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

Hello, everyone. Welcome to another Sharewise Webinar. Today, I am joined by Electro Optic Systems, featuring CEO, Dr. Andreas Schwer and CFO, Clive Cuthell. Clive, he's sorting out his PowerPoint slide right now. Yes, there we go. So today, Andreas and Clive will be taking us through a presentation, and then you guys will have the opportunity to ask them all your questions. If you'd like to pop in questions in the Q&A function in the tool bar below whilst they're presenting, feel free to do so, and we'll go through them after. But for now, I'll hand it off to you, Clive.

Great. Thank you, Caitlin. Good afternoon, everyone. My name is Clive Cuthell. And I'm the CFO and COO of EOS. Just a couple of caveats before I hand over to Andreas. Today, we are stepping through some material that we have published previously on the ASX, including the different announcements that are listed on the screen here. So with that caveat, just a little bit of background on me. I've been a CFO for almost 20 years. And I joined EOS in about 18 months ago as part of a leadership change that took place back in 2022. I joined because the company has significant intellectual property that has the opportunity to be commercialized. And that's the path we've been on. And I'm going to hand over to Andreas now, who's going to start to give us a little bit more information for people on the call, Andreas.

Thank you very much, Clive. So ladies and gentlemen, dear investors, my name is Andreas Schwer. I have more than 30 years of experience within the global defense and aerospace market. Most of the time, I was working in executive positions in the Rheinmetall Defence Group and in the Airbus Group. I have lots of experience in working in the Middle East, in the U.S., but also in Europe, obviously, and I commenced my job at EOS in summer 2022, more or less at the same time when Clive was joining. So happy to lead you now through the slides. Clive, if you can move on, please. So EOS is an Australian-listed company, but most of our revenues we achieved in export, it's usually between 65% and 80% of our total revenue going into the export. Export means Middle East, export means Europe, but also export means the U.S. market. We are famous for our high accuracy and tracking capability in all what we are doing, they're usually 20% to 30% better in accuracy than the next best in class. This is in particular relevant for our remote weapon station business, one of our four product areas, where we're concentrating on. EOS has been the inventor of this type of weapon system in the 1980s. And since that, we are one of the market leaders. The remote weapon station business is a cash cow of the company with an EBITDA range typically between 15% and 20%. So it's a very profitable business. Our second cash cow as of today is our naval satellite communication business on the right bottom side, that is marketed for our Brisbane-based EM Solution company, which we own by 100%. In this market segment, we also have the highest performance over and above any of our competitors. And we achieved here in this business segment even higher EBITDA level than in the remaining business areas. So it's a very solid business. And we recently got a $200 million contract from the Royal Australian Navy. We have lots of segments, and I will come later on to that one in the greater detail. One is the High Energy Laser Weapon business. We are one of the very few companies outside the U.S. who have developed a High Energy Laser Weapon architecture, and we are able today to deliver those products to the market up to a power level of 100 kilowatts. Our heritage of the company is in space, that's where we are coming from, space awareness, space intelligence, that is an area where we also undergo a kind of deep transformation. I will come back to this also in a second from now. Please go on. So EOS in 2023. EOS in 2023 has been a great success story. So we have achieved the highest revenue ever with $290 million. We have achieved a record operating cash flow and a positive underlying EBITDA, which was not expected by the market. And if we are honest, it was better than we also expected the powers. So it was very promising, very positive year. And hopefully, we can build on that one this year and the coming years. So overall, we are very optimistic. The markets are very strong. There's lots of geopolitical uncertainty in the market which obviously plays into our hands. Customers are asking for our products and the longer-term perspective is very stable and growing. So we seem to be well positioned. We have a huge innovation portfolio with a huge IPR portfolio and thus the company was piling up inventories of IPRs and innovation without bringing the products to the market, and we are benefiting now by releasing those kind of innovations, industrializing it and bringing it on the street. I will also come back to that one in a second from now. Let's move on, please. When Clive and I joined the company in summer 2022, EOS was in a quite of distressed financial situation. So we were forced to go into a deep restructuring and refinancing program of the company. After the refinancing, we did this restructuring. It was finished by the end of 2022. So we had to let go, unfortunately, 30% of all of our people. We had to exchange the management team. We had to take off a complete layer of indirect management positions. And by that, we could reduce the cost base by $25 million year-over-year, which was really a very important step to get back to profitability. Within the portfolio review, we stopped all money-losing businesses, in particular, an optical broadband communication satellite system, which we were in the planning stage for which was U.S.-based and which was called SpaceLink. So this kind of activity in which we have invested more than $70 million of our own money. We have put into liquidation because there was no perspective of short-term revenue generation and short-term profitability. We also have ceased other activities in the area, of missile defense, in the area of satellite manufacturing, all those things, which are not part of our core business. And instead, we have concentrated on our business as shown on this slide on those 4 pillars. We have put lots of focus on the financial performance of the company, cash is key. The cash we were making, we have renegotiated a ruling contract in the Middle East, which was allowing us then to cash in most of the piled up inventory and to convert this inventory into liquidity. That's one reason why the year 2023 was really successful from a financial performance perspective. And I can promise you that we will keep a close eye on the financial performance and on the cash situation of the company. We also have changed our way to the market. We are entering strategic partnerships now. So instead of going by our own into key markets, investing our own money and building up over a longer period of times, the lobbying network, we've decided in key markets to go with strategic partners. So we team up with local champions. We are sharing pain and gain with them. But on the other side, we don't need CapEx. We don't need capital investments, and we can shorten the time to market significantly, allowing us for a much faster turnaround of the company in a much faster upstream of the company. You can see on the right side of this chart, what we have done in 2022 and 2023. So every month, there was a highlight and one very important aspect is that we brought to see a couple of new products. One product was our counter EOS, the anti-drone product Slinger, which became instantaneously a best set on the market. So we are right in the sweet spot of defeating drones. Drones of Class 1, 2, 3 and Class 3 is the type of drones attacking those days with brain, those attacking type of drones. So we have a very perfectly optimized countermeasure for those kind of drones. This is the product Slinger. We also introduced to the market last year. Our Lightweight R150 weapon station, which is one of the lightest products in the market by far the most advanced one and very superior in terms of performance. The R150 should become a kind of a commodity product, we would lose in larger quantities in going on any kind of vehicle, even very small ones. We also unveiled in October last year, our R800, which is the world's most powerful, and most effectful remote weapon station. The R800 comes in with a large 30-millimeter cannon. It competes against unmanned and manned turrets, but it