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

Thank you for standing by, and welcome to the Electro Optic Systems Market Update. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Clive Cuthell, CFO and COO. Please go ahead.

Thank you, Travis. Good morning, everybody, and thank you for joining. Last night, we announced the sale of our EM Solutions business and the purpose of the call today is to give you an update on that and take questions. On the call, today, we have our CEO, Andreas Schwer, who is joining on the line from North America; we have myself in Canberra; and we have David Bert, who looks after Investor Relations for us as well. So, what we're going to do is Andreas is going to provide an overview of where we're at. I will touch on some of the specifics of the transaction and we will be referring to the presentation that was published on the ASX last night. I'm going through that page by page. So that might help. With that introduction, I will hand over to Andreas.

Thank you very much, Clive. Ladies and gentlemen, good morning, good afternoon. I would like to lead you through the next slides of the presentation and would like to start with Page #3, assuming that you were all reading the disclaimer and the notices on Page #2 before. Page #3, executive summary, Part 1. You all might recall that EOS has been founded in the 1970s and was expanding its business in the 1980s on electro-optics capabilities and space surveillance, space analytics. And then only very recently in 2019-'20, EOS was then expanding into the communication domain, predominantly driven by the concept and architecture of an optical broadband satellite communication system, which was named SpaceLink. There was a program and an initiative which was very demanding for the company and costing quite some money. And we had -- once we took over the management of the company, we had no other choice than to shut this business down to put it into liquidation because it was simply not successful on the capital market to raise the required funding to set up this kind of orbit constellation into space. When we had this SpaceLink program alive, we, obviously, were very much depending on having ground terminals available, ground terminals in the optical domain. And at that time, we had the chance to buy into a company called EMS, EM Solutions, a company which was active in microwave satellite communication terminals and a good baseline also to go into the optical domain. We could manage to acquire the company in 2019, and the idea was to use this company to develop into this kind of back-end and ground terminal technology domain. That was a strategic link why we did this acquisition of EM Solutions. When we then terminated SpaceLink in 2022, obviously, this strategic rationale was gone. And besides the kind of link to SpaceLink, there was no synergetic potential, no overlap in what we are doing in Remote Weapon Station business and the High Energy Laser business and in the space domain, space awareness business with EMS with their portfolio. So, we kept the company EM Solutions at arm's length in order to let them execute the business and to grow. But again, there was no linkage content and strategy-wise between EOS, the core divisions and EM Solutions. And because of this missing link and because EM Solutions is not and was not part of our core business since we have terminated SpaceLink, we were looking for opportunities to concentrate and to focus our core product portfolio on the 3 key elements I was mentioning before. And obviously, as a result of that, divestment of EM Solutions was always one option, which we were looking carefully at it. And we started the process of looking into further details of such a transaction with the beginning of the actual calendar year 2024, which was leading then to the announcement, which you have seen over the last few hours. Before we go into that one, I want to spend some more minutes on what is the core business now and what are we going to do with the core business. So EOS, we do its transformation towards 2 strategic pillars. One is the strategic pillar of the counter-drone warfare. This is something which we will go into a little bit more detail in a few minutes from now, but the counter-drone warfare is probably the most significant short-term business opportunity for EOS based on the 2 pillars of products, which are the Remote Weapon Station business as one key factor against the drones and second, the High Energy Laser Weapon business. The second pillar of activity, the second strategic axis of the company is what we were calling in the past, space awareness, space intelligence, which we will transform into a Space Control business. So with more military products behind. Those are the 2 pillars, which we are -- where we will concentrate our efforts in the future. Those are pillars with extraordinary growth potential. And those 2 pillars have a lot of technology overlap. This kind of technology overlap, we can discuss also later on. For those ones who went through the presentation, it's on Page 16 in the annex. You can see there why those 3 pillars, RWS, Directed Energy and Space Systems are closely interlinked. So, whilst we do this divestment of EM Solutions and being able by that to concentrate on the 2 growth pillars and having now the opportunity and more financial flexibility to do the required investments to enable this kind of growth, whilst we do that, we obviously continue with a very, very tight capital discipline. We have started or restarted the company in August 2022 with a big restructuring of U.S. and some of you might recall that at that time, we were -- we had to lay off 30% of our staff. We took out a complete managerial level and we have cut down all indirect positions to the bare minimum. We continued on that kind of basis over the last 2 years and we will continue in the next future on that one. So, cash management and capital discipline are absolutely key and we will make sure that we turn the coin twice before we spend it. With that, I would like to go to Page #4 and maybe, Clive, you want to take over to explain a little bit more in detail what this divestment of EM Solutions is all about and what the terms are. Clive?

