Q2 2024 MDA Space Ltd Earnings Call

good morning ladies and gentlemen who welcome to md a space limited conference call and webcasts

Operator: This call is being recorded on August 8, 2024, at 8.30am Eastern Time. Following the presentation, we will conduct a question and answer session for analysts. Instructions will be provided at the time for you to queue up for questions. If anyone has difficulties hearing the conference, please press star zero for operator assistance at any time. I'd now like to turn the conference over to Ms. Shereen Zahawi, Senior Director of Investor Relations at MDA. Please go ahead.

this call is being recorded in august eighty thousand and twenty four at eight thirty am eastern time

following the presentation we conduct a question in-answer session for analyst instructions will be provided at the time for you to queqw up for questions

Micherarin: if anyone has difficulties seraring a conference peacep starszo for operator assistance at any time i'd not like to turn a conference over to micherarin to how we senior director of investor relations at m d a this go ahead

Shereen Zahawi: Thank you, Operator. Good morning, and welcome to MDA Space's second quarter 2024 earnings call. Mike Greenley, our CEO, and Janet McEachern, our interim CFO, will lead today's call and share some prepared remarks before taking your questions. 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.

Speaker Change: Thank you, Operator. Good morning and welcome to MDA Space's second quarter 2024 earnings call. Mike Greenley, our CEO , and Janet McEachern, our interim CFO , will lead today's call and share some prepared remarks before taking your questions.

Speaker Change: 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 to 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 Michael.

in addition during this call we will refer to certain non ifs financial measures

Speaker Change: Although we believe these measures provide useful supplemental information about our financial performance

Speaker Change: 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.

Mike: 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.

Michael Greenley: Thank you, Shereen. Good morning, everyone.

Mike: Thank you, Shereen. Good morning, everyone. And thank you to those joining us today to discuss our second quarter 2024 financial results.

Michael Greenley: And thank you to those joining us today to discuss our second quarter 2024 financial results. Q2 was a strong quarter for MDA Space from both an execution perspective and a momentum perspective that we are seeing in our end market. The team delivered solid performance as we continue to convert our backlog, execute on our customer commitments, and grow our book of business. Our Q2 revenues totaled $242 million, up 23% year-over-year, and our backlog stood at a record $4.6 billion at quarter end, up 318% versus Q2 2023. Adjusted EBITDA in the quarter was $49 million, up 21% versus last year, and the adjusted EBITDA margin was a solid 20%.

Mike: Q2 was a strong quarter for MDA Space from both an execution perspective and a momentum perspective that we are seeing in our end markets.

Mike: The team delivered solid performance as we continue to convert our backlog, execute on our customer commitments, and grow our book of business.

Mike: our q two revenues total two hundred and forty two million dollars of twenty three percent year-over-year and our backlog stood at a record four point six billion dollars at quarter end up three hundred and eighteen percent versus q two two thousand and twenty three

Mike: adjusted even in the quarter was forty nine million dollars up twenty-one percent versus last year and adjusted ebitda margin was a solid twenty percent

Michael Greenley: Operating cash flow was strong at $149 million, and we ended the quarter with a healthy balance sheet as our leverage ratio declined sequentially. Given the strong year-to-date performance, we are updating our full year 2024 financial outlook. We are raising our guidance for revenue and narrowing our guidance for adjusted EBITDA and CAFX. Additionally, given favorable operating cash flow dynamics, we also expect to be cash flow and free cash flow positive in 2024, one year ahead of our plan.

Mike: operating cash flow was strong at one hundred and forty-nine million dollars and we ended thequarter of a healthy balance sheet as our leverage ratio decline sequentially

Mike: Given the strong year-to-date performance, we are updating our full year 2024 financial outlook. We are raising our guidance for revenue and narrowing our guidance for adjusted EBITDA and CapEx.

Mike: additionally giving favorable operating cash flow dynamics we also expect to be cash flow free cash flow positive in twothousand and twenty four one year and ahead of our plan

Michael Greenley: That's the first time I got to say that out loud; that's kind of fun. I'm going to say that again. We also expect to be free cash flow positive in 2024, one year ahead of plan. That's fun to say.

Speaker Change: 's first got ale alot that's kind of ing that again we also expect to be free cash flow positive in two thousand andtwenty fourth one year ahead of plan that's fun to say

Michael Greenley: In terms of business activity, we secured a number of contract awards in the quarter, with notable ones including a $1 billion contract from the Canadian Space Agency, or CSA, for the next phases of the Canadarm3 program that will see MDA Space finalizing the design and carrying out the construction of the robotic system and the ground control segment. We also received a $250 million contract extension from the CSA to continue supporting robotic operations on the International Space Station until its planned retirement in 2030.

Mike: in terms of business activity we secured a number of contract awards in the quarter with notable ones including a one billion dollar contract from the canian space agency or ca

Speaker Change: For the next phases of the Canadarm3 program, that will see MDA Space finalizing the design and carrying out the construction of the robotic system and the ground control segment.

Mike: We also received a $250 million contract extension from the CSA to continue supporting robotic operations on the International Space Station until its planned retirement in 2030.

Michael Greenley: None of this, of course, would be possible without the hard work and dedication of the entire MBA Space team, whom I'd like to thank and acknowledge. In early July, we shared that Vito Culmone, CFO of MDA Space, had departed the company to pursue another career opportunity. I'd like to extend my sincere thanks to Vito for his contributions over the past three years.

Speaker Change: none of this of course would be possible with the hard work and dedication of the entire nda space team who 'd like to thank and acknowledge

Speaker Change: in july we shared the veval lony co m ba space as de part of the company to pursue another career opportunity i'd like to extend my sincere thanks to bo for his contributions over the past three years the entire mda space team and the board which and well

Michael Greenley: The entire MDA Space team and the board wish him well. I'd also like to welcome Janet McEachern, our VP of Finance and Interim CFO, who will be replacing Vito until we announce a permanent replacement. As Vice President of Finance leading our corporate finance functions at MDA Space, Janet has a deep understanding of our business, and I look forward to working with her as we search for a permanent CFO. The search process is well underway, and I am pleased with the caliber of candidates we are speaking with and confident that we can bring in the right individual for the role.

Speaker Change: i'd also like to welcome jgenana mcer rbp finance and ininterim cfo will be replacing beto until we announce a permanent replacement

Speaker Change: as vice president finanally in our corporate finance funions at mbva space jenet has a deep understanding of our business and i look forward to working with her as we search for a permanent cfo

Mike: the search progestes process is well underway and i am pleased with the caliber candidates we are speaking with and confident that we can bring in the right individual for the role

Michael Greenley: I'll now give you a view of the industry, an update on our three MDA space business areas, and then I'll pass it over to Janet for a deep dive on the financials. As we have seen in previous quarters, the broader space market continues to expand, mature, and gain momentum. There are a few items worth highlighting.

Speaker Change: i'll now give you a view of the industry an update on our three andna space business areas and then i'll pass it over to janet for a deep dive on the financials

Janet: As we have seen in previous quarters, the broader space market continues to expand, mature, and gain momentum. There are a few items worth highlighting.

Michael Greenley: Starting in Canada, the Department of National Defence announced in late May the establishment of the Canadian Commercial Integration Cell, a new space operations, information sharing structure and framework that enables secure discussions and data sharing between the Canadian Armed Forces and industry partners that operate satellites, with MBA Space and Telesat being the first two members. We commend the Government of Canada for taking this important step to facilitate real-time collaboration between government and the commercial space industry at the speed and level that the emerging space domain demands.

Mike: startaring in canada the department of national defense announced in late may the establishment of the canadian commercial integration cell

Mike: a new Space Operations Information Sharing Structure and Framework that enables secure discussions and data sharing between the Canadian Armed Forces and industry partners that operate satellites, with NDA Space and Telesat being the first two members.

Speaker Change: We commend the Government of Canada for taking this important step to facilitate real-time collaboration between government and the commercial space industry at a speed and level that the emerging space domain demands.

Michael Greenley: This follows on the heels of an announcement in April that the Canadian government is establishing a National Space Council, which will take a whole-of-government approach to support space exploration, space utilization, technology development, research, and security. The new Space Council will be comprised of more than 20 federal government departments and agencies.

Speaker Change: This follows on the heels of an announcement in April that the Canadian government is establishing a National Space Council, which will take a whole-of-government approach to support space exploration, space utilization, technology development, research, and security.

Speaker Change: The new Space Council will be comprised of more than 20 federal government departments and agencies, is designed to enable greater coherence and collaboration to address issues that span commercial, civil, and space domains.

Michael Greenley: It is designed to enable greater coherence and collaboration to address issues that span commercial, civil, and space domains. We look forward to engaging with the National Space Council and exploring new ways for the Canadian commercial space sector to meet the full spectrum of growing government needs for space services, infrastructure, and data. Globally, we continue to see increased interest in space exploration, with Armenia, Peru, Lithuania, and Slovakia being the latest countries to sign on to NASA's Artemis Accords, signaling their commitment to safe, long-term, and ethical space exploration.

Speaker Change: We look forward to engaging with the National Space Council and exploring new ways for the Canadian commercial space sector to meet the full spectrum of growing government needs for space services, infrastructure, and data.

Speaker Change: Globally, we continue to see increased interest in space exploration with Armenia,

Speaker Change: Peru, Lithuania, and Slovakia being the latest countries to sign on to NASA's Artemis Accords, signaling their commitment to safe, long-term, and ethical space exploration.

Michael Greenley: The latest entries bring the group size to 43 nations, as we continue to see interest from many non-traditional spacefaring nations which are now building their own national space programs, a development that bodes well for the broader space market. Now I'll turn to our three business areas.

Speaker Change: The latest entries bring the group size to 43 nations, as we continue to see interest from many non-traditional spacefaring nations which are now building their own national space programs, a development that bodes well for the broader space market.

Michael Greenley: In satellite systems, we are seeing good momentum in this market with our teams working to advance multiple requests for communication satellite solutions and a growing number of constellation projects. We are also seeing good activity levels from customers, and our opportunity funnel remains strong. On the operational front, our teams were busy in Q2, advancing work on a number of programs. For the Telesat Lightspeed Program, we continue to make good progress on ramp-up activities this quarter, including progressing early design work and system requirements analysis.

Speaker Change: Now I'll turn to our three business areas.

Speaker Change: In satellite systems, we are seeing good momentum in this market with our teams working to advance multiple requests for communication satellite solutions and a growing number of constellation projects.

Speaker Change: We are also seeing good activity levels from customers and our opportunity funnel remains strong.

Speaker Change: on me operational front our teams were busy in q two advancing work on a number of programs

Speaker Change: on the teleside lights speed program we continue to make good progress on ramp-up activities in the quarter including progressing early design work and system requirements analysis

Michael Greenley: We've also finalized the selection and onboarding of most of the suppliers for this program, with approximately 75% of the suppliers under contract as of the end of June, and that number being closer to about 90% today, setting the stage for work volumes to accelerate in the second half of 2024, consistent with our full year plan. We're also making good progress on the engineering and program procurement activities for the new non-geostationary orbit, or NGSO, satellite constellation we announced in Q4 2023 with an unnamed customer.

Speaker Change: We've also finalized the selection and onboarding of most of the suppliers for this program, with approximately 75% of the suppliers under contract as of the end of June , and that number being closer to about 90% today.

Speaker Change: setting the stage for work volumes to accelerate in the second half of 2024, consistent with our full-year plan.

Speaker Change: we are also making good progress on the engineering and program procment activities for the new non-ge stationary orbit or ngso satellite constellation we announced in q four two thousand and twenty three with an unnamed customer

Michael Greenley: We were awarded a $180 million authorization to proceed contract, which has since been expanded to close to $300 million over the past week. The full constellation, valued at a minimum of $750 million, is expected to include a minimum of 36 MDA software-defined digital satellites, our MDA Aurora product.

Speaker Change: we were awarded one hundred and eighty million dollar authorization to proceed contract which has since been expanded to close to three hundred million dollars over the past week

Speaker Change: The full constellation, valued at a minimum of $750 million, is expected to include a minimum of 36 MDA software-defined digital satellites, our MDA Aurora product.

Michael Greenley: The definitive contract for the full constellation, for which MDA will be the prime contractor, is expected this year. We also continue to advance work on the GlobalSTAR program. In Q2, the team progressed flight hardware production and flat-sat testing of the satellite bus and payload system. Additionally, following the completion of the Satellite Critical Design Review in 2023, the team is currently progressing towards a Spacecraft Integration Readiness Review to take place this quarter. As you know, NBA Space is the prime contractor to enhance Globalstar's LEO constellation through the addition of 17 satellites, which support SOS features and direct-to-device communication on certain Apple products.

Speaker Change: The definitive contract for the full constellation, for which MDA will be the prime contractor, is expected this year.

Speaker Change: we also continue to advance work on the global star program in q two the team progress plate hardware production and flat satat testing of the satellite bus in payload systems

Speaker Change: Additionally, following the completion of the Satellite Critical Design Review in 2023, the team is currently progressing towards a Spacecraft Integration Readiness Review to take place this quarter.

Speaker Change: As you know, NBA Space is the satellite prime contractor to enhance Global Star's Leo constellation through the addition of 17 satellites, which support SOS features and direct-to-device communication on certain Apple products.

Michael Greenley: Moving to our geointelligence business, customer demand for our Earth observation offerings remains robust, and we are seeing increased recognition of the role that commercial Earth observation satellites can play to provide near real-time data and analytics to governments and private enterprises. In Q2, we received a contract from the National Research Council of Canada to support the development, construction, and integration of radio telescope technology for the Square Kilometre Array Observatory, an international space exploration and astronomy project that seeks to further our understanding of the formation and evolution of the universe.

Speaker Change: Moving to our geointelligence business, customer demand for our Earth observation offerings remains robust, and we are seeing increased recognition of the role that commercial Earth observation satellites can play to provide near real-time data and analytics to governments and private enterprise.

Speaker Change: In Q2 we received a contract from the National Research Council of Canada to support the development, construction, and integration of radio telescope technology.

Speaker Change: for the Square Kilometer Array Observatory, an international space exploration and astronomy project that seeks to further our understanding of the formation and evolution of the Universe.

Michael Greenley: MDA Space will develop the project's correlator beamformer, a powerful data processing engine that will collect and process large volumes of cosmic signals received by the telescopes, giving scientists rapid access to vast quantities of new data and insight about the universe.

MDA Space: MDA Space will develop the project's correlator beamformer, a powerful data processing engine that will collect and process large volumes of cosmic signals received by the telescopes, giving scientists rapid access to vast quantities of new data and insight about the universe.

Michael Greenley: We also continue to advance work on NBA Chorus, our next-generation Earth observation constellation. Our team is currently advancing the flight model unit and subsystem-level work for the platform, payload, and bus avionics, as well as building the ground segment subsystems and detailing constellation operations plans and processes. We also recently unveiled a new Vessel Detection Onboard Processing, or VDOP, demonstration system to be added to Qorus. The New VDOP Direct, Satellite-to-Ship Service offers defense and intelligence organizations rapid access to the data and insights they need to support critical and time-sensitive maritime defense and security missions, including counter-piracy, narcotics, smuggling, illegal fishing, and human traffic.

Speaker Change: We also continue to advance work on MBA Chorus.

Speaker Change: our next generation earth observation constellation

Speaker Change: our team is currentlyadvancing the flight model unit and subsystem level work for the platform payload and by iononics as well as building the ground segment subsystems and detailing constellation operations plans and processes

Speaker Change: We also recently unveiled a new Vessel Detection Onboard Processing, or VDOP, demonstration system to be added to Quorus.

Speaker Change: the new veattop direct

Speaker Change: satellite to ship service offers defense and intelligence organizations rapid access to the data and insights theyneed to support critical and time sensitive maritime defense and security missions including counterpiracy narcotics smuggling illegal fishing and human trafficking

Michael Greenley: In terms of other notable programs, work on the Canadian Surface Combatant Program, or CSE, one of our long-term government programs, is progressing in line with our expectations. The team continues to meet our technical milestones and complete capability testing as required. Moving to our robotics and space operations business, we continue to see good traction and activity levels on both government and commercial fronts. On the government side, we continue to progress the design work for Phase B of the Canadarm3 contract, which we were awarded in early 2022, and that will see us completing the preliminary design of Canadarm3's robotic system to be used aboard the NASA-led Lunar Gateway. In Q2, the team completed the initial set of preliminary design review milestones, with full PDR completion expected in Q3.

