Electro Optic Systems Holdings Limited (EOS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. So thanks for joining this presentation focused on our space program. My name is Glen Tindall. So you may have seen in a recent announcement that EOS has taken the decision to merge from 3 divisions down to 2. The logic behind it is that our Space Systems division and Communications Systems division had a lot of commonality and can [ work ] in 1 division. The side bonus out of that is that Professor Craig Smith is now moving to our Group CTO role. We will be able to direct all of our programs, research programs. So today, we're going to focus very much on SpaceLink. We've been talking about this program for quite some time. And although, of course, we know a lot about it internally, we really needed to get to the stage we're sharing it with our investors. So we've taken the opportunity to bring the senior leadership team from SpaceLink along, and they're going to give you a presentation of what is SpaceLink, why is it a good thing, and we invite you to attend Q&A afterwards. So over to you, Dave.

Thank you, Glen. My name is David Bettinger. I am the CEO of SpaceLink. SpaceLink is a wholly-owned subsidiary of EOS out of Australia. We are based in the United States and are staffed with U.S. persons at this point. What SpaceLink is, is we are building a communications superhighway for the space economy. What you'll find, and I think you've probably all seen the news recently, you really can't go about every day or 2 without seeing a new interest article about what's going on in space and some of the missions that are happening there. And we're poised quite well to be able to drive growth and be able to serve the new space economy that's developing. What's happening in space today is even though there is a large amount of investment going into space and a large number of missions, thousands of satellites are being deployed. What you'll find is that actually, from a connectivity standpoint, the missions that are in space are still stuck with what's very much akin to the old dial-up days of internet access as opposed to broadband access, which the rest of the world has moved on to. And so what SpaceLink is here to do is we are actually building a space communication superhighway to be able to serve the connectivity better for these missions. We feel like we're very much uniquely positioned to capture this growing market. We have secured all of the international rights to the spectrum that we will be utilizing. We've architected the system that leapfrogs the current capabilities of what others are doing today, and we'll maintain a road map that is well ahead of our competition. We have acquired the intellectual property rights of a number of companies, including a lot of investment that's being done by our parent company, Electro Optic Systems, and being able to do RF, hybrid optical communications. And lastly, we've assembled a world-class team that is well poised to execute on our mission. What I'm showing here today is -- on this slide here is our senior executive management team. What you'll find is that this team here has well over 225 combined years of experience in the satellite communications industry. We come from a number of companies that are large aerospace and defense corporations like Hughes, Maxar and Space Systems Loral as well as a number of us come from -- have experience coming from smaller companies that we've grown from start-ups into very large companies, including Aireon, [ iDirect ], and most recently for myself, OneWeb. This team is by far the most seasoned executive team that I've had the pleasure of working with in my 31 years in satellite communications, and we are very, very well fortunate and poised to be able to execute on our mission with this team. Behind this team, we have a company of only 30 people at this point through our 1-year existence. We'll be growing that to well over 100 people in the coming years to be able to execute on our mission. The team that we have in place with the 30 members all come from the aerospace industry. Most of these are individuals that we've worked with in the past. And together, we have over 500 years of combined experience. So we're very well seasoned to be able to execute on this mission. So let's take a look, first of all, what's going on in space. What is driving the massive influx of investment and really the rapid expansion of the number of satellites that are going into low earth orbit? Low earth orbit is the region of space that is closest to earth. It's from about 350 kilometers altitude out to about 2,000 kilometers altitude. What's driving a lot of growth is the fact that companies like SpaceX are out there driving down the cost of launching mass into space. So with the lowering launch costs and other factors like Moore's Law, which I'm sure you've heard of that tends to make electronics more power-efficient and smaller, all of which you've seen the effects of on your cellphones and other devices. These are the same factors that are driving the size of satellites down to be a much smaller manageable size, all with higher electronics capabilities. And now they're all very much costing less to be able to launch into space. So what we're seeing is a massive increase in the number of satellites and the number of missions. And then space as a whole is growing from last year, well over $350 billion total addressable market to over $1 trillion in the next coming 10 to 15 years. On the right-hand side, you can see some of the companies that we will be serving with our system. These are companies that are either commercial companies launching sensor satellites into space that are taking visible pictures. I think you've all seen Google Earth and the effects of being able to take aerial and satellite photography. There's also others that are taking synthetic aperture radar images, hyperspectral images, all sorts of different capabilities that are being launched in this space, all which provide a growing market for the need of having connectivity and space. You'll also see a number of government systems, such as the Space Development Agency out of the United States, which is launching their own set of sensor satellites as well as other missions that we'll cover in the other markets, for instance, coming out of NASA. So with this massive growth in space, the problem, as I've mentioned before, that basically, it's still a dial-up world out there. The constellation and the satellites that are being launched into low earth orbit, they have a problem. The ideal place for them to be is in low earth orbit. They want to have their cameras and their sensors as close to the face of the earth as they can. However, when they're that close to the face of the earth at lower altitudes, they are only able to see a small swath of land beneath them at any given time. And the way they're communicating today is they are waiting until they pass over a ground station, which is effectively a tracking parabolic antenna that you've all seen in the movies in other areas. These are the RF