Thank you, Andreas. So on Page 4, we've summarized the divestment that we have announced last night. Maybe the first thing to say is that this process of divestment started almost a year ago with some Board and management discussions about future growth opportunities for the company. And as part of that, we identified the EM Solutions, as I think many people know, clearly a high-performing part of the portfolio, but the level of synergy between EM Solutions and the rest of the business was limited. In addition to that, we identified that EOS has a desire to grow, particularly in the area of counter-drone and to concentrate its investment and both financial investment and management energy in growing the counter-drone part of our business. And Andreas is going to talk a little bit more about counter-drone as he said. So, over -- almost a year ago, sorry, we took the decision to explore the market for buyers in the EM Solutions business. And following quite an extensive process, we received a compelling offer to buy the business from Cohort plc from the U.K. This is a decision that was weighed carefully by the management and Board over the last several months. The business, as Andreas mentioned, was bought in 2019 for $26 million and $144 million as a 5-year return does not seem like a bad outcome over 5 years. And clearly, EOS has had a lot of challenges over the last few years, but we're pretty pleased with the growth that the management team of EM Solutions has delivered over this time. That said, we've made the decision that we would like to sell EM Solutions in order that EOS can have the funding flexibility and the operational flexibility to focus on growing counter-drone, including Remote Weapon Systems and High Energy Laser Weapons and other parts of our business as well. And Cohort, the buyer is British and listed on the AIM in the U.K. and they have a portfolio of defense businesses and see opportunities with acquiring EM Solutions. The nationality of the buyer as British is helpful in this situation because it fits nicely into the AUKUS partnership between the United States, Australia and the United Kingdom. That has been helpful and we're pleased that the work that has been put in by the buyer, the management team at EM Solutions and also EOS has allowed this transaction to secure Foreign Investment Review Board approval prior to this being announced. That is not a minor thing and it's a big milestone in this transaction. The transaction is also subject to a number of other conditions, mainly relating to the movement of customer contracts and the maintenance of security licenses in Australia. We have indicated that we expect these conditions to be satisfied and that the transaction we expect will be completed within 6 months. We do think there is an opportunity for it to be completed earlier than 6 months and potentially much earlier than 6 months, but we will see how that develops as we work through the remaining conditions. There's no other material conditions other than the ones that I've just mentioned. On capital management, the sale of a significant part of the EOS business triggers an obligation to repay -- to use the proceeds to repay EOS' final remaining debt facility with Soul Pattinson in full. That debt facility would have otherwise been repaid in October 2025 from organic cash flows, including some of the final payments coming in from our large Middle Eastern contract, which is largely complete. The total repayment due to Soul Pattinson is $64 million between now and the end. And that -- the profile of that is $1 million a month interest and a final repayment of $52 million. So on completion, taking the proceeds as $144 million, we will repay Soul Pattinson and the cash remaining after that is approximately $80 million depending on timing. So that would be added to our existing cash balance. And clearly, we will be in a position where following the completion of this transaction, EOS will have repaid all of the debt that was borrowed during a period of severe distress in 2022, and the business will be debt-free. And we expect that the business will have over $100 million of cash in the bank to support growth. Finally, I would note that there is no tax bill expected to arise on this proposed transaction as the gain will be extinguished by existing tax losses in the EOS group. That is the main aspects of the transaction. I'm going to hand back now to Andreas, who's going to go through a little bit more about our counter-drone growth opportunity that we see in front of us. And then we will come back after that for the opportunity for questions at the end. So Andreas, back to you.

