Eutelsat Communications S.A. (ETL) Earnings Call Transcript & Summary

Welcome to the Eutelsat Full Year 2025-2026 Results Presentation. [Operator Instructions] Now I will hand the conference over to the speaker, Jean-Francois Fallacher, Chief Executive Officer; and Sebastien Rouge, Chief Financial Officer. Please go ahead.

Hello. Welcome, and thank you for joining us today in the middle of the summer for Eutelsat's full year '25-'26 results presentation. I am Jean-Francois Fallacher, the CEO of Eutelsat, and I am joined today by Sebastien Rouge, our Chief Financial Officer; and Joanna Darlington, Head of Investor Relations. So let's go directly to the meat of this meeting and the highlights of our year. So I want to stress that our LEO revenues were ahead of expectations, up nearly 70% year-on-year to almost EUR 300 million, and our LEO revenues are now representing 25% of group total revenues. Overall, our full year '25-'26 results are in line with objectives. CapEx are at just under EUR 600 million, below the EUR 900 million expectations, and Sebastien will come back to that. In March this year, we've added the final touch to our successful EUR 5 billion complete refinancing package with a EUR 1.5 billion bond offering, securing our midterm CapEx needs. And we also secured a major EUR 350 million call-off contract under NEXUS framework agreement with the French procurement arm of the French MOD. We also welcomed 2 weeks ago, the FCC -- the U.S. FCC C-Band clearing order, which is expected to deliver $504 million in incentives payment in 2031. And finally, the imminent outcome of the IRIS2 First Rendez-Vous is expected to confirm Eutelsat leadership on the LEO segment. Let's now turn to the financial highlights. Total revenues for full year '25-'26 stood, as you can read there, at EUR 1.235.9 billion, down 0.6% on a reported basis and up 3% like-for-like. Revenues for our 4 operating verticals stood at EUR 1.197 billion, up by 1.8% on a like-for-like basis. LEO revenues amounted to EUR 297 million, up to almost 70% and now accounting, as I was saying, for 1/4 of our revenues, and this is up again by 70% versus last year. Adjusted EBITDA stood at EUR 632 million on 30 of June, down 3.1 points like-for-like. Adjusted EBITDA margin stood at 51.2%, 3.2 points like-for-like. As mentioned, these results were in line with our expectations. CapEx is at just under EUR 600 million, below the EUR 900 million expectation. This is leaving us with a net debt to EBITDA ratio of 2.32. Let's go now to our operational performance. I will comment our revenues by vertical. Video, as you can see now, is representing 43% of our total revenues at EUR 519 million. This is actually a decline in the legacy revenues by 13.1%. Then if we go to our Fixed Connectivity revenues, they are now representing 23% of the total group revenues, and they rose by 15.6% to EUR 270 million. Government Services, which are now representing 20% of our revenues at EUR 235.5 million rose by 17.7%. And our Mobile Connectivity, which are representing 14% of the group total revenues with EUR 172 million increased by 16%. If we now look at the next page, our total revenues stood at EUR 1.226 billion revenues. Again, on a like-for-like basis, it is an increase of plus 3%, and they reflected a EUR 51 million negative currency effect and EUR 21 million positive swing in other revenues mainly from revenue recognition from IRIS2 linked to the Eutelsat involvement as a consortium system development prime and as well as some hedging revenues. And the revenues of our 4 operating verticals were up 1.8% on a like-for-like basis. Let's now zoom on our Video business. As I was saying, Video revenues were down by 13.1% this year. This is with no surprise reflecting the underlying market trend, compounded as well by sanctions on our Russian channels that were imposed at the beginning of the year and by the termination of capacity contracts on 2 Russian satellites called AT1 and AT2. So fourth quarter revenues on the Video side stood at EUR 124.7 million, down by 14.4% on a year-by-year basis and 2.7% quarter-on-quarter, reflecting actually the first full quarter effects of these contract terminations. I was talking about the AT1 and AT2 contract termination. Let's now turn more in detail into our Connectivity business. Our total Connectivity revenues stood at EUR 677.9 