Q3 2024 MDA Space Ltd Earnings Call
Welcome to M. D E Space Limited conference call and webcast. This call is being recorded on November 15th 2024 at 830, a M eastern time.
Following the presentation, we will conduct a question and answer session.
<unk> will be provided at that time for you to queue up for questions.
Anyone has difficulties hearing the conference. Please press star followed by zero for operator assistance at any time.
Speaker Change: I'd now like to turn the call over to Sharon So Howie head of Investor Relations at M. D a space.
Speaker Change: Thank you operator, good morning, and welcome to M. D. H space third quarter 2024 earnings call My greatly our CEO and Dr. Lavoie, our newly appointed CFO will lead todays call and share some prepared remarks before taking your questions before we begin I'd like to remind you that today's call will include estimates and other.
Speaker Change: With booking 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: In addition, during this call we will refer to certain non <unk> financial measures. Although we believe these measures provide useful supplemental information about our financial performance. These measures do not have any standardized meaning under ifr us and our approach in calculating these measures may differ from that of other issuers and everybody may not be directly comparable.
Speaker Change: Please see the Companys quarterly report and other public filings for more information about these measures, including reconciliations to the nearest ifr S measures and with that it's my pleasure to turn the call over to Mike.
Mike: Thank you Sharon.
Mike: Everyone and thank you to draw is joining us today to discuss our third quarter 2024 financial results.
Mike: The MDA space team delivered another strong quarter in Q3, driven by solid execution.
Mike: As we continue to convert our backlog and meet our customer commitments.
Mike: Our Q3 revenues totaled $282 million up 38% year over year.
Mike: <unk> EBITDA was $55 5 billion.
Mike: Up 30% versus last year, and adjusted EBITDA margin was a solid 19, 7%.
Operating cash flow was strong at $259 million and we ended the quarter with a healthy balance sheet as our leverage ratio continued to decline.
Mike: Our backlog of $4 6 billion at quarter end provides us with good revenue visibility for 2025 and beyond.
Given the solid year to date performance, we are updating our full year 2024 financial outlook we.
Mike: We are raising our revenue guidance narrowing our adjusted EBIT guidance and reaffirming our capex guidance.
Mike: Consistent with our comments last quarter, we expect free cash flow to be positive this year, given favorable operating cash flow dynamics.
Q3, and the subsequent period was a busy one for MDA space, we broke ground on our satellite systems facility expansion in Quebec, which will add 185000 square feet of advanced manufacturing capacity capable of delivering two MDA Aurora digital satellites per day.
Mike: On our major programs the MBA space team successfully conducted the preliminary design review for the Canadarm three program a key milestone for the program.
Mike: We also continued to advance the manufacturing of MBA chorus are next generation Earth observation constellation.
Mike: And then our satellite systems business. The team made solid progress advancing the engineering work for the Telus satellite speed program.
Mike: 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.
I'd also like to welcome Jan Lavoie to the MDA spacing.
Mike: Last week, we announced the Yamana has been appointed to the role of Chief Financial Officer at MDA space, You're always a seasoned financial executive with over 20 years of experience covering the full range of financial and business functions at both public and private companies.
Mike: I look forward to working with them to support our long term growth plans and help us deliver successfully for our customers and shareholders has just come in you're almost done right in and is truly understanding our business and is an excellent fit amongst our executive leadership team.
Mike: I also want to extend my sincere thanks to Janet Mccaghren for stepping in as our interim CFO during this transitional period.
Mike: Janet has done an exceptional job, leading our finance function. During this time on behalf of the entire executive leadership team I want to recognize Janet for her commitment and dedication.
Mike: We will continue to draw on Janet's deep financial expertise and her ongoing role as vice President of finance.
Mike: I will now give you a view of the industry and update on our three business areas and then pass it to <unk> for a deep dive on the financials.
Speaker Change: As we have seen in previous quarters, the broader space Margaret continues to expand mature and gain momentum there are few items worth highlighting.
