Ovzon AB (publ)

STO:OVZON

Earnings Call Transcript

[Operator]

Hello, and welcome to today's webcast with Ovzon, we're CEO, Per Noren; and CFO, Viktor Bremer will present the year-end report for 2024. [Operator Instructions] And with that said, I hand over the word to you, Per.

[Per Noren, executive]

Thank you, Ludwig. Good afternoon, good morning, and warmly welcome, everyone. Thank you for joining us on Ovzon's earnings call for the fourth quarter and full year 2024. I'm joined here today with our interim CFO, Viktor Bremer.

[Viktor Bremer, executive]

Thank you very much, Per. Hello, everyone.

[Per Noren, executive]

Excellent. Before we start the presentation, I would like to comment on two specific things. one, probably in the front of everyone. The current geopolitical situation, which is in turmoil, we have a new world order, and I'm not going to speculate in what this means.

But I can say that at Ovzon, we feel extremely confident in our products and services, technology and solution and that it fits the needs for whomever has a critical mission, and we'll continue to talk about that a little further down in the presentation. Number two, before we go into the numbers and so on, on the financial performance. If it's not understood, I want to underline how excellent the performance was and how important the fourth quarter was for Ovzon.

This has led to a very strong finish to 2024. And the executive summary is it's only a year ago since we launched Ovzon 3. We already have two major customers contracted on the satellite only after 5 months. For those that are in the satellite industry, that's a very good achievement, I would say.

We had a very strong order intake on SEK 516 million for the year based on a couple of large orders with prepayment terms from customers, of one specific reason, they want and need us to deliver our SATCOM solutions fast to them. We had a 15% growth in revenue, most of what came from European customers.

We delivered a very strong EBITDA. EBITDA is our measure of looking at do we run a healthy core business. A very strong quarter, SEK 17 million. And we followed up on another strong quarter in Q3 for that. So that's very, very important. And we had a strong SEK 60 million in cash flow from operating activities in Q4 that landed us at SEK 126 million in cash at the year-end.

Obviously, I would say this that EBIT, earnings before interest and tax is on minus. And it's mainly attributed to the fact that we are capitalizing on the SEK 2.3 billion investment we've made in our technology programs. So of the minus SEK 18 million, we've actually spent a little bit more than SEK 30 million in capitalization. So I think that's kind of underlying two specific things, geopolitical and a very strong quarter and a very strong finish of the year.

Now let's move to introducing Ovzon for those of you that are not familiar with us. We are, I would say, the world leader in the most advanced integrated and unique satellite communication solutions there is. Our mantra and the way we measure that is in performance, mobility and resiliency meaning you can use satellite communication anywhere, anytime in any way, and you can bring your terminals to connect to the satellite with you.

And it's highly resilient, meaning it will not be disturbed or -- and you will have a very high uptime of your capability. Our mission and our niche is to connect the world's critical missions via satellite. What is a critical mission. It could be for a company, but it's foremost in our core markets which are defense, national security and public safety.

So it's fair to say that Ovzon is a Swedish multinational, high-technology company focused on integrated satellite communications, and we serve currently the core markets, defense, national security and public safety. So when you think about Ovzon, you can think high tech and communication but you should also think about us as a supplier -- a critical supplier of critical infrastructure to defense, national security and public safety customers. and defense is now a majority of our revenues going forward.

Okay. Next slide, please. Of course, satellite communications have been available for decades. However, the world changed when low earth orbit satellites was brought to light and became consumer solutions. So let's talk a little bit about what all of this means. The geopolitical tension in the world, as I mentioned in the beginning, continues to escalate.

We have a new world order. Nations, alliances, organizations, scale up investments rapidly to on defense solution, and they're modernizing their defense, national security and public safety with high-tech capabilities.

Countries are now shaping plans for more sovereign own capability to have a dependent independence in case of conflicts, guaranteed communication with undisturbed and continued uptime is crucial, whether it's on land, at sea or in the air.

Security. Security and resiliency is very, very important in communication. So satellite communications is today part of the infrastructure. So think about Ovzon now as part of a crucial infrastructure for a country for a defense unit for civil defense or for national security for sure.

