Ovzon AB (publ)

STO:OVZON

Earnings Call Transcript 2022-Q4

[Operator]

Welcome to the Ovzon Year-end Report 2022. For the first part of this call, all participants will be -- and afterwards, there will be a question-and-answer session. Today, I'm pleased to present Ovzon's CEO, Per Noren; and Ovzon's CFO, Noora Jayasekara, -- please begin your meeting.

[Per Noren, executive]

Thank you, Stephen, and good morning, good afternoon and good evening, depending on where you are in the world. We are very pleased to welcome you to Ovzon's fourth quarter and year-end 2022 financial report and audiocast. I'm joined here today by Ovzon's Chief Financial Officer, Noora Jazeera. Hello, Noora.

[Noora Jayasekara, executive]

Good afternoon, and welcome, everyone.

[Per Noren, executive]

The format today will be the following. We'll do -- we'll start with the business update. We'll summarize the performance of 2022, and then we'll dive deeper into the numbers, and that will be followed by a questions-and-answer session. So, let's begin. I want to take the opportunity to ensure that we thoroughly represent who we are at Ovzon, what we do and who we serve. We founded in Sweden in 2006. At that time, the company was focused on world-leading development of mobile satellite terminals. Today, we are the leading solutions provider of Satcom as a service, a fully integrated, high-performing truly mobile and true resilient satellite communication solutions for customers with critical missions worldwide. In 2021, some strategy to drive a step change in profitable growth. And as you can tell on the graph in the upper right corner, it is starting to pay off. We will touch more on that when we get to the financials in a minute. We are also continuing to invest in our own purpose-built satellites of some unique patented technology for resilient and ubiquitous communications, the also onboard processor and our new mobile satellite terminal open T7, which has a dual modem and is OBP compatible. What sets us apart at Ovzon from other satellite communications providers is that we control the entire value chain and deliver Satcom as a service with immediate connectivity from the smallest, most high-performing and agile mobile satellite terminals to managing the networks and satellites that are both based on lease capacity. And of course, from 2023, it will be a high of own satellite capacity and networks combined with lease. We partner only with a few selected secure gateway providers to guarantee the upon performance. We implement our own hardware and stacks at those gateways, and we manage all of that through our 24/7 service delivery, support and network operation centers, both in the centralized and decentralized way, which makes scalability and on issue for us. thanks to the extraordinary selection that the team at Ovzon has done in choice of technology, how we've packaged our products and services and solutions. We are uniquely positioned to serve any country in the organization and a mission that requires high throughput through satellite communication capabilities in areas which has weak, fractured or non-existing infrastructure. And in today's world, it's also back up to other systems or communications. We are today, as you can tell on the slide, focused on government, military and civil defense, emergency and rescue services and protection. We're very proud of our current and growing list of prestigious and highly demanding customers. Our go-to-market approach is simple yet it's very critical to understand that our success so far has only been derived from always working very closely with end users and with selected partners across the globe. Our partners range from large multi-natural industry companies to smaller and more agile and local partners, all chosen to serve our customers best and to deliver tangible and unique value. Today's world is very dependent on connectivity, ways of being connected by different methods of communications. Some of the -- on part of the slide here, you can see kind of the fixed infrastructure, the mobile networks and also satellite communication. That today that makes up the full integrated communication systems in the world. And we're all very dependent on information and communication technologies as it connects societies and communities. Satellite communication was nice to have and have become an integral part for industries, businesses, governments and individuals. It also brings many economic and social benefits and support a myriad of applications, both directly and indirectly, all of them help to improve the state of the world. At Also, we're very proud to support critical missions for defense and civil protection, of course, but also for humanitarian efforts and emergency and rescue services, such as wildfires, the reason the landslide on the beautiful island of Ischia Italy and in support of the horrific earthquakes in Turkey and Syria, most recent also for surveillance and security with the Spanish national police. I can only conclude that Satcom is no longer nice to have. It's an essential part of the world's integrated connectivity and communication systems. So, at Ovzon, we pride ourselves with having a greater global calling than only running a company.Now over to the fourth quarter, which you've all been waiting for, obviously, 2022 and the year-end results. First of all, I have to say that I'm incredibly proud of my fellow of Ovzonians and our partners in the performance we achieved this year. We managed to grow revenue with 38% in the fourth quarter and reached SEK 101 million in SEK 357 million, a record both in the quarter and for the full year. We also improved our operating results considerably. We were not satisfied until we reach and deliver sustainable profitability. Our performance is based on our strong focus and ability to develop, sell and deliver and support our customers with the value-added services I previously talked about and the new contracts we signed are added on top of the already existing customer base. We are exceptionally good in turning on our services quickly and with high quality. And in 2022, not only did we continue to renew contracts with our current key customers foremost the United States Department of Defense and the United Kingdom Ministry of Defense. But we also saw that our initiatives in Europe that we've talked about from the new contracts in the U.K., in France, and I'm happy to report in Sweden as well. After the period, we also expanded further by signing with the Spanish National Police. I conclude with saying that demand is still strong, but it's the fact that larger long-term where regulatory and government contract is involved takes time, but they are definitely worth the effort and investment, which is proven by our strong and continued renewals from the current customers we have. Now while we achieved great and record-breaking growth in 2022, we also had our work cut out for us in getting our own first satellite, finalized and launched. The team has worked around the clock, but regrettably, the manufacturer of the satellite Maxar Technologies encountered continued delays with which in turn on, we have contracted with to launch the satellite in the time frame of December 22 to February 23, could not meet the new timetable for the satellite readiness. This in turn meant that we had to find a new launch provider, of which I'm very pleased to inform you that we agreed a contract with SpaceX on the launch of Ovzon 3 in the July to September 2023 time frame. For everyone on the call that know the satellite industry well, you know that this is a major undertaking and a shift that requires that all aspects, technical manufacturing tests, economical vehicle victory is coordinated and agreed upon in detail. Unfortunately, this comes with an additional cost in our case, around USD 25 million, which we needed to refinance with our current lender, key capital partners, and we also executed a direct share issue from our long-term and committed shareholders. The satellite is making good progress in manufacturing and is in final phase of production to then move to final assembly and thereafter move to dynamic testing, which is the last step before it will be shipped to SpaceX and [ Cateno ] launch. We expect to launch Ovzon 3 in the already mentioned time window of July to September 2023. I can assure you that our partners and team also are working around the clock to deliver Ovzon 3 in orbit in 2023. -- now we're going to turn to the financials. And before we hear from Noora on more of the details, I'll summarize with a few comments on the strong order intake we had in Q4. It is though somewhat, as you could tell by this slide, lower order intake in 2022 versus 2021, but that is because of one thing, a large order of Ovzon T6 mobile satellite terminals that we got from the United States Department of Defense in Q4 2021. As can be noted on the rolling 12-month Satcoms service recurring revenue is now over $30-plus million per quarter, which is almost doubled from where we ended 2020 and started 2021. It is a very critical evidence of our healthy business and our growth trajectory. And with that, I'll turn to Noora.

