Q1 2022 MDA Ltd Earnings Call
Operator: Investor Relations at MDA. Please, go ahead.
Shereen Zahawi: Thank you, operator. Good morning and welcome to MDA's Q1 2022 earnings call. Mike Greenley, our CEO, and Vito Culmone, our CFO, will lead today's call and share some prepared remarks before taking your questions.
Shereen Zahawi: Before we begin, I would like to remind you that today's call will include estimates and other forward-looking information which may differ from actual results. Please review the cautionary language in today's press release and public filings regarding various factors, assumptions and risks that could cause actual results to differ.
Shereen Zahawi: In addition, during this call we will refer to certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, these measures do not have any standardized meaning under IFRS and our approach in calculating these measures may differ from that of other issuers and therefore may not be directly comparable. Please see the company's quarterly report and other public filings for more information about these measures, including reconciliations to the nearest IFRS measures. And with that, it's my pleasure to turn the call over to Mike Greenley.
Mike Greenley: Thanks, Shereen. Good morning, and thank you to those joining us today to discuss our first quarter 2022 financial results.
Mike Greenley: We are pleased with our performance this quarter. We remain focused on converting opportunities in our sizable funnel, and the team did a great job executing on commitments to customers, amid a challenging macro environment.
Mike Greenley: From a strategy perspective, we are executing on the priorities we've outlined for our three business areas, to capitalize on the growth prospects we see in our end markets.
Mike Greenley: In satellite systems, we are investing in new technologies and capabilities to accelerate our transition from analogue to digital payloads, and building up our high-volume satellite manufacturing capacity, to strengthen our position as more lower orbit or Leo constellation opportunities come to market.
Mike Greenley: In robotics and space operations, we are leveraging our global leadership in space robotics innovation and long history of success with Canadarm, to win follow-on space agency work and engage with a full slate of new and exciting commercial opportunities, as they emerge to provide, both proven technology solutions and on-orbit operational services.
Mike Greenley: In energy intelligence business, we continue to see strong demand for our Earth observation data and analytics, and our advancing work on MDA's next-generation Earth observation constellation, Chorus, which will provide even greater imaging capabilities and accurate insights for our customers.
Mike Greenley: During the quarter we saw clear signs of accelerated momentum in our business.
Mike Greenley: We were awarded two sizable and strategic contracts, which demonstrate the strength of our pipeline.
Mike Greenley: In February, we announced a new contract with Globalstar, valued at approximately $415 million, in which MDA will serve as prime contractor for the design, manufacturer, assembly and test of 17 satellites, with an option for nine more. These satellites will enhance the customer's Leo constellation.
Mike Greenley: In March we announced phase B of the Canadarm 3 program valued at approximately $270 million.
Mike Greenley: With these two awards on our books, we have hit the ground running in 2022. Our backlog is building in line with our plans. We have good revenue visibility and a strong business foundation for this year and beyond.
Mike Greenley: I'll now step quickly through the financial highlights for the quarter, and then give you a view on the industry, an update on MDA three business areas, and then pass it over to Vito for a deep dive on the financials.
Mike Greenley: For the first quarter backlog, our quarter end stood at $1.5 billion, representing an impressive 122% increase versus Q1, 2021 levels.
Mike Greenley: MDA delivered revenues of $128 million, up 4% year-over-year, and our adjusted EBITDA, excluding nonrecurring items, was $28 million, representing a solid EBITDA margin of 21.6%.
Mike Greenley: We also generated healthy operating cash flow and ended the quarter with a strong balance sheet, which offers us ample financial flexibility to run the business and invest in our growth initiatives.
Mike Greenley: With triple-digit year-over-year growth end backlog, strong margins, and healthy operating cash flow in the first quarter, MDA is building momentum, with our full focus on delivering for customers and capitalizing on new opportunities.
Mike Greenley: Vito will provide more context for MDA's underlying performance in his remarks.
Mike Greenley: Next, I'd like to update you on developments within the broader space market.
Mike Greenley: And the opportunity that we see for MDA as we look ahead.
Mike Greenley: Following the strong 2021, which marked a record year for investment in the space industry, both for government and commercial spending, we saw the momentum continue into Q1 of 2022.
Mike Greenley: Taking our customary tour around the world, we continue to see strong activity across the globe. South of the border, NASA submitted a $26 billion budget request for fiscal year 2023, 8% more than any active federal study levels for fiscal year 2022, signalling the importance of civil space to the current administration and to the strategic future of the United States. According to senior NASA officials, this represents the largest overall request in current dollars for NASA, and the largest request for science funding in agency`s history.
Mike Greenley: Also in the US, the Space Development Agency, known as SDA, awarded three contracts valued at approximately $1.8 billion to build 126 satellite slated to launch in 2024.
