Hello, and welcome to today's webcast presentation, where we have Ovzon presenting the Q2 report for 2023. With us presenting, we have the CEO, Per Norén, and CFO, Noora Jayasekara, with us presenting. If you have any questions for Per and Noora, you can either use the form that is located to the right, or if you're calling in and would like to ask a question, please press star nine to raise your hand. With that said, I'll hand over the word to you, Per and Noora. Please go ahead with your presentation.
Thank you very much, good morning, good afternoon, and good evening, wherever you are, everyone that has joined. Thank you for joining us at this webcast regarding Ovzon's second quarter 2023. As you heard, my name is Per Norén, and I'm the President and CEO of Ovzon, and by my side I have our CFO, Noora Jayasekara, who's going to present our figures more in detail later in the presentation. Welcome, Noora. Before I start the formal presentation, most of you that are on have likely seen our, our quarterly announcement, and we'll obviously go through it in detail. I want to make sure that everyone understands the significance in the progress we've made with our satellite, Ovzon 3, that we just announced in the quarterly report.
It has successfully passed dynamic testing, which is a major, major milestone that retires a lot of risk to schedule and readiness for launch. I will obviously touch more later on this, but it's really a major milestone that we're proud to announce today. Let's go to the next slide, please. I think for new listeners, as a reminder for all of us, let me start with providing you a, a brief introduction to our company. Ovzon is a company with a technology, know-how, and capabilities that has embarked on a strategy and transformative journey to really become a game changer in the satellite communication industry. Ovzon was founded in Sweden in 2006, and at that time focused on designing, developing, producing, and delivering leading mobile satellite terminals.
With mobility, we mean really the smallest, easiest to carry, lightest and easiest to use, and best performing satellite terminal. Today, we're one of the leading solution providers of a fully integrated SATCOM-as-a-Service that delivers uniquely high le- levels of performance, and we are definitely truly mobile and truly resilient, which you'll hear more about. We have end customers, people, and partners, customers in the United States, in Sweden, and across Europe, and we have invested heavily in technology development programs. More on that when we get into the numbers and the progress. Next slide, please.
In 2018, Ovzon decided to advance its position from a mobile satellite terminal provider to a full-fledged integrated satellite communication solutions provider by making the decisions to invest in building the company's first satellite, Ovzon 3, alongside a software-enabled resiliency solution for guaranteed continuous communication, the so-called Ovzon On-Board-Processor, as well as a small mobile satellite terminals that could enable the Ovzon On-Board-Processor to have continuous communication. We moved from the mobile satellite terminal piece of this circle of life, as we call it, into the space segment, but with that.
What sets us apart from any other satellite communications provider and from any competing solution, is that we manage and control the entire value chain, from the terminal on the ground that the user have in his or her hands, through the space segments, through the secure terrestrial stations connecting to the networks, and with a 24/7/365 global support and services. We partner with a selected few secure gateways. We don't own them ourselves, but the rest of the pieces, the terminals, the space segments, to become our own satellite terminal, but today with leased capacity, and the global support is us. We are the only one that have this circle of life and can control the performance, the mobility, and the guaranteed communication link for any customer with a critical mission. Next slide, please.
Here's a graphical depiction of where we are positioned today in the competitive solutions landscape, and I realize it's in broad terms, but bear with us so we understand where we are today and where we're heading for tomorrow. Satellite communications is today an integral part of any communication technology that connects and powers the world's critical missions. With the continued geopolitical tension and environmental changes through global warming, coupled with the fact that the refugee streams have more than doubled in scope, and natural disasters such as flooding, storms, and wildfire fill our news daily. In critical situation, the only means of guaranteed communication to protect and connect people, businesses, and countries, have become evident to be satellite communications. For the Ovzon team and our customers, this harsh truth has become more and more obvious.
Guaranteed connectivity, where you need it, when you need it, are critical requirements. Fast and easy-to-use solution is another key demand. If you look at this picture, mobility. With mobility, we mean that it's not a fixed link down to the ground, where you use satellite communications. It is actually, we are all the way out on the right-hand side with the smallest mobile satellite terminals that can fit in a backpack or a briefcase, or so on. We're actually moving towards smaller and smaller. That's what we mean with true mobility. We do that without sacrificing the Y-axis, which is actually the ability to transmit and receive data and information. We, we are now up to 100+ Mbps in that, close to that, with our current offerings.