offers the same firepower, the same features, and it comes in with 1/3 of the price and 1/3 of the weight. So it's a very attractive offering for clients. And we believe also that this product will make its way and we become a best seller in its class. Overall, each month was coming in with a great announcement. We achieved good contracts in the European area. We achieved good contracts also in the Middle East but that could be built up our order backlog and Clive can come later on back on this kind of subject. I just want to mention upfront that on the financial side or the intake side, but also on the revenue side, 2023 was really one of the best years ever the company had. And with the new products being now on the market, we have much higher revenue potential than what we have had so far. One important point to mention is that 80% to 90% of our revenue in defense was delivered by a single product called R400. Now we have with the R150 and the R800 more product lines in the market, and each of those product lines comes in different versions of configurations. One configuration is the ground-to-ground terrestrial configuration, one is a naval configuration, and another one is the anti-drone counter EOS configuration, where we expect a very bullish market in the next coming years. So that is a turnaround program, which we have started in 2022. We are not finished yet. So it will -- it's a 3 years program. So we will be finished in 2025 with it. But so far, it's performing better than what we have expected. The next slide, please. So I was mentioning before that we had to exchange the leadership team. So Clive and I joined the company in August 2022. And we've started to, again, to put the company upside down to refocus the company, to restructure it and to bring new people on board. So you can see 3 of those new people here on this chart, I'll start from the left to the right side. We bought Christian Tobergte on board. He just started a few weeks ago. He was Head of Sales of the Rheinmetall Group. So he knows the global market inside out with a strong focus on the European market. Christian is in charge for all international defense activities. And Christian will be locust or will be formally working from our upcoming European office, which we are going to set up in the course of this year. We have Ian Cook. Ian Cook is in charge for all operations in Australia and for the Australian domestic market, which is a very important market for us. Ian Cook has more than 25 years of experience in leadership roles in operations. So he is a man who spent most of his time in the production, setting up production, optimizing production, optimizing supply chains and so on. That's exactly what we need in order to increase our efficiency on our -- in our Australian-based operation. We have put in place Dr. James Bennett as leader for our Space Systems activity. James is in charge now to convert our business from the space domain awareness base, intelligence type of business into space warfare, space control type of business where the markets, as we expect, we become a superior market in the future and that we see lots of potential in the future. So this is the new leadership team on the P&L side. Obviously, we have also recruited other people complementing the team. I think we are now in a good position having the best leaders in place and having all the foundation laid in order to let the company grow and grow. Next slide, please. So what about the market in which we are operating in? The market is extremely, extremely favorable for us. Obviously, the two dominating geopolitical crisis, one in the Middle East, one in Ukraine, it's helping us in doing so. So obviously, we've seen lots of demands coming up, not only from within those regions, but in particular from those regions. Also with the other markets, whether it's in the Far East or whether it's in the U.S., I have a strong tendency upwards. So with increase in defense spending, we believe that we can make significantly more revenue in the short, but also in the midterm. We are benefiting from particular effects. One effect is obviously that those kind of prices leads to lots of donation programs. Donated weapons going into the Ukraine, heading Ukraine to defeat the Russian operation. On other side, all those Western depots are completely depleted and all the Western governments need to refill those kind of depots and this kind of stocking up will take place once the Ukraine war has been -- come to -- has come to an end. So we are convinced that even Ukraine war will be finished, it takes at least 7 years to replenish all those systems in the Western stocks and to go to levels which are most likely higher than what the levels have been in the past prior to the Ukraine war. So that's a very bullish market, which we will benefit from over the next at least 7, 8 years. On top of this, extremely promising ground-to-ground replenishing market, we are benefiting from a new kind of warfare scenario, a warfare scenario where we are confronted with drone activities. The proliferation of drone is leading to a threat scenario where semi-commercialized drones are attacking installations and diligent infrastructure in a way which has never been seen in the past. So drones are coming in large quantities, in large swamps. Drones flying in at the kind of production price of less than $10,000 and obviously, leading to different effects on the battlefield. First of all, it leads to an oversaturation of the airspace. So classical missile based launch of batteries are not in a position to defeat all those drones and you have seen this particular case in the Middle East quite recently that even the most sophisticated missile based air defense system cannot defeat all drones. So some drones will make its way to the target. Obviously, that is to be implemented. On the other side, to defeat the drone by missile your investment is -- the exposure is very high. Missile comes for a price of $500,000 up to $1 million in average. This is becoming a quite of an affordable commercial case for the defending entity and new systems need to come into play, which are able to shoot down those drones in a more cost-effective manner. And it turned out that this kind of new defeat system is cannon-based air defense. Cannon-based air defense, which was the effect of choice up to the 1980s and then the missile-based air defense was pushing that aside because missiles had slightly normal-range and it was more fashionable and missile-based air defense is allowing to attack also larger aircraft, helicopters, but also extremely fast flying objects like missiles. But again, coming back to the situation in the battle field now in Ukraine, the drones attacking Ukraine are those semi-commercialized drones. They come in at low altitude and at quite low speed. So the Ukraine force has found out that the most effective way to defeat them is cannon-based air defense. And they are asking the best foundations to name those kind of cannon-based air defense systems. So we could show and demonstrate with our specialized Slinger counter-drone system, which is based on our successful R400 product line, that this is the most effective way to defeat those kind of drones. Here, our high accuracy comes into play. You might remember in the beginning, I said that we have 30% higher accuracy than the next best-in-class, 30% higher accuracy means 30% more range or, respectively, a higher first hit probability with the first rounds. This plays much more of a role in the anti-drone application than in the ground-to-ground application for the similar reasons that you only have a time window of 3 to 5 seconds to shoot on a drone, otherwise, it's gone. So the first hit matters, the first shot matters. And that's the reason why more and more governments have seen our superior quality as the driving factor, why they want to go for our type of system. So we have been approached more and more over the last 2 months by governments all around the world to come and to showcase those kind of systems and to convince them to go forward with procurement of those kind of systems. The procurement plan typically goes in or comes in 2 stages. Stage 1 is the governments procure only a few systems to test it, to get familiar with it, to give it to the battlefield. So some of our systems have been deployed recently in Syria to protect U.S. camps. Some of our systems went to Ukraine to protect critical infrastructure of Ukraine. And we all expect that the donating governments will go into large volume procurement as soon