Avio S.p.A. (AVIO) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Avio First Half 2026 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Nevio Quattrin, Head of Investor Relations. Please go ahead, sir.

Good afternoon, everyone, and welcome to first half 2026 Results Conference Call of Avio. I'm with Mr. Giulio Ranzo, Chief Executive Officer of Avio; and Mr. Roberto Carassai, Chief Financial Officer. In a moment, we will go through the presentation we just uploaded a few minutes ago on our website. And in the end, as usual, we will welcome any questions you may have. At this time, I turn the conference to Giulio. Please go ahead.

Thank you, Nevio, and good afternoon to you all or good morning. Very glad to report to you the first half of 2026. Nevio, can you jump to Page 4? So we start with the highlights, and then our CFO, Roberto, will follow with some more financial details. So if we are on Page 4. So in essence, the first half of 2026 demonstrated again a sustained and solid double-digit growth in revenues and profits. So very consistent across the last few years, as I will point out to you in a few minutes. So in this first half, we accomplished the 29th flight of Vega with a successful performance for the very first time with Avio as the launch service operator, which is a very relevant incremental responsibility we have. As you know, this was handed from Arianespace to Avio at the occasion of the last flight. Everything went extremely well. Now we are getting ready for the next flight on Monday night and we will launch a couple of satellites for the European Commission and for the European Space Agency. In this first half also, we successfully flew the new version of the first stage of Vega-C, Ariane 6, the P160 boosters, which flew on Ariane on an Amazon flight with 4 boosters and a 4 booster configuration. So that's very important because it will fuel the rate at which we will now incrementally manufacture these boosters for Ariane. By the way, I am in Paris at the moment. Arianespace just announced yesterday that they will launch additional 6 flights for the Amazon constellation. So there will be many more P160 boosters to be manufactured, and we can only be happy about that. Also one very important milestone in this first half is that we accomplished the full integration of our liquid propulsion prototype rocket that will be ground tested in 2026 and then successfully flown in the course of 2027. So that's a very important milestone with a radically new technology that will populate the future of our next-generation rockets. In the meantime, we're making progress on our U.S. project to establish a manufacturing plant in the U.S., as you know. Along this path, we have completed the hiring of our C-level organization, our new CFO with an operating Officer, Chief of Engineering and so on. So the organization is shaping up. And in the meantime, in the first half, we also had purchased land, as you may remember, a few months ago. And then we have continued with our design for the plant. And now we are breaking ground at the end of the month with the actual beginning of works to erect the new plant. Also in the first 6 months, we have raised additional EUR 110 million from private equity fund. Advent, as you know, in a further capital increase that will further support the expansion of Avio both in Italy, but in particular, in the U.S. So in aggregate, we have now raised over EUR 500 million in the course of the last 9 months or so. So that's very important. It's a lot of firepower available for our growth plans. So in aggregate, we continue to deliver double-digit growth. I mean, I would say, 20% growth consistently now across the last 4 years. And this is, I think, the emphasis that I would like to draw your attention to because it's not so obvious that you continue to grow at 20% every year, 4 years in a row, and that seems to be the pace that we are now consolidating. As a consequence of that, we are, of course, confirming guidance for the end of 2026. I mean, of course, a number of uncertainties, as one can imagine, given the geopolitical challenges that we're all going through, but at the same time, also some better-than-expected performances that we're also consolidating at the moment. Moving to Page 5. As I said before, the last Vega flight was a success. You can see from this page, it was the first to have a big Avio logo on it, saying because it means it marked the flight in which we fully operate the flight. And therefore, we take charge also of the flight worthiness responsibility vis-a-vis the French institutions. We carried out a fantastic flight for the European Space Agency delivering SMILE, a very interesting scientific satellite. And the satellite was perfectly put in orbit with great satisfaction of the customer. So it couldn't be any better, quite frankly, to demonstrate the full stretch of our capabilities all the way to flight operations. Now on Page 6, in the first 6 months, as I said before, we also had the first flight of the P160 booster on Ariane 6. This was a success that I'm