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

Welcome to the Eutelsat First Quarter 2026-2027 revenues presentation. For the first part of the conference, the participants will be in listen-only mode. [Operator Instructions] Now I will hand the conference over to the speakers. Jean-Francois Fallacher, Chief Executive Officer; and Sebastien Rouge, Chief Financial Officer. Please go ahead.

Welcome, and thank you for joining us today for Eutelsat's First Quarter '26-'27 revenues presentation. I am Jean-Francois Fallacher, CEO of Eutelsat, and I am joined by Sebastien Rouge, our Chief Financial Officer. Let us start with the highlights of the past quarter. Leo revenues continued their solid growth. Overall, our first quarter revenues were in line with expectations, enabling us to confirm our full year '26-'27 financial objectives as well as our long-term targets. Finally, we reached this past quarter a major strategic milestone with the successful completion of the IRIS2 first rendezvous, the program has now entered its construction phase, making the transition from program definition to industrial execution and enabling us to recognize EUR 8.9 billion of associated backlog. This milestone further cements Eutelsat's role at the heart of Europe's future sovereign connectivity infrastructure. Let me now provide precisely an update on the IRIS2 program and the progress we have achieved over the past month. Last August, the European Commission and the consortium officially confirmed the launch of the industrialization phase of the program, moving it from planning into full-scale deployment. At the heart of this ecosystem, Eutelsat will leverage its proven operational expertise, systems engineering capabilities and unique experience in deploying and operating large-scale constellation to deliver one of Europe's most ambitious space program. Our role encompasses the design, the deployment and the operations of the IRIS2 LEO constellation integrated with a broader multi-orbit architecture spanning Leo, MEO and of course, terrestrial infrastructure. The LEO constellation combines an incline orbital architecture, with beamforming antennas, 5G and, and it will dynamically direct capacity to where demand is the greatest, providing higher throughput, improved service quality and a more efficient use of network resources. Optical inter-satellite links will further enhance resilience, extend service availability and reduce reliance on ground infrastructure and this will benefit governments, enterprises, mobility and other mission-critical applications. The constellation will also support a new generation of smaller, lighter and more affordable user terminals making high-performance satellite connectivity accessible to a broader range of customers. As I just said, Eutelsat, as the leader of the LEO segment within the Space rise consortium will design, deploy and operate a constellation of 264 dual Milka and Ku satellites and 66 satellites, providing access to over 2 terahertz per second of sellable to commercial capacity by mid-20 which is more than twice the current on web capacity. The total program funding stands at EUR 15.6 billion, of which 74% is publicly funded. This is significantly reducing Eutelsat's capital exposure. Our own CapEx in -- this project, EUR 1.16 billion in the commercial infrastructure, which is consisting of Eutelsat's own payload. These investments will be deployed from full year '27 to full year '34 and our structure to complement rather than compete with our existing investment program. Importantly, with construction-related activities now underway, our backlog will now include EUR 8.9 billion of revenues. These revenues are associated -- these future revenues are associated with the execution of the program expected to be recognized mostly between the year '27 and 2031 as construction activities will progress. Finally, IRIS2 will effectively become Eutelsat's next-generation LEO infrastructure and will enable us to unlock an estimated EUR 10 billion services revenues between 2032 and 2040. Here, you have a look on the road map. Up or are IRIS2. So with IRIS2, Eutelsat has established a clear and visible year road map until as you can see until 2040, providing both continuity of service for existing customers while progressively delivering greater capacity. This path begins with the renewal and the expansion of the current constellation with the deployment of 440 new satellites. That will be complemented by 229 additional satellites designed to ensure continuity of service and that progressively will replace satellites reaching the end of their operational life and enhance the network's capabilities that will bring the total constellation to approximately 1,300 satellites over the 2030 horizon. The commercial segment of IRIS2 itself is expected to be fully operational by mid 2032 and will progressively take over from the current One Web constellation while providing access to more than twice the current existing capacity and supporting Eutelsat's long-term value creation. And with that, let me now hand over to Sebastien Rouge, who will take you through our first quarter performance in more details.