With the coming Ovzon 3 online, plus all the other capabilities in our Ovzon T7 terminal, we'll get to even higher levels of that. I think if you combine the circle of life picture we just looked at with the major undertakings and the developments that we've had as a company in technology programs, we will be able to actually move up to a level that has never, ever been achieved before in terms of both mobility of connectivity as well as in true performance. Next slide, please. Now, are we in a market that is that, that is investing in itself and in its customers? The answer to that is, of course, yes. In 2021, we started a major growth transformation journey and embarked on a strategy to drive a step change in profitable growth.
We're well positioned in this market, and as you can see on the lower right-hand side, the addressable market is quite large, both in terms of government, defense, mobility, and industry and Internet of Things services, and beyond. Our customer segments are more and more looking into satellite or utilising satellite communications as a primary means, where it, before was actually maybe a secondary and tertiary means of communication. The trends, market trends are that satellite operators are trying to become more and more integrated service providers, and satellite operators are also involved in a lot of M&A activity for the moment. Those that previously were niche providers of terminals are trying to strive to get to become service providers.
The orbits that we use in space for communication, the LEO stationary, the multi-orbit and the Geostationary orbit, is now trending towards how can we combine capability and capacity between the three orbits? There are long-term, large investments that continue in this business, which means that money's flowing, innovation is flowing, technology is flowing, but it's about bringing that together in the demands that the end customers have. Integrated solution: Can I use it now? Is it efficient? Can you guarantee connectivity? Can it be highly mobile in areas where I can't trust any other means of communication? Is it secure? Can it be disturbed, and is it secure and resilient? All of those things are actually Ovzon's strength in, in the marketplace today. We're very pleased with being in that market and having advanced our position there as well.
Next slide, please. Now, over to the quarter, and I know there might be several questions here, but bear with me as I go through what we believe is actually not as maybe soft quarter as the numbers show. Let me talk a little bit about that. As we said, the continued geopolitical tension and the environment changes and so on are actually also both drivers of business, but also decision processes are longer. For us, this meant that... For our company, our size, it's still quite cyclical and somewhat a bumpy ride to build market awareness of our unique value and achieve full market presence.
The lead times, concluding major customer contracts are taking time, but in the meantime, it's important to, we complement those larger contract with smaller orders, which then becomes the start of our expansion and foot in the door, so to speak, contracts with customers in our target markets. I'm very pleased actually with that we've received multiple new orders during the quarter, both from current customers, the renewals, as well as, new customers and expansion in geographical markets where we already have reference points. I think that's, renewals is the basis for what we do, and then we add on, new customers.
We want to expand with current customers on the renewals, add new customers, and then, of course, we are targeting some of the more major undertakings that are going on in the world today. We have announced one of those with the larger European customers early in Q2, the $4.8 million order that we took then. As I mentioned before, we're in the final stages of completion of our own satellite, Ovzon 3. As you heard in the beginning, we have communicated that we have passed the dynamic test, and we're actually in the final phases now of the aftermath of the dynamic test, putting the satellite together. I'll come back to more details regarding this in two slides from now.
We're also equally excited that we have announced the market launch of the industry-first mobile satellite terminal, Ovzon T7. More on that in just a minute. Maybe most importantly, our major technology development programs are at now at a speed and delivery that they've never been. We can now see the finish line with all of them, and we have started to engage customers and the market in the future solutions we can offer. Next slide, please. Over to the Ovzon 3 update, which I know is of significant interest to our investor group and analysts. What you see in this picture, and you have not seen this before, is the actual spacecraft. This is Ovzon 3 now. It's not in the phase we were seeing when it came off the dynamic test. It has...
It's Ovzon 3, and it's now in kind of final assembly and bits and pieces that needs to be sub-tested and then put on the satellite again. The dynamic test includes major elements of all the testing, so there's fewer elements and less critical elements left of the testing. The dynamic test was concluded in early August with successful re-results and the completion of the test, meaning approved for next phases. This retires the majority of the risk in the finalization, schedule, and delivery of the satellite and shall ensure a successful launch into orbit. The second quarter has really been very, very, very strong from a programmatic and development delivery perspectives. I would say that this is what we see for ourselves now is the finish line.
We see ourselves being like running a marathon with Ovzon 3, as it has been, we can see the finish line, as I said, and it's almost like we're, we're on our way into the stadium for the final laps before we can get to the launch site and actually launch the satellite in orbit. That means that the adjusted timeline that we communicated in June still holds. Launch is expected late 2023, early 2024. There is detailed planning going on, and we will, as soon as we know, come up with communicate a detailed launch date at the latest in Q4.
As we have noted before, we have leased capacity today that we can utilize for any or more of new sales or current deliveries and support customers, so there is no impact on our current commercial activities or the delivery of the Ovzon 3 SATCOM-as-a-Service as it is. I'm glad to be able to show you finally a real picture of the real Ovzon 3 on its way to be finalized and on its way to get ready and, and packed, and shipped to the launch site. More information will come as soon as we have relevant information to present. Next picture, please. Ovzon T7.
