Electro Optic Systems share price crashes 35% after first-half shocker

The Electro Optic Systems Hldg Ltd (ASX: EOS) share price has returned from its lengthy suspension and crashed deep into the red.

In morning trade, the embattled defence and space systems company’s shares were down as much as 35% to 47 cents. It has since recovered a touch and is currently down 23% to 55.5 cents.

Investors have been selling down the Electro Optic Systems share price following the eventual release of its delayed half-year results.

Electro Optic Systems share price crashes on half-year update

• Revenue down 45% to $53.8 million
• EBITDA loss of $34.7 million
• Net loss after tax increased from $11.7 million to $99 million
• Financing agreement signed with Soul Patts
• FY 2022 guidance being reassessed

What happened during the half?

For the six months ended 30 June, Electro Optic Systems reported a 45% decline in revenue to $53.8 million. Management blamed this on delayed revenue recognition arising from supply chain disruptions.

Things were even worse further down the income statement, with the company reporting a whopping $99 million loss after tax for the six months. This was a ~750% increase on the $11.7 million loss it recorded a year earlier.

However, it is worth noting that $54.4 million of this loss is attributable to the impairment of assets and onerous contracts held in SpaceLink.

Spacelink is the company’s satellite communications business which has an almighty task of competing against Elon Musk’s Starlink and Apple’s new satellite-connected handsets.

Though, whether the company will hold onto the cash-burning Spacelink business, only time will tell. Management revealed that it continues to explore opportunities to realise value from the SpaceLink assets and remains in active negotiations with potential partners and purchasers.

The rest of the loss has been blamed on the company having a cost structure larger than required for the current level of revenue. Positively, this is being addressed as part of the organisational restructure being implemented following a strategic review.

Restructure

Electro Optic Systems revealed that it is adopting a leaner structure that will prioritise existing business lines that are profitable and respond to customer procurement activity rather than anticipating requirements through customer planning documents.

Significant management changes, reductions in workforce, and a simplified strategy and business plan are also in the works. Full-year cost savings of at least $20 million are expected from these changes.

To support it through these challenging times, major shareholder Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has agreed to refinance the $35 million Roadnight debt facility that was due to expire on 6 September 2022 and extended the current maturity date to 26 September 2022.

Management expects to seek further extensions from Soul Patts as part of a staged refinancing of the company. Though, it acknowledges that there can be no guarantee that such extensions will be obtained.

Soul Patts has also agreed to provide the company with a $20 million working capital facility.

Outlook

Electro Optic Systems was previously guiding to FY 2022 revenue at or above 2021 levels of $212 million.

However, in light of the challenging first half and supply chain uncertainties, the company is reviewing its guidance and will provide an update at a later date.

The post Electro Optic Systems share price crashes 35% after first-half shocker appeared first on The Motley Fool Australia.

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More reading

• Why is the Electro Optic Systems share price frozen today?
• Why has the Electro Optic Systems share price soared 16% in 2 days?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Electro Optic Systems Holdings Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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