Rakon Limited (RAK) Earnings Call Transcript

Welcome, everyone, to Rakon's Half Year '26 Results and Business Update. [Operator Instructions]. I must advise that this presentation is being recorded today. Friday, the 28th of November 2025. I would now like to hand over to Rakon's Investment Relations Manager, Nick Laurent. Thank you, and please go ahead.

Kia ora, and good morning. Welcome to Rakon's Half year 2026 Financial Results and Business Update. Presenting today are Rakon's Chief Executive, Sinan Altug; and Chief Financial Officer, Mark Dunwoodie. There will be an opportunity to ask questions after the presentation. In a moment, I will hand over to Sinan and Mark to present the update. But first, a short reminder that during this presentation, we will make forward-looking statements about Rakon Limited and the environment in which the company operates. Because these statements are forward-looking, Rakon Limited's actual results could differ materially. I encourage you to read the disclaimer slide and the important notice slide of the presentation for more detail. Lastly, we ask that anyone recording today's webcast does so for note-taking purposes only and not for publication or broadcast of the webcast content. I will now hand over to Rakon Chief Executive, Sinan Altug.

Good morning, everyone. The first half of financial year 2026 marks a clear return to growth for Rakon. Revenue grew 30%, gross margin lifted 11 percentage points and our underlying EBITDA increased 149%. And every one of our core segments delivered substantial growth this half. Across the portfolio, we saw strong contributions. Aerospace and Defense delivered its fifth consecutive growth period with a record $75 million order backlog. Telecommunications rebounded strongly as orders normalized. AI and Data Center business grew by 50% and is tracking to make a significant contribution to this fiscal year. And Positioning delivered a steady 14% growth, supported by demand in high precision systems and some exciting new applications. We held OpEx flat while substantially scaling production and we are entering the second half with strong momentum. Importantly, our full year underlying EBITDA guidance of $15 million to $24 million remains unchanged. Our first half results clearly show the benefits of stronger demand across all our major markets and the structural improvements we have made to the business in line with our strategy. The double-digit margin uplift reflects stronger volumes, a richer product mix and the early benefits of scaling production in India. We continue to keep operating expenses tightly controlled while still investing to scale our strategy globally, and that discipline is flowing directly through to our earnings. Underlying EBITDA strengthened significantly, reflecting improved operating leverage across the business, and NPAT also improved materially year-on-year substantially narrowing the net loss after tax. Mark will take you through the financials, including segment detail shortly. We are executing our FY '26 to FY '28 road map it pace and clarity, our growth is primarily coming from 3 engines: Aerospace and Defense, AI and Data Centers and Next-Generation Telecom each supported by strong structural demand. These are all growth markets where we have strong technology differentiation and operational competitive advantages. Across the road map, we are building the foundations for growth, strengthening customer programs, advancing our technology platforms and aligning the organization around the growth engines that will carry us through the coming 3 to 5 years. This 3-year horizon on the slide is about scale; scale in volume, scale in technology, scale and customer reach. The progress in the first half gives us confidence that we are on the right trajectory. Turning now to our FY '26 milestones. This is where you can see our execution shining through. In Aerospace and Defense, the France clean room expansion is complete positioning us to deliver our record multiyear $75 million backlog. This is Rakon's highest ever. Demand remains strong across low earth orbit space constellations and defense programs and capacity expansion across France, India and New Zealand supports the growing multiyear pipeline. In AI and Data Centers, Tier 1 design wins and order conversions are progressing well. We delivered 50% growth in the first half and we expect meaningful revenue in the second half as programs scale. Telecom also delivered strongly with a 49% rebound as orders normalized and our design win positions held firm. The segment is returning to a more predictable growth trajectory. Operationally, we advanced our global manufacturing footprint, including major progress on product transfers that underpin our long-term margin profile. We also got approved on the India government's landmark technology manufacturing initiative, ECMS. That comes with financial initiatives of a minimum of $3.5 million. But importantly, it reinforces our position as a strategically important tech manufacturer within the Indian ecosystem. Together, these milestones give us confidence and a line of sight into delivering our FY '26 plan and in building the platform for our next phase of growth. India is now a fully operational high-volume node in our global footprint, and we are already seeing the impact. We completed the Mercury+ transfer from New Zealand to India and reached full volume production in October, and we'll be delivering around $2 million of margin uplift from the first 25% of the transferred volume. And we expect to reach around 70% to 80% transfer over the next 3 quarters, which will unlock further structural margin expansion. This actually frees New Zealand to focus on innovation and introducing new high-value products while India scales volume and France continues to expand our Aerospace and Defense business. This global model with New Zealand as the innovation hub, India as the scale engine and France as the aerospace and defense center gives us the leverage we need for the next phase of growth. Mark will now take you through the financial performance and the segment details.

