Good day and thank you for standing by. Welcome to the Mynaric First Half 2022 Results Webcast Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

And now, I would like to hand the conference over to the Vice President of Investor Relations, Mr. Tom Dinges. Thank you. Please, go ahead..

Thank you, operator. Welcome, everyone, to Mynaric’s first half 2022 results conference call and webcast. Prior to today's call, we released our first half 2022 results as part of our first half 2022 management report, which is available for download on the Investor Relations section of mynaric.com.

Before we begin today’s formal presentation, I must remind you that this presentation and oral statements regarding the subject of this presentation include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended.

All statements other than statements of historical or current facts contained in this presentation are forward-looking statements.

These 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 the date hereof.

Neither we nor any other person undertakes any obligation to update any forward-looking statements to reflect 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, most of our 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 Mynaric’s CEO, Bulent Altan; and Mynaric’s CFO, Stefan Berndt-Von Bulow. With that, it's my pleasure to turn the call over to Bulent for his opening remarks.

Bulent?.

Thank you, Tom. Mynaric reported solid results for the first half of 2022, as we're prepared 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 cashing from customer contracts. Two key performance indicators we introduced this year to help our investors to better track our performance.

We 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 industry. 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 in our product design have allowed us to now have the capacity in place in order to fulfill our medium-term goal of producing 2,000 terminals per year.

I'm extremely proud of the effort the team put into delivering these results over the first half of this year. A reminder to many of you on the call who may not be familiar with Mynaric. 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 a space 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 and increased standardization of our product.

Before I turn the call over to Stefan 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 Agency's tracking layer program.

This follows the announcement of the SDA's transport layer program announcement 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 SDA 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 great visibility on our forward delivery commitments, revenue and cash flow.

In addition, these are selected by DARPA, the U.S. Defense Advanced Research Projects Agency for Phase 1 of their space bacon program, which aims to develop a low-cost, high-speed reconfigurable optical data links to connect various low-earth orbit constellation.

In July, we signed agreements with L3Harris for increased future collaboration and L3Harris invested €11.2 million for a 7.2% stake in Mynaric.

This is a significant validation for Mynaric, as L3Harris is now not only a customer, 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. I could not be more excited by the market opportunity in front of us, and I believe we have the right team to capitalize on this opportunity.

With that, let me turn it over to Stefan to walk you through our results in more detail.

Stefan?.

Thank you, Bulent. Let's turn to our results for the first half year of 2022. First, let's turn to the two key business metrics we introduced at the Analyst Day in April, that we believe will continue to best demonstrate the momentum we are seeing in the business. First, cash-in from customer contracts.

This is a key forward-looking predictor of revenue as the cash is only received as we met contractual milestones. There is a typical lag between cash received from customer contracts and shipments. This varies depending on the contract terms.

As a reminder, these are contractual payments received when certain milestones are met, but full delivery and acceptance has not been reached. In a sense, this is pre-revenue cash received, and we believe a very significant indicator of the future revenue of the company.

For the half year period, cash-in from customer contracts, was more than €8.3 million as of the end of the period, compared to €1.9 million for the comparable period of last year. Since the end of the half year, our cash-in from customer contracts has continued to increase and is now at more than €11 million.

By comparison, two years ago, we had virtually no cash interim customer contracts. So we are showing a very strong momentum as we continue to execute for our customers. Second, optical communication terminal backlog in units as of today is 243 units.

This compares with 36 units at the comparable period of last year and continued growth from what we reported back in April of this year. Our current backlog includes a downward reduction of total units to account for one customer SpaceLink whose parent company today announced a change in its investment plan.

As of today, we still include 15 units attributable to SpaceLink and the backlog pending final notification from the company. Including this adjustment, our guidance of 2022 remains unchanged and healthy given our terminal backlog is more than 90% related to government-funded contracts.

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

Looking at a few other figures, revenue was €25,000 in the first half of 2022, and represent only product leasing revenues that we were negatively impacted by supply chain challenges, which delay HAWK shipments and push-outs in customer delivery schedules.

Our current contractual committed optical communication terminal backlog, primarily consistent of CONDOR Mk3 product, mostly for these scheduled shipment, primarily in 2023 and 2024.

Cost of materials increased by more than 85% compared to a year ago period as we continue to ramp-up our production ahead of major delivery milestones over the next 9 months to 18 months. We continue to invest at a strong pace in product development. This includes both enhancement to existing products and investment in next-generation products.