as they have seen that the operation battlefield to see their success story. So this is something which comes over and above our market on the ground-to-ground side, which is very promising, as I told you before. So this -- again, this kind of segment is new to us, and we have decided to come also with anti-drone versions for our R800 and R150 product line. So we will have a large variety in the product portfolio in this segment as our offering to the clients. And I want to say that, for example, at the end of last year, just one example how that is working. The German government has decided to go for this kind of system and to protect the German donated [ iron and steel ] air defense missile systems, which are located around the Kyiv area in Ukraine, but they had no self defense system. So they lost a couple of radars, unfortunately. The German government has decided to take our systems in order to protect those assets in Ukraine. The first contract was only about 10 systems. Then we did 17 systems that we delivered over the next few weeks in order to protect those stations there, we expect, as I was mentioning before, larger volume contracts in this case here by the German government in a few months from now. So this is the kind of procurement model, and the German government is only one out of several which have approached us, and we are very confident to make a good business line of our new Slinger counter-drone system family. Please go on. So as I was mentioning before, the R150, the Slinger kind of product family and the R800 will generate additional revenue over and above what we have achieved in the past with R400. And those systems come also with innovation. So just to mention one innovation, the R800 will have an integrated counter-drone laser dazzler. So that's not a high energy laser dazzler, it's about a 1 kilowatt system, which is integrated in a very compact manner in our R800 system and which allow us to desert, to blind the sensor head of the drones of the routing ammunition and by the dazzling those kind of drones go into a mission abort mode and flying to the ground. This is an additional factor which we installed on the weapon station. So the operator has a chance either to use kinetic kill to shoot them down or to blind them and cause a mission abort. So that is an innovation, which we can execute because we are also an expert in the laser domain. We are a laser company. Allowing us to have now a unique combination of effectors in the battlefield, which is a true innovation and nobody else has offered so far something similar. Please go on. Let's go to space. Our space technology business is our heritage. So the company EOS has its origins in this kind of business. And later on, we have derived from our electrooptical capabilities, the sensor units, which are today the key enabler for our grounds-to-ground defense kind of systems. And that's one reason why our systems are more accurate than anybody else because of this year, we can track any object in space down to 2 centimeters even in this lunar orbit. We do this not by radar. We do this by laser tracking. And you can imagine, as we can track 2 centimeters objects over thousands of kilometers, that's the reason why we are also more accurate in our sensor units under the remote weapon stations and why they can do better tracking of objects with our remote weapon stations than anybody else. That's one of the key reasons why we are superior in terms of quality and performance. But coming back to the space technology. So our history, obviously, is to do not only satellite laser ranging, we do keep tracking in space, and we track any other object in space and by that can offer anticollision warnings as a service provision to settle at operators all around the globe. This is a market which is attractive, which is a good thing to do, but the market is very limited. And we have taken benefit now from the following events. So the U.S. government has announced end of 2022 to set up a capability, which allows the United States of America to engage against satellites from ground by laser weapons. Engage team means to blind the satellite sensors in the first step, and the second step to destruct the satellite sensors, and third step to disable the entire satellite by laser weapons from the ground. And this is exactly what you can see on this page here. This is not Photoshop. This is one of our 2 installations, which we own, which we operate here in Australia. And you can see here 2 laser beams engaging an object in space. So we have this kind of capability to blind objects in space, applying sensors and to prevent sensors, cameras to take pictures over your ground. This is obviously quite decisive in a warfare scenario and that is a market which we believe we become a very dominating and very strong market in the future. There is no dispute among the military experts that the future war we did will be decided in this space, the party who is able to knock out first the satellite feed of the host air forces will have won the war. That's the reason why we believe with our kind of technology landscape, with our assets, we are best positioned to grow into this kind of market segment, and we have taken the decision to convert our business from space awareness into space control and space warfare to develop exactly those kind of capabilities and offering those kind of capabilities to a light countries in close coordination with the Australian government. So that's a mid- and long-term growth story. That's not something for today and tomorrow, because we still need some time to fully develop this portfolio of products. I'm talking about 3 to 4 years in this particular case. Let's come to EM Solutions. As I was mentioning before, EM Solutions is our Brisbane-based 100% owned affiliated company active in the naval SATCOM market. You can see here a typical product, a satellite dish. Obviously, that's not the only piece we are selling. There's a big rack of electronics coming behind all the microwave stuff, which is necessary in order to do the communication of the ship with satellites and from the satellites to other ships or back to the home base. Our key selling point here is that we have a higher multi-brand capability than our major competitors. And we have a higher tracking accuracy again, it's all about tracking. We can track the satellites in a more accurately, allowing us to transfer or transmit data at a wider bandwidth than anybody else and by that, giving more value to the clients. This company was very small when we acquired it in 2019. And since that, we have had a huge year-over-year growth of the company at an EBITDA level of 30% and above. So this is very profitable, very promising business. We have received last year a big contract $200 billion from the Australian Navy. We have now taken the decision to go in a very aggressive manner into growth markets. The company was never ever in the longer past in Europe. We've changed that. So in Europe, we have acquired contracts from a certain number of navies among them is the Dutch Navy, the Danish, the Norwegian, Portugal, and others to follow. So that's something which has a very sustainable growth story ahead of them, and we have not even tapped into the U.S. market. So we have only tapped now into the European export market and next steps then to follow. So this is a success story and one of our 2 cash cows as of today. So please go on. So here you can see some recent wins we got at the end of last year, a contract from a customer in the Southeast Asian region for our R600 product line. We got follow-on orders from Western European governments. We signed this company that this is combined with a German company deal in partnership going to the German government, which is for us, a very important door opener into the German market, while that Germany has also weapon station providers. There's competition, local competition there, but still the German government has decided to go for this Australian system, not for the German system, which is for us a big, big win and has a very high symbolic value. So we believe it's a door opener with a very large German market in the short and midterm and we do the same also in other European markets. We would hopefully be able to talk very soon with you and announce pretty soon some other contracts of similar or bigger size of other European nations. So please go on. So we're coming now to the financial slides, and I would like to hand over to Clive to give you some further background information on those kind of things.

