Welcome to the Ovzon Q1 report 2023. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present Ovzon CEO, Per Norén, and Ovzon CFO, Noora Jayasekara. Please begin your meeting.
Thank you, Sarah. Good afternoon everyone. If we have someone from the U.S. joining us and so on. Thank you for showing continued interest in Ovzon and for joining our webcast regarding Ovzon's first quarter 2023. My name is Per Norén. I am the Chief Executive Officer of Ovzon, and by my side here today, we have our Noora Jayasekara, who is going to present our figures more in detail later in this presentation.
Good afternoon.
All right. For our new webcast participants and for those of you that don't know Ovzon that well, as well as for those of you that want a refresh, let me start with giving a brief introduction to. Ovzon is a company with a technology, know-how, capabilities, and market position to really become the game changer in the SATCOM industry. While we're bullish about the future, we acknowledge that we've had our shared amount of challenges in the beginning of 2023, I will get back to that during our presentation today, of course. I also want to share the good news that we just a few hours ago received a $4.8 million order from a European customer.
The order is for Ovzon SATCOM-as-a-Service, which also includes so-called On-The-Move mobile satellite terminals from a new supplier that we're working with called Skycom. Timing is of course everything. We would have liked to have this announced earlier. As I will note later, sales cycles are relatively long. We're really pleased, obviously, with this order. Ovzon was founded in Sweden in 2006. At that time, the company was focused on design, development, and sales of Ovzon's world-leading mobile satellite terminals. Fast-forward, we've transformed and continue to transform the company. Today, we are the leading solutions provider of SATCOM-as-a-Service, a fully integrated, high-performing, truly mobile and truly resilient satellite communication solutions for customers with critical missions worldwide. In 2021, we embarked on a very focused strategy to drive a step change in profitable growth.
It's starting to pay off, as you may see in the graph in the upper right corner, even though it's not a straight line due to the normally long sales cycles in the transition from product sales to solution sales, which is a necessity to shorter the lead times between customer contracts. We're also continuing to invest in the finalization and launch of our own first purpose-built satellite, Ovzon 3. This satellite has unique patented technology, the Ovzon On-Board-Processor, and in conjunction with that, we're also developing a new mobile satellite terminal called Ovzon T7. Those three components, in combination with an outstanding customer service and support and a few strategic gateway solution providers, will take the satellite communications and our customers' experience to a totally new level of performance when it comes to speed, mobility, and resiliency.
On the slide here, you can actually see the key components that make up Ovzon SATCOM-as-a-Service. I'm happy to say that we are the only one that can provide both the mobile satellite terminals really designed for the highest performance with the networks that we set up, work with strategic gateway and backbone connectivity providers, then we integrate that all into a global service and support model. I think it's worth underlining again that that sets us apart from every other provider, is that we control the entire value chain that you just saw on the previous slide. Now over to this. To whom do we actually sell and how do we sell? I think this will become also relevant later on when we talk about the numbers.
Thanks to our extraordinary design, development, and selection and choices of technology, our products and service and solutions are uniquely positioned to serve any country, any organization, and any mission that requires the highest throughput, the highest degree of mobility and resiliency in satellite communications, especially in areas which have weak, fractured, or non-existing communications infrastructure, in today's world. Our solution is to be also a backup to other kinds of communications that might need a failover or needs to have something that kicks in when you need higher performance and mobility. Our focus today is, of course, on government agencies, military and civil defense customers, emergency and rescue services, civil protection, surveillance, and those are the end customers that actually we work with. You can see them on the slide.
It's the United States Department of Defense, UK Ministry of Defence, Italian Fire and Rescue Service, United Nations, Colombian government, Spanish National Police. I can go on a little bit more than that, but it tells you who the end customer actually is. We are very proud of our current and growing list of prestigious and highly demanding and important customers. For us at Ovzon, it really starts with the customer and ends with the customer. Our go-to-market approach is disciplined and focused, yet it's statistically that our success comes from always working with the end customer, but also working directly with specifically selected resellers, distributors, and partners across the globe to have access to strong local stakeholders that understand culture, language, makers, and influencers.