Speaker Change: in terms of other notable programs work on the canadian service combat program or c one of our long-term government programs is progressing in line with our expectations the team continues to meet our technical milestones and complete capability testing as required

Speaker Change: moving to our robotics and space operations business we continue to see good traction and activity levels on both government and commercial fronts

Speaker Change: on the government side we continue to progress the design work of phase b of the cadarm three contract which we were awarded in early two thousand and twenty two and that will see us completing the preliminary design of kencanadarm three s robotic system to used the boardof the nasa led lunar gateway

Speaker Change: in q two the team completed the initial set of preliminary design review milestones with pdr full completion expected in q three

Michael Greenley: As I noted in my previous remarks, in Q2, we also announced that MDA Space had been awarded a $1 billion contract from the CSA for the next phases of the Canadarm3 program, which includes funding for Phase C, the final design phase, and Phase D, the phase for construction, assembly, integration, and test of the full robotic system, as well as the ground segment for command and control. NDA Space will support commissioning of the Canadarm3 robotic system once in orbit from our new mission control facility at our global headquarters and Space Robotics Center of Excellence in Brampton, Ontario. The contract will also include planning and personnel training in preparation for on-orbit mission operations. We expect work volume on Phase C to ramp up over the balance of 2024.

Speaker Change: As I noted in my previous remarks, in Q2 we also announced that MDA Space has been awarded a $1 billion contract from the CSA for the next phases of the Canadarm3 program.

Speaker Change: which includes funding for face see the final design phase and phase d the phase for construction assembly integration and test of the full robotic system as well as the ground segment for commandic control

Speaker Change: nba space will support commissioning of the canadam three robotic system once an orbit from our new mission control facility at our global headquarters and space robotic center of excellence in brampssonon ontario

Speaker Change: the contract will also include planning and personnel training in preparation of for on-orbit mission operations

Speaker Change: We expect work volume on Phase C to ramp up over the balance of 2024.

Michael Greenley: In Q2, MDA Space also received a $250 million contract extension from the Canadian Space Agency to provide ongoing recurring engineering support to the International Space Station Robotics, which includes Canadarm2 as part of Canada's commitment to support the ISS from 2025 until its planned retirement in 2030. As part of the contract, MDA Space will now fulfill robotics flight controller duties to support mission operations on the ISS. MDA Space has been working alongside the Canadian Space Agency and its international partners since 2001.

Speaker Change: In Q2, we also received a $250 million contract extension from the Canadian Space Agency to provide ongoing, recurring engineering support to the International Space Station Robotics

Speaker Change: which includes canadaarm t as part of canada's commitment to support the iss for two thousand and twenty five until its planned retirement in two thousand and thirty

Speaker Change: As part of the contract, MDA Space will now fulfill robotics flight controller duties to support mission operations on the ISS. MDA Space has been working alongside the Canadian Space Agency and its international partners since 2001.

Michael Greenley: On the commercial side, we continue to explore opportunities to incorporate our robotic technology in applications to support space exploration and mobility. During the quarter, we announced that MDA Space has joined Starlab Space LLC, a global joint venture between Voyager Space, Airbus, and Mitsubishi Corporation as a strategic partner and equity owner in Starlab Space. Starlab is designing, building, and will operate the Starlab Commercial Space Station. MDA Space joins the STAR Lab team to provide the full range of external robotics, robotic interfaces, and robotic mission operations to the station, including our recently launched full suite of scalable and modular robotics solutions, MDA SkyMaker, which can be tailored to support a diverse range of missions.

Speaker Change: On the commercial side, we continue to explore opportunities to incorporate our robotic technology on applications to support space exploration and mobility.

Speaker Change: During the quarter, we announced that MDA Space has joined Starlab Space LLC, a global joint venture between Voyager Space, Airbus, and Mitsubishi Corporation, as a strategic partner and equity owner in Starlab Space.

Speaker Change: Starlab is designing, building, and will operate the Starlab Commercial Space Station.

Speaker Change: MBA Space joins the STAR Lab team to provide the full range of external robotics, robotic interfaces, and robotic mission operations to the station.

Speaker Change: including our recently launched full suite of scalable and modular robotic solutions, MDA SkyMaker, which can be tailored to support a diverse range of missions.

Michael Greenley: This partnership serves as another validation of the capability and value that MDA SkyMaker offers to the emerging commercial space exploration and infrastructure market. Shifting to operations of the business, we continue our hiring efforts to support the anticipated revenue ramp-up. Approximately 900 new hires have been brought on over the last 12 months. With more than 3,000 highly skilled MDA space staff today, we have the people and the talent to help propel our growth and give us the scale to execute on the market opportunities we see emerging.

Speaker Change: This partnership serves as another validation of the capability and value that MDA SkyMaker offers to the emerging commercial space exploration and infrastructure market.

Speaker Change: shifting to operations of the business we continue our hiring efforts to support the anticipated revenue rampom

Speaker Change: approximately nine hundred new hires have been brought on over the last twelve months with more than three thousand how they illed m the a space staff today we have the people and the talent to help propelour growth and give us a scale to execute on the market opportunities we see emerging

Michael Greenley: I am also pleased to share that in Q2, we ratified a number of collective bargaining agreements associated with our operations in Brampton, as well as members of CSN associated with our operations in Quebec. We're pleased to have these new collective agreements now in place to support our growth in the years ahead. To recap, we are pleased with our performance this quarter. With momentum building across our operations, our team is energized, and we remain laser-focused on our priorities.

Speaker Change: I am also pleased to share that in Q2 we ratified a number of collective bargaining agreements associated with our operations in Brampton, as well as members of CSN associated with our operations in Quebec.

Speaker Change: We're pleased to have these new collective agreements now in place to support our growth in the years ahead.

Speaker Change: To recap, we are pleased with our performance this quarter.

Speaker Change: With momentum building across our operations, our team is energized, and we remain laser-focused on our priorities.

Michael Greenley: A strong focus on execution, converting opportunities in our pipeline to 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 Jen to walk us through the detailed financials.

Speaker Change: A strong focus on execution, converting opportunities in our pipeline to backlog, and expanding our leadership in core markets, while maintaining strong profitability and a healthy balance sheet to help us fund our growth initiatives.

Speaker Change: With that, I'll hand it over to Jen to walk us through the detailed financials.

Janet McEachern: Thank you, Mike, and good morning, everyone. For my update, I will walk you through our Q2 financial results and provide more color on our 2024 outlook. Overall, Q2 was a strong quarter for MDA Space, and we are pleased with how the team is executing. In the quarter, we saw solid revenue growth and profitability, and a record backlog at quarter end, which all bode well for our performance in 2024. Total revenues for the second quarter were $242 million.

Jen: thank you mike you good morning everyone for my update i will wal you through our q two financial results and provide more color on our two thousand and twentyfour outlook

Jen: overall q t was a strong quarter for nda space and we are pleased with how the team is executing in the quarter we saw solid revenue growth and profitability and record backlog at quarter end which all bode well for our performance in two thousand and twenty four

Jen: Total revenues for the second quarter were $242 million. This represents a $46 million or 23.5% increase over the same period last year.

Janet McEachern: This represents a $46 million, or 23.5%, increase over the same period last year. The year-over-year increase is driven by higher work volumes across our three business areas, with strong contributions this quarter from the Robotics and Space Operations and Satellite Systems business. By business area, revenue and satellite systems of $108.8 million in the second quarter of 2024 were $19.4 million, or 21.7% higher compared to the same quarter in 2023. The strong showing was driven by higher contributions from new programs, including Telesat Lightspeed in Q2 2024.

Speaker Change: the year-over-year increase is driven by higher work volumes across our three business areas with strong contributions in quarter from the robotics and space operations in satellite systems businesses

Speaker Change: By business area, revenue and satellite systems of $108.8 million in the second quarter of 2024 were $19.4 million or 21.7% higher compared to the same quarter in 2023.

Speaker Change: The strong showing was driven by higher contributions from new programs, including Telesat Lightspeed in Q2 2024.

Janet McEachern: In Robotics and Space Operations, we saw solid year-over-year growth with revenues of $78.3 million in the latest quarter, representing $19.6 million, or a 33.4% increase versus Q2 of last year. The growth is largely attributable to the high volume of work performed on the Canada Arm 3 program. Revenues in our Geointelligence business of $54.9 million in the latest quarter represent an increase of $7 million or 14.6% year-over-year, reflecting higher work volume on the CSC program. Moving to Gross Process.

Jen: In Robotics and Space Operations, we saw solid year-over-year growth with revenues of $78.3 million in the latest quarter, representing $19.6 million or a 33.4% increase versus Q2 of last year.

Jen: the growth is largely attributable to high volume a work performed on the canada arm three program

Jen: Revenues in our Geointelligence business of $54.9 million in the latest quarter represents an increase of $7 million or 14.6% year-over-year, reflecting higher work volume on the CSC program.

Janet McEachern: As a reminder, gross profit represents our revenues, less cost of revenue, which includes materials, labor, subcontractor costs, allocated overhead, shred credits, and depreciation. For Q2 2024, gross profit was $66.2 million, representing a $4.9 million or 8% increase over the same period last year, driven by higher work volumes in the current quarter. Gross margin in the latest quarter was 27.4%, which is in line with our expectations and compares to 31.3% for the same period in 2023. The year-over-year change in gross margin is driven by an evolving program mix and higher depreciation expense as new assets come into service.

Jen: Moving to gross profit.

Speaker Change: As a reminder, gross profit represents our revenues, less cost of revenue, which includes materials, labor, subcontractor costs, allocated overhead, shred credit, and depreciation.

Speaker Change: for q two two thousandand twenty-four gross profit was sixty-six point two million representing a four point nine million or eight percent increase over their same period last year driven by higher work volume in the current quarter

Speaker Change: Gross margin in the latest quarter was 27.4%, which is in line with our expectations and compares to 31.3% for the same period in 2023.

Speaker Change: The year-over-year change in gross margins is driven by evolving program mix and higher depreciation expense as new assets come into service.

Janet McEachern: Q2 operating expenses of $44.1 million were slightly above last year's metric of $42 million, primarily reflecting an expansion of our SG&A function as work volumes grow. Adjusted EBITDA in the latest quarter was $48.7 million, compared to $40.4 million in Q2 2023, representing an increase of $8.3 million, or 20.5%, year-over-year, driven by higher volumes of work and steady operating expenses. Adjusted EBITDA margin of 20.1% in Q2 2024 is consistent with the company's full year margin guidance of 19 to 20% and compares to an adjusted EBITDA margin of 20.6% reported in the second quarter of 2023.

Speaker Change: Q2 operating expenses of $44.1 million were slightly above last year's metric of $42 million, primarily reflecting an expansion of our SG&A function as work volumes grow.

Jen: Adjusted EBITDA in the latest quarter was $48.7 million compared to $40.4 million in Q2 2023, representing an increase of $8.3 million or 20.5% year-over-year driven by higher volume of work and steady operating expenses.

Jen: Adjusted EBITDA margin of 20.1% in Q2 2024 is consistent with the company's full year margin guidance of 19 to 20% and compares to adjusted EBITDA margin of 20.6% reported in the second quarter of 2023.

Janet McEachern: Our adjusted net income in Q2 2024 was $23.4 million, compared to $21.9 million reported in the same period in Q2 2023. The year-over-year increase of $1.5 million, or 6.8%, was driven by higher operating income in the latest quarter.

Jen: Our adjusted net income in Q2 2024 was $23.4 million compared to $21.9 million reported in the same period in Q2 2023.

Jen: the year over -year increase of one point five million or six point eight percent was driven by higher operating income in the latest quarter

Janet McEachern: Moving to backlog, we ended the quarter with $4.6 billion in backlog, representing an increase of 318% year-over-year. The growth and backlog are driven by new order bookings, including the $1 billion award for FABUS CD of the Canada Arm 3 program announced in Q2 2024, and $2.4 billion Telesat Lightspeed LEO Constellation award announced in Q3 2023, partially offset by continued conversion of our backlogs into revenue. Moving to CapEx, we remain focused on making the right investments in the business to support our strategic growth initiatives.

Jen: Moving to backlog, we ended the quarter with $4.6 billion in backlog, representing an increase of 318% year over year.

Speaker Change: the growth in backlog is driven by new order bookings including the one billion dollar award for phases cd at the canada on three program announced in q four two two thousand and twenty four and two point four billion tele setl speed leo constellation award announcin q three two thousand and twenty three

Speaker Change: Partially Offset by Continued Conversion of our Backloss into Revenue.

Jen: moving to capex we remain focused on making the right investments in the business to support our strategic growth initiatives

Janet McEachern: In Q2 2024, we spent $38.9 million on capital expenditures compared to $45.7 million last year as we continue to invest in Quorus and other growth initiatives. Growth CapEx in the latest quarter was $32.8 million, which compares to $43.7 million in Q2 2023. During the quarter, we made an $11.7 million payment related to the acquisition of Satisfye Space Systems UK Ltd., the digital payload division of Satisfye Communication Ltd., which closed in Q4 2023. We also made a $9.2 million payment related to the company's equity investment in Starlab, LLC.

Jen: in q two two thousand and twenty four we spent thirty eight point nine million on capital expenditures compared to forty five point seven million last year as we continue to invest in chorus and other growth initiatives

Jen: Growth CapEx in the latest quarter was $32.8 million, which compares to $43.7 million in Q2 2023.

Jen: During the quarter, we made an $11.7 million payment related to the acquisition of Satisfye Space Systems UK Ltd., the digital payload division of Satisfye Communication Ltd., which closed in Q4 2023.

Jen: we also made a nine point two million dollar payment related to the company's equity investment in starlab space lc

Janet McEachern: Cash from operations during the quarter generated $149 million compared to cash generation of $38.9 million in Q2 2023. The year-over-year increase was driven by positive working capital contributions primarily related to the Telesat Lightspeed Program, which generated free cash flow of $110 million in the latest quarter compared to negative $6.8 million in Q2 2023. Free cash flow after adjusting for outgrowth CapEx investments was a positive $142.9 million in Q2 2024 compared to $36.9 million reported in the same period last year.

Jen: Cash from operations during the quarter generated $149 million compared to cash generation of $38.9 million in Q2 2023. The year-over-year increase was driven by positive working capital contributions primarily related to the Telesat Lightspeed Program.

Jen: We generated free cash flow of $110 million in the latest quarter, compared to negative $6.8 million in Q2 2023.

Unknown Attendee: Conference call and webcast. This call is being recorded in August 8, 2024 at 8.30 a.m. Eastern time.

Jen: Free cash flow after adjusting outgrowth CapEx investments was positive $142.9 million in Q2 2024 compared to $36.9 million reported in the same period last year.

Unknown Attendee: Following the presentation, we will conduct a question and answer session for analysts. Instructions will be provided at the time for you to queue up for questions. If anyone has difficulty serving the conference, please press star zero for operator assistance at any time.

Janet McEachern: We expect to see positive working capital contributions throughout Q3 and Q4 of this year as we continue to ramp up activity on the Telesat Lightspeed program. Moving to our balance sheet, we ended the quarter with a strong financial position and net debt of $352.3 million, available liquidity of $293.5 million, and a net debt to trailing 12 months adjusted EBITDA ratio of 2.0 times. During the latest quarter, we made a $70 million repayment on our revolving credit facility, which is consistent with our plan to leverage the flexibility provided by that facility.

Speaker Change: we expect to see positive working capital contributions throughout q three and q four of this year as we continue to ramp up activity on the teleide tele setateit beak program

Shereen Zahawi: I'd now like to turn a conference over to me, Shereen Zahawi, Senior Director of Investor Relations at MDA. Please go ahead. Thank you, operator.