Thank you, Andreas. So contract backlog is a very important metric in our company and as many people will be aware, during 2023, we managed to increase the contract backlog from around 300 to 350 mark to 440 and 620 if we include some conditional contracts in Ukraine that we will talk about a little bit more in a few minutes. So we continue with the professionalization of the sales function with the appointment of new leadership and with changes in the go-to-market approach that Andreas mentioned earlier. We continue to focus on growing the contract backlog and we haven't provided guidance on what we want to do. But clearly, we would like to finish up with a number in the future that is higher than it is today. Market conditions for that, as Andreas mentioned, are very strong, and the company has a strong product portfolio. So now we are focused on the sales and execution side of that activity. I might also mention that on the previous slide, we showed some recent wins. Some people in the audience will be aware that we also announced just last week some additional contracts in the EM Solutions business and in the Space Technology side of the business, totaling $24 million. So we continue to focus on growing the order book, as I mentioned. We were particularly pleased with these announcements last week because of our aims to diversify our business so that we are growing the business, not just in the remote weapon stations, but also in EM Solutions and also in Space Technologies, as Andreas mentioned earlier. And I might add that the work that we announced last week on Space Technologies is exactly in line with our strategic growth imperatives, Andreas mentioned a minute ago in the area of space control. Turning to the customer base. We were -- as the chart shows, in 2021 and 2022, we had most of our revenue coming from Australia and from the Middle East due to some strong focus in 2023 on other markets, we managed to diversify the revenue base significantly in Europe, and we were very pleased that 1/3 of the revenue in 2023 was generated in Europe. So we are going to continue to focus on diversifying the customer base, as Andreas mentioned earlier, and we look forward to working on that in 2024 and 2025. Looking at financial performance, the results slide here, we've gone over previously in results calls after the results announcement at the end of February. But just a reminder of the highlights. So revenue of $219 million, which is the highest in the company's history in 2023. Of particular note, I would say gross margin, just as a reminder, gross margin on materials grew in 2022, sorry, in 2023 from 34% to 44%. And that reflects a strong focus on pricing discipline in the company and making sure that we can charge prices that are appropriate for the service we deliver particularly when customers have an urgent operational requirement and need product quickly. The company with the strong support of the Australian Army and the Australian Defense Force and the Commonwealth of Australia, the company is privileged to have access to inventory, which allow us to provide products to customers, friends of Australia at short notice and we made use of that during 2023, and that contributed to some of the positive cash flows and gross margins that we saw. The chart at the bottom of the page shows the split of revenue over the last several years, including in terms of the first half and second half split and as you can see, typically, the first half result is always a bit lower than the second half result, and that's mainly due to the impact of holidays in Australia in December and January and what that does to our production and delivery schedules. I might note in terms of how the company is going at the moment in our recent updates to the market as part of the equity placement, we noted that revenue expectation for quarter 1 of calendar 2024 is $75 million to $85 million and we communicated that a few weeks ago as part of our ASX announcements. We also caveat that we are in a lumpy business, and it's not appropriate to multiply that Q1 number by 4 because we're in a lumpy business. And our guidance for revenue for the full year of 2024 is that we are pointing everyone to the analyst consensus, which is a range of revenue for calendar 2024 of $230 million to $250 million or a midpoint of $240 million. That's the outlook statement that we have provided, and we will continue to keep the market informed if we see any divergence from that emerging. I also would emphasize that we -- for various reasons, we continue to try and make sure we set targets that are challenging the company to grow the business as much as we can. But the timing of that revenue growth can vary quite easily between Q4 of this year, for example, and early next year. So we'll keep the market informed about how things are tracking, but we're very comfortable with the revenue guidance that we have provided. If I look at cash flow, briefly, 2023 cash flow was the strongest operational cash since the strongest in the company's history. So record receipts from customers of $325 million during the calendar of 2023 year. That fed into an operating cash flow result of $113 million positive during the year and really reflects the realization of inventory in lease contract that Andreas briefly mentioned earlier. Of that cash flow, we reinvested it in the business $35 million was in the investing line. Of that, $3 million was real CapEx and $32 million was security deposits for bank guarantees that were placed during the year, and we expect a significant chunk of that to unwind over the next 12 or 18 months, particularly as we deleverage and I'll come back to that in a second. Financing cash flows, we repaid $27 million worth of debt during calendar 2023. And we've also made a further repayment in April '24, that I'll come to in a second. So, significantly positive operating cash flows, and we've been working to reduce debt, as I mentioned. Cash at the end of December was $71 million in the bank. In addition to that $71 million in the bank at the end of December, we had $67 million of cash also on deposit for cash backing for security deposits. And as I said, we expect that to start to unwind and come back into free cash over the next 12 months or a little bit longer. So I'll just go to debt position. So the debt position, as many of you know, the company took on $70 million worth of principal debt in September 2022 with the support of our long-standing equity shareholder at Washington H. Soul Pattinson or WHSP. We've been working to repay that debt on schedule. There's been a very strong focus on cash flow in this company for the last 18 months that relates to operating cash flow on projects and it also relates to CapEx discipline. So that cash flow discipline is going to remain in place, and that's really what's allowed us to make these debt repayments on schedule. I do note that we have a 100% make whole close clause on our debt with our lender, which means that if we repay debt early, we have to pay an additional penalty for all of the interest that we would have incurred all the way to maturity. So that means that there is no value in us using shareholders' funds to repay debt early, it makes more sense to repay on schedule. And that's what we intend to do. So our next debt installment is due in October 2025. So we've repaid -- let me see, $47 million we have repaid in the last 12 months. The next installment is $52 million, and that's due in 18 months. So we are working to make sure that we will be in a pretty strong position to repay that when that time comes in October 2025. So that's the financial summary. As I said, this is a turnaround cash and financial discipline is very important. And Andreas and I and the rest of the leadership team are very focused on maintaining that discipline as we grow the business. There's a slide here that looks at the current growth and the future growth opportunities. And I'm going to pass back to Andreas, who's going to recap and talk about two specific strategic growth opportunities. Andreas?