Thank you, Clive, very much. So ladies and gentlemen, the Slide #5, 6 and 7 and even 8 are slides you are quite aware of. So, I will not go through it line by line, but just give a kind of broader overview. So in the battlefield, the situation has changed drastically. I think it was a breakthrough disruptive change in the battlefield by the emergence of small drones, small drones commercialized -- semi-commercialized drones, which flying in now in larger quantities in swarms today in an uncoordinated swarm manner in the future with swarm intelligence, which will make its defense much more complicated for the defender. What we are seeing today is a trend that RF means, so-called soft kill means by jamming and spoofing are, to some extent, still effective on the battlefield, but they are becoming less and less effective because of the hardening of the drones with metallic cages. And second, by the increasing autonomy of those drones, drones will be pre-programmed with target coordinates, so they don't need to be operated from ground. So, there is no way to distort and to damage or degrade the link between the operator and the drone itself. Secondly, those drones will not be depending anymore on GLONASS or GPS satellite navigation system information that will be flying on inertial navigation platform devices, which allow them to be completely neutral in terms of RF signatures. That's still some way to go. So we believe that RF will still play a role over the next few years and that's the reason why we also will engage in RF and make sure that we will complement our systems to have this kind of jamming and spoofing activity integrated to offer a kind of one-stop solution for the clients, but we have to be aware of that this is only an interim step. On the long run, again, RF will become less and less effective on the battlefield. I was mentioning before that those kind of large quantities of swarm are attacking today in a quite uncoordinated way. This is going to change. So heavy investments ongoing in the drone industry to develop swarm intelligence, distributed intelligence among those kind of drones, enabling them to coordinate themselves and to allocate targets among themselves, which will make it extremely challenging for the defender on ground to defeat this kind of intelligent fleet. So what does it mean for us? We need to be able to do the next step on RWS, so on the counter-drone defense side. We need to have, first of all, much higher computing power embedded in our systems on weapon stations, on laser weapons on ground, allowing us to do high-end computational algorithms in order to have based on AI sensor information to have the capability to predict swarm behaviors, to predict their attack modes and to be in a better position to defeat those drones. This is something where there is today no solution in the market. Nobody has this kind of capability established so far, but everybody is -- has the same opinion that this is going to happen and we need to have a solution for that one as well. So what does it mean for us? We have to first equip our systems with much higher computing power mission modules. And secondly, EOS need to become more active in domains like artificial intelligence and high-end software algorithms in order to understand those kind of patterns of behavior and to pre-program all that into our mission computing system. Those systems we distribute it. So it means we have a mesh of remote weapon stations on ground, interacting with each other, allowing to allocate targets to each of those effectors and deciding which type of effector to be used against which drone and last but not least, to also discriminate between friend and foe because those kind of drones in air do not send a kind of signal, whether they are blue or red, whether they are west or eastern, they don't do that. So we need to see or we need to identify them by our optical, by our RF and acoustic sensors, whether they are friendly or whether they are hostile drones. Also that obviously requires an onboard library of hundreds of drones embedded in each and any mission computer system and to be able to do those kind of calculations in real time. So those are some challenges which we need to master. We want to master that because we want to become a major and globally leading anti-drone company. Why do we believe that we are well positioned to become an anti-drone company? And here, I would like to refer to Page #8. Page #8 is giving you an overview about today's effectors, how you can counter against those kind of drones. We briefly discussed electronic warfare or the channels, which have an effective range of up to 500, 600 meters. And then as a key effector