Thank you, Jean-Francois. Good evening, everyone. Total revenues for the first quarter stood at EUR 286 million, down 0.9% on a like-for-like basis. They reflected, and that's a good news, a slight positive currency effect. Revenues of the 4 operating verticals, down 2.1% on a like-for-like basis. And finally, in the context of IRIS2, EUR 5 million of our revenue were recognized during the first quarter from the commencement of construction-related activities. This amount represents an initial contribution that is expected to increase materially over the remainder of the fiscal year as execution of the program advances. Let's have a look at the segmental reporting. Video representing 40% of revenue stood at EUR 110 million, a decline of 17.8%. Fixed connectivity revenues representing 21% of the group total, decreased by 4.7% to EUR 60 million. Government Services, 22% of revenues stood at EUR 60 million, a rise of 14.3% and mobile connectivity revenues, representing 18 -- 17% of the group total stood at EUR 48 million, an increase of 38%. Let's start with the details of video. As I said above, video revenues amounted to EUR 110 million, down 17.8% year-on-year, reflecting the carryforward impact of recent contract renewals and capacity optimization initiatives of certain customers compounded by the termination of capacity contracts on the Express AT1 and AT2 Russian satellites. On a quarter-on-quarter basis, revenues were down by 12% notably reflecting the above-mentioned capacity optimization from certain customer impact. On the commercial front, Eutelsat renewed several long-standing partnership across its video business, including agreements with record in Brazil, A1 Group in Central and Eastern Europe, and, supporting the continued distribution of broadcast services across key video neighborhoods. Looking ahead, the pace of decline is expected to moderate as most of the recent headwinds are absorbed and performance progressively realigns with underlying market trends. Let's now take a closer look at connectivity, which now accounts for 60% of operating verticals revenue. First quarter revenues stood at EUR 168 million, up 11.9%. They reflected a 30.1% rise in LEO revenues to EUR 70.9 million, underpinned by sustained growth in higher-quality service revenues across all 3 verticals despite a lower contribution from terminal sales as well as a 1.6% increase in GEO connectivity revenues to EUR 97.4 million. Quarter-on-quarter, revenues were down by 22.4%. The quarter-on-quarter decline in connectivity mainly reflects a higher comparison base in Q4 '25-'26 notably across government services and fixed conductivity, which included catch up 0.6 million, down 4.6% year-on-year. The decline primarily reflected more challenging market conditions for GEO-enabled solutions as well as a lower contribution from LEO terminal sales. This was partially offset by continued growth in LEO service revenues. On the commercial front, Eutelsat continued to expand its connectivity footprint through new agreements across Europe. In Portugal, Eutelsat and the country's leading telecommunication operator, MEO announced a new partnership to expand the delivery of OneWeb LEO connectivity services. In Germany, Eutelsat also expanded its geo capacity agreement with extending secure satellite connectivity to critical offshore energy infrastructure in the North Sea through the flexible and scale GEO capacity of EUTELSAT 10B. These agreements illustrate the growing demand for secure, resilient and diversified connectivity solutions across both enterprise and critical infrastructure markets. Government Services revenues stood at EUR 60.3 million, up 14.3% year-on-year. Growth was driven by both GEO and LEO applications, reflecting notably the contribution from the center call-off contract under the EUR 1 billion Nexus framework agreement with the French Ministry of the Armed Forces and Veterans. Services delivered in Ukraine and growing demand for sovereign connectivity service amid a rapidly evolving geopolitical landscape. Eutelsat has announced its participation in the enhanced satellite connectivity project for Greenland, a new initiative supported by the European Union, the Government of Greenland and the Government of Denmark to extend reliable connectivity to rural and remote communities across the country. Elsewhere, Eutelsat and Germany's Aurora Tech, a leader in space-based thermal intelligence announced a new partnership where oratech will reserve space about Eutelsat's future OneWeb LEO satellite to host 48 thermal infrared payloads with the options for an additional 48. Mobile Connectivity revenues stood at EUR 48.3 million up 38.1% year-on-year. The aerial segment remained the main growth driver benefiting from the continued expansion of both GEO and LEO connectivity solutions. In Maritime, growth was primarily driven by the continued adoption of LEO solutions. Eutelsat successfully completed its first rail connectivity trial in Poland aboard a long distance strain conducted on PKP intercities live rail network, demonstrating its OneWeb LEO capabilities on a live rail network. The trial assessed seamless switching between satellites and terrestrial technologies and highlighted the potential of Eutelsat's rail connectivity solution to support passenger connectivity, operational communications and data service for both passenger and freight rail operators. Let's go to the backlog now. The backlog stood at EUR 12.1 billion as of September 30, 2026. As IRIS2 program entered its construction phase, the backlog now includes revenues associated with the execution of construction-related activities under the program amounting to EUR 8.9 billion. Excluding this contribution, the connectivity and video backlog now respectively, standing at EUR 1.9 billion and EUR 1.2 billion were slightly lower compared to June 26, reflecting their natural consumption. On this note, let me now hand back to Jean-Francois, who will conclude with our outlook and perspectives.