Speaker Change: Moving to our balance sheet, we ended the quarter with a strong financial position and net debt of $352.3 million, available liquidity of $293.5 million and net debt to trailing 12 months, adjusted EBITDA ratio of 2.0 times.

Michael Greenley: Good morning and welcome to MDA Space 2nd quarter 2024 earnings call.

Michael Greenley: Mike Greenley, our CEO and Janet McEachern, our interim CFO will lead today's call and share some prepared remarks before taking your questions. 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. In addition, during this call, we will refer to certain non-IFRS financial measures.

Speaker Change: during the latest quarter we made a seventy million dollar repayment to our revolving credit facility which is consistent with our plan to leverage the flexibility provided by that facility

Janet McEachern: In summary, this was a solid quarter, and our business continues to perform in line with our expectations. We are encouraged and energized by the positive momentum we are seeing across our business. Let me now turn to our outlook.

Speaker Change: In summary, this was a solid quarter and our business continues to perform in line with our expectations.

Michael Greenley: 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.

Speaker Change: we are encouraged and energized by the positive momentum we are seeing across our businesses

Janet McEachern: As Mike noted, we are updating our financial outlook and are well positioned to capitalize on strong customer demand and robust market activity. For Fiscal 2024, we are raising our full-year revenue guidance to $1.02 to $1.06 billion from $950 million to $1.05 billion previously, representing robust year-over-year growth of approximately 30% at the midpoint of guidance compared to 2023 levels. We continue to expect revenue growth to accelerate in the second half of 2024 as we ramp up work volumes on a number of programs.

Speaker Change: let me now turn to our outlook as d like notice we are updating our financial outlook and are well positioned to capitalize on strong customer customer demand and robust market activity

Speaker Change: for fiscal two thousand and twenty four we are raising our full year revenue guidance to one point zero two to one point zero six billion from nine hundred and fifty million to one point zero five billion previously

Michael Greenley: And with that, it's my pleasure to turn the call over to Mike. Thank you, Shereen. Good morning, everyone. And thank you to those joining us today to discuss our 2nd quarter 2024 financial results. Q2 was a strong quarter for MDA Space from both an execution perspective and a momentum perspective that we are seeing in our end markets. The team delivered solid performance. As we continue to convert our backlog, execute on our customer commitments and grow our bulk of business.

Speaker Change: representing robust year-over-year growth of approximately 30% at the midpoint of guidance compared to 2023 levels.

Speaker Change: We continue to expect revenue growth to accelerate in the second half of 2024 as we ramp up work volumes on a number of programs.

Janet McEachern: We are narrowing our 2024 adjusted EBITDA guidance to $200 million to $210 million from $190 to $210 million previously, representing approximately 19 to 20% adjusted EBITDA margin. We are narrowing our 2024 capital expenditures range to $200 million to $220 million from $210 million to $230 million previously, comprising primarily of growth investments to support Chorus and the previously outlined growth initiatives across our three business areas. Additionally, as a result of favorable working capital contributions related primarily to the Telesat Lightspeed program, we now expect to generate free cash flow and continue to deleverage our balance sheet in 2024.

Speaker Change: We are narrowing our 2024 Adjusted EBITDA guidance to $200 million to $210 million from $190 to $210 million previously, representing approximately 19 to 20% Adjusted EBITDA margin.

Michael Greenley: Our Q2 revenues totaled $242 million of 23% year over year and our backlogs stood at a record $4.6 billion at quarter end up 318% versus Q2 2023. Adjusted even in the quarter was $49 million up 21% versus last year and adjusted EBITDA margin was a solid 20%. Operating cash flow was strong at $149 million and we ended the quarter with a healthy balance sheet as our leverage ratio declined sequentially.

Speaker Change: We are narrowing our 2024 capital expenditures range to $200 to $220 million from $210 to $230 million previously, comprising primarily of growth investments to support Chorus and the previously outlined growth initiatives across our three business areas.

Speaker Change: Additionally, as a result of favorable working capital contributions related primarily to the Telesat Lightspeed program, we now expect to generate free cash flow and continue to deleverage our balance sheet in 2024.

Michael Greenley: Given the strong year-to-date performance, we are updating our full year 2024 financial outlook. We are raising our guidance for revenue and narrowing our guidance for adjusted EBITDA and CAPEX. Additionally, giving favorable operating cash flow dynamics, we also expect to be free cash flow positive in 2024, one year ahead of our plan. That's the first time I got to say that out loud. That's kind of fun. I'm going to say that again. We also expect to be free cash flow positive in 2024, one year ahead of plan. That's fun to say.

Janet McEachern: Turning to Q3 2024, we expect revenues to be $270-$280 million as we continue to execute on our backlog. With strong operational performance and a record backlog, we are well positioned for 2024 and beyond and look forward to delivering another successful year. Mike, with that, I'll turn it back to you.

Speaker Change: Turning to Q3 2024, we expect revenues to be $270 to $280 million as we continue to execute on our backlog.

Speaker Change: With strong operational performance and a record backlog, we are well positioned for 2024 and beyond, and look forward to delivering another successful year. Mike, with that, I'll turn it back to you.

Operator: With that operator, we will open it up to questions.

Michael Greenley: In terms of business activity, we secured a number of contract awards in the quarter with notable ones, including a $1 billion contract from the Canadian Space Agency, or CSA, for the next phases of the Canadarm 3 program.

Mike: Thank you, Janet.

Mike: With that, Operator, we will open it up to questions.

Operator: Thank you, ladies and gentlemen. We will now begin the question-and-answer session for your analysts. Should you have a question, please press star followed by the 1 on your telephone keypad. Should you wish to cancel your request, please press star followed by the 2. And if you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Konark Gupta from Scotiabank. Please go ahead

Speaker Change: Thank you, ladies and gentlemen. We will now begin the question-and-answer session for your analysts. Should you have a question, please press star followed by the 1 on your telephone keypad. Should you wish to cancel your request, please press star followed by the 2. And if you are using a speakerphone, please lift the handset before pressing any keys.

Michael Greenley: That will CMDA space finalizing the design and carrying out the construction of the robotic system and the ground control segment. We also received a $250 million contract extension from the CSA to continue supporting robotic operations on the International Space Station until its planned retirement in 2030.

Speaker Change: Your first question comes from the line of Konark Gupta from Scotiabank. Please go ahead.

Konark Gupta: Thanks and good morning. Congratulations on a good quarter. I wanted to ask Janet perhaps, on working capital. It seems like it was a pretty strong contributor this quarter. And I think you guys pointed out the Teleset contract, and it seems like you're expecting working capital to be positive in Q3 and Q4. Can you help us understand sort of the movement and the cash flows from the contract versus revenue? I'm like, it seems like you're getting obviously cash in first, and the revenue bill is kind of gradually ramping up over a period of time. So when do we see some sort of equilibrium between the cash flow and the revenue on the Teleset contract?

Michael Greenley: None of this, of course, would be possible without the hard work and dedication of the entire MBA space team who I'd like to thank and acknowledge.

Konark Gupta: Thanks and good morning. Congrats on a good quarter.

Speaker Change: i i want to do i want to ask janet gramps on the working capital seems like it gowases a pret strong contributor

Michael Greenley: In early July, we shared the Vito Culmone CFO of MBA space as the part of the company to pursue another career opportunity. I'd like to extend my sincere thanks to Vito for his contributions over the past three years. The entire MBA space team and the board wishing well.

Konark Gupta: This quarter, and I think you guys pointed out the Telesat contract, and it seems like you're expecting.

Michael Greenley: I'd also like to welcome Janet McEachern, our VP Finance and Interim CFO, who will be replacing Vito until we announce a permanent replacement. As Vice President Finance leading our corporate finance functions at MBA space, Janet has a deep understanding of our business. I look forward to working with her as we search for a permanent CFO. The search process is well underway and I am pleased with the caliber of candidates we are speaking with and confident that we can bring in the right individual for the role.

Speaker Change: Working Cap to be positive in Q3 and Q4. Can you help us understand sort of the movement in the cash flows from the contract versus the revenue? I'm like, it seems like you're getting obviously cash.

Speaker Change: and the revenue bill, the bill is kind of you know, ramping up over a period of time you know gradually. So when do we see sort of the the equilibrium between the cash flow and the revenue on the Credit Center Contract?

Janet McEachern: I think, you know, as we've mentioned previously in calls, cash and revenue don't always follow one another. So you're absolutely right that we do expect some positive cash flow from that program this year. Obviously, our revenue will ramp up, and it's based on, you know, labor and delivering on labor subcontract costs and equipment that would need to be delivered in years. So I think you will see some positive cash contributions, but that does not align with our revenue that's in our forecast for this year. And then as the out years go on, you'll start to see those converge a little bit more, but nothing driving any large swings over the period that we see in front of us.

Speaker Change: Thanks.

Speaker Change: i think you know aswe've mentioned previously in calls we' the cashand revenue don't always follow on another so you're absolutely right that we do expect some positive cash flow from that program this year obviously our revenue will ramp up and 's based on you know labor and delivering on labor sub contract costs and equipment that would need to be delivered in year so i think you will see some positive cash contributions but that doesn not ign to our revenuethats in our forecast for this year and then as the years go on you'll start to see those convertedge a little bit more but nothing driving any large swings over the period that we see in front of us

Michael Greenley: I'll now give you a view of the industry, an update on our three MBA space business areas, and then I'll pass it over to Janet for a deep dive on the financials. As we have seen in previous quarters, the broader space market continues to expand, mature, and gain momentum. There are few items worth highlighting. Starting in Canada, the Department of National Defense announced in late May the establishment of the Canadian Commercial Integration Cell, a new space operations, information sharing structure and framework that enables secure discussions and data sharing between the Canadian Armed Forces and industry partners that operate satellites, with MBA space and telecyte being the first two members.

Michael Greenley: And on Khorus, can you update us where you stand today with respect to the capital deployment on that Khorus project and, you know, in terms of development, are we on track for a late 2025 launch and any update on customer distribution there as well?

Speaker Change: And that's helpful, thanks. And on Khorus, can you update us where you stand today with respect to the capital deployment on that Khorus project and, you know, in terms of development, are we on track for late 2025 launch and any update on customer decision there as well? Thanks.

Michael Greenley: We commend the Government of Canada for taking this important step to facilitate real-time collaboration between government and the commercial space industry at a speed and level that the emerging space domain demands. This follows on the heels of an announcement in April that the Canadian Government is establishing a National Space Council, which will take a whole of government approach to support space exploration, space utilization, technology development, research, and security. The new space council will be comprised of more than 20 federal government departments and agencies, is designed to enable greater coherence and collaboration to address issues that span commercial, civil, and space domains.

Michael Greenley: Yeah, so the course is going well. The project is on track. We are on schedule. We are on track in terms of our spending. We previously indicated that, you know, the majority of our spending would be completed as we get through 24. That remains true.

Speaker Change: yes so course is going well the project is on track we are schedule we are on track in terms of our spending we previously indicated that you know of the majority of our spend would be completed as we get through twenty four that remains true

Michael Greenley: We will still have some spending in 25 and, of course, expenditures associated with launch costs and the like. So, you know, that will still occur, but we're completely on track. The customer conversations are going excellently, and so we were talking to literally dozens of potential customers around the world, some of whom are existing customers of Radarsat-2, and some of whom are new customers that will come into Quorus. The team has a bit of a ladder system in terms of signing up customers, starting with a letter of intent in terms of people indicating their intent to procure from Quorus and then moving right up to actual committed purchase orders of Quorus data.

Speaker Change: we will still have some spend in twenty five and of course expenditures associated with unch cost and alike so you know that will still occur but words completely on track the customer conversations are going excellent and so we were talking to literally dozens of potential customers around the world some of whom are existing customers or rad ar set to some of whom are new customers that will come into ch

Michael Greenley: We look forward to engaging with the National Space Council in exploring new ways for the Canadian commercial space sector to meet the full spectrum of growing government needs for space services, infrastructure, and data. Globally, we continue to see increased interest in space exploration, with Armenia, Peru, Lithuania, and Slovakia, begin the latest countries to sign on to NASA's Artemis Accords, signaling their commitment to safe, long-term, and ethical space exploration. The latest entries bring the group size to 43 nations as we continue to see interest from many non-traditional space-faring nations which are now building their own national space programs, a development that bodes well for the broader space market.

Speaker Change: The team has a bit of a ladder system in terms of signing up customers, starting with a letter of intent in terms of people indicating their intent to procure from Quorus and then moving right up to actual committed purchase orders of Quorus data. So the business development teams are working literally dozens of customers through that ladder of progress.

Speaker Change: Both for the data, and then some customers will need to upgrade their ground stations to receive, those customers that want to receive direct data from the KORUS Constellation directly to their ground station, there will be some ground station upgrade contracts. So all of those are in full swing, the team is very busy, and as we expected, that part of the process is heating up.

Michael Greenley: Now I'll turn to our three business areas. In satellite systems, we are seeing good momentum in this market with our teams working to advance multiple requests for communication satellite solutions and a growing number of constellation projects. We are also seeing good activity levels from customers, and our opportunity funnel remains strong. On the operational front, our teams were busy in Q2, advancing work on a number of programs. On the tell us at Lightspeed Program, we continue to make good progress on ramp-up activities in the quarter, including progressing early design work and system requirements analysis.

Michael Greenley: We've also finalized the selection and onboarding of most of the suppliers for this program, with approximately 75% of the suppliers under contract as of the end of June, and that number being close to about 90% today, setting the stage for work volumes to accelerate in the second half of 2024, consistent with our full-year plan. We are also making good progress on the engineering and program procurement activities for the new non-geostationary orbit, or NGSO satellite constellation we announced in Q4 2023 with an unnamed customer.

Michael Greenley: And so the business development teams are working literally dozens of customers through that ladder of progress, both for the data, and then some customers will need to upgrade their ground stations to receive those customers that want to receive direct data from the Quorus constellation directly to their ground station. There will be some ground station upgrade contracts. So, all of those are in full swing. The team is very busy, and, as we expected, it's, you know, that part of the process is heating up. Once we announced a potential launch date a little less than a year ago, that threw the switch for everybody starting to work with us to make sure that everyone's ready to receive service. It's going well.

Speaker Change: Once we announced a potential launch date a little less than a year ago, that throws the switch for everybody starting to work with us to make sure that everyone's ready to receive service.

Konark Gupta: Great. That's good to hear. Thanks. I'll pass the line.

Speaker Change: It's going well

Speaker Change: great let's look to pan cell ppass a line

Operator: Thank you. And your next question comes from the line of Doug Taylor from Connecticut University. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Thank you. And your next question comes from the line of Doug Taylor from Kennecott Genuity. Please go ahead.

Doug Taylor: Yeah, thank you. Good morning, and congratulations on a fantastic quarter and upgraded outlook.

Doug Taylor: Thank you, good morning, and congratulations on a fantastic quarter and upgraded outlook.

Doug Taylor: Mike, I get a lot of questions about the de-risking of the Lightspeed program, not only regarding, you know, the financing of the program but also the ability to deliver technically, ramp up the facility, and do all that against a budget. So, the question is, with 90% of the supply chain now under contract and payments starting to flow from Telesat, would you say the program has been substantially de-risked here? Or what do you see as the main concern? Hurdles or milestones we should think about going forward as you execute against them.

Mike: Mike, I get a lot of questions about the de-risking of the Lightspeed program, not only regarding the financing of the program, but also the ability to deliver technically.

Speaker Change: ramp up the facility i and do all that against budget so a question is with ninety percent of the supply chain now under contract and payments starting to flow from teus that would you say the program has been substantially isk here or what do you see is the main

Michael Greenley: We were awarded a $180 million authorization to proceed contract, which has since been expanded to close to $300 million over the past week. The full constellation, valued at a minimum of $750 million, is expected to include a minimum of 36 MDA software to find digital satellites, our MDA Aurora product. The definitive contract for the full constellation for which MDA will be the prime contractor is expected this year. We also continue to advance work on the global star program.

Speaker Change: hurdles or milestones we should think about going forward as you execute against that.