Our list of partners in the broad term range ranges from large multinational industry companies such as Airbus Defence and Space, as an example, to smaller, more agile and local partners in countries and regions where that is. All of them are chosen to serve our customers best and deliver tangible and unique value from Ovzon. Let me turn to the first quarter. I think this is probably what you've all been waiting for. The first quarter of 2023 that announced during and after the quarter. As I mentioned in the beginning of the broadcast, it has in many ways been a quarter filled with very dynamic events and work streams for us at Ovzon. We started 2023 with new data and information that developed that we were compelled to address a number of the challenges during the quarter.
Let's take them in chronological order. It started with another delay of the finalization and manufacturing of the satellite Ovzon 3. That from our satellite manufacturing partner, Maxar. That, in turn, led to a change of launch provider for Ovzon 3 from Arianespace to SpaceX, which in turn also required need for additional financing as a result of the delay and the change of launch provider. I'll go more into detail regarding Ovzon 3 update on the next slide, but we also added some more capital with a directed share issue from current and other institutional investors. Furthermore, shortly after we published our annual accounts for 2022 in February, new information emerged, and it stood clear to us that our Italian reseller and distributor did not follow through in fulfillment of its payment commitments to Ovzon.
Regardless of whether we have a payment plan, which we do, we agreed upon and signed that with the reseller, and we also signed a pledge on the assets of the Italian reseller, which shows to set aside additional provision for bad debts owed to us. A further SEK 34 million was charged to our income statement for the first quarter and full year, 2022. On the positive side, in late 2022, we signed contracts with new customers via first-time resellers and partners in Sweden, in France, and in the United Kingdom. This was followed up in January by our first-ever customer in Spain from a reseller, Aicox Soluciones, for the Spanish National Police.
Now, as of a few hours, you have seen that we got an order from a European customer worth $4.8 million for Ovzon SATCOM-as-a-Service and On-The-Move-focused SATCOM-as-a-Service solution. We continue to see that the market interest continues to be strong. Sales cycles are long, but we're heavily engaged in the market through our partners and with end customers, the deal today is good evidence that we continue to bring value to those customers with critical mission. I will end with the fact that we were recognized as one of the 10 hottest satellite companies in the satellite industry by the prominent, industry-leading news and business analysis company Via Satellite.
My hat goes off to our excellent people at Ovzon for all the past, the current, and the continued hard work they do. With that, I'm turning to slide eight, and I'm going to talk a little bit about the Ovzon Three program, which I'm sure is of great interest. Early in the year, as noted before, it became clear that our manufacturing partner, Maxar, was experiencing further delays in the completion of our first proprietary satellite, Ovzon Three, which in turn meant we were compelled to postpone the satellite. Very disappointing, obviously, for us, for all of our shareholders, and for also for some of our customers that have on high interest in the satellite. To ensure flexibility and an optimal launch date, we therefore negotiated and signed an agreement with a new launch provider and was made to switch from Arianespace to SpaceX.
The delay and change of launch provider added costs related to the Ovzon 3 program. We therefore also concluded financing of about SEK 200 million during the quarter. On the positive side, in March, we were notified that our regulatory deadline for the use of the spectrum for orbital position 59.7 east had been extended, a position that is intended for use by Ovzon 3. The work on the satellite is now in intensive final phase. Our assessment continues to be that the launch of O3 will take place in the period July to September 2023, given that the final integration and tests fall out as planned. As with all development, final assembly and test is very crucial, and there is always certainty around the exact time of completion, which could potentially lead to some further delay.
Again, our current assessment is the July to September time frame, but we're not done with the satellite yet, and therefore risks remain. The delay notwithstanding, we're having in-depth conversations, strong engagement from new and existing customers relating to O3 and the unique new connectivity solution that this satellite enables. As noted earlier, we're also in the final stages of developing a new mobile satellite terminal, O3 T7, which will be the smallest and lightest in the industry. The development work is progressing very well. The O3 T7 terminal includes an onboard processor modem, which is a proprietary modem developed by Ovzon that can communicate directly with the processor on the satellite. O3 T7 will be launched in synchronization when the satellite is in orbit so that the solution can be utilized by our customers immediately.