In 2018, when the company decided to invest heavily in its own first satellite and the Ovzon On-Board-Processor, which is a software-enabled gateway in space, on the aircraft, but managed from ground, we also decided that we needed a... Well, decided, we had to have a mobile satellite terminal that could connect and utilize the On-Board-Processor, which makes the terminal a hasty teleport, basically. If the major teleports are shut down or are not functioning, we can create a closed-loop communication system, which means you can guarantee high, highly secure, high-performing communication. This terminal, which you see on the picture here, to the left, it's the current big brother, Ovzon T6, and to the right, it's the little brother, but with same performance and or better, Ovzon T7.
You can see the size of it is significantly smaller. It's easier and faster. It deploys in less than a minute. It's smaller, as you can see on the form factor. It's much lighter. It's 2.8 kg. It has a low power consumption. It's very resilient. It has, actually, in that form factor, two modems, where one modem we have developed ourselves, called the On-Board-Processor modem or the OBP modem, which means that it's compatible with Ovzon 3 and the Ovzon On-Board-Processor on the satellite. It's rugged. It works in any, any environment. We launched this in July. We have then followed up with demonstrations to customers, both in Sweden, Europe, as well as the United States, and gotten a very significant interest for it, obviously.
We are still in work to finalize the product, but we expect to, before the end of this year, to have the first number of volume of production units ready. We have started the process to be able to take orders and then line up customers as, as they come. It is also a start of what I call the next generation Ovzon SATCOM-as-a-Service based on Ovzon 3. It is a precursor to basically start that whole process of now starting to sell capacity on our own terminal with the Ovzon On-Board-Processor and with Ovzon T7. Now, Ovzon 3, Ovzon On-Board-Processor, the OBP modem, and the Ovzon T7 terminal is major technology development undertakings. As you understand from my description here now.
We're, we're getting into a phase where we're now ready to bring all of this to market eventually. We can breathe with a lot of oxygen in our tanks and bring the capabilities that we've so long waited for to market. Next slide, please. Now, over to order intake before I hand over to Noora. As you can see on this picture, order intake in the quarter totaled $5.5 million. In the second quarter in 2022, we had $2.1 million, actually. That corresponds to SEK 60.2 million. You can see between Q2 2022 and 2023, that we actually have a stronger quarter in terms of order intake.
The order intake includes renewals with current customers, as I spoke about, U.K. government and the Italian Fire and Rescue Services, I'll make a remark on that in, in two seconds, along with a new customer in April, which was the $4.8 million contract with a European customer, as well as the Spanish National Police, and most recently, after the quarter, the international, the Italian National Border Police for support with SATCOM-as-a-Service for refugee situation, with refugees coming in, into Europe via Italy and the island of Lampedusa. The order book amounts to 11.4 million, and that corresponds to SEK 124 million .
The comment on this, before we get into the detailed number, is that I noted earlier, as you heard, that we are, of course, out there talking to customers on, on more major orders and so on. The sales cycles are long. It's complex for a company our size to have a full expansion and presence in new markets and geographies at the same time, but I. It's worthwhile because we're advancing them. The smaller orders mean something. They mean that we have a foot in the door, as I said, and we come in, and we can deliver the best-performing solution there is, and we can then start to expand from that. It's basically Trojan Horse, as well as looking at a more significant growth in that.
Normally, the first half year for Ovzon is somewhat slower than the second half year. We are confident that the second half year will be much better than the first half of this year. I think I'll end there. I'll come back and wrap things up after I've handed over to Noora to take you through the financials. Over to you, Noora.
Thank you, Per. I will now give you some details on the financial performance in the second quarter, 2023. Turning to Slide 10. Revenue totaled SEK 69 million for the second quarter of 2023, a decline of 12%. The downturn is largely explained by that the order from the Italian Fire and Rescue Services was renewed to significantly lower levels, and that we have chosen to exclude revenue based on the earlier agreement. With Vodafone as a new distributor, our platform in Italy is now more solid. Revenue in the quarter was positively affected by new clients and renewals, although not covering the lost revenue in full. Run rate revenue for SATCOM-as-a-Service was SEK 252 million , a decline compared to last year, but an improvement compared to the first quarter, attributed to new clients. Turning to Slide 11.
