Mynaric — Getting ready for launch into space

Although Mynaric has transitioned from a technology company delivering one-off prototypes to delivering reliable product suitable for multiple customers, it is still at the pre-revenue stage, so technical and commercial progress is more important than financial metrics.

First contract for terminals on satellite pathfinder mission

In October 2018, Mynaric announced that it had signed a memorandum of understanding (MoU) with an undisclosed company building an LEO satellite constellation under which it would provide space-borne terminals for several satellites forming a demonstration mission. The full LEO constellation is expected to consist of several hundred satellites potentially requiring more than 1,000 Mynaric terminals. In October 2019, Mynaric announced it will deliver multiple laser communication flight terminals under an initial contract valued at €1.7m for a product validation mission. This will be the first launch of its complete satellite terminal into space and is scheduled for H220. Although the name of the customer has not been disclosed and it is not clear whether it is the same company that signed the MoU last year, the contract confirms market demand for Mynaric’s cost-effective product for laser communication between satellites in mega-constellations.

Developing products for pathfinder missions and beyond

Mynaric’s H119 report gave the first public description of its product portfolio for the commercial laser communication market. The ground stations for both satellite and stratospheric applications are already available. The airborne terminals will be available around the end of 2019, the satellite-borne terminals during 2020. This means that a customer placing an order now could have the product within six to nine months. This lead time is a first in the industry, which historically has taken two years to produce one-off units and positions Mynaric as a key supplier to the mega-constellations of satellites and aerial platforms under development.

Expanding serial production to meet anticipated demand

In May 2019, Mynaric moved to larger, customised premises just outside Munich. These house a clean room, laboratories, R&D facilities and test equipment to support serial production. Serial production is critical because it will enable Mynaric to meet the cost and volume requirements for mega-constellations. It sets Mynaric apart from the competition because, as far as management is aware, it has more space-grade laser communication units in its production schedule than have ever been launched by all of its commercial competitors combined. In October 2019 management noted that it had increased the number of units in production to be able to support additional orders for pathfinder missions from other customers at short notice.

Strengthening the management team

The management team has been augmented to reflect the requirements of a customer-facing product manufacturer. In March 2019, former SpaceX and Airbus VP Bulent Altan joined Mynaric’s management board to lead the space business. He was joined by former Bosch Sensortec VP Hubertus von Janecek, who is leading sales and production of airborne products. Dr Wolfram Peschko has remained on the management board to lead finance, administration and strategy.

With a complete portfolio of products available from 2020 onwards, it is important for Mynaric to secure customers prepared to undertake pathfinder missions deploying the terminals. In September 2019, Mynaric moved its US headquarters to Los Angeles so it is physically closer to existing and potential US customers, especially those in the satellite constellation domain. Once the airborne and space-borne terminals have completed an in-house laboratory qualification, which management expects will happen in the next few months, Mynaric intends to build up engineering and production capabilities in the US. This will enable it to develop laser communication solutions which incorporate electronics and software sourced solely from within the US, which will be attractive for domestic customers, especially those working on government projects. The relocation will also enable Mynaric to tap into the talented labour pool in California.

Switch from project work to preparing for commercial deliveries

The German accounting metric ‘total operating performance’ is more significant than revenue for Mynaric at its stage of evolution, as it includes the value of the increase in finished goods and work in progress, and the amount of development activity on projects that are not linked to specific customer contracts. The total during H119 was €2.9m. Although this was similar to H118 (€2.8m), the breakdown is different and demonstrates the switch from project-based work to preparation for commercial sales. H118 had much higher revenues than H119 because it benefited from milestone payments on delivery of the first optical ground station. H119 has higher levels of capitalised work than H118, reflecting intensified development work on space- and air-borne terminals.

Personnel costs rose by 14% year-on-year as the total number of employees increased from an average of 52 during H118 to an average of 78 during H119 (excluding executive board members and managing directors). This reflects the transition to serial production, with additional employees in test, production, logistics, procurement and quality control. Other operating expenses were at a similar level to the prior year period. Losses after tax widened by 3% to €3.8m.

Lead investor in satellite constellations providing finance

Net cash (there is no debt) increased by €3.3m during H119 to €18.5m at the period-end. In addition to €5.1m cash consumed in operations, the company invested €2.1m in intangible assets, primarily the capitalised costs of developing the CONDOR and HAWK AIR terminals, and €0.6m in fixed assets, most of which related to fitting out the new facility, which is rented. In March 2019, Mynaric raised c €11m funding through the issue of shares at €55/share to the lead investor of a satellite constellation with which it is working. This is the same satellite constellation as the one referred to in the October 2018 announcement (see above). Assuming that cash burn stays at H119 levels and the first commercial deliveries are made by the end of Q320, this level of cash should be sufficient to take Mynaric through to full commercialisation. Management is assessing the potential level of volume ramp-up in 2020. Depending on the rate of growth, Mynaric may seek additional financing to support its expansion and production plans. This could include strategic partnerships with or without related equity deals, structured debt products and equity financing with interested mid- and long-term investors seeking exposure to the satellite constellation sector.

Other than the MoU with the undisclosed satellite constellation builder and recent contract award, also with an undisclosed party, there is frustratingly little public information advising whether an individual communications network intends to deploy Mynaric’s laser communication terminals. We believe it is likely that the list below includes the existing customer or customers. Moreover, since Mynaric’s technology can potentially support data rates c 1,000 times faster than conventional microwave links between satellites, substantially improving the economics of a satellite, drone or balloon-based communications network, we believe it is likely that it is in discussions with other parties in this list regarding potential deployment.

Although the share price has picked up from a low of €35.10 towards the end of October, it is trading around 20% below the €54.0/share price at the IPO in October 2017. It is likely that share price performance was affected earlier in the year by delays in moving into serial production of airborne terminals, while it made further improvements to the design, and a slippage of delivery of the first space-borne terminals from FY19 into FY20.

Mynaric is still at the pre-commercial phase and is not expected to generate operating profit until FY21. This limits the value of any analysis based on peer multiples, which do not ascribe any value for the substantial growth that may be realised from FY20 onwards when many of the proposed mega-constellations that could potentially deploy Mynaric’s terminals are scheduled for launch. Rather than using a comparison with peer multiples, we present a scenario analysis (Exhibit 3) showing potential revenues achievable if the technology is deployed in communication systems of different sizes. We split the analysis into two types of system. The first looks at communication networks based on smaller LEO satellites, which typically have more than 100 satellites each. The second looks at communication networks based on many more, less expensive platforms, which may be unmanned aerial vehicles (UAVs), aircraft or balloons. A communications satellite has space-qualified terminals, which are more expensive than those on an airborne platform.