I will now turn to order intake and the next slide. As noted earlier, we had an eventful first quarter. If we look at order intake, Q2 is usually a slower quarter when it comes to order intake. If you note that in Q1 2022, we had zero in order intake and in Q3 1, we had a small but yet $0.4 million in order intake. However, we're not satisfied with this. Our goal is obviously to even out the quarters, but given our size as a company and having government contracts, it's quite a natural outcome. Our order book is at $13 million compared to $22 in the previous year.
The previous year had just signed an order for the Italian Fire and Rescue Service, which accounts for almost all that deviation. Our run rate revenue is at $21, mainly for the same reason. Overall, we continue to see a solid demand for SATCOM-as-a-Service, even though the sales cycles again remain fairly long. Our sales and customer account teams are hard at work, and I'm positive about the growth of the business despite a tough first quarter. I will now hand over to our CFO, Noora Jayasekara, to take us through our detailed financials.
Thank you, Per. I will now give you some details on the financial performance in the first quarter of 2023. Revenue totaled to SEK 57 million for the first quarter of 2023, corresponding to a decline of 43%. The downturn is largely explained by that the comparative period contains revenue of SEK 39 million related to delivery of a large number of mobile satellite terminals to U.S. DoD. Corresponding deliveries have not taken place this year. Adjusted for currency effects, the decline was 46%. Due to current uncertainty regarding the Italian distributor's payment ability, revenue has not been recognized related to the de-delivery of SATCOM-as-a-Service to the Italian National Fire and Rescue Service. The invoiced amount is $2.1 million, corresponding to SEK 21.8 million.
EBITDA in the first quarter amounted to -SEK 17 million and EBIT to -SEK 23 million. Profit for the period is lower compared to last year due to the lower delivery of services and mobile satellite terminals. Adjusted for a positive currency effect related to the repayment from our previous launch provider, Arianespace, EBITDA amounted to -SEK 28 million and EBIT to SEK 34 million. EBITDA margin for the period was -29% and EBIT margin -41%, the decline driven by higher overhead costs related to sales and personnel. Next slide, please. Decreased working capital is a primary driver for the improved operative cash flow that amounted to -SEK 5 million.
Investment in O3 in this quarter mainly related to the change in launch provider, as well as the development of the mobile satellite terminal O3 T7, drive the cash flow from investing activities during the first quarter. Net debt amounts to SEK 126 million, an increase from the comparative period as a result of the mentioned investments in O3 T7, but a decrease compared to the fourth quarter, driven by an increase in cash due to the completion of the directed share issue. With that, back to you, Per, for some final comments.
Good. Thank you, Noora. Listen, it's been an eventful first quarter, right? The results are what the results are, and we don't take that lightly. First of all, I mean, what do we do going forward? Well, the $4.8 million order for, from a European customer is a good kick for us, of course, to have and start our second quarter with. The rest of the year will be really focused on driving a step change in profitable growth and shorten lead times in concluding sales. As we say, a deal a day keeps the doctor away.
Number two is we will continue to double down in our work on the completion, test, and launch of Ovzon 3 with its unique onboard processor and finalizing the development and delivery of Ovzon T7, our latest mobile satellite terminal with a built-in proprietary developed onboard processor modem. This will be in combination with continued close and dialogue with our engagement with resellers and end customers, generate business and utilize. This will solve the increased demand we actually do see in the marketplace. We have strengthened our organization during 2022 and that's starting to see results now. We have new key competencies with increased focus on business development growth and delivery of our crucial technology projects. Despite the eventful start of the year, I'm proud of the fact that in February, Ovzon was named one of the 10 hottest companies in the industry.
I know that doesn't mean much to shareholders, but it means much to the team here that will continue to have a laser focus on our main objectives to drive profitable growth and to accelerate the finalization and delivery and launch of Ovzon 3. I can also assure you that we have solution sales of Ovzon 3 as well, and we have customer engagements going on around that as we speak. Our agenda in the coming year is clear. Our commercial focus will continue to be a customer-first approach, meaning our engagement with defense, civil protection and surveillance, rescue service, and NGOs, foremost in the U.S. and Europe, will continue. It's a good feeling to know that we sit on the most valuable integrated solution to meet the world's rapidly increasing need for resilient and high-performing mobile satellite communication.