Yes. Thanks a lot, Clive. So ladies and gentlemen, on the left side, you can see our current growth perspective, current means its growth, which we've experienced last year, growth which will come this year, but growth which will continue to happen over the next at least 7 to 10 years. That is just by the mathematics of what the market demand will be due to the crisis and to the wars around the world and also due to the fact that we have now 3 families of weapon stations in the market, the 400, the 150 and the R800 and again, each of them in 3 different versions. And in particular, growth segment, anti-drone business, where we have a unique position and where we also can achieve higher margins because of our unique accuracy in this market domain. So this is an area which is a guaranteeing stable growth over the next years. Our EM Solutions business is, as I was mentioning before, highly profitable, and it grows simply by expanding and by going into new key markets which we have never done in the past. So the key message is, those 2 pillars on the left side of this slide, those 2 pillars, we have nothing else to do than just going into the markets now and selling it. There is no more investment needed. We have capacity, we have spare capacity in our U.S. Huntsville facility, where we can easily double the throughput without investing heavily into new production facilities and tools and machines. It's just a question of now getting those orders into place. So that is the stable growth for which we have to do almost nothing else than selling the stuff. On the right side, you can see the future growth opportunities. So very strategic business line activities. If I start from the left side, it's the high energy laser weapon business, the so-called directed energy business. This is a business area where we, EOS, have invested in the past about $40 million of our own money, which was obviously bad at that point in time and we will not continue investing own money into it, but today we are benefiting from it because today, we have a kind of system capability and architecture developed, which serves us to produce those kind of laser weapons between 36 and 54 kilowatts, and we can extend this kind of scaling up, up to the level of 100-kilowatt without inventing a new type of base technology. This kind of laser weapon is based on non-coherent beam forming. That's a technology which is coming to the market at a much cheaper price than coherent beam forming. Coherent beam forming, which is supplied by the U.S. laser companies, coherent beam forming is leading to prices of the products, which is 3x higher than our price basis, but offering higher power levels. But that's not our point, we do not need to go to power levels of 300, 400, 500 kilowatts. That's the target and objective of the U.S. companies because they have to engage against missiles and hypersonic weapons. That's not our ballpark. Our kind of sweet spot is the anti-drone, the counter EOS market, as mentioned before. In order to shoot down drones, you do not need more than 50 kilowatts in worst case, 100 kilowatts, and that's the reason why our non-coherent beam-forming technology is perfectly suited to offer at a very competitive price tag system for our clients. I'm proud to -- we announced that we are in advanced stage of negotiation with 2 clients who hopefully will sign this year. Contracts -- to contact us with the development and production of systems in the range of 50 to 100 kilowatt. That is a breakthrough for EOS because it's not only the first laser contract from a client to the company. It is also one of the very first laser export contracts in the Western world. So it's a turning point. It's a turning point from a subsidized business for us into a moneymaking business. And again, if you're lucky, we will get those contracts into our books this year. And this will be the starting point of a money-making business and the starting point of the third product line with a great future ahead of us. And why is the future great in this [ Lepton ] domain, mainly because of the fact there is almost no competition. As I was mentioning before, there are a couple of years. Companies offering much higher power naval systems, but those kind of systems are not released for export, and they will not get an export released by the U.S. Congress because of the sensitivity of the technology. So those kind of systems will serve the U.S. market, whereas our market is the non-U.S. market. And in this non-U.S. market, there are only 2 other players than us on the way. One is the Israeli-based company, Rafael, coming with a kind of the -- same kind of system for the market as we do and one is the Chinese weapon provider. So there's not much competition ongoing. And if we manage with those two first contracts, which we hopefully will get in the course of this year to our books. Then we have a qualified industrial product range in between 36 and 100-kilowatt and being one of the very first and very few system providers in the Western world. So this is something which is extremely attractive and which will give us a lots of the push in terms of overall revenue generation as one system is obviously selling at a much higher price than a typical selling price of a weapon station is. So this is something which we complement our anti-drone capability, but you can use it also to engage against more tasks or active [indiscernible] . So to use it as a CRM type of system. So very promising. And we have -- we are in the process of setting up a laser competence center in Singapore, where we will develop and produce those kinds of systems from 2025 onwards. The fourth segment here, that's our second strategic growth initiative is our Space Warfare or Space Control opportunity. You might remember my words before, our objective is to develop a set of capabilities, which allows our clients to disable satellite sensors but also to disable the entire satellites in order to defeat the entire space asset base of a host nation in a warfare scenario. This is key for the future win in the battlefield. And we have been approached over the last few months by a couple of countries, so the markets are waking up now. Those kind of countries want us to support them and to localize this kind of technology on the territory and to provide systems which are not only stationized systems like the one station which you have seen before, in one of the previous slides, but to develop mobile stations, which are able to be put on the back set of trucks or to put it on more ships. That is a very strategic opportunity. And in order to master it, you need to manage 3 different technologies. One is the laser technology, which we undoubtfully have under control. One is the technology to build big telescopes, which we have done over the last 40 years, that's our heritage. And one technology is the absolute key and the most demanding one, which is the technology of adaptive optics and the correction of atmospheric distortions. You might recall that the satellites are not at the point where you can see them from ground. The stars are not at a point where you can see them from ground because of the fraction of the light in the air. And that's the reason why we need to compensate for those kind of distortions, the atmosphere is fluctuating. So we have a specific technology in place that corrects the laser beam more than 1,000 times per second in order to keep him on the target and to be independent for many kind of atmospheric distortions. And we've proven that capability because we can track today any object in space down to 2 centimeters with our own small test platforms, as satellites in orbit which is a kind of mirrored wall, and we can prove by sending up a laser beam and by receiving the reflected light in our receiving station of [ wealth ]. We can prove that we are on the target. So that's the evidence that we can also manage to do those kind of services in space. So here, it is still a way to go in order to develop the full product portfolio. We need third-party funding. It's a significant investment in the high end of the multitude million dollar investment range. We don't want to use shareholders' money to do that. We want to have partners to do that and to fund it. So that partner could be a government, it could be a foreign defense OEM, but it also could be private equity. We are open for any kind of funding source. And with this kind of funding, we will develop that over the next 3 to 4 years, the full range of products. By the way, the same might happen on the laser side. On the laser side we have with the 2 contracts, which we hopefully we signed this year, we have all the assets in hand in order to go up to the 100 kilowatts, but to go over and above the 100 kilowatts and we target to go to 150-kilowatt and maximum 200-kilowatt range, that is the upper end of what you can do with non-coherent beam forming. With this kind of second step, we could also seek for third-party funding. We will not use any more in-house money, shareholders' money to go for this kind of heavy R&D type of investment. But in summary, those are the 2 strategic growth opportunities. Each of them is probably more in terms of value and growth perspective than what we have today in play. But important to note is, again, even if those 2 elements will not come into effect what we have today in our product portfolio. And if you just execute that, it is a very stable, sustainable growth over the next 7 to 10 years. So it's a very promising business proposition. We are in very good -- we are in the sweet spot of the market demand today. I think we have the right management team in place. We just need to execute now. It is not rocket science. We don't need to be genius. It's just alternate best managerial practice, which we have started to implement here in the EOS by the mid of 2022. In the first 18 months where we are really successful and we hope that we can build up on that in order to make the company grow and more and more successful. That is the storyline of what EOS was doing over the last 18 months. With a very promising outlook, we are very optimistic. All the market indicators, all of our products are highly sought after, and we are very optimistic of making a big change happen and keeping shareholders happy and attracted. Clive, if you want to add some more points before we go to the question session.