Michael Greenley: Yeah, so from our perspective, we have a contract that you've mentioned, and we're absolutely executing under that contract. Our suppliers are now largely all under contract.

Speaker Change: Yeah, so from our perspective, we have a contract that you've mentioned, we're absolutely executing under that contract. Our suppliers are now largely all under contract. And as we mentioned, and as our results show, you know, we are being paid, cash is flowing and we are executing on the project well.

Michael Greenley: And as we mentioned, and as our results show, you know, we are being paid, cash is flowing, and we are executing on the project well. The focus, therefore, is absolutely on the technical execution of the work, which the teams are laser focused on. As we go through the fall, the Q3, Q4 period, we will get past our preliminary design review on the project and get all that signed off. And that's the next key milestone that we're working on. So that definitely remains the focus. It's all going well, but it is absolutely the focus. This is the MDA Aurora digital satellite product, a sort of world leading, leading-edge digital satellite product.

Speaker Change: The focus, therefore, is absolutely on technical execution of the work.

Michael Greenley: In Q2, the team progressed light hardware production and flat-sat testing of the satellite bus and payload systems. Additionally, following the completion of the satellite critical design review in 2023, the team is currently progressing towards a spacecraft integration readiness review to take place this quarter. As you know, MDA spaced as the satellite prime contractor to enhance global star's Leo constellation through the addition of 17 satellites, which support SOS features and direct-to-device communication on certain Apple products.

Mike: which the teams are laser focused on. As we go through the fall, the Q3-Q4 period, we will get past our preliminary design review on the project and get all that signed off.

Mike: and that's the next key milestone that we're working on, so that definitely remains the focus. It's all going well.

Mike: but it is absolutely the focus. This is a, the MDA Aurora digital satellite product is a sort of world leading, leading edge digital satellite product. The teams really have everything in hand and it's just good hard work.

Michael Greenley: The teams really have everything in hand, and it's just good hard work. In terms of the facility expansion that we are putting into our Montreal satellite systems facility to ensure that MDA Aurora production can ramp up to our target of at least two satellites per day, that is all progressing. We have absolutely broken ground on that.

Michael Greenley: Moving to our G1 intelligence business, customer demand for our Earth observation offerings remains robust, and we are seeing increased recognition of the role that commercial Earth observation satellites can play to provide near real-time data and analytics to governments and private enterprise. In Q2, we received a contract from the National Research Council of Canada to support the development, construction, and integration of radio telescope technology for the square kilometer array observatory, an international space exploration and astronomy project that seeks to further our understanding of the formation and evolution of the universe.

Mike: In terms of the facility expansion that we are putting into our Montreal Satellite Systems facility to ensure that the MDA Aurora production can ramp up to our target of at least two satellites per day. That is all progressing. We have absolutely broken ground on that. There's all kinds of construction vehicles all over the place and temporary parking and all those things.

Michael Greenley: There are all kinds of construction vehicles all over the place, and temporary parking and all those things. And as the expansion progresses, all the long-lead items, things like steel and the like, have all been on order and will start to come in as we go through the next few months. The current goal is to have the structure, the exterior structure of the building, completed prior to winter and have it sealed in so that the construction crews can work on the insides of the building as they go through the winter and the first half of 2025. So everything is progressing technically on the satellites and from a facility perspective according to schedule.

Mike: And as the expansion progresses, all the long-lead items, things like steel and the like, have all been on order and will start to come in as we go through the next few months. The current goal is to have the structure, the exterior structure of the building.

Michael Greenley: MDA space will develop the project's correlator beamformer, a powerful data processing engine that will collect and process large volume of cosmic signals received by the telescopes, giving scientists rapid access to vast quantities of new data and insight about the universe. We also continue to advance work on MBA chorus, our next-generation Earth observation constellation. Our team is currently advancing the flight model unit and subsystem level work for the platform payload and bus avionics, as well as building the ground segment subsystems and detailing constellation operations plans and processes.

Mike: completed prior to winter and have its sealed in so that the construction crews can work on the inssideids of the building as they go through the winter and the first half of two thousand and twenty five so everything is progressing technically on the satellites and from a facility perspective according to schedule

Doug Taylor: It kind of brings me to my next question, which is a follow-up on Konark's as well, you've reduced your CapEx budget for this year a little. Yeah, is that savings related to Unknown Attendee, Konark Gupta, Thanos Moschopoulos, Shereen Zahawi, Vito Culmone, Michael Greenley, John Risley, Stephen Strackhouse, Unknown Attendee, Konark Gupta, Thanos Moschopoulos, Shereen Zahawi, Vito Culmone, Michael Greenley, John Risley, John Risley, Unknown Attendee, holiday you might see next year or not, you know, just The degree to which you still have growth CAPEX in the forecast as you work through either the Montreal build or to support your other programs.

Speaker Change: It kind of brings me to my next question, which is a follow-up on Konark's as well.

Speaker Change: You've reduced your CapEx budget for this year a little.

Michael Greenley: We also recently unveiled a new vessel detection onboard processing or VDOB demonstration system to be added to chorus. The new VDOB direct satellite to ship service offers defense and intelligence organizations rapid access to the data and insights they need to support critical and time sensitive maritime defense and security missions, including counter-piracy, narcotics, smuggling, illegal fishing and human traffic.

Speaker Change: You know chorus or otherwise are there things moving out to next year and perhaps you can speak to You know chorus or otherwise the overall directionality and magnitude of the you know the capex

Speaker Change: holiday you might see next year or or not you know just

Speaker Change: The degree to which you still have growth CAPEX in the forecast as you work through either the Montreal build or to support your other programs.

Michael Greenley: In terms of other notable programs, work on the Canadian Surface Combatant Program, or CSE, one of our long-term government programs is progressing in line with our expectations. The team continues to meet our technical milestones and complete capability testing, as required.

Michael Greenley: Yeah, no problem. So, there's a little bit of stuff that slipped from 24 to 25. That's why you see us doing a bit of a reduction. But that has nothing to do with Chorus.

Speaker Change: Yeah, no problem. So there's a little bit of stuff that slipped from 24 to 25. That's why you see us doing a bit of a reduction. That has nothing to do with Chorus. Chorus is absolutely continuing to be on track and spend at the planned pace.

Michael Greenley: Chorus is absolutely continuing to be on track and spend at the planned pace. Some of it relates to Montreal, the facility expansion in terms of, you know, just exactly when things happen and when you pay for them in terms of, for example, when you're starting a large construction project. So, you know, based on when materials are coming in and when you have to pay for them, estimates were made of what would happen in Q4.

Michael Greenley: Moving to our robotics and space operations business, we continue to see good traction and activity levels on both government and commercial fronts. On the government side, we continue to progress the design work of phase B of the Canada Arm 3 contract, which we were awarded in early 2022, and that will see us completing the preliminary design of Canada Arm 3's robotic system to be used aboard the NASA-led Lunar Gateway. In Q2, the team completed the initial setup preliminary design review milestones, with PDR full completion expected in Q3.

Mike: Some of it relates to Montreal, the facility expansion in terms of, you know, just exactly when things happen and when you pay for them in terms of, as all the, you're starting a large construction project. So, you know, based on when materials are coming in and when you have to pay for them, you know, estimates were made of what would happen in Q4, some of that's going to be Q1 payments. So, you know, that, that, those sort of adjustments are being made here as people can see the end of the year.

Michael Greenley: Some of that's going to be Q1 payments. So, you know, those sort of adjustments are being made here as people can see the end of the year. In terms of the overall level of CapEx spend, you know, as we're floating around this, you know, 200 million-ish a year range, you know, we continue to be at that level. We still have growth CapEx to expend in 2025 for sure as our sort of, you know, sort of last year of the big growth CapEx thing, and then it starts to drop down markedly according to current business plans in 2026.

Mike: In terms of the overall level of CapEx spend, as we're floating around this $200 million-ish a year range, we continue to be at that level. We still have growth CapEx to expend in 2025 for sure.

Michael Greenley: As I noted in my previous remarks, in Q2, we also announced an MDA space has been awarded a $1 billion contract from the CSA for the next phases of the Canada Arm 3 program, which includes funding for phase C, the final design phase, and phase D, the phase for construction, assembly, integration, and test of the full robotic system, as well as the ground segment for command and control. MDA space will support commissioning of the Canada Arm 3 robotic system once in orbit from our new mission control facility at our global headquarters and space robotic center of excellence in Brampton Ontario.

Mike: as our sort of, you know, sort of last year of the big growth CapEx thing and then it starts to drop down markedly according to current business plans in 2026.

Michael Greenley: Recognizing, of course, that as the business continues to grow at, you know, what we've been seeing here, at least as for this 25% to 30%, at least annual increase pace, our EBITDA continues to really grow as well. And we continue to demonstrate the conversion of adjusted EBITDA at the sort of 75 to 85% level into operating cash flow, which gives us the tools to, you know, now start to, you know, live in this sort of new free cash flow world that we're living in and manage this in an

Mike: Recognizing, of course, that as the business continues to grow at, you know, what we've been seeing here, at least as far as this 25 to 30 percent, at least, annual increase pace, you know, our EBITDA continues to really grow as well, and we continue to demonstrate you.

Michael Greenley: The contract will also include planning and personnel training in preparation for on-orbit mission operations. We expect work volume on phase C to ramp up over the balance of 2024. In Q2, we also receive the $250 million contract extension from the Canadian Space Agency to provide ongoing recurring engineering support to the International Space Station Robotics, which includes Canada Arm 2 as part of Canada's commitment to support the ISS from 2025 until its planned retirement in 2030. As part of the contract, MDA space will now fulfill robotics flight controller duties to support mission operations on the ISS. MDA space has been working alongside the Canadian Space Agency and its international partners since 2001.

Mike: conversion of adjusted EBITDA at the sort of 75 to 85 percent level into operating cash flow you know which gives us the tools to you know now start to you know be able to live in this sort of new free cash flow world that we're living in and and manage this in a new way

Doug Taylor: So, just to put a finer point on that, you'd expect a similar amount of CapEx here, despite the chorus ramping down, larger than the Montreal facility, to offset, and Unknown Speaker 20-25 minutes. That's true. Yes, that is true.

Speaker Change: So, just to put a finer point on that, you'd expect a similar amount of CapEx.

Mike: Next year, despite Chorus ramping down as, you know, larger than Montreal facility expenditures increase to offset, and then an actual decrease in absolute terms in 26 and beyond.

Michael Greenley: And there are some additional expenses next year, even though we're not like, you know, building chorus as much, we do have some launch expenses and things like that that get moved around. In addition, we continue to invest in commercial robotics with the MDA Skymaker product. And there are some investments around MDA Aurora, our digital satellite product. So yes, yes, it will do what you said, but I'm just rounding out the reasons in terms of what the money's being spent on. But yes. Okay, thank you for clarifying, and I'll pass on.

Speaker Change: That's true, yes, that is true, and there are some additional expenses next year, even though we're not like building Quorus as much, we do have some launch expenses and things like that that get moved around. In addition, we continue to invest in commercial robotics in the MDA Skymaker product, and there are some investments around MDA Aurora, our digital satellite product, so yes.

Michael Greenley: On the commercial side, we continue to explore opportunities to incorporate our robotic technology on applications to support space exploration and mobility.

Michael Greenley: During the quarter, we announced the MDA space has joined Starlab Space LLC, a global joint venture between Voyager Space, Airbus, and Mitsubishi Corporation, as a strategic partner and equity owner in Starlab Space. Starlab is designing, building, and will operate the Starlab Commercial Space Station. MDA space joins the Starlab team to provide the full range of external robotics, robotic interfaces, and robotic mission operations to the station, including our recently launched full suite of scalable and modular robotic solutions, MDA Skymaker, which can be tailored to support a diverse range of missions.

Speaker Change: Yes, it will what you said, but I'm just rounding out the reasons in terms of what the money's being spent on but yes

Speaker Change: okay thank you for clarifying and i'll pass on

Operator: Thank you. And your next question comes from the line of Ken Herbert from RBC Capital Markets. Please go ahead.

Speaker Change: Thanks a lot.

Speaker Change: Thank you. And your next question comes from the line of Ken Herbert from RBC Capital Markets. Please go ahead.

Michael Greenley: This partnership serves as another validation of the capability and value that MDA Skymaker offers to the emerging commercial space exploration and infrastructure market.

Ken Herbert: Yeah, hey, Mike, maybe just to start, you're obviously exiting the first half with, I think, really good cash generation. Can you put a finer point on positive free cash this year? Does it sound like working capital will continue to be a source of cash into the second half? How much? How much could we see in the second half, or where do you think free cash generation looks exiting 24?

Ken Herbert: Morning, Ken.

Ken Herbert: Yeah, hey, good morning. Mike, maybe just to start, you're obviously exiting the first half with

Ken: I think really good cash generation. Can you put a finer point on positive free cash this year? Does it imply, sounds like working capital will continue to be a source of cash into the second half? How much?

Speaker Change: how much how much could we see in the second half of where do you think free cash generation looks exiting twenty-four

Michael Greenley: Shifting to operations of the business, we continue our hiring efforts to support the anticipated revenue ramp. Approximately 900 new hires have been brought on over the last 12 months. With more than 3,000 highly skilled MBA space staff today, we have the people and the talent to help propel our growth and give us the scale to execute on the market opportunities we see emerging.

Michael Greenley: Yeah, so like we will be free cash flow positive, like I said, we're trying to just generally hold that as the statement at the moment. There are, you know, obviously large programs in play here with some big milestones. So there's a bit of movement and swings there.

Speaker Change: Yeah, so like we will be free cash flow positive, like I said, we're trying to just generally, you know, hold that as the statement at the moment. There's, you know, obviously large programs in play here with some big milestones. So there's a, you know, a bit of movement and swings there. You know, you've seen us kind of put the breadcrumbs out there in terms of what's going on. We've given guidance for revenue. We know we're doing 19 to 20% of revenue is adjusted EBITDA. We know we convert adjusted EBITDA to operating cash flow at that 75 to 85% level. We use that operating cash flow to pay for our investments, which we slightly downgraded a bit. And then otherwise we'll use it for, you know, paying off debt.

Michael Greenley: You know, we've kind of put the breadcrumbs out there in terms of what's going on, we've given guidance for revenue, we know 19 to 20% of revenue is adjusted EBITDA, we know we convert adjusted EBITDA to operating cash flow at that 75 to 85% level, and we use that operating cash flow to pay for our investments, which we slightly downgraded a bit. And then, otherwise, we'll use it for, you know, paying off debt.

Michael Greenley: I am also pleased to share that in Q2 we ratified a number of collective bargaining agreements associated with our operations in Brampton as well as members of CSN associated with our operations in Quebec. We are pleased to have these new collective agreements now in place to support our growth in the years ahead.

Michael Greenley: So we will go through those things as we go through the year with, you know, continued free cash flow and then continued decreases in our leverage ratios as we go through the year. We program all of our projects, as you guys know, and we keep talking about, but now we're really proving it, that we shape and configure our programs to be cash flow neutral to cash flow positive. And so we always do that.

Michael Greenley: To recap, we are pleased with our performance this quarter. With momentum building across our operations, our team is energized and we remain laser focused on our priorities. A strong focus on execution, converting opportunities in our pipeline to backlog and expanding our leadership in core markets while maintaining strong profitability and a healthy balance sheet to help us find our growth initiatives.

Speaker Change: So, we will go through those things as we go through the year with, you know, continued free cash flow and then...

Speaker Change: Continued decreases in our leverage ratios as we go through the year.

Speaker Change: We program all of our projects, as you guys know, and we keep talking about, but now we're really proving it.

Speaker Change: that we shape and configure our programs to be cash flow neutral to cash flow positive. And so we always do that and you're seeing the results of that as now much larger projects follow that same pattern.

Michael Greenley: And you're seeing the results of that as much larger projects now follow that same pattern. And so, we'll leave the year pre-cash flow positive. We expect 25 to be at least cash flow neutral in our forecast. And so, you know, we will be carrying this position as we go through the next year.

Janet McEachern: With that, I'll hand it over to Jen to walk us through the detailed financials.