EBITDA in the second quarter amounted to SEK -22 million, and EBIT to SEK -28 million. Profit for the period is lower compared to last year due to lower delivery of services and lower capacity utilization. EBITDA margin for the period was -35% and EBIT margin -45%, the decline driven by higher overhead costs related to sales and personnel and unutilized capacity. Lastly, on Slide 12, the cash flow. Decrease in working capital is the primary driver for the improved operative cash flow that amounted to SEK -7 million. Investments in Ovzon 3 in this quarter mainly related to payments to the new launch provider, as well as the development of the mobile satellite terminal, Ovzon T7, drive the cash flow from investing activities.
Net debt amounts to SEK 379 million , an increase from the comparative period as a result of the mentioned investments in Ovzon 3 and Ovzon T7. With that, back to you, Per, for some final comments.
Thank you, Noora. Well, first of all, I have to say that we are very, very pleased with the progress we've made with Ovzon 3. Passing the dynamic test is a significant milestone, and while work remains, we are in the final phases. Profitable growth is obviously essential for us, as can be noted in our financial results. The Italian distributor that we had a major contract with, of course, that has dug a hole, some, I would say, in, in our numbers, and we have worked very hard to try to capture that. We have secured that end customer, but we haven't been able to fully capture that hole that was dug.
the first half-year has not been as solid as we wanted in capturing that, but we're comfortable with the plan for the second half of the year. I can assure you, we're very committed and focused on driving growth for the rest of 2023. We will obviously also continue to concentrate on the completion of Ovzon 3, also an Ovzon On-Board-Processor, and achieve a launch as soon as it's possible. Launching a new Ovzon T7 terminal in such a small form factor, which no one else in the world has accomplished, and includes two modems, as I noted, is a significant milestone as well.
I think you can see that the journey that the company embarked upon with saying, "We are going to build a satellite, we're going to have an On-Board-Processor, we're going to have a compatible terminal on the ground that follows our requirements of the smallest form factors with the highest performance," are major technology undertaking and investments. While that has been somewhat delayed in certain areas, we're also making great strides right now. I think the, the one of the things that probably is a question from the, from the group that is listening now is: how can you capture more growth and more profitable growth to drive the business to, to higher levels? I think that's what I'm trying to say, that we, we had a hole that we had not expected to have.
We have worked hard to try to capture, cover that. We haven't fully been able to, but normally, our first half year is somewhat slower than the second half year, we have line of sight to things that we believe are solid for us. Then last but not least, I would say that we have, if you follow our press releases, we have also added new key industry experience and leadership and competence, to our executive team, and revamped that somewhat. I believe that the results are already starting to be seen in the, specifically in the program and technology delivery area. We do continue to work closely with all stakeholders, which includes customers, current and new partners, and end customers, to deliver value of our current customer base and the new ones.
I think it's fair to say that we are confident that also we'll be able to deliver and meet the objectives we have with reaching the similar revenue levels as in 2022, and delivering on the Ovzon 3 promise that was made quite a few years back. With that, I think we'll hand it back over to you, Mr. Moderator, and we'll take any questions anyone will have.
Okay, thank you very much for that presentation. Now we'll jump into the Q&A section. If you have any questions, you can either use the form that is located to the right, or if you're calling in, you can press star nine to raise your hand. We'll begin with the first question here that's coming in from a caller. Please go ahead with your question.
Hi, Per and Noora. Can you hear me?
Absolutely.
Simon.
Hi, Simon.
Perfect. Great, I just wanted to make sure that the line was okay. Thank you so much for the presentation. A couple of questions from me. Initially, as I've mentioned before, we, we do appreciate your transparency in Ovzon 3 project along the way, and, and you did talk some about it during the presentation, but what concrete steps remain until the upcoming launch in 2 months? Thank you. Thank you.
Well, I, I, I, I can't go into all the details on it, but first of all, I would say that the dynamic test, which includes a vibration test and an acoustics test, and it's basically mimicking the rocket that we have now, Falcon 9 rocket. It's basically mimicking the vibrations on that rocket, as well as the sound levels, with, with the actual, that space. It also the dynamic test also includes, you know, checking the weight, checking the performance of that weight, and checking, or mass, as it's called, et cetera, et cetera. There's a number of different things in there. The solar panels that we have that is gonna partly, you know, power the satellite when it's in orbit, they were on during the dynamic test, obviously.
They go then back to the, that supplier for another test. That's what I kind of mentioned in my speech as well. There are a few other of those things that needs to happen, and then they come back, you do final assembly, checks, and tests, et cetera. That's what's going on in, on the manufacturing side. In parallel, the launch provider and the satellite manufacturer will then also do all the necessary work to get the satellite on the, what's called the payload adapter, that sits on the rocket to make sure that it, it's that works, and that it, it's, it's, can, can Will function appropriately. They do tests on that in simulation environment.