Mike Greenley: These satellites are part of a large Department of Defence constellation for missile warning, communications, data coverage and sharing, and other capabilities.
Mike Greenley: This is another example of the integration of space-based capability as a routine component of defence and military budgets, which is being driven by geopolitical tensions and demand for space-based surveillance and detection systems.
Mike Greenley: Closer to home, Canada's military is looking to establish a new space division later this year, as it further develops its capabilities and skills for space operations, and looks for effective ways to leverage commercial capabilities. On the expanding role of the commercial sector in space, Nasa recently awarded more than $270 million to six companies, including both traditional satellite operators and constellation developers, to demonstrate services that could ultimately replace the agency`s existing fleet of communications satellites. Industry research firm, Bryce Technology, recently released their Q1 launch market update, indicating that 624 spacecrafts were launched in the quarter.
Mike Greenley: For perspective, that has almost doubled the number of satellites launched in Q4, and a third of the satellites launched in all of 2021, which itself was a record year.
Mike Greenley: It is also noteworthy that 88% of the satellites launched were commercial.
Mike Greenley: Our strategy to invest and expand MDA satellite systems capabilities, capacity and facilities, are well timed to capitalize on this market expansion.
Mike Greenley: On the space exploration front, we saw three more countries signed on to the Artemis Accords, which aligns Nations on a common set of principles for space exploration. Romania, Iran and Singapore are the newest partners of the 18 member group, which has doubled in size since it was unveiled in October of 2020.
Mike Greenley: All of this activity is indicative of near and long-term opportunity for MDA, and our ability to create value for our stakeholders. Now I'll turn to our three business areas.
Mike Greenley: In satellite systems, we continue to see good activity levels, with our teams responding to multiple requests for communication satellite solutions and for a growing number of constellation projects, particularly in the lower-orbit segment of the market.
Mike Greenley: As I noted earlier, this quarter we announced a $415 million award from Globalstar, which selected MDA as the prime contractor to enhance its Leo constellation. This is an important award for MDA, reflecting our strategy to expand our offerings and move up the value chain. It is also a testament to our team's ability to compete and win against established satellite contractors, to innovate and provide advanced payloads capabilities and systems engineering, and to provide high-volume manufacturing to meet increasingly sophisticated customer needs. I also want provide an update on Telesat Lightspeed.
Mike Greenley: As Telesat disclosed on its earnings call last week, the company is looking to resize its constellation to 198 satellites from 298 earlier, while maintaining the original budget for the program. We are engaged in active discussions with Telesat's management team and, based on current negotiations, still expect to contract award in the first half of the year.
Mike Greenley: MDA is in a position to quickly ramp up work on the program, once we received the green light from Telesat. In our Geo Intelligence business, we continue to see good demand signals for our Earth observation offerings. The tragic developments in Ukraine have shown a spotlight on the role the commercial EO satellites can play in providing near-real-time data analytics to governments and commercial players.
Mike Greenley: During the quarter, we secured a special authorization from the Canadian government to collect radar satellite imagery over restricted areas in Ukraine. Images captured by MDA`s synthetic aperture radar, or SAR technology, which is unique for its ability to see through all weather and cloud conditions, are being merged and analysed with other sources of imagery from commercial Earth observation companies, to develop comprehensive near-real-time intelligent reports for Ukrainian government officials.
Mike Greenley: We are also advancing work on our next-generation Earth observation constellation, Chorus, which will include C-band and X-band SAR satellites.
Mike Greenley: This approach significantly enhances existing services and enables new applications, not feasible with existing SAR satellites.
Mike Greenley: We are encouraged by the volume of inbound inquiries from customers interested in acquiring Chorus data and analytics.
Mike Greenley: The geo intelligence business also houses our Surveillance and Detection systems, including those on the Canadian Surface Combatant program, or CSC.
Mike Greenley: The CSC program is progressing in line with our expectations.
Mike Greenley: Work on the requirements analysis phase of the program is advancing, and MDA continues to finalize a number of additional electronic workers suite-sensor contracts.
Mike Greenley: In our robotics and space operations business, we are seeing good activity levels on both the government and the commercial fronts.
Mike Greenley: On the former, we announced in Q1 the award of phase B of the Canadarm 3 contract, which carried a value of approximately $270 million. The new contract will see MDA completing the preliminary design of Canadarm 3 robotic systems.
Mike Greenley: It will be used aboard the NASA-led Lunar gateway, a major multiyear international collaboration, to establish a sustainable space station at Lunar orbit, to support human and robotic missions to the surface of the Moon.
Mike Greenley: The recent contract built on MDA`s completed phase zero, and subsequent phase A of the program, with work on Phase B now underway and expected to last approximately a year and a half.
Mike Greenley: Our work on the Canadarm 3 program is also instrumental in allowing us to leverage innovative technologies for new commercial markets.