particularly proud of because I remember when we invented this solution together with Ariane in order to help, in particular, Amazon launch more satellites in a single flight. We made it happen. So it's a longer booster compared to P120 with about 16 tons more propellant. So we are quite happy about that. It performed extremely well, as you can see also from the picture. So in particular, I believe that Amazon was happy enough that it led Amazon a few weeks or months later to now sign up for another 6 launches with Ariane. So we are very happy about that because that will likely push the production rate of P160 faster and probably beyond what we had expected to be the rate of 35 boosters a year. We will probably, with the support of the European Space Agency, go somewhat beyond that level in order to increase the flight frequency of Ariane and at the same time, also the flight frequency of Vega. So on Page 7, as a matter of fact, we are marching towards the end of 2026 with what looks like we're probably going to have 7 to 8 launches of Ariane and 3 launches of Vega. We could have done more this year, but one satellite was somewhat late, but we are scheduled to have a launch next Monday and then another one at the very beginning of December and more to come, of course, at the beginning of 2027. Lots of different projects, as I said, in Ariane, this core customer at Amazon, but also Galileo and some other core European institutional satellites. And similarly, in -- for Vega, we are now launching for the European Commission and the European Space Agency. But in December, we will launch the first batch of the Italian Earth Observation constellation IRIDE. So that's a very interesting integration of a proprietary earth observation constellation. There will be more flights for the same constellation. So a very active dynamic market demand -- growing demand for both Ariane and Vega. And this will drive both of us to simultaneously grow the maximum cadence of Vega and Ariane in the few years to come. Switching gears on Page 8 on research and development. We had reported to you that we were developing an entirely new rocket concept, leveraging liquid oxygen methane as a technology using our MR10 engine. And this is what the new flight demonstrator looks like. This is a prototype rocket that will be capable to launch with this technology and lots of new technologies, especially in the avionics Bay. This will be completely new, much more software-based. So let's say, we are experimenting here a whole number of technologies that will represent what we will have in next-generation rockets. What is interesting about this is that it is a prototype that we'll be able to launch to space and also come back from space, the main stage will have a controlled reentry. You can see from the pictures, the so-called grid fins that will enable the first stage to also have a controlled reentry. So lots of opportunity to learn. We're quite happy to have reached this important milestone. Now we will proceed towards the end of the year to ground test this without flying yet, collect a lot of data, maybe fly next year. So very, very important milestone. On Page 9, some updates on the defense market. The defense market continues to provide us with new orders every now and then, lots of orders from MBDA for the European Aster 30. We received in June another EUR 35 million worth of orders, probably more orders to come in the rest of the year in response to the growing demand for missile defense. Given the geopolitical instability and the huge consumption of these products that we experienced in the course of the last 3 to 4 years. So as you can see, the orders are coming every now and then. It's very difficult for us to predict when they come. But we -- as I reported to you, we know that more is coming for sure, not only from European customers, but also from U.S. customers. Then on Page 10, let's review a little bit where we are on the execution of our Avio U.S. strategy project, where we are essentially on track. As I reported, we acquired some 1,200 acres worth of industrial land in Virginia earlier this year. We then signed up for all of the orders with the companies to develop the infrastructure in the U.S. We also agreed with the Commonwealth of Virginia for an incentive package that may be as big as $97 million to support basically the establishment in this part of the country. And as I said, we also broadened our team with the CFO, Chief Operating Officer, VP Engineering and EVP Business Development. So based on this C-suite, we will then develop the other ranks. We have a whole pipeline of people we want to hire, and we will leverage the Commonwealth of Virginia funds to also recruit the rest of the team and train them over the next few months and years. So there's a very robust plan to basically grow capacity not only by growing the assets, but also growing the human capital that we will need to succeed. And the Commonwealth of Virginia, starting from the governor down, they have a fantastic team to support us to make this happen. And I think