million, up by 9.7% on a reported basis and 16.4% like-for-like. This is clearly thanks to the robust performance of LEO across all 3 verticals. As I was saying, LEO growth exceeded expectations, up by almost 70% to EUR 297 million revenues. And now LEO is representing more than 40% of our Connectivity business revenues and 1/4 of the group total top line. The fourth quarter revenues stood at EUR 214.9 million, up 24.7% like-for-like and 30% quarter-on-quarter, again, powered by the sustained growth in our LEO business. And in particular, they reflected the catch-up revenue recognition with respect to our NEXUS framework contract with the French MOD. Now if we zoom in each verticals, on Fixed Connectivity, I am Page 10 on the presentation. Fixed Connectivity revenues stood at EUR 270 million, up by 15.6%. Again, thanks to the growth of LEO-enabled solution and that was partially offset by more challenging conditions for GEO-enabled solutions. The fourth quarter revenue of this specific segment were at EUR 77.7 million, up 17% year-on-year and 27.8% quarter-on-quarter, reflecting again our LEO performance as well as catch-up revenue in the fourth quarter. Key wins in this fourth quarter included a new partner agreement with Voimatel and the delivery of LEO connectivity services in Finland, supporting critical network infrastructure, resilient communication for enterprise and public sector customers and connectivity in high northern latitude, including Arctic regions where our constellation is particularly strong. Let's go now to the Government Services segment, where revenues stood up at 17.7%. This is strong growth, and this is reflecting the revenue recognition related to the CENTAURE call-off contract part of, again, the NEXUS initiative with the French MOD as well as increased demand from other non-U.S. governments and services that we are delivering in Ukraine on the LEO constellation. And fourth quarter of this segment was up by 36.9% year-on-year and by 70% quarter-on-quarter. This was linked to the above-mentioned contract with the French procurement arm of the French MOD. On Mobile Connectivity, revenues up 16% year-on-year, precisely 15.9%. This reflected the ongoing strong performance of the Aero segment, both on LEO and GEO solutions. This is really a segment where we are benefiting from our multi-orbit capabilities at Eutelsat as well as more limited contribution from maritime, where LEO growth was unfortunately partially offset by softer trends in the GEO services for maritime. Fourth quarter revenues stood at EUR 50 million, up 18.6% year-on-year and 11.8% quarter-on-quarter. Let me comment a few commercial successes in Q4, where we signed a multiyear, multi-million dollar agreement with AST Networks to expand the use of Eutelsat OneWeb LEO services as part of hybrid connectivity solutions for maritime customers worldwide. Eutelsat also signed a new partner agreement with Greece, Tototheo, to deliver the LEO connectivity services to customers across the global maritime sector. And this is clearly strengthening our company's distribution network in this strategic market, which is maritime for us. In aviation, Eutelsat signed a multiyear agreement with Anuvu for capacity EUTELSAT 10B to enhance high-speed in-flight connectivity services, underscoring the role of the GEO capacity within Eutelsat midterm strategy. And elsewhere, we are happy that our distribution partner, SES Intelsat entered major in-flight connectivity agreements with Japan Airlines and LatAm Airlines that will use our LEO constellation for in-flight connectivity. Our backlog now stood at EUR 3.4 billion on June 30 versus EUR 3.5 billion a year earlier. This is the equivalent of 2.7x our '25-'26 revenues and Connectivity represented 61% of the total backlog versus 57% a year ago. As a reminder, the evolution of this backlog is reflecting the increasing weight of LEO business in the mix. And as a reminder, contracts in the LEO business tend to be shorter than the contracts we used to have in the legacy GEO application. This explains this slight decrease of the backlog. Moreover, only the secured element of take-or-pay contracts, LEO contracts, are recognized while what we call pay-as-you-go LEO contracts are not reflected in this backlog. Let's now turn to our financial performance, and I will pass the floor to our CFO, Sebastien Rouge.