Good morning, everybody. As Sinan outlined compared to the first half last year, we've had a cracking result first half of this year. Last year, we talked about Rakon being an America's cup yacht and we were keen to get up on the foils and that we needed weather conditions to change. To reuse the analogy, the boats up on the foils now and we're accelerating. Volumes have increased, margins have improved and we're carefully navigating cost containment against growth investment. Revenue grew to $54.2 million, up 30% year-on-year. Gross profit increased to $26.5 million, with 11-point percentage growth year-on-year as well. At the same time, we're very carefully holding OpEx flat and being very selective as to where we invest it. Our underlying EBITDA has improved to $3.6 million, and we've narrowed our NPAT loss down significantly, expecting to turn it in the second half of the year. Inventory has grown as we scale up for production. And we're in a really interesting space at the moment with 2 major ramp-ups going off in parallel, one in new space and the other in AI hardware at the same time, as our traditional business has rebound. So it's a very challenging, pretty thrilling environment. These results reflect the benefits as Sinan mentioned of our global reorganization, our product transfers with our margin improvements clearly showing, and we're expecting further gains as we continue to scale. Aerospace and Defense reached $20.1 million, which is 20% up year-on-year, and it's now 37% of group revenue. This is the first consecutive half year of growth. And as Sinan mentioned, we've got an order book that's a record for us in the background. Our multiyear pipeline continues to expand and it's only limited by our facilities and our capacity for expansion, which we're addressing. We're seeing high customer order growth in subsystems to low earth orbit satellites and ground-based radar applications. Telecom revenues rebounded to $25 million, which is up 49% year-on-year and is now 46% of group revenue. There's been a stellar improvement in gross margin up to 42%, which is 27% above year-on-year. We're maintaining market share in a high design win rate with strong demand from our Tier 1 AI and Data Center infrastructure players. We expect to report significant AI and Data Center revenue as a separate segment in FY '26, reflecting momentum in this space. Positioning, where we -- really is a flat market for us, has actually impressively lift up a little bit. We continue to see market share and high-margin precise positioning applications. But at the same time, we're seeing new opportunities in autonomous unmanned undersea vehicles, which is an exciting area that we're looking at. Thank you for listening. I'm happy to take questions at the end. Back to you, Sinan.

Thanks, Mark. Looking ahead, we entered the second half with strong momentum and our full year underlying EBITDA guidance of $15 million to $24 million remains unchanged with earnings expected to skew towards the second half due to seasonality and program delivery timing. Aerospace and Defense will continue to be a major growth driver as we deliver against the multiyear backlog and scale capacity in France, India and New Zealand. Telecommunications rebounded strongly, as I mentioned, and is positioned for further growth with continued 5G densification and fixed wireless access uptake. AI and Data Centers will contribute meaningful -- will contribute meaningful revenue this year as Mark said, as Tier 1 orders convert and this is quickly becoming a core segment for us. Positioning remains stable, and we are seeing emerging opportunities in autonomous on crude and undersea systems. Overall, FY '26 is our springboard year and we are well positioned to accelerate into the second half. And to summarize, we delivered a strong first half with growth across all segments, expanding margins and have a clear momentum heading into the second half. Demand remains strong, and our capacity is expanding. Our market segment operating model is working well with clear execution momentum across both the Aerospace and Defense and Commercial businesses. The Aerospace and Defense business is scaling to meet record global demand and the Commercial business is driving growth across telecom, AI and data centers and positioning while lifting margins through greater volume and efficiency and manufacturing optimization through product transfers. All of this positions us very well for the remainder of FY '26 and our next phase of growth. Thank you. I'll now hand back to Nick for Q&A.