it's a piece of good news. In parallel, we are working long-term commitments from customers, while we are deploying capital, of course, to the process equipment. The long lead items have been ordered and some of them are under negotiation, but most of the long lead items have already been ordered with the main suppliers. So the detailed design of the plant is being finished up. In the meantime, we will kick off with the groundbreaking ceremony and start the main works to develop essentially the land and therefore, shape up for the new infrastructure. So on Page 11, there's also one important point with respect to about a year ago. A year ago, we presented to you our business plan. And while presenting our business plan, we explained to you that the solid rocket motor unmet demand, meaning the part of the demand that the supply is unable to deliver against was already quite big. Well, about a year later, we realized that this gap has further widened by another 40%. So basically, the gap between total demand in terms of the tons of propellant required per year for the next few years appears to be even further from what the supply capacity is today and for the foreseeable future until 2030. So no doubt that the demand over the last -- the next few years will grow. Still in the next few years, even if we put in place new capacity, the other competitors put in place new capacity, the consumption of these products is so fast that the gap will continue to grow, which means that the demand will surely be there and will exceed what we had put in our business plan, okay? Now we have come up with a plant design that will enable potentially growing the size of the plant if we need to. Now we have to see how this demand actually turns into contracts and commitment from customers. So we will have to go through the flow down from the government customers to the primes to the suppliers like us. But all I want to signal to you is that there is definitely more demand than we had anticipated a year ago. Moving to Page 12. Given that the demand is growing so fast, we figured we would be better off collecting more cash to be able to invest more quickly. And so we embarked on an agreement with private equity fund, Advent to invest another EUR 110 million to support a faster expansion. So Advent agreed to invest to acquire nearly 7% of Avio's share capital at a price of EUR 33.40, which, by the way, is higher than current market price and higher than the market price at which we executed the first capital increase, as you may recall, a few months back. So we're very happy to have a very credible partner in the U.S. Advent has actually done a number of deals in U.S. defense companies with the names like big names like Maxar and others. These deals ended up being successful. They have grown these companies. Many of these companies were non-U.S. They turned into successful -- more successful U.S. companies, larger. Some of them were sold to U.S. primes like Ultra Maritime to Lockheed very recently. So we think Advent is a very dynamic financial partner who can help us a great deal accelerate the pace of growth, accelerating our ability to reach out for relationships in the U.S. and also for additional capital should we need additional capital in the future. So we count on them being a very good add-on into our cap table. Last point on my pitch on Page 13. I want to go back to the story of solid double-digit growth. Now a lot of times companies talk about growth prospects for the future. They set out charts showing how big a hockey stick chart you can have for the future. I mean, look at this chart, this is the last 4 years, what we delivered, okay? We delivered double-digit growth in terms of revenues and EBITDA, both, okay? That's not easy. That's not easy to accomplish because it means you can certainly capture orders from customers, you can follow demand, but then turning that into actual delivery of stuff, it's not that easy. And the fact that 4 years down the road, we are consolidating a consistent double-digit growth base of 20% is absolutely non-trivial, okay? Now what's happening is that our EBITDA reported looks small compared to revenues. Why is that? Because a portion of that revenues we anticipated to you, a portion of that profit as we anticipated to you a year ago, we are reinvesting in the U.S. and growing the team and growing the capabilities and so on. So if we reach now nearly something north of EUR 40 million worth of EBITDA reported, then a portion of that as much as probably EUR 8 million, let's say, 20% of that EBITDA is reinvested in the meantime in growing the U.S. capabilities until these new capabilities will generate profits by themselves pretty much by the end of 2028, beginning of '29. And at that point, they will start to be cash generative for Avio as well. So that's pretty much our recipe for value growth that we have committed to all of you, shareholders. And therefore, we plan on continuing like this for the future. Now I will hand it to Roberto Carassai to deliver to you the financial side of the presentation.