I will make one remark on the financial results and the revenue. If we had accounted for the revenue from Italy, it would have looked different because we've also taken the cost for the delivery as we have continued to deliver that service to the end customer, the Italian National Fire and Rescue Service. They run a very mission-critical and societally critical service, and we did not want to disturb that for them. They work on rescue missions with landslides, avalanches, and earthquakes in Syria and Turkey. They fulfill a very important role, not only for Italy, but for Europe. We've taken the continued cost of that, but we've been very prudent in our approach to our ability to get repaid for that.
Which means we've taken the cost, but we haven't recognized the revenue. That would have actually looked very different for us had that been the case. With that, I thank you for listening. Of course, there will be a Q&A session, and we're happy to answer any questions you might have. Sarah, back to you.
Thank you. Ladies and gentlemen, if you do have a question for the speakers, please press star one one on your telephone keypad or put your question in the text box in your webcast window. Once again, that is star one one on your telephone keypad to ask an audio question, or you can put it in the text box in your webcast window. Please hold while we take the first question. Our first question comes from Mikael Laseen at Carnegie. Please go ahead. Your line is now open.
Okay. Thank you very much. Yes, I have a few questions. I can maybe start with Italy and if you can comment on what actions you have taken to ensure that you will get paid and comment maybe on what this means for a potential contract extension with the user?
Yes, I'll be happy to. Thank you, Mikael, and welcome. I will start, and I think Noora can complement with a few things. First of all, the actions we've taken. Number one, we worked with our Italian reseller in good faith, obviously, on March 17th, we signed a payment plan with them. Part of that was also to ensure that there was, yeah, to ensure that payment plan that they could fulfill. We signed that in March, and the first payments from that has actually come in. Those are fairly small in comparison to the entire debt that comes from this contract. Secondly, we've also signed, in the same day, we've signed a pledge with the Italian distributor.
A pledge of this resellers or and distributors assets. That pledge is now that pledge has now been registered with the Italian authorities and it's said that the assets will go over to Ovzon should the reseller, Italian reseller not be able to fulfill its payments and obligations. Those are the direct actions that we work with its reseller to ensure that we have a payment plan that we believe in with them, and we have other types of assets as security. I think that's pretty strong and collaborative approach that we've taken.
In parallel, we're also working directly with and to the end customer, the Italian National Fire and Rescue Service, around what type of service and solution they need and want to continue with. Those discussions are ongoing. The current contract and that they have that we have ends on April thirtieth this year, which is only a few weeks away. There's been quite some intense discussions with the end customer about the future. I should not probably say anything more about that at this time, but it's a good thing that we have that dialogue, and we know they're very satisfied with the service and they view this specifically when there are some specific events going on.
We've shared that statistics and data with them, and they've shared how they've used the service and that discussion is ongoing. Nora, anything to add?
No, I think that sums it up.
Okay. Thanks. That's a good color.
Yeah.
Can you also say something about how we should, how the revenue shortfall will be recognized, and what could trigger that?
Can I just ask a counter question, just so we understand your question? The revenue call, you mean in Q1 or do you mean how it-?
Yes.
Will it have a ripple effect in the rest of the year?
You delivered the service, and you have sent an invoice, I think, or invoices and, but you haven't recognized any revenue. I was just thinking if that could be recovered later in 2023, if and, what could trigger that.
That will be recovered when we receive full payment.
Exactly. We have taken a very prudent approach with the revenue recognition, as the early payments in the payment plan are fairly small and it's back heavy, which means that we will, as Nora says, recognize the revenue we didn't recognize now will and can be recognized when we, I guess.
Full payment.
Yeah, full payment, or the according to the payment plan.
Okay. Yeah.
Yeah.
Just wanted to check that. Is that part of your new guidance? I guess it is?
Yes. Exactly. Thank you for asking that question. That's of course a very important one. Yes, it is absolutely part of that guidance because of SEK 21.8 million in the quarter, not recognized in revenue, of course, has an effect for a company of our size as well. And it will have effects for the rest of the year as well, obviously. So we have to rely upon new contracts and sales of new to new customers and new contracts as we go forward. And of course, that changes the view on the revenue for the year, and that's why you could see that in the views on the future stipulation we have made. Yes.