systems that are serving the low earth orbit today. And for the majority of time, these satellites are out of connection. They're not able to get new tasking information, which tells them where to go take important pictures, and they're not able to download the data that they've done until they happen across over a ground station, which typically happens about once every 90-minute orbit. Secondarily, all of these systems are utilizing RF frequencies to communicate to the ground. The International Telecommunication Union, or the ITU, has set aside a very limited number of frequencies or satellites to talk from space to ground. And all of these satellites are utilizing the same RF spectrum on all of their ground sites and all of their satellites. Therefore, it's getting quite crowded. Quite often, satellites are passing over ground station and not able to communicate because that resource is being utilized by a different satellite at any given time. And then for the government and defense and intelligence applications, sovereign countries such as Australia and the United States are very concerned about the cybersecurity of their data. They want to make sure nobody has tampered with it, and they also want to make sure their adversaries can't tell where that data -- what data is actually being collected. Therefore, they would much prefer to have their data landing at ground stations that are in-country within the sovereign boundaries of a particular country. Today, that's not possible. Almost all of the satellites that are sensing up there today are delivering their data to locations such as Norway. Svalbard, Norway is a popular location, which is near the north pole because of the orbits, they tend to want to communicate to their ground stations in places that are near the poles. So all of these are challenges to what the systems that are using this data are experiencing today. But we have a solution. SpaceLink is launching a constellation initially of 4 satellites that will be placed into medium earth orbit, which is at 14,000 kilometers, which is above all of the satellites that we are serving. And what that allows us to do is to be able to provide continuous connectivity from those sensing satellites and other missions back through our satellite, we are a data relay service. So the customer satellites always have one of our satellites in view no matter what altitude or what orbit that they are in. And of course, our satellites are always in view with one of our secure ground stations that are placed initially in the United States and then ultimately, in Australia. Secondarily, we are providing connectivity utilizing high-speed optical links. These are laser communications technologies that are highly used in fiber optic for the internet backbone today. They are now becoming more popular to be able to be utilized in space, what we call free space optics. These systems run typically 2 orders of magnitude or 100x faster than traditional RF frequencies. Therefore, the satellites and the data that are connecting to our system, we'll be able to transmit their data much faster. And then lastly, we will always be able to get that data from one of our MEO satellites, SpaceLink MEO satellites, to another SpaceLink MEO satellite that is over the secure downlink location, again, initially in the United States. That means that we can always land the traffic in the United States or in Australia or the country that is desired by the customer, which will always maintain the security and integrity of that data. On this slide here, what I'd like to do is to show you an example of a customer satellite. And what happens today, how they're accessing the ground network and how often that they're out of connectivity. On the left-hand side, you'll see an animation on the bottom. Neil, if you can start that. On the circle, you'll see a satellite with a round dot -- I'm sorry, an orbit with a round dot, which is the low earth orbit customer satellite, typically an imagery satellite. Whenever it turns green, which it stopped turning green a little while ago, that's when it was connecting and downloading its data to the ground. As you can see, for the majority of its orbits, it is out of range of that particular ground station until the earth rotates and comes back around underneath the orbit. And then suddenly, you'll start to see it being able to connect again. You can place ground stations at other locations in the world. But quite simply, you cannot serve all of the space from the ground simply because most of the earth is connected -- or I'm sorry, most of the earth is covered with water. And secondarily, not many locations have ground stations that are connected to fiber to be able to serve this market. On the right-hand side, what you'll see is an animation of SpaceLink's 4 satellites in the circular MEO orbit in blue. They are in an equatorial orbit, which means they are rotating around the earth's equator. And the same customer satellite is shown in the green dots that is passing around the passing around the face of the earth. And you can see that there's always a line connecting that satellite to one of our SpaceLink satellites, and we either directly land that traffic to the ground station in Southwest California or we pass it to another SpaceLink satellite that lands that traffic at that gateway. Always being able to provide, always in view connectivity, high-speed and always landing at that particular ground station of choice. A little bit about the system architecture, what it takes to actually put up and what we are building. First, I talked about the satellites. We will initially have 4 satellites in medium earth orbit. That makes up our constellation, those 4 satellites. Those are relay communication nodes. Secondarily, we will have a ground segment, which is a number of large gateway antennas that we will be locating in the United States and in Australia. And then ultimately, places like Europe and other locations where we have customers. The user terminal segment, these are the devices that will be placed on our customers' satellites that will allow them to talk to our satellites over an optical link. They're called optical inter-satellite link terminals, or OISL terminals, and they are readily available on the market today, and we are utilizing a number of vendors that are providing that, all with an open interface standard. And lastly, we have some software applications, which are the network and control playing -- or the network and control segment of our system, which are secure cloud-based applications that are taking care of the management and control of our complete network as well as scheduling the customers' access to our satellites. All of this makes up the SpaceLink system architecture. Okay. What we are pleased to announce in the last couple of weeks is that we have gone through a -- we finished our system architecture design back in February of this year. We went out to the -- a number of satellite manufacturers over the past 6 months and provided a request for information and then ultimately, a request for proposal