AAC Clyde Space (Stockholm:AAC) Q2 2026 Earnings Call

0:00 Hey, welcome. A reporter at Investor Studios. I'm a Clyde Space. I'm Clyde Space slept the emotions in Andre Clyde's report for Sugee Sex. Luis, nice to see you again. How are things in Glasgow? Great to see you, Carlo. It's actually a very nice day here in Glasgow. Yeah. For a change. For a change. Luis, last time we spoke, you guided for a very busy second quarter or a quarter ahead. And as far as press releases and figures are concerned, I would say that you've been proven right there. So please take it away.

1:08 Thank you. Thank you, Carlo. It was indeed a very a very busy quarter. We have as I said, it was a foundational quarter. And if you see if we take a look at the presentation, we have a we have a slide on listing those. So so we have not only we finished signing the the the second part of the the Sterner contract, and, effectively, the the old payload and avionics contracts came into life during this quarter with with the with the work starting in earnest on the on all the parts of this contract. So it was a very busy busy quarter from that perspective. But, also, it's it's the quarter where we signed this the next phase of inflection for the 12 satellites. This is the this is when we really start the the the work to build the constellation, the the the work to actually start preparing all the services.

2:05 That's an extremely important milestone for us. And, of course, we have launched Vireon one and two back in March. We're now in through through their commissioning. We announced first light on Vireon one. We are going through the process of focusing, calibrating that camera while we work on Vireon two also. And what we saw was growth on both business segments, both on the product submissions and on the data and services. Overall, what this has given us is a is a backlog that is approaching one one point two billion SEK. So a very busy a very busy quarter. And if we go on to the next slide, we we can also see that it was a quarter where we achieved good numbers. We achieved good results, very much in line with what we were expecting.

2:58 So so we have growth, about 51% growth on net sales in relation to last year, the same quarter last year. We achieved a positive EBITDA of 2,700,000 SEK. Again, quite a bit growth in relation to last year, but importantly, it's a it's another strong quarter in terms of EBITDA. We have a very positive operational cash flow, something that we would expect with the kind of contracts we've got right now, but it is some something that we have been working towards for for some time. And as I said, an order backlog approaching the 1,200,000,000 SEK. It's very healthy. It means that a lot of our revenues are already in our order book.

3:47 So that's that's actually a very good position to be in. If we go on to the next slide, we are now very much focusing on execution and expansion. So over the next few months, we will continue to see strong demand for our products and satellites. We are working with potential customers. We are working through our pipeline of opportunities right now. But a lot of our focus is now on expanding our data and services, so bringing Vireon one and two online, getting seven, three, and four through their build so that we can reinforce our maritime data intelligence gathering, and we can start monetizing those those satellites and, of course, focusing on the inflection program and and growing our constellation on on the maritime side with new services, not just tracking, but also communications and other associated services.

4:48 So we we continue to do that. But as I said, we have strong demand, and a lot of our focus now is actually on delivering products and missions to customers, governments, and commercial customers. We continue to do that. We see strong demand for our products. So before we go on to the next slide, we keep our full year guidance. As I said before, we this quarter two was in line with our expectations, so we keep our guidance of 440,000,000 to 510,000,000 SEK in net sales for the year with an EBITDA of 10% and an operational positive operational cash flow. So we we continue to maintain that guidance. As I say, quarter two was aligned with our expectation, so we are very happy to maintain our guidance.

5:47 And so this is in summary the quarter. I don't know if there are some questions now, but that's very much it was a positive quarter for us. So thank you for that, short and snappy. And in summary here, if I can just recap the first slides where you're referring to foundationals, six months being foundationals here. You're talking about two separate things that will be connected. So see if I got this Firstly, we have the Sterno orders strengthening the hardware side and proofs that you're now operating on a much larger scale, which we can see that the figures here are delivering. And secondly, you have the launch of the Vireon and progress with inflections, so driving future data and service growth. So a, you have one part that is delivering and another part that that will drive the growth.