Thank you very much, Sebastien. The first quarter performance was in line with our expectations, enabling us to actually confirm our full year 2020 financial objectives. The revenues are set to drive further strong growth with anticipated growth over 30%. As in full year '26-'27 sorry, full year '25-'26 growth will offset the decline of geo revenues and notably the decline of video revenues. In consequence, we expect to deliver a slight growth in the revenues of the company of the 4 operating verticals and an EBITDA margin at broadly the same level than last year. Gross capital expenditure this year is expected to amount to circa EUR 1.2 billion. This is reflecting milestone shifts from previous years as well as the ramp-up of CapEx associated with the renewal of our current OneWeb consultation generation renewal. And we confirm our revenue expectation on the middle term in a range between EUR 1.5 billion and EUR 1.7 billion for the year ending June 2029, supported by the strong momentum of our La revenues. Operating leverage is set to drive an improvement in EBITDA margin, which is expected at this horizon above. So now I'm thanking you for your attention, and we are ready actually to take your questions.

[Operator Instructions] The next question comes from Roshan Ranjit from Deutsche Bank.

I actually have 3 questions, please. Firstly, on the video trend, Jean Francois, you mentioned the carryforward -- can I just check, is there any further carryforwards through the year? Or is that hitting in Q1. And perhaps just tied to that, can you give us a sense of what percentage of your EBITDA comes from the video segment? Secondly, it remains a lot of volatility between the terminals and service revenue split. When do we expect that to normalize? And we've clearly seen a bit more activity in Ukraine and you mentioned within your government vertical. Now I think you previously mentioned the bottlenecks in getting the terminals to the field, whether that's from a funding perspective or from actually manufacturing. Has that smoothed out? Has that improved? Or do you expect to have to invest or see some change for that to speed up? And lastly, just very quickly, on the guidance, can I confirm that the margin outlook calculation is based on the operating verticals plus other revenues?

Thank you. Thank you, Roshan. I will answer some of your questions, and I will let Sebastien, which are on the call complete. -- the answers. On the video trend, as we said, I mean, this is linked to, yes, a lot of carryforward in negative carryforward that is leading to this quarter decline. Obviously, there will be less and less carryforward. And as we were saying, we expect these revenues to go back to, let's say, market trends, some kind of market trends in the short term. On the -- on your questions on the terminal and service revenue splits on LEO, this is actually something we are not communicating. Nonetheless, what I can tell you is that, and especially this quarter, our service revenues are taking the share of the lion. This was quite a lower quarter in terms of terminal sales, I mean nothing to worry about. It's not linked to any bottleneck. We, at this moment, do not have any bottlenecks in our supply chain of terminals. We are having, obviously, as you can imagine, stock we are forecasting and planning our future demand in terms of terminals and antennas in order to be able to deliver according to the market demand. So there is no worry to be having in that segment at all. It's really under control. And now indeed, I mean, the recent events that happened last week, I mean, 10 days ago, are actually keen on accelerating our terminal sales, which is always very good because the more devices and terminals we have out there, we are selling more in the longer term. I mean there is obviously a usage of our constellation and this is going to drive even faster the growth of service revenues. As of -- for your questions on the margin outlook coming from video and coming from actually GEO. From video when I joined a year and a quarter was 50-50. So there is really a shift. Obviously, video revenues are delivering a very substantial EBITDA margin. Now -- what we can say now is that we are reaching -- we are going to reach this year with OneWeb, let's say, EBITDA breakeven and OneWeb in the past used to be actually consuming EBITDA is going to also start delivering on EBITDA with -- that's going to grow with the further growth of the company. I don't know if Sebastien and you go want to complete.

Just maybe completing on your small technical question. Yes, you can consider the other revenue as the base for the margin calculation what we point out is, let's not take the IRIS2 construction revenue in the modeling of the margin. It will come with a way lower margin than the group, so that's not distort it and will be -- I mean, in the Q2 release when we start having sizable revenue coming from IRIS2, we will be more vocal on the way we can help you modeling that.

The next question comes from Stephane Beyazian from ODDO BHF.