Speaker Change: And so, we'll leave the year pre-cash flow positive. We expect 25 to be at least cash flow neutral in our forecast. And so, you know, we will be carrying this position as we go through the next year.

Janet McEachern: Thank you Mike and good morning everyone. For my update, I will walk you through our Q2 financial results and provide more color on our 2024 outlook. Overall, Q2 was a strong quarter for NDA space and we are pleased with how the team is executing. In the quarter, we saw solid revenue growth and profitability and record backlog at quarter end, which all bowed well for our performance in 2024. Total revenues for the second quarter were 242 million.

Ken Herbert: Perfect. That's very helpful, Mike.

Speaker Change: Perfect. That's very helpful, Mike.

Speaker Change: And maybe if I could, just to comment further on, you know, the contract you've got with the unnamed customer.

Michael Greenley: And maybe if I could, just to comment further on, you know, the contract you've got with the unnamed customer, the authorization to proceed. It sounds like you, that's increased to $300 million under contract, now sort of in the third quarter, and you remain, sound incrementally more confident in getting the full $750 million under contract this calendar year. Can you provide a little bit more color on that, and what's driving the confidence, and how we should think about that from a timing standpoint?

Speaker Change: um the orgation to proceed sounds like you

Speaker Change: That's increased to $300 million under contract now sort of in the third quarter, and you remain, sounds incrementally more confident in getting the full $750 million under contract this calendar year. Can you provide a little bit more color on that and what's driving the confidence and how we should think about that from a timing standpoint?

Janet McEachern: This represents a 46 million or 23.5% increase over the same period last year. The year over year increase is driven by higher work volumes across our three business areas with strong contributions in quarter from the robotics and space operations and satellite systems businesses. By business area, revenue and satellite systems of 108.8 million in the second quarter 2024 were 19.4 million or 21.7% higher compared to the same quarter in 2023. The strong showing was driven by higher contributions from new programs, including Telesat Lightspeed in Q2 2024.

Michael Greenley: Yeah, you've got the story there. That's exactly the story. So, you know, we have an unnamed customer. That unnamed customer is fully financed. We are proceeding with a project for at least 36 satellites for at least $750 million. Like we said, we've been given authorization to proceed at pace in the execution of that project. So in our world, we're just executing on that Constellation project.

Speaker Change: Yeah, you've got the story there. That's exactly the story. So, you know, we have an unnamed customer. That unnamed customer is fully financed.

Speaker Change: We are proceeding with a project for at least 36 satellites worth at least $750 million. Like we said, we've been given an authorization to proceed at pace.

Speaker Change: On the execution of that project. So in our world, we're just executing on that constellation project. It's just that contractually, you know, we're working under an authorization to proceed and then when that has run it out of steam, then it just gets extended, which we've just seen in terms of this transition from around 180 million to now around 300 million.

Michael Greenley: It's just that contractually, you know, we're working under an authorization to proceed. And then when that has run out of steam, then it just gets extended, which we've just seen in terms of this transition from around $180 million to now around $300 million. And so in the background, that fully funded customer is just doing some commercial activity to get itself organized, which will all make sense someday to be able to award the full definitive contract.

Janet McEachern: In robotics and space operations, we saw solid year over year growth with revenues of 78.3 million in the latest quarter, representing 19.6 million or 33.4% increase versus Q2 of last year. The growth is largely attributable to high volume of work performed on the Canada ARM3 program. Revenues in our geo intelligence business of 54.9 million in the latest quarter, represents an increase of 7 million or 14.6% year over year, reflecting higher work volume on the CSE program.

Speaker Change: And so, in the background, that fully funded customer is just doing some commercial activity to get themselves organized.

Speaker Change: which will all make sense on day to be able to award the full definitive contract but that doesn't slow us down and we continue toexecute on the project obviously when you have at least seven hundred around three hundred million dollars of you know

Michael Greenley: But that doesn't slow us down, and we continue to execute on the project. Obviously, when you have at least 700, around $300 million of, you know, authorization to move on a, you know, at least a $750 million thing, that's a bit unnatural. You've got a very large portion, you know, close to half of the contract under an authorization to proceed. So you're basically just executing on this thing while you're waiting for the definitive contract to be put in place.

Janet McEachern: Moving to growth process. As a reminder, growth process represents our revenues less cost to revenue, which includes materials, labor, subcontractor costs, allocated overhead, shred credits, and appreciation. For Q2 2024, growth process was 66.2 million, representing a 4.9 million or 8% increase over the same period last year, driven by higher work volumes in the current quarter. Grossmargin in the latest quarter was 27.4%, which is in line with our expectations and compares to 31.3% for the same period in 2023.

Speaker Change: Authorization to move on a, you know, at least a $750 million thing, that's a bit unnatural. You've got a very large portion, you know, close to half of the contract under an authorization to proceed. So you're basically just executing on this thing while you're waiting for the definitive contract to be put in place. So we are fully confident these authorizations to proceed cover labor, so our labor to do the work in addition to provide us commercial coverage.

Michael Greenley: So we are fully confident these authorizations to proceed cover labor. So our labor to do the work will, in addition, provide us commercial coverage for ordering long-lead items and engaging suppliers. And so we are basically executing on a normal project. It's just that, you know, we're doing it in these

Speaker Change: for ordering long-lead items and engaging suppliers. And so we are basically executing on a normal project. It's just that, you know, we're doing it in these steps.

Ken Herbert: Perfect. Thanks, Mike. I'll pass it on back there.

Speaker Change: itthanks mke el passeffect there

Operator: Thank you. And your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Please go ahead.

Janet McEachern: The year-over-year change in Grossmargin is driven by evolving program mix and higher depreciation expense as new assets come into service. Q2 operating expenses of 44.1 million were slightly above last year's metric of 42 million, primarily reflecting an expansion of our S-GNA functions as work volumes grow. Adjusted EBITDA in the latest quarter was 48.7 million compared to 40.4 million in Q2 2023, representing an increase of 8.3 million or 20.5% year-over-year driven by higher volume of work and steady operating expenses.

Speaker Change: Okay, thanks again.

Speaker Change: Thank you and your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Please go ahead.

Thanos Moschopoulos: Hi, good morning. Hey, Dennis. Hey, Mike.

Thanos Moschopoulos: With the cash flow having been pulled forward a bit, just to be clear, where do you now expect the leverage ratio to be at the peak before it starts to come down?

Thanos Moschopoulos: Hi, good morning. Hey, Dennis. Hey, Mike. With the cash flooding being pulled forward a bit, just to be clear, where do you now expect the leverage ratio at the peak before it starts to come down?

Michael Greenley: So it it has peaked so the peak is behind us now So you would have seen you would have seen us at whatever it was 2.4, 2.6 or something like that in Q1 You would have seen Janet just talk about 2.0 in Q2 and it will continue to decline As we go through the year so our our previous sort of discussions with you folks you know saying like you know could get up in the high twos this year and and And then come down through 25 and be free cash flow positive in the second half of 25 just all that's just been accelerated a year as we've just done the teams have done a great job at execution and And the and the cash is coming in so we're past our peak. We will continue to decline

Speaker Change: so it it has peaked so the peak is behind us now so you would have seen

Thanos Moschopoulos: You would have seen us at whatever it was, 2.4, 2.6, or something like that in Q1. You would have seen Janet just talk about 2.0 in Q2, and it will continue to decline as we go through the year. So our previous...

Janet McEachern: Adjusted EBITDA margin of 20.1% in Q2 2024 is consistent with the company's full-year margin guidance. I'm 19.20% and compared to adjusted EBITDA margin of 20.6% reported in the second quarter of 2023. Our adjusted net income in Q2 2024 was 23.4 million compared to 21.9 million reported in the same period in Q2 2023. The year-over-year increase of 1.5 million or 6.8% was driven by higher operating income in the latest quarter. Moving to backlog, we ended the quarter with 4.6 billion in backlog representing an increase of 318% year-over-year.

Thanos Moschopoulos: sort of discussions with you folks, you know, saying, like, you know, it could get up in the high twos this year and and then come down through 25 and be free cash flow positive in the second half of 25. Just all that's just been accelerated a year as we've just done. The teams have done a great job at execution and and the cash is coming in. So we're past our peak. We will continue to decline now.

Thanos Moschopoulos: Great to hear. Regarding the pipeline for commercial satellite projects, how has that evolved over the past quarter or so? Would you say it's consistent? Are some things moving closer to decisions, or what have you seen in recent months?

Speaker Change: Great to hear. Regarding the pipeline for commercial satellite projects, how has that evolved over the past quarter? So would you say it's consistent? Are some things moving closer to decision or what have you seen in recent months?

Michael Greenley: Yeah, so phrases that we would always use would be a robust or strong pipeline of opportunity for commercial satellite constellations. And that remains the case.

Speaker Change: Yeah, so phrases that we would always use would be a robust or strong pipeline of opportunity for commercial satellite constellations. That remains the case. Our pipeline, I would say, has expanded in the last quarter in terms of having new opportunities come into the conversation.

Michael Greenley: Our pipeline, I would say, has expanded in the last quarter in terms of having new opportunities come into the conversation. The teams are highly engaged in bid activity. These pursuits require you to quote, receive feedback, quote again, what about this, what about that, quote again. So it's a very iterative process. It's very active, so that's good. As a result of that, customers are getting, potential customers, sorry, are getting clear views on what we could do for them and what we could deliver and what the prices and schedules of all that could be. And so they have what I would call, a number of customers would have decision-ready or decision-grade levels of information. And it's really just on their side.

Janet McEachern: The growth in backlog is driven by new order bookings, including the $1 billion award for FASES CD, the Canada Armed 3 program, announced in Q2 2024 and 2.4 billion TELESET light-speed Leo Constellation Award announced in Q3 2023. Partially offset by continued conversion of our backlogs into revenue.

Thanos Moschopoulos: The teams are highly engaged in bid activity.

Thanos Moschopoulos: These pursuits require you to quote, receive feedback, quote again, what about this, what about that, quote again, so it's a very iterative process, it's very active, so that's good. As a result of that...

Janet McEachern: Moving to CAPEX, we remained focused on making the right investments in the business to support our strategic growth initiatives. In Q2 2024, we spent 38.9 million on capital expenditures compared to 45.7 million last year as we continue to invest in Corus and other growth initiatives. Growth CAPEX in the latest quarter was 32.8 million which compares to 43.7 million in Q2 2023. During the quarter, we made an $11.7 million payment related to the acquisition of SATX-5 space systems UK limited.

Thanos Moschopoulos: Customers are getting, potential customers, sorry, are getting clear, you know, views on what we could do for them and what we could deliver and what the prices and schedules of all that could be.

Thanos Moschopoulos: And so they have what I would call a number of customers would have, you know, decision ready or decision grade levels of information, and it's really just on on their side. It's on their schedules in terms of.

Thanos Moschopoulos: It's on their schedules in terms of, are these projects that they're comfortable moving ahead with in 24, or are we going to wait and see them move ahead in 25? And so it's, yeah, things continue to progress. It's expanding. A number of bids are maturing, and there will be opportunities as we go through the next six to eight months to see potential new orders.

Thanos Moschopoulos: You know, are these projects that they're comfortable moving ahead with in 24 or are we going to wait and see them move ahead in 25? And so it's, yeah, things continue to progress.

Janet McEachern: The digital payload division of SATX-5 communication limited which closed in Q4 2023. We also made a $9.2 million payment related to the company's equity investment in Starlab space LLC. Cash from operations during the quarter generated 149 million compared to cash generation of 38.9 million in Q2 2023. The year-over-year increase was driven by positive working capital contributions primarily related to the TELESAT light speed program. We generated free cashflow of 110 million in the latest quarter compared to negative 6.8 million in Q2 2023.

Thanos Moschopoulos: It's expanding, a number of bids are maturing, and there will be opportunities as we go through the next six to eight months to see potential new orders.

Michael Greenley: Great, um, finally, um. With respect to the ICE-I satellite they'll be leasing for Chorus, is that also on track, and is there a plan to launch that around the same time? Yep, absolutely. It's on track.

Speaker Change: Great. Finally, with respect to the ICE-I satellite you'll be leasing for Chorus, is that also on track? And is the plan to launch that around the same time?

Thanos Moschopoulos: Yep, absolutely. It's on track, and it could potentially be a simultaneous launch. Potentially, we'd put them both up on the same launch, actually, but the teams are working through all of that, and we'll see how that plays out. But yep, everything's on track here.

Speaker Change: Yep, absolutely. It's on track and it would potentially be a simultaneous launch. Potentially we'd put them both up on the same launch actually, but the teams are working through all of that and we'll see how that plays out. But yep, everything's on track here.

Speaker Change: ' great offval thingsing

Operator: Thank you. And your next question comes from the line of Jason Gursky from CD. Please go ahead.

Speaker Change: Okay, thanks a lot.

Janet McEachern: Free cashflow after adjusting outgrowth cap ex investments was positive 142.9 million in Q2 2024 compared to 36.9 million reported in the same period last year. We expect to see positive working capital contributions throughout Q3 and Q4 this year as we continue to ramp up activity on the tele-set light speed program. Moving to our balance sheet, we ended the quarter with a strong financial position and net debt of 352.3 million available liquidity of 293.5 million and net debt to trailing 12 months adjusted EBITDA ratio of 2.0 times. During the latest quarter we made a $70 million repayment to our revolving credit facility which is consistent with our plans to leverage the flexibility provided by that facility.

Speaker Change: Thank you. And your next question comes from the line of Jason Gursky from CDE. Please go ahead.

Jason Gursky: Good morning, everybody. I guess it's necessary today to ask a question on cash flow. So I think I'm going to do the same if that's okay. I just want to confirm that 75% to 85% conversion that you talked about. I'm just wondering if that's a change, and things are a little bit more robust than what you've been projecting in the past. And then, Mike, I know that sometimes the cash flow profile on these programs can look a little bit like a bathtub, where you get a bunch of cash up front, and then you go through a period of deploying that cash into the supply chain, and then you hit a bunch of milestones towards the end, and you get more cash.

Jason Gursky: Good morning, everybody.

Speaker Change: Hey Jason, I guess it's required today to ask a question on cash flow, so I think I'm going to do the same, if that's okay. Sure. I just want to confirm that 75% to 85% conversion that you talked about, I'm just wondering if that's a change and things are a little bit more robust than what you've been talking about.

Mike: projecting in the past and then mike i know that sometimes the cashual profile on these programs can look likea little bitlike asked but you get a much cash upfront andthen you go through a period of deploying that cash into the supply chain you a bunch of milestones towards the end and you get more cash

Jason Gursky: So just kind of curious, you know, whether the shape of what you're signing up looks any different. And second, I wanted to just, and then third, I guess it would be confirmed that we all heard you right that you're still generating some cash in 24. But the expectation for 25 is maybe neutral from a free cash flow perspective. Yeah.

Speaker Change: I'm just kind of curious, you know, whether the shape of what you're signing up looks any different and second, I wanted to just And then third, I guess would be confirm that We all heard you right that yeah, you're generating some cash at 24, but the expectation for 25 is maybe neutral

Janet McEachern: In summary this was a solid quarter and our business continues to perform in line with our expectations. We are encouraged and energized by the positive momentum we are seeing across our businesses.

Michael Greenley: Yeah, so on the last question, the answer is yes. On our conversion of adjusted EBITDA into operating cash flow, there may be, I think, in my words there, a little bit of slightly elevated enthusiasm. Potentially, in the past, we might have talked about 65% to 75% of adjusted EBITDA into operating cash, and I was just using a 75% to 85% number there, so we are seeing a bit of an ability for ourselves to consistently do a bit better there in terms of our conversion of adjusted EBITDA into operating cash, so you are correct in picking up on that. There is a bit more enthusiasm there.

Speaker Change: from a free cash flow perspective.

Speaker Change: Yeah, so on the last question, the answer is yes.