Mike Greenley: Also in the quarter, we announced our first commercial sale of Canadarm 3 technology to Axiom Space. MDA is delivering 32 external robotic interfaces for the Axiom station, which is now under construction and on schedule to be the world's first commercial space station in orbit.
Mike Greenley: The technology includes commercial variance of Canadarm interfaces designed for the Artemis gateway, as well as those that allow the existing Canadarm on the international space station to build and assemble the new Axiom station.
Mike Greenley: This is an exciting development for MDA, that signifies the major shift in the commercial landscape for robotics, as more non-government entities look to establish a foothold and hub in the lower orbit for a variety of activities, including in-space manufacturing, human space-flight-missions to LEO and deep space exploration.
Mike Greenley: Shifting to operations, to support the anticipated revenue ramp-up, we added more than 250 new hires in Q1 of this year.
Mike Greenley: This is an addition to the 670 people we hired in 2021.
Mike Greenley: In Q1, we also announced our new Global Headquarters and Space Robotics Center of Excellence, which will include a new mission control center capability for government and commercial customers.
Mike Greenley: The facility is another important foundational marker that supports the company's ongoing growth and lays the groundwork for long-term success in the evolving space robotics market.
Mike Greenley: The modern 200.000 square feet facility, currently under construction, will be home to our growing team and will help us bring to market a full speed of innovative space robotics products that leverage Canadarm technology.
Mike Greenley: We are also closely monitoring our supply chain for potential business disruptions. Earlier in the pandemic, we implemented several proactive measures that have served us well. These include: designing around known shortages, finding alternatives that are more readily available, ordering materials as early as possible and building up inventory for some components.
Mike Greenley: For new programs, we are ensuring that our supply chain organization has full visibility early in the process to ensure orders are placed promptly and monitored constantly to mitigate delay risks.
Mike Greenley: To recap, this was a good quarter for MDA and a great way to start fiscal 2022. I'd like to thank our team for making this possible and for their dedication and get-it-done attitude.
Mike Greenley: With every quarter, we are building momentum in our business as we execute on our playbook, meaningfully growing our backlog and expanding our leadership in core markets, while maintaining strong profitability and a healthy balance sheet to help us fund our growth initiatives. With that, I'll hand it over to Vito to walk us through the detailed financials.
Vito Culmone: Thank you, Mike, and good morning, everyone. I'm happy to be with you here this morning, to talk about our Q1 2022 financial results. As Mike said, overall we're very pleased with our results this quarter, MDA has strong quarter for orders, led by Globalstar award valued at $415 million, and Phase B of Canadarm, which is approximately a $270 million award.
Vito Culmone: These awards, coupled with a number of smaller wins across the business, helped grow our backlog to $1.5 billion at the end of Q1 2022. That's up 122%.
Vito Culmone: From Q1 2021 levels, and up 43% quarter-over-quarter.
Vito Culmone: Total revenues for the first quarter of 2022 were $128.4 million.
Vito Culmone: This represents a $5 million, or 4% increase over the same period last year, and is driven by increased work volume, primarily in our robotics and space operations business.
Vito Culmone: By business area, revenues in our geo intelligence business of $48.9 million were in line with Q1 2021 levels. While in Q1 we continue to see growth in sales of satellite imagery and analytic services, as well as growth from increased work volume on the Canadian Surface Combatant program, this was offset by the wind down and completion of other programs.
Vito Culmone: In robotics and space operations, revenue once again continued to show growth in the quarter. Revenues were $42.4 million in Q1 2022, representing $8.1 million dollars or 24% increase versus Q1 of 2021, revenues of $34.3 million.
Vito Culmone: The growth is largely driven by increased activity on the Canadarm 3 program.
Vito Culmone: Satellite systems declined from Q1 2021 revenues of $40.1 million, to $37.1 million in Q1 2022. The slight decline is reflective of the timing of new programs ramp up in the quarter, like Globalstar, being offset by the ramp down or completion of other programs, like JUPITER 3, in the back half of 2021 and early 2022.
Vito Culmone: Moving on to gross profit. And, as a reminder, gross profit represents our revenues, less costs of revenue, which includes materials, labor overhead, shred credits and depreciation.
Vito Culmone: For Q1, gross profit was $61.7 million versus $38.4 million in Q1 of last year.
Vito Culmone: For for the quarter, this translated to a gross margin of 48% compared to 31% in the prior year.
Vito Culmone: The large improvement in margin is primarily attributable to higher investment tax credits being recognized in the latest quarter.
Vito Culmone: The majority of this increase in ITC of $16.8 million relates to a resolution of historical claims that were not previously recognized due to the uncertainty surrounding the eligibility of the related costs.
