AAC Clyde Space AB (publ) ($AAC)

[Foreign Language] Hello, Luis. How are things?

Hello. Good morning.

Good morning. How are things?

[indiscernible].

Excellent. Louis, walk us through the highlights and on back of this order from EUMETSAT, the conclusions for and implications for the shareholders and the market, it's a rather, let's say, astonishing information you just highlighted. So please go ahead.

Yes. And if we could start, we have a quick presentation to go through some slides. So just to say, we we have told markets that our shareholders and investors that we would come back with some effective forecasts for the year following our contract signing of the Sterna, the EPS-Sterna contract with OHP, [indiscernible] and so we are now updating our forecast for the year. So we are announcing that we will reach net sales between SEK 440 million and SEK 510 million for the year on an EBITDA of approximately 10% and doing positive -- having positive operational cash flow. And so this is the result of the work that we have been doing with the contract we have signed and we have been actually building up for these. So if we go on to the next slide, please. So our order backlog is what's really driving this update. It now stands at about SEK 1.1 billion or it stood at SEK 1.1 billion at the end of March. And the growth, this allows us to grow quite substantially over the rest of this year. So the big order that was turn again quite late in the quarter, but will now actually drive very much the growth of the company for the next few quarters. And at the same time, we have a very strong order pipeline. So our order pipeline has been growing, has been establishing itself. And so now we are working on continuing to convert those into further orders for the year. So on the back of that, we are very confident about hitting this forecast. It is something that is now based on a very strong order backlog. And particularly, we are seeing growth in products and missions through the Sterna order. And of course, we continue to grow our data and services part of the business. We are entering now in a phase of further investment in that area. So probably margins are not going to grow as much as we expect them to grow in the future. But nevertheless, we are building for the future. And if we go to the next slide. We can see exactly that we are now -- so we have launched VIREON 1 and 2. Those 2 satellites are now going through commissioning, preparing to start their service. But we are also building #3 and #4. So to complete that constellation of satellites, we are increasing our maritime services constellation. So we are building satellite 3 and 4 of the Sedna constellation. So to increase the amount of data we provide to the maritime sector. And of course, in that same area, we've got inflection. So that is our big program with the European Space Agency and the U.K. government to deliver a service for the maritime sector. So we are currently finalizing discussions and negotiations on Phase 2. So we complete Phase 1. And now we'll continue on developing that program. So again, we are investing heavily on our data and services future. But at the same time, we are doing very well on our product submissions with a very strong order backlog.

Thank you. Interesting. And I will kick off with a couple of questions here. We received questions ahead of this presentation after the press release, and I can see that people are active here on the chat as well. But I will kick off with a little cheeky variant of a question. You missed your guidance last year and had to revise it down. So what gives you confidence in this year's guidance? And if I just like to add to myself and control here, one of the reasons why you missed your guidance was this order that you now have -- that you now have. So could you walk us through the technicalities of the order and then come back to you why you have confidence in your -- this year's guidance?

So the current order, the very large EPS-Sterna order. We expected it last year. So this was something that we expected in December of 2025, but for reasons that are outside our control, the order was only received in March 2026. Now that has huge impact on our accounts, on our plans for the year. But this is always the risk we take when we make a forecast. We usually have to make a judgment. We have to take a decision on what to include or not include on those forecasts. Now at this time, we have the contracts. We are already working on it. We already have teams. We have subcontracts placed. Work is already happening. So we are much more sure, we are much more sure, we are much more confident that we can actually meet this forecast. There's always an amount of risk on any forecast you do. And sometimes, you have to take that risk. And we could have said nothing. And then if the orders come, I don't think people would be very happy with this. It is, guys, we we made the forecast, the order didn't come last year, but it did this year. Like we said to everyone, it was always a question of -- if it was a question of when. And we are now in that price of delivering this very important project for Europe.

And if I just understand it correctly here, the -- not if, but the when was actually to have someone in a political hierarchy to be signing off and there had to be some elections and stuff in between there, which is out of your control, I take it.

Yes. We don't control the politics. We don't control the government when you are working on governmental contracts that sometimes happens.

And what are the main drivers that could take you to the low versus the high end of the range is a viewer question here.