Sure. Thank you, Andreas. So I see there's a couple of questions on contracts and other things. So just a couple of remarks on outlook guidance. So I know the comments I made earlier about the analyst consensus revenue of $240 million for calendar '24, EOS does not provide profit guidance. The future is uncertain, and we've chosen not to provide profit guidance in the past, and that's going to continue. On contracts, as Andreas outlined, there are a number of opportunities out there, and we mentioned them because they are not at an early stage of discussion. The things that we are mentioning are reasonably advanced. But we will, of course, make announcements when these reach the contract stage. So we'll continue to pursue these opportunities. Many of the opportunities that we're dealing with are obviously with militaries and governments and sometimes, it can take time for these things to turn into signed contracts. So we will continue to focus on execution in the sales area, and we will make announcements to the market as and when these different opportunities turn into contracts. So with that, I'm going to hand back to Caitlin, who I think has received a few questions that we're going to go through now. So Caitlin.

Yes. Thank you so much for that great presentation, Andreas and Clive, and thank you to everyone that has submitted questions. For those that have joined in late, you are welcome to put in your questions in the Q&A box in the tab below. But let's get into it. So first question, Clive. We've had a lot of questions on if there's any updates of the contracts to EOS in the Land 400 Phase 3 Redback contact -- contract?

Yes, we are in the final stage of negotiation with a prime contractor, Hanwha, and we expect to sign a contract over the next 2, 3 months. That is, I would say, almost secured, and we are very proud to become the partner of choice with our famous remote weapon station for this important program.

Okay. And can you provide an update on the Ukraine conditional orders?