block, you can see here in the middle of the page, Remote Weapon Systems or canon-based air defense, Directed Energy, so High Energy Laser Weapons and 70-millimeter guided and unguided rocket systems, which we also have already implemented in our weapon stations. This obviously will be complemented by SHORAD missile systems, highly expensive systems, but with a higher range. I need to inform you that the rocket systems have a longer engagement range than 4 kilometers as shown here. Meanwhile, we have done testing, very successful testing up to 8, sometimes even 9 kilometers of range, shooting down Class 1 and 2 drones with 70-millimeter rocket systems. So EOS is well positioned with those kind of effectors. I was giving you some kind of upgrade need and development needs, what we need to do to be with Remote Weapon Systems, probably the benchmark on the market. And what I shared with you some minutes ago is the latest evolution in the battlefield, which we see to come over the next 5 to 10 years where we want to play a leading role. Besides that, obviously, what needs to be done is with our partners, we want to develop more effective ammunition, more effective ammunition in terms of ammunition with proximity uses with airburst programmable capabilities in order to create a kind of pattern of fragments in aerospace, which will give you a much higher hit probability than a direct one-to-one hard kill off around with a drone. Also, that is something which we commonly do with our partners from the weapon and ammunition industry in order to have the leading-edge performance in anti-drone application. So this is the kind of focus area, number one. That's the anti-drone business and we want to transform EOS into an anti-drone company with its first pillar to cover the full range of effectors and having weapon stations, most state-of-the-art, highly versatile to be able to integrate any kind of different effectors, again, whether it's kinetic kill with cannons, whether it's high energy laser systems, whether it's rockets, missiles or even low-power laser systems for data link capability. That is a market which is undisputedly a growth market offering for us a very, very attractive opportunity in the short and midterm. Page #9, let's spend some minutes on the High Energy Laser Weapon side. We informed you a couple of weeks and months ago that we are in advanced stage of negotiation with 2 international clients on laser weapons. Those kind of negotiations are coming to an end pretty soon. We -- as we informed you, we are down selected by those clients. So, we are in a very comfortable position and both kind of contracts will be in the 50 to 100 kilowatt domain. That means those kind of contracts will be the first of its kind in the world market for High Energy Laser Weapon Systems. It's important to note that those systems will be ITAR free. And so we will be able to offer those kind of systems to almost any country without being restrained or restricted by the U.S. Congress in terms of a potential export sale. Those kind of contracts, which we hope to sign over the next few months will allow us to be the first one in the market having a 50 to 100-kilowatt system qualified. That is a milestone for U.S. and a milestone for the industry itself, but we need to go further. I mean we need to invest by own means, but hopefully also by third-party means into the build-up of our production capacity. We need to industrialize it. We need to build up a robust supply chain to be in a position to go into a larger quantity production and having the possibility to serve different clients, different programs at the same point in time. That is requiring also investments and that is one potential domain where we also might need to put some of the cash that you get from the divestment of EM Solutions in. So the High Energy Laser business, which is obviously not only linked to the anti-drone business as a complement to our anti-drone warfare portfolio of effectors, our High Energy Laser business also has a strong interlink with our space systems activity. Page #10, you can see how that is interlinked. Our space business, which was so far space awareness, space intelligence, we will continue doing those kind of activities, but we will enlarge this and transform this into a Space Control business. Space Control means we want to have the opportunity to disable from ground satellite sensors, to disable satellites, for example, to take pictures over hostile grounds. That is becoming more and more essential in the battlefield and will play a very, very essential role in the future. In order to do that, we need to implement and to integrate High Energy Laser Weapon Systems