[Noora Jayasekara, executive]

Thank you, Per. I will now give you some details on the financial performance in the fourth quarter and the full year 2022. Turning to Slide 11. Net revenue increased with 38% to SEK 101 million for the fourth quarter and with 87% to NOK 3 billion for the full year 2022. Adjusted for onetime effects and currency effects, the growth was 57% and 75%, respectively. Growth in both the quarter and for the full year is driven by increased utilization of previously long-term oil as well as adding new customers. Net revenue for the full year is also positively affected by the sales of terminals. Gross profit for the fourth quarter increased to SEK 54.9 million, corresponding to a gross margin of 48.8%, a significant improvement from the fourth quarter of 2021. This is a direct effect of the increased utilization of previously long-term purchase satellite capacity. For the same reason, EBITDA and EBITDA margin are close to despite the bad debt reservation of SEK 10 million in the quarter and SEK 16 million for the full year. We are actively and closely working with the customer to ensure payments, including the establishment of a payment plan for the customer. EBIT landed on SEK 10 for the quarter and minus SEK 47 million for the full year, the improvement driven by the already commented effects. On Slide 13, increased inventory and delayed customer payments burdened the operative cash flow in the fourth quarter as well as for the full year. The investments in Ovzon 3 and Ovzon T7, our new mobile satellite terminal have continued in the fourth quarter and full year 2022, amounting in SEK 19.8 million, NOK 146.4 respectively. Net debt has increased from a net cash position at the end of 2021 to net debt of SEK 202 million at the end of 2022, mainly driven by the continued on. Now back over to your passes on final comments.