Speaker Change: Starting in Canada in September MDA space hosted multiple federal and provincial senior government officials, including the Prime Minister of Canada, and the Premier of pullback at our satellite manufacturing facility in Montreal to Mark the Finalization of government funding for the Telesat Lightspeed lower orbit satellite constellation and MDA space is.
Speaker Change: Spansion in the province.
Speaker Change: The telesat lightspeed constellation will utilize our innovative MDA Aurora digital satellites to provide high speed Internet access across Canada and globally and help bridge the digital divide.
Speaker Change: South of the border notable commercial activities include Globalstar as recent announcement that it has secured additional funding from its customer Apple to deliver expanded direct to device services over a new mobile satellite services network, which will include a new satellite constellation.
Development further reinforces the expanded role that space infrastructure is expected to play in the communications market as we see closer integration of terrestrial and satellite assets, helping drive continued growth in the satellite constellation market.
Speaker Change: Additionally in early October Spacex conducted the first test flight of its Starship rocket successfully flying the rocket booster back to its launch site and securely catching it in the air with two mechanical arms as it descended.
Speaker Change: This marks another important milestone for the development of Starship are fully reusable super heavy lift launch vehicle, which once operational will help further reduce launch costs, making space more accessible and driving increased commercialization in our industry.
Speaker Change: Globally, we continue to see increased interest in space exploration.
Speaker Change: With the Dominican Republic, Estonia, Cypress, and Chile, being the latest countries to sign on to Nasa's Artemis Records signaling their commitment to safe long term, an ethical space exploration.
Speaker Change: The latest entries, bringing the group size to 47 nations now as we continue to see steady interest from non traditional space Barry Nations, which are now building their own national space programs or development that bodes well for the broader space market into the future.
Now I'll turn to our three business areas.
Speaker Change: And satellite systems, we continue to see good momentum in this market with our teams working to advance multiple requests for communications satellite solutions and a growing number of constellation projects.
Speaker Change: We're also seeing good activity levels from customers in our opportunity funnel remains strong.
Speaker Change: In Q3, we received a contract from Swiss to 12 to provide antenna systems for three of the company's humming sat satellites for geostationary orbit.
Speaker Change: Satellites will be deployed as part of the Inmarsat eight program to provide crucial safety services and support advances in emergency tracking.
Speaker Change: MBA space will design and build high performance L band navigation antennas and will also design and configure the innovative packaging concepts that are required on the G O small side platform.
Speaker Change: This is M D. A second contract in the GL small sat market with Swiss to 12.
Speaker Change: On the operational front, our teams were busy advancing work on a number of programs on the Telesat Lightspeed program as I mentioned earlier, we're progressing the design work and our teams are preparing for the programs engineering and manufacturing phases of development.
Speaker Change: We also continued to onboard suppliers for the program with all critical subsystem suppliers now under contract as of the end of October setting the stage for work volumes to accelerate in 2025, consistent with our program plans.
We are also making good progress on the engineering and program procurement activities for the non geostationary orbit satellite constellation, we announced in Q4 2023, our unnamed customer.
Speaker Change: Originally awarded under our $180 million authorization to proceed contract and subsequently increased to $300 million to accommodate additional work scope.
Speaker Change: A full constellation valued at a minimum of $750 million is expected to include a minimum of 36 MTA Aurora digital satellites.
Speaker Change: A definitive contact for the full constellation for which MDA would be the prime contractor as expected this year as previously mentioned.
We also continued to advance work on the Globalstar program in Q3, the team progressed flight hardware production and flats that testing of the Boston payload systems and successfully conducted the spacecraft integration readiness review.
Speaker Change: The team has started the integration of the first satellite as you know NDA space as the satellite prime contractor to enhance global stars Leo constellation through the addition of 17 satellites, which support Sos features and directed device communication on certain Apple products.
Speaker Change: This quarter, we announced the construction is underway on our 185000 square foot expansion to our satellite production facility in San N to BELBUCA back.
The building foundation has been laid in the steel structure is currently being assembled.
Speaker Change: Once complete it will be the world's largest high volume manufacturing facility and its satellite class with capacity to deliver to MDA, our digital satellites a day.