6:47 Would you I mean, do you buy into to to my interpretation there? Absolutely. Okay. So we very much have that that bedrock of our business that is hardware, but we see quite a lot of opportunities on the growth of our data and services business to expand the company, to grow the company. So so the the first quarter the first half of the year is very much a good example of how we operate, building on on our success as a hardware producer and then delivering on data and services as as a growth engine for for the future. And and would one or the other of those two developments be more important than the other?

7:34 I I would say they are equally important in their different ways. So when you look at something like Sterner, it's a very large contract. It's it's technically challenging, but perfectly achievable. We have done we have done a prototype before on the Arctic weather satellite, so we are very comfortable with with the design and build of this constellation. So it's a big contract, but it is it is an important contract for Europe. It it shows our ability in terms of hardware, our design engineering. And then and and that is something that we will continue to do. It's something that will continue for the future. As I said, it's it's very much, the foundational, of the company, the foundation of the company, the the hardware capability, the engineering capability. But then we see huge potential on the growth of data and services, and that of course is an area we are investing. It's an area that we expect to grow.

8:28 And and in the long term, we expect those areas to be about fifty fifty of our business. And so this is we are in that we are in that journey right now. And I have some complimentary questions here regarding regarding this from you viewers here coming in. Verion two, is it doing well? We're being through its commissioning. We are, we we are focused very much on, Vireon one at this stage because we want to start service. So we are putting more effort into that. Vireon two is going through its commissioning, doing its tests as normal. So so yes. But the focus has been on Vireon one because we want to start revenue from those satellites on quarter three. So so more to come from Vireon two then? Yes. And then we have another viewer questions here. For the product and mission revenue, how much of the revenue came from Sterna for the quarter?

9:26 A large amount. It was a big it was a big part of our big part of our revenue, but it was not the only one, but it Yes. It was. I I couldn't tell you the immediate number Mhmm. Top of my head, but it was an important part. And it will be that the case for the rest of the for the next two years. Mhmm. Always be a a big part of our revenue on for products. Because it is our biggest it's our biggest contract. It is the dominant contract on our products business line. Yeah. And I can see that we have some questions about Skar, O'Hare. But I'm coming to that a little bit later because I would like to stay on Varyon satellite. When will Varyon start generating revenue following commission?

10:13 And how would the investors think about the commercial ramp up for the first revenues to a more meaningful contribution? If you can elaborate a little bit of that and then we'll jump into South Africa. So we expect revenues to start on quarter three. As I said, we're already capturing inventory. We're already doing some of the work in preparation for our customers. So we expect, let's say, q three to to already start delivering some some revenue. And then we expect a normal ramp up on a project. We have customers lined up. We have, people wanting to, to to take on contracts on the satellite. We expect that what would be a normal ramp up on a on a data and services contract. We expect to be in full in full in full revenue for those satellites towards next year.

11:04 So there will be a ramp up from here until then. So it's it's it's difficult to go into that detail without without going through the detail on contracts and customers, but it's what I'd expect the normal approach for a satellite, data and services satellite that we see also on our maritime side, for instance. And if we go back to a press release from last week, think, if you could elaborate a little bit about the SCAL project. What is what is SCAL and what to expect going forward? And I have some detailed questions here, so we'll see how much you can answer here. But just in round things here, this is a large organization as I understood. Yeah. So SCAO SCAO stands for Square Kilometer Array Organization. So Square Kilometer Array is a telescope that's basically that's several antennas in places in South Africa and Australia. We are we are focusing we are working on the one in in South Africa.

12:06 So we provide one equipment, one part of the the network of antennas and the receivers for a specific band. So the objective is to look at the universe and and measure certain amounts of microwave radiation coming from different different different stars and different celestial bodies. It's a big international organization, so it's actually headquartered in The UK, but it's it's it's financed by many different countries. And as I say, the the antennas and the telescopes are based in in South Africa, the ones we are working on. And we are supplying the feeds for those. We're building them in Gothenburg. It is a project that has been running for quite some time.

12:53 What we announced is that we shipped the first of those the the prototypes of those feeds for for to South Africa. But we are very much dependent on the timelines of of that large international organization. So they they have to build antennas, they have to expand their site in South Africa. So so we have we have, been working on that, and we have been very and we are very happy to have those those, feeds there. They are now being tested. We will have results, later this year for those tests. But it just shows the progress that we have done. The design is pretty much done. We are now in a phase where we we are just waiting for our customer to say, okay, start delivering the these units.