Digitization. Everything we do has an escalation in terms of how much data and information is sent received and created. So therefore, cloud solution -- and there are cloud solutions for governments, so-called GovCloud and AI are being used in a dramatically different way today than it was just 1 or 2 years ago.

And the first and the last mile of actually being able to use that for a smarter, better society and for defense is connectivity. Satellite communications is therefore, the critical part of that.

And last but not least, climate change. We have a change in weather patterns. We have a change in climate. Winds, wildfires, flooding, avalanches or landslides or whatever we see in the news every day are becoming the new norm. So when land and mobile-based communications are down, satellite communications is, in most cases, the only answer to quickly execute fast and agile rescue missions and in saving lives.

Next slide, please.

What's unique about Ovzon. So we call this the circle of life, and there are a couple of words on this slide that are important. Integration is important. We are not only providing a mobile satellite terminal or a satellite capacity or network bandwidth or a ground station or a system integration piece of it. We do it all. All the four.

So at 9:00, we provide the world with the smallest, lightest and most high-performing, ruggedized and secure mobile satellite terminals that has ever been built. And we're continuously developing them, of course. Number -- at 12:00, very high-performing and agile, steerable satellite networks. Steerability means we can move the beams on the satellite to a specific area and thereby increase the bandwidth and the performance of it.

And we can do it in minutes, not in hours and weeks and so on. And with Ovzon 3, we now have the most adverse communication satellite in space, and we complement that with lease capacity if and when we need to.

In 3:00, you can see that we don't own, of course, a network of get so-called gateways. We partner with very selected few resilient world-class secure gateway providers that connected to fiber in their world. And the world is -- in that country, I would say, and the world is changing quite a lot. It is important to most countries to have sovereignty and its own capability.

So they want the signal to go down in their country. Therefore, I think we have a smart strategy in not owning any of that infrastructure. but partnering with those that have it in the countries that we serve today. And last but not least, I think what stands out for us is that we operate on very high service level agreements, where we guaranteed 99.5% uptime and above that. We guarantee that by having a dedicated 24 hours a day, 7 days a week and 365 days a year service and support from our global network operations centers.

Next slide, please. Now where and why is Ovzon positioned? And where is it in the comp -- where are we or is the company in the competitive landscape. So as I previously mentioned, our customers require and expect basically 100% uptime on performance and connectivity. And I strongly believe, and we know this from our customers that use us in very, very remote areas where there's no other infrastructure. that if you can't guarantee this, you cannot rely on satellite communications for connectivity.

So if you look at this on the top end, we serve that market. We are complementary to what is below us, which is the low earth orbit constellations. So we are commission critical. We're premium, we guarantee connectivity. We're all about mobility and resiliency you can't be disturbed and distracted, and we can guarantee that we deliver that. We are complemented by the Starlinks of this world that many of you know about. But Starlink is not a competitive threat to us. We don't see that.

We see it as a complement most of our government customers, whether it's defense and public safety use StarLink for crew welfare, meaning when they're at bases or when they communicate home, et cetera, et cetera.

There are other applications as well, which they use it for. But this is -- and Starlink offers a best effort, meaning when a satellite is in orbit and you can get a signal, you have good connectivity. But if you're in the mission-critical, you cannot wait for a best effort. You have to have a guaranteed service level.

That's where Ovzon stands apart. That's where Ovzon shines. And that's where Ovzon and Starlink complement one another. I think this is an extremely important to understand in the world we're in today. So complementary, not competitive.

Next slide, please. Okay. As I mentioned in the beginning, I would say what a difference a year makes for Ovzon. A little bit more than a year ago, I stood with our team at Cape Canaveral -- at the Space Center at Cape Canaveral and saw a SpaceX Falcon 9 rocket launch of Ovzon 3 into space. So that was January 3, 2024.

In a year, we have gotten the satellite to the destinated position in Orbit. We entered commercial service on July 5. We had the first customer during the Olympic Summer Games in Paris in 2024. It was used by [indiscernible], what's the group [ d'intervention et de dissuasion de la police nationale ] which is the world's -- one of the world's leading elite police tactical unit and anti terrorized unit for the French National General Armory.