Thank you, Jean-Francois. You covered revenues in detail. So let's now jump straight to profitability. Adjusted EBITDA stood at EUR 632 million for the year ended at the end of June compared to EUR 666 million a year earlier. It's down 6.5%. It was down 3.1% on a like-for-like basis. Operating expenses stood at EUR 604 million. It's up EUR 36 million. They mainly reflected an increase in cost of goods sold for our LEO business, partially offset by the revaluation of share-based compensation schemes that we booked in H1. In terms of margin, adjusted EBITDA margin stood at 51.2% versus 54.4%, down 3.2 points on both reported and like-for-like basis. If we look at the rest of the P&L, group share of the net result was a loss of EUR 457 million versus a loss of EUR 1.1 billion a year earlier. This improvement reflected lower other operating expenses of EUR 153 million as compared to EUR 777 million last year. As a reminder, fiscal year '25, '26 included goodwill and satellite impairments totaling EUR 720 million. We have lower D&A of EUR 699 million versus EUR 808 million a year earlier, reflecting the positive effect from the securing of operational continuity of the LEO constellation following the procurement of additional 340 satellites as well as the end of amortization of certain intangible assets as well as lower on-ground depreciation. We have a net financial result of minus EUR 232 million versus minus EUR 201 million a year earlier, mainly reflecting higher interest costs, partially offset by the favorable evolution of foreign exchange gains and losses. Finally, we have a very small corporate tax charge of EUR 1.6 million versus a small gain of EUR 6.7 million a year earlier. If we look at our capital expenditure, CapEx amounted to EUR 594 million as compared to EUR 450 million a year earlier. This increase reflects the progress in the execution of LEO investment programs, primarily focused on the Gen-1 follow-up activities. It was below the EUR 900 million that we originally anticipated through our first half results communication, mainly due to changes in milestone phasings and good control over GEO and ground CapExes. It should not be extrapolated for the future years, notably '26-'27, where CapEx is expected to be in the region of EUR 1.2 billion. In this context, the group confirms its medium-term plan, covering investments of approximately EUR 4 billion over the period fiscal year '26 to fiscal year '29, funded by its recently completed EUR 5 billion refinancing round. If we look now at our financing structure at the 30th of June, '26, the net debt stood at EUR 1.46 billion, down by EUR 1.2 billion versus the end of last year, mainly reflecting the net proceeds from the capital increase of EUR 1.5 billion. It was partially offset by interest out and costs associated with the execution of our refinancing plan. As a result, the net debt to EBITDA ratio stood at 2.32x compared to 3.9x at the end of June '25. The average cost of debt after hedging stood at 4.37%. Along to an ample renewal of our financing capability, the group was able to take advantage of the EUR 1.5 billion capital increase, which has improved its rating and credit appraisal by lenders. The group has extended the average maturity of its debt now at 4.2 years as compared to 2.5 years at the end of '25. We enjoy a great level of liquidity with undrawn credit lines and cash in hand at EUR 2.3 billion, complemented by around EUR 690 million of undrawn ECA facility dedicated to future CapExes. Now I hand back to Jean-Francois for the outlook and the next steps.