13:40 And we have quite a lot of those units to deliver. So so it's it's it's a great start. It's great progress. But we are very much we are very much on the timelines of our customer on that. And we have a more granular question here regarding it. So I'll just read it through. You recently delivered the first preproduction band one FEED systems to the Observatory as a part of the EUR 12,000,000 contract. How much revenue remains for the project? What can you say? And I would say that there is still substantial revenue on that on that program. We we have done the design phase and the production of the the first unit. So the bulk of the production is still to be done.

14:28 So I would say I I won't go into the detail of the numbers, but I would say that a large amount of the revenue is still to come. Mhmm. And coming into the future here though, a large European satellite programs like IRIS two are increasingly moving towards procurement. So how well positioned would you say that AAC Clyde Space power and data handling products would be for larger LEO and MEO platforms? I think they would be the ideal, but we will only do that work if it's actually profitable. What we have seen in many of these very large constellations and very large large programs is that they are actually quite margins are usually expected to be quite low.

15:19 They are they are usually very commercially aggressive. They also tend to attract lots of people, of course, lots of suppliers, so there is huge competition because they are seen as large programs. What depresses margins? And we have walked away in the past from one or two of these opportunities because when when we get to the negotiation because the discussion with the customer, effectively, they want to do us they want us to do that at, ridiculously low margins that would barely pay our costs. And and if there are any problems, any issues on the design, we could actually lose money. So although the promise is is is good, the reality is that in some cases, this is just not what it seems. So we will, of course, we are having we are in the discussions, we are talking to the to these potential customers, but we only we only actually do that if if the business makes sense. It has to make sense. And in some cases, the past, for these kind of things, we we prefer to negotiate, for instance, a licensing a license agreement with the the customer. If they are going to build a lot of satellites, they might might be more interested in doing these things themselves, the the production themselves. So these are things that we are in discussion right now. But as I said, we are we are part of this conversation. We are talking with the different the different potential customers and so we are in that phase.

16:40 But as I say, we'll only do it if it's actually if it makes sense for us. I I think we have a very strong product, actually probably the best for for what they are looking for, but we'll we'll have to see if the if the business makes sense. Mhmm. So not not well, coming away, not having an order doesn't necessarily mean that well, it it could mean that you will you will not suffer margins going forward. Yeah. As I said, we have in the past, we have been approached for other constellations. We have been been asked to bid bid. And technically, we, of course, offer a very compelling offer to the customers. But the kind of prices they are looking for, the kind of the kind of conditions even that they impose on us is such are such that it becomes it's a risky business, and and you can actually lose quite a lot of money. So in those cases, we walked away. We've got a few others that we are ongoing, not on Iris Square. We've got a few other discussions ongoing on products from constellations of tens, probably not hundreds, but tens of satellites.

17:48 But, again, it has to make sense. It is something that it's very billing because the number is very large, but a lot of revenue with the with the loss makes no sense. So that's what we are always looking for. Does it actually make sense for us to to to bid on this or to win these things? So so that's always a a discussion, and we'll see we'll see what terms, what conditions we are we are offered, and then we'll decide. And we have another question here regarding this quarter and the EPS Stirna projects and I think that you are partly already replied to on a previous question, but and the question is how much revenues during the quarter is related to the EPS Stirner project. But could I just add then and say, are you happy with the contribution so far in comparison with other revenue streams on the EPS Stoner project, well, this quarter and so far?

18:53 Yes. So we are broadly on target on on Sterner. So in general, yes, we we we are we are where we plan to be Mhmm. With Sterner, and we expect that to continue. So so, yes, I'm I'm happy with that. And I'll tie in that to another question which is easier perhaps to say than answer. And what is the full revenue potential for Varian one? I I that would be giving too much information about our business plan. So so I will I will not answer that one. Mhmm. But I I would say that it is it it makes economic sense. So, of course, we we we only invest in it because we believe that it will actually make us quite a good revenue and quite good profit. Okay.

