with that said, I hand over the word to you, Per.

Thank you so much Ludvig. Good afternoon, good morning and warmly welcome and thank you for joining us today on OBSON's earnings call for the second quarter of 2024. I'm here in the room to my right with our CFO Viktor Gremer. The first half and especially the second quarter of 2024 has been very busy and exciting for OBSON. As you know, we successfully launched OPSON 3 on January 3rd. And after a five-month journey, the satellite arrived at its dedicated orbital position at 59.7 East in June this year. After comprehensive and successful in-orbit testing, the satellite was ready for commercial service on July 5th. That's definitely an historical milestone that obviously will have a huge impact on our company going forward. During the first half here, the OPSON team has performed numerous activities, including both product and service launches, as well as sales pursuits and commercial dialogues with current and potential customers around the benefits of OPSON 3. We'll for sure get into more details in a few minutes, but before that, and as always, let me provide a short introduction to OPSON. OBSON is a leading provider of the most advanced, integrated and unique satellite communication, spearheading the progressive development in the industry and have the most sophisticated mobile satellite communication solutions in the world. We're committed to constantly developing and introducing relevant solutions, technologies and applications to our customers. We continue to be fully dedicated to our vision and mantra of connecting the world's critical missions via satellite. Orson was established in Sweden in 2006 and has been traded on Nasdaq Stockholm since 2018. Initially, the company concentrated its efforts on the most compact and high-performing mobile satellite terminals in the industry. Today, it's very different. We have expanded our offerings to be the only turnkey provider of SATCOM as a service, the industry's leading premium solution, offering unparalleled levels of connected mobile and resilient performance. This position has definitely been strengthened as our own first proprietary satellite OBSON3 is now operational with all the benefits that means for our customers. Speaking about customers, we work closely with customers, partners, distributors, and end users across the United States, Sweden, Europe, and currently also South America. We have invested over 2 billion Swedish kronor in our new revolutionizing technology programs over the past three years, resulting in cutting edge next generation platforms that will be rolled out to customers during 2024 and onwards. A little bit about the relevance of satellite communications. Satellite communications has always been available for decades, but in recent years, the demand for and the investments in advanced satellite communications have accelerated. There are several structured drivers behind the increased demand, as fixed communication and mobile networks lack some of the important features that only satellites can offer. First of all, the very concerning geopolitical tension in the world continues to escalate. Nations, alliances and organizations are therefore accelerating their investments in total defense, national security and public safety. Countries with little to no satellite infrastructure are now shaping plans to create more space-based systems that allows for more autonomy and independence. In case of conflicts or natural disasters, guaranteed communication with 100% uptime is crucial on land, at sea, or in the air. Secondly, secure and resilient communication is becoming a very important requirement in all parts of society, especially for our customer groups. Cyber violence is becoming more advanced and strongly protected systems and networks, and more resilient communications infrastructure is a must. When land and mobile-based communications are down or cannot be relied upon, satellite communication will provide the access to communication instantly. The third driver is simply digitization. Instant decision-making and operational efficiency in all types of organizations is driven by improved digital processes and quick access to data and information. We expect to be online always and everywhere. AI and cloud computing accelerates the pace of digitization even more. Satellite communication is therefore the last mile and it's becoming an integral part of an integrated communication infrastructure and it's the pillar in that communication landscape either used as backup to complement the normal infrastructure or mobile networks or to replace fixed and mobile telecom networks. Finally, on climate change, fixed and mobile networks are vulnerable and they also lack some important features that only satellite communications can offer. With the changes in weather patterns and increased flooding, storms and wildfires, satellite communication is in many cases the only answer to quickly execute rescue missions in saving life and preserving nature. What is unique about OBSON is that we deliver a solution where we manage and control the entire value chain for guaranteed performance. In the first half of 24, I'm proud to share that we've performed at 100% uptime of our networks and services for our customers who have very high demands and requirements. This is definitely a critical success factor for OBSON in the premium segment. Before OPSON 3 was in commercial service and we're talking to this picture, we based all of our solutions on leased satellite capacity. This has obviously changed overnight with OPSON 3 operational and OPSON is now both a satellite operator and a service provider controlling and managing our own satellite capacity and complementing that with leased capacity. This picture shows that we deliver SATCOM as a service with immediate connectivity from, if you look, from one, the smallest and lightest and most high-performing mobile satellite terminals, to managing two high-performing agile and stealable satellite networks. And now our service is based on both our own networks on OSON 3, as well as leased