Janet McEachern: Let me now turn to our outlook. As Mike noted we are updating our financial outlook and are well positioned to capitalize on strong customer demand and robust market activity. For fiscal 2024 we are raising our full-year revenue guidance to 1.02 to 1.06 billion from 950 million to 1.05 billion previously. Representing robust year-over-year growth of approximately 30% at the midpoint of guidance compared to 2023 levels. We continue to expect revenue growth to accelerate in the second half of 2024 as we ramp up work volumes on a number of programs.

Speaker Change: On our conversion of adjusted EBITDA into operating cash flow, there may be, I think in my words there, a little bit of like...

Speaker Change: Slightly elevated enthusiasm, potentially in the past, we might have talked about 65-75% conversion of adjusted EBIT into operating cash.

Speaker Change: And I was just using a 75 to 85% number there, so we are seeing a bit of an ability for ourselves to consistently do a bit better there in terms of our conversion of adjusted EBITDA into operating cash. So you're correct in picking up on that, there's a bit more enthusiasm there.

Michael Greenley: In terms of the shape of the spend profiles on these large programs, yeah, for sure. You will often get a fair amount of cash up front to make sure that you can activate your supply chain and your subcontractors and make sure that everybody has the cash they need to get going and that we have the cash that we need to make progress and milestone payments as those subcontractors execute on their work, and then over time, like you say, you kind of go down the curve into the bathtub a little bit, so that is normal project profile over a three to four-year project, and then you will get, like you said, more at the end as you get towards completing big milestones and launch.

Janet McEachern: We are narrowing our 2024 adjusted EBITDA guidance to 200 million to 210 million from 190 to 210 million previously representing approximately 19 to 20% adjusted EBITDA margin. We are narrowing our 2024 capital expenditures range to 200 to 220 million from 210 to 230 million previously. Comprising primarily of growth investments to support cores and the previously outlined growth initiatives across our three business areas. Additionally as a result of favorable working capital contributions related primarily to the tele-set light speed program we now expect to generate free cash flow and continue to deliver our balance sheet in 2024.

Speaker Change: In terms of the shape of the spend profiles on these large programs, yep, for sure, you'll often get a fair amount of cash up front to make sure that you can activate your supply chain and your subcontractors and make sure that everybody has the cash they need to get going and that we have the cash that we need to make progress and milestone payments as those...

Speaker Change: Subcontractors execute on their work.

Speaker Change: And then over time, like you say, you kind of go down the curve into the bathtub a little bit.

Speaker Change: So that's normal project profile.

Speaker Change: Over a three to four year project and then you'll get, like you said, more at the end as you get towards completing big milestones and launch.

Michael Greenley: For us, the good thing is that we have multiple very large objects in the business, so you have got things like GlobalStar and Telesat and Canadarm3 and Canadarm2 continuing operations and the like, and so when you balance out these multiple things and these multiple curves, you end up with your last statement, which is that we're in a situation where we're free cash flow positive this year. And our current forecast for next year would say we will be at least cash flow neutral. You know, it might tick up a bit as we get closer, but we do not expect any declines here. So

Speaker Change: For us, the good thing is that...

Speaker Change: You know, we have multiple...

Speaker Change: you know, very large objects in the business. So you've got things like Globalstar and Telesat and Canadarm3 and, you know, Canadarm2 continuing operations and the like. And so when you when you balance out these multiple things and these multiple curves, you end up with your last statement, which is that.

Janet McEachern: Turning to Q3 2024 we expect revenues to be 270 to 280 million as we continue to execute on our backlog. With strong operational performance and a record backlog we are well positioned for 2024 beyond and look forward to delivering another successful year.

Speaker Change: We're in a situation where we're free cash flow positive this year and our current forecast for next year's would say we will be at least cash flow neutral. You know, it might take tick up a bit as we get closer, but we do not expect any declines here.

Michael Greenley: Mike with that I'll turn it back to you. Thank you Janet.

Jason Gursky: Right, okay, that makes good sense. But in the shift from, you know, free cash flow positive in 24 to, to neutral.

Unknown Attendee: With that operator we will open it up to questions. Thank you ladies and gentlemen we will now begin the question and answer session for analyst. Should you have a question please best start off by the one on your telephone keypad. Should you wish to cancel your request please best start off by the two and if you're using your speaker phone please lift the handset before pressing any. Kees.

Speaker Change: That's the situation.

Speaker Change: Right, okay, that makes good sense. Then the shift from, you know, free cash flow positive in 24 to neutral in 28.

Michael Greenley: Is that because you're going to see CapEx tick up or is it just because you're starting to dip your toe into that bathtub a little bit and working capitalism doesn't? I think you're starting to dip your toe into that just a little bit, and it's also us being conservative, right? We're saying we just want people to make sure that there's no expectation that there's some big negative thing coming here, there's not, that we're going to be at least cash flow neutral in 2025, and then as we get close to the end of the year, of course, and kicking off 2025 and start to give guidance for the year, we'll give people some good insights in terms of exactly what we're seeing, and it's going to depend on timing on other projects' starts.

Speaker Change: 5. Is that because you're going to see CapEx tick up or is it just because you're starting to dip your toe into that bathtub a little bit and working capital isn't as robust?

Speaker Change: just to

Speaker Change: rewhat

Speaker Change: I think you're starting to dip your toe into that just just a little bit and and it's also us being conservative, right? We're saying we'll be we just want people to make sure that there's no expectation that there's some big negative thing coming here There's not

Konark Gupta: Your first question comes on the line of Konark Gupta from Skosha Bank, please go ahead. Thanks, and good morning. That's on a good quarter.

Janet McEachern: I want to ask Janet, perhaps on the working capital seems like it was a pretty strong contributor, this quarter, and I think you guys pointed out the telecent contract, and it seems like you're expecting working at to be positive and QCNQ4. Can you help us understand the movement and the cash flows from the contract versus the revenue? It seems like you're getting up the cash in the revenue bill that's ramping up over a period of time gradually.

Speaker Change: that we'regoing to be at least cash low neutral in twenty five and then as we get close to theend of the year course and get kicking off twenty five and start to give guidance for the year we'll get people some good insights in terms of exactly what we're seeing and that'sgoingtodepend on timing on other projects starts so you know projects that are ought a lot of cash this year will be in a be using that cash next year while other projects start and start to bring in new cash and so we talked

Michael Greenley: So, you know, projects that have brought in a lot of cash this year will be using that cash next year, while other projects start and start to bring in new cash. And so we talked about some of the questions a few minutes ago about the pipeline and, you know, will we see some new starts in Q4? Are we going to see some new starts in Q1 or Q2? It really just depends on how that plays out, and we'll get a clearer picture of that as we go through the year. So it'll be at least cash flow neutral in 2025, and there is a chance, based on new starts, that it could be possible. Yeah, OK. That makes And then the last one from me on the chorus.

Speaker Change: in some of the questions a few minutes ago about the pipeline and will we see some new starts in Q4? Are we going to see some new starts in Q1 or Q2? It really just depends on how that plays out and we'll get a clear picture of that.

Janet McEachern: So when do we see sort of the equilibrium between the cash flow and the revenue on the telecent contract? Thanks. I think as we've mentioned previously in calls, the cash and revenue don't always follow on another, so you're absolutely right that we do expect some positive cash flow from that program this year. Obviously our revenue will ramp up, and it's based on labor and delivering on labor subcontract costs and equipment that would need to be delivered in years, so I think you will see some positive cash contributions, but that does not align to our revenue that's in our forecast for this year.

Speaker Change: as we go through the year, so it'll be at least cash flow neutral in 2025, and there is a chance, based on new starts, that it could be positive.

Speaker Change: Yeah, okay, that makes good sense, thanks. And the last one from me, on Chorus,

Jason Gursky: You're probably dealing with a lot of government customers here, and I think in the past, they've been a little bit hesitant to sign a defined contract ahead of the asset actually being in space and producing some data. So can you talk a little bit about whether that, A, that's still the case, whether we're going to see a bunch of LOIs ahead of launch, and then these contracts get defined? The assets are up in space.

Speaker Change: You're probably dealing with a lot of government customers here, and I think in the past they've been a little bit hesitant to

Speaker Change: to sign a definitized contract ahead of the asset actually, you know being in space and producing some data, so

Speaker Change: Can you talk a little bit about whether that, A, that's still the case, whether we're going to see a bunch of LOIs ahead of launch and then these contracts get definitized after

Jason Gursky: And then, um, you know, your current kind of expectations around revenue generation on the constellation. Do we, first quarter after launch, see a significant step up in revenue for the geospatial business? Or does it take multiple quarters, a couple years, just kind of what the shape of that revenue ramp looks like once you get the course up and running.

Janet McEachern: And then as the out years go on, you'll start to see those converge a little bit more, but nothing driving any large swings over the period that we see in front of us. And that's helpful. Thanks.

Speaker Change: Unknown Speaker The assets are up in space and then.

Speaker Change: You know, your current kind of expectations around revenue generation on the, on the Constellation, do we, you know, first quarter after launch, are we going to see a significant step up in revenue?

Janet McEachern: And on the chorus, can you update us where you stand today with respect to the capital deployment on that growth project and, you know, infants of development. Are we are we on track for late 2025 launch and any update on customer discussion there is about things. Yeah, so chorus is going well. The project is on track. We are on schedule. We are on track in terms of our spending. We previously indicated that, you know, the majority of our spend would be completed as we get through 24.

Speaker Change: for the geospatial business, or does it take multiple quarters, a couple of years, just kind of what the shape of that revenue ramp looks like once you get KORUS up and running. Thanks.

Michael Greenley: Yeah, sure. Yeah, no, that's cool.

Michael Greenley: You're right. Most of our customers are defense and intelligence customers around the world. That involves multiple countries, some of which are current RadarSat-2 customers, and some of which are now coming on board as new customers for Quorus. So that is the nature of the customer. In terms of their willingness to sign contracts pre-launched, it depends on the country, for sure. Some people will just sell, as you indicated, will sign LOIs, letters of interest, or intent, but then not sign a definitive contract until there's a fully commissioned satellite in orbit or constellation in orbit.

Speaker Change: Yes, sure. Yeah, no, that's cool. You're right. Most of our customers are defense and intelligence customers around the world. That involves multiple countries, some of which are current RadarSat-2 customers, some of which are now coming on board as new customers for Quorus.

Janet McEachern: That remains true. We will still have some spend in 25. And of course, expenditures associated with launch costs and the like. So, you know, that will still occur, but we're completely on track. The customer conversations are going excellent. And so we were talking to literally dozens of potential customers around the world, some of whom are existing customers of radar set to some of whom are new customers that will come into chorus.

Speaker Change: So that is the nature of the customer. In terms of their willingness to sign contracts pre-launch, it depends on the country.

Janet McEachern: The team has a bit of a ladder system in terms of signing up customers, starting with a letter of intent in terms of people indicating their intent to procure from chorus and then moving right up to actual committed. And so the business development teams are working like literally dozens of customers through that ladder of progress. Both for the data and then some customers will need to upgrade their ground stations to receive those customers that want to receive direct data from the chorus constellation directly to their ground station.

Speaker Change: For sure, some people will just sell.

Speaker Change: As you indicated, we'll sign LOIs, letters of interest or intent, but then not sign a definitive contract until there's a fully commissioned satellite in orbit.

Michael Greenley: Others will be willing to sign up front and potentially even put some money down up front. And the reason they would do that would be for preferential access. They want to secure priority rights to imagery and service in certain regions of the world that they care about, and so they're willing to secure that ahead of other customers. And so some nations are in active discussions with us about that, while others are just at the letter of intent stage, and they'll, you know, take a bit of time before they commit. Sorry, what was your other question? There was something else there too.

Speaker Change: or Constellation in orbit. Others will be willing to sign up front and potentially even put some money down up front.

Speaker Change: And the reason they would do that would be for preferential access. They want to secure priority rights.

Speaker Change: to imagery and service in certain regions of the world that they care about. And so they're willing to secure that ahead of other customers. And so some nations are in active discussions with us about that.

Speaker Change: while others are just at the letter of intent stage and they'll you know take a bit of time before they before they before they commit.

Janet McEachern: There will be some ground station upgrade contracts. So all of those are in full swing. The team is very busy. And as we expected, it's, you know, that part of the part of the process is heating up. Once we announced a potential launch date a little less than a year ago, that that throws the switch for everybody starting to work with us to make sure that everyone's ready to receive service. It's going well. Great. That's a good to get. Thanks. I'll pass the line. Thank you.

Jason Gursky: You mentioned in the paper about onboarding or revenue and what that looks like after. Yeah, revenue. I would expect revenues through 26 to kind of stay similar to current levels, like there'll be a whole shakeout period here where we've got a strong customer base, they're getting service from RadarSat-2, and a number of people have been increasing slightly, just minor upticks in their RadarSat-2 usage, knowing that they can continue right into Qorus. And so that's been nice and strong.

Speaker Change: i the question or something else thereily the onboarding our revenue

Speaker Change: in oneilof these

Speaker Change: the revenue i would expect revenues through twenty six to ton of stay similar to current levels like they'll be a whole shakeout period here where we've got a strong customer base they're getting service from radar set to a number of people have have been increasing slightly just minor uptics in their radar set two usage knowing that they can continue right into chorus

Michael Greenley: So there'll be a shakeout period there in terms of all of that, and then we've got to get through commissioning and stuff in 26 and get everything operational and all of that. So I think there might be a very small little lift in 26, especially as we convert some people's ground stations to receive data from Qorus, but then it would start to ramp up in 27. So then we start to see things increase in 27, 28 as people have full confidence in the service, and government customers, like you said, get fully under contract. So that's what I think will happen.

Douglas Taylor: And your next question comes from the line of Doug Taylor from Catacortinuity. Peace go ahead. Thank you.

Speaker Change: And so that's been nice and strong. So there'll be a shakeout period there in terms of all of that. And then we've got to get through commissioning and stuff in 26 and get everything operational and all of that. So I think, you know, there might be a very small little lift in 26, especially as we convert some people's ground stations to receive data from Qorus. But then, you know, then it would start to ramp up in 27. So then we start to see things increase 27, 28.

Michael Greenley: Good morning and congratulations on a fantastic quarter and upgraded network. Mike, I get a lot of questions about the de-resking of the light speed program not only regarding, you know, financing the program but also the ability to deliver technically, ramp up the facility and do all that against budget. So a question is, with 90% of the supply chain now under contract and payment starting to flow from tell us that, would you say the program has been substantially de-risk here or what do you see as the main hurdles or milestones we should think about going forward as you execute against that?

Speaker Change: As people, you know, have full confidence in the service, as government customers, like you said, get fully under contract. So, that's what I think will happen.

Jason Gursky: Great. Thanks, guys. I appreciate it.

Speaker Change: Great, thanks guys, appreciate it.

Operator: Thank you, and your next question comes from the line of David McFadgen from Konark Securities. Please go ahead.

Jason Gursky: Okay. Thanks, Jason.

Speaker Change: Thank you. And your next question comes from the line of David McFadden from Cormark Securities. Please go ahead.

David McFadgen: So a couple of questions, just send the guidance first of all. So I look at the revenue guidance and move it up a bit. Is the primary reason for that the fact that you were able to convert the ATP contract from 180 to 300, is that the primary driver?

Michael Greenley: Yeah, so from our perspective, we have a contract. As you mentioned, we're absolutely executing under that contract. Our suppliers are now largely all under contract. And as we mentioned, and as our results show, you know, we are being paid cash is flowing and we are executing on the project well. The focus, therefore, is absolutely on technical execution of the work, which the teams are laser focused on. As we go through the fall, the Q3, Q4 period, we will get past our preliminary design review on the project and get all that signed off.

David Mcfadden: So a couple of questions. Just send the guidance, first of all.

David Mcfadden: So when I look at the revenue guidance, you know, you moved it up a bit, is the primary reason for that the fact that you were able to convert the ATP contract from $180 to $300? Is that the primary driver?

Michael Greenley: No, I think it's just everything combined. It's like what we're seeing on Lightspeed.