Yes, I can do so. So unfortunately, those 2 contracts will only become unconditional if we have passed the test, the demonstration, [indiscernible] demonstration in Ukraine, where we have to mind our systems on their locally produced vehicles. This was planned to happen much earlier than it is happening this year now. And I can tell you that our systems, two systems are going on its way over the next 2, 3 weeks to Ukraine, that will be integrated there. We have still to organize the ammunition to get into the country, a specialized ammunition transport is Sigma for that in order to do the shooting campaign in Ukraine. You might wonder why did it [ take ] us so long to get those systems into Ukraine. This is linked to specific export regulations. So we didn't get the export permit for those kind of systems into Ukraine earlier for simple reasons. Those kinds of systems are going there as business development systems to do the trials, and then they have to ship it back to Australia or the U.S. And obviously, our government is very extremely pessimistic of whether once the systems are in Ukraine and have done a great job, whether they will come back at any point in time and the governmens told us, in case they do not come back, it is a formal infringement of an export law and then we have to stop you from exporting any weapon to any kind of client, and we have to start a formal investigation, which would kill the company. So we had to find a way forward kind of framework, which would allow us to send those weapons. And even if you are facing the risk that they do not come back in case the client is so happy that they want to keep it there, that you are not punished. So this took us quite some time. We found the right legal baseline, and we are ready now to ship the system. So we expect that those tests will happen in the course of June this year, roughly.

Okay. And does EOS see a risk of the U.S. reducing military support for Ukraine?

Sorry, which country?

U.S. reducing military support for Ukraine?

We all believe that U.S. Congress will make over the next very few days, a positive decision to get a significant package of support to Ukraine, which would then release some of our opportunities in the U.S. So we have prepared packages with other industrial partners in U.S., which would become part of the next donation program. So yes, we hope that this is coming into fruition with this one and we are optimistic on that. But even if it's not going to happen, even in that case, what is happening then, we expect then that European partner nations will be asked to support more than what we have done so far in order to compensate for the U.S. gap. So the European nations will not make it all up, but to a certain extent. And what is good for us is the following: if European nations are donating stuff, all that they have to procure because all their stocks are completely emptied, whereas if the U.S. government is donating weapons, still most of those weapons coming out of existing stocks. So for us, as a company who wants to produce new products a European scenario is even more favorable.

Okay. And we've had a few questions asking what the use of funds was for the recent capital raise?

Maybe, Clive?

Sure. Thanks, Andreas. So we raised $35 million in a placement 3 weeks ago. So the purpose of this raise was to help us secure long lead items so we could exploit significant market growth opportunities. Specifically, we are looking to place an order with Northrop Grumman, our cannon supplier, for a large number of cannons. There's a 12-month lead time on cannons, which is a critical weapon that we use that many of our customers ask for. And by securing a contract for potentially up to 300 cannons, then that will position the company to be able to meet customer needs at much shorter notice than we have in the past. Given the market growth that we're seeing, we think it's a very important investment that the company make and we'll be using the proceeds to secure these long lead items, and that will make a significant amount of additional growth accessible to the company, albeit that growth is expected to be delivered from mid-2025 onwards over a perhaps 2- to 3-year period. So we're very focused on being able to meet customers' requirements urgently and derive the margin benefit and the cash flow benefits that can arise in that situation. So that's where that money is going to be going. And we look forward to making announcements over the rest of this year in relation to locking up that supply agreement with Northrop and also in the fullness of time, we will announce customer contracts as and when these get signed up as well. That will be like it normally is. It might be quiet for 2 to 3 months, and then we might get 1 or 2 contracts at the same time. It's happened like that before. We're in a lumpy business and -- but we'll keep the market updated.

Okay. And what 2024 financial guidance are you able to provide?

Sure, Caitlin. So the guidance that we have provided as part of the placement information that we filed in the ASX a few weeks ago is that we pretty much we expect revenue to be around the analyst consensus of $240 million revenue for calendar 2024. And that obviously compares to the $219 million that we delivered in 2023.

Okay. And someone is asking, how does your counter-drone offering compared to drone shields?

The drone shield is a different type of product. So drone shield is offering so-called soft skill options. So by electromagnetic interference, by jamming and spoofing they disconnect operator from the drone and by that, getting a kind of mission abort. They do not shoot the drones. What we are offering are so-called archers. So we are shooting the drones by either laser weapons or by kinetic kill, which is a different application. Soft kill, you can apply with small drones, non-hardened drones, the DGI drones, military drones are mostly protected against jamming, so you need the hard kill option. That is what is happening in Ukraine. But again, that's the military markets prone through this more active and the non-military market, and public security, homeland security market to protect critical infrastructure like airports, you cannot shoot on drones with the cannon. So that's a different application, but also the threat scenario is different. So we are not competing. It's complementary.

Okay.

If I may add, there's one question came in about the British Dragon fire laser weapon system, which I was not mentioning before, if you would just give me a second to explain that one. So the U.K. Dragon fire is a coherent beam forming technology-based system. So it comes and also with 3x the price than our system will come in. Secondly, the system is probably 2 years behind us in terms of market readiness in industrialization and they are focusing on the naval application. We are not focusing on a naval application. Our market is the anti-drone market on lands. Our systems come in container on the back set of trucks or we indicate our systems on 8x, 8 vehicles in the battlefield. So it's a different market. There is no direct competition to be expected.