When they've done, when that is done, the satellite will be packaged up, and in a, in a specific container, and then shipped to the launch site. There's analytics, I would, I would call it this. There's analytics, there's engineering work, and there is final assembly work. When you've gone through the dynamic testing, you've really retired a lot of that scheduled risk that is there, and this should be, you know, fairly more straightforward than designing and building a brand-new satellite that has never been built before by, by our, our provider here. I hope that answers the question somewhat.
work remains, and engineering precision and quality is of essence, but I can assure you that all parties have all hands on deck and are focused on making, the satellite ready as soon as they possibly can for a launch.
That certainly helps. Thank you so much, and encouraging to hear those comments. Then I was wondering, as you near the launch of Ovzon 3, are current discussion with customers in terms of placing new orders for these to convert eventually into capacity used on Ovzon 3? Hence, the recent delay of Ovzon 3 might also give some headwinds to your current lease capacity sales activities, in lack of better words, which should then return once Ovzon 3 is launched, also. This, of course, assumes that demand is there.
Yes. I'm not 100% sure I understood the question, Simon. Do you want me to also comment on the demand in the market and how fast we think we can get new customers and replacement of lease capacity on Ovzon 3? Is that what you were asking?
Yes, in part, and, and also whether the delay of Ovzon 3 might have hurt your sales activities, as you perhaps in discussions with new customers, also have, had discussed whether or not they would convert into capacity used on Ovzon 3 and not only using your lease capacity.
Ah.
that you currently have.
Now, I understand. Yes. Yeah, yeah, yeah. Now I understand. No, I wouldn't say that. It's a very, very, very good question. No, I wouldn't say it's hurt our sales activities, necessarily. I think a delay that we've had. I will say this, you know, for those of you that might follow the satellite industry more closely, there are several of those satellites there. There's been a lot of launches as of late, which means that the post-COVID activities have really ramped up at all the manufacturers to ready satellite for launches. There has also been some, you know. There's been other delays than Ovzon 3. However, has it impacted our sales activities? I wouldn't say it has.
I would say that I think customers, current and new, are comfortable with what we offer and sell and deliver today. They are very excited about the Ovzon 3 capabilities, which includes the Ovzon On-Board-Processor, and then it becomes very tangible when the new terminal, which is OBP compatible, and customers that we speak to really are concentrating on that. The guaranteed, kind of, closed-loop, high-performing, Ovzon SATCOM-as-a-Service that we can, that we can offer. To try to answer your question, no, I don't think it's directly affected sales for us. Secondly, I actually think it's given the customers time to draw their plans for the future and how... Us working with them in where Ovzon 3 fits into their set of requirements and solution capabilities.
I would say this as an end point to that, that it, if it goes much longer before we get launched and in orbit, I think it would, it potentially, at a point, will affect it, but it hasn't affected it so far. That's what, that would be my answer.
Thank you so much. Again, very, a very helpful answer. Then on your comment on an improved outlook for H2, partly on seasonality, could you talk here about where you mainly go for increased revenue? Is it mainly for, relating to new customers or expanding revenue with the current customer base? The reason I ask this question is because of the significantly broadened customer base, over recent years.
Yeah. It is a combination of both, actually. When you have current customers, they are your platform, really your, our platform for growth, and they are our point of reference for us. They already know what, what they've, what they, what we've delivered to them. We have a very strong rap track record, if you look back, of, of not losing any customer and basically renewing every year at similar levels. I think where we've been somewhat weaker is where to, to expanding with current customers, which is, has been a big effort. I think the current customers is the basis for the growth coming in Q2, and then expansion with them is the second step on the on, on that layer.
Then the third is new sales. New sales always new, capturing new customers. New customers and capturing new customers takes time, right? I think that's where, that's where the first half of the year was somewhat slow. We got one new large European customer in the first half year. It's almost like we, we're not talking about that, but we did. We believe that maybe that customer set and our US DOD customer set alongside the smaller contracts we have, that's the basis for having a strong, solid kind of view on that the second half of the year is good. Will be good. It's both current, it's renewals, it's expansion with current, and it's new sales.
It's a combination of the three of them that makes us, we kind of have a good view on the second half of the year.
I see. Thanks again. Just a final question from me. I know you mentioned upside to the renewed agreement with the Italian Fire and Rescue Services, but would you dare to speculate on why the recent order value is below the historical run rate?