phase. And we have selected the manufacturer of our first 4 satellites, that is a company called OHB. We've provided a contract to them back in late September and early October, that represents a very significant milestone for us. We are utilizing their standard satellites that is their satellite bus that has been utilized on all 34 of the Galileo GPS-style satellites that are in Europe. Those are very close to the same orbit as our satellite. And therefore, we have a lot of proven heritage with that particular satellite manufacturer that we've chosen. They have a lot of experience in the same radiation environments that we will be in. What we've done is we've actually contracted with a set of payload equipment providers that are providing the optical inter-satellite links that will be on our MEO satellites. As well as the RF payload as well as the digital processing, the onboard processing capability, effectively an ethernet switch in the sky. So it's a very exciting technology on our satellites, but it's all very much of [ standard ] heritage. And then having OHB as a key partner on our system has shown that they were willing to be able to sign up to our performance needs, our technical capabilities with an on-time delivery schedule of the end of Q1 2024, in which we will launch them in Q2 of 2024, all for a firm fixed-price contract that will control the capital expenses that we have for our initial program. Neil, next. This slide here is showing some of the critical assets that I mentioned before, which is our spectrum. As anyone can attest in the telecommunications world, having radio frequency spectrum that is assigned to you and you're able to utilize in the countries -- or in multiple countries that you're operating in is critical to doing business. You're simply not allowed to transmit or receive on frequencies in which you do not have a license to be able to operate. SpaceLink has secured all of the RF spectrum, well over 21 gigahertz of spectrum of capacity, which is unheard of in any satellite company that I've known of in the past 31 years. We've actually achieved quite a bit more real estate, spectrum real estate, for our utilization. We are utilizing that initially for our SpaceLink relay satellites to talk to the ground network. We'll be utilizing Q/V band spectrum, which is somewhere in the 37 to 51 gigahertz range, which provides us 40 gigabits of capability from space to ground. We also have a legacy RF shown in the dotted blue that we can talk to existing satellites that are up there today that are utilizing a set of frequencies that have been in use until we move them over to the optical communications, and we are utilizing, as shown in the green lines, optical or basically infrared laser connectivity, not only between our MEO satellites -- we have a 40 gigabit ring between our satellites, also between our satellites and our customers LEO client satellites. All of this provides a very critical aspect of the system that we are building. And we are fully licensed by the ITU and the SEC to be able to utilize these frequencies. Okay. Here's just a summary slide of some of the key differentiators that we feel are very critical to keeping SpaceLink at the forefront of the market that we intend to serve. I just talked about on the upper left-hand side, the spectrum license that we have access to, the patented technology that we've acquired from a couple of different companies as well as the heavy investments that EOS, our parent company, has made into the ability to give utilized laser light between ground and space for the past 35 years, actually. We've built our system on a future-proof business case. Mainly, we're utilizing serving existing customers with RF and then moving towards the future of optical communications. And again, just like the fiber optic world on the ground that is now completely running our internet backbone globally, we will see the same type of efficiency gains, both in cost and higher speeds happen in our space laser terminals that we have seen on the ground. And then, of course, the team that we've been fortunate to be able to bring together that is well positioned to execute on this program. Okay. And here's a quick look at how we stack up against the competition. And again, we list the competition as any system that is able to communicate data between the satellites that are in low earth orbit and all the way to the ground. And there's a number of existing systems that are in use today. Of course, we're measuring ourselves based on the 4 characteristics on the left, which is the ability to provide that coverage, no matter on demand or continuously no matter where that LEO satellite is, even if it's on the other side of the world. Secondly, the ability to land that data in the country of choice. Thirdly, the ability to serve a very large number of satellites simultaneously. And fourthly, the ability to view this with high-speed optic connectivity, which is much faster and much lower power in size than the RF communications around. In the first column, of course, you'll see that SpaceLink stacks up very well in all of these characteristics, we are building an ideal data relay system for the market that we're serving. Doing it from ground is how it's done today, primarily in the second column. And you can see that they are not able to land in the countries of their choice. They are not able to communicate optically, and they have a limited characteristic capability of serving LEOs only when they happen to be crossing over the locations that they are. On the other 2 sides, you'll see established commercial space providers. These are existing space providers like Intelsat, SES, Telesat. They operate primarily geosynchronous satellites, which are even further out around the equator. And they have limited capability in being able to serve the LEO satellites that we will be serving with our system. On the government systems side, there are actually a couple of key government systems in play today. The first one was the -- I'm sorry, the tracking and data relay satellite system that NASA started investing in and putting up into space back in the mid-80s. They have decided, and they've been operating that continuously, investing billions of dollars into that system. None of that system today is -- will be as capable as what we are providing with our system. And as a matter of fact, the U.S. Congress has instructed NASA to move away from having their own TDRSS system, and they are now looking to do all of their NASA communications with commercial systems, very much like what SpaceLink offers, and we are -- feel very fortunate that we're well positioned to be able to provide services to NASA ultimately for the missions that Tony will talk about in a little bit. And then, of course, there will be some new entrants that we see in this market. We feel like we are very much well ahead of them, positioned with a position of strength, and we'll be able to maintain our lead beyond that. Next, I'll have our Chief Commercial Officer and Chief Strategy Officer, Tony Colucci, talk more about the market.