A great use case for us. We also had our biggest -- our first customer, which is our longest tenured customer within the U.S. Department of Defense who signed a longer-term contract with us in -- at the end of July. And then, of course, at the end of 2024, we got the largest order ever in the company's history, SEK 185 million order from Swedish Space Corporation, and we'll come back to that in a minute.

And I think what's also important to note is that because the launch was so successful, we didn't have to use any of the fuel for the satellite, which actually steers it. So it means we have fuel for more years than what was originally thought. So we have extended the life span to 18 years, which has also financial -- positive financial implications for us.

Next slide, please. Accomplishments may be repetitive, but I'll do it again, really strong finish of the year, order book at all-time high and a solid, solid cash flow. To keep it pretty short, I talked about the SEK 185 million order from Swedish Space Corporation. That order, we delivered terminals in Q4, the majority of them. I think Viktor will talk about this in a little bit.

But the service starts on March 1. So we have said in Q1, but it's March 1 in this quarter that were in now. We also got an extension of another order from Swedish-based Corporation with additional capabilities that was needed. And that was also paid in advance because of fast deliveries and that cash came in Q4.

I also want to acknowledge -- we have a separate slide on it, but a very advanced remotely control of an unmanned ground vehicle with the Swedish defense unit. And then after the quarter, of course, we've had some more news, we're participating, and I think this showcases our strength that we are one of the leading providers of satellite communications in the world.

We're participating in the 6G satellite initiative, which the Swedish Foundation for strategic research is investing SEK 60 million in for the next-generation mobile satellite communication. We've had a renewal from the Italian Fire & Rescue Services. This is the third time this customer renews, which is good, repetitive customers with new customers. We also announced that Andrea Leben was appointed as new CFO.

Andreas starts on May 1 in 2025. And last but not least, we also extended and amended a loan facility agreement with P Capital Partners from expiring on December 31, 2025, to now expire on September 30, 2026. Viktor will tell you a little bit more about those terms and conditions.

Just a few words on Andrea, which you will meet, of course, during the spring here. strong international experience from CFO positions within Skanska, one of the world's largest construction companies. It comes handy when you think about what Ovzon has done historically, what we will do in the future. He's also been responsible for Investor Relations for Skanska globally and for North America, where he's also lived for a few years, which also comes in handy given our customer base and our company structure.

And most recently, he served as the CFO of BoKlok, which was a housing concept, which Skanska originally developed with IKEA and Skanska. And he has a masters degree in finance and financial management. We're very pleased to have landed such a prominent person to our team.

Next slide, please. This is the largest order. And I think I've mentioned most of this already, so I don't need to do too much more than the SEK 185 million order is a 12-month contract we see it as the start of the beginning for something big. It includes SATCOM solutions based on Ovzon 3, including mobile satellite terminals.

We delivered a majority of them in December, service starts in March. We got full payment of this order in January 2025. So we have further added cash to our cash box. This is a strategic milestone and we have a very strong strategic partnership with Swedish Space Corporation, which we're very satisfied with. And this also creates good growth opportunities for us, both in Sweden and in Europe, et cetera.

Next slide, please. The significance of the remote control of an unmanned vehicle that we did with Swedish F&D is the following. We believe that the future holds that the biggest business potential is unmanned solutions. And to have unmanned solutions that you can remotely control in 1,000 kilometers away from Stockholm to this remotely controlled unmanned vehicle in Kiruna, Sweden is a challenging task. It's made possible because Ovzon 3 has such strong performance with bandwidth very little latency, and we have terminals that are not heavy.

They are robust, and we can quickly make sure that we can utilize all of this technology in one goal. Most, if not any other supplier can do this. So we see this also as a start of the beginning for something where further applications and solutions will come out of this. Thank you. Next slide, please.

All right. So let's turn to the financial section of our presentation. Order intake, strongest quarter ever, totaling USD 19 million or SEK 209 million for the quarter. And for the full year, '24, that was USD 48.4 million corresponding to SEK 560 million, more than doubled compared to 2023. I repeat that, more than double compared to '23. Order book amounts to USD 31.3 million, corresponding to SEK 344 million, an all-time high. This is obviously a great foundation for 2025, where we want to be much more repetitive, predictable and strong even and even other quarters during the year to try towards profitable growth and an even stronger EBITDA.

