Preliminary Q2 2022 Mynaric AG Earnings Call

October 31, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Good day, and thank you for standing by and welcome to them on that mix first half 'twenty to 'twenty two results webcast call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session that you will need to press star one.

One on your telephone you will then hear an automated message advising Johan this raise please be advised that today's conference is being recorded and now I would like to turn the conference over to the Vice President of Investor Relations. Mr. Tom Dinges. Thank you. Please go ahead.

Thank you operator welcome everyone <unk> first half 2022 results conference call and webcast.

Prior to today's call, we released our first half 2022 results.

Part of our first half 2022 management report, which is available for download on the Investor Relations section of <unk> Dot com.

Before we begin todays formal presentation I must remind you that this presentation and oral statements regarding the subject. In this presentation include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 as amended all statements other than statements of historical or current facts contained in this presentation.

Our forward looking statements.

The forward looking statements involve known and unknown risks uncertainties and assumptions that are difficult to predict or are beyond our control and actual results may differ materially from those expected or implied as forward looking statements.

The forward looking statements included in this presentation are made only as of today hereof. Neither we nor any other person undertakes any obligation to update any forward looking statement.

Events or circumstances after the date of this presentation or otherwise.

With that out of the way we have a great agenda for you today, including an update on our vision and strategy customer success highlights a discussion of our first half 2022 financial results.

And our outlook for the remainder of 2022.

Following the formal presentation, we will take questions from analysts we anticipate this call will last no longer than one hour.

On the call today are <unk> CEO will at all times, and Minarik, CFO , Stefan Barnwell and below.

With that it's my pleasure to turn the call over to Colin for his opening remarks Glenn.

Thank you Tom.

Minor reported solid results for the first half of 2022 as we prepare for significantly higher production levels. Later this year next year and into 2024.

At the analyst day back in April I spoke about growth and momentum and this continues through today.

We reported another strong order backlog in terms of optical communication terminals and caution from customer contracts too.

<unk> two key performance indicators being introduced this year to help our investors to better track our performance.

Also remain disciplined in our investment strategy to support the future growth of the business and our pipeline of opportunities remains the highest in our history.

Over the past two years, we invested and hired to ready the company for serial production and we no longer need substantial investments in capability and capacity.

We are now focused on continuing to improve our operational excellence and the improvements we have implemented over the past year.

Product design have allowed us to now have the capacity in place in order to fill so our medium term goal of producing two child from terminals per year.

I'm extremely proud of the effort the team put into delivering these results over the first half of this year.

And reminder, to many of you on the call who may not be familiar with mine Eric.

Our vision is to eliminate the barriers of connectivity to ensure the unrestricted flow of information and close the digital divide.

We are not only us based company or an aerospace company. We are a critical communication systems company with products that are produced at scale to serve many end markets, including government and commercial customers.

We do this by making what has previously been a one off highly tailored solution market into a scalable volume production market through serial production, the higher reliability and simplicity greater affordability.

<unk> standardization of our product.

Before I turn the call over to Stephane for more for a more detailed look at our results I want to highlight a few customer successes. We've had since we last spoke with you all.

First we've recently won an additional order from Northrop Grumman in support of the space development agencies tracking layer program.

This follows the announcement of the FDA transport layer program announcements in March of this year.

These are the initial deployments for these programs and volume shipments will commence in the second half of 2023 for those unfamiliar with the FDA program. These programs will support critical government defense efforts their budget dollars have already been allocated and deployment schedules are relatively set at this point, which gives us.

Greater visibility on our forward delivery delivery commitments revenue and cash flow.

In addition, we were selected by DARPA. The U S Defense Advanced research projects agency for Phase one of their space Bacon program, which aims to develop a low cost high speed reconfigurable optical data links to connect.

Low earth orbit constellation.

In July we signed agreement with <unk> for increased future collaboration and L. Three Harris and method 11, two and $11 2 million Euro for a seven 2% stake in mind Eric.

This is a significant validation for minor as Alderete Harris is now not only our customers, but also a strategically aligned partner for us and we see this developing into future program activity across all domains, including airborne space Maritime and ground.

As we have said for some time the government market is ahead of the broader commercial market and its shift towards optical data links but the commercial market is poised to catch up quickly.

For example, we know there are a number of major commercial constellation operators, making key supplier decisions over the next six to 12 months as they look to deploy these constellations starting in 2024 and the subsequent years.

We believe we are all well positioned in the market given our technology and ability to scale production to compete for these programs.

Could not be more excited by the market opportunity in front of us and I believe you have the right team to capitalize on this opportunity.

Let me turn it over to Stephane to walk you through our results in more detail.

Uh huh.

Thank you Brandon.

Let's turn to our results for the first half year of 2022.