capacity. This is very strategic and very exciting to us. We partner with selected few secure gateway providers in number three, where we implement our own hardware and secure racks to manage our service delivery. And in four, we manage all of that through our dedicated 24-7 support from our various network operation centers to ensure that any potential anomalies are resolved in real time. Our customers expect 100% uptime and that we are predictive and progressive as a guaranteed connectivity solutions provider. Here's a more graphical description of where we are positioned today and where we've moved in the competitive solutions landscape with mobility on the x-axis and performance on the y-axis. Built-in is the ability to deliver an integrated solution that has built-in resiliency. The three components, performance, mobility, and resiliency, are what set different service providers apart, often operate in the most advanced solutions landscape, and we are thereby in the critical missions, meaning the premium segment of the market. Our next generation technology based on the OpsOn3 platform has moved us even further up the value ladder. The OpsOn3 platform will lift guaranteed satellite communication and customer experience to totally new levels. Now, let us briefly run through the highlights of the second quarter of 2024 in chronological order. As you know, we launched our satellite OPSON 3 in Florida from Cape Canaveral on January 3rd, 2024. Since then, in parallel with monitoring a safe and steady journey for OPSON 3, we have conducted numerous preparational activities to be operationally ready when the satellite was ready for service. This has included intense focus on customers in key markets, ensuring they understand and can take full advantage of the benefits of the unique capabilities that OPSON 3 offers. We launched two new SATCOM as a service offering based on OPSON 3. We named them OPSON Pegasus and OPSON Orion. We also launched two new mobile satellite terminals, the OPSON P20 and the OPSON P30. They are on the move terminals for land, maritime and airborne applications. And the Oxon T7 on the post mobile satellite terminal is now in serial production and was delivered on time to the first customer, the United States Department of Defense. In terms of orders, we received renewals for SATCOM as a service from both the Spanish police as well the British Department of Defense. In June, OPSON 3 arrived as a designated position in space. We concluded comprehensive and successful in-orbit tests and on July 5th, OPSON 3 entered into commercial service. The first user and use case for OPSON 3 was a close collaboration with the French government regarding secure and guaranteed connectivity for the summer games in Paris. Earlier this week, we also announced our first large order on OPSON 3 from our long-term customer, the US DOD, or United States Department of Defense. We also shared that we delivered an initial limited order through Swedish Space Corporation, also using OPSON 3. I'll walk you through some of these events in more detail on the following slides. Let me provide some additional information about the important preparations made in Q2 ahead of the commercial start of OpsOn3. To deliver on our value proposition and for our customers to fully take advantage of the benefits and the unique capabilities that OpsOn3 offers, we have significantly expanded both our service and mobile satellite terminal portfolios. These new additions is a result of working very closely with our customers. The new SATCOM as a service offerings based on OPSON 3, both of them are designed to meet the customer's demands for the best combination of performance, mobility and resiliency. The new solutions are, as I said, named OPSON Pegasus and OPSON Orion. OPSON Pegasus is our most powerful scalable beam service with an enormous flexibility. and for the most demanding customers. And also Narine is for those customers that are operating in very contested or near peer environments. We also launched two new mobile satellite terminals, as mentioned, OPSON P20 and OPSON P30. They are the smallest and most advanced on the moon terminals for land, maritime and airborne applications. Moreover, OPSON T7 are on the POS terminal that we launched during 2023, is now in serial production and was delivered to the US DoD on time and are used now by them. As previously mentioned, we initiated the first and highly relevant collaboration for AUSON 3 in June for the Summer Games in Paris. To be honest, we couldn't have wished for a more advanced, determined and real-time first user case of the AUSON 3 capabilities. The ongoing collaboration is with the French government organization Groupe d'Intervention de la Gendarmerie Nationale, who's been using the service to meet its advanced secure connectivity demands during the Olympics in Paris. The results have been excellent and the feedback from the customer has been excellent. OPSON 3 arrived, as we said, in its dedicated position after a five-month journey of orbital racing. This was followed by very comprehensive tests and successful in-orbit tests and ground system implementation. The performance and the capacity is fully achieved, or in fact, it exceeds the requirements that we designed this satellite for. So on July 5th in 2024, OPSON 3 was, according to plan, ready for commercial service, which was an extraordinary moment for our company and our company's history. The satellite covers a third of Earth via its six high-power steerable spot beams and is equipped with our patented solution and the unique software-defined capabilities in the OPSON onboard processor. As a quick summary of what makes OPSON 3 unique compared to other geostationary satellite is that it's purpose-built to support the smallest mobile satellite terminals on ground, it has an all steerable antenna architecture, it's industry leading in transmit and receive performance and the OPSON onboard processor is enabling single hop communication between ultra compact terminals. Earlier this week, we received our first large SATCOM as a service order on OPSON 3 