[Per Noren, executive]

Thank you, Noora. Well, that was kind of the introduction first and the financials that we wanted to take you through. And obviously, as I said, proud of the achievement of growth. And I think it's the start of the beginning in many, many ways. But as noted, we had a very strong 22%, and we reached the highest revenue, as you can see on the net revenue side year of SEK 350 million. So, we've never been at that level before. So that where we reached our inflection point and on a trajectory. Our EBITDA has improved, but we're not happy, as I said, until we have positive numbers, and we see the path towards a sustainable profitability. And let me conclude. We will continue to drive a step change in profitable growth. Our teams are hard at work out in the market. As I noted earlier, we do have a broaden and deepen market and customer penetration. We are looking at expanding the use of our Ovzon customers [indiscernible] on top of that. And we are positioning also as a premium solution provider in the marketplace. All of that is the [indiscernible] actually driving a step change in profitable growth. I think the most important thing besides growing was really obviously the launch of Ovzon 3 in the July to September 2023 time frame. And we will get there this year. We're working very closely, as noted with Maxar with SpaceX and with other stakeholders to get that finalized to ship on site and launched with a 59 rocket from Cape Canaveral in Florida. And last but not least, all businesses, however, our people businesses. And we continue to strengthen our organization. We continue to drive industry space. And we continue to transform the company for scalability so we can meet the demand we see in the market, and we can leverage our new satellite, our new terminal and the onboard processor once it's in order to get. So, with that, I will end the session by saying our new vision statement fits us very well, connecting the world's critical missions by satellite. That's where we are. That's what we do, and that's the growth you've seen in 2022. So, with that, I'll hand it over to you, Stephen, and let's go to questions and answers.

[Operator]

[Operator Instruction] Our first question today comes from Simon Granath from ABG SundalCollier.

[Simon Granath, analyst]

Thank you so much. Good afternoon and good morning, Per and Noora. And just a couple of questions for me. So initially, given recent delay in relation to Ovzon 3 and also your decision to change launching partner? I think one relevant question is on your visibility for the new anticipated launch log. Could you talk a little bit on the differences between Arianespace and SpaceX.

[Per Noren, executive]

Yes, Simon, thank you. Good afternoon. Good to hear your voice, and thank you for asking the question. Well, the difference was really… Listen, I'll be too brutely honest with you. Did we want to change launch provider? No. Did we have to because there was no room for us on Arianespace, Yes. So there, when we realize that, we turned immediately to SpaceX. They've been phenomenal to deal with, I have to say, very hard working, very accommodating, very precise from their engineering perspective. We've also kept the contact with Arianespace, of course, and that's as part of that, they're actually helping us with one aspect of the launch, the payload adapter will actually come from Arianespace to SpaceX. the 9. So, we have a good collaboration from Arianespace with that, and we have good work going on with SpaceX. And SpaceX is also involved with some of the information that needs to go to Maxar to complete the dynamic testing, which is the or the test that has to be done before the satellite is shipped. I don't know if that answers your question, but that was the transparent truth it.

[Simon Granath, analyst]

It was very helpful information. Thank you so much for the transparency. Then moving on, 22 turned out to be a strong year, both when looking at services sales, but more particularly, we're looking at terminal sales. So, could you talk a bit on the dynamic between these 2 revenue streams going into 2023? Should we be more cautious on the terminal sales given the recently strong number?