Thank you, Dave. Good morning, everyone. We plan to address the highest value elements of the market. As Dave has described, it's very large. And we're focusing on the commercial service providers to government as well as direct to government segments. The reason these are high-value is the end user, in most cases, are various government agencies. And there's a very high need to get the data quickly and in high volume, and we're uniquely able to do that. The result there is that our customers, our commercial customers, such as Black Sky or Kepler or ICEYE, are able to charge a much higher price for the data they deliver to the end user. And that obviously enables them to make a much more efficient and profitable use of the assets that they have in space. So it's a very beneficial chain, both from us through our commercial customers and on to direct -- to the end -- to government end users as well as directly to the government users. An interesting aspect of that value chain is that when one customer signs up to use our service, he gains a competitive advantage against the other -- his competitors, and those are other customers for us. So when the first guy moves and gains that advantage, then the others -- there's a domino effect and the others want to jump in behind and be on a level field for their marketplace. So it's a very strong effect that we're seeing quite directly. Neil, we can go to the next chart. So again, we mentioned we're after the high value segments on the commercial side: earth observation, human space flight, on-orbit servicing, these are the market segments that need immediate download of data. They need high volume and they need continuous connectivity. A very large segment, we see over $10 billion through the end of this decade. And then, of course, a key -- couple of key government segments, which are similar, also the remote sensing earth observation for the intelligence community and various defense agencies as well as directly for defense in terms of UAVs and other missions that have an immediate need for data that can come back either to the home base in the U.S. or the country of origin, or in some cases, data needs to flow directly back down into the theater. And we're uniquely able to provide those 2 services. Next chart, please. So a very strong tailwind. We're seeing a strong growth in the market demand. And in fact, each time we look at it and understand the various segments, we see more and more growth. The key aspects that we've mentioned of throughput, real-time delivery and being able to serve any and all assets in low earth orbit are key. We see a strong market in defense and government alone in excess of $6 billion. And when we talk about the commercial to government, as we mentioned previously, we're seeing over $10 billion in value there. Neil, go to the next one. Thank you. So currently, our pipeline exceeds 200 opportunities with a value of over USD 1.7 billion per annum. This is unweighted and unrisked. Out of those, we're currently focused on the top, approximately, one quarter. They represent over $190 million risk-weighted. So this means we've assessed those opportunities in terms of the likelihood that they will proceed, in terms of the likelihood that we'll be able to capture the business, the amount of that business we'll be able to capture. And so when you apply those factors, we're well in excess of $190 million annually there. We have, this week, signed our first important contract with CASIS, the Center for the Advancement of Science in Space. CASIS is the international space station laboratory manager for the U.S. government, for NASA. We have a contract now with them to demonstrate our service with the space station as a user, and we'll provide a 10-gigabit per second link from the space station down to the ground. Once that demonstration is over, we'll transition that terminal into paying use where the users of the space station will pay us to bring data from their experiments down to the ground. We're also working on a direct NASA contract. We expect to be awarded towards the end of the year, perhaps the beginning of next year. We see a very strong position there. We expect to be 1 of 3 or 4 companies that are awarded contracts to do demonstrations for the services that will replace TDRSS, which Dave mentioned earlier. And then after the demonstration phase, there will be a service phase, and we'll be very well positioned to win a substantial amount of business from that ongoing service phase. We have a good pipeline of MOUs, over a dozen signed today. We'll be converting those. We're in process on converting those into service contracts one by one, and that process is moving well. And as I mentioned, once the first customer signs, the next 3 come banging at the door because they don't want to be left behind. Customer interest is very strong across all segments. And in fact, as we get more and more exposure, it's a snowball effect, and the customer interest continues growing quite rapidly.