We'll focus on developing our current customer base and expanding with new customers foremost in Europe and in the U.S. Now over to some more details, and I hand it over to you, Viktor.

[Viktor Bremer, executive]

Thank you, Per. I will now walk you through our financial performance for the fourth quarter and total year. The revenue of SEK 17 million in the fourth quarter is all-time high for a single quarter and as a result of an overall better demand and improved order intake.

The increase in revenue is mainly due to a higher portion of delivered terminals of SEK 43 million, which also represents the majority of the remaining terminal orders taken during 2024. The revenue from SATCOM services in the fourth quarter was in line with the third quarter of SEK 64 million. Run rate for Ovzon SATCOM services is slightly below the third quarter and ends on SEK 255 million, but indicates compared to the full year revenue from Ovzon Services of SEK 223 million that were in a positive direction.

Next slide, please. The positive trend on EBITDA continues in the fourth quarter, where we managed to further improve EBITDA up to SEK 17 million. And with that, we also break even on EBITDA level for the full year of 2024. This is an improvement of EBITDA during 2024 with SEK 66 million compared to 2023. EBITA margin improved from minus 6.3% in fourth quarter 2023 to 15.6% in fourth quarter 2024.

EBIT and EBIT margin were slightly improved in the fourth quarter, thanks to improved EBITDA, but still negative due to the depreciation related to the activating of Ovzon 3 starting in the third quarter. which represent approximately SEK 13 million per quarter.

Next slide, please. Cash flow from operations of SEK 60 million is an all-time high for a single quarter due to customer prepayments. We will see a similar effect in the first quarter of 2025 where we have received the customer prepayment and at end of January 2025, we have a cash balance of SEK 219 million.

Cash flow from investments of SEK 8 million is related to the finalization of on Ovzon 3. Net debt increases from a third quarter was SEK 13 million to SEK 649 million, which is mainly an effect of variances in U.S. dollar. This weak, we also amended and extended our loan agreement to September 2026, which was made possible, thanks to our strong business momentum.

Next slide, please. The estimated investments in Ovzon 3 for 2025 remains in the span of SEK 50 million to SEK 60 million and is attributed to the finalization of the onboard processor. And in summary, we show that we have a strong business momentum, improving EBITDA quarter-by-quarter and Ovzon's financial position is today much stronger than it was 6 months ago. Back to you, Per.

[Per Noren, executive]

Thank you, Viktor. Well, maybe this is the first time that all these graphs point in the right direction up. But I think the key here to remember is very high levels of order intake and an order book, which is good for the future as well. Reaching EBITDA breakeven for the full year, very important. We'll continue that journey.

Cash flow is very strong, cash flow from operating activities. We're good at cash management. We're good at cost control that in order to scale up, we also need selectively to invest in a few things. but we will do that with a steady hand on the cash machine. So I think all in all, those trends are extremely important. Now for the future, and this probably does not come as a surprise. But I'll probably summarize with saying it in the following way.

This company is a Swedish multinational high-tech company in a very unique space, satellite communication and not any but integrated satellite communications that we can turn on for customers commission at any time, and we're really fast in delivery, and we have very high quality of delivery. That bids well for a world that requires those kind of solutions. And that world is defense, national security and public safety.

So if you should think about Ovzon in either high-tech telecom or defense National Security and Public Safety, I would say, both. That's where we're positioned today. And I think that's unique and it's good because we also have very high educational levels, and we have a fairly easy task to actually recruit talent to the pool of talent we already have here.

For 2025, our focus will be to deliver financial performance, meaning continue to increase order intake, grow revenue, grow EBITDA and have a positive cash flow from operating activities. In order to do so, we must have commercial success with the investments that we've made and the hard work we've put in the last 3 to 4 years in getting Ovzon 3, Ovzon On-Board-Processor and our mobile satellite terminals out.

