In more insider buying, new EOS director, David Black, acquired $50 k in shares.
I woul dlike to see more buying from EOS directors - would prefer they held more shares....
DISC - I HOLD
Results for 2020 were heavily impacted, with COVID-19 disruptions resulting in a $25 M loss for the year. However, looking forward, there are strong positives:
1) $100-130 m in cash to hit the balance sheet over the next 5 months, as contract assets convert to cash.
2) Technology improvements in their RWS, and optical communications extends its competitive advantages.
3) Spacelink breakthrough. EOS will jump to the hybrid RF-optical technology, as the development has exceeded expectations to a point it is production ready for the stage 1 satellites. This means he satellite will have 2-3x the bandwidth of the original proposal.
4) Over $500 M pipeline for Spacelink. EOS is finalising financing and confirmed no additional capital will be required from shareholders to establish the business, and EOS advise they will retain controlling onership o fthe business. NPV of business case is $1 Bn USD.
5) Trials underway for European ROCV contract. With contract likely to be negotiated by October this year.
6) Risk adjuested pipeline of $3.6 Bn.
7) Defence systems business will have propduction cpaaity to deliver $900 m in product per annum in the medium term (current capacity: $450 M pa).
8) Directed energy (lasers) product to enter production by mid-year.
9) Defence systems market opportunity is claimed ot be over $40 Bn USD over the next 10 years.
Market update / forevast to be given at AGM.
DIC: - I hold.
Update to FY 2020 Profit Guidance
Electro Optic Systems Holdings Limited (“EOS” or “Company”) (ASX: EOS) has experienced short term impacts to the EBIT result for FY 2020 ending 31 December 2020, which require the Company to withdraw the previous EBIT guidance of $20-30m. Cash flow for both FY 2020 and FY 2021 is unaffected by these events.
As their shipments to customers have only been delayed, not cancelled, I see this could be a possible buying opportunity. Shares today are currently $6.00, have been as low as $5.75 from prev COB $6.33
Disc:I hold EOS
EOS wins a $34.4 M project with Dept. of Defence as head contractor to deliver contract under "C4 EDGE" program.
Contract to be completed in FY2021, so it is probably a 10% boost to FY2021 revenue, and could lead to further opportunities in the future......
More details revealed on the development of this business. Key takeaways:
1) Project to be funded via a comination fo 70% debt and 30% equity via SPV. By this, it appears third parties will take a 30% interest in the business, with no capital input required by EOS. EOS will retain majority ownership.
2) Project is conservatively estimated to be 20%, based on a capital cost discount rate of 8%. With discounted cashflow valuation of $1 billion US per constellation. Note: There will be three constallations developed over the next 10 years, with improving capacity and ROI.
3) EOS Spacelink has limited competition, through Airbus and SES, but they lack the bandwidth and technology EOS possesses.
4) EOS Spacelink has perpetual access to 64% of RF bandwidth, initally with 100 GPs capacity. Quite a moat here.
5) 2nd generation constellation will be a partical hybrid of RF and optical communications, with 4x the bandidth of 1st generation. Expected to be commissioned in 2027.
6) 3rd generation constellation will be full hybrid optical of RF and optical communications, with +10x the bandwidth. Expected to be commissioned in 2030.
By 2028, EOS Spacelink, 1st generation, will be generating $262M USD in revenue. By my numbers, generating $80 M USD in profit to EOS. With 2nd generation coming online at that time.
EOS Space Systems awarded A$5.1 mln ($3.61 mln) contract through its space systems subsidary by the Australian Deperatment of Defence for technical development.
Contract to run for two years, starting in Q4 2020
EOS has signed the contract with the Austrlaian Govt for 251 RWS previosuly announced. The contract value is around $94 M, with $28.5 M being paid in cash in Q4 2020, with the remainder for the contract being executed in 2021.
Reassuring boost to cashflow, which will raise hopes of no further capital raises,in the near term (noting the satellites are going to cost $1 Billion).
AU$4.25m RWS Contract for European Remotely Operated Combat Vehicle Program
Canberra, 15 September 2020
Electro Optic Systems Holdings Limited (“EOS” or “Company”) (ASX: EOS) has secured two contracts totalling AU$4.25 million for the supply of R400 Remote Weapon Systems (“RWS”) to a European NATO country. A number of these systems are optimised for integration onto Remotely Operated Combat Vehicles (“ROCV’s”) and include the remote control units to operate the systems. Both contracts will be delivered this calendar year.
EOS RWS products are well suited to the emerging market for ROCV’s because of their market leading accuracy, reliability and light weight.
The Company is participating in a number of tender opportunities for ROCV capabilities across multiple countries with a sales pipeline in excess of AU$1 billion. Major awards are possible in the next 12 months.