Thank you, Tony. Alan? I'd like to introduce Alan Khalili, our Chief Financial Officer. He'll be able to cover a couple of the economic slides.

Thank you, Dave. So the total funding requirement is estimated to be around $700 million. As Dave mentioned, OHB has been selected as the manufacturer. We -- there's a 30-month build period to meet and actually have some cushion to meet the June 2024 bring-into-use deadline. The constellation is expected to be launched in and be operational in 2024 with positive cash flow in 2024. And part of the elegance of the constellation's architecture is as we expand the constellation and essentially double capacity into, let's say, a Block 2, the cost of expansion is significantly less of the funding of Block 1. Satellite life is expected to be about 12 years, the design life is 12 years before decommissioning. And based off of the, like I said, the scalability of the constellation and the revenue opportunities that I think Tony kind of touched on, the projected IRR is approximately 3 -- excess of 35%. And one last point is, obviously, when we're thinking about that IRR, it's always about optimizing the capital structure just to get the best return possible. Next slide, please. So here, you can see the financials. Starting at $77 million once we're operational in 2024, which is [ shown here ] growing to $590 million in 2026. What this doesn't show, as I mentioned earlier, is that there's a Block 2, which is forecasted to be in 2028; and Block 3, essentially Block 2 doubling capacity; and then Block 3, once again, doubling capacity again with additional 4 satellites in 2030, which is -- what you see when EBITDA margins starting in the high 40s and going up to the high 70s by 2026, which is common in commercial satellite communication ventures. We can go to the next slide.