I won't speculate. I will tell you, I will tell you what we, what we know about that instead, because I... It has, I, I noted that it had, and Noora noted it as well in the financial brief, that the contract we had with our Italian distributor, did not match the need of the Italian Fire and Rescue Services. So there was a disconnect, and that's why you see mentioning in the CEO word and in the report that we, yeah, and you, you know from the beginning of this year that we reserved an amount, and we haven't accounted for the revenue, not even in Q1 from that Italian distributor, because of payment problems, or delayed, delays in payments and payment problems. So it, it did dig a hole for us, right?
The positive thing with this is not in the numbers, but the positive thing is that we've had direct communication with the end customer here, the Italian Fire and Rescue Services. They basically said, "Hey, we, we, we need a restart as well. We, we have really appreciate what we've gotten from you." Together with Vodafone, that holds that framework contract with the Ministry of Interior in Italy and the end customer, Italian Fire and Rescue Services, it was decided that they would go to a minimum viable solution, and then we, we will continue training, development, and advancement of that. There is a big discrepancy, as you can note, in the contract value we had with our previous Italian distributor and what we now have with the end customer. We have...
The positive is we have line of sight, we have direct communication. We're working on an expansion plan with them. It's, you're noting things right. It's a radical difference in the size of what we got today and what we had before. Again, now we're close to whom actually is using it, and I think that gives us confidence that we can actually work with experience we have with them to expand it.
Thank you so much for having my questions. I appreciate it.
Thank you, Simon.
Okay, we'll move on to the other question that has come in here. I will start with the first question here. Ovzon offers a unique service, and the demand for Ovzon's offering is massive due to the war, fires, migration, et cetera. The question is: Why don't you take more orders?
Yeah, it's a very good question that we basically ask ourselves every day as well. Now, let me try to answer the question somewhat, at least. Yes, because, and I noted this in my remarks as well, because of the geopolitical situation and because of the environmental changes that happen, happening, and because that also leads to somewhat of a refugee situation in the world, the need is larger, at large. The buyers of those services are governments, NGOs that are controlled by large, you know, governments and, and, and investments from, from those that support those NGOs. They are. Yeah, and, and they're in the so-called political and government systems, and they, they have never used the satellite communications solution before. They might never have procured a satellite communications before either.
The process with this, and this is what I meant with, maybe vaguely, for whomever's asked this question, but that, that market presence, presence, geographical expansion, and, and, and so on, and they, they are long sales cycles for that. It's just not, you know, it's just not possible to close it faster before you've gotten in and before everyone is educated and everyone has gone through the government procurement processes that might not never have done this, as I said. It is somewhat of a frustrating situation because the need is there, ready to be grabbed as the question came in, right? We're doing everything in our power, both with ourselves and our partners that are in different geographies, that knows these processes and these ways of working well.
We are doing everything in our power also to use the points of reference we have to grab more more orders and serve more customers with what we have. I think there are some possible signals. Basically, for example, the Italian National Police, that was a, that was a direct consequence of us having worked for the Italian Fire and Rescue Services, and the Italian National Police is also under the Minister of Interior, which meant they already knew the value, and they understood how to procure. That request came in pretty fast, and we already had a point of reference, and we could turn that very quickly.
I think that's example I would use to say that once you're in, once you've referenced, once the processes are aligned, and you're approved, approved and proven, solution provider to that area, then it goes faster. I think we're seeing that it takes time to expand markets. It takes time to expand in geographies, and it takes time when the larger the contracts gets, the more rigor there are in processes, to close them as well. Whomever asked the question, yep, we're as, we're somewhat frustrated at time for of this slowness, but it is worthwhile pursuing these initiatives because they will lead to small, medium size, and larger deals. I think if we have...
When we have line of sight of what we have line of sight to, that's why we make the comment, we believe that the second half of the year has a solid, a solid sales pipeline that, that we can, take advantage of.
Okay, thank you. The next question might lead to a quite similar answer, but maybe you can put some more color to it. "Revenue and growth is negative, which doesn't make any sense at all. What would you say is causing this?
Do you want to answer that, Noora? I think, Noora just, she really talked about that on the revenue slide, I think your remarks were, rightfully so, that, you know, we had a large contract. If we had kept our large contract with, through, our Italian distributor that we had, the revenue numbers would have looked very different than they do today, quite honestly. I would also add that the margins would have looked quite differently than what they do today. I'm not gonna point only to that, but I think it really dug a hole for us, and we've been working our, everything off to try to cover up for that.
As I said, sales cycles are somewhat long and cumbersome, so we haven't been able to close that gap in the first half of the year. That's really the major reason. There's not been any other anomaly. I hope that the person that asked the question understands that, yes, it, that's not been a good situation for us, but we're honest and transparent with it. We've also secured, secured and making sure that we can that distributor can fulfill its payments to it, which might have a positive impact later, but we're not calculating on that. We're actually taking it as we need to cover the gap we had in revenue, and related earnings to that as well.