Speaker Change: The production line is expected to be operational in the second half of 2025.
Speaker Change: Moving to our Geo intelligence business customer demand for Earth observation offering remains robust and we are seeing increased recognition of the role that commercial Earth observation satellites can play to provide near term near real time data and analytics to governments and private enterprise.
Speaker Change: In Q3, MDA space was selected by NASA as one of eight companies for New award to help acquire Earth observation data and provide related services for the agency.
This award represents our first direct contract with NASA for Earth observation services.
Speaker Change: The commercial small sat data acquisition program as a maximum value of $476 million cumulative among all selected contractors and the performance period that runs through 2028.
Speaker Change: We will be providing synthetic aperture radar or SAR data to aid NASA efforts to better understand climate change impacts and to support other Earth science applications.
Speaker Change: During the quarter. We also continued to advance work on MTA course, the MDA space team completed the assembly of the main structure of the spacecraft completed the flight software. We also commenced integration and testing of the spacecraft in response to evolving market dynamics. The team is incorporating additional space craft security enhancements for.
Speaker Change: <unk> of course as a result of these enhancements and to provide some additional time for testing. We are now targeting a mid 2026 launch for MDA course.
Speaker Change: Overall, we are very pleased with the progress to date on MDA course over the last year, we achieved a number of key milestones, including successfully completing the critical design review for the payload and all unit levels completing the deployment testing of the engineering model SAR intended about deployment structure and conducting multiple ground segment operations.
Speaker Change: <unk> we.
Speaker Change: We are seeing strong interest in MBA chorus from both existing and new prospective end users and business development with potential corus customers continues to accelerate with.
Speaker Change: With approximately three dozen customers, having signed letters of interest for future course data and services. This is excellent.
Speaker Change: We are confident that MTA chorus will deliver enhanced functionality to all of our current and future customers.
Speaker Change: In terms of other Geo intelligence programs work on the Canadian surface Combatant program, one of our long term government programs is progressing the team continues to meet our technical milestones, including a recent successful critical design review of the laser warning and countermeasures capability.
Speaker Change: MDA is responsible for the design and integration of the electronic warfare system for the ships to help protect the men and women of the Royal Canadian Navy.
Speaker Change: Moving to our robotics in space operations business, we continue to see good traction in activity levels on both the government and commercial fronts.
Speaker Change: In Q3, we successfully conducted the preliminary design review for the Canadarm three program, which we were awarded in early 2022 from the Canadian Space Agency.
Speaker Change: This marks the final milestone for phase B of the Canadarm three program.
Speaker Change: In parallel we are ramping up work volumes on phase C, which we were awarded together with phase D. In June of 2024.
Speaker Change: Stacy will see us completing the final design, whereas phase D covers the construction system Assembly integration and test of the full robotics system as well as the ground segment for command and control.
Speaker Change: NBA space will support commissioning of the Canada arm three robotic system once in orbit from our new mission control facility at our global headquarters in Space Robotics Center of excellence in Brampton, Ontario.
Speaker Change: The contract also includes planning and personnel training and preparation for on orbit mission operations.
Speaker Change: On the commercial side, we continue to explore opportunities to incorporate our robotic technology and applications to support space exploration and lunar mobility.
During the quarter, we received a contract from lunar outpost to integrate our MDA sky maker robotic technology into its lunar terrain vehicle concept as part of a year long feasibility study for NASA.
The agency is partnering with industry to develop a system that meets Nasa's requirements for our lunar terrain vehicle. The Artemis astronauts will used to travel around the lunar surface a rover for the moon.
Speaker Change: Shifting to operations, we continued our hiring efforts to support the growth we see in our business, adding approximately 900, new hires over the last year with more than 3000 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.
See emerging.
To recap we are pleased with our performance this quarter and the momentum we are seeing in our markets.
Speaker Change: The team is energized and we remain laser focused on our priorities our strong focus on execution converting opportunities in our funnel and expanding our leadership in core markets, while maintaining strong profitability and a healthy balance sheet to help fund our growth initiatives.