[Per Noren, executive]

Thank you, again, Simon. That is a very adequate question, of course. I'll try to elaborate somewhat on that. So when we sell and deliver [ subcommercial ] service contracts to our customers, we sort of -- the terminals are part of that service revenue stream. However, the US DoD, for example, wants to acquire because they have a specific process to certify the product for their own use and put them in their own inventory, but they are going to want to have purchase the terminals directly. So that's why we saw -- I mentioned it in the Q4 2021, right, we had a very strong order coming in for terminals. -- from the US DoD. So that was reported separately. And that's why we actually have also broken out that so that we can track it. But let's go back. The basic rule is in peaceful situations in the world, terminals are integrated in the sarcomere service. If terminals go to areas that are in crisis, there might be certain rescue missions in amor Italy, as we talked about, or it might be in close to Warzone with geopolitical instability, we decide from case to case, whether we sell the terminals directly because it's very hard for us to know if they will actually come back and -- so the ground rule is terminals are embedded in the sarcoma service normally, if there are specific sales to areas which might be in distress, then we would choose to sell the terminals directly to the end users. I hope you have to analyze on your own time and you to be conservative or progressive with it. But that's how we do at least.

[Simon Granath, analyst]

I'll make my own interpretation of that answer, but it certainly helps. Then moving on, you mentioned that you're now utilizing most of the available capacity. Still demand seems to increase. So I'm wondering if we should expect you to expand capacity in 2023? And is that possible, perhaps more specifically talking about IAS 37 or IAS 39?

[Per Noren, executive]

Yes, another in that very, very good question. So, when we spoke -- when Noora spoke and when we also wrote the quarterly report and the year-end report, you could see that we've used the churn long-term we have secured with the contract -- on the term contracts we had with Intelsat. That was also to build up for the launch of Ovzon 3 we will have enough capacity. And these are steerable antennas or steerable beams as well. They're very high performing and sought after and they fit the mission and the product and solution that we deliver, right? So, we have had that. And one of the things that you've seen historically in our numbers is that it directly affects the margin if it's unsold capacity. And we've been -- we were very, very good in Q4 to have able all that satellite capacity during part of that quarter as well. So -- the most important thing for us is actually in sales and in customer engagement to have full utilization of that capacity. For us it utilizes kind of the inventory of capacity we have. And in parallel, we also have now, because of our industrialization buildup. So, we have an inventory of Ovzon T6 terminals that we can quickly turn to customers, meaning we can turn on services quickly. So have the possibility to buy other types of capacity, if needed, but we are not doing that proactively. We will -- we have an ample time and enough time with the deals and the sales cycles we have to look at what is the best solute inventory of capacity we have or do we have to add more capacity on top or to both optimize the inventory we have as well as delivering quickly on the contracts and the services we have. I hope that helps.

[Simon Granath, analyst]

It certainly does. And just a final question for me. On costs, you have recently ramped these up, mainly relating to your headcount. Do you have the operational cost you in place ahead of the anticipated launch of Ovzon 3? Or should we expect the recent cost reactor to be a good proxy for the future as well?

[Noora Jayasekara, executive]

Well, Simon, obviously, as the company grows, the base of the costs also tend to grow, but I think that we will -- and have -- we will be, and we have been quite good in managing our overhead costs historically and will be going forward as well. Thanks or will run them too much.

[Simon Granath, analyst]

I agree with that. Thanks again for addressing my questions, and have a nice rest of the day.

[Operator]

Thank you, Simon. And we're now going over to the next question. Our next question comes from Mikael Laseen from Carnegie.

[Mikael Laséen, analyst]

I have a few questions also. First one is on the cost of sales in Q4. When I look at cost of sales, excluding the terminals, it looks like cost of service declined quarter-on-quarter. Can you explain the satellite leasing cost in Q4 and the dynamics around that and how we should think about the coming quarters...