Vito Culmone: In addition to ITCs, the improved margins this quarter were also driven by stronger program execution and cost management across all business areas.
Vito Culmone: As mentioned in previous quarters, we do anticipate the mix of programs throughout 2022 to cause a slight drop in gross margins as we make our way throughout the year.
Vito Culmone: Q1 operating expenses were $38.4 million compared to $33.6 million in Q1 2021. This increase is primarily due to an increase in our development work on course and other proprietary technology programs.
Vito Culmone: This increase in RND expense was partially offset by a year-over-year decrease in the share-based compensation expense, due to vesting periods of certain tranches of awards ended in Q4 of 2021.
Vito Culmone: Adjusted EBITA on Q1, 2022 was $44.5 million, representing a $5.5 million or 14% increase over last year's levels. The higher adjusted EBITDA this quarter is again, reflective of the previously noted increase in ITCs recognized in the quarter, offset partially by the increase in RND spend.
Vito Culmone: Excluding the impact of ITCs claims resolution in Q1 of 2022, and the Canada emergency weighed subsidy income recognized in Q1 of 2021 in the amount of $10.1 million.
Vito Culmone: Our adjusted EBITDA this quarter was $27.7 million, representing a very solid 21.6 margin compared to 24.5% in Q1 of 2021.
Vito Culmone: Moving on to CapEx, we remain focused on making the right investments in the business to support our strategic growth initiatives. In Q1 2022, we spent $37.1 million on capital expenditures.
Vito Culmone: And that's up from $10.1 million last year, as we ramp up our RND efforts on course, our next-generation commercial growth observation constellation, and other key programs. We expect this level of spend to continue to ramp up throughout 2022 as we advance these and other important growth initiatives by Globalstar and our recently announced Global Headquarters in Space Robotics Center of Excellence.
Vito Culmone: Moving on to our balance sheet, we ended the quarter with a strong financial position, with minimal net debt of $85.4 million, available liquidity of $578 million, and net debt to adjusted EBITDA ratio of 0.6 X.
Vito Culmone: We also announced, post quarter-end, the redemption of our 105 million secondly notes, bearing interest of 10% per annum, and refinancing of our revolving credit facility to $600 million from $428 million prior.
Vito Culmone: In light of these developments, we expect to see a meaningful reduction in our annual interest costs in the range of 8 million to 9 million per annum, based on current rates.
Vito Culmone: The refinancing of our debt facilities also offers us more favourable pricing, increases in our flexibility, while representing sufficient liquidity to fund future growth.
Vito Culmone: In summary, we're pleased with our Q1 2022 financial performance and continue to see strong results across our key metrics.
Vito Culmone: Let me now turn to our outlook. We're executing on our strategic specific growth strategies and leveraging our competitive strength to capitalize on the fastest-growing areas of the space economy and to maximize our growth opportunities. We're investing in RND, manufacturing, product development and, of course, in the scaling of our business. We see 2022 as a strong growth year for MDA as we build our backlog and begin heightened execution.
Vito Culmone: Consistent with the outlook we provided in Q4 of 2021, we expect our full year revenues to be in the $750 to $800 million range, representing robust year-over-year growth of approximately 55% to 65%, and we expect our full year adjusted EBITDA to be $140 to $160 million, and note that this outlook for adjusted EBITDA excludes the $16.8 million ITCs claim resolution recognized this quarter.
Vito Culmone: Our forecasts are predicated on continued backlog growth in the first half of 2022, followed by a ramp in revenues in the second half.
Vito Culmone: We expect our Q2 2022 revenues to grow by approximate 20% to 25% over Q2 of 2021 , driven by higher work volume from recent program wins.
Vito Culmone: We continue to expect capital expenditures in 2022 to be in the $180 to $200 million range, comprised primarily of growth investments to support course and the previously outlined growth initiatives across our three business areas.
Vito Culmone: We believe our backlog provides us with good revenue visibility and solid foundation for 2022 and beyond. We continually monitor backlog and contract award timing and assess their impact on our financial projections.
Vito Culmone: 2022 is shaping up to be an exciting year for all of us at MDA and we embark on the execution phase on a number of key programs. Our teams remain focused on delivering on our commitments to customers as we actively scale our business and leverage our proven technology to grow in our core markets. Mike, with that I`ll turn it back to you.
Speaker 5: like, you don't? Well, burger ars, don't really- without you open up the question. Thank you, sir. Ladies and gentlemen, if you would like to ask a question, Please slowly press Star followed by one on your touchphone phone. You will then hear a three T prompt acknowledging a your request, and if you would like to withdraw yourself from the question Q, you will need to press Star followed by two And lastly, if you're using a speak a phoneyou will need to please leave the handset before pressing any keys. Please go ahead and slowly press Star one if you have a question.