Speaker Change: With that I'll hand, it over to get him to walk us through the detailed financials.
Speaker Change: Thank you Mike for the introduction I'm excited to be here and look forward to working with you and the rest of the MDA spacing.
Speaker Change: Joining M D eight at such a pivotal moment for the company and for the space sector as an exciting personal and professional opportunity.
Speaker Change: Good morning, everyone for my update I will walk you through our financial results for Q3 and provide more color on our 2020 for outlook.
Speaker Change: Overall Q3 was another good quarter for MDA space, we are pleased with business performance and execution.
Speaker Change: In the quarter, we saw solid revenue growth and profitability.
Speaker Change: Strong free cash flow generation and.
Speaker Change: And we ended the quarter with a significant backlog, giving us good visibility for our revenues into 2025.
Speaker Change: Total revenue for the third quarter was $282 million. This represents a $78 million or 38% increase over the same period last year.
Speaker Change: The year over year increase is driven by higher work volumes across arms.
With strong contributions from our satellite systems and robotics in space operations businesses.
Speaker Change: By business area.
Speaker Change: Revenues in satellite systems of $168 million in the third quarter were $73 million or 77, 5% higher compared to the same quarter in 2023.
Speaker Change: The strong showing was driven by higher contributions from new programs, including Telesat Lightspeed and the authorization to proceed contract for the <unk> satellite constellation announced in Q4 2023.
Speaker Change: And robotics in space operations, we saw L. T year over year growth with revenues of $66 5 million in the latest quarter, representing a $4 6 million or seven 4% increase versus Q3 of last year.
The growth is largely attributable to a higher volume of work performed on the Canada arm three progress.
Speaker Change: Revenues in our intelligence business, a $48 million in the latest quarter were relatively flat year over year, reflecting steady work volumes as we expected.
Speaker Change: Moving to gross profit.
Speaker Change: For Q3, 2024, gross profit was $76 million, representing an $18 million or 31% increase over the same period last year, driven again by higher work volumes in the current quarter.
Speaker Change: Gross margin this quarter was 26, 8%, which is in line with our expectations and compares to 28, 2% for the same period in 2023.
Speaker Change: The year over year change in gross margin is driven by evolving program mix and higher depreciation expense as new assets come into service.
Speaker Change: Q3 operating expenses of $40 million were slightly below last year's metric of $42 million, primarily reflecting slightly lower R&D spend offset by somewhat higher SG&A expenses as we scale up the business.
Speaker Change: Adjusted EBITDA in the latest quarter was $55 5 million compared to $43 million in Q3 2023.
Representing an increase of $12 7 million or 30% year over year.
Speaker Change: The increase was driven by higher volume of work and steady operating expenses adjust.
Speaker Change: Adjusted EBITDA margin of 19, 7% in Q3 is consistent with our full year margin guidance of 19% to 20% and compares to adjusted EBITDA margin of 29% reported in the third quarter of 2023.
Speaker Change: Adjusted net income for Q3 was $35 million compared to $22 million reported in the same period last year.
Speaker Change: A year over year increase of $13 million was driven by higher operating income.
Speaker Change: Moving to backlog, we ended the quarter with $4 6 billion in backlog, representing an increase of close to 50% year over year. The growth in backlog is driven by new order bookings, including the $1 billion award for phases C and D of the Canada arm three program.
Speaker Change: Announced in Q2 of 2024.
Speaker Change: Turning to Capex and cash flow, we remain focused on making the right investments in the business to support our strategic growth initiatives. In Q3, we spent $53 million on capital expenditures compared to $49 million last year as we continue to invest in chorus.
Speaker Change: And other growth initiatives, including the expansion of our Montreal satellite production facility to support.
Speaker Change: Growth in our satellite systems business.
Speaker Change: Operating cash flow during the quarter was $259 million compared to a usage of cash of $30 million in Q3 of 2023.
The year over year increase was primarily driven by positive capital contributions related to the ramp up of the Telesat Lightspeed program, we generated free cash flow of $205 million in the latest quarter compared to a usage of $79 million in Q3 2023.