Okay, thank you. What's the timetable for launching the satellite?
Great question. The timetable is, number one, as soon as the satellite is ready. I think I've, I've actually spent quite some time on that, so I hope that's clear to everyone. Going through the final phases, as I discussed with Simon Granath earlier, the first, the first questions that came in. It's a, it's a matter of readiness from the launch provider. We have a continuous dialogue, and they're, they're obviously part of the, the phase we're in now with getting the satellite ready for, for it to be shipped and to be, to be integrated on the rocket for launch. It, it, it's really a combination of readiness, shipment, and then availability of, of the rocket to launch it.
Not to give all the details on it, but you have to give a time window, and the time window we've given is late 2023, early 2024. That is the time window we're in now. When we get further along in the final assembly and readiness here, we will then, together with the manufacturer, Maxar, and them and us, decide on a specific launch date, and we will communicate that absolutely as soon as we have that to the market as well. You know, it's late 2023 or early 2024 that we have as a time window right now.
And-
Which is not far away.
What measures have you taken to ensure the successful launch of Ovzon 3?
... Well, the measures we've taken is that we've, we've, we've with an increased cost, we've signed up with the ones that are making the most launches in the industry and has very low to zero failure rate in SpaceX. That's a measure we've taken. The other measure we've taken is that we've had our manufacturer, Maxar, do the Dynamic testing. That's a major, as I said, a reduction of risk, both schedule and technology risks, and so on. And we've made sure to secure the right resources and expert in supporting us and supporting, and through Maxar and SpaceX and others, to get the spacecraft ready for launch.
I think we've taken all the measures we can to really make the satellite ready from our side, from Maxar's side, and from the launch provider, SpaceX side.
Perfect. Thank you. What risks do you foresee that could impact Ovzon not reaching your targets for 2023?
Well, in our outlook, we've basically set out two outlook targets for us, and that's finalization and launch of Ovzon 3. I think I just tried to answer that question, that I think that, you know, again, the test that it's been through here early August and the next phases are less risky and much more visible in all aspects of what's going on with the spacecraft. That's one of the targets we have. I don't foresee... You can never say never, because this is advanced space technology and a spacecraft being built and launched. I think we have all measures in place, and so does Maxar and SpaceX and others. All measures in place to go as fast as possible and to reach the timeframe that we've communicated on that.
The second part of this is obviously our financial performance, which is really what's number one here on this picture, continued strong focus to drive a step change in profitable growth. I think, extensively, I've spoken about that, that it's important to renew customers. We have a laser focused on service delivery to our current customers, making sure that they get delivered what we promised, making sure that we stay close to them, making sure that we renew the contracts we have with them, working with them on expansion of what we can do with them, whether it's in new geographies for SATCOM-as-a-Service, or if there are other types of applications that our solutions can enable for them.
Secondly, of course, it's to find and close new customers, which are longer sales cycles, but we have sales teams in place in those geographies and markets that are on a daily basis, 24/7, really working with customers to set the scene for, for those that to close. I think the availability of investment dollars are there. It's a matter of finding the right process, the right path, and the right position for us to come in and show the value of what we have. I think, as I said, we have not changed our outlook. We believe we'll have a strong second half of the year. We believe we will be able to meet that objective of being in line with the revenues that we had last year.
Perfect. Thanks. Will your current financial position be sufficient to complete the, the entire Ovzon 3 project until it is in place and, and, or, on track? Or will you need additional capital injections?
Well, when it comes to the investment in Ovzon 3, the majority of the costs are already taken. While we cannot provide an exact forecast on future cash flows, our confidence in our current financial position is strong. I would also like to remind that we actually also still have $20 million of unutilized loan facility to grow.
Okay, thank you. How is that there has been a lower capacity utilization of contracted satellite capacity?
Oh, can you, can you repeat that again? How-
Yes. How is that there has been a lower capacity utilization of contracted satellite capacity?
Yep. A pretty straightforward and simple answer. 2/3 of that capacity have been utilized during this year so far. About 1/3 of it has not been utilized. That was that is attributed to our previous Italian distributor contract that we had. We have since, since that expired, that contract, not been able to sell that capacity. We have a number of initiatives to do that, but it has not closed yet, that's why.
Perfect. Thank you. Do you need to make a new application to ITU, as the current deadline is December 31st this year?