Thank you, Alan. So in terms of the SpaceLink funding strategy, the total requirement of $700 million, we anticipate being met to about $300 million and possibly more of debt or project finance. So we're looking for a total of around $400 million equity. And we're going to break that up into tranches in order to maximize the value capture for EOS shareholders. So the first tranche of financing, we are working on currently. OHB has indicated their intention to invest USD 25 million as the cornerstone for that round. And discussions are underway with other cornerstones, and we expect to complete this financing in the relatively short term. The financing has taken the form of a SpaceLink issued pre-IPO note. It's going to have an 18-month maturity, 0 coupon and convertible into SpaceLink shares at a 20% discount to the IPO price. Importantly, that is subject to a valuation cap for these pre-IPO investors of USD 500 million. So that has been agreed with OHB and the other cornerstones, and I think it's a very strong endorsement of the proposition that SpaceLink is offering the market. There are some -- it is also redeemable in cash or EOS shares in certain circumstances, including if we do not achieve an IPO with a 25% return. For the remaining funding requirement, SpaceLink will be looking at a variety of additional sources. A listing in -- probably in the U.S., but a major exchange via either an IPO or potentially, a SPAC transaction is obviously one of the key options available to us, and we have discussions underway currently. We are also having continuing discussions with private equity terms and the debt/project finance process we have kicked off. That will obviously be subject to Tony and his team locking in those customer offtake agreements. That should start in the coming months. And as those customer agreements get locked in, we will be able to put debt against those. I'll hand back to Dave now to wrap up.

Okay. Thank you, Neil. This is just an indication of kind of the 3 major phases of our program, which started in Q1 of this year. So we're currently in the design phase. And now that we've selected our satellite vendor, next we'll be selecting our ground segment vendor in the coming weeks, actually. That will move us from the design phase into the build phase in which our satellites are being built. Our ground segment is being constructed. We were locating our antennas at different locations on the ground and then ultimately leading up to the third phase, which is a commencement of operations in mid 2024. During this current phase, as Neil mentioned, we're quite focused on a couple of different things. One was to secure the program schedule. The long-lead item in our program versus the satellites themselves. So having them under contract, that has reduced any risk on that side of it. So we're well on track. And now the ground segment will proceed. We're providing and procuring design user terminals or user terminals that are available today. We're procuring those, and we'll have special incentives for early customers, early adopters, being able to provide those to our customers over the next year. And then, of course, that will lead to generating the commercial momentum where we turn a lot of this interest into take-or-pay contracts with fixed service agreements along these customers. So we're well on track to be able to bring our program to fruition in 2024 and continue to grow it over the decades to come from there. Thank you.

Great. Thank you, Dave and team. That was excellent. And now we'll have some Q&A, and we'll kick off quickly.

So the first question comes from [ Vincent Pisani ]. Dave, how will you adjust customer user terminals to your technology if they are already floating in the low earth orbit?

Yes. And that's a very good question. Missions that are in low earth orbit typically have a 3- to 5-year lifetime for those missions. And so what we're finding is all of our customers actually have technology refresh plans over the next couple of years, and they will continue to do so as they introduce new satellites that are with better capabilities. Therefore, we have multiple opportunities to be able to get the optical user terminal designed onto their satellites before we actually launch our system. So that works out well. For satellites that are already up there today that happen to be utilizing the TDRSS Ka-band frequencies, we can serve those satellites directly with no modification to those satellites. But again, given the limited lifetime of LEO missions of 3 to 5 years, we will have plenty of time to get our user terminals onto their satellites over the next 3 years.

Great. Thank you. A question from [ John Hobson ]. Initially with only one U.S. operations center, doesn't this limit download capabilities to 25% of the 4-satellite capability?

Yes, John, you're correct. By only having one satellite utilizing the gateway connectivity at any given time, that does not represent the full capability of the full constellation. However, what we are doing is we are trying to match our capital expenditures, therefore, the ground segment deployment to match the customer base and the take-up of service that we have, and we will be able to stay well ahead of that curve. And so as we extend from our initial -- actually, we'll have 2 regions initially, we'll have Southwest California and Hawaii. And then the third region will be probably about the time that we launch our satellites, we'll be coming up online in Australia, and then we can continue to grow capacity from there. But again, that's purposeful to be able to match our CapEx expenditures with customer [ takeup ].

Great. [ Julian Lokay ] asks, can you explain why other companies aren't also developing MEO?