for our newly launched OPSON Pegasus service. This was very, very important. Just to reflect for a second over that, we put OPSON 3 in service on July 5th. The French organization used it during the Olympics, and only three weeks thereafter, we had our first large contract on the satellite. This order came from a long-term customer, the US Department of Defense, through the distributor Viasat Government Services. Delivery started immediately and the contract length is 12 months with an order value of approximately 6.2 million US dollars. For those of you who follow us closely, remember that we received an order from the US DoD in December 2023 for eight months. That ended on July 31st this year. That order, when received, was re-scoped compared to previous year and mostly explained by a complex political and fiscal situation and budget situation in the U.S., resulting in new budget considerations and processes. Now, with this new contract in hand, we have strengthened our foothold and will continue to add value to the U.S. DoD with the OPSON 3-based SATCOM as a service and the new OPSON T7 terminal. Yesterday, we also shared that we received a smaller limited order for Oxon 3 from Swedish-based corporation. The service was delivered within 24 hours of being requested. And I will only note this, within 24 hours, we can move a steerable beam and be fully in service with the best capabilities in the industry, which is quite remarkable. That is a true kind of evidence of mobility as well. I would say this order relates to a different end customer than the order received from the Swedish-based corporation in December 2023. We are now more than ever committed to providing Sweden, the US and other nations and progressive governments and organizations with unmatched guaranteed communication via satellites. Now, let's move over to what most of you are probably interested in, even though I think it's important to understand the context of the company, where we've been, the great achievements in the first half of the year and where we're heading before we look at the numbers we put that in perspective. But let's move to the financial part of this presentation and begin with our order intake. 2024 has started in a very positive way. While our market activities have been intense and focused, it's a fact that some customers have awaited the commercial start of Oxon 3 and our next generation of SatCom as a service, and they cannot test or acquire a service that is not in operational use. The largest order in the second quarter was a renewal of 12 months service contract from the UK MoD through our new partner Babcock International, a very large aerospace company This renewal is important as it solidifies our installed base in Europe. We also received a renewal for delivery to a Spanish customer within the civil defence sector. Consequently, the 12-month rolling order intake at the end of the quarter amounted to 30 million US dollars, translated to 380 million Swedish kronor, indicating a better order momentum than what we previously had. Looking at the order book, it was at 13.2 million US dollars at the end of the quarter, including orders received in August. It is now obviously higher than that. Our shift in focus to customers in the defense, national security and public safety market has proven to be the right move. It has and can lead to larger contracts, But it's also a reminder that government procurement and evaluation processes are somewhat complex and time-consuming. I would now like to hand over to Victor Bremer to provide some more detailed information on our profit and loss. Over to you, Victor.

Thank you, Per. I will now give you some details on the financial performance for the second quarter. The revenue of 67 million SEK in the second quarter is split between Osun Satcom as a service of 57 million SEK and Osun Terminals of 10 million SEK. We can see that the decrease in the revenue from Osun Satcom as a service between the second quarter 2023 and 2024 is compensated by increased revenue from OPSON terminals, although not fully. Important to note is that we in the second quarter actually improved the revenue from OPSON Satcom as a service from the last two quarters due to the new orders that we received in Q4 2023 and Q1 2024. When we are looking on the run rate for OPSON Satcom as a service, we are breaking the negative trend from the last two quarters and the run rate is up to 230 million SEK. Next slide, please. EBITDA of minus 12 million SEK in the second quarter is the second best EBITDA the last seven quarters. This is an improvement from the second quarter 2023, and we have reduced the EBITDA loss with almost half. The improvement is mainly a result of high utilization of leased capacity in combination with revenue from sale of OPSOM terminals. Ebitda margin improves from minus 31% in the second quarter 2023 to minus 17% in the second quarter 2024. EBIT and EBIT margin follow the same trend as EBITDA and EBITDA margin since we managed to keep depreciations and amortizations on a stable level due to the low level of activated investments. As we communicated in the report, part of the Osson 3 will gradually be activated as a fixed asset in the coming six months and depreciations will therefore increase going forward. Cash flow from operations improved in the second quarter compared to the same period last year as well as to the first quarter this year. For the first six months, we are also in total positive on cash flow from operations with 5 million SEK. cash flow from investments are mainly related to the finalizing of also three and the majority part of over the 49 million sec in the quarter relates to capitalized interest and financial expenses as we communicated in the report the interest expenses and financial expenses will from the third quarter affect the financial expenses in the income statement due to the fact that also three will be activated as a fixed asset and start to be depreciated Net debt increases from the first quarter, which is mainly a consequence of net negative cash flow for the period. Over to you, Per.