Correct. We will have to make a new request to extend our, our current application. You do that on the regular basis when the ITU meets. They will meet in August, and we have already prepared our extension, and of course, we get data points from our suppliers as well. I think what we don't see this as a major risk. What ITU is looking for is to make sure that all the plans and final assembly of the satellite and the launch of the satellite is following the path and the plan that there are. We do not foresee an issue with getting the extension of that. It's true that we have to apply again, yes. Extend the application, yes.
How is the sales pipeline for Ovzon 3 developing? Is it possible to provide any quantity figures on numbers of, number of leads and maturity of the sales discussions and the negotiations you have with customers?
They are progressing well. The ones that we can talk to this about, that are already using our service, are continuous. They're going on all the time. The new ones that we're working on are also progressing very well. Now, when we have Ovzon T7 terminal out and we can demonstrate the ability and capability, might not be a 100% apples to apples comparison, but we can do that. That also means that they can see the capabilities. That advances the discussions quite well for us. I, or we cannot and will not comment on any, how they're maturing or ongoing discussions, and so on.
Our focus now is threefold: finalize the satellite, 2, launch the satellite, and in parallel, 3, advance those discussions, so when the satellite is in orbit, we have anchor tenants that are going to use that capacity on that satellite. We're doing all of those three in parallel, but no quantification of them at this point in time.
Understood. Thank you. Do you expect to receive orders for the new T7 terminal before Ovzon 3 is in orbit? When is it possible to deliver T7 terminals to customers?
Yes, we do expect that customers can place and will place orders with us before the Ovzon 3 satellite is in orbit. Our plan is to have the first batch of production sat terminals coming out of production at the end of this year.
Other operating expenses of SEK 9 million in Q2 are much higher than in previous quarters. What's the reason behind this, how should we think about these costs going forward?
I can start to answer while Noora is diving into the numbers here. I don't know 100% sure what the, what that is, but I think you're referring to cost of goods sold. Is that?
No, other operating expenses.
Other operating expenses, okay. Okay, sorry. The silence is that Noora is looking through the numbers and trying to make sure that she is looking at those numbers.
Some of the FX changes go in there. It's nothing we've specifically...
Is it the parts to the terminals?
No.
Okay.
No.
I think we have to pass on the question, and the, the person that asked the question are.
You reach out, and I'll give an answer.
We're happy to have that person reach out and answer that question to that person.
Okay, thank you. We'll move on.
Instead of speculating, we don't want to speculate.
Yeah.
We will.
Okay, this is the same question, but relating to other income of SEK 8 million i n Q2. It was SEK 12 million in Q1. Can you explain why, why you had this income, and how could we model the income ahead?
Well, other operating income, it's a complicated number. One part of it contains of selling refurbished Ovzon T6 and, and Ovzon T6, for example. When they have been leased previously and are now sold out, that revenue ends up in other operating income. You can see it as a, as a part of our, our income. It's nothing particular in there.
Okay, thank you. Do you expect to receive a full payment from your former Italian distributor, and how much claims do you have?
Right. As we discussed already, during the first quarter of the year, there is a payment plan with the Italian distributor, which they initially followed. During the second quarter, unfortunately, the payments, the payment plan has not in full been, been followed. We are working diligently together with all parties to find a way to both... to secure full payment of our receivable.
Okay, one final question?
Most, most part of, of that has been, was included in the bad debt, provision, and we haven't accounted for, for the revenue. The, the financial exposure, from a P&L perspective, is, minimal.
We also obviously have that distributor having signed some pledged assets from them to us. There's a way to secure that, but we would prefer to see payments coming in according to payment plan, and then the final payments later in the year. We've also secured so that we can secure the assets, and then some assets, and then get payment that way, if necessary.
Okay, one final question-
We are very conservative on this.
One final question here.
Financially-
Oh, sorry, go ahead.
Nope, that's okay.
Okay, and one final question here: What could investors expect of Ovzon in 2023?
Very good. Investors can expect of Ovzon to live up to the outlook that we've, we've set out. They can expect that we inform about any new or new business and deals that we're making. They can expect that we will be extraordinarily transparent with the progress of Ovzon 3. That we will fulfill the outlook of that being finalized and launched in the timeframe that we have communicated, meaning late 2023, early 2024. Business progress according to outlook, readiness and launch of Ovzon 3 according to outlook, and then the entire team here being concentrating on driving a step change in growth and delivering on our major technology and development programs. That's what they can expect.
Okay. Thank you very much, Per and Noora, for presenting and answering all of our questions. Also a big thanks to all the viewers who followed along for Ovzon's Q2 report for 2023. I hope you have a great rest of the day, and until next time, thank you very much, and goodbye.
Thank you.