Thank you, Giulio. Good afternoon to everybody. Okay. I think we can move on Slide 15, so we can comment a bit on the backlog. And as you can see, we are still having a huge backlog, more than EUR 2 billion even in June despite the very significant revenue growth that we have experienced even in the first half this year. And we have booked EUR 160 million in the period, 2/3 of them coming from the Defense as and 1/3 coming from the Launch System. It has to be noted that we have also booked a quite significant order for EUR 60 million at the beginning of July coming from the Launch System business unit. Just to say that this backlog could have been even higher if the booking of the order would have happened a few days before. And in terms of composition of the backlog, you can appreciate that the Defense business is above 30%, 33% and it keeps growing also the contribution coming from the production contract that now have achieved 70% overall. If we move to the next slide, here, we can comment a bit more the revenue profile. As Giulio was saying, we keep growing at double-digit pace, 18% more than last year, achieving almost EUR 280 million in the first half. And this growth compared to last year has been generated by all the 3 segments, clearly largely by the Launch System business segment, but also Space Propulsion and Defense have contributed in a quite significant manner. The Launch System is the result of the growing in accordance with the flight manifest. The Space Propulsion is increasing because we are increasing the production cadence for P120 and P160. The defense business is growing because we are increasing the production on the 2 major projects, Aster and CAMM, but also we are starting the execution of the U.S. contract. In terms of the composition, even on the revenue side, you can appreciate that the production contract are now contributing for almost 70% of the total revenue. Moving to the next slides, you can appreciate the overall picture of the profit and loss results. Overall, we can say that along all the lines, we are doing better than last year. Obviously, we have already commented the growth on the revenue side that has driven the growth at EBITDA reported. The EBITDA achieved a number of EUR 12 million compared to EUR 10 million last year. As Giulio was highlighting before, please note that Avio S.p.A. Europe has generated almost EUR 15 million of EBITDA in the period with operating costs coming from the U.S.A. company for almost EUR 3 million. In terms of EBIT reported, despite a slight increase on the depreciation cost, we have been able to generate a positive result of EUR 1.2 million. Last year was 0. And in terms of net income, actually, we have generated a very significant result, positive result, EUR 9 million plus. This is the result the consequence of the good operating performance, but also from the good financial income that we have generated on the average cash holdings that we have on our account in the range of EUR 5 million. And then we have also benefited from a fair value adjustment on a minority participation. Moving in the next slide on the net financial position. We are going exactly in the direction that we were expecting at the beginning of the year. We were -- obviously, we clearly explained that we would have a cash disbursement over the course of 2026, mostly related to the CapEx that we are going to incur both in Italy, but also in the U.S. for the project, the special project. Therefore, here, you can say that we have had, let's say, a reduction of the net financial position of almost EUR 60 million in the first half. Nonetheless, we are still having EUR 535 million positive net financial position. The other main driver of the reduction of the cash absorption in the period is related to the working capital side. As you may recall, we have booked a significant amount of advance payment at the end of last year, and now we are progressing releasing part of it to our subcontractors and let's say, end suppliers. If we can move on the next slide, here, we are commenting a bit the balance sheet. We have actually a bit covered already. So you can see an increase in the working capital that I remind to everybody is structurally negative for our company. And also, you can appreciate that there has been an increase on the fixed asset due to the CapEx that we have incurred in the period. And we have already commented the negative variation on the net financial position. Then in this slide, you can appreciate the quarterly evolution at EBITDA level. You can appreciate that same as in the first quarter, in the second quarter, we have been able to exceed last year results. We are on track for the year-end. You know that there is a bit of seasonality in our results. You are familiar with Avio and you know that most of the results are basically achieved during the last fourth quarter. In terms of net financial position, we are -- we have -- let's say, we have already commented that we have at the end of June, EUR 535 million in our bank accounts. Please, I need to remind you that in the second half, namely in the third quarter, we will cash in EUR 110 million coming from the capital injections -- Advent capital injection. And in the second half of the year, we keep, let's say, incurring CapEx, namely in the U.S., but not only. So for sure, we will have cash disbursement related to this topic as well to be taken into account. Moving to the last slide. Here, we can say that based on the first half results, we are able to confirm the year-end guidance. Thank you very much for your attention.