Sure, let's turn to the two.

Patrick.

At the analyst day in April that we believe will continue.

The momentum we are seeing.

Sure.

And from customer contract.

This is a key forward looking predictor of revenue.

Only received.

Contractual milestone.

Typical legacy in cash received from customer contract and shipment.

Depending on the contract.

As a reminder, this is a contractual payments received in third.

Okay.

But full delivery and acceptance has not been reached.

Pre revenue cash receipt.

Indeed, a very significant indicator of the future revenue of the company.

<unk>.

For the half year period testing from customer contract.

Eight.

In euro.

At the end.

The period compared to 1 million Euro.

For the comparable period of last year.

Since the end of the half year, our cash from customer contract.

Continued to increase.

More than 11 million euros.

By comparison two years ago, we had virtually no cash from customer contract.

So we are showing a very strong momentum.

Continue to execute.

Hi, Ken.

Ticket communication terminal backlog in U S.

To date is 243 units.

This compares with 36 units at the comparable period last year.

And continued growth from what we reported back in April this year.

Our current backlog.

The bond book reduction.

Total unit took homes for one customer facing.

Company today announced a change investment for them.

Good day.

15 unit.

Yes.

Face link and the backlog pending final notification from the company.

Including this adjustment our guidance 2022 remain unchanged and has it given our terminal backlog more than mine.

Harris.

<unk> two government funded contracts.

We continue to see strong and steady pipeline of opportunities and expect this metric to continue to increase through the end of this year and into next year.

Looking at a few other figure.

Revenue was 25 solid in Europe in the first half of 2022.

Only product using revenue.

Were negatively impacted by some.

Apply chain challenges, which delayed hawk shipment push outs and customer delivery schedules.

Our current contract.

Committed.

Particular communications terminal backlog primarily.

Consistent of condo, Mark III product, mostly foresees capital shipments primarily in 2023 and 2024.

Material and more than 85% to.

For the year ago period.

Continued to ramp up our production ahead of major delivery.

Over the next.

Nine to 18.

We continue to invest.

Strong pace product development.

Both enhancements to existing products and investment in next generation products.

Personnel costs.

Hey, Ben.

As we continue to add.

Yes.

Our team.

We expected our capability across all we expanded our capability across all divisions of the company. This year and we'll continue to do through the remainder of 2022.

We ended the half year with more than 300 full time employees compared to 210 in the year ago period, and 249 at the end of last year.

We remain disciplined in our talent ecosystem to support our expected strong growth over the coming years. However.

<unk>.

The pace of the head count expansion will slow somewhat over the coming months and into the first half of 2020.

As we look to align our head count.

With the program we have been awarded.

Overall, the company reported an operational loss of.

Of $34 9 million Euro.

As we continue to make necessary investments in people equipment and system in preparation for a strong shipment growth in 2023 and beyond.

Now, let's turn to a few key balance sheet figures.

Our cash balance at the end of June both more than 25 million euros compared to 18 million.

Euros at the half year 2020, while not included in this figure is the early July investment by one of our key customer rehearing, we're investing more than 11 million Europe and exchange.

Seven two percentage point.

And Eric in 2022, we remain in investment mode.

As a pre breakeven company, we expect our cash balance to decline further through the end of this.

This year we.

Continue to look at a number of different options to provide the capital.

Need to support our growth objectives.

Inventories were $13 4 million Europe up from $8 4 million in Europe at the end of last year.

We continue to invest.

Ponant inventory ahead.

The ramp and communication terminal production, we see next year.

Property plant and equipment at the end of the period was 21 million euros compared to approximately 17 million euros.

We invested $6 4 million euros property plant and equipment this half year.

<unk> three 5 billion.

Period.

Bulk of earlier.

Through the combination of our previous investment and a major breakthrough.

And the main for that product.

We were able to arrive at.

Our 2000 units medium term capacity goals.

<unk> effects.

Well at this time.

Ultimate Mace primary now able to utilize our manufacturing capacity with minimal amount of factory employees.

Hi, Brian .

As a result of all of these breakthroughs and improvement we see our future capital investment.

So our production capacity at lower relative to historical levels.

Now, let me walk through our outlook for the two key business metrics.

The reminder of the year.

We expect cash income customer contract to be at least $20 million Europe for the full year 2022.

As noted earlier we are at.

Well, our we are well on our way to achieving that goal.

On the year to date cash income customer contract.

We expect continued growth in our optical communications terminal backlog by the end of the year.

We expect our year end 2022 optical communications permanent backlog to execute.

250 units.

Would you be.

The increase from our previous guidance of 220.

Yes, a number of opportunities that potentially could close by year end and our team remains well positioned to capture.

With that let me turn it back over to <unk> for his closing remarks.

