Successful Launch of 7 GRUS-3 Satellites and Full-Year Contribution from JPY 43.6B MoD Contract to Drive Revenue to JPY 9B Next Fiscal Year; 30-Satellite Constellation Vision and Scheduled Launch Services Are the Next Focus

Summary

For FY5/2026, the AxelGlobe business surged on the commencement of the satellite constellation development and operations project for the Ministry of Defense (MoD), driving revenue to JPY 2,508M (+58.1% YoY). However, recurring losses widened to JPY -3,712M due to higher R&D expenses related to GRUS-3α and high-resolution satellite development. Just before the earnings release, on July 7, the company successfully completed the simultaneous launch and critical operations of 7 GRUS-3 satellites, targeting the start of commercial operations within 2026. Management outlined plans for FY5/2027 calling for revenue of JPY 9B and recurring losses narrowing sharply to JPY -150M, while presenting a medium- to long-term vision to expand the constellation to 30 satellites by the end of FY5/2031.

Key Points (Earnings Takeaways and Growth Actions)

• Business Strategy and Market Landscape
  • Major providers are withdrawing from new launches in the medium-resolution market, creating an environment ripe for oligopolistic positioning
  • Japan's Growth Strategy Council set a demand capture target of approximately JPY 12T by 2040 across satellite manufacturing, operations, and data utilization—both of the company's businesses fall squarely within these domains
  • A critical shortage of on-orbit demonstration opportunities was flagged as a key challenge by the Growth Strategy Council, providing a tailwind for the AL Lab business
  • In the high-resolution market, security demand is expanding amid rising geopolitical risks; companies operating both medium- and high-resolution constellations remain globally rare
• Recent Business Progress and Drivers
  • AxelGlobe segment revenue surged to JPY 986M (+278.6% YoY), driven by the April service commencement of the MoD contract
  • An increase of JPY 1,335M in R&D expenses (GRUS-3α launch costs and high-resolution satellite development) was the primary driver of the widening losses
  • Segment P&L methodology was revised, transferring R&D costs for proprietary commercial satellite bus units to the AxelGlobe segment, improving transparency of actual business economics
  • Order backlog reached JPY 53,375M (+366.3% YoY), primarily reflecting the booking of the JPY 43.6B MoD contract
• Strategic Initiatives and Inflection Points
  • Announced expansion to a 30-satellite constellation (roughly split evenly between medium- and high-resolution) by end of FY5/2031
  • Set a target to establish scheduled AL Lab launch services (4 times per year by FY5/2030), shifting to a model of securing launch slots proactively ahead of orders
  • Reorganized from a business unit structure to a functional organization in March 2026, aimed at enhancing strategic sales/business development capabilities and satellite development efficiency
  • Signed a contract with JAXA for AL Lab services (annual contract value of JPY 319M, with a planned total of JPY 638M)

Outlook and Strategy

• FY5/2027 plan calls for revenue of JPY 9,000M (+258.8%) and recurring losses of JPY -150M. Key drivers are the full-year contribution of the MoD contract and the start of GRUS-3 commercial operations
• AxelGlobe segment income is expected to swing to a profit of JPY 3,400M. The high-marginal-profit business model is structured to deliver increasing profit leverage as revenue scales
• High-resolution satellite launches are scheduled: 3 satellites in FY5/2028 and 2 additional satellites in FY5/2029. Launch slots for 8 satellites have been secured
• Plan to build manufacturing capacity for 40+ satellites over 5 years. Initiatives include relocating the development facility, consolidating environmental testing functions, and advancing collaboration with spacecraft manufacturing alliance partners
• Selected for the Space Strategy Fund Phase 2 advanced observation technology program, targeting the development of new solution markets through CO2 source-specific monitoring
• The profitability maintenance covenant trigger date with Mizuho Bank was deferred from FY5/2027 to FY5/2029, securing financial flexibility during the upfront investment period

Positive Factors

• The MoD contract of JPY 43.6B (ex-tax) provides stable revenue over 5 years. The company has established its position as the sole optical imagery provider
• Launch and critical operations of 7 GRUS-3 satellites completed successfully. The constellation is set to transition to 10+ satellites with the start of commercial operations within 2026
• Over 30 companies domestically and internationally have signed LOIs, geographically diversified across Asia-Pacific, Europe, and South America, with use cases spanning infrastructure, agriculture, and environmental applications
• Listed as a hosted payload service provider in the NASA report for the third consecutive time
• Partnerships with Saudi Arabia's national geospatial observation platform "NSG UP42" and Korea's Nara Space Technology Inc. among others are materializing, expanding overseas channels
• The AxelGlobe business has minimal variable costs, targeting a marginal profit ratio of 90–95%, meaning revenue growth translates directly into profit expansion