Delivery of Major EOS Overseas Contract Resumed
Canberra, 10 September 2020
Electro Optic Systems Holdings Limited (“EOS” or “Company”) (ASX: EOS) has achieved a key step in restoring cash flow from its major overseas contract1 that was disrupted by COVID-19 lockdowns. A team of senior engineers (EOS technical team) from Australia have travelled to an overseas delivery point to re-initiate delivery and testing for over $150 million worth of EOS products.
EOS previously advised that product delivery and acceptance had been interrupted by airport and border closures, travel prohibitions and the lockdown of EOS and customer facilities. All of these constraints are steadily easing.
The successful dispatch of the EOS technical team overseas is the latest in a series of positive developments unlocking the delivery process to key EOS customers:
1. Airports in Australia and overseas are now operating at sufficient freight capacity to allow EOS products to be exported. Over $100 million worth of EOS goods and services have already been physically imported into their destination markets since COVID-19 impacted. This is expected to reach $150 million over the next eight weeks. Physical importation is a pre-requisite for delivery to begin.
2. The EOS facility located in the customer’s country is required to support technical teams from Australia to implement the delivery of EOS goods and services in the region. This facility was closed for four months but has re-opened and staff are now permitted to attend work, and the facility is ready to support deliveries.
3. The delivery process requires systems integration of EOS products with components and vehicles provided by suppliers, then test firing of the fully integrated weapon systems. With the easing of COVID-19 restrictions appropriate firing range facilities are now available.
4. Despite a general prohibition on Australians travelling overseas, the EOS technical team recently received Commonwealth of Australia approval to travel to complete the delivery process overseas. The EOS technical team has arrived, passed COVID-19 testing requirements and commenced work on the delivery process.
EOS expects that it will take six to eight weeks to re-implement the full installation, integration, safety qualification, weapon testing and physical delivery process that was suspended in March 2020. Once the process of delivery has been re-started cash flow is expected to resume in Q4 2020 and the accumulated backlog of product deliveries is expected to be cleared in six months.
This announcement has been authorised for release to the ASX by Dr Ben Greene, Director
EOS Releases New Counter Drone Product
Electro Optic Systems Holdings Limited (“EOS” or “Company”) (ASX: EOS) has released the world’s first full-spectrum system for defence against attack from unattended aerial system (UAS) or drones. This counter-UAS system (CUAS) is named Mopoke after the native Australian bird of prey1 . CUAS are entirely defensive systems. UAS have already been widely deployed in a series of regional conflicts, with some countries suffering significant loss of civilian life and critical infrastructure from long range UAS attacks. UAS are an asymmetric weapon in that they require defensive measures which can cost 10-100 times the cost of the UAS themselves. UAS can be effective even without being fired if they can cause defensive outlays on this scale and EOS has engaged closely with its customers over the past four years to ensure the affordability of its CUAS products. CUAS capability can consist of a simple weapon designed to destroy a few drones in a particular tactical setting or may be required to defend an entire urban area or large industrial complexes from UAS attack. This wide range of capability has not been coherently addressed before EOS developed its Mopoke system.
A CUAS system may comprise some or all of the following ten elements:
1. Radar sensors: These must detect a wide range of UAS threats up to 5 km away.
2. UAS interference: UAS are neutralised using command interference.
3. Electronic and electro-optic sensors: These detect drones without themselves radiating signals that can trigger UAS attacks.
4. Command and control (C2) system: Controls and coordinates multiple sensors and drone kill systems to defeat “drone swarms”.
5. UAS destruction at short range: Kinetic weapon (7.62 mm machine gun) to rapidly destroy UAS threats at short ranges of 50-500 m.
6. UAS destruction medium range: Kinetic weapon (30 mm cannon) to destroy UAS threats at ranges of 100–1500 m.
7. UAS destruction long range: Kinetic weapon (30 mm high velocity cannon) to destroy UAS threats at ranges of 200–3000 m.
8. Large UAS destruction long range: Surface-to-air missile for very large UAS at ranges up to 5 km.
9. UAS destruction long range: Directed energy (laser) to destroy UAS of any size and at any range which might otherwise penetrate or overwhelm UAS defences.
10. Tactics and training, including safe operating procedures for energy weapons and collateral damage minimisation. This is a key element since defences must often be mounted for civilian populations and respond autonomously against sudden swarms of drones.
There is substantial market demand for a scalable CUAS system that can deploy in large scale formations with all capabilities, and also deploy on a smaller scale to defeat smaller threats. This scalability requires strict compliance with the C2 architecture implemented.