[Per Noren, executive]

Well, I'll let Noora look at the numbers here, so you can come back with an answer on the numbers. But in general, looking at selling capacity, I think that's what I was trying to refer to in the previous question that we have found a way now to utilize and sell, hey, listen, we -- the company leased in that satellite capacity, and it has been unsold. It's been one of our main objectives into touch capacity with having, call it, inventory. So, it's been one of our main objectives in 2021 to actually be -- to sell that out, so to speak. And we managed at the end of the year to really, really do that with some of shorter-term contracts, smaller contracts and the utilization of that capacity that we believe will continue on a step-by-step basis here, contract by contract. But our ultimate goal is also to sell out that , which is over 11%, we call 011 S1 to sell out that full beam and get full recovery of that investment that we've done. It is very hard and I'm not -- should not be in a position to say to predict when and how, but that is our ultimate goal because when that is also utilized and we have other networks that we buy capacity from when Ovzon 3 is in orbit, we can, number one, start to mix in when contracts expire, mix in Ovzon 3 to take over that and then sell also on. So we have both a hybrid of mixing it in and utilizing it for the already existing customer contracts as well as renewals as well as new sales. So that's the whole strategy and plan. And that was always the strategy and plan behind the company in the thing in a -- you want to address the cost of cost of goods sold.

[Noora Jayasekara, executive]

Michael, I think the power already partly actually answered your question. The cost of goods for satellite capacity, it's a mixed bag of all the capacity we are currently purchasing. There is no one price for oil capacity. It differs for beam and per supplier, and it might have been slightly lower base in this quarter, but nothing especially highlighted.

[Mikael Laséen, analyst]

Yes. Okay. What is the approximate gross margin you have on terminal sales that you have to get the sort of fulfill what you have? Is it 20% or 30% or...

[Noora Jayasekara, executive]

[Indiscernible] Mikael, but we haven't reported on that level.

[Per Noren, executive]

That was what I was saying... On that.

[Mikael Laséen, analyst]

Yes. It's important to understand the gross underlying gross margin situation when we go into '23. So that's why... [indiscernible] Yes. So is it fair to assume that this satellite leasing mix that you have right now is a fair assumption for the coming couple of quarters that what we saw now in Q4.

[Per Noren, executive]

Well, it's a name. As I said, we had month-to-month contracts in Q4 actually on the last beam, the [ 111 ] as we call it. So, we had that on month-to-month. And it is our goal to continue that, but actually the ultimate objective is to sell that out. So, I can't really answer your question with more than that is our goal to have that rolling on monthly or quarterly or yearly basis.

[Noora Jayasekara, executive]

And our goal is obviously to grow as well.

[Per Noren, executive]

Of course.

[Mikael Laséen, analyst]

Okay. So, in general, can you talk to us about the market situation in North America and Europe, what you see, market activity and so on.

[Per Noren, executive]

Absolutely. I'll be happy to. I'll try to do it in a same way here. First of all, we have to start on the 40,000 feet level. The geopolitical situation in the world, of course, centers a lot on the defense side, a lot around Ukraine. There's a lot of money, of course, from a military perspective, invested in equipment and so on going to Ukraine. But our field satellite communication is in strategic thing when there is no infrastructure or it doesn't work at all, that becomes then a hindrance for defense or so on and so forth. So, there is actually a lot of activity in in that field going on both for NATO as well as in Europe as well as the U.S. So, a lot of the U.S., you probably follow here how much money the U.S. is actually investing or supporting Ukraine with. And we're part of those were part of those solutions. -- discussions. And it's very, very difficult to say exactly what that would mean by when. But that -- those discussions, we were involved in during the whole of 2021 and also, of course, continues in 2022. There is actually a lot of activity, but that's what I was trying to refer to in one of the slides where I said sales cycles are fairly low. They're also not always predictable when it comes to regulatory and government procurement processing. Sometimes, they can go very fast when you have a situation to crane. But sometimes, it also gets stuck in bureaucratic processes, frankly. So I know that this is an answer and a no answer, but it's a lot of activity, a lot of activity and you have to actually -- you have to talk to -- you have to be engaged both with the decision makers those that allocate funds as well as the end users that actually then have a demand so you have to push the demand from the bottom, and you have to then educate the insights of what this means and how it can support and protect and help the organizations that are involved. So that's that answer to. I think, though, ending on a different note and that there a lot of activity, a lot of activity. But on a different note, I think what you saw with the end of the year for us, where we have been engaged with both in the U.K. and across France and Sweden. And one of the things when I took the helm at also and I felt -- not embarrass probably or I felt like we need to have something in Sweden, whether that would be an emergency or rescue, civil protection or defense side or even with media and broadcasting. And we've had some good attempts, but the partnering we've had with the Swedish Space Corporation, and they have a teleport in Sweden, and you can get the signal down here has actually led to this first the first contract we really have, which is a trial contract on for 6 months that starts now in the 1st of March. That will be -- that's the first step in the same with the French contract we have and so on. So, we view them as the step in to broaden as well -- so I'll stop there because that's a too long answer for you, actually.