Concerns and Risks

• Reports of SpaceX's rideshare policy changes raise the difficulty of securing launch slots. Management commented that they are pursuing alternatives with emerging rocket companies
• FY5/2026 net loss was JPY -4,057M. Against cash and deposits of JPY 5,815M, interest-bearing debt stands at JPY 5,269M (current: JPY 2,007M + non-current: JPY 3,262M)
• The timing and method of additional fundraising for the 30-satellite constellation build-out remain undetermined. Depending on the debt/equity mix, dilution risk for existing shareholders exists
• The MoD contract contains penalty clauses for failure to meet required performance levels. Contract details are undisclosed, making quantitative risk assessment difficult
• Given GRUS-1's 5-year design life, some satellites are expected to be decommissioned from FY5/2028 onward, potentially causing a temporary reduction in constellation count

Performance Highlights

FY5/2026 full-year revenue was JPY 2,508M (+58.1% YoY). While the commencement of the MoD contract in the AxelGlobe business drove top-line growth, aggressive R&D investment widened the operating loss to JPY -3,822M and the net loss to JPY -4,057M. Order backlog surged 4.7x YoY to JPY 53,375M, significantly reinforcing the future revenue base.

Segment Performance

• Order Backlog: JPY 53,375M (+366.3% YoY)
• Total Revenue (Non-GAAP): JPY 2,995M (+29.0% YoY)
• Adjusted EBITDA: JPY -3,340M
• Cash on Hand: JPY 5,815M
• Constellation Operational Satellites: 5 (as of end of FY5/2026; 7 GRUS-3 satellites in initial operations)
• Demonstration Satellites Launched (Cumulative): 1 (KPI target: 6 cumulative by FY5/2028)
• Group Headcount: 218 (up 36 from prior fiscal year-end)