So we have to make sure that every customer stays with us. We have to fully utilize Ovzon 3 because that's where the profitable growth is going to come from. We have to focus and double down on the core market segments that we're in, defense, national security and public safety and we have to focus on relevant geographies, not trying to be everywhere for everyone, but relevant geographies.

And lastly, we have to actively scale up then by being concentrated on customers. continue to develop our talent pool being around the clock for business and continue to deliver measurable value with the technology we have in place. With that, I think I'd like to end with my sincere thanks to our team of Ovzonians for their really hard work and smart work in 2024 that created this very, very strong result for us.

And also sincerely thank Viktor for his outstanding contributions as our interim CFO at a very crucial time. We'll work very closely together with Viktor to drive profitable growth and run a very efficient enterprise because he knows the company really well. So with that, Ludwig, I'll hand it back to you for dialogue and questions and answers.

[Operator]

Thank you so much for the presentation here. And as you mentioned, we'll now carry on with the Q&A. [Operator Instructions]. And the first caller here is Simon Granath from ABG.

[Simon Granath, analyst]

Good afternoon. Thank you, operator, and good afternoon, Per and Viktor, and thank you for the presentation. I have a couple of questions on the -- initially I would like to ask on the outlook for the U.S. into 2025. Looking back at full year 2024, revenues in the U.S. fell by roughly 50%. And although this was more than well compensated by increased revenues from Sweden and Europe.

Are you seeing any stabilization -- signs of stabilization in the U.S. going into 2025? Or perhaps there could be prospects for normalization back to historical levels?

[Per Noren, executive]

Maybe I should ask you the question, do you see any signs of stabilization in the U.S.? No. jokingly aside, which we shouldn't joke about this. Listen, I think it's a great question, obviously. We're extremely pleased with that.

We have shifted the revenue mix geographically. As you know, historically, we had over 90% of our revenue from the U.S. and U.S. Department of Defense. So it's better to have a better geographical mix of revenue. So we're very pleased with that. What we're not pleased with is that we have reduced the revenue base, as you point out, from the U.S. DoD. Some of it has natural answers to it. Because the focus of the previous administration in the U.S. was to bring groups home, so to speak, and not invest so much out there in the field with a number of capabilities.

And it becomes a budget process and bureaucratic process. So we saw that as a kind of a one-off down and trying to get back I think it's hard to predict exactly what's going to happen now. You've probably seen in the news the President Trump talking about 8% cuts in Pentagon on military spending, et cetera, et cetera. what effect that will have, I think it's very hard to predict.

I would say this that U.S. is still a very important market to Ovzon. It's the world's largest defense spender, we have a strong position with the core customers we have, and our objective is to regain back to the levels we have and more than that. That's probably the best answer I can give you today.

[Simon Granath, analyst]

And as always, nice to hear all the color added. And just a quick reminder, where are we on the status on commissioning the onboard processor on Ovzon 3? And could you also remind us on the benefits as for when this comes into play.

[Per Noren, executive]

Yes. I'll let Viktor talk about the financials on that. But let me preface what he's going to say with the following: The onboard processor is already in use. So if you read Note 8 in our quarterly announcement, that might give you an impression that is not. It's already started to be used.

We have some more work to be done to make it as uniquely -- as unique and excellent as it is because there's no such other thing in the world today. So there's still a little bit more work, but the majority of the work is done and it's starting to be used by customers today. Do you want to comment a little bit on the financials for that Note [indiscernible]?

[Viktor Bremer, executive]

Yes, when we take this into commercialization, then we also started depreciations of the onboard processor to add on.

[Per Noren, executive]

So that's basically the reason for the writing in Note 8. And maybe it's confusing, but it's already developed in majority. We have more than the minimum viable product starting to be used and -- but depreciation is not starting until we're fully done with the scope that we had originally set out to do.

And also to mention that the test that we -- the move that we did with FNB in November was with the onward processes, which proves that it is fully functional, but it's -- but there are still some small items to adjust.

And the uniqueness with the onboard processor is, of course, we -- I would say we I call it a switchboard in space. So basically, we've moved the intelligence of this -- it's software-enabled. So we have moved the intelligence from the ground to the space. So when, for example, a teleport where the signal comes to the satellite and down to the user, if that's not functioning of any reason if the infrastructure is out and so on, we can make one of our terminals a teleport and create a closed-loop communication system.