in our space systems optical chain. That means that whatever we do in terms of investment for High Energy Laser Systems will not only benefit the anti-drone warfare, our pillar #1, it will also benefit directly our pillar #2, the Space Control business. And that's the reason why we see huge synergetic potential and a very smooth way forward with 3 activity lines, which are closely interlinked where we can build on our existing -- our heritage, our existing IP base where all those 3 elements play a very essential role and are -- and can be called really core business of EOS. So the big growth potential is then in the anti-drone business based on defense, kinetic kill and High Energy Laser business. And then in the second step, the Space Control business kicking in some years later on, also based on directed energy activities. If you please go to Page #11. Page #11 outlines some potential areas of investment. Those areas of investment are different in terms of application. Obviously, I was outlining some minutes ago what we can do and what we want to do in the area of artificial intelligence, advanced software development, and this is a very attractive field for us and a field where we need to strengthen our capabilities either by organic means or by an acquisition. The second opportunity, obviously, as I was mentioning before, the High Energy Laser Weapon business where we need to put some capital in play in order to get from the qualified 100-kilowatt solution into a kind of mass production. Also here, we might consider to take some of our own money in order to invest into a production facility. We will not develop those means a 200 or 300-kilowatt laser weapon system. So we stick to our words of the past where we said that we will not continue -- we will not repeat the mistake of the past with SpaceLink where we were investing a huge amount of shareholder money into new risky product development. That's not going to happen and we will continue on that path. So those are 2 areas where we believe we should invest in. And again, if I may come back on the Remote Weapon Station business. So what would we need to do there? So, it's on the first side, as I was mentioning before, the artificial intelligence/advanced software activity. Second, we need to upgrade our sensor units, our sensor detection identification and tracking capability as very small drones, nano drones are asking for higher optical or special resolution. We need to comply to this kind of trend and also invest here to have advanced versions available in the future. Another line of activity could be, as I was also briefly addressing before, to do together with partners some efforts in the area of advanced ammunition based on proximity fuses or programmable airborne fuses. Those are all activities where we have started to look for targets. We have potential M&A targets in all those domains. We have not engaged ourselves too much in those because we first wanted to complete the deal on EM Solutions before we spend too much money on those activities. But this is something where we will focus our activities and our efforts now in order to have a very wise investment done with the EM Solutions proceeds over the next -- I would say, over the next year. So we are not unprepared for this step and we have not decided how much we go into organic and how much we go into an M&A kind of transaction. But I want to leave you with a firm message that we are not starting this now. We have already made up our mind to a large extent and we know what we have to do and where we have to invest in order to make those growth perspectives happen. So as a conclusion, EOS now, 2 years after Clive and I have taken over the leadership roles in the executive management of EOS, we have promised you from the beginning, it is a 3-year transition program. It's a transformation of the company. And we were never really clear about the long-term strategic objectives and where we want to concentrate on. This is something what we can do now today. With the divestment of EM Solutions, it's becoming clear now that we, EOS, want to become, sorry to repeat again, the anti-drone company on global scale and we want to be a major player in the domain of space control. And again, the important key enabling technology in between those 2 pillars is the High Energy Laser Weapon business. That is the future of EOS. It is very compelling. It is very attractive and we are very happy that we have now the means in hand in order to execute the strategy. That is what I wanted to cover in the -- within this presentation. I would propose now that, Travis, that you open the round for potential questions of the audience. Thank you so far.