Thank you Stephanie.

What have we shown you today what are the key takeaways.

In short today was all about growth and momentum.

Can you talk about growth and momentum we are talking about strong growth in our order backlog and our cash in from customer contract.

These two metrics are the key to future revenue and profitability of the company.

We believe the market opportunity is significant in both the space and airborne sector.

Two recent conferences <unk> satellite business week, and the international Astronautical Congress the buzzer, let's all about laser communications.

They ran a live demo of two of our Hawk terminals transmitting data the.

The recent announcements from large consumer brands and communications service providers, such as Apple Starling T mobile Huawei and others all demonstrate the long term need for interconnected sunlight and laser communication is what will enable all these constellation to achieve their goals of ubiquitous connector.

<unk>.

As many of you listening today know I've been in this space and the street for two decades.

<unk> seen more growth of this magnitude looks like and more importantly, what it takes to capitalize on that growth.

<unk> is the only company with the ability to do what we do at scale.

Gives us a huge advantage and one that we intend to leverage to the fullest in order to do that you must have a great team and we have put together a great leadership team that is driving execution in order to capitalize on the multi decade opportunity ahead of us as.

Enable the internet above the clouds.

In August we added a key executive Mustafa zero alone as our new President of mine, Eric He brings a wealth of industry experience and is key to taking us to the scale, we want to achieve for the business.

Also added considerable talent over the past six months, our engineering and product development.

<unk> communications and administrative team on a global basis.

Continue to build a strong foundation for the business.

We believe now is the time to capitalize on the opportunity ahead of us and we made the right investments ahead of the growth. So we can now accelerate our momentum and we are only getting started capitalizing on the investments we've already made.

With that operator would you. Please provide the instructions for the question and answer session operator.

Thank you as a reminder to ask a question you will need to press star one and one on your telephone and wait for you.

Name to be announced once again, please press star one on one on your telephone to ask a question.

We will now go to our first question. Please standby.

One moment.

And your first question comes from the line of Greg Konrad from Jefferies. Please go ahead. Your line is open.

Good afternoon.

Yes.

It seems like the demand side is really strong I just had two supply question you called out the supply chain and relationship to path what are you seeing.

Supply side there.

Those work themselves out and maybe the timing of that.

Okay.

Thank you for that question.

On the Hog side, yes on the supply chain is something we look to over quite a bit over the last year and what we saw there wasn't a supply chain issue that you see across the across the industry Roger.

<unk> issue that we are working through and our design.

Is something to expect and we are well equipped to do so.

We are doing a design update that removes these obsolete components and as we do that we are working to introduce commonly available.

As of today, so we expect that.

Our supply chain issue too.

To be sold in Q4 of this year and.

The next Hawk deliveries starting following that.

And then maybe just a follow up on the demand side, you mentioned some of that.

Commercial opportunities that could be decided near term than you thought.

Some good orders in the quarter from <unk>.

What are you may be seeing on the competitive side in terms of market share or given the higher backlog outlook that opportunities are coming in sooner or maybe are you capturing a higher share than we previously expected.

I think engaging with our potential.

Commercial customers, we see a good respect for.

Mountains of capability, we have built within the company and the fact that we can produce at scale.

The commercial opportunity as we all know about have been so certain extent hit by the.

By the.

Current.

Invasion of Russia, and Ukraine, and therefore, the resulting the resulting up.

Unavailability of Russian rockets to vest in constellation's, but we also see a huge jump shift right now to use our investor investor enough rockets that gift are these constellations and renewed launch capability that just resulted in a temporary move to the right on the deployment of these constellations.

It does actually out of the way, but thats problem and well underway to be solved I think we expect.

That these constellations will make they'll make decisions in the next six months to maximum 12 months too.

Decide on who'd utilize and I think Ivy.

We see that also by the comments of such potential customers.

That's the thing that they are mostly valuing is the capability to ramp up production. So the investment we have already made and the capacity. We have already have put together is giving them a lot of confidence in the fact that with minor they would not be facing execution risk.

Thank you.

Thank you once again, if you would like to ask a question. Please press star one on one on your telephone and wait for your name to be announced Sky is one and one one on one if you would like to ask a question.

We will now go to our next question.

Please standby.

And your next question comes from the line of Austin Muller from Canaccord. Please go ahead. Your line is open.

Hi, good afternoon.

My question here are we still expecting the first Condor is to be launched into orbit by the end of the year and should we expect the delayed half deliveries that are getting our components are in place.

We will go will be delivered in the first half of 'twenty three is that the best way to think about it.

Very good I'll answer those two questions in order first of all on the launch of the Condor two two space.

We do not expect that to take place this year as our customers have many different challenges that they are facing and we expect them to solve them soon but I don't expect the launch to be this year.