Personnel costs increased 62% to the year-ago level as we continue to add capabilities to our team. We expected our capability across – we expanded our capability across all divisions of the company this year, and will 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 will remain disciplined in our talent acquisition to support our expected strong growth over the coming years.

However, we expect pace of the headcount expansion will slow somewhat over the coming months and into the first half of 2023, as we look to align our headcount needs with the program we have been awarded.

Overall, the company reported an operational loss of €34.9 million, as we continue to make necessary investments in people, equipment and systems in preparation for 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 was more than €25 million, compared to €18 million at the half year 2021. Not included in this figure is the early July investment by one of our key customers, L3Harris, who invested more than €11 million in exchange of our 7.2 percentage stake in Mynaric.

In 2022, we remained in the investment mode and as a pre-breakeven company we expect our cash balance to decline further through the end of this year. We continue to look at a number of different options to provide the capital we need to support our growth objectives.

Inventories were €13.4 million, up from €8.4 million at the end of the last year, as we continue to invest in components inventory ahead of the expected ramp in communication terminal production we see next year. Property, plant and equipment at the end of the period was €21 million, compared to approximately €17 million at year-end.

We invested €6.4 million in property, plant and equipment this half year, as compared to €3.5 million in the year-ago period.

As Bulent spoke of earlier, through the combination of our previous investment and a major breakthrough in the main production truck driver, our tenant pulp [ph], we were able to arrive at our 2,000 unit medium-term capacity goal in our manufacturing.

Through additional automation, Mynaric is now able to utilize our manufacturing capacity with minimal amount of factory employees up on order arrival. As a result of all these breakthroughs and improvement, we see our future capital investment needs for our production capacity lower relative to historical levels.

Now let me walk through our outlook for the two key business metrics for the remainder of the year. We expect cash in from customer contracts to be at least €20 million for the full year 2022. As noted earlier, we are well on our way to achieving the goal based on the year-to-date cash income customer contracts.

We expect continued growth in our optical communication terminal backlog by the end of the year. We expect our year-end 2022 optical communication terminal backlog to exceed 250 units, which we recently increased from our previous guidance of 220 units.

There are a number of opportunities that potentially could close by year-end, and our team remains well positioned to capture this. With that, let me turn it back over to Bulent for his closing remarks.

Bulent?.

Thank you, Stefan. So, what have we shown you today? What are the key takeaways? In short, today was all about growth and momentum. When we talk about growth and momentum, we are talking about strong growth in our order backlog and our cash in from customer contracts. These two metrics are the key to future revenue and the profitability of the company.

We believe the market opportunity is significant in both the space and the airborne sector. At two recent conferences, World Satellite Business Week and the International Astronautical Congress, the buzz was all about laser communications. At IAC, we ran a live demo of two of our hot terminals transmitting data.

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

As many of you listening today now, I've been in the space industry for two decades. I've seen what growth of this magnitude looks like, and more importantly, what it takes to capitalize on that growth. Mynaric is the only company with the ability to do what we do at scale.

That 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 we enable the Internet above the cloud.

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

We've also added considerable talent over the past six months to our engineering and product development, sales and communications and administrative teams on a global basis. We 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, could you please provide the instructions for the question-and-answer session.

Operator?.

Thank you. [Operator Instructions] And your first question comes from the line of Greg Konrad from Jefferies. Please go ahead. Your line is open..

Good afternoon. I mean it seems like the demand side is really strong. I just had two supply side questions. You called out the supply chain in relationship to past.

What are you seeing on the supply side there? How did those work themselves out and maybe the timing of that clearing up?.

Thank you for that question. On the host side, yes, the supply chain is something we looked over -- quite a bit over the last year. And what we saw there wasn't the supply chain issue that we see across the industry, rather an obsolescence issue that we are working through in our design, which 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 components of today. So we expect that supply chain issue to be sold within Q4 of this year and the next host deliveries starting following that..

And then maybe just a follow-up on the demand side. You mentioned some of the commercial opportunities that could be decided in near-term, and you saw some good orders in the quarter from Northrop.

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

I think engaging with our potential commercial customers, we see a good respect for the amount of capability we have built within the company and the fact that we can produce at scale.

The commercial opportunities we all know about have been to a certain extent, hit by the current invasion of Russia in Ukraine, and therefore, the resulting unavailability of Russian rockets to Western constellations.

But we also see a huge shift right now to use of Western rockets that give these constellations a renewed launch capability that just resulted in a temporary move to the right on the deployment of these constellations. Those actually out of the way, but that problem are well-underway to be solved.

