Electro Optic Systems (ASX: EOS) plans for the future have been drastically changed by COVID-19

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  • Electro Optic Systems (EOS) quarterly operations in March went as expected until COVID-19 significantly changed the company’s future plans
  • The aerospace and defense company started the year with big plans and was ready to exceed 2019 sales and EBIT by 70 percent
  • EOS had defense products valued at over $ 250 million that could be shipped year-round
  • Unfortunately, before formal deliveries began, COVID-19 caused a national lockdown, forcing staff to flee Australia and go into quarantine
  • Production facilities were closed, as were military bases that were a delivery point
  • Delivery is expected to begin in September
  • Since then, EOS has raised $ 134 million to offset the financial losses
  • Following these unexpected events, EOS had to lower its forecast for 2020 from 70 percent growth to 25 percent
  • EOS is down 4.21 percent and stocks trade for $ 4.55 each

Electro Optic Systems (EOS) activities for the March quarter went as expected, but the final events resulted in significant changes in future plans.

EOS is an Australian technology company active in the space and defense markets.

The company launched in 2020 with a new business structure ready to support a wider range of US aerospace, space communications and missile defense activities. This included the acquisition of Audacy Corporation, a US-based space communications company.

Last year was a successful year for EOS as it ended the year with steady defense products orders valued at over $ 180 million. However, sales and EBIT growth of 70 percent was expected for 2020, driven by evenly distributed orders valued at an additional $ 70 million.

The company assessed that 70 percent growth could be achieved if all efforts for 2020 were evenly spread across all four quarters to smooth demand for equipment and reduce production risk.

In November 2019, EOS raised around 80 million US dollars to enable the production of products for inventory in the first quarter of 2020, which will be delivered and invoiced from the (current) June quarter.

Delivery takes up to six weeks as the process involves many steps. The supply chain also requires many hands on deck – even up to 35 employees.

The foundations that EOS had laid for a successful 2020 and 2021 were quickly overshadowed by a drastic turnaround in the last seven days of March.


A week before formal deliveries began, the supply chain was disrupted in several places due to a national lockdown and the effects of COVID-19.

A total of five key technical staff from EOS from Australia had to leave the country within 24 hours or be stranded due to airport closures and quarantine.

All accessible airports were closed to normal commercial passengers and cargo. The EOS production facility in a secure industrial area, along with all other defenses, was closed by the military police.

Around 50 percent of EOS employees on site have been quarantined. The military test facility required for the live shooting has been closed, and designated drop-off points within the military bases have been cut off due to the closure of military bases.

Subsequent events

By April 10, EOS realized that restoring the entire supply chain would take 60 days after adequate access and mobility were restored. Since access is not expected to open until July, the earliest time for deliveries to start is September. This will postpone cash payments to the December 2020 quarter.

The silver lining is that there are no contractual problems or obligations that result from delivery delays.

A few days later, EOS decided to stop producing products that could not be delivered. The interrupted production can resume once the supply chain is restored and inventory is reduced to normal levels, which is expected to occur in 2021.

To fund liquidity and growth, EOS raised $ 134 million through a fully subscribed institutional placement. Of the $ 134 million, $ 55 million will be used to further expand inventory through July 2020, when production capacity can be switched to other contracts.

After that hurricane of unexpected events, EOS lowered its forecast for 2020 from 70 percent growth in 2019 to 25 percent growth.

EOS is down 4.21 percent and its shares trade for $ 4.55 at 1:05 p.m. AEST.

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