EOS is the only aerospace provider that has internally developed eight of the ten CUAS elements listed above. Only the first two elements are outsourced by EOS for Mopoke which integrates all ten elements in a coherent C2 architecture. This significantly reduces the complexity of the system integration, and delivers unprecedented scalability.
No competitor can offer more than four elements from a single source, requiring each competitor’s CUAS implementation to be designed from the ground up. Furthermore, the individual elements of the Mopoke system have surpassed any competitor’s corresponding elements in customer trials and testing against active UAS.
Industry market surveys and forecasts estimate the Total Addressable Market globally for CUAS products to be US$48 billion (average of five independent market surveys) for the decade ending 2030. EOS estimates the CUAS market amongst its usual customers is around US$21 billion over the same decade. This is consistent with the global market estimates.
Following an international tender process, EOS has recently been down selected as the preferred provider for a major international CUAS requirement and contract negotiations with that customer have commenced. The company expects these to be concluded for the first phase of this contract over the next six months. Four additional customers have initiated discussions with EOS about this important defensive technology.
Announcing the product release, Grant Sanderson, Chief Executive of EOS Defence Systems said:
“EOS customers suffered over US$20 billion in losses of critical infrastructure due to drone attacks in 2019. Globally this figure would be higher and the inestimable cost of drone attacks in human lives adds to these high economic costs. EOS has applied its capability to manage complex systems to fast-track to production the most capable and coherent suite of counter-drone technologies in the world. The Mopoke suite offers several unique elements including the world’s first proven directed energy (laser) kill system for drones, and the first overlapping capabilities in kinetic defence. The EOS suite of capabilities is already being recognised in key markets where scalable performance is required to meet sophisticated asymmetric threats.”
This announcement has been authorised for release to the ASX by Dr Ben Greene, Director.
EOS Announced on September 8, 2020 a new product range, called "Mopoke", which is the world's first comprehensive counter-UAS (drone) system. Key highlights:
1) First comprehensive solution on the market.
2) Only solution that includes directed energy (lasers) weapons (Development of technology courtesy of EOS Space Systems).
3) The EOS system's 10 elements (features) have surpassed all other competitors in terms of performance in recent trials.
4) Estimated TAM to be $21 Billion over next 10 years.
5) EOS selected as the preferred provider for ajor international CUAS requirement. First phase of contract negotiaitons to be concluded in the next 6 months.
6) Further 4 customers have initiated "discussions" with EOS.
Great news, and demonstrates EOS's optionality, but damn these defence sales cyces are long.
Some discussion about EOS in light of the COVID impacted half year results.
Nothing too much that long-visioned investors don't already know but interesting nonetheless; a decent long term opportunity perhaps, but not for those expecting Brainchip / Pointerra / 8common type short term roller coaster gambles.
15-June-2020: EOS was covered on "The Call" today on Ausbiz: https://www.ausbiz.com.au/media/the-call-monday-15th-june?videoId=1933 starting at the 19:40 mark, so around one third of the way in.
Gaurav Sodhi from Intelligent Investor said it is a very interesting business but there is a huge mismatch between reported profits and cashflow, so he said people shouldn't go near it unless they fully understand how the revenue recognition works and why they have negative cashflow despite reporting large operating profits. Gaurav also explained the space communications upside potential (i.e. using lasers for space communication instead of microwaves).
Mathan Somasundaram from Blue Ocean Equities also seemed reasonably interested in EOS, however he has concerns with a rotation out of growth stocks into value stocks and how that rotation would likely hurt a growth stock like EOS where you are paying up for where you think they can get to in the future rather than the business as it is today.
29 May 2020: CEO Presentation for AGM today.
30-Apr-2020: Appendix 4C - EOS March 2020 Quarterly Report
ACTIVITY STATEMENT FOR THE QUARTER ENDING 31 MARCH 2020
The company’s operations in the quarter ending 31 March 2020 closely followed management’s expectations at the commencement of the period, in terms of production output, factory yield, revenue generation, cash flow and profitability. However, events in the last 7 days of this quarter, caused by the COVID-19 pandemic, caused significant changes to the Company’s plans for the rest of 2020 and for 2021.
By Q4 2019 the Company was holding firm orders for over $180 million of defence products deliverable to a foreign buyer in the last 3 quarters of 2020. Combined with another $70 million of firm orders more evenly distributed across 2020, the overall delivery requirement of $250 million was sufficient to support 70% growth in revenue and EBIT for 2020 over 2019.
Management assessed that 70% growth could be managed if the entire 2020 effort was evenly distributed across all four quarters of 2020 to smooth plant demand and reduce production risk. In November 2019 the Company raised around $80 million in new funds, with most allocated to allow production in Q1 2020 of products for inventory, which would be delivered and invoiced from Q2 2020.