Mike Greenley: Thanks, Vito. I`ll now turn it to our operator. You can open up for questions.
Operator: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please slowly press star, followed by one on your touchpad phone. You will then hear a three tone prompt acknowledging your request, and if you would like to withdraw yourself from the question queue, you will need to press star, followed by two. And lastly, if you're using a speakerphone, you will need to please leave the handset before pressing any keys. Please, go ahead and slowly press star one if you have a question. And your first question will be from Douglas Taylor at Canaccord Genuity. Please, go ahead.
Douglas Taylor: Hi. Thank you. Good morning. I'll ask the first light speed question, which I'm sure you've anticipated. As you said, now contemplating a smaller initial constellation in terms of the number of satellites, similar price tag. I recognize you're still actively engaged there. But is there anything you can provide us that will help us assess how that might impact, you know, the economics for MDA. And, can you provide us, you know, some update on the degree to which you have late speed factored into the guidance for this year?
Speaker 4: We continue for our works gope, which remains the same, to be able to, you know, set up our, our contracts and work with te uson on that. We continue to do so and head towards and head towards the first half, you know, ickking up the basase as we finish the first half, like we've the say we do. We do have some L speak in our you know our plan for the year and if the know the assumption that we get going in the first half of the year, then that will me our expectations to be able to execute the year as we've sayokay. The can AR M three tech sale for the axiom station was an interesting development with respect to, as you say, commercial adoptation of space box. Can you can get you a perhaps talk about the addressable market for that type of solution and how you expect that to evolve? I mean, there is only so many space stations out there, but perhaps other applications of that same technology.
Mike Greenley: Yeah, I can chat about that a bit. I think the things that have been said are all consistent around the project. The project continues to get itself organized and set up. Telestar continues to work with both its contracting community and its financing community to be able to keep things progressing. Telestar has shifted the composition of the constellation, as noted, while maintaining the same economics, as you've just noted, so all those things are true. We continue, for our work scope, which remains the same, to be able to set up our contracts and work with Telestar on that. We continue to do so and head towards the first half, you know, picking up the pace as we finish the first half, like we've been saying. We do have some lightspeed in our plan for the year, and with the assumption that we get going in the first half of the year, then that will meet our expectations to be able to execute the year as we've said.
Douglas Taylor: Okay. The Canadarm 3 tech sale for the Axiom station was an interesting development with respect to, as you say, commercial adoption of space and robotics. Can you perhaps talk about the addressable market for that type of solution and how you expect that to evolve? I mean, there is only so many space stations out there, but perhaps other applications of that same technology?
Mike Greenley: Yes, for sure, and so you're right, there will be a few commercial space stations and the expectation in the market, right now, there is around, at least 4, that are in different types of development. So, that's good to see, this early phase of the evolution of the commercial market. In addition to space stations, the robotics solutions, for us, the folks that we would talk to would include the in-orbit service assembly and manufacturing market or ISAM. [inaudible] recently, perhaps that the White House in the United States recently released some papers, kind of recognizing the ISAM market as a solid, legitimate market that needs to be paid attention to. That's good for us to see and that's robotics on different types of spacecraft that would do servicing, assembly and manufacturing, as the title says. The debris removal market is also another area for robotics. We`re in discussions with various commercial players looking at the active debris removal market. And then, the final area these days would be the Lunar activity. So, as we go through the 2020's and we return humans to the Moon, and start to have habitats and vehicles of different types and activities on the Lunar service, a number of those would include the assumptions for robotics. You'll have seen announcement that we would have made the recent Space Symposium in Colorado, where we announced we`ll be working with Lokey Margins and General Motors, looking at Lunar mobility systems and putting robotics solutions on Lunar mobility vehicles. So, that's another recent example from us, in terms of areas where we're looking to apply robotics technologies, as a Lunar market emerges.
Douglas Taylor: Okay, one last question for me. I mean, obviously the events in Eastern Europe have led to bit more activity with respective defence spending and budgets in the Western world. I mean, a lot of what you do relates to the space, but you also touch defence in a number of ways and Earth observation comes to mind. Can you maybe refresh us or speak to us about, you know, any activity levels related to that, you overall trend, unfortunate as it is, and how do you expect that to impact MDA in the coming years?