Speaker Change: We expect continued positive working capital contributions for the balance of the year as we ramp up activity on the Telesat Lightspeed program.
Speaker Change: Turning to our balance sheet, we ended the quarter with a strong financial position.
Speaker Change: Our net debt sits at $155 million.
Speaker Change: Have ample available liquidity of $535 million.
Speaker Change: And our leverage ratio ended at 0.8 packs.
Speaker Change: During the quarter, we made 105 million repayment to our revolving credit facility, which is consistent with our plan to deleverage our balance sheet, providing operational and strategic flexible flexibility for the future.
Speaker Change: In summary, this was a solid quarter, we are executing well 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.
Speaker Change: Now, let me turn to our outlook as Mike noted, we are updating our financial outlook given the strong performance to date for.
Speaker Change: For fiscal 'twenty four we are raising our full year revenue guidance to $1 billion 45 to $1.065 billion.
Up from $1 20 to $1.060 billion previously.
Speaker Change: Representing a robust year over year growth of approximately 30% at the midpoint of the range.
Speaker Change: We are also narrowing our 2024 adjusted EBITDA guidance to $205 million to $210 million from 200 to 210 million previously representing approximately 19% to 20% adjusted EBITDA margin.
Speaker Change: We are reaffirming our 'twenty four capex guidance.
Speaker Change: $200 million to $220 million, comprising primarily of growth investments to support chorus, and the previously outlined growth initiatives across our businesses.
Speaker Change: We reaffirm our expectation that free cash flow will be positive in 2024 as a result of favorable working capital contributions primarily related to the telesat Lightspeed program, allowing us to further deleverage the balance sheet in Q4.
Speaker Change: With a solid backlog.
Speaker Change: <unk> operational performance and a healthy balance sheet, we are well positioned for the balance of 2024 and look forward to delivering another successful year.
Speaker Change: Mike with that I'll turn it over back to you.
Mike: Thank you Jim.
Speaker Change: With that operator, we will open it up to questions.
Speaker Change: Thank you, ladies and gentlemen, well now begin the question and answer session.
Speaker Change: So do you have a question. Please press star followed by the one on your Touchtone phone.
You will hear three tone acknowledging your request and your.
Speaker Change: Questions will be pulled in the order they are received.
Speaker Change: We wish to decline from the polling process. Please press star followed by the Q.
Speaker Change: If you are using a speaker phone please lift the handset.
Amy: Pressing Amy.
Speaker Change: One moment. Please for your first question.
Your first question comes from Doug Taylor with Canaccord Genuity. Your line is now open.
Doug Taylor: Yeah. Thank you good morning, and congratulations on another good quarter and welcome to Jim as well.
Okay.
Doug Taylor: Thanks, Doug Thanks.
Doug Taylor: I'll start by.
Speaker Change: Speaking about this the ATP customer you are confirming you expect that to be formalized by year end.
Speaker Change: I wanted to start by clarifying a question we've been getting regularly in recent weeks can you confirm whether or not that ATT you've been working on has anything to do with globalstar Apple or is that a completely separate situations.
Speaker Change: And we're just not in a position to be able to comment on our unnamed customer I realize that that probably caused some people some brief.
Speaker Change: But we're just not allowed to and so we're not allowed to comment on our unnamed customer or the nature of it I think that for me from everybody's perspective, we should just remember the key points of the business. These days, we got a strong business is doing well, we continue to grow 25% to 30% a year, we continue to hold 20% adjusted.
Speaker Change: EBITDA margins, we continue to convert margins to cash 75% to 80% of EBITDA as operating cash all of these things continue we have a healthy backlog that continues to drive growth, 25% to 30% year over year. All of these things continue to work with.
Speaker Change: A very strong pipeline, especially in satellite systems for a lower orbit constellations.
Speaker Change: I characterize that as at least a $13 billion pipeline is probably more like a $15 billion plus pipeline right now based on <unk>.