So you will have a guaranteed uptime. There are much -- many more unique features of it. But in essence, this enables us to have this service level agreements and unique uptime that no one else can do in a very highly secure and resilient environment.

[Simon Granath, analyst]

Appreciate it. And then on terminal revenues, which have historically been relatively lumpy, but have therefore been strong for several consecutive quarters. Is it fair to expect such revenues to normalize a bit going into 2025.

But at the same time, we know that the SATCOM backlog is particularly strong. So all these oils well for margin improvements, particularly on the back of a better mix?

[Per Noren, executive]

Yes. So I would say this. I think the introduction of Ovzon 3 and with our SATCOM solutions that we have, the need for having an adequate number of on mobile satellite terminals increases.

So what you've seen during the past year, 1.5 years, I would say, is probably the new norm. But it's not going to be as predictable as every quarter, there will be X, Y or C.

It is all dependent on when customers want service to start. And when customers there buy want terminals in their hands. Both to make sure that they've trained their uses on them as well as having some in kind of reserve and inventory for themselves, et cetera, et cetera. But I do believe -- so you will recall maybe, Simon, that maybe 3 years ago, we basically bundled the terminals into the subscription contracts with them we're out selling, which meant that we owned the inventory, but it was out on lease kind of in the bundled business case.

Nowadays, given the customer base we have in the national security and public safety. There is no guarantee in what shape or form the terminals would come back. So we shifted about 2-plus years ago into selling them outright. Look, we don't sell them as stand-alone. We always sell them when we sell the SATCOM solution. So the increase in sales of terminals actually means that the demand of the services also increases and the amount of users increases, which should be positive for the future as well.

So that's a long answer to you can't fully do equal between what you've seen in the last maybe year to what's going to be in the future. But I believe we're going to have a higher level of volume than when we had previous years, 2, 3, 4, 5 years ago, more in line with what you've seen during the last year.

[Operator]

We'll carry on now on the next call is Mikael Laséen from Carnegie.

[Mikael Laséen, analyst]

I have a couple of questions here. And the first one is a follow-up on the question here. Can you say how much of the orders that you have received in the second half that you have delivered in terms of terminal sales and how much you still have in the order book for delivery in 2025?

[Per Noren, executive]

Yes. Mikael, very good question. I'll let Viktor answer that, but we're going to try to be as precise as we possibly can for sure.

[Viktor Bremer, executive]

As I mentioned, we have delivered the majority of all the terminal orders that we received, and we have about SEK 2 million of terminals remaining in the order book during 2025.

[Mikael Laséen, analyst]

Yes. Okay. And another one here regarding the mix, how much of the revenue in Q4 now are based on Ovzon 3? Is it only the U.S. DoD contract? Or do you have or you started the FCC contract, which was including the [indiscernible]?

[Per Noren, executive]

Yes, another excellent question. The answer is very straightforward. It's only the U.S. DoD plus some of the smaller contracts we had during the second half of the year, obviously, but they are already consumed.

So it's only the U.S. DoD, the Swedish Space Corporation contract of SEK 185 million that, that bigger order starts on March 1. Why we didn't write that originally in the press release was that it wasn't clear to us the customer wanted to start quicker and earlier. It wasn't quite clear if they were ready to do so and also how fast we could deliver the terminals. We were obviously, as you understood now, very fast in delivering the majority of the terminals in that order. And there -- and then with a little delay, the service starts on March 1.

[Mikael Laséen, analyst]

That was clear. And when it comes to the SSC contract that you received in December, can you talk to us about I mean, what it means for you to sell Orion and Pegasus services this customer, This is the first, I think.

[Per Noren, executive]

It's absolutely correct. You're absolutely correct. It's the first that has both of Ovzon Pegasus and Ovzon Orion services in it. Therefore, the mix of terminals that kind of indicates that too because they -- both the Ovzon T7 obviously, is equipped for -- with its dual modem is equipped for Ovzon Orion services. And our on-the-move terminals are now also being equipped for that step by step for with a dual modem, et cetera, et cetera.