Thank you, Giulio. Thank you, Roberto. I think we can open up the Q&A session.

[Operator Instructions] The first question comes from Walter Guagnano with Aurelia. Mr. Guagnano, we can see you, but not hear you. Maybe you are muted. I'll put you back in queue and we will try to understand why we cannot hear you. The next question comes from Martino De Ambroggi with Equita.

My first question is on the cash-in coming from Advent. If I understand correctly and considering that you already covered with the financial resources, the need for CapEx. The use for this cash could be maybe the priority additional CapEx for more capacity or maybe M&A, although not shortly, but just to understand how this cash -- this additional cash will be used. The second question is on the MBDA orders. I clearly understand this is not the first time you mentioned that it's difficult to predict when they will come. Number one, could you quantify the soft backlog that you have in mind considering all the contracts that MBDA recently or maybe not so recently signed? And if you can explain us why the process is so long. So maybe this question should be asked MBDA, but just to have an idea. And the third question is on maybe for the long shot. So Isar tested the first launch for the spectrum. It will take time before becoming a real serial producer of spectrum and so on. But do you see this could become an issue in terms of price pressure in the future or the bottleneck is so strong that there won't be any effect?

Let me start from this last question since I'm in Paris, and I was sitting next to the CEO of Isar yesterday and also next to the European Commissioner, Andrius. So yes, it will take some time for them to ramp up to higher launch frequencies. Isar has highlighted that they're very happy about the first flight, but one thing is flying once they said their words and one thing is establishing a regular pace of flights. So I think great congratulations to them for this achievement. And as we all know, it takes years to ramp up to a regular service. And by the way, we -- they are far from having a performance of the rocket comparable, nearly comparable to that of Vega C. So it's a different type of service for small satellites for the time being. That said, we were together also with the European Commissioner. The European Commissioner explained that in the next multi -- multiyear financial framework, they have for Space and Defense a budget that is about 6x for Space and Defense, what it used to be in the previous multiyear financial framework. So the ability to do space projects is greatly improved on the public side of the demand, which is a lot of our demand because, as we know, Vega is fueled largely by government customers. Therefore, I think there will be demand for everyone. Still, even if we have more providers, we will struggle to fulfill such demand because it appears to be way more than we had anticipated. The same story we keep hearing from the European Space Agency. And the last Ministerial conference has improved their budget going forward. So therefore, also the European Space Agency satellites will be many more than we had anticipated. So in essence, I think there will be space for everyone. Now the story of the MBDA orders is simple is we are a supplier, right? So MBDA makes some announcements. They have signed up for something in yet another country. Every week, they announce something like that. That is a deal they achieve at the level of the system. Then as you know, for Aster 30, they have us as the source supplier. So there is no doubt that a portion of order will come to us. The problem is that we need to go through the contracting process to get from announcements to real contracts takes time because they need to convert that into an agreement with us on a price, on a volume, certain conditions, timing, planning, et cetera, which takes sometimes weeks, if not months, to agree. So I don't have a picture of soft order backlog we can share with you. We can try to put something together. We have traditionally been pushing back on publishing soft orders. Otherwise, we would easily get to billions and billions worth of soft orders. Then people will ask how soft is that, how hard? It's very difficult, quite frankly, not that we don't want to share, but we will try to put some -- as much visibility as we can transparently in place for you. But all we can signal to you vis-a-vis the outlook we had provided and the guidance we had provided that there is more than we had anticipated for sure, and it's materially more. Now the cash from Advent will be used for sure to fuel more capacity, in particular, to accelerate possibly the pace at which we put this capacity in place. And some of it may be for M&A. In fact, we haven't closed with Advent even yet. We will likely close soon. We have recently received all necessary regulatory clearances for us to close. So as soon as we are -- Advent is legitimately part of our team, we will work with them to see, for example, you're right, absolutely, if we can do some M&A. And if this M&A -- a private equity fund is their job, right? It's what they do is they buy company. So they can definitely help us, in particular, as I always said, to fine-tune our degree of vertical integration in a way that will support faster ramp-up against our production deadlines.

Okay. And no issue for the building of the new U.S. plant in terms of availability of raw mats going ahead and so on. So this is not an issue for you.

No. So far, there is no blocking point from that point of view, but the supply chain is a science in itself. It's not a single raw material, you need to make sure that all your suppliers deliver on time and on quality, and that's an enormous challenge, I have to tell you. In fact, for the space part, we want to put in place a special task force together with ESA to make sure that we push the whole supply chain to move at another pace. In certain cases, we will need to think about vertically integrating, so doing it ourselves because maybe we have a better degree of control on the pace of the ramp-up. So it's a tremendous effort. And the same holds true for defense. The defense industry was not ready for such a ramp-up. So yes, the big primes get lots of orders, but you can only go as fast as the slowest of your suppliers. So what we need to do is work in partnership with these suppliers, invest in these suppliers. If they cannot make it, then we should try to do it ourselves. It's a tremendous undertaking that we are working on and also maybe some of the cash we gathered from Advent could be deployed against this task of securing supply chain, pace and readiness for the years to come.

Okay. And if the cash of Advent is used to accelerate the capacity deployment, could it mean that you could start production before second half '28?