Thank you. [Operator Instructions] The first question today comes from James Lennon from Petra Capital.

A couple of questions. First of all, I wouldn't mind if you could perhaps let us know, you're talking about some money that you'll invest in product support, what sort of burn rate are you expecting the business to -- cash burn rate will be going forward, just given you're basically selling the highest margin part of your business?

Thanks, James. So the question is, given our plans for investment, what's the cash burn rate that we expect going forward? Look, we have not provided cash guidance in the past. We're not going to give cash guidance for 2025 at this stage or even for this year. As you know, we are in a lumpy business. What I would say, James, is that we see the main things on the horizon as the completion of this transaction within 6 months, possibly earlier. We do have a significant cash amount coming in from the finalization of the Middle Eastern contract, which we've mentioned before is approximately AUD 50 million. And that's the final 10% retention on the Middle Eastern contracts, which means it comes in without significant cash outflow required to achieve that. And I think we've previously indicated that we are aiming -- we're hoping to get that to come in, in the middle of calendar 2025. So that's a positive that's out there. As you indicate, if you take the rest of the business on an ex-EM Solutions basis, you would not, at the current revenue levels, expect us to be generating a lot of cash in the ordinary course. And I think that's a fair statement, James. But we will be very focused on optimizing the cash items that I've just mentioned. The strategic discipline and the operational discipline that has been in place over the last 2 years will continue. We are very pleased that we've been able to pay down the substantial debt. However, there is a lot more to be done and achieving success going forward will only happen if we maintain the operational discipline and the strategic discipline that Andreas has talked about a little bit earlier. So that's going to continue. So I'm sorry, I'm not going to give you a cash burn rate for next year, James. We are seeking to win substantial new orders and we will continue to seek cash positive new orders rather than anything less than that. And we would hope to achieve a result for cash in 2025 that pleases shareholders. There's no doubt about the direction that we're aiming for.

Okay. So, maybe another way of asking it, you've itemized $100 million to $200 million of growth opportunity investments. How much of the cash that you -- taking into account the contract asset realizations? How much of that sort of cash are you putting aside for product development? And how much is just to run the business over what you think until you get another large contract coming through?

We're not -- we think the business needs -- let me put it this way. Our business needs to be cash flow positive on a stand-alone basis. We don't want to be in a situation where it's constantly needing $20 million or $30 million a year of product development. That's not something that we should be aiming for. That kind of discipline has served us quite well in the last couple of years. We've put these opportunities down here on Page 11 because we think they are real opportunities to accelerate business growth. And we do intend to make some of these investments over the time frames indicated here. We're not in a rush to invest the money quickly. We don't want a lazy balance sheet either. I would caveat that with, but we want to make the right investments at the right time in order to generate the right returns. The numbers on here are indicative, James. We think we could put maybe $50 million in counter-drone and maybe another $50 million or $60 million into High Energy Laser Weapons and there's multiple opportunities on M&A. These opportunities that we're looking at are real, but we have not taken them through the Board yet for Board approval and we will only be deploying significant shareholder capital in the way that this indicates once we've gone through the proper process of assessing the opportunities and seeking Board approval. So as Andreas said, the numbers move around a little bit within what's on the page here.

Okay. All right. Just one last one. In terms of the order book, you mentioned there, I think it's $165 million if you exclude that conditional contract in Ukraine. What's the sort of the duration of that? Do you expect you'll basically or build most of that in '25? Or is it going to sort of be spread over a couple of more years?

Sure. So, the $165 million is, as you say, that excludes the conditional orders and it excludes EM Solutions and that is a 30 June pro forma number. As Andreas has mentioned, there's a number of other opportunities in the pipeline that we're working on that we expect will allow us to grow the order book over the coming months. But if we take the worst-case scenario, that number will -- on the current trajectory, would be a little bit lower by year-end. Now we think there are significant opportunities that could be signed up before the end of the year or just after. But if we take the $165 million, that number will be a little bit lower by the end of 2024, unless there could be new orders. And it could be around the $100 million to the $120 million mark by the end of the year. Of that secure order book, most of it, more than 80%, we are aiming to deliver in 2025. Now that tells you that in order to maintain year-on-year revenues in the Defense and Space businesses, excluding EM Solutions, we need to win some more orders, which is why we are focusing on some of the areas that we've mentioned on previous calls and mentioned today. We do see the opportunity with a number of the opportunities that we're pursuing to secure orders within the next few months that do make a meaningful contribution to 2025, and we continue to pursue these. And obviously, we will update the market as soon as anything material has occurred. I hope that answers your question, Jim.

[Operator Instructions] The next question comes from Dave Storms from Stonegate.