Speaker Change: No, I think it's just that everything combined, it's like what we're seeing on Lightspeed, it's what we're seeing with Canadarm3 being signed, a little bit about what we're seeing on that ATP, but really that's executing according to our plan for the year. And so it's really just that some of these new larger contracts are kicking in, that it needs to go up a bit. And to be honest, we raised it a bit because, you know, you've seen what we've delivered in Q1 and Q2, you've heard what we've guided for in Q3. If we didn't raise it, you would have an expectation of a decline in Q4, which is absolutely not the case. And so we had to raise it so that, you know, you could clearly see that we will continue to climb the hill.

David McFadgen: It's what we're seeing with Canadarm3 being signed, and a little bit about what we're seeing on that ATP, but really, that's executing according to our plan for the year. And so it's really just that some of these new, larger contracts are kicking in, that it needs to go up a bit. And to be honest, we raised it a bit because you've seen what we delivered in Q1 and Q2. You've heard what we're aiming for in Q3.

Michael Greenley: And that's the next key milestone that we're working on. So that definitely remains the focus. It's all going well, but it is absolutely the focus. This is a, the MDA Aurora digital satellite product is a sort of world-leading leading edge digital satellite product. The teams really have everything in hand, and it's just good hard work in terms of the facility expansion that we are putting into our Montreal satellite systems facility to ensure that the MDA Aurora production can ramp up to our target of at least two satellites per day.

David McFadgen: If we didn't raise it, you would have an expectation of a decline in Q4, which is absolutely not the case. And so we had to raise it so that, you know, you could clearly see that we will continue to climb the hill.

Michael Greenley: Unknown Attendee And then just on working capital, you know, obviously, there's a big working capital inflow in the second quarter. So I imagine that's probably due to light speed, is that correct? primarily Yeah. Yeah. Okay. So given Telesat said they were going to spend $1 billion this year, shouldn't we expect that the working capital inflow for the entirety of 2024 will be larger than what you've experienced in Q2?

Speaker Change: Okay. And then just on the working capital, you know, obviously there's a big working capital inflow in the second quarter, so I imagine that's probably due to light speed, is that correct?

Michael Greenley: That is all that is all progressing. We have absolutely broken ground on that. There's all kinds of construction vehicles all over the place and temporary parking and all those things. And as the expansion progresses, all the long lead items of things like steel and the like have all been on over and we'll start to come in as we go through the next few months. The current goal is to have the structure, the exterior structure of the building completed prior to winter and have it sealed in so that the construction crews can work on the inside of the building as they go through the winter and the first half of 2025. So everything is progressing technically on the satellites and from a facility perspective according to schedule.

Speaker Change: primarily yeah okay so given to tell us outsaid they're going to spend a billion dollars this year shouldn't we expect that the working capital infol for the entirety of two thousand andtwenty four will be larger than what you've experienced in q two

David McFadgen: Um, I think, overall, yeah, for sure. Yeah, I think that Yeah, I think that it'll, it'll, it'll keep ticking up. I think, you know, Q3 will be a big one. And then, you know, Q4 will be solid. So yeah, for sure. It's going to be, it's going to be solid. Okay.

Speaker Change: I think, yeah, overall, yeah, for sure, yeah, I think that, yeah, I think that it'll keep ticking up. I think, you know, Q3 will be a big one and then, you know, Q4 will be solid, so, yeah, for sure it's going to be solid, yeah.

Michael Greenley: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of Okay, all right.

Speaker Change: Okay, I mean, I think it would be helpful for everybody on the call and the investors to, I don't know if you can, to give us maybe a range on the working capital employees back this year for Mike's view though.

Michael Greenley: It kind of brings me to my next question, which is a follow-up on Conorx as well. You reduced your capex budget for this year a little. Is that savings related to course or otherwise or are there things moving out to next year? Perhaps you can speak to course or otherwise the overall directionality and magnitude of the capex.

Speaker Change: And then just on backlog, clearly it's grown substantially here. Do you expect to continue to grow your backlog through 2024 so that when you report fourth quarter it will be higher than what it is right now?

Speaker Change: Yes.

Speaker Change: Okay. All right. Yep, we do. Yep, we do. Okay. Yeah.

David McFadgen: We'll do our best.

Speaker Change: We'll do our best. We're going to do it. It's going to be bigger.

Michael Greenley: You know, holiday, you might see next year or not, you know, just the degree to which she still have growth capex in the forecast as you work through either the Montreal Builder or just support your other programs. Yeah, no problem. So there's a little bit of stuff that slipped from 24 to 25. That's why you see us doing a bit of a reduction. That has nothing to do with Chorus. Chorus is absolutely continuing to be on track and spend at the planned pace.

Michael Greenley: And so when you say that, or you have that confidence, are you expecting another big constellation order? Or I don't know if you need to comment on that?

Speaker Change: Okay, and so when you say that, or when you have that confidence.

Speaker Change: Are you expecting another big constellation order or I don't know if you can comment on that?

Michael Greenley: Well, in terms of the things that we currently talk about, like the minimum thing is this unnamed customer and converting that to a defined contract, right? So right now, we've only got the authorization to proceed in the backlog. And so, you know, with the numbers that I was just throwing around there talking about, you know, lifting that up to around $300 million in the last week, that takes that $4.6 billion number at the end of Q2 and starts to send it up a little bit towards 4.8.

Speaker Change: Well, I think in terms of the things that we currently talk about, like the minimum thing is this unnamed customer and converting that to a definitized contract, right? So right now, we've only got the authorization to proceed in backlog. And so, you know, with the numbers that I was just throwing around there talking about, you know, lifting that up to around $300 million in the last week, that takes that $4.6 billion number at the end of Q2 and starts to send it up a little bit towards 4.8. And then you get the rest of that definitized contract, and you probably got backlog that starts with a 5. And so, you know, that's for sure just the basic thing right there in terms of things we're already talking about. As I indicated, there is a solid pipeline, people are actively quoting, other things can happen, you know, but as a minimum, just finishing that task that we're all talking about and watching there.

Michael Greenley: Some of it relates to Montreal for the facility expansion in terms of, you know, just exactly when things happen and when you pay for them, in terms of, as all the, you're starting a large construction project. So, you know, based on when materials are coming in and when you have to pay for them, you know, estimates were made of what would happen in Q4. Some of that's going to be Q1 payments.

Michael Greenley: And then you get the rest of that defined contract, and you probably have a backlog that starts with a 5. And so, you know, that's for sure just the basic thing right there in terms of things we're already talking about. As I indicated, there is a solid pipeline, people are actively quoting, other things can happen, you know, but as a minimum, just finishing that task that we're all talking about and watching there, which we fully expect to do, you know, would cause us to finish the year with a backlog that probably starts with a 5.

David McFadgen: Thank you.

Michael Greenley: So, you know, those sort of adjustments are being made here as people can see the end of the year. In terms of the overall level of capex spend, you know, over as we're floating around this, you know, 200 million a year range, you know, we continue to be at that level. We still have growth capex to expend in the in 2025 for sure as our sort of, you know, sort of last year of the big growth capex thing and then it starts to drop down markedly according to current business plans in 2026.

Speaker Change: which we fully expect to do would causeus to finish the year with the backlog that probably starts with five

Speaker Change: OK.

Speaker Change: Okay, that's it for me. Thank you.

Speaker Change: Okay, thank you.

Speaker Change: Thank you. And your next question comes from the line of Kristine Liwag from Morgan Stanley . Please go ahead.

Unknown Attendee: Hi, this is Justin on behalf of Kristine. Thanks for taking the question. Oh, okay. There you go.

Michael Greenley: Recognizing of course that as the business continues to grow at, you know, what we've been seeing here, at least this where this is 25 to 30% at least, annual increase pace. You know, our EBITDA continues to really grow as well and we continue to demonstrate conversion of adjusted EBITDA at this sort of 75 to 85% level into operating cash flow. You know, which gives us the tools to, you know, now start to, you know, be able to live in this sort of new free cash flow world that we're living in and manage this in a new way.

Justin: Hi, this is Justin on for Kristine. Thanks for taking the question. Oh, okay. There you go. Just staying on this working capital contribution from Telsat and the new free cash flow expectations, can we just spend a second on how this materialized? I mean, did something change in the terms or did you hit a milestone earlier than expected?

Michael Greenley: Yeah, I think for us in terms of like, you know, setting expectations, everything we've done in the last 10 quarters to make sure that we're absolutely saying what we're going to do and doing what we say has been a really strong theme for us. When we get these large contracts coming in, you know, we've been quite cautious and making sure that, you know, we're creating expectations that we can meet, and then we've absolutely met those expectations.

Speaker Change: Yeah, I think for us, in terms of like...

Speaker Change: You know, setting expectations, everything we've done the last 10 quarters, you know, to make sure that we're absolutely saying what we're going to do and doing what we say has been like a really strong theme for us. When we get these large contracts coming in, you know, we've been quite cautious and making sure that you know, we're creating expectations that for sure we can meet and then we've absolutely met those expectations.

Michael Greenley: So, just to put a finer point on that, you'd expect a similar amount of capex next year despite chorus ramping down as, you know, larger material facility expenditures increased to offset and then an actual decrease in absolute terms in 26 and beyond. Yeah, that's true. That, yes, that, that is true. And there are some additional expenses next year, even though we're not like, you know, building chorus as much. We do have some launch expenses and things like that that get met moved around.

Michael Greenley: In terms of signing up on the MDA Aurora product, a large supply chain and subcontractor base to execute on this new digital satellite products, there's a lot of moving parts. And so our ability to negotiate all those subcontracts, get them in place, and start cash moving in relation to that progress, you know, it's big numbers in terms of taking on things of this size. And so the teams have just done an extraordinary job, basically, and they've got everything under control.

Speaker Change: In terms of signing up on the MDA Aurora product, a large supply chain and subcontractor base to execute on this new digital satellite product, there's a lot of moving parts. And so our ability to negotiate all those subcontracts, get them in place.

Speaker Change: and start cash moving in relation to that progress.

Michael Greenley: In addition, we continue to invest in commercial robotics in the MDA Skymaker product and there are some investments around MDA Aurora or digital satellite products. So, yes, yes, it will, what you said, but I'm just rounding out the reasons in terms of what the money's being spent on, but yes.

Speaker Change: It's big numbers in terms of taking on things of this size. And so the teams have just done an extraordinary job, basically. And they've got everything under control. Everything is got in place according to what would have been our best expectations. And therefore, cash is moving at a pace that is higher than we would have otherwise indicated and is extremely positive just because they've done a great job. And so.

Michael Greenley: Everything is in place according to what would have been our best expectations. And therefore, cash is moving at a pace that is, you know, higher than we would have otherwise indicated and is extremely, you know, extremely positive just because they've done a great job. And so that's really it.

Michael Greenley: Okay, thank you for clarifying and I'll pass one. Thanks a lot. Thank you.

Ken Herbert: And your next question comes from the line of Ken Herbert from RBC Capital markets. Please go ahead. Good morning, Ken. Yeah, hey, good morning, Mike. Maybe just to start, you're obviously exiting the first half with, I think, really good cash generation. Can you put a finer point on positive free cash this year? Does it imply sounds like working capital will continue to be a source of cash into the second half? How much? How much can we see in the second half? Where do you think free cash generation looks exiting 24?

Michael Greenley: As we continue to execute on more of these sort of $1-2 billion constellation projects, and that supply chain is now more established because we're now working on a new product, a digital satellite product called MDA Aurora. All of this will become more predictable, more confident, and you will see less, you know, large swings like you've just seen, which is like, you know, oh my gosh, like everything's absolutely working exactly as best as we could have expected.

Speaker Change: So that's really it. As we continue to execute on more of these sort of $1-2 billion constellation projects, and that supply chain is now more established because we're now working around a new product, a digital satellite product in MDA Aurora, all of this will become more predictable, more confident, and you will see less, you know, large swings like you've just seen, which is like

Michael Greenley: Yeah, so like we will be free cash flow positive like I said we're trying to just generally, you know, hold that as the statement at the moment. There's, you know, obviously large programs and play here with some big milestones. So there's a, you know, a bit of movement and swings there. You know, you've seen us kind of put the bread crumbs out there in terms of what's going on. We've given guidance for revenue.

Speaker Change: you know, oh my gosh, like everything's absolutely working exactly as best as we could have expected. And so now we will tell you all about that because it now has occurred. But we'll be able to see that a lot better now because we're working around a standard product for multiple customers around an established supply chain.

Michael Greenley: And so now we will tell you all about that because it has now occurred. But we'll be able to see that a lot better now because we're working around a standard product for multiple customers around an established supply chain.

Unknown Attendee: Got it. That's helpful. And just maybe to clarify the suggestion for positive working capital in the back half of this year, is that also driven by sort of similar dynamics in the DELSAT program?

Speaker Change: Got it. That's helpful. And just maybe to clarify the suggestion for positive working capital in the back half of this year, is that also driven by sort of similar dynamics on the TelSAT program?

Michael Greenley: We know we're doing 19 to 20% of revenue is adjusted. The EBITDA we know we converted just the EBITDA to operating cash flow at that 75 to 85% level. We use that operating cash flow to pay for our investments, which we slightly downgraded a bit. And then otherwise we'll use it for, you know, paying off debt. So we will go through those things as we go through the year with, you know, continued free cash flow and then continued decreases in our leverage ratios as we go through the year.

Michael Greenley: Yep, yep, it's just all execution on that, and some other programs are all executed, but certainly Telesat is the largest one, yeah.

Speaker Change: Yep yep it's just all execution on that and and some other programs are all executing but certainly Telesat is the largest one yeah

Unknown Attendee: Okay, great. And maybe just one more on the STARLAB partnership. Does this sort of investment maybe preclude you in any way from contributing robotics offerings to other potential commercial space stations? Is there any sort of exclusivity built in there? And maybe just talk about, you know, are you fielding demand from other offerings at this point? Yeah, so no, there is no exclusivity.

Speaker Change: Okay, great. And maybe just one more on actually the Starlab partnership. Does this sort of investment maybe preclude you in any way from contributing robotics offerings to other potential commercial space stations? Is there any sort of exclusivity built in there? And maybe you could just talk about...

Michael Greenley: We program all of our projects as you guys know when we keep talking about, but now we're really proving it that we, we shape and configure our programs to be cash flow neutral to cash flow positive. And so we always do that. And you're seeing the results of that as now much larger projects follow that same pattern. And so we'll leave the year pre cash flow positive. We expect 25 to be at least cash flow neutral in our forecast. And so, you know, we will be, we will be carrying this position as we go through the next year.

Speaker Change: Are you fielding demand from other offerings at this point?

Michael Greenley: Yes, so no, there is no exclusivity. And yes, we are talking to all commercial space stations and commercial on-orbit servicing and commercial active debris removal and commercial on-orbit assembly and commercial lunar rover and infrastructure projects. There is a wide range of commercial opportunities for MDA SkyMaker commercial robotics in the market.

Speaker Change: Yeah, so no, there is no exclusivity.

Speaker Change: And, yes, we are talking to all commercial space stations and commercial on-orbit servicing and commercial active debris removal and commercial on-orbit assembly and commercial lunar rover and infrastructure projects. There are a wide range of commercial opportunities for MDA SkyMaker commercial robotics in the market.

Ken Herbert: Perfect. That's very helpful Mike.

Unknown Attendee: Great, thank you. Okay, thank you. Thank you once again.

Speaker Change: Great, thank you.

Operator: Thank you. Once again, should you have a question, please press star 421 on your telephone keypad. There are no further questions at this time. I will now hand the call back to Mr. Mike Greenley for any closing remarks.

Speaker Change: Okay, thank you.

Michael Greenley: And maybe if I could just to, just to comment further on, you know, the contract you've got with young name customer. Your organization to proceed sounds like you, that's that's increased to 300 million under contract now sort of in the third quarter. And you remain sounds incrementally more confident in getting the full 750 million under contract this calendar year. Can you provide a little bit more cover on that and which driving the confidence and how should think about that from a timing standpoint?

Speaker Change: Thank you. Once again, should you have a question, please press star 421 on your telephone keypad.

Speaker Change: There are no further questions at this time. I would now hand the call back to Mr. Mike Greenley for any closing remarks.