[Mikael Laséen, analyst]

That was helpful. Good color. Given that you have a slightly shorter duration contracts now in the backlog, I think, can you say something about how we should think about the start of 2 Q1, Q2 maybe help us here a bit?

[Per Noren, executive]

Yes. I think the start of 23 means that that starts with the most prominent source of income really and revenue for us. The United States Department of Defense and that contract, which we make as we traditionally have, actually in mid-December, but that kicked in immediately, and that's going very, very well, which also means that we have a platform to grow from the same with the early renewal with the U.K. MOD. So, we always view -- it's almost like in our card model. The core of the avocado the or core is the current customers you have, and you have to make sure that you renew those, then you -- the meat because you should expand -- one part of our strategy is to expand outside of those. But within those organizations, U.S. DoD obviously, is not a small organization, neither it's U.K., MOB or so on and so forth. So, we have efforts there. But we can't really say if there's something there when that's going to happen and so on. And then, of course, you have the new contracts, which I said are kind of the first step in which we're now working on cross-sell opportunities with. And then there are other discussions going on as also mentioned before, which we hopefully can then bring to fruition. So, I can't really give you a guidance on -- you have to base your guidance on what you know that we have in the book. -- but we're confident that the discussions we're in will bear fruit. When will they bear fruit, I can't tell you that. If I knew, I would...

[Mikael Laséen, analyst]

Okay. Fair enough. Moving over to Ovzon 3, I have a couple of questions. Can you just remind us here what you have to do until the satellite production is finalized and so like it's fully tested and verified.

[Per Noren, executive]

Yes. Absolutely. So, I'll take it from all the way back to the beginning and the design of the satellite. This is the first satellite that is designed modularly. So, it's actually built in different modules. All those modules have been built in parallel. The first delay or problem being counted was not in manufacturing. That was due to -- well, it's uttering due to COVID, obviously, some of the wildfires in California as it's built by Maxar in Palo Alto in California. That was -- that's one of the pieces that I think is important to remember. Then, of course, when Honeywell recalled the reaction wheels, the payments or infection wheels, that took a long time. Those organizations that were prioritized were those that had especially coded military programs, defense programs, whether it was the U.S. or other parts. We were one of the top commercial programs. So, we -- our kind of slot in the queue there was as okay as it could be from that perspective, but it took longer for Honeywell according to Maxar -- that took longer for Honeywell to actually get -- and that meant that we -- I'm giving you more information that you need, but I know that there are many interested parties, and I actually see some questions on the chat here as well, which I'll answer it this way. So, we satisfied most of the questions. And that meant that we Matt could not put us into what's called the thermal vacuum testing until they had the reaction we, which meant -- and that's also a scarce resource. So, it means we have to wait for that to be done and we have to wait for the reaction we had to be put on the satellite. And I know there are many questions -- I've got any questions from shareholders and others around, is there really a satellite and so on. I can assure you there is a satellite. It's been built together. These were things that happened then. Then you start to build it together, you integrate the [ OPP ] on the satellite. You you're bringing the propulsion model on the sale there cetera. All of that is built together. All of that is put together. What's now in process is there are some software test that needs to be done. There is the whole rig where the actual antenna [ reflectors ] and so on sit on that needs to be stated on tested. Then there is the ROSA, which is actually the solid panels that is uniquely cool feature, which when it goes into orbits not there, whether it's in its position in orbit, you can almost like a curtain pull them out, and they absorb a lot of energy. So, there are a number of pieces that need to be put together and each piece that it gets put together now needs to be tested in sequence as a whole. And then the last portion of what happens with the satellite is that you put the satellite on a big [ radically ] -- and it's a perfect optimized mimic of how the rocket actually functions. And the Rocket Ariane 5 functions somewhat different than the [indiscernible], which means that, for example, in has more power when it takes off it and last of a push when it pushes the satellite from the rocket out to reach its position in orbit. And [indiscernible] has less power when it goes up, but pushes harder when it pushes to satellite of. This gives you a little flavor of still needs to be done. But it's progressing very well. Maxar is pushing and have more shifts on the satellites. There's some coordination, as you can understand from some of the comments I made earlier on between ourselves and Max or well, it's actually Maxar or SpaceX and then Ariane is in the mix as well. That's where we are. But we are in a phase where we're moving towards final assembly and then the last test phase before it can be shipped to the lower side. That was the 101 in... Now what...

