Ovzon AB (publ)

STO:OVZON

Earnings Call Transcript 2023-Q2

[Operator]

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 Noren; and CFO, Noora Jayasekara, with us presenting. [Operator Instructions] And with that said, I'll hand over the word to you, Per Noren. Please go ahead with your presentation.

[Per Noren, executive]

Thank you very much, and good morning, good afternoon, and good evening wherever you are, everyone that has joined. And thank you for joining us at this webcast regarding Ovzon's second quarter 2023. As you heard, my name is Per Noren, and I'm the President and CEO of Ovzon. And by my side, I have our CFO, Noora Jayasekara, who is going to present our figures more in detail later in the presentation. Welcome, Noora. But before I start the formal presentation, most of you that aren't have likely seen our quarterly announcement, then we'll obviously go through it in detail. But 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 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 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 was -- that could enable the On-Board-Processor to have continuous communication. Therefore, we moved from the mobile satellite terminal piece of this circle of life, as we call it, into the space segment with that. But 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 has 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 with -- to become our own satellite turnover 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 geographical, political 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. So if you look at this picture, mobility. So 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. And we're actually moving towards smaller and smaller. So 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. And we are now up to 100-plus megabits per second in that -- close to that with our current offerings and with the coming Ovzon 3 online plus all the other capabilities and also on T7 terminal will get to even higher levels of that. And 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 and connectivity as well as in true performance. Next slide, please. Now are we in a market that is investing in itself and in its customers? The answer is of course, yes. So in 2021, we started a major growth transformation journey and embarked on a strategy to drive a step change in profitable growth. We are 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 advance mobility and industry and Internet of Things, services and beyond. Our customer segments are more and more looking into satellite or utilizing 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. And the orbits that we use in space for communication, the geostationary -- the multi-orbit and the geostationary orbit is now trending towards how can we combine capability and capacity between the 3 orbits. So there are long-term large investments that continue in this business, which means that money is 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? And is it secure? Can it be disturbed? And is it secure and resilient? All of those things are actually all sort of strength in the marketplace today. So 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 a soft quarter as the numbers show. But let me talk a little bit about that. As we said, the continued geopolitical tension and the environment chains and so on are actually also both drivers of business but also decision processes are longer. But for us, this meant that -- and 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 and conclude your major customer contracts are taking time. But in the meantime, it's important to complement those larger contracts 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. So I'm very pleased actually 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. So I think that 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 largest European customers early in Q2, the USD 4.8 million order that we took on. Then as I mentioned before, we are in the final stages of completion of our own satellite Ovzon 3. And 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 2 slides from now. But we're also equally excited that we have announced the market launch of the industry first mobile satellite terminal, Ovzon 7, more on that in just a minute. But maybe most importantly, our major technology development programs are now at 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 and the future solutions we can offer. Next slide, please. Now over to the Ovzon 3 update, which I know is a significant interest to our investor group and analyst. 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 it was in when it came off the dynamic test. It has -- so it's Ovzon 3, and it's now in kind of final assembly and a 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 results and the completion of the test meeting 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. So the second quarter has really been a very, very, very strong from a programmatic and development delivery perspective. And 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. And we can see the finish line, as I said, and it's almost like we're on our way into the stadium for the final lap before we can get to the launch site and actually launch the satellite in orbit. So that means that the adjusted time line 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. And 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 SATCOM-as-a-Service as it is. So 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 packed to get to the launch site. More information will come as soon as we have relevant information to present. Next picture, please. Ovzon T7. So in 2018, when the company decided to invest heavily in its own first satellite and the -- also an onboard 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 hasty teleport basically. So if the major teleports are shut down or are not functioning, we can create a closed-loop communication system, which means you can guarantee highly secure, high-performing communication. This terminal, which you see on the picture here, to the left, is the current big brother, Ovzon T6. And to the right, it's a little brother but with same performance or better, Ovzon T7. And you can see the size of it is significantly smaller. So 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 kilos. It has a low power consumption. It is -- it has -- it's very resilient. It has actually in that form factor 2 modems, where 1 modem, we have developed ourselves called the On-Board-Processor modem or OBP modem, which means that it's compatible with Ovzon 3 and the onboard processor on the satellite. And it's rugged. It works in any, any environment. So we launched this in July. We have then followed up with demonstrations to customers, both in Sweden, Europe as well as in 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. And we have started the process to be able to take orders and then line up customers as they come. It is also a start of what I call the next generation Ovzon SATCOM-as-a-Service based on Ovzon 3. So it is a precursor to basically start the whole process of now starting to sell capacity on our own terminal with the On-Board-Processor and with Ovzon 7. Now Ovzon 3, also an On-Board-Processor, the On-Board-Processor modem and the Ovzon T7 terminal is the major technology development undertakings. And as you understand from my description here now, we're getting into a phase where we are now ready to bring all of this to market eventually. So we can breathe with a lot of oxygen in our tanks and bring the capabilities that we have so long waited for to market. Next slide, please. Now over to order intake before I hand over to Noora. So as you can see in this picture, order intake in the quarter totaled USD 5.5 million. In the second quarter, in '22, we had USD 2.1 million actually. So that corresponds to SEK 60.2 million. And you can see between Q2 '22 and '23 that we actually have a stronger quarter in terms of order intake. And the order intake includes renewals with current customers, as I spoke about, U.K Government and the Italian Fire and Rescue Service. I'll make a remark on that in 2 seconds, along with a new customer in April, which was the USD 4.8 million contract with the 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 into Europe via Italy and the Island of Lampedusa.The order book amounts to USD 11.4 million, and that corresponds to SEK 124 million. Now 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 more major orders and so on. The sales cycles are long. It's complex for a company of our size to have a full expansion and presence in new markets and geographies at the same time. But it's worthwhile because we're advancing them. The smaller orders mean something. They mean that we have a foot in the door [indiscernible] we come in, and we can deliver the best-performing solution there is, and we can then start to expand from that. So it's basically [indiscernible] 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. And 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, and I'll come back and wrap things up after I hand it over to Noora to take you through the financials. Over to you, Noora.