Product delivery takes place through a series of steps called the delivery chain. The products must be delivered to the EOS facility in the foreign location, unpacked and checked, installed on customerprovided military vehicles, tested under real combat conditions with live ammunition at a special test range, and then delivered to a designated military base for deployment. These 5 steps typically require 4-6 weeks and involve around 35 staff.
On 24 March 2020, one week before formal deliveries could commence, the delivery chain was broken in multiple places due to a national lockdown and the impact of COVID-19:
At 31 March 2020 these events were very recent, and were represented as precautionary by authorities. At this point, including some activity late in 2019, the Company had already completed around $55 million of production for inventory, as planned.
The company’s Space Systems and Space Communications businesses operated to expectations in this period.
By 10 April 2020 the severity of the pandemic impact across the world and the affected country was more apparent. The Company assessed that the recovery of the entire delivery chain would take 60 days after reasonable access and mobility was restored. Since access was forecast to be opened from July, the earliest date for deliveries to commence would be September, pushing cash payments to Q4 2020.
There are no contractual issues arising from delivery delays due to the pandemic. There is no contractual obligation on EOS to continue production of products which cannot be delivered.
On 14 April 2020 EOS decided to suspend production of products undeliverable in the near term as soon as the production facility could efficiently switch its output to another customer[s]. This switch requires 100 days to allow the supply chain to respond with appropriate parts. The suspended production can resume as soon as the delivery chain is restored and inventory is reduced to normal levels. This is likely to occur in 2021.
On 15 April 2020 EOS raised $134 million in new capital through a fully underwritten institutional placement with $55 million allocated to allow a further expansion of inventory until July 2020 when production capacity can be switched to other contracts with no delivery impediments.
The deferral of a substantial amount of activity and its associated revenue from 2020 to 2021 required EOS to reduce 2020 guidance from 70% growth to 25% growth over 2019 performance.
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[Disclosure: I don't hold EOS. I had them on my Strawman.com scorecard as an "SP-recovery-from-Covid-19" trade, but I'm removing them tonight. I'm not that comfortable with who the end users of their tech are, and what the tech can be used for, including to potentially kill innocent people - whether intentionally or accidentally, and there are better opportunities elsewhere, IMO, so I'm moving that Strawman playmoney out of EOS and into DOW instead, who look to me to have massive upside from here. DOW is also a company I now hold in all of my real-life PFs.]
22-Apr-2020: Share/Security Purchase Plan (SPP)
Electro Optic Systems Holdings Limited – Share Purchase Plan
On 15 April 2020, Electro Optic Systems Holdings Limited (EOS or the Company) announced to the Australian Securities Exchange (ASX) that it had successfully raised A$134 million from an institutional placement of new fully paid ordinary shares in EOS (Shares) to investors at an issue price of A$4.75 per Share (Placement Price) (Placement), representing a discount of 17.4% to EOS' closing Share price on ASX on Monday 14 April 2020.
The board of directors of EOS (Board) recognises that a number of EOS' loyal shareholders did not have an opportunity to participate in the Placement. In addition, the Placement was made in reliance on the temporary extra placement capacity afforded by the class waiver granted by ASX on 31 March 2020 (which is conditional on the Company undertaking a share purchase plan). The Board is therefore pleased to offer Eligible Shareholders an opportunity to participate in EOS' share purchase plan (SPP or Offer). The SPP will give all Eligible Shareholders an opportunity to apply for up to A$30,000 worth of new Shares at an issue price per Share [which is the lower of:
(Purchase Price)]. The additional capital raised under the SPP will be used to fund future growth opportunities and provide additional cash liquidity. The SPP is open to all shareholders recorded as holding Shares on EOS' register of members as at 7.00pm (Sydney, Australia time) on Tuesday, 14 April 2020 and who have a registered address in Australia or New Zealand (and who otherwise meet the eligibility criteria set out in the attached SPP Terms and Conditions) (Eligible Shareholders).
Other conditions of the SPP include:
Participation in the SPP is completely optional. However, an Eligible Shareholder's entitlement to participate in the SPP is non-renounceable. This means that an Eligible Shareholder's right to participate in the SPP cannot be transferred to anyone else.
The Board recommends that you read the attached SPP Terms and Conditions carefully and in their entirety before you decide whether to participate in the SPP.
--- the above is not the entire announcement - it is just what I consider to be the most important bits - click on the link at the top for the entire announcement ---
[I don't hold EOS shares - but they are currently on my Strawman.com scorecard - I'll be looking to remove/sell them once their share price recovers enough - I added them for a short term trade only. This CR will delay that SP recovery, but it should happen eventually.]
15-Apr-2020: EOS have today announced a business update, a fully underwritten institutional placement and an SPP (share purchase plan for existing shareholders).