So it means that the end customer is looking at a variation of use cases, I would say, where they need of some Pegasus services. straight on similar to Ovzon SATCOM-as-a-Service concept and where they're going to deploy the Ovzon Orion service for what mission, which kind of units and which kind of use cases. So it's a little bit early days because this is the first, as you noted, and we're working very closely with both the Swedish Space Corporation and the end customer that's going to use this also in terms of how to set this up.

What we see is that I think the first installations that's going to happen here will actually showcase how broad and how deep and how they will layer the difference of Ovzon Pegasus and Ovzon Orion services and the combinations thereof. So I think during this year, we'll be able to provide a little bit more granularity into that because we're working kind of through that with the customer as well here as we kick off the service in 1st of March.

[Mikael Laséen, analyst]

Okay. Got it. And then maybe also a follow-up here. Can you maybe clarify what the onboard processor is case of right now and what you're working on during 2025?

[Per Noren, executive]

Yes, we can. And in general, it's capable of everything that it was designed to do. It's just that when we've also used it for the unmanned solution with Swedish FMV when we have used it for some other demonstrations we have seen that we could actually add some features and capabilities that we maybe had thought of, but not made part of the kind of base package of it.

So that's what we're actually doing here. So the more it's going to be used, the more will develop it, and that's the beauty with having a software-enabled capability really is to go deeper and deeper into how it can be used. And I think that's going to provide layers and potentially new applications and services around it, too. But it's a little bit too early to say.

But it's being used both in demonstrations and with the customers that they're now going to start to use it. So it's more of an incremental development of features and capabilities that we think will make it even more unique, honestly.

[Mikael Laséen, analyst]

Okay. Interesting. And another maybe basic question. Can you say something about how you're marketing of Ovzon 3 to customers? And what feedback you have received so far?

[Per Noren, executive]

Yes, I can shed some light on that. I think the way to portray is probably -- this is not a, I call it, four colors and glossy paper kind of sending people a catalog and pick and choose from the catalog kind of thing. It is a lot of education, insights on many layers of -- from the end user that is just going to use it in kind of in field to also decision-makers about investments in short, mid- and long-term SATCOM solution.

So it requires very much of a consultative solution selling approach and how we position it. It requires, in many cases, that we do very tangible hands on demonstrations, and we are out doing that with the customers. Actually, the recent trend is that more and given the I would say, the geopolitical tension more and more of the end customers are actually looking at this as a way to also find a way to work together a little bit on if we have the solution, what could the combined efforts look like, what would the onboard processor actually mean to us if we could have interoperability without disturbance et cetera, et cetera, where would we use that, how would we use that on land, at sea and in the air. How can this play into unmanned.

So the FMV test is an unmanned, I think the potential for unmanned. And you know a little bit about our company, we're very, very good at antenna and RF development, right? So the lighter and smaller antennas can be they can sit on smaller on-demand as well. So you can have a range of applications here with manned and unmanned and people using our solutions.

So I think that describes it pretty well. We address the customer in multilayers of their organization. We go in and do both presentation and demonstration. And we also do some demonstrations actually with other capabilities like Starlink and so on, where Starlink is used for certain use cases and where they can't meet the demands, Ovzon, of course, is the mission-critical thing on top of that. So you do kind of a mesh network capability. So that's how the discussions and the entry into the customer goals.

[Mikael Laséen, analyst]

Okay. Can I ask a final one?

[Operator]

Yes. Last question, then we have to [indiscernible]. Yes.

[Mikael Laséen, analyst]

Okay. Final one important question here. What actual additional steps are you taking to secure larger and longer-term contracts with the U.S. defense agencies?

[Per Noren, executive]

Yes. I think that's the $10,000 million question maybe. The way to do it is first of all, to secure the customer base we have today. It starts with that. They normally operate on 12-month budgets or so on. So it's hard to kind of change to change that rhythm.

The second thing we're doing is we are partnering with others that sit on so-called program contracts, so longer large frame contracts, they can be up to 5 years on those. So we are targeting partners that sit on those. And thirdly, we're also working a little bit more with opening doors into higher levels of management, whether it's Pentagon or even senators and Congress women and men that sit on the defense kind of interesting defense aspects of things.