New new conversations that have started in the last quarter. So everything is very healthy there. So there's there's two things I cant comment on which is what is the identity of my unnamed customer that's unfortunate, but they will get resolved.
Speaker Change: And I mean, as you know we don't comment on other opportunities in the pipeline. So things are going great things are going well I think we all agree on the on the solid story and I will make sure that I can talk to that and identify it as soon as I'm legally allowed to do so.
Speaker Change: Okay I just wanted to make sure everyone's on the same page. So that's that's fair.
Speaker Change: And I talked to you I took too much of your time, because I'm just trying to prevent Doug. The other six people asking me. The same question. So I apologize for that and I realize there is a source of <unk>.
Interest and excitement there is theres certainly no worries here there shouldn't be any worries here, we're just getting our work done and for sure. We'll put the markers donlin were allowed to.
Fair enough. So maybe you could then just changing gears. There is I mean with regards to Apple's next investment in Globalstar and and.
Speaker Change: I guess can you first remind us the timetable to completion of the current work that you are contracted on with Globalstar.
Speaker Change: Whether they would exercise any of their options.
Speaker Change: That were detailed when that contract was first announced and then maybe talk about some of the commonalities at least from your perspective and the capabilities that are being talked about with.
Speaker Change: The next phase versus what you're providing with the you know the initial satellites that youre building for them any help you can give us there.
Speaker Change: Sure.
Speaker Change: On our current contract that we're in the progress of executing in process of executing that was 417 satellites with an option for nine more.
Speaker Change: And.
In our current state we are executing on the original 17.
Speaker Change: They need to be delivered through 2025, so that'll be the third year of that three year program 2025. So those satellites will be delivered as I probably mentioned in my remarks.
There are certainly under assembly right now, we're just starting to assemble those satellites. So thats all in hand, and on track, which is which is very good to answer. Your next question. Thus far no. We have not been turned on for our optional nine more of that remains as an option in the contract.
Speaker Change: It is there and available and ready to be used but has not yet been activated.
Speaker Change: In terms of I think you were talking about similarities or differences between whatever we are currently delivering into global stars network and whatever theyre going to do in their next generation of network that Theyre now discussing about.
Speaker Change: They have not disclosed that they have not talked about what the features of that next generation of network would be so we'll just have to wait and see.
Speaker Change: Where theyre going to go with that now that they are clearly set up and financed and funded to be on their way.
Speaker Change: That's very helpful.
Speaker Change: Last question for me I'll pass the line.
Speaker Change: One I'll shift to lightspeed and the ramp there obviously, it's got significant implications on 25 and 26 and beyond.
Speaker Change: You said, you're working through the design and planning phase into engineering and manufacturing. So I guess my question is can you speak a bit about the level of visibility you have or believe you will have at the time of your next quarter and presumably next annual guidance provided.
Speaker Change: Provided as it relates to lightspeed, specifically at this point.
Speaker Change: Yeah, we have a we have a very strong contract there that we're executing on.
Project management is well in hand things around track that means we have a strong baseline program I mentioned that the very large majority, which is over 95% I believe of all suppliers are now under contract. So they have their schedules and their cost of price profiles to us. So it is it is fully known here at the moment.
Speaker Change: And so as we head into 2025 with a well baseline program.
Speaker Change: And we include Telesat <unk>, obviously is an element of our portfolio in guidance will provide for 25.
Speaker Change: Extremely good insight in terms of what that Youre looks like we would expect I believe our plans are around the first week of March to have our next board meeting and that's when our earnings call would be that would include some commentary on 2025 expectations.
Speaker Change: Alright, Thank you very much I'll pass the line.
Doug Taylor: Thank you Doug.
Speaker Change: Your next question comes from <unk> Gupta with Scotiabank. Your line is now open.
Speaker Change: Thanks, and thanks for taking my question and welcome.
Speaker Change: Thank you for.
Speaker Change: From our side as well.
Speaker Change: I wanted to ask you about this on the core us Mike.
Speaker Change: Seems like the launch it's pushed out by call. It six months or so can you talk about some of the drivers behind that pushed out legacy driven by space access all of their high priority launches.