Okay. Just checking here to be clear, so that was the reason for the changes in the full year sales guidance. It's not including any recovery of the revenues that you didn't recognize in Q1, just to be prudent, I guess.
Correct. We have followed the same prudent approach and philosophy not to have any negative surprises for ourselves and our shareholders and others going forward. That's correct.
Okay. That's more upside when they pay, and hopefully they will later on.
Exactly. Exactly.
What is the financial situation for the distributor right now?
They will have to answer that question. There's been some news out from them that they're better than they say, but we can only work on facts. The fact is we haven't gotten paid, and we didn't get paid, and therefore, we had to take some specific measures here, as you know, at the resolve. Therefore, we've taken a very prudent approach here with the revenue recognition as well. I think that's up to the Italian distributor and reseller to actually answer that question.
Okay.
We can only base our answers on the facts that we have. We haven't gotten paid.
Okay. Now from April, I guess that we should assume that you will not recognize any revenues given what we know today. On the other hand, you have this new contract that you maybe can talk about a bit more, how we should think about if it starts right away or if it's a delay for the customer to start using the services.
Yeah, it's really difficult to answer that question. As we will communicate to you and to the market when we have something to communicate about that. We have a very good dialogue with the customer, but the question is what type of service, what size of service, and what type of usage do they expect and want to have going forward, and have they set aside budgets for those things going forward? Those are pretty intense discussions that we're having with the end customer at this point as well. I'm sorry, but I cannot say more than that. We will communicate about the going forward of that.
I think you can easily kind of understand that we've taken a prudent approach in Q1, not recognizing revenue, and we will communicate, as soon as we know anything about an extension or a new type of service that we might deliver.
Okay. Got it. Fair enough. I also have a question, of course, about the added comment here that you have in the report about Ovzon 3, the risk of further delays, and if you can say something, what has happened during Q1 that made you add this comment?
Yes. I think there are some others, probably that are very interested in that. I, you know. Listen, number one is this is very critical to Ovzon obviously. It's very critical to our customers. It's very critical to our shareholders.
So.
Our shared number one priority, I think driving profitable growth, as I've mentioned, is also that. Let's talk a little bit then about Ovzon 3 and the path we have. We've continued to work on the finalization of the satellite with Maxar. Obviously we have introduced, the program, total program has introduced one new thing, and that new thing is that we've changed from Arianespace to SpaceX. SpaceX then also needs to provide some of the data for the launch, so to speak, so that Maxar can build the right dynamic test bed for the final test, which is called dynamic testing, which is really vibration. The Arianespace rocket and the Falcon 9 rocket operate slightly different.
They fulfill the same job, they operate slightly different. My comment both in the CEO's Word in the quarterly announcement as well as on this webcast was, no one should expect a major change in date or time, but we're just trying to be extraordinarily prudent in our communication so that. I think we have so negatively surprised ourselves and the market and others, and the supply chain has surprised us, right? With delays and several delays.
We're just saying, "Listen, until the assembled and tested with a new launch provider and those data points, you can't, I can't guarantee that it's gonna be July to September." The plans are still, as we say, July to September, but you cannot guarantee it because you're not through. We're such, we're in the last mile of what needs to be done here. That's why we're trying to be maybe overly cautious, but I would say it's important to understand that as finalization, assembly, test, and launch, it's not, all of it is not done yet, therefore, there's still risk.
Okay. Yeah. I understand that. On the other hand, just curious here if you have found anything new, if this dynamic testing phase could prove more complicated than you thought earlier for some reason, or something has really come up here during Q1 because, I mean, the things we knew that there could be a delay because you have to have this to do the final test.
Yeah. Yeah. No. Yeah.
We knew that already.
No. No.
Just curious.