So as always, these are complex projects, not just this one, but all the projects we do. And there is always the opportunity or the risk costs and delays or subcontractors not delivering. We have that problem also last year, some subcontractors, some disagreement with the customer about some performance. All of those can cause delays. All of those can actually make us recognize less revenue. And that's why we give this range. There's always an opportunity for some risks. We have been cautious. We have been conservative in the way we have actually prepared this forecast. But nevertheless, we have always have to account for that. So our focus is very much on hitting the higher end of that forecast, surpass it, if we can. But we have to recognize, and to be fair and honest with our shareholders, we have to recognize there is always a risk. There's always a risk that certain things delays, in which case, we recognize less revenue. But we are pretty confident on the numbers that we have presented today.

And I think you touched upon growth and your strategy here of let's say, investing in future growth. But if you could just clarify, you guide for strong growth, but margins don't expand. So why doesn't higher revenue translate into higher profitability?

Well, percentage-wise, we have always said that the hardware business as a ceiling in terms of profitability. Where we see the growth in terms of profitability for the future in percentage is on the data and services. Now we are in the phase of investing in data and services. We are growing our constellation. We are growing our data sources. We are growing our internal processing change, all the infrastructure we need with salespeople, with distribution networks. So we are in that phase. And as such now we won't see the kind of growth in the margins that we expect in the future. When the satellites are online, when they start metering data, yes, we then expect to see an improvement of our margins. And as I said in the past, our target is by the end of this decade, to do basically half and half in terms of revenue between hardware and data, what then will improve our margins because data has better margins than hardware. But now we are in that ways of building that business. We are expanding. As you saw, we have several satellites in build now or in commissioning. And at the same time, as I said, we are preparing our infrastructure on the ground, our sales network, our processing and data distribution networks.

And if one look at this -- well, with this order on back of this question, how much of the growth is driven by project-based revenues versus your data businesses because you mentioned here is a higher margin in the data businesses.

Yes. So in terms of -- this year in terms of growth of margin or the absolute value, of course, hardware is going to be project-based will be dominant just because of the size of projects like Sterna. But data is growing. It will grow this year. It will expand. And so we see that trend continuing. But you'll see -- you'll see a real differentiation, a real improvement of margins in the next few years. This year is very much about building the data and services, and there is very -- it's still very dominated by the hardware part of the business.

And you're still focusing on growing the data service despite this mega order from products as I understand it. And it could be good to remind of you, your target on your business model, would that be 50-50 then? as [indiscernible]

In the future, we expect towards the end of this decade, beginning of next back to be delivering about 50-50 in terms of product emissions and data and services. That is a mixture that we think is pretty good for the company, not only allows us to be very profitable, but also allows us to still have a very strong presence in the hardware margins that we need to supply our data and services. That's what gives us that uniqueness is that we can do both. We can provide the instruments to generate to extract data and services. And we see a great opportunity, particularly with AI coming along to grow that side of the business. Data will become an extremely important commodity. So those that can generate good data, timely data, good quality data, we will always have an advantage, and that's where we are positioning ourselves.

And although we said we were just discussing the press release and the terms, I can just have a couple of questions here on other items. So in terms of commissioning from VIREON, where are you now?

So the satellites are stable. We are now in the phase of going through the check-ups of all the equipment. We are starting to actually prepare to get imagery. So that's the next big target. As we said, it takes a few months to do all of these properly. And to make sure they have to be put in the right orbit, we have to do all of that. So we are going through that phase, but we are working very hard on that. We're in through the [indiscernible] software, making sure that everything is fine, and we don't want to risk satellites in any way, fashion or way. So this is going through that phase now.

And EPS-Sterna, how much and what can you say when it comes to potential or the largest risks on that?

As I said, the largest risk on the project of this size are always there are technical risks and usually with our suppliers, something that doesn't go according to plan, something that doesn't work. We expect that to be small because this, of course, there has been a prototype for Sterna called AWS, [indiscernible], satellite. It's working five. We learned a lot of lessons on that one. Those have been fed into all our discussions, our subcontractors, our internal teams. So we are pretty confident that we have removed most of those risks. But there's always a possibility that something doesn't work or something is delayed. So that's where we are managing. So that's why we manage internally and externally quite closely. We're very close to our suppliers. We are very close to our own teams. We make sure that everything is on target and on plan. But the risk is always that something unexpected happens. But we are pretty confident that we have removed most of those, but there is always that risk.

And care to give us any comments regarding the cash flow for the EPS-Sterna project, is a viewer question here as well.