[Noora Jayasekara, executive]

Thank you, Per. I will now give you some details on the financial performance in the second 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 fall. 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 minus SEK 22 million and EBIT to minus 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 minus 35% and EBIT margin minus 45%. The decline driven by higher overhead costs related to sales and personnel and unutilized capacity. And lastly, on Slide 12, the cash flow decrease in working capital is the primary driver for the improved operating cash flow that amounted to minus 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 for 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. And with that, back to you, Per, for some final comments.

[Per Noren, executive]

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 that 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 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 [ would stop ]. 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. And 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, Ovzon On-Board-Processor, and achieve a launch as soon as it's possible. Launching a new mobile satellite terminal in such a small form factor, which no one else in the world has accomplished and includes 2 modems, as I noted, is a significant milestone as well. So 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 onboard 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, our major technology undertaking and investments. And while that has been somewhat delayed in certain areas, we're also making great strides right now. I think one of the things that probably is a question from the group that is listening now is how can you capture more growth and more profitable growth to drive the business to higher levels. And I think that's what I'm trying to say that we had a hole that we had not expected to have. We have worked hard to try to cover that. We haven't fully been able to, but normally, our first half year is somewhat slower than the second half year. And we see -- we have line of sight of things that we believe are solid for us. And 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 we ramped that somewhat. And 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. And I think it's fair to say that we are confident that Ovzon will 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. So with that, I think we'll hand it back over to you, Mr. Moderator, and we'll take any questions anyone would have.

[Operator]

[Operator Instructions] And we'll begin with the first question here that's coming in from a caller.

[Simon Granath, analyst]

Per Noren, can you hear me?

[Per Noren, executive]

Absolutely.

[Simon Granath, analyst]

Perfect. Great. I just wanted to make sure that the line was okay. A couple of questions from me. Initially, as I've mentioned before, we do appreciate your transparency into the Ovzon 3 project along the way. And you did talk some about it during the presentation, but what concrete steps remain until the upcoming launch in a couple of months?

[Per Noren, executive]

Well, 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 acoustic 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 the actual -- that space. But it also -- the dynamic test also includes checking the weight, checking the performance of that weight, and checking mass as it's cold, et cetera, et cetera. So there's a number of different things in there. And then the solar panels that we have that is going to partly 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. And 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. So that's what's going on, 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's -- that works and that it can -- will function appropriately and then they do tests on that in simulation environment. And then basically, you -- when they -- when that is done, it's -- the satellite would be packaged up and -- in a specific container and then shipped to the launch site. So there is analytics, I would quote this, "there's analytics, there's engineering work and there is final assembly work." But 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 fairly more straightforward than designing and building a brand new satellite that has never been built before by our provider here. So I hope that answers the question somewhat. It's -- work remains and engineering, precision and qualities 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.