Thank you very much, Sebastien. Let's now turn to the outlook where I want to start by commenting the commercial momentum we've built over the past year. It's clearly demonstrating that our strategy is translating into tangible customer wins across all our core markets. In Fixed Connectivity, as you can see there, we continue to strengthen our presence with both existing and actually new partners. You can see a list here of our distribution partners and basically customers, Airtel, Orange, Paratus, Intersat are actually reflecting the continued demand for high-quality connectivity solutions and the value of our multi-orbit offering. On Governmental Services, this has been a year where this segment has been a major growth driver. We secured landmark agreements, most notably with the French Defense Procurement Agency, DGA under the NEXUS frame contract and alongside contracts with other institutional customers and partners. These successes are clearly reinforcing our position as a trusted partner for sovereign and defense communication in an area where the demand really continues to accelerate. And on the right side of the chart, you can see there that the momentum in Mobile Connectivity has also been strong across maritime and aviation and the list of partners we are having reselling for are including ViaSat, Marlink, Panasonic Aviation, Tototheo, AST Networks, Station Satcom, and of course, SES Intelsat. Taken together, I mean, these commercial successes last year are really illustrating the breadth of our customer base, the growing recognition of our capacity and our ability to win the business across a number of verticals. They are providing us with increasing visibility on the revenue growth as our LEO business continues to scale and to increase, of course, that while leveraging the strength of our multi-orbit established GEO franchise. One word about one of the most significant commercial achievements of last year. This is the award of the first call-off contract under the French Ministry of Armed Forces NEXUS framework agreement. The name of this contract is CENTAURE. It has a potential -- a total value of EUR 350 million over 8 years. And it's obviously a major milestone for Eutelsat. It's validating our strategic role and the role that the OneWeb constellation can play in supporting as a dual player in supporting sovereign and defense communications. This contract is actually composed of a firm commitment of EUR 138 million over the first 4 years and is enabling immediate deployment of secure, resilient LEO connectivity capabilities for the French armed forces. Importantly, it is bridging the gap ahead of the deployment of IRIS2 by providing as we speak immediately and we started actually already last year to provide a number of services. This is clearly a solution that is laying the foundation for Europe future sovereign connectivity infrastructure. Beyond its financial contribution, this contract is strategically important. It is demonstrating the confidence that one of Europe's leading defense organization is placing in our technology and operational capability. And this is only the beginning. The framework agreement NEXUS has a 10-year duration, creating a significant pipeline of future opportunities as additional call-off contracts are going to be awarded to support evolving operational requirements of the French arm. We believe this contract is positioning Eutelsat at the forefront of Europe's sovereign communication ecosystem and is providing an important catalyst for continued expansion of our Government Services business across other geographies in Europe and outside Europe. A word now on FCC Upper C-Band transition in the United States. The recent FCC order has been establishing the regulatory framework for the reallocation of 160 megahertz of Upper C-Band in the United States. Under this order, Eutelsat is expecting to receive an incentive payment of $504 million pretax upon the completion of the transition, which is EUR 443 million pretax upon completion of the transition. These funds will be expected during 2031. And separately, the costs that will be associated with this transition are eligible for reimbursement by the FCC and this is coming on top of the $504 million incentives to be received when freeing up the spectrum. Our preliminary transition plan is now under review and will be presented to the FCC in November and the proceeds from this incentive payments in 2031 will contribute to funding our CapEx requirements beyond 2030-2031. Now let me say a word on this very important project, which is IRIS2. And I have fresh news, a scoop, as I'm just learning the moment now I'm speaking that we have finalized and the EC has just been communicating that we have successfully passed a very important milestone for this IRIS2 project, which is the so-called Rendez-Vous 1 closure. What does it mean? It means that the project that was so far in a phase of design, of preparation is going into a different operational phase where, first of all, the SpaceRISE Consortium is now committed to build this project and contracts are going to be passed to a major prime key subcontractors to build this constellation for Europe's future. This is IRIS2, the largest public-private partnership ever undertaken in European space sector. It will provide Europe with a sovereign, secure, resilient, multi-orbit connectivity infrastructure. The First Rendez-Vous negotiation are clearly now finalized. We will move now to the next step of this project. This is confirming that Eutelsat has a leading role in this project as a LEO lead within the program. This is clearly reflecting the unique expertise we are bringing to this project, IRIS2, as the only European player with an operational constellation as we speak. And I have to underline that beyond the strategic recognition, IRIS2 will provide access to enhanced network capacity and next-generation technological capabilities. So this is really the next generation and the generation 2 of our constellation that will strengthen our competitive position for the years to come and secure our future until 2040. Ultimately, the program, again, firmly establishes Eutelsat, I believe, as the heart of Europe's sovereign connectivity ambition and is reinforcing our role as a key strategic infrastructure provider and supporting future growth opportunity for us across not only government, but also commercial market, B2B and really underpins now our long-term road map. Let's now turn to our financial outlook. For the financial year ending in June '27 that has just started, our LEO revenues are set to drive, again, further strong growth. We are anticipating a rise of over 30%. And as in the previous year, LEO growth, this growth will offset the decline in GEO revenues, notably Video. In consequence, we expect to deliver slight growth in our revenues, in our total revenues of our 4 operating verticals with an EBITDA margin broadly at the same level at last year. This year, gross capital expenditure is expected to amount EUR 1.2 billion. This is clearly reflecting a milestone shift from the previous years as well as ramp-up of CapEx associated with the renewal of our current generation of OneWeb constellation. Elsewhere, we are confirming our revenue expectation in a range of between EUR 1.5 billion and EUR 1.7 billion for the year ending June '29. That will be again supported by the very strong momentum of LEO revenues. Our operating leverage is set to drive an improvement in operating EBITDA margin, which is expecting at this horizon of year ending June '29 above 60%. To conclude, now to sum up, it's been a year of solid execution against our strategic priorities. First, our transformation gains momentum. Low orbit revenues grew by 70% last year. They are now accounting for 1/4 of our group revenues. This is really demonstrating the increasing commercial traction of OneWeb. This growth is progressively offsetting the decline and the expected decline of our legacy GEO business, which nonetheless continues to generate strong resilient cash flows that are supporting group's investment strategy. Second, we have fundamentally strengthened our financial position. During last year, we successfully completed a comprehensive EUR 5 billion refinancing package, securing funding for our constellation renewal and other capital expenditure requirements throughout full year '28-'29, while we have significantly improved the resilience and flexibility of our balance sheet. Third, we achieved an important milestone with the first major call-off contract under the French MOD framework agreement that is representing more than EUR 350 million and further on is demonstrating the growing strategic demand for sovereign LEO connectivity and our role as a dual supplier in the MOD segment. Fourth, looking ahead, the FCC's decision on the Upper C-Band transition in the U.S. will provide $504 million in incentive payments expected in 2031, which will contribute to our long-term financing needs. And finally, the breaking news, the outcome of IRIS2 First Rendez-Vous, which has now been signed this morning. That is obviously a very key and important milestone for Eutelsat and also for Europe, and it is confirming Eutelsat's central role in Europe's sovereign connectivity ambitions, reinforcing our leadership in LEO services and further strengthening our long-term strategic road map. So overall, I believe we leave the year as a stronger company commercially, financially, strategically with now a clear path to long-term sustainable growth. Thank you very much for your attention, and now we will take your questions.