[Mikael Laséen, analyst]

If we cover everything Okay. I've got a couple of more actually, if I may. And it's about the timing of events around the Ovzon 3 launch and how we should think about, for example, how long time it will take to get the service up and running from the launch date when you could start to receive orders for the service. I think there are a few questions on that out there. And also, if you can talk about utilization, how we think about that when you can start and how it should start to...

[Per Noren, executive]

Yes, -- it's a good question. I think that there are questions around that out there. So, I'm very happy to answer them, and thank you for asking that, Michael. Well, the fact remains that tuna satellite is ready and it's launched, it will take about 4 months for it to get to its position in orbit. And as soon as it is, it can be utilized, obviously, for -- because all the other pieces, the ground segment and all that is in place and all our imitations involve the decent pace. So, it will take 4 months. And theoretically, I would say, and practically, we can start to utilize as quickly as it's in orbit. The positive, I would say, for us is that we continue to have obviously discussions with current customers with new customers on the uniqueness of the onboard processor, which I'm not going to wait to detail. But as you heard, we're actually constructing and developing and will launch at the same time as the satellite and the onboard processor, a new also mobile satellite communications to 2 have actually functioning in the test lab 2 modems. One is for regular similar to our Ovzon T6 to let regular use for KB bandwidth. And the other one is specifically for the onboard process what we call OBP compatible and for defense organization and rescue organizations, this means that you have -- you will have a guaranteed resilient communication if teleport and others are taken out. So, I think the positive for us is the demand is not less. The demand actually increases with the geopolitical and the environmental things that happen in the world today. And we have discussions, as I said, with current and new customers on that. So going to your question, we should be able to have the first customers on a SUI as soon as possible after we've reached audit. And we're working... On their network architecture to fit that in and how it fits in.

[Mikael Laséen, analyst]

Okay. And just curious, is it possible for the customers to sign contracts on the service during the sort of late to the orbit -- or do you have to have it up and running operation?

[Per Noren, executive]

In most cases, for government contract, it needs to be a functioning service, a functioning service and product. Is it possible to have letter of intent? Is it possible to have from a certain date, if the satellite is in orbit at that time, Yes, it is. It is. But they won't be fully functional contracts until the satellite is actually in its position. That's on that for government orientation and most of our customers are government organizations. And most commercial organizations wouldn't do it either. It's like you sign up for a new car, but you actually -- you need to have the car in your ownership before you can use it, right? So that's what's going on.

[Mikael Laséen, analyst]

And is it possible to say something about the interest. So roughly how much capacity of Ovzon 3 you sort of covered at this stage?