Yes. Thank you. Actually, my first question was exactly a follow-up on that. If you could explain to us a little bit better, the EUR 8.9 billion. I'm surprised that you've included that in your backlog. I guess you do that as a sort of project manager. So was just wondering -- how much of that will you be, therefore, accounting into your revenues into your cost? And what is the share between the different part of the consumption. It would be helpful to have more information about that. My second question is regarding, again, D2D because operators have formed an alliance on that. And I mean, clearly, they are calling for European solutions, obviously, Jean-Francois, looking at your past experience that could be tempting. So I was just you're asking if you have any further thinking on the D2D segment and if you play a role there? And finally, a third question, I was wondering how much of your revenue growth is actually coming or how much of your revenues today are coming from competitors who are taking capacity on your constellation and whether this is accelerating or not.

Thank you very much, Stephane. I will take the 2 last and I will let Sebastien explain you the reason why we took EUR 8.9 billion in our backlog on IRIS2 construction and he will -- thank you for that question because I think it's good to clarify what our expectations terms of also margins and revenues on IRIS2 construction phase. Let me start with your question, which is obviously a very pertinent one looking at what's happening currently on direct to device. As you know, I mean, direct to device is the possibility that low orbit concession will offer in the future for mobile devices, smartphones. The ones we are carrying today to not only communicate via mobile terrestrial network, but also with LEO satellite constellations. So the European Union will actually reallocate European spectrum called post 2027. So that's planned to happen next year for actually new players, European players and international players. The EU clearly has the willingness to have a sovereign EU direct to device solutions as well, 1 for government use case. In this respect, obviously, it is making sense for Eutelsat to analyze this opportunity. We clearly have a position as an experienced constellation operator. There are only 2 operational low orbit constellations in the world as we speak. We are 1 of them running such a constellation. And this is obviously a deep tech system. We are as well a key player in IRIS2. So we see for ourselves a potential role to play in this, I would say, new business that is going to offer opportunities for a number of players. We see it as obviously very complementary to the telecom operators, as you were saying, Stephane. Having spent more than 30 years of my career in classical operators and telecom operators. So we clearly do not believe that this will be replacing in any way the mobile classical networks, but it can be a very nice complement. So at this moment, at Eutelsat to come back on us, we are at the, let's say, in a reviewing stage. We have no firm engagement at this point, but that is something we are looking at. And in the sense of the role that we could play in this, again, a new market that will open up where we see that there will be the need for again, a European player and European sovereign player in this field. That's on your first question. And I'll quickly answer your third question on the revenue growth on LEO. On, let's say, what is the role that competitors are playing there. Clearly, we have -- and this is public historically quite large, what we call take or pay. So an engagement on capacity that was signed with Intelsat with the acquisition of Intelsat. I mean this take-or-pay has obviously definitely migrated into SES, which is basically reselling our capacity with quite some. And mostly, I would say, but not only but mostly on the aviation sector, on the mobility sector, where as well have interested for -- from the strength of Intelsat in that specific area. So -- and for the rest, we have other such take or pays, but there are more, let's say, not of the same magnitude with smaller GEO players. And we are in discussions with the number of ones of GEO players. But obviously, if you look at their size, I mean these GEO players are not of the same size of players like or. And now I will maybe pass the floor to Sebastien to explain to you the let's say, the financial construction on this starting phase of construction of IRIS2 that will last between now and 2032.

Yes. Coming back to this backlog. So the EUR 8.9 billion really represents the, I would say, the contract that we have with the EU, and that's our portion of the total IRIS2 contract, which is under our responsibility. So we have included in the backlog because it will progressively flow through our revenue I would say, starting relatively slowly with all the engineering and design of the of the LEO H part of the consideration and then gradually ramping up with the manufacturing and the launch services, but it is really a full package of activity that is managed by Eutelsat on behalf of the consortium. As you know, we have large subcontractors. So we do not do everything ourselves. We subcontract a large portion of this amount under our supervision to Airbus to Thales and to Aerospace Lab, but all of this contract will flow through our accounts progressively. That's why we wanted to highlight that in the backlog so that you're not actually surprised whenever we start recognizing revenue down the road. With this subcontracting scheme, and with the fact that we are at the very beginning of the project, obviously, we'll be prudent in terms of margin recognition. So that's why I think it's safe for all of you to model the margin on our service historical activities and not put any so far on the revenue stemming from the -- this construction contract.