[Operator Instructions] The next question comes from Aleksander Peterc from Bernstein.

I just have 3, please, if I may. So the first one is on your guidance for the current year fiscal '27. I'm just wondering, are you being very, very cautious? What's explaining yet another year of flat revenue? And how should we think about your midterm guidance that does kind of model at some point, a more meaningful top line recovery? So when will we finally get this LEO traction that translates into overall group revenue starting to track towards your midterm guidance levels? Secondly, on the government and defense pipeline, I'm wondering whether -- to what extent the CENTAURE program helped fourth quarter government revenues? Was this a one-off particularly strong quarter? Or should we expect similar streams going forward? I just want to know how the phasing of this program works. And then thirdly, on EBITDA margins that came in a little bit below expectations. Again, we're going to get flat margins for the current year. Is this a function of mix that is detrimental with Video declining and that obviously creates higher margins? Or is there anything else at play there?

Thank you for your questions. I will start to take the second question. I mean, on the accounting of our contract with the French MOD, I mean that was an exceptional quarter in the sense that we have recognized revenues because the constellation was used during the year, and we signed this contract in June. So don't derive that the June revenues are going to flow that way each quarter in 2026-2027. So clearly, there was the catch-up in Q4 of some usage that the French MOD did of this constellation in the year that passed. On your first question, first of all, we maintain our expectations in terms of revenues for full year '29 to get between EUR 1.5 billion and EUR 1.7 billion in full year '29. LEO revenues are expected to continue to accelerate. I mean, again, we have a number of installations that are growing really in the right way. We are ramping up also the backlog. Consumption is going in the right direction. And basically, full year '27 actually slight growth is explained by actually '27 Video revenues, which are expected to face -- sorry, another tough year. And as you remember, we had channel losses in Q4 '26. We had these AT1, AT2 satellites, which we actually abandoned. And from '27 -- sorry, from full year '28, we expect the Video decline to abate to more average market trends. And therefore, growth will come next year. What you see is indeed the Video is expected to have tough times again in '27, the Video GEO business. And your third question was about the EBITDA margin mix. Maybe I will pass the floor to Sebastien.

Yes. I think you have the answer into your question. We are still in a stage where the LEO business is actually not as profitable as the established GEO one with acquisition costs and equipment that gives you that. It will normalize throughout the year. But as we said, I think we have in this transition some pressure coming from this mix that remains.

The next question comes from [ Utsav Sinha from AlphaValue ].