Q&A List

• Q: You mentioned manufacturing a total of 30 satellites—why 30? What is the breakdown between high-resolution and medium-resolution?
  A: For medium-resolution satellites, we are considering a configuration that allows comfortable image delivery while maintaining a revisit frequency of once per day. For high-resolution satellites, we are evaluating the appropriate configuration based on revisit frequency and imaging demand. The breakdown is roughly half-and-half, but specific numbers are withheld as adjustments may be made going forward.
• Q: To pursue global market growth, 30 satellites seems modest compared to Planet. What differentiation can you offer? Do you have a winning strategy?
  A: Generally, having more satellites appears advantageous, but as long as necessary imaging needs can be met, a smaller fleet generates higher profitability. Planet operates an archive business selling from accumulated imagery, whereas our model is based on tasking—capturing images based on specific customer needs—and we have set our satellite count target to meet that demand. Solutions are an area of future focus, and because they are driven by specific needs, we believe our tasking-based approach provides a structural advantage.
• Q: Is there really enough demand to justify scheduled AL Lab services? Can you share the number of lead opportunities or the status of discussions? When might this become visible?
  A: We have received multiple inquiries from component manufacturers who secured Space Strategy Fund grants, expressing interest in manufacturing components under the fund, and we have also begun reaching out to such companies proactively. Beyond domestic demand, we are also receiving inquiries at overseas exhibitions.
• Q: Reports suggest SpaceX is pulling back on rideshare—won't this become a bottleneck for scheduled services? How do you assess this risk? Would you consider withdrawing if SpaceX slots can't be secured?
  A: We are aware of the reports regarding SpaceX, and it is true that the difficulty of securing launch slots has increased in recent years. While SpaceX remains our first choice from a cost perspective, emerging rocket companies are appearing worldwide, and we are actively engaging with them. Our policy is to avoid sole dependence on SpaceX and to select the optimal launch vehicle based on needs at each point in time.
• Q: Is the FY5/2027 operating income forecast conservative? If there are conservative elements, please elaborate.
  A: The figures we have announced represent our current best estimate.
• Q: Is the 18-satellite expansion preparation for the next MoD constellation? Can you share the investment payback assumptions?
  A: We decline to comment on the next defense constellation. Regarding investment payback, the plan behind the 18-satellite expansion is to capture dual-use, defense, civilian, and overseas demand to drive top-line and profit growth. Launch costs begin depreciating upon commencement of service, and since the timing of cash outflows depends on the manufacturing schedule, we refrain from specific disclosure.
• Q: What is driving the widening losses in the AxelLiner segment? What needs to happen for losses to narrow?
  A: The primary reason for the widening losses is the increase in R&D expenses allocated to this segment. The AL business has two business lines: the K Program and AL Lab. The K Program has a fixed margin, so the key going forward is how much we can grow AL Lab volume. By acquiring customers for scheduled services and stabilizing the business base, segment gross profit should improve and losses will narrow.
• Q: Exolaunch was acquired—does this have any impact on future launches or earnings plans?
  A: There has been no change in our relationship with Exolaunch, and we continue to maintain a constructive partnership.
• Q: How much of the Space Strategy Fund revenue and subsidy income is included in the FY5/2027 plan?
  A: As a formal contract has not yet been executed, we refrain from disclosure at this time.
• Q: For the GRUS-3 satellites announced, the 3 high-resolution satellites, and the additional 2, what is the total estimated capex? What does this capex include?
  A: GRUS-3 is approximately JPY 4B in scale. For the high-resolution satellites, the first 3 are approximately JPY 4.1B and the additional 2 are approximately JPY 3.5B. These figures include all manufacturing and launch costs.
• Q: When and how will funding for the 30-satellite constellation be raised?
  A: This will not be secured all at once. We have operating cash flow generated from the business, cash on hand, and borrowing facilities. We will monitor overall profitability and liquidity conditions and respond flexibly at the appropriate timing, considering multiple options including both debt and equity.
• Q: Will satellite manufacturing costs decline as mass production ramps toward 30 units?
  A: We do expect costs to decline as mass production scales, but we refrain from commenting on specific levels.
• Q: SpaceX already operates inter-satellite optical communications, which the K Program is also pursuing. Is there an advantage in entering this market as a newcomer? Are there customers beyond the Japanese government?
  A: Commercialization using optical communication technology developed through the K Program is being led not by us but by Space Compass, a JV between SKY Perfect JSAT and NTT, both of which participate in the K Program. Generally speaking, SpaceX's optical communications are based on proprietary specifications and do not target industry standards. Additionally, there is a clear trend of various countries building their own constellations as sovereign infrastructure, with the pattern of the Japanese government investing first, followed by commercialization to private sector and foreign markets. We intend to explore business development in consultation with Space Compass.
• Q: What is the relationship between the alliance and the facility relocation? Will design through manufacturing and testing be brought in-house after the move?
  A: We successfully manufactured 7 satellites this time, and we believe we can produce at this scale without issue. However, collaboration with alliance and mass production partners remains critical, and as production volumes are expected to increase going forward, we will work with partners to improve manufacturing efficiency and resilience.
• Q: Tell us about overseas demand. What types of needs are you seeing in Europe, Asia, and the US?
  A: For AxelGlobe, our activities to date have progressed to the point where we can propose fairly large-scale projects. In Australia and Europe, the main use cases are agriculture and wide-area mapping. With the deployment of GRUS-3 expanding imaging capacity, we will be able to capture broader areas in shorter timeframes, which we believe will enhance our proposal capability. For the AxelLiner business, we have received inquiries from overseas component manufacturers at exhibitions expressing interest in demonstration through AxelLiner Laboratory. Going forward, we aim to capture overseas demand reliably by shortening the lead time to launch, among other initiatives.
• Q: How much development cost related to the Space Strategy Fund is expected in the AxelLiner segment this fiscal year?
  A: As the contract related to the Space Strategy Fund for the AxelLiner business has not yet been finalized, we refrain from disclosing details.
• Q: What is your view on the revenue and profit scale 5 years from now?
  A: We refrain from providing specific figures, but in addition to the confirmed security/MoD constellation, AL Lab and overseas AxelGlobe projects are growing, and we aim to achieve robust growth building on these foundations.
• Q: After the segment reporting change, how should investors interpret segment-level P&L? What is the true profitability of each business, and what metrics should investors focus on?
  A: Previously, the bus unit costs for AxelGlobe's proprietary satellites were recorded under the AxelLiner segment. We revised this to record them under AxelGlobe to better reflect operational reality, so costs related to proprietary satellites now sit with the satellite business. In terms of metrics, because the AxelGlobe business is a fixed-cost business, revenue growth is critically important. For the defense contract, many metrics cannot be disclosed, but for the non-defense segment, this fiscal year is about laying the groundwork for overseas expansion—investors should watch progress on these initiatives and the securing of overseas contracts. For the AxelLiner business, AL Lab customer acquisition is key, and we encourage investors to monitor the number of future projects.
• Q: Is the defense constellation revenue proceeding as outlined on slide 19? Has delivery been on schedule? Have there been any penalties? How confident are you in future deliveries?
  A: We refrain from commenting on penalties as they relate to contract details, but progress has been largely in line with our projections.