I think we expect that these constellations will make decisions in the next six months to maximum 12 months to decide on who to utilize. And I think we see that also by the comments of such potential customers the thing that they are mostly valuing is the capability to ramp up production.

So the investment we have already made and the capacity they already have put together is giving them a lot of confidence in the fact that with miner, they would not be facing an execution..

Thank you..

Thank you. [Operator Instructions] And your next question comes from the line of Austin Moeller from Canaccord. Please go ahead. Your line is open..

Hi, Bulent good afternoon. Just my question here, are we still expecting the first CONDOR to be launched into orbit by the end of the year? And should we expect that the delayed host deliveries that are getting components replaced will go -- will be delivered in the first half of 2023.

Is that the best way to think about it?.

I'll answer those two questions in order. First of all, on the launch of the CONDOR to 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.

On the HAWK side, yes, we have built quite a handful of HAWKs already before the parts became unavailable 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, 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 it, the facility can produce 2,000 terminals a year at this point, right?.

So, yes, our manufacturing capability is exactly with the investment that we have already made at 2,000 units, there is few last items coming in -- that are coming in over the next few weeks and 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, today, we have just -- as Stefan said, a little bit more than 250 terminals to build, I think this is given the factory capacity a fraction of what we can build. So, the uptick in people should not be significant at all.

It would be a handful, if anything, because as also Stefan alluded to, we have multiple technical breakthroughs that happened over this last year that allow the easier build of the terminals with quite a few less machining and integration operations necessary.

And then we have put in automation where we can to also reduce the number of people we would have to add to the team..

Fantastic. Thanks for the color Bulent..

Thank you.

Thank you. [Operator Instructions] And your next question comes from the line of Scott Deuschle Will Jackson from Credit Suisse. Please go ahead, your line is open..

Hey guys. Will [ph] Jackson on for Scott today. Thanks for taking the question. Bulent, you mentioned the strategic partnership with L3Harris.

Can you go into a little bit more detail on that, maybe especially looking at the air terminals, how you see that changing your market opportunity there?.

Thank you so much for that one. Yes, L3Harris, I think, it's a fantastic 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 business.

If you look at the non-space market, if you look into the aviation market, the maritime market, the ground market or what have you that really requires this type of technology that is felt that is high bandwidth that is low probability of interference or detection, I think that level of partnership is tremendously valued.

What L3Harris brings with it is a knowledge of these different systems and the back-end systems that we would have to connect to. And we are quite positive that L3Harris will open up markets beyond just the first initial one that we saw as a beachhead market for HAWK.

I think what we will see is a trend market opportunity starting from ground all the way to air with the integration experience of L3Harris that knows the final customer a lot closer than we do.

So we would hope for an uptick in the amount of markets we can address as we are a good technology partner for them, and they are a good, I want to say, integration and also after sales support experts across all these markets..

Great. Thank you. And then just one more for me if that's okay. I think 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 that's a numbers question that I would really love to hand over to Stefan..

Could you repeat the question is about the inflation or....

Yes.

Just any kind of inflation protections you may have built into the cost structures of existing contracts?.

So at the moment, I'm not person to be honest. I'm not aware of any inflation protection we have at the moment in place. But what I can say is that we're constantly reducing our purchase prices from our suppliers because we are ordering bigger numbers. And on the other side, the most of our purchase we do is from the US side.

So we have also a little bit advantage of the currency, the [Indiscernible] is getting stronger and stronger. But I think at the moment, we don't have an inflation protection in the contract. But I have to look at that. I don't know it's exactly at the moment again. Sorry..

And I think, Stephan, its I think, very useful, I think, to reiterate here that Mynaric has been doing quite a bit of investments to bring in the bigger cost drivers in-house, such as the telescope of the terminal that allows us to control costs.

And as Stephan alluded to, all of these are done in the Eurozone where all our -- almost all 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, we have gone into long-term purchase agreements with most of our cost drivers.

So I think we have the cost side controlled for these contracts and then we are looking into what the effects will be for future contracts to come..

Perfect. Thanks so much guys..

Thank you. I will now hand the call back to Tom.

Thank you, operator. For further information about our upcoming engagement with the investment community, please go through the Investor Relations section of mynaric.com. Thank you, everyone, who joined us today and for your interest in Mynaric. We will speak with you all again when we release full year 2022 financial results next year.

Goodbye for now..

Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect..