The smartest post I've seen on this forum in the past 2 days....

The smartest post I've seen on this forum in the past 2 days. Thank you Dr.

It would be naïve to think EOS' management would spend some $10m+ on acquiring the SpaceLink assets/rights, hire a market leading executive team to establish and operate the project, spend over $15m pa for the last 2 years getting the project from concept to fruition (including further R&D on the IP and obtaining a market leading technical design and performance on the first attempt) and do all of this all whilst not having certainty regarding the demand for such a project. No one in their right mind would do this unless the customer demand and support is there.

EOS staff, including Ben Greene, are the largest shareholders of EOS, they are not going to invest such a material amount and put their reputations on the line if this was not going to go ahead. From what I have seen the majority of material investments EOS has made to date have had clear customer buy-in and were even customer funded to a large extent after initial designs and prototypes produced.

To me this is primarily about project financing and EOS is playing its cards to try and maximise the return from this opportunity whilst balancing shareholders preference to avoid another material capital raising (even if it probably makes sense to do so for the right opportunity). It seems the project may secure up to 40% debt funding at this preliminary stage which is less than what was initially hoped for (ideally 60% to max 70% would have been nice - probably cannot get that high at this stage without firm customer contracts to back the project). But in saying that I believe the estimated project cost has since come down by a third from ~US$1.2b to ~US$800m, so the equity amount has not really changed, assuming equity was going to be 40% at US$1.2b.

Ben made it clear this project will obtain the necessary funding and that not all funding is required upfront. EOS seems to be exploring all its options to maximise the valuation as key milestones are achieved that de-risk the project. Everything would be simpler if customers provided committed contracts upfront, but that is difficult given the uncertainty on the project specs, timeframes and their own future demand requirements.

Hence it seems EOS is taking the approach to first obtain a material number of reputable MoUs (over 200 to date with recurring revenues of over US$200m), then confirm the project specs and timeframes (Ben indicated in the next 2 weeks, maybe 30 days max), then confirm the minimum funding is available to get it off the ground (funding expected to be announced shortly after the contract is awarded). All of this will provide sufficient details and certainty to customers to convert those MoUs to actual contracts with minimum revenue commitments in Q4 (plus there is future upside if customer demand increases over time). Once these contracts are in place EOS should be able to more easily and cost effectively secure the balance of funding required. Who knows, but this may take the form of additional debt or could even explore the potential for some customer prepayments (something EOS has done in the past).

I took Ben's comments from the presentation that they will explore utilising some of the $100m that EOS should have available (after the UAE payments come in over the coming months) to get this off the ground. It seems there is plenty of upside in this project and EOS wants to maximise its equity position as much as possible. I go back to the initial presentation EOS did in November 2020 on this project were EOS was targeting a minimum of US$150m in revenues pa to cover the estimated opex of US$35m pa and depreciation (US$1.2b over 10 years). Depreciation is now one third lower and risked-adjusted revenues are one third higher...sounds like the project's economics are exceeding expectations to me.

The biggest disappointment from my perspective was the repeated delays to executing the next batch of major contracts. The longer this goes the more uncertainty there will be on short-term growth once the current order backlog dries up (and just verifying market demand and EOS' claimed market leading position in RWS and its new CUAS product which is still awaiting market acceptance). Should be ok for FY22 but FY23 is at risk. No guarantees but I assume EOS will most likely pick up a number of smaller sub-$100m orders to keep it ticking along until the pending major contracts are signed and production formally kicks off in probably 12-24 months after contract signing.

Keen for hear others thoughts on the above and current state of play with EOS. Be mindful of new posters preaching doom and gloom that are most likely trying to force out weak hands.