Multiple speakers: [Mike Greenley] Yeah, sure. So, definitely, to confirm your premise there, like, for sure, the dialogue around defence is increasing, like that is definitely an increasing theme around the world, as people are paying attention to that area. Certainly, the use of space based-observation, has been realised its benefits, with al the recent activities in the last quarter. So, that peaks people`s interest. More people want to talk about that. In terms of near-term shifts, we do see increase in conversation with folks about Earth Observation imagery, from Radar side too, in addition to what kind of services can Chorus bring to people in the future. So, that`s kind of an immediate impact. I think the more medium to long-term impact, would be around the defence activities that you are talking about. These things take time. You`ve seen it in the media, certainly. Pressure on Western countries to have solid defence budgets and increase their defence budgets. So, we're definitely seeing that pressure that exists in the market and that causes dialogue around surveillance and protective systems that include, you know, ground based surveillance in addition to space based surveillance, working together. And so, you know, I mentioned some comments in my remarks about SDA in the United States, for example, you know, putting up new space based constellations to detect missiles, and they enhanced communications or militaries. Those types of activities, you know, start to get discussed more in the various countries but those will take time to convert into, you know, program. So right now we're at the pressure and promises phase of, you know, increase defence activity and then over time, you know that could convert into programs, but that LL take a little bit of. [Douglas Taylor] Okay. Thank you. That was all. [Mike Greenley] Than you.
Multiple speakers: [Operator] Next question will be from Thanos Moschopoulos at BMO Capital Markets. Please, go ahead. [Thanos Moschopoulos] Hey, good morning. Maybe to expand on the last point, you mentioned you're having more conversations around [inaudible], sort of the barriers in terms of just translating that until like an actual sharp revenue up, because just going to sale cycle is that basically just getting the- you know, new customers familiar with how to access and leverage the data centre? What would you say are the impediments to more of an [inaudible] in the near term?
Mike Greenley: Yeah, so, there's really, in terms of impediments, there's certainly, you know, very few things in the way. There are things we have to work through always, the sort of business development and sale of observation imagery, you know, requires all the relevant export licenses in the last and the like for sale. You know, so you have to go through and make sure that you've got permission to be able to do the various types of sale the customers are interested in. You saw an example of that when we announced that the Canadian government gave us permission to start selling imagery of the Ukraine in the last quarter, and so you know that type of activity. So you got to go through that hoop, I guess, which is not a problem, it`s just work to be able to get through that. And then, be able to work with people in terms of what their level of use is going to be. Some folks have ground stations, MDA has a strong ground station network around the world and folks want telemetry and data delivered to their ground stations for them to be able to process. Other customers, you know, that are starting to realize the benefits of our observation more, they may not have that capacity, they just want the analytics, they just want the intelligence report or the information report about what's going on in their neighbourhood or their area of interest, in which case we have to organize what types of intelligence and reports they'd like us to process and deliver to them, or us and our partners to process and deliver to them. So that gets work through and then we can start selling those on a recurring basis into those customers. And so, those are the normal steps that we would go through in this market and it`s the same in this example.
Multiple speakers: [ Thanos Moschopoulos] Great. I think you said before that capacity is not an issue. There's a lot of [inaudible]. [Mike Greenley] That's correct. We don't have any capacity limitations right now that we're bumping up against, no. [ Thanos Moschopoulo] Great. Maybe swing back to, I thought that you said the scope of work that you're discussing remains the same. So, I don`t know if you can comment, I mean, previously you've provided some expectation in terms of what Telestar will look like in 2023, and so, based on discussion you're having, would be tracking to that, or it's the kind of challenging the same [inaudible] as lockdown? [Mike Greenley] No, yeah, like in general, the economics remain the same. I think that in the final setup, that will also affect the profiling of the projects, certainly in 2022. Like I mentioned, is we get so in here in the first half of the year, then that will meet our expectations for 2022. In terms of the profile for 2023-2025,
Multiple speakers: You know that's based on the overall program profile and the base that people need things, and so, that may get tweaked a little bit as we go through the final contracts. [ Thanos Moschopoulo] Ok, great. And then, finally you mentioned that you're still seeing a strong pipeline in the commercial segment. Just to clarify around the rising interest rates and a lot of commercial projects are funded through that, and so, it sounds like at this point, those signs of a macro slow down impacting commercial opportunities from your perspective, seems like [inaudible] commercial opportunities that you're in discussions with? [Mike Greenley] That's correct, we haven't seen anybody flinch. Everybody is continuing with their projects as we see. And then, occasionally [inaudible] with the new customers, and for those that are looking for that, we have a great position here in Canada working with CDC, which is a very supportive government agency here and the export development, Bank of Canada, that will provide financing international customers for their space based activities.
Multiple speakers: And so, that's a very helpful thing for us too, in our situation, being able to leverage that on international deals. [ Thanos Moschopoulo] Great, thanks. Appreciate the colour a lot. [Operator] Once again, as a reminder, ladies and gentlemen, if you would like to ask a question, please slowly press star, followed by on your touch pad phone. And your next question will be from Ken Herbert at RBC Capital Markets.