[Per Noren, executive]

Well, let me talk about one thing that I actually had on one slide that I did not mention, but I also see that one of our -- one of the people on the call here has asked about, which I actually did want to mention as well. So, we did have a pre-capacity agreement signed with Intelsat General, which is the government arm of Intelsat, obviously. And that contract, you mentioned it in the earlier quarters as well that if the satellite wasn't in commercial use, by a certain date that their agreements would be reduced with 10% and then further reduce with 10%. And there was a contractual exit costs or termination costs has said that if the satellite wasn't in orbit at the end of December, they could opt out. So, Intelsat General has actually opted out from that. But that doesn't mean that we don't have discussions with them and other organizations or other pre-capacity agreements. But that's more -- that's the fact, right, that that's the case. We are not -- and that comes with another thing, which is actually positive to us. They have TV. So there are main partner with the U.S. DOT. So, they had explicit services to the U.S. DoD. But when they opted out of this, they do not have exclusivity. And we have a very, very strong situation relationship and customer in the U.S. DoD and the specific customer we have. So, we now are minus would maybe want to get in together with us on that. And which also means that we're talking to IBC, we have a very strong relationship, work together for a long time, obviously, and both capacity from them are the company into side as well. So we have a discussion with them on maybe what this would look like for the future I just wanted to mention that. But that also answers the question, I think, yes, we are in discussions with many others on this for the current customers and new customers as well. I don't know if that answers your question, but hopefully it did.

[Mikael Laséen, analyst]

I wanted a number, but fair enough.

[Per Noren, executive]

I won't give you a number. That's why you get my lumpy answer.

[Operator]

Okay. Yes. That's... Thank you, Mikael. [Operator Instructions]

[Per Noren, executive]

And Stephen, I'll actually jump in here. We actually see some questions on the web as well. So, I'll start with one of our shareholders has asked about Intercept General has opted out on as I going the pre-capacity, I hope I answered that. There are ways for them to get back in. There are ways for others to get back in. There is an interest -- but I think -- so we are exploring what we think is best for Ovzon and our customers when we explore that we have there. Next question is actually the delay due to Maxar leading to a $25 million in extra cost with Maxar cover that cost later or so on. Well, we -- it's too early to say. We're obviously currently analyzing and discussing the situation and the delays and the cost and the repercussion of the base. And we'll continue those discussions with Maxar. I think what we did to do is that the main focus now is to get the satellite ready have ever all hands on deck and get that in orbit because economically for Ovzon, that has a great effect for us and our solutions going forward. But of course, we nor goal over the fact that it's delayed and that we have increased the cost, and we'll analyze what that means to us in the future. There's another question on -- which I think about uncertain, but I'll do it for a bit integrity for everyone that's on the call. How much further capacity can also sell one whole beam -- are you close to selling all your capacity? I think I've actually talked about that. I think we were -- we had a lot of it sold in Q4 on capacity sold in Q4. We hope to continue with month-by-month contractor or quarterly to 4-month contract. But our ultimate goal is to sell, obviously, a full team, but those discussions take a longer time, the longer sales cycles and those budgets or funds needs to be taken pretty high up in both government and procurement organizations. But that we not want to have inventory capacity, and there is more capacity to be bought from other providers if there would be customers coming in, wanting specific sterile teams or networks as well. And then there's one more question here on you reach profitability, how the cash conversion work, i.e., working capital capture versus cash payments -- that's a tricky question... Yes... It's a good -- very good question. Good question, yes.

[Noora Jayasekara, executive]

Yes. So the -- we are a small player in a huge industry, which obviously will affect our cash conversion ability to increase cash conversion. But we are getting there. And hopefully work to a positive direction from our end. I'll stop at that for now.

[Per Noren, executive]

Yes, for now. I think that's what we can say. But obviously, that's part of inner makings here of the whole business model with Ovzon 3 enables to that conversion inflection point in as well. I think that's what we can say now. So, I think, Stephen, that makes up all the questions on the chat. And if there are no more questions on the [ Audio ] chat...

[Operator]

Sorry. There are no further questions. Okay.

[Per Noren, executive]

Thank you very much, Stephen. We would then like to thank everyone that participated today. We used our full hour, which means there is a lot of interest in Ovzon, which we are very grateful for we promise all of our stakeholders that we're working around the clock to continue to develop the company, drive a step change in profitable growth and launch our satellite during 2023. So, with that, thank you very much for participating, and I'll hand it over to you, Stephen.

[Operator]

Thank you. This concludes our conference for today. Thank you for your participation. You may now disconnect.