I just had a question about your CapEx investments going from now onwards. So initially, it was planned for the replenishment of Generation 1 satellite, so EUR 2 billion, but now you're projecting it to be around EUR 4 billion for your midterm CapEx investment. So I just wanted to understand what would be your like stable level CapEx ratio based on sales because this EUR 4 billion looks like quite heavy at the start? And also, I would like to understand the revenue you expect from the IRIS2 program. I understand on a technical basis that Eutelsat is the leader there. But I would just also like to understand what is the return that you're getting on these kind of CapEx investments?

So what we clearly stated last year and at the beginning of the year was that we have EUR 4 billion cumulative CapEx between fiscal year '26 and fiscal year '29, which includes in real terms the replenishment the OneWeb constellation which was indeed highlighted at around EUR 2 billion and includes as well the early contribution of the IRIS2 CapEx. And that's -- it's important that, obviously, there will be some shift in phasing, but this overall envelope accumulated over 4 years is confirmed with -- you have seen lower spending last year and spending that will ramp up this year and the next 2 years will be important CapEx as well. But we are really maintaining this EUR 4 billion cumulative over 4 years, which is very well in line with the refinancing package that we have so that we are sure that we have the necessary fund to engage this CapEx.

But still, I would say like EUR 1 billion every year, like for 4 years, EUR 4 billion, so EUR 1 billion and your revenue is at around EUR 1.2 billion now. So as a percentage of sales, it's quite high. So when do you think it will stabilize?

Yes, that's -- we are well aware that it's important. We are well aware that we are in a very specific period in the life of Eutelsat where we have to make sure that the current constellation is up and running and that we transition to the next generation of constellation. So that's -- I mean, that's really the reason why we have put in place this financing package, including the large capital increase so that we have the means to, I would say, in a condensed timing ensure quality of service for our customers that are more important every day and every month after the other and at the same time, prepare the future, the next generation in the European frame. So it's -- we agree a very intensive timing, but we've been prepared for that.

The next question comes from Stephane Beyazian from ODDO BHF.

Yes, I'm just wondering to follow-up on IRIS2 if there is any significant deviation or change to the initial calculation that you provided, especially in terms of future revenue stream? I guess the CapEx investment is something that we have, but probably we have a little less -- a little more uncertainty perhaps on the revenue stream. So I was just wondering in all the discussions, if you've been able to get more commitment and more, let's say, conviction on the future revenue stream. Second question, I was just wondering whether you can provide us a little more technical features on the new OneWeb and IRIS2 satellites. I'm thinking of speed, possible download speed and capacity from those constellation. And finally, I was just wondering whether you have some takeaways from the Starlink IPO. There's been the disclosure of a lot of things, their financial numbers, their strategy, market reaction. I was just wondering whether there are any surprise or any takeaway that can be interesting to Eutelsat.

Okay. Thanks, Stephane. It's Jo here. So Jean-Francois said, the IRIS announcement is obviously breaking news. We will be releasing our own press release with detail. I mean they've obviously -- they have announced the global constellation. We will be communicating like we did last time with details, which are more specific to ourselves. So I think what I would ask everybody to do is to wait for that communication and then we can -- we'll be able to come back to you at a later stage and answer questions on IRIS2. So no further communication on IRIS in this call, please. Let's focus on the results. I'll let Jean-Francois comment on your Starlink question.

Yes. I mean thanks, Stephane, for the question on Starlink IPO. This is -- this was, of course, interesting because this is the first time they had to publish a prospectus. And as you know, 2 days ago, they published their first quarterly results. So this is, of course, interesting because it's a way to get more information about SpaceX, Starlink. So first thing we've derived is -- and that was a surprise. I mean, in the prospectus, we've seen that the client A, so-called client A, which is representing almost 25% of their revenues is obviously the federal state, the U.S. federal state. So we've been -- I mean, it's clear, the level of support SpaceX and Starlink are getting from the U.S. government. So this is the first thing that struck us. I think the second thing that struck us is when we look at the valuation, we see that Eutelsat is extremely undervalued because we are, as I repeat, the second operational low orbit constellation existing today in the world. And you see with the results we are just publishing, the growth that we are having. And basically, the strategy that the Board of Eutelsat took a few years ago and the previous management was the right one because this 70% growth year-on-year on our LEO constellation is actually, as we see, compensating actually the decline in legacy GEO business. So again, I mean, the learning when we look at the valuation of Starlink is that we believe we are undervalued as a company looking at the assets we are currently running and operating.