Multiple speakers: [Ken Herbert] Mike, I wondered if you could dig into the GlobalStar contract a bit. How does that ramp? And maybe, in terms of the revenue contribution this year and over the next few years, that would be helpful. Thank you. [Mike Greenley] Okay. So it's like, you know, we got going on that straight away in the first quarter, we're delivering those satellites 2025, so, it's a three year journey. It's pretty steady. Across the three year journey it's: just start, go hard for three years and get those satellite delivered. So that`s it. It's pretty steady and even across the three years.
Ken Herbert: Okay, that's helpful. And I just wanted to follow up on your prior comment. I mean you, you said in your prepared remarks that it sounds like you're seeing a step up in activity, specifically around within the LEO market, on the satellite side. Is there any way to think about any quantification around how that opportunity set has expanded for you here in the last quarter or 2, or how much of a a larger opportunity? Perhaps, is this emerging for you now that you won a few contracts and you're building it out more?
Multiple speakers: [Mike Greenley] Yeah I'd say that our pipeline remains solid. Nothing's fallen out of it. A couple of new things have been added into it, but it's generally just a really solid, steady, large pipeline for us. Over the last 24 months that we continue to prosecute and execute on it. The thing I talk about in terms of like the future growth would be the opportunities that are emerging, especially with large corporations that are looking at having, I always call them private industrial networks. But like space networks for their corporations business in the market, one of the more interesting announcements for me was in the last quarter was Porsche and Volkswagen announcing the dates world away about €2 billion to be able to put up a space based network for them for their future smart car market. And so, that's going on in a number of different sectors, whereby you know, large industrial organizations are seeing the opportunities for space based networks to make their business work and this is a very interesting thing, because historically, you know, we've seen space-based communication networks being from the operators that would need to pull together some equity and some debt, and you know, put up a network and make sure they've got paying customers around the world to then turn that into a successful business case. And of course, that still exists and we see that in the tele-stats of the world for example, not solid. But then now we're starting to see all these you know large multinational corporations having conversations about how a space based network could enable their business for he next generation of their opering. And that is a very different model, whereby these are large multi-billion corporations , putting aside a small billion to open up a space network. So, for me, the most interesting things are starting to emerge in the pipelines, and something to watch out for in the medium term, to watch out for the future. [Ken Herbert] That`s great. And if I could ask my final question. I think you called out, you were on plan, if I understood properly, with your hiring in the first quarter. Could you just confirm that and how you`re looking through the remainder of the year in your ability to support the growth, from a labour standpoint?
Speaker 4: the opportunities that are emerging, especially with large corporations that are looking at having, I always call them private industrial networks. But like space networks for their corporations business in the market, one of the more interesting announcements for me was in the last quarter was Porsche and Volkswagen announcing the dates world away about €2 billion to be able to put up a space based network for them for their future smart car market. And so, that's going on in a number of different sectors, whereby you know, large industrial organizations are seeing the opportunities for space based networks to make their business work and this is a very interesting thing, because historically, you know, we've seen space-based communication networks being from the operators that would need to pull together some equity and some debt, and you know, put up a network and make sure they've got paying customers around the world to then turn that into a successful business case. And of course, that still exists and we see that in the tele-stats of the world for example, not solid. But then now we're starting to see all these you know large multinational corporations having conversations about how a space based network could enable their business for he next generation of their opering. And that is a very different model, whereby these are large multi-billion corporations , putting aside a small billion to open up a space network. So, for me, the most interesting things are starting to emerge in the pipelines, and something to watch out for in the medium term, to watch out for the future. [Ken Herbert] That`s great. And if I could ask my final question. I think you called out, you were on plan, if I understood properly, with your hiring in the first quarter. Could you just confirm that and how you`re looking through the remainder of the year in your ability to support the growth, from a labour standpoint?
Multiple speakers: [Mike Greenley] Yeah, so we are on plan. Maybe in a little titch in some corners, a little more titch, actually. But, we`ve done very well, hiring the talent acquisition teams and hiring managers across the business, are getting into a well-welded machine situation here. With 670 folks hired last year and then over 250 so far this year. So, it's doing well. With the level of backlog that you saw, you know, coming in the first quarter there, and the backlog rise up to 1.5 billion. You know, that definitely caused a focus on hiring in the end of last year, in the start of this year. We will continue to hire at pace, but we're meeting all our needs so far and we forecast that we will continue to meet our need as we go through the year. As we get things established, we will continue to hire, but the pace will drop off a little bit as we finish the year, because we`ve broken the back of the big surge that we needed to be able to convert this backlog into revenue. So, we're working at pace and we're on plan and we expect to continue to do so. [Ken Herbert] Great. Well, thank you very much.
Operator: Next question will be from Kristine Tan Liwagat at Morgan Stanley. Please, go ahead.
Kristine Tan Liwag: Hey, good morning Mike and Vito. Following up on your 2022 outlook, you guys mentioned that you need to see continued backlog expansion through the first half of the year. Can you provide on what that pipeline looks like and how much of your 2022 revenue outlook is already in the backlog?