Just to follow up. So in the end, you're expecting out of the EUR 8.9 billion on an EBITDA at the level of your existing service margin. Is that what you're suggesting?

No, no, that I'm suggesting the opposite when really during construction, we have a dedicated margin, which will be very, very limited and small. It's after we are constructed, then we will have service revenue coming from IRIS2. And this one, we expect to have a margin in the same ballpark of what we have today. But for this specific construction, which is a new business for Eutelsat, we usually just build constellation for our own purpose. Here we are building as if we were building a power plant. We are building that to give the keys to the EU. And on this, we actually do that in order to take advantage and to be able to operate down the road from 2032 onwards this cancellation. But during the construction phase, we will anyway have construction revenue that will come with low margin and that -- but that will flow through our P&L.

Yes. That is clear. And just so the net -- do you have an idea of the net out of the EUR 8.9 billion that eventually will be to eat the end of the plan.

Will build that down road. It's a very unique contract for us. So we will build the margin expectation as the contract progresses -- so far, the reason why we enter into that is to make sure that we contribute to a great constellation that we will use down the road. So, so far, let's -- we are not with our model of subcontracting, not aiming at having a large margin -- so we'll keep that at a very low level for the time being, and we'll build that together in the next quarter and years.

The next question comes from Paul Sidney from Berenberg.

Just have 2, please. Just firstly, sort of big picture, the consensus is I think EUR 2 billion of revenues this year. You're clearly guiding within 2 years to get to 1.5 to 1.7. So what's really going to get us there if we just take a step back in terms of all the moving parts? I know that's -- it's a very high-level question, but just sort of worth revisiting. And just secondly, IRIS2 fantastic. Thank you for giving us more detail. But there's so many moving parts, and I guess building on the previous question. What do you expect to generate in terms of a return on the project. Is that the way you look at it in terms of return on capital employed? Will it be free cash flow positive projects for Eutelsat, just trying to put it in simplified terms because there are so many moving parts, and it's hugely complex. But is that the way you look at it in terms of returns and free cash flow generation.

Maybe I can take these questions and again let Sebastien complete -- in terms of the revenue guidance, EUR 1.5 billion to EUR 1.7 billion. The moving parts are on 1 side, the decline of video revenues that you see is currently quite steep. We see it basically in the middle term, going back to what we call market trends. We see our LEO revenues continuing to grow and if you look at the company 1, 2 years ago, I mean, we had mostly -- most of our revenues were GEO and LEO was still representing a few percent of the total company a few years ago. When we closed last year results, LEO is now representing 25% of the company revenues. So I was saying, we are going to reach EBITDA breakeven. So Leo is not only going to deliver revenue growth but also is going to deliver in the future EBITDA. So those 2 combined, I mean, are actually explaining the revenue guidance that we are giving that we have given to the market, obviously, combined with -- which is the most important, the demand we see in the market and that we see actually growing. And especially in the segments we are active with, which are B2B and government segments and with our unique positioning as 1 of the 2 existing new constellations in the world and one -- and the only one which is obviously a sub-brand and European, that, together with our capacity to combine it with a GEO stationary satellites. On your second question, which obviously is very important, which is the return on IRIS2. I mean, obviously, as you can imagine, looking at the size of the project, I mean we've been extremely cautious in the decision-making. So the return on investments of this project is actually the one that the company is expecting in any of its investments. So clearly, we are expecting this investment to return cash and to return cash flows. Just in a nutshell, let me explain the reason why, I mean, for us, it's a good opportunity as well. I mean if you look at our total investment, Eutelsat, the investment of EUR 3.3 billion actually in IRIS2. This is roughly half of what we should have invested if you would have built new constellation, what we call a version 2 constellation on our own. You understood that on this EUR 15.6 billion project in total, 74% of the investment is being actually subsidized by public funds. And we are investing this EUR 3 billion in order, of course, to participate to the commons -- to the common elements of the constellation, but mostly actually EUR 2 billion to invest in our own commercial payload that we will own. So we will have an asset, which would be our commercial payload playing which will deliver a minimum twice more the capacity we are having today on OneWeb and which really enabling us to continue the growth that we are seeing on OneWeb because the issue we would have had health would have been around 2032, we would have probably have had a capacity limitation. And this IRIS2 project is really an opportunity for us to have what we call OneWeb next constellation with more capacity at a very important investment because this is a very important investment, but much less than what we would have had to invest ourselves if we would have built this constellation stand-alone.