So we actually have to broaden and the U.S. is a huge country, obviously, as you know. But we're taking step by step and measures to work through the whole value chain of decision-makers and influencers and those that can allocate funds to that. But I think the big portion is that working with those that sits on frame contracts and becoming part of that, then you can have -- get longer-term contracts.

But I think in parallel, we've got to be snipers. So we've got to be, what we're good at, we're good at. And there are other units out there that needs us. And those sits on either yearly budgets or they sit on longer contracts and they might test us for a year with options of 2 or 3 or 4 years. So we're working on all aspects of that and not only in the U.S. but in other countries as well, but U.S. is for sure our focused area.

[Operator]

So thank you so much for the questions. We have some questions as well that have been sent to us. Now when Ovzon 3 is in operation, what are the R&D activities focused on what on and what future products and service it result in?

[Per Noren, executive]

We'll take a deep graph here. We've spent the last 5 years developing these technology platforms and so on. But I'll give you a couple of examples that we're focused on. One is the satellite, Ovzon 3 shows that it's performing at par with or better than design and the requirements we have. In the first cases we have with the first customers. That is very encouraging. Therefore, we're looking into, can we produce -- should we have one or more of the similar kind of satellites, meaning think of it as Ovzon 4 and 5 and so on.

And what would that mean? Would we change anything in the design and technical requirements of it. Or not. So we're working on that in the background here to build a case for that. Secondly, the same with -- I answered the onboard processor is in continuous development here. So we're looking at that. That's an effort we're underway.

And thirdly, we know we're unique with the smallest, most ultra light ruggedized and high-performance terminals -- mobile satellite terminals. So we're looking at how can we get the right kind of antenna and performance of antenna in those terminals and modems, et cetera. So those efforts are also underway.

But I would say we are measured, and we're customer driven in how we build those solutions and capabilities. But that's kind of the R&D. But right now, it's all about getting return on investment on the technology programs we've invested in.

[Operator]

Thank you so much. How come you're not profiling more towards the defense industry?

[Per Noren, executive]

How come we're not providing more towards the defense industry? Okay. We are profiling ourselves purely against defense national security and public safety and the majority of our revenues is in defense. So we are profiling towards defence.

[Operator]

Very clear. Where are the terminals produced? And do you see any risk of sourcing problems due to free trade restrictions, et cetera?

[Per Noren, executive]

Very good question. One, I don't see any problems with the tariff discussion that is going on. We will always have a chance to adjust the pricing of the terminals if there are tariffs. So that's what we'll do. We're not synced into any of that we will do. We'll also look at if we can reduce costs for certain things.

That's number one. Number two, the majority of the terminals are produced in Sweden. Some are third party that we work with, but they are produced in an EU country and then taken to Sweden for factory acceptance test and making sure that they fit the quality normal also. So we see that within Sweden and within EU, that's where we produce.

[Operator]

Thank you so much. Moving on to the last question here. Do you see that net and EU countries prefer a European supplier rather than, for example, a U.S.A. one to keep it local, so to speak?

[Per Noren, executive]

That's one of those difficult questions. I would say this. Every country prefers to have their supply base close to themselves. So Sweden prefers to have a defense industry suppliers that are Swedish. But they cannot only rely upon that.

So they look at Europe and collaboration. But I would say the U.S. is a very important country in terms of aerospace and defense capabilities. Sweden, for example, as a country, has a lot of exchange there between aerospace, defense contractors, technology contractors, et cetera, et cetera. So I would say you can't shift overnight.

Most countries that have a strong technology, an innovation culture, a strong base of academia, the kind of what we call the triple helix, so academia, industry and government, they try to produce as much as they can by themselves, but they also know that the important is to have collaboration with others. So I think I think the answer is yes, but there needs to be global collaboration, specifically between NATO countries, including the U.S.

[Operator]

Thank you so much. This is all the questions we had. Thank you so much, Per and Vik for the presentation and answering all our questions, and thank you all for tuning and I wish you a pleasant weekend.

[Per Noren, executive]

Thank you, Ludwig. Thanks, everyone. Have a good weekend.