Multiple speakers: [Mike Greenley] I don't know the number in terms of the percentage of revenue in backlog this year so far, but it's decent, it`s just not in my head at the moment. In terms of the pipeline, the pipeline continues to be solid. The obvious big skewer would be light speed, as we go through this first half of the year, as we talk about, you know, finishing the job of building of our backlog even further, light speed would be the big swinger, with a number of other smaller opportunities that are still coming in [Kristine Liwag] I see, that's really helpful. And then, maybe a follow up on Canadarm 3. I mean that's great it`s now got Axiom for that program too. So now you've got Axiom and Gateway for Canadarm 3. How much commonality is there? You guys mentioned that there are some technology overlap and it`s the commercial version. Well, what does that mean? And then, how much potential upside is there on the economies of scale now that you've got two customers? And how should we think about the opportunity if we see others? I mean, at some point the IFRs would need to be replace.
Mike Greenley: Yes, we were talking about that in some of the earlier questions and how we're now starting to see these commercial space stations coming into the market in addition to those other applications such as you know, in-orbit service assembly and manufacturing, and the activities on the moon. As a result of that expanding commercial market, you know, we're moving forward in the robotics and space operations business area with a line of commercial robotics. So we're looking at having, you know, our range of commercial robotics based on Canadarm 3 technology that would have the sort of the different sizes and shapes in the product lines that will be needed for these different application areas. We are on purpose, in the Canadarm 3 program, one of the core tenants of that program in our relationship with the Canadian space agency is commercialization. So we want to do two things on that program. We want to meet the needs of the program and make sure that Gateway gets a really great robotics system that we can operate for decades from here in Canada. That would be objective one. And then, objective two would be to be able to develop that technology in a manner that ensures that we have a commercial product in line with that result.
Mike Greenley: So it's very much an on-purpose thing. The amount of overlap is high. Obviously each customer, based on their system, may have the odd tweak to have the system designed for their particular application. But our core offering will have, you know, very strong commonality across the different product lines. Obviously, physically, different robotic solutions, in terms of their sizes and shapes, would have different elements, but then things like the control systems, you know, can be very common across an integrated line of robotics. So, for us, we've got this amazing legacy, we've had a robotic system on the space shuttle that we delivered multiple units too, I think was five in total over the life of the space shuttle, and flew over 90 missions there. Then, we transition to the next generation on our robotics on the international space station, with Canadarm 2 and Dexter, where you know that robotics system now is operated for over 20 years, with you know, at these 10 years to go, it seems like, in that market.
Mike Greenley: And now we've got Canadarm 3, is this third generation for the Moon, with artificial intelligence-based robotics, our next generation evolution of our control systems that we are on purpose now configuring to be able to have commercial variance spinning on.
Kristine Tan Liwag: I see. And Mike, maybe following up on that, right? When you guys first gave out your Canadarm 3 opportunity, I mean, it sounds like compared to your first initial outlook on that program, you now have this commercial opportunity as, you know, kind of cherry on top. So, I guess my question is: compared to your initial Canadarm 3 outlook, should we see this program as a much larger and a much more profitable program with all these potential other offshoots?
Mike Greenley: I think the Canadarm 3 program remains at the Canadarm 3 program. I wouldn't expect that particular program to deviate much from previously described. In addition, during the IPO process, we would have talked about our commercial pipeline. And our commercial pipeline would have included opportunities for sensors, in addition for robotic systems, and so that continues for us. I think what we're seeing now though, is the solidification of that, that this commercial pipeline is becoming demonstratively real and we're starting to get the orders coming in now. The, as you see, commercial space stations and commercial space craft for the [inaudible] market and the Lunar activity get their financing and continue to get organized. You should see those as lead indicators that our pipeline is getting more and more solid in that space for our robotic systems, in addition to on-orbit robotic services. So, we're setting ourselves up in that new facility I described in my remarks, to be able to deliver on-orbit operational services.
Mike Greenley: So we can now work with these commercial partners in different ways. We can sell them a robotic system, but we could also partner with them for the operations of their space-sped activity, and be there for them on a recurring basis to operate the robotics on their craft, whether that's a space station or other spacecraft, on a recurring basis, moving forward into the future. So the business models that we're able to work with are more, we have a greater variety now to be able to make these deals work.
Kristine Tan Liwag: It's very helpful color. Thank you very much.
Multiple speakers: [Operator] Thank you, and at this time, we have no further questions. Please, proceed with closing remarks. [Mike Greenley] Ok, I think I just like to thank everybody for being with us today. It's been a great start to the year. It's been nice to be able to talk about it, and we'll see everyone next quarter. Thanks very much. [Operator] Thank you, ladies and gentlemen. This does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.