What we are finding, MEO is not a highly utilized orbit. Typically, you have the sensor satellites that are close to the earth in low earth orbit. And then you have the larger geosynchronous satellites that are what you're used to for TV broadcast and other applications. MEO has typically only been used for GPS and related style -- related type of systems like GPS in internationals. There has been some movements to have some telecommunication satellites in medium earth orbit. However, we are the first data relay system. And we will not be the only ones, I'm sure, as time goes on. But for us, it provides a very big advantage. We are not easily jammed, especially since we're using optical frequencies, and we're not easily spied on by adversaries since we are constantly moving in our own orbit around. So actually, we wanted to minimize the amount of latency that we can provide from the LEO customers to us back to the ground to a matter of a couple of hundred milliseconds, and that can't be done from geosynchronous. I expect to see others. We're not quite sure why we're the first ones to put a data relay system. But to be fair, we're actually the first system commercially that will be dedicated to data relay services. So I think that explains a couple of the reasons.

Great. A question maybe for Glenn. How much support is EOS SpaceLink receiving from the Australian government for this capability?

Yes. The Australian government has been super supportive, the Australian Space Agency. I mean this is the single largest commercial satellite program being run out of Australia. So the Space Agency has been very supportive. Also, if you look at going on in the Australian defense forces, there is -- there are several major programs underway relating to satellite communication, space domain awareness and earth observation. So we are very actively involved in discussions with all levels of government throughout the various government departments. So yes, I mean, it's a great time to be doing this from Australia. We are really -- EOS has been put a lot of time in on the back end of this doing fundamental research, and we're now at the stage of fruition, where it's all coming together in just the right time.

Great. A question for Tony, how many customers are likely to be converted to contracts by the end of this year? And I'll add, by the end of Q1 next year? And will there be regular updates of progress on customer conversion?

Sure, Neil. We are at an advanced stage of discussion with our first commercial customer who is a key customer and industry leader, and it has a very good timing for insertion of our technology into the build of their next-generation LEO satellites. So our anticipation is we'll close that one before the end of the year, and we've taken the objective of doing 2 more in the first quarter of next year. So we anticipate that flow of conversion from MOU to contract. And of course, we'll update you regularly.

Great. A question pointed for Dave. Starlink has put on laser terminals recently. Are you incompletion with Starlink? Or do you have patented technology that protects you from Starlink?

Starlink is an interesting system. It is designed to serve broadband and enterprise users on the ground. They are themselves a low earth orbit constellation of satellites. And by adding laser communications terminals, which they have done to a couple of their satellites, that is quite simply for them to be able to land their communications data back to a gateway to be able to serve more locations on the earth without deploying ground segment everywhere. Systems that are designed for broadband capability like Starlink and ultimately, Amazon's Kuiper System and my former company, OneWeb, they are neither customers nor competitors of ours. Their systems are specifically designed to serve users on the ground and they are not able geometrically to effectively serve or nor are they licensed by the ITU to be able to serve other satellites in low earth orbit. So they're quite simply -- they're in an adjacent business to ours. They're not in the same business of data relay service.

Great. And a couple of follow-up questions. When do you expect to have technology developed to offer optical from ground to space?

Excellent question. We will be demonstrating that capability. Our first 4 -- set of 4 satellites or Block 1. We'll have the capability of passing traffic to the ground using optical communications. However, we are not depending on that as that is a -- really, a difficult thing to do. You have to get through a turbulent atmosphere as well as getting the light through clouds, which can't be done. And so you are limited to be able to serve areas that are in dry cloudless areas. However, our parent company, EOS, has been perfecting methods of getting laser photons through the atmosphere to space and then back to ground again. So we -- after our demonstrations with our first-generation of satellites, our Block 1, we expect to utilize space-to-ground optical connectivity in a greater fashion in the coming Block 2 and Block 3 sets of satellites over the next 10 years.

Great. And great question from [ Benny Zhou ]. I read the U.S. SDA, the Space Development Agency, is trying to come up with an optical inter-satellite data open link as the data transmission standard or protocol. Does the lack of such a standard or slow uptake slow down your business over the medium term?

Benny, that's an excellent question. As a matter of fact, optical communications in space has been possible for decades. Typically, it's been done by very few like NASA and the European Space Agency. However, the United States Space Development Agency and DARPA have been one of the key factors in which we have accelerated our optical use of communications for our satellite system. The fact is they came out and they actually provided the first open standard for optical systems to communicate, and that allowed the ecosystem, which is now becoming commoditized, of optical inter-satellite linked terminal manufacturers to be able to interoperate with each other and that allow customers like ourselves and our customers to not be locked into any particular technology. And so we are, in fact -- our system is utilizing SDA tranche 1 and tranche 0 compliance optical standards. So it's a very important thing for our industry.