Michael Greenley: Thank you, operator. Thanks, everyone, for your time this morning. We certainly appreciate that. We look forward to updating you on our progress during our next earnings call in November. Have a great day. Thank you very much.

Operator: Thank you. This concludes today's call. Thank you for participating. You may all disconnect.

Mike Greenley: Thank you, operator. Thanks, everyone, for your time this morning. We certainly appreciate that. We look forward to updating you on our progress during our next earnings call in November . Have a great day. Thanks very much.

Michael Greenley: Yeah, you, you've got the story there that that's exactly the story. So, you know, we have an unnamed customer. That unnamed customer is fully financed. We are proceeding with a project for at least 36 satellites for at least 750 million dollars. Like we said, we've been given an authorization to proceed at pace on the execution of that project. So in our world, we're just executing on that constellation project. It's just that contractually, you know, we're working under an authorization to proceed.

Speaker Change: Thank you. This concludes today's call. Thank you for participating. You may all disconnect.

Michael Greenley: And then when that has run out of steam, then it just gets extended, which we've just seen in terms of this transition from around 180 million to now around 300 million. And so in in the background, that fully funded customer is just doing some commercial activity to get themselves organized, which will all make sense someday to be able to to award the full definitive contract. But that doesn't slow us down and we continue to execute on the project.

Michael Greenley: Obviously, when you have at least 300 million dollars of, you know, authorization to move on, you know, at least 750 million dollar thing. That's a bit unnatural. You've got a very large portion, you know, close to half of the contract under an authorization to proceed. So you're basically just executing on this thing while you're waiting for the definitive contract to be put in place. So we are fully confident, these authorizations to proceed cover labor.

Michael Greenley: So our labor to do the work in addition to provide us commercial coverage for ordering long lead items and engaging suppliers. And so we are basically executing on a normal project. It's just that, you know, we're doing it in these.

Michael Greenley: Thanks Michael, I'll pass it back there. Okay, thanks again.

Thanos Moschopoulos: Thank you, and your next question comes in the line of Thanos Moschopoulos from BMO Capital Markets. Please go ahead. Hi, good morning. Hey, Dennis. Hey, Max, with the cash loving been pulled forward a bit. To be clear, where do you now expect the leverage ratio at the peak before it starts to come down? So it has peaked. So the peak is behind us now. So you would have seen, you would have seen us at whatever it was, 2426 or something like that in Q1.

Thanos Moschopoulos: You would have seen Janet just talk about 2.0 in Q2, and it will continue to decline as we go through the year. So our, our previous sort of discussions with you folks, you know, saying like, you know, it could get up in the high twos this year and, and then come down through 25 and be free cashflow pods. So in the second half of 25, just all that's just been accelerated a year as we've just done the teams have done a great job at execution and, and the cash is coming in. So we're past our peak. We will continue to decline now. Right here.

Michael Greenley: Regarding the pipeline for commercial satellite projects, how does that evolve over the past quarter? So would you say it's consistent or some things within closer to decision or what do you see in recent months? Yeah. So phrases that we would always use would be a robust or strong pipeline of opportunity for commercial satellite constellations that remains the case. Our pipeline, I would say, has expanded in the last quarter in terms of having new opportunities come into the conversation.

Michael Greenley: The teams are highly engaged in bid activity. These, these pursuits require you to quote, receive feedback, quote again, what about this? What about that quote again? So it's a very iterative process. It's very active. So that's good. As a result of that, customers are getting potential customer story are getting clear views on what we could do for them and what we could deliver and what the prices and schedules of all that could be.

Michael Greenley: And so they have what I would call a number of customers would have decision ready or decision grade levels of information and it's really just on on their side. It's on their schedules in terms of, you know, are these projects that they're comfortable moving ahead with in 24? Or are we going to wait and see them move ahead in 25? And so it's, yeah, things continue to progress. It's expanding a number of bids are maturing and, you know, there will be opportunities as we go through the next six to eight months to see, you know, potential new orders.

Michael Greenley: Great. Finally, with respect to the I saw a satellite, you'll be leasing for chorus. Is that also on track and plan to launch that around the same time? Yep, absolutely. It's on track and they would potentially be a simultaneous launch. Potentially we put them both up on the same launch actually, but the teams are working through all of that. And we'll see all that plays out, but yeah, everything's on track there.

Unknown Attendee: Okay, great. I'll pass the line. Thanks, Max.

Unknown Attendee: Okay, thanks, class. Thank you.

Jason Gursky: And your next question comes in the line of Jason Gursky from CD. Please go ahead. Good morning, everybody. Hey, Jason, I guess it's required today to ask a question I can't slow. So I think I'm going to do the same. That's okay. Sure.

Michael Greenley: I just want to confirm that 75 to 85% conversion that you talked about just wondering if a that's a change and things are a little bit more robust than what you've been projecting in the past. And then Mike, I know that sometimes the casual profile on these programs can look like a little bit like a bathtub where you get a bunch of cash upfront and then you go through a period of deploying that cash into the supply chain and then you had a bunch of milestones towards the end and you get more cash.

Michael Greenley: So just kind of curious whether the shape of what you're signing up looks any different. And second, I wanted to just. And then third, I guess, would be confirmed that we all heard you write that, yeah, generating some cash in 24, but the expectation for 25 is maybe neutral from a free cash flow perspective. Yeah, so on the last question, the answer is yes. On the our conversion of adjusted EBITDA into operating cash flow, there may be, I think in my words there, a little bit of like slightly elevated enthusiasm potentially in the past.

Michael Greenley: We might have talked about 65 to 75% conversion of adjusted EBITDA into operating cash. And I was just using a 75 to 85% number there. So we are seeing a bit of an ability for ourselves to consistently do a bit better there in terms of our conversion of adjusted EBITDA into operating cash. So you're correct in picking up on that. There's a bit more enthusiasm there. In terms of the shape of the spend profiles on these large programs, yep, for sure, they you'll often get a fair amount of cash upfront to make sure that you can activate your supply chain and your subcontractors and make sure that everybody has the cash they need to get going and that we have the cash that we need to make progress and milestone payments as those subcontractors execute on their work.

Michael Greenley: And then over time, like you say, you kind of go down the curve into the into the bathtub a little bit. So that's that's normal project profile over a three to four year project. And then you'll get, like you said, more at the end as you as you get towards completing big milestones and launch. For us, the good thing is that, you know, we have multiple, you know, very large objects in the business.

Michael Greenley: So you've got things like global star and tell us that and Canadarm 3 and, you know, Canadarm 2, continuing operations and the like. And so when you when you balance out these multiple things and these multiple curves, you end up with your last statement, which is that we're in a situation where we're free cash flow positive this year and our current forecast for next years would say that we will be at least cash flow neutral.

Michael Greenley: You know, it might take take up a bit as we get closer, but we do not expect any declines here. So that's the situation. Right. Okay. That makes good sense. In the in the shift from free cash flow positive in 24 to neutral in 25. Is that because you're going to see CapEx take up or is it just because you're starting to dip your toe into that bathtub a little bit working capital, and Dez Robust just kind of curious what the...

Michael Greenley: I think you're just you're starting to dip your toe into that just just a little bit and and it's also us being conservative right we're we're saying we'll be we just want people to make sure that there's no expectation that there's some big negative thing coming here there's not that we're going to be at least cashflow neutral in 25 and then as we get close to the end of the year of course and get kicking off 25 and start to give guidance for the year we'll give people some good insights in terms exactly what we're seeing and it's gonna depend on timing on other projects starts so you know projects that are brought in a lot of cash this year will be in a we'll be using that cash next year while other projects start and start to bring in new cash and so we talked in some of the questions a few minutes ago about the pipeline and you know will we see some new starts in Q4 are we going to see some new starts in Q1 or Q2 it really just depends on how that plays out and we'll have we'll get a clear picture of that as we go through the year so it'll be at least cashflow neutral in 25 and there is a chance based on new starts that it could be positive.

Michael Greenley: Yeah okay that makes good sense thanks and then last one from me I'm curious you're probably dealing with a lot of government customers here and I think in the past they've been a little bit hesitant to decided to monetize contract ahead of the asset actually you know being in space and producing some data so can you talk a little bit about whether that a that's still the case whether we're going to see a bunch of L.O.I, is ahead of launch and then these contracts get defenitized after the assets are up in space and then you know your current kind of expectations around revenue generation on the on the constellation do we first quarter after launch are we getting it to see a significant step up in revenue for the geospatial business or does it take multiple quarters couple years just kind of what you're the shape of that revenue ramp looks like once you get a course up and running thanks yes you're yeah no that's that's cool you're right most of our customers are defense and intelligence customers around the world that involves multiple countries on some of which are current radar set two customers some of which are now coming on board as new customers for for chorus so that is the nature of the customer in terms of their willingness to sign contracts pre-launch it depends on the country for sure some people will just sell like as you indicated we'll sign L.O.I, as letters of interest or intent but then not sign a definitive contract until there's you know a fully commission satellite in orbit or constellation in orbit others will be willing to sign up front and potentially even put some money down up front and the reason they would do that would be for a preferential access they want to secure priority rights to imagery and service in certain regions of the world that they care about and so they're willing to secure that ahead of other customers and so some nations are in active discussions with us about that and while others are just at the letter of intense stage and they'll don't you know take a bit of time before they before they before they commit all right what was your other question or something else there are the on boarding or revenue and yeah they're revenue I would expect revenues through 26 to kind of stay similar to current levels like there'll be a whole shakeout period here where we've got a strong customer base they're getting service from radar set to a number of people have been increasing slightly just minor optics in their radar set to usage knowing that they can continue right into chorus and so that's been nice and strong so there'll be a shakeout period there in terms of all of that and then we've got to get through commissioning and stuff in 26 and get everything operational and all of that so I think you know there might be a very small little lift in in in 26 especially as we convert some people's ground stations to receive data from chorus but then you know then it would start to ramp up in 27 so then we start to see things increase 27 28 as people you know have full confidence in the service as government customers like you said get fully under contract so that's what I think Great. Thanks, guys. Appreciate it. Okay. Thanks, Jason. Thank you.

David McFadgen: And your next question goes on the line of David McFadgen from Cornwork Securities. Please go ahead. Great. Thank you, David. Hey, so a couple of questions. Just send the guidance first of all. So when I look at the revenue guidance, you only move it up a bit. Is the primary reason for that? The fact that you were able to convert the ATP contract from 180 to 300? Is that the primary driver?

David McFadgen: No, I think it's just that everything combined. It's like, it's like what we're seeing on light speed. It's what we're seeing with Canada. I'm three being signed a little bit about what we're seeing on that ATP, but really that's executing according to our plan for the year. And so it's really just as some of these new larger contracts are kicking in that it needs to go up a bit. And to be honest, we raised it a bit because, you know, you've seen what we've delivered in Q1 and Q2.

David McFadgen: You've heard what we've guided for in Q3. If we didn't raise it, you would have an expectation of a declining Q4, which is absolutely not the case. And so we had to raise it so that, you know, you could clearly see that we will continue to climb the hill. Okay. And then just on the working capital, you know, obviously there's a big working capital inflow in the second quarter. So I imagine that's probably due to light speed.

David McFadgen: Is that correct? Primarily. Yeah. Okay. So given to us that they're going to spend a billion dollars this year, shouldn't we expect that the working capital inflows for the entirety of 2024 will be larger than what you experienced in Q2? I think, yeah, overall, yeah, for sure. Yeah. I think that it'll keep ticking up. I think, you know, Q3 will be a big one and then Q4 will be solid. So yeah, for sure it's going to be, it's going to be solid. Yeah. Okay.

Michael Greenley: I mean, I think it would be helpful for everybody on the call and the investors to, I know if you can, to give us maybe a range on working capital inflow. You expect this year from, you know, I think that'll be helpful. And then just on backlog, clearly, you know, it's grown substantially here. Do you expect it to continue to grow your backlog throughout 2024 so that when you report 4th quarter, the higher than what it is right now?

Michael Greenley: Yes. Okay. All right. Yeah, we do. Yeah. We'll do our best. We're going to do it. We're going to be bigger. Okay. And so when you say that, or where you have that confidence, are you expecting another big translation order? Or I don't know if you can comment on that? Well, I think in terms of the things that we currently talk about, like the minimum thing is this unnamed customer and conferring that to a definitive contract, right?

Michael Greenley: So right now we've only got the authorization to proceed in backlog. And so, you know, with the numbers that I was just throwing around there, talking about, you know, lifting that up to around $300 million in the last week, that takes that $4.6 billion dollar number at the end of Q2 and starts to send it up a little bit towards $4.8. And then you get the rest of that definitiveized contract and you've probably got backlog that starts with a five.

Michael Greenley: And so, you know, that's for sure the just the basic thing right there in terms of things we're already talking about. As I indicated, there is a solid pipeline. People are actively quoting other things can happen, you know, but as a minimum, just finishing that task that we're all talking about and watching there, which we fully expect to do, you know, would cause us to finish the year with a backlog that probably starts with a five. Okay. Eddie Bosch. Okay, that's it from me. Thank you. Okay, thank you. Thank you.

Kristine Liwag: And your next question comes from the light of Kristine Liwag, from Morgan Stanley at the school ahead.

Unknown Attendee: Thank you. Hi, this is Justin on Christine. Thanks for taking the question.

Unknown Attendee: Oh, okay, there you go. Just staying on this working capital contribution, who tell us that and the new free cash flow expectations.

Michael Greenley: Can we just end a second on how this materialized? I mean, do something change in the terms or did you hit a milestone earlier than expected? Yeah, I think for us in terms of like, you know, setting expectations, everything we've done the last 10 quarters, you know, to make sure that we're absolutely saying what we're going to do and doing what we say has been like a really strong theme for us.

Michael Greenley: When we get these large contracts coming in, you know, we've been quite cautious and making sure that, you know, we're creating expectations that for sure we can meet. And then we've absolutely met those expectations. In terms of signing up on the MD Aurora product, a large supply chain and subcontractor base to execute on this new digital satellite products, there's a lot of moving parts. And so our ability to negotiate all those subcontracts, get them in place and start cash moving in relation to that progress.

Michael Greenley: You know, it's big numbers in terms of taking on things of this size. And so the teams have just done an extraordinary job, basically, and they've got everything under control, everything is in place according to what would have been our best expectations. And therefore, cash is moving out of pace that is, you know, higher than we would have otherwise indicated and is extremely, you know, extremely positive just because they've done a great job.

Michael Greenley: And so, so that, that's really it. As we continue to execute on more of these sort of one two billion dollar constellation projects, and that supply chain is now more established because we're now working around a new product, a digital satellite product in MD Aurora. All of this will become more predictable, more confident. And you will see less, you know, large swings like you've just seen, which is like, you know, oh my gosh, like everything's absolutely working exactly as best as we could have expected.

Michael Greenley: And so now we will tell you all about that because it now has occurred. But we'll be able to see that a lot better now because we're working around a standard product for multiple customers around and establish supply chain.

Michael Greenley: Got it. I'm the tellful. And just maybe to clarify the suggestion for positive working capital in the back half of this year. Is that also driven by similar dynamics on the tell us that program? Yep. It's just all execution on that. And some other programs are all executed, but certainly tell us that is the largest one. Yeah.

Unknown Attendee: Okay, great.

Michael Greenley: And maybe just one more on actually the star lab partnership. Does this sort of investment maybe preclude you in any way from contributing robotics offerings to other potential commercial space stations? Is there any sort of exclusivity built in there? And maybe you just talk about, you know, fielding demand from from other offerings at this point. Yes, no. There is no exclusivity. And yes, we are talking to all commercial space stations and commercial on orbit servicing and commercial active debris removal and commercial on orbit assembly and commercial lunar rover and infrastructure projects. There are wide range of commercial opportunities for M.D.A. Skymaker commercial robotics in the in the market. Thank you. Okay, thank you.

Michael Greenley: Thank you once again, the call back to Mr. Mike Greenley for any closing remarks. Thank you, operator. Thanks, everyone, for your time this morning. We certainly appreciate that. We look forward to updating you on our progress during our next journeys call in November. Have a great day. Thanks very much.