As always, we work on our projects, we try very hard and actually is an internal rule to always have positive cash flow on projects. This is no different. We can't always do that 100% of the time, but the objective is always to be cash flow positive on a project -- any project that we do, except for development projects, of course, but commercial projects, we always expect to be cash flow positive throughout.

And you touched upon one thing there, which one could connect to the cash flow here. So given the fact that you now have an order that you more or less -- well, thought was in the bag and it was in the bag a year ago, but it wasn't signed then. How -- if you could guide the market, would you like the market to let's say, not focus so much on quarterly results? Or are you changing the company going into the data sector, so quarterly will be, let's say, a better way to view it than it has been before.

So I've always said that quarterly is a difficult time period -- quarterly is a different time period in our business. Projects are quite long. They are quite lumpy. So measuring by quarter is always difficult. There is always a risk that something moves on to the next quarter. It's quite a common occurrence, so that does have an impact. So we have never been very keen on the quarterly time line, but that's where we are. That's what we have to do. We have to report on a quarterly basis. Going forward, and if you look at data, yes, data provides you more recurring, renewable recurring late revenue a more stable baseline -- it's made up usually data contracts are made up of several much more smaller contracts. What provides you much more stability in terms of the revenue stream; large contracts, large, particularly harder contracts like the one we signed with the EPS-Sterna will always be lumpy. You're always going to have a you have to wait. And then when you get you get a phenomenally large number for your backlog. So -- so this is always going to happen to some extent, but what we are trying is to build. With our data and services business, we are trying to build a more stable baseline -- financial baseline that allows us to actually have a more constant revenue stream. And then, of course, at the same time, in parallel, work with our hardware business and continue to actually take on these big contracts. It will happen. But then when you've got this baseline that is more constant, it's more stable.

And I have a viewer question here. You say -- and also you said that on the slide here that growth is weighted towards the remainder of the year. And then the question is, should we expect a weak first half and a stronger second half? And in my humble opinion, what you just presented, is fairly strong first half. So what can we -- what can you say about the second half?

Yes. Well, I will not steal the thunder of the first quarter report. But effectively, what we have is that the contract like Sterna coming right at the end of March, we are going to see most of its effect throughout the rest of the year. So I would expect that over the following quarters, we will see that impact. We'll see that effect on the company accounts. And it's not just that. We have a very strong pipeline right now. So I expect other things to join that improving our finances throughout the year. So yes, I would say that the second half of the year will be better than the first half, but not to say that we won't see the effects now -- starting now. So yes, the second part of this year or the rest of this year is going to be better. We see that growth starting to appear.

And that is a good segue to our viewer questions here. We have 1 who's asking about [indiscernible] and Starbucks systems, what are the chances of selling these for EPS-Sterna and well, my question here is, are you able to answer that? Or shall we have to wait for the quarterly on the 13th of May.

So you have to wait for any confirmation. But of course, Starbucks considers our part of the Sterna design. They have been part of the AWS. So yes, we expect, at some point, that those that those systems will be contracted and will be part of the Sterna contract. So that is part of the plan. But currently, we are still in discussions with the brand contractor of that.

And the final question here is the value of the VIREON contract, when will that be communicated. So shall we hold our rest to the 13th or continue to wait? Or are you able to give us an update now?

I'm not so sure about what the question is. The value of the VIREON contract. It's a development. It's an internal development. We have contracts on it. We will have -- but it's not something that we put the value to the constellation. So I'm not exactly sure what -- the question is.

Yes. Maybe it's just a complete value to put some of the part of the share. But basically, next news flow would be -- from you would be on the 13th of May. Or shall we expect a couple of other interesting press releases from you before that?

I will not take away the suspense of that. I will let it -- maybe something happens, maybe something or not, but we'll see. But there is, as I said, we have a strong pipeline, many things on the plan that we are working on. So there's always a possibility that something comes too. But we will see.

But basically watch this space and the next news flow that is scheduled would be the 13th of May, and that's the quarter here, right?

Exactly. Exactly.

Well, Luis, an absolute pleasure. Thank you. educational. And if anyone has any more questions, we will refer them to the Head of IR [indiscernible]. So with that, thank you, Luis. And thank you to all the viewers, particularly those who have engaged in questions ahead of the broadcast and during the broadcast. See you next time.