Great. A question for Alan Khalili, the CFO. The total funding requirements has reduced from initial estimates of USD 800 million to USD 1 billion to now USD 700 million. And at the same time, you've gone straight to the hybrid RF optical configuration. Can you just explain -- talk about factors attributing to that cost reduction?

Yes, it was -- we were looking at how do we optimize the capital deployment. And to some extent, it was a big satellite that we knew we could utilize over time, but it's somewhat debt capital for a period of time. And one of the things we decided to do was actually scale the satellite down, rightsize it for the demand and the capital deployment to optimize really the internal rate of return for the investors.

And to add onto that, using optical technology is actually much less expensive for the satellite manufacturer to produce. It is less mass, less size and less power. That allowed us to be able to provide a lot more higher capability on our satellites at the same time by reducing the size and ultimately the cost of the satellite. So the biggest reduction in our system has really been in the CapEx on the space segment as well as launch. And the ground segment is also coming in much less than we originally anticipated. So we've had the benefit of actually reducing CapEx across the board.

Great. This question for Glen Tindall. How was EOS able to buy all the assets of [ Odyssey Corporation ], including their spectrum licenses for $9.1 million when those licenses are supportive of such a profitable project at SpaceLink.

Yes. That's a really good question. So the initial grant of the spectrum was filed from 2016. And as you know, with spectrum licenses, they're a scarce resource. And so they are use-it-or-lose-it provisions. You have it -- there's a clock ticking on all spectrum licenses. With the original Odyssey business case file. And I guess the spectrum was somewhat left to drift. So when EOS became aware of this, we were able to come in and acquire that spectrum from the defunct company. And we received excellent support from the U.S. FCC, which is the same as [ ACMI ] in the U.S. They were very keen to see the spectrum go to a safe pair of hands because if that spectrum was not used, it sort of goes to whoever is next in the queue, and whoever is next in the queue may not be a friendly nation towards the U.S. Because the U.S. has a strong track record and knows how to work with government, we worked with the FCC, and we went through what's called the CFIUS process, which is like FIRB in the U.S. We went through that in record time. And it was sort of somewhat unusual for essentially a U.S. asset, although we don't own the spectrum, it's a license. That asset was transferred to an ultimately an Australian parent entity. So hopefully, that answers your question.

Yes. Great. Thanks, Glen. And there is a question about the OHB contract and the payment milestones, which we don't propose to answer because that's commercially confidential. But payment milestones are spread over the life of the contract. And there are also a lot of questions about funding. And whilst I appreciate you all want to know more about the funding, we have committed to come back to you in the near term once we close this tranche 1 initial funding round. That round is still open. We've got some very good cornerstones in that process, but we need to fill that out, complete it and come back. The issue with funding a project like this is that the customers want to see the satellite contract to understand the configurations of the system. The contract manufacturer wants to see the customers, and the financiers want to see both the customers and the satellite contract. So it's a classic chicken and egg problem, same problem that you see around large mining projects as well. So we think we are about to crack that particular problem with this first round of financing, and we've obviously got the commitment and our partnership with OHB, which is absolutely key to moving this program forward. And Tony now and his team are able to go and sign up the customers. So it's all coming together beautifully. And having EOS as a parent standing behind SpaceLink, I think, is absolutely vital to enable everything to work. So with that, I think I'd invite Glen possibly to just wrap up.

Yes. So look, we really value the interest from EOS shareholders. SpaceLink is a complicated sort of project, and we haven't been able to disclose a lot of what's been going on in the past. If you look at the recent restructuring of EOS into 2 divisions, one based around land warfare defense and the other based around space, space domain awareness, laser physics and satellite communications. Hopefully, you can see the logic there. We think that SpaceLink is going to be a fundamental infrastructure for -- particularly for government needs in the civil and climate science across to defense and security. So it addresses many areas of the economy and is, we think, fundamentally improves the ability of other space companies to make a buck. So for that -- for those reasons, we think we've got a super team pushing this forward. And once we've hit these next couple of milestones, it's only up from here. So thanks very much.

Great. Thank you. Thank you, everyone.

Thank you all.