And Caitlin, I see there's one question online that's that I can pop up. So I'd like to just read the question out and answer it. So the question is in our half year report, we showed a big increase in global defense spend, but the EOS is unable to make a profit or even forecast on operating profit. And the question is what's wrong with EOS and why cannot EOS obtain a decent slice of the pie, which is obviously a pretty fair question, particularly for shareholders who've been with the company for a long time. So clearly, the company is under new management. There's a new chair, there's a new Chief Exec, and a new leadership team, as Andreas has outlined earlier. This is a 3-year turnaround task. The company has been in significant difficulty. We're a year and a bit into that 3-year program. It is going to take time. I'd like to tell everybody that we think the turnaround will be complete in the next few months, but that's not going to be the case. We operate in markets -- we operate in an industry with markets that are very strong but procurement cycles for the customers remain as they always have been. It does take time to secure orders. Obviously, a significant progress on the turnaround has been made in calendar 2023. And we will continue to work on that turnaround this year in calendar '24 and as we get into 2025. So we acknowledge the question and we acknowledge that there's clearly some frustration with shareholders who've been with the company for a long time. But rest easy, we're very focused on getting back to a bottom line profit as soon as we can. So thank you for the feedback.

Yes. But if, if you allow me to add, I mean, there's one major reason why we have not achieved a positive bottom line. It's we have to pay down debt. I mean, we paid down almost $50 million of debt over the last 12 months, 18 months and another $50 million to be due over the next 18 months. I mean, that is stopping us from making a profit on the bottom line. But obviously, we can expect that to happen once we have paid down all those kind of debts. So it's not our poor performance or management or bad management practices. It's simply the mathematics by paying down the debt and to make whole happen. So $120 million of total payback. That's the reason.

Okay. And with quite a question in regards to what EOS is doing to protect its technology IP. It seems like there are low barriers to entry for this industry currently. So I want to understand how you are protecting your technology.

So just to make clear, the barriers are not low. What we are doing in the laser business and in the space warfare business is not low. Otherwise, it would be more competition. We're the only company outside the U.S. active in space, warfare. What you can see in my background, there's nobody else outside the U.S. And in the laser business, there are only very few companies. That is nothing compared to other business areas where you have dozens of competition -- competitors. So the barriers are quite high. What do we do in order to protect that? I mean, you do not go for patents. In the military domain, a patent is not giving any kind of protection as we will be copied tomorrow. What we are doing is, obviously, we are trying to put in place highest security measures in terms of IT system, protecting our IPs from being copied by Kevin's smart security systems. We try to innovate and be always 1 or 2 steps ahead of the competition. But there is no kind of guarantee of not being copied at one day on the barrier. But as the entrance barrier are high, and as you simply cannot reproduce what we have done because most of the intelligence comes with software, which you cannot easily decode and copy, we seem to be quite good protected. And -- but again, cybersecurity measures, which we put in place are the highest standard.

Yes. And speaking of cybersecurity. We have a few questions regarding that. Someone has said EOS is a high-profile target for activist and issue-motivated groups? What measures are EOS taking to protect the company from external threats like cybercrime and ransomware?

Thank you, Caitlin. Look, like many Australian companies, the company is exposed to cybersecurity risks. That is a significant issue for the company. It has been for a long time. The company has a number of security protections in place. And the one I would point to is in the last 12 months, the Board has decided to put more focus on this and establish a Board governance oversight with a cybersecurity committee that the Board has set up to help provide oversight and monitoring of the company's management of that risk. I won't go into the specifics of the tools that we have. We do have tools in place and we maintain them with a number of expert providers that we've selected. And we work closely with the Australian cyber crime center, the ACSC and also with the AST, the Australian Signals Directorate to make sure we get up to the minute advice on threat profiles and so on, as you would expect for an organization like ourselves. So it is an issue. There are measures in place, and we intend to maintain them and make sure they remain calm.

And I know there's a lot of questions coming in, but I'm just conscious of time. Are there any, Clive and Andreas, that you'd like to address? Or should we wrap it up?

I think there's one I was going to cover, and then I'll pass to Andreas. I saw one question, was just asking about Andreas's investment in the company and his participation in the recent raise. So I'll just touch briefly on that. So the management team is incentivized under a long-term incentive scheme which we have detailed in our annual report and our rewards -- let's be frank. Andreas and I are not doing this for the monthly pay packet. We are doing this because we are here to create shareholder value and our long-term incentives, which are significant, are tied to improvement in the share price. Andreas does have some exposure to shares in EOS. Andreas did not take part in the recent placement and he did not take part in the SPP program that's because he is ineligible owing to residency constraints. But rest easy, the management team's incentives are very much aligned with shareholders' interest. And the Board has taken steps to put these in place because we don't want to see management getting anything other than rewarded for improving the outcome for shareholders. So I hope that goes a little way to answer the question.

Thanks, Clive. And Andreas, do you have anything to add?

Yes, there's one question, which I don't want to -- let answer it, which is related to when do we get the first contract for the R800, the dazzler and the R150. So the R150, we already got last year contracts. We have already delivered R150 single volume production levels. We are setting up right now a production line, a large volume production line in the UAE. For offset reasons, we have to do that in the UAE and also to push for further contracts from the UAE government. So this is going to be set up by end of this year, and we expect in the course of this year, already a significant larger volume R150 contracts to go into our books. So that is ongoing. R800, we also expect the first contracts to come in, in the first half of this year, but the first contract will be without the laser dazzler. The laser dazzler, they need to pass some kind of qualification tests. I expect the first dazzler version to be under contract some in 2025.

Perfect. Thank you so much. And with that being said, thank you so much for everyone's questions. I'm sorry, we couldn't get to them all, but you're welcome to e-mail Sharewise, and we can pass them on to Andreas and Clive. I know some people asked whether this presentation will be available. I've been told by the EOS team, it will be made available on their website. And as always, this webinar will be put up on to our YouTube if anyone would like to watch the recording. But thank you so much, Andreas and Clive for your time once again. It's always a pleasure.

Thanks, Caitlin. Bye-bye.