19:44 And you are reiterating your full year guidance as you did in the previous quarter. And that's just to remind people SEK $440,000,000 to SEK $5.10 and a margin of 10%. So I will ask you more or less the same question as I did the previous quarter. What gives you the confidence in the guidance? And what are the key things that you would like us to look for and that you need to happen in the second half? So largely where we are is we are delivering, on our plan. So second quarter was quite good, gave us confidence that, that we're delivering as as expected. The third quarter continues to to deliver.

20:32 So so that's what is giving us the confidence, on the guidance. And and we'll continue we expect to continue to to deliver. We've got the the backlog. We've got a strong strong backlog with most of the revenue already booked. It's not it's not close to all, but a large part of the revenue is already on the books. So so we have a few more more things to do throughout the year that we need to do, but we are we are pretty confident on where we are right now. And would you be so bold so you could give us an expectations of revenue for 2027? Is the viewer question? No, not yet. Too early. Too early for that one. No, okay. And then I will come back here on products and customers here.

21:22 How well positioned would you be would you think that AAC Clyde Space would be for the UK Coastal Maritime ISR service procurement? We're always well placed. It depends very much. Many of these things have different have a variety of different technologies that are required. So so we can actually deliver part of those together with others. Together with other partners, we can deliver full solutions. So yeah, we we would be placed to be part of that, but we would have to see we would have to see what exactly requirements we are being asked to do and in which parts it makes sense for us to invest development and development of capability.

22:15 So so it's a little bit of the Iris two here. You are discussing and you you think you're well positioned, but it takes two to tango in in well, here here as well. It it it depends. Most of these solutions are first, if you look at inflection, that is already part of that part of that type of technology. If you look at inflection, we have different partners delivering different parts of the the the system. So it depends very much if the requirements, if the the the the demand on us, we can fulfill it all ourselves, if we need to work with partner, in partnership with someone. So it it depends very much. These are discussions that that are always happening. And in some cases, we can leave. In some cases, we can actually be a follower, can work with someone else.

23:08 These are all part of life discussions. Mhmm. And and until a contract is defined, it's something that we have to we just have to continue talking and discussing. And just as a more or less a wrapping up question here. When you said you have to continue discussing, could you just give us a feel for the timeline from, let's say, initial discussion to actually signing on the dotted line? Are we talking six months, six years? Depends. Depends very much on the type of depends very much on the type of contract, the type of customer. It can be very quick, can be very long. Mhmm. So contracts like Sterner, as everyone knows, take take a few years to to actually happen from first discussion up until you've got the contract.

24:00 It can take quite a long time. Other contracts with with particularly commercial customers can be much quicker. I would say, you know, one year is a good is a good is a good average. One to one and a half years between first discussion and a contract. Mhmm. So that's that's an average. Yeah. Yeah. Of course. Of course. But but there are there are quite extreme cases, particularly if it involves government and governmental organizations. It's not unusual to have a two, three year timeline between the first contact and actually having something black and white. Yeah. On the other hand, it's a moral or a question. If you if it takes a long time to negotiate, particularly with the state, if you have it, then you know you have it and and you know you have a you have a solid customer who would actually pay And the that's and that's why we do it because ultimately that's why we actually like those contracts and we like to work with government because ultimately, they will they are a good customer. And and once we actually although the negotiations can take quite a long time, as you point out, usually, you'd know very early on if you are the one that has been selected, and then you just have to go through the process.

25:20 But it's those are good business. Okay. Excellent. Thank you for that. And last time you predicted a very busy quarter. So could we expect a very busy coming quarter as well? They're all busy. Very rarely we have a quarter that is not busy. If it's not new contracts, it's delivering on the ones that we've got. So yes, quarter three will be busy, quarter four will be very busy. Okay. So we expect the momentum to continue. All right. Okay. Thank you for that, Luiz. Thank you. And we will thank anyone who asked the questions. And if you feel that you need more more meat on the bone, take contact with the company and its IR. So with that, I would say thank you so much. And see you later. Bye. Thank you. Bye.