Thank you, Sinan. We'll now start the Q&A portion of the presentation. [Operator Instructions]. Just a reminder, if we don't get to any questions on this call, you can e-mail us at investors@rakon.com. Just to start us off, we have some questions in here from James Lindsay at Forsyth Barr. So first question he's asking is, can you talk about how the LEO, MEO space market is developing and where the constellations you are working with are in the development?

Yes. The short answer is yes. We have mentioned in the past few years that there is a lot of potential in the LEO, MEO market, there are multiple constellations actually, we are working with. And I want to maybe attract the attention to a recent one that we have won as the next phase of a mega constellation that is for direct-to-device communication satellite constellation. So yes, that is going as planned and with momentum, with inertia that we have built, that we continue to build with also newer products. Some may have seen some product releases from us that go into both traditional space applications as well as low earth orbit commercial space applications.

I just have a couple of related AI questions here from James as well. So the first one is, how do we think about AI as a component of Telco at the moment? Can you give us any indication on size?

Yes. So from our side, we will -- as Mark said, we are intending to separate it out as a core segment with our full year results. At the moment, the reason that it is within the telecom segment is the fact that some of the customers and -- let me say, in short, some convergence and some customer interest and momentum being built with the telecom infrastructure guys as well. So we have kept it within the telecom segment, but we will separate it. I would prefer for exact numbers because we have not really reported it as a separate segment. I prefer to give those -- cite those exact numbers at the end of the fiscal year.

And the related question was, how will scaling -- how will scaling in AI really scale? How is the relationship with your large global customer in the segment going? So 2 questions there. How will it scale? And how is the relationship with the large global customer going?

Right. I mean I need to act as if I don't know what he is referring to as our large global customer. We have several large global customers. The scaling of it, actually, that business is quite substantial from our side. We have -- we mentioned this last year, we started investing into it. And we continue to invest into it for the first half. We will continue to invest into it in the second half. The ramp-up we expect is quite steep. So we need to ensure that we are in a position to absorb and generate revenue commensurate with that ramp-up of several large customers. Having said that, as I mentioned, we do have meaningful business at the moment from AI already. I'm referring to further major ramp-ups on over and above what we have in place.

Great. James, I'll come back to the rest of your questions soon. Just moving now to some questions from Tony Morgan. First question from Tony is regarding R&D. And he says, is Rakon's R&D constrained within the current capital structure, i.e., would it be preferable to spend more on R&D to keep up with any competitors?

Yes, that is sort of 2 questions there. The first one is I don't think we feel in any way constrained and we're lifting our spend on R&D every year. So I don't think we're constrained by our capital structure at all. I mean more capital and a larger business, you might spend more on R&D, but ours is the right fit for what we're doing, and we're not in any way holding back. So no, I feel it's appropriate.

I just want to add to that, the flip side, that is that some of our competitors have 10x the spending because of their financial ability. They have substantially higher spending on R&D, but not only R&D, on all aspects of the business. And from our side, we are balancing in a way to ensure that we continue to invest heavily on R&D because our long-term -- and our long-term strategy and our long-term value creation does hinge upon us remaining as a technology leader. So we will continue on that path moving forward. The more the merrier in short, I could say, Tony, the more the merrier.

And a couple of -- well, several technology questions from Tony here. I'll try to bring them down into just a couple of questions. So the first one he's asked is around a technology opportunity that's been discussed in the market, which is the partnership between Nokia and NVIDIA for AI-RAN. What does that mean for Rakon in terms of opportunities?

Right. Without going into the specifics of that particular announcement and those 2 companies, that is the type of convergence that I was referring to a moment when I talked about convergence in telecom and AI and data centers as well. Suffice it to say that we are intending to be a major player in those convergences because of the fact that our product portfolio, as we have had our road map is very well suited for this future, which we have been expecting for, for a number of years. So that convergence that is only being announced now has been on our crosshairs for a number of years, and we have been evolving our product road map accordingly. So in short, yes, those are developments that are going to very positively impact our path forward.