I just wanted to touch on M&A opportunities. I know you mentioned a couple of times in your slides in the prepared remarks that you're seeing opportunities in the market, you just were active in the market. I guess what are you seeing in terms of acquisition opportunities? Or what would an ideal opportunity look like to you at this point?

Thanks, Dave. So, I'll make comments. Yes, Andreas -- you go first, Andreas.

Yes. It mainly depends, obviously, on the kind of area this M&A opportunity is showing up. In an ideal way, we find a target in the area of artificial intelligence and advanced software development, which is covering maybe $30 million, $40 million of investment with which we can enable the kind of capability road map, which I've outlined before, this kind of meshed system in the battlefield being able to engage against organized drones coming in swarm attack mode. That is something where we, I think, very wisely be to invest some money in. And at the same time, investing some money into the build-up of our production capacity for the High Energy Laser Weapon domain, which we will only trigger once we've received the first 1 or 2 contracts for 150 -- 50 to 100-kilowatt laser weapon prototype production. That is something which would allow us then to cover flown contracts even in larger quantities and would be a game changer for the company. We would not need to invest significantly more than what we would need to invest into a software company. Also, here, we talk about an order of magnitude of maybe $20 million, $30 million to build up this kind of capacity to give you an idea on what we are talking about.

Understood. And then just two quick modeling questions for me. The first one, what is the timing around the repayment of the WHSP debt facility? Would that need to be done within 90 days of closure, within a year of closure? And also, to get a better sense of that.

Sure. Thanks, Dave. The timing of the WHSP repayment will be at closure. So it's not 90 days after. It's at the time of completion. We will repay WHSP at the same time and we will be debt-free from that point forward.

Understood. And then just one more, again, from [indiscernible] perspective. You mentioned in your slides LTM revenues of approximately $74 million. That's roughly 26% of your revenues coming from EM Solutions over the last 12 months. Considering you mentioned that there are little synergies between EM Solutions and the rest of your portfolio, would it be reasonable to expect a similar percentage reduction in your consolidated operating expenses?

No, that's not the case, Dave. That's a very good question. So EM Solutions is slightly different from the rest of our business in a couple of key areas. It has a lower gross margin than the rest of the business, and -- but it also has a lower OpEx or overhead cost base. So the group gross margin on materials previously was typically in the range of 40% to 45%. And we would expect to see that tick up a little bit, maybe 45% to 50% following the sale of EM Solutions because we take away the dilutive impact of the EM Solutions business. The overhead cost base in EM Solutions, the OpEx is quite low and we would expect to see a reduction in OpEx of $6 million or $7 million a year as a result of the EMS sale. And that will kick in from the point that completion occurs. So it's quite nuanced.

And good luck closing the sale.

Thanks, Dave.

Thank you. At this time, we're showing no further questions. I'll now hand the conference back to Dr. Schwer for any closing remarks.

Thank you, Travis. So ladies and gentlemen, thank you very much for joining us for this call today. I hope that we could outline for the first time what the company long-term strategy is, a strategy which is based on 2 pillars and 3 key enabling technologies; the kinetic killer, the high energy laser and this base control technology domain. We are absolutely confident that the decision taken to go into those directions will unlock huge growth potential and it is a very wise decision to transform the company into this kind of direction. We will be glad to inform you in due course about the next steps, the closure formally on the EM Solutions deal once we have satisfied all the kind of conditions. And secondly, the first steps towards M&A and other investments in the 3 pillars, which we have mentioned before. So again, I want to thank you. I want to thank for your loyalty to EOS, and I want to encourage you to stay with us because the strategy is extremely interesting. It's extremely compelling. We are active in absolute growth domains in the global defense and the space market, which makes us very confident to make the company a great success story over the short, medium, but also long term. Thanks to everybody. Thanks to my team supporting us in this call and I wish us all a great future. Thanks, everybody.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.