[Simon Granath, analyst]

That certainly helps. And encouraging to hear those comments. Then I was wondering, as you near the launch of Ovzon 3, are current discussions 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, lack of better words, which would then return once Ovzon 3 is launched. And this, of course, assumes that demand is there.

[Per Noren, executive]

Yes. I'm not sure I understood the question, Simon. Do you want me to obviously comment on the demand in the market and how fast we think we can get new customers and replacement of leased capacity on Ovzon 3. Is that what you were asking?

[Simon Granath, analyst]

Yes, in part. 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 and...

[Per Noren, executive]

Yes. Yes, yes. 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 delay that we've had. And I all say this, for those of you that might follow the satellite industry more closely, there are several those satellites -- 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 -- so there's been other delays than Ovzon 3. However has it dramatically or as 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 onboard 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. They're guaranteed, kind of closed loop, high-performing SATCOM-as-a-Service that we can offer. So 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 -- and us working with them in where Ovzon 3 fits into their set of requirements and solution capabilities. But I would say this as an end point to that, that if it goes much longer before we get launched in an orbit, I think it potentially at a point will affect it, but it hasn't affected it so far. That's -- that would be my answer.

[Simon Granath, analyst]

Again, a very helpful answer. And then on your comments 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? And the reason I asked this question is because of the significantly broadened customer base over recent years.

[Per Noren, executive]

Yes. It is a combination of both, actually. So when you have current customers, they are your platform -- really our platform for growth. And they are point of reference for us, they already know what we have delivered to them. And we have a very strong rep track record if you look back of not losing any customer and basically renewing every year at similar levels. I think where we've been somewhat weaker is where -- to expanding with current customers, which is -- has been a big effort. So I think the current customers is the basis for the growth coming in Q2. And then expansion with them is the second step on that layer. And then the third is new sales. And new sales always capturing new customers. New customers -- and capturing new customers takes time, right? So I think 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 are not talking about that. But we did. We believe that maybe that customer set and our U.S. 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. So it will be good. So it's both current, it's renewals, it's expansion with current and it's new sales. So it's a combination of the 3 of them that makes us -- kind of have a good view on the second half of the year.

[Simon Granath, analyst]

I see. And 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?

[Per Noren, executive]

I won't speculate. I will tell you what we know about that instead because it has -- I noted that -- 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 in the report that -- and you know from the beginning of this year that we reserved an amount that we haven't accounted for the revenue, not even in Q1 from that Italian distributor because of payment problems. So -- or delayed -- delays in payments and payment problems. So it did dig a hole for us, right? So 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. And they basically said, hey, we need a restart as well. We have really appreciated what we've gotten from you. And 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 will continue training, development and advancement of that. So 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. But we have -- the positive is we have line of sight. We have direct communication. We're working on an expansion plan with them. But 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. But again, now we're close to who actually is using it. And I think that gives us confidence that we can actually work with the experience we have with them to expand it.

[Operator]

Okay. We'll move on to the other questions that has come in here. I will start with the first question here. Ovzon offers a unique service. The demand for Ovzon's offering is massive due to their war, fires, migration, et cetera. So the question is, why don't you take more orders?

[Per Noren, executive]

Yes. 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. So yes, because -- and I noted this in my remarks as well, because of the geopolitical situation and because of the environmental changes that are 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 governments and investments from those that support those NGOs. They are -- yes, and they're in the so-called this political and government systems, and they have never used the satellite communications solution before. They might never have procured satellite communications before either. So the process with this, and this is what I meant with maybe vaguely for whoever asked this question, but that market presence, geographical expansion and so on. And they are long sales cycles for that. It's just not possible to close it faster before you've got to name them, before everyone is educated and everyone has gone through the government procurement processes that might never have done this, as I said. So it is somewhat of a frustrating situation because the need is there, ready to be grabbed as the question came in, right? But 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. And we are doing everything in our power also to use the point of reference we have to grab more orders and serve more customers of what we have. I think there are some possible signals basically. For example, the Italian National Police, that was a direct consequence of us having worked for the Italian Fire and Rescue Service where -- 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. So that request came in pretty fast, and we have already had the point of reference and we could turn that very quickly. I think that's an example I would use to say that once your end points, you've referenced, once the processes are aligned and you're approved and proven solution provider to that area, then it goes faster. So 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 get the more rigor there are in processes to close them as well. So whoever asked the question, yes, whereas we're somewhat frustrated at time of this bonus, but it is worthwhile pursuing these initiatives because they will lead to small, medium-sized and larger deals. And I think if we have -- when we have line of sight, we have line of sight to, that's why we make the comment, we believe that the second half of the year has solid sales pipeline that we can take advantage of.