We negotiated the contract with SpaceX based on the timeline and time plans we have, therefore, we chose and we were very careful and selective of the July to September time window for launch, right? As with all new development programs, yeah, there are a few anomalies that, non-conformities that pop up. They're solved, some of them very quickly, and others take a little bit more time. In general, it's going according to plan, in general. There are some non-conformities. Again, as I said, I think the biggest unknown to us, and we're not the launch provider and we're not the manufacturer, is the switch from Arian- SpaceX. I'm not saying it is an issue, but it's an unknown, and therefore, we have to be prudent and say it's an unknown.
and SpaceX are working well together and we're working on finalizing all those data points and tests and engineering to get it ready. I just very, very transparent and very clear about there's always risk. Until it's done, it's not done, basically.
Okay, got it. Yeah, I appreciate the clarity there. I'll get back in line. I have a final one here, but I can take them after. I get back in line.
All right. Yeah. No, thank you very much, Michael. Thank you for your questions. I think they were very helpful for others as well. Thank you.
Thank you. Once again, if you would like to ask an audio question, please press star one one on your telephone keypad now. Once again, that's star one one to ask an audio question, or you can type in your question in the box on the webcast. We currently do not have any audio questions registered, so I'll hand over to our speakers.
Okay. There are a few questions that have come. Thank you so much, Sarah. Thank you, Michael, for your questions. If there are no further questions, I will would like to honor those that have asked questions on the Q&A as well. I think I'll answer. There are from Men and from Geig Sa-Sakiris, there are questions around Ovzon 3. Hopefully, I've answered them. Yes, you can be very critical and say that we've been finalizing the satellite for a long time now. Do you have control? As a matter of fact, yes. I think we have control over what we can control.
I cannot professional satellite manufacturer, what they do, how they do it, when they do it. I cannot control professional launch provider, what they do, how they do it, when they do it. Do I trust that they're doing everything they can? Do I trust that they have us as a priority at this point in time? Yes. I do. Yes, for those of you that have been here for a long time, the satellite is severely delayed. I think there's one comment I would make on that, and this is no excuse by no means. We control the program, what we control in the master program of all of this.
We are re-reliant on professional manufacturing and suppliers and launch providers in doing their job and collaborating. We are integrating the schedules and so on from our standpoint. I will say, though, that for Ovzon, I think a delay, that this delay is, the delay is, a delay is actually has a huge effect given the size of our company, given the prominence of our investment in this satellite, and give the prominent future that it shows to have for us. It has, you know, a significant effect on us. I can assure you that myself, our CFO, Nora, here, and the rest of our leadership team and the project office and our builders are fully aware of where we are, what's going on, how we work together, and engaged in this.
We're doing everything in our power to push and finalize towards a successful launch of the satellite and then implementation of the satellite to our service portfolio, and therefore, gaining the advantage of both revenue and profitability from that. We have started sales, we have engagements on that. While, yes, it is disappointing with delays, we're continuing to push, and I believe this year will be the launch of having Ovzon's first satellite in space. There's also a question about Gomedia. How long will you continue to deliver to them without securing payment? As I said, we have a payment plan, we have a pledge agreement, and a promise to the end customer, the Italian Fire and Rescue Service, that we keep the service up until the end of that contract.
That contract ends at the end of April, it's just a few more weeks. What comes after that will be something that we will announce when we have something to announce in terms of a continuation or any other type of arrangements for that. Just wanted to clarify that again. I think Michael asked a similar question. I hope that helps explain it. Obviously, the situation here with the Italian distributor and the non-payments has caused some, you know, some, you know, severe events for us during the quarter. I believe wholeheartedly, we have handled it in the best possible way and in a very prudent way this quarter as well.
We take a hit on revenue, we believe that if we continue to drive a step change in profitable growth, continue to deliver value to our customers, we will renew contracts, and we will find ways to find new customers and sign, get new orders and sign new contracts that will, when we look back, this will have been a significant but a blip on the radar screen. I'm very positive about the future and in solidifying Ovzon's SATCOM-as-a-Service position as the premium solution in the marketplace, which will even be better when Ovzon 3 is in space. With that, I think, Sarah, we would like to thank you all. We wish you a good afternoon and the rest of your day for those that are in the U.S.
We look forward to hosting you on the next webcast for our second quarter in 2023. Thank you for participating, and have a good afternoon.
Thank you. This now concludes our event. You can now disconnect your line.