The Hawks side yesterday will be have built quite a quite a handful of hoarse already before the us before the.

Before.

<unk>.

The parts.

<unk> became available that we are talking about and for which we did a redesign we expect some of those to be delivered imminently.

Then the balance of it is of course shifting over to early 2023.

Okay.

Okay, Great and then just one more if I may how many people do you still have to hire to be able to meet the current backlog and if I understand that the facility can produce 2000 terminals a year at this point right.

So yes, our manufacturing capability is exactly.

That we have already made at 2000 units.

Few last items coming in that are coming in over the next few weeks or months, but overall, we have the manufacturing capacity in place and as you said there is a certain amount of uptick to meet the customer demands that may come I think overall to Dave you have.

Just as Stefan said, a little bit more than 250 terminals to build I think this is given the factory capacity.

And if a fraction of what we can build so the uptick and people should not be significant at all it would be a handful if anything because it's also stephane alluded to we have multiple technical breakthrough that happened over this last year.

Now the easier build of the terminals with Alex.

Quite a few less machining and integration operations necessary and then we have put in automation. We already can also reduce the number of people we would have to add to the team.

Okay.

Fantastic. Thanks.

Hello.

Thank you.

Thank you Glenn.

Once again, if you would like to ask a question. Please press star one on one on your telephone.

Star one on one to ask a question.

We will now go to our next question.

Well maintenance please.

And your next question comes from the line of Scott <unk> from Credit Suisse. Please go ahead. Your line is open.

Hey, guys will Jackson on for Scott today, Thanks for taking the question.

You mentioned the strategic partnership with <unk> III Harriss, you go into a little bit more detail on that and maybe especially looking at the air terminals, how you see that changing your market opportunity there.

Hum.

Thank you so much for that one yes Aldo.

I think it's a fair.

Tastic partner to be had for our company. They are definitely in a tremendous amount of vehicles and systems across the world and they have capabilities to integrate technology to a multitude of systems. If you look at the non space market. If you look into the aviation market the maritime market to ground.

Market.

What have you that really required this type of technology did itself that is high bandwidth that is.

That is low probability of interference or detection.

I think that level of partnership is tremendously valuable Ultra Harris brings with it is and knowledge of these different systems and the backend systems that we would have to connect to and.

We are quite quite positive that LTE hartsville open up.

Markets beyond just the first initial ones that we saw as a beachhead markets for for Hawk I think what we will see is.

A tremendous market opportunity starting from ground all debate to air.

<unk>.

With the.

With the <unk>.

Integration.

Experience of <unk> Harris that knows the final customer a lot closer than we do so we would we would hope for uptake and the amount of markets. We can address and VR. Good technology partner for them and they are a good I want to say integration and also after sales support.

Experts across the all of these markets.

Great. Thank you and then just one more from me if that's okay. I think the numbers released last week showed that inflation is still very much a point of concern can you talk about any concerns that you have internally about that or maybe any protections you have in your current cost of your current contracts I should say.

I think thats a numbers question that I would really love to hand over to Stefan.

Yeah.

Could you repeat the question it's about the in place.

Yes, just any kind of inflation protections you may have built into the cost structures of existing contracts.

At the moment.

Not surprising to be honest.

No.

Thanks.

We have at the moment.

What I can say.

Consequently, reducing our.

Purchase prices from our suppliers because we are auditing.

Numbers.

On the other side the most.

Purchase.

From the U S side.

So we have also a little bit lumpy.

The currency.

Okay.

Yes.

In terms of ex U.

U S.

Yes, Kevin Garnett stronger.

But I think at the moment.

We don't have inflation protection.

But I hope I.

I don't know exactly at the moment.

And I think Stephane I think very very.

Useful I think to reiterate here that <unk> has been doing quite a bit of investments to bring into the biggest cost drivers in housing.

The telescope of the total scope of the terminal that allows us to control costs.

Stephane alluded to all of these are in the done it in the eurozone, where all or most all of our contracts are in the dollar side. So there is a certain amount of advantage. We are taking off there and then secondly for the execution of these contracts that you have gone into.

Gone into long term purchase agreements with most of our cost drivers. So I think that with the cost side controlled for these contracts and then you are looking into what the effects will be for future contracts.

Perfect. Thanks, so much guys.

Thank you.

I will now hand, the call back to Tom.

Thank you operator.

Further information about our upcoming engagement with the investment community. Please visit the Investor Relations section of <unk> Dot com.

Thank you, everyone, who joined us today.

And for your interest in <unk>, we will speak with you all again when we release full year 2022 financial results next year Goodbye for now.

Thank you.

Today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly.

As Johan during Q&A, you can dial one one.

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Preliminary Q2 2022 Mynaric AG Earnings Call

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