[Operator]

Okay. And the next question might lead to a quite similar answer, but maybe you could 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?

[Per Noren, executive]

You want to answer that Noora? I think -- so Noora just actually really talked about that on the revenue slide. I think your remarks were rightfully so that we had a large contract. If we had kept our large contracts with 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. So I'm not going to point only to that, but I think it really dug a hole for us. And we've been working our -- everything off and to try to cover up for that. And 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. But that's really the major reason. There's not been any other anomaly. So I hope that the person that asked the question understands that, that, yes, that's not been a good situation for us, but we're honest and transparent with it. And we have also secured in making sure that we can -- that a 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.

[Operator]

Okay. What's the timetable for launching the satellite?

[Per Noren, executive]

Great question. The timetable is, number one, as soon as the satellite is ready. I think I've actually spent quite some time on that. So I hope that's clear to everyone. So going through the final phases, as I discussed with Simon Granath earlier, the first questions that came in. And then it's a matter of readiness from the launch provider, and we have a continuous dialogue and they're obviously part of the phase we're in now with getting a satellite ready for -- or to be shaped and to be integrated on the rocket for launch. But it's really a combination of readiness, shipment and then availability of the rockets to launch it. And 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 '23, early '24. 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. So it's late '23 or early '24, that we have as a time window right now. This is not far away.

[Operator]

And what measures have you taken to ensure the successful launch of Ovzon 3?

[Per Noren, executive]

The measures we have taken is that we've with an increased cost we've signed up with the ones that are making the most launches in the industry and have very low to 0 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 dynamics testing. That's a major, as I said, reduction of risk, both schedule and other -- 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. So I think we've taken all the measures as we can to really make the satellite ready from our side, from Maxar side and from the launch provider SpaceX side.

[Operator]

Perfect. And what risks do you foresee that could impact Ovzon not reaching your targets for 2023?

[Per Noren, executive]

Well, in our outlook, we have -- we basically set up 2 outlook targets for us. And that's finalization and launch of Ovzon 3. I think I just tried to answer that question that [indiscernible] again, the test that has 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. So that's one of the targets we have. So I don't foresee -- you can never say never because this is advanced space technology and spacecrafts being built [Technical Difficulty], but 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 time frame that we've communicated on that. The second part of this is obviously our financial performance, which is really what's #1 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. So 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. And 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. There are -- they, on a daily basis, 24/7, really working with customers to set the scene 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 what we have. But I think, as I said, we have not changed our outlook. We believe we'll have a strong second half of the year. And we believe we will be able to meet that objective of being in line with the revenues that we had last year.

[Operator]

Perfect. And will your current financial position be sufficient to complete the entire Ovzon 3 project until it's in place and on track? Or you will you need additional capital injections?

[Noora Jayasekara, executive]

Well, when it comes to the investment in Ovzon 3, the majority of the costs are already taken. And while we cannot provide an exact forecast on future cash flows, our confidence in our current financial position is strong. And I would also like to remind that we actually also still have USD 20 million of unutilized loan facility to draw.

[Operator]

Okay. How is that there has been a lower capacity utilization of contracted satellite capacity?

[Per Noren, executive]

Can you repeat that again?

[Operator]

Yes. How is that there has been a lower capacity utilization of contracted satellite capacity?

[Per Noren, executive]

Yes, 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 attributed to our previous Italian distributor contract that we had. And we have 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. So that's why.

[Operator]

Perfect. And do you need to make a new application to ITU as the current deadline is December 31 this year?

[Per Noren, executive]

Correct. We will have to make a new request to extend our current application. And you do that on a regular basis when the ITU meets, and they will meet in August, and we are in -- 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. So we do not foresee an issue with getting the extension of that. But it's true that we have to apply again, yes, extend the application.

[Operator]

How was the sales pipeline for Ovzon 3 developing? And is it possible to provide any quantitative figures on number of leads and maturity of the sales discussions and the negotiations you have with customers?

[Per Noren, executive]

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 are working on are also progressing very well. And now when we have Ovzon T7 terminal out, and we can demonstrate the ability and capability might not be 100% apples-to-apples comparison, but we can do that. That also means that they can see the capabilities. So that advances the discussions quite well for us. I -- or we can often -- we will do not comment on any -- how they're maturing or ongoing discussions and so on. Our focus now is threefold: finalize the satellite; two, launch the satellite; and in parallel, three, advance those discussions. So when the satellite is in orbit, we have anchor tenants that are going to use that capacity on that satellite. So we're doing all of those 3 in parallel, but no quantification of them at this point in time.

[Operator]

Understood. And do you expect to receive orders for the new T7 terminal before Ovzon 3 is in orbit? And when is it possible to deliver T7 terminals to customers?

[Per Noren, executive]

Yes, we do expect that we can -- 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 -- terminals coming out of production at the end of this year.

[Operator]

And other operating expenses of SEK 9 million in Q2 are much higher than in previous quarters. What's the reason behind this? And how should we think about these costs going forward?

[Per Noren, executive]

I can start to answer while Noora is diving into the numbers here. I don't know I'm sure what that is. But I think you're referring to cost of goods sold.

[Noora Jayasekara, executive]

It's other operating expenses...

[Per Noren, executive]

Other operating expenses. Okay. Okay. Sorry. The silence is that Noora is looking through the numbers and trying to make sure that she looking at those numbers.

[Noora Jayasekara, executive]

Some of the FX changes going there. And it's nothing we've specifically...

[Per Noren, executive]

Is it the parts to the terminals? So I think we have to pass on the question and the person that asked question...

[Noora Jayasekara, executive]

We will reach out to him...

[Per Noren, executive]

We're happy to have that person reach out and answer that question to that person.

[Operator]

Okay. We'll move on.

[Per Noren, executive]

Instead of speculating. We don't want to speculate. So we'll...

[Operator]

Okay. This is the same question, but relating to other income of SEK 8 million in Q2. It was SEK 12 million in Q1. Can you explain why you had this income? And how could we model the income ahead?

[Noora Jayasekara, executive]

Well, other operating income, it's a complicated number. One part of it contains of selling refurbished Ovzon T6 and OTM terminals, for example. When they have been leased previously and are now rolled out, that revenue ends up in other operating income. So you can see it as a part of our -- it's nothing particular in there.

[Operator]

Okay. Do you expect to receive full payment from your former Italian distributor? And how much claims do you have?

[Noora Jayasekara, executive]

Right. So 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 payment plan has not been followed. We are working diligently together with all parties to find a way to both -- to secure full payment of our receivable.

[Operator]

Okay. One final question.

[Noora Jayasekara, executive]

But most part of that has been -- was included in the bad debt provision, and we haven't accounted for the revenue. So the financial exposure from a P&L perspective is minimal.

[Per Noren, executive]

And we also obviously have that distributor having signed some pledged assets from them to us. So there's a way to secure that. But we would prefer to see payments coming in according to payment plan and then the final payment later in the year. But there is -- we have also secured so that we can secure the assets and then -- some assets and then get payment that way, if necessary.

[Operator]

Okay. And one final question.

[Per Noren, executive]

We are very conservative on this.

[Operator]

And one final question here. What could investors expect of Ovzon in 2023?

[Per Noren, executive]

Very good. Investors can expect of Ovzon to live up to the outlook that 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 would be extraordinarily transparent with the progress of Ovzon 3, and that we will fulfill the outlook of that being finalized and launched in the time frame that we have communicated, meaning late 2023, early 2024. So 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.

[Operator]

Okay. Thank you very much, Per and Noora, for presenting and answering all of your questions and also a big thanks to all the viewers who follow along for Ovzon's Q2 report for 2023. And I hope you have a great rest of the day until next time. Thank you very much, and goodbye.

[Per Noren, executive]

Thank you.