Speaker Change: That said because of the development progress youre, making on Coors.
Speaker Change: I'd say at this point this is our choice. So this is not a spacex item at this time.
Speaker Change: That can always happen on launches for sure. It's a two way relationship between the person that needs to launch and then your launch provider and you both got things going on in your life, but at this at this point the shift from Q4 'twenty five to mid 26 at six months. As you mentioned is is our decision.
Speaker Change: It's related to technical work that we will do like to do on the satellite I mentioned in my remarks that one of the key areas. There is looking at security features that we want to ensure our in the satellite and that is when you launch something with a 15 year design life, which means that it's probably doing business for you for over 20 years.
Speaker Change: You want to make sure you got it right.
Speaker Change: <unk>.
Speaker Change: Looking at the full operational and security environment, we looked at putting a few more features into the satellite and it's worth it to us.
Speaker Change: To take the time to do that.
Speaker Change: In our business radar sock two continues to be extremely healthy.
Speaker Change: And so we're very comfortable that we can continue to operate radar side too, while we do a little bit or do a little bit of extra enhancement of.
Speaker Change: Of course.
Speaker Change: Okay that makes sense. Thanks.
Speaker Change: And then on the working cap side.
Speaker Change: Q3 cash flow. So that's extremely high close to I think 260 all in.
Speaker Change: If I look at the year to date cash flow EBITDA conversion, that's probably closer to 300% I know we talked about this year it might be an anomaly and a second on the Telesat program wrapping up and all of that but let's start what Ive said 60 70, 80%, it's probably a good proxy heading into next year 2025.
Speaker Change: What's your sort of.
Speaker Change: On the cash conversion and they are really looking at either outsized conversion or are we going back to that $60 to 80%.
Speaker Change: Hey, good morning.
Gail I'm here I'll take this question so.
Speaker Change: Mike State.
Speaker Change: As stated today again, our sort of long term cash.
Speaker Change: Cash flow conversion from EBITDA target to be around $75 two.
Speaker Change: 85%.
Speaker Change: When we look at the execution over a number of years now because of the nature of our business, we're going to see a lot of fluctuation in to the working capital.
Speaker Change: And we will try to guide everyone as best as we can.
Speaker Change: But obviously the working capital is tied to a lot of milestones.
Speaker Change: And inflows that are subject to a lot of changes. So yes, Q3 was very strong primarily driven by.
Speaker Change: The Telesat Lightspeed program as I mentioned, we had set a soft guidance of about 200 million operating cash flow for Q3, and we did $2 60 as.
Speaker Change: We were a bit stronger than what we expected now for Q4, we continue to expect positive working capital.
At this stage I think it's fair to say that we will have likely an operating cash flow between $150 million to $250 million.
Speaker Change: That's up from what we had said previously back in Q2.
Speaker Change: And with regards to next year, obviously, we're not ready to.
Speaker Change: Guide at this stage, we're going through our planning cycle right now and we will release the guidance as usual at our Q4 earnings call, but what we said previously remains true where we.
Speaker Change: We think the cash flow for next year, the free cash flow for next year will be positive slightly positive.
Speaker Change: From our perspective this can only improve if we get additional orders.
That makes sense. Thanks, so much about that additional color on our Q4 and last one before I kind of look Mike you mentioned about the globalstar Apple.
Speaker Change: Transaction recently.
Speaker Change: I want to kind of get into that ADP.
Speaker Change: Closures and all of that but I just wanted to understand high level.
Speaker Change: When these announcements are made by your customers and their vendors who are your customers as well the globalstar.
Much time does it take for these things to come to fruition in terms of a potential opportunity for you know like they just announced the deal does it mean that if they decide.
Speaker Change: Decided to award a contract to MTS somebody else would that be next year or two.
Speaker Change: Yeah each customer.
Speaker Change: Your question there were sort of generic each each customer is working at their pace every customer has to work through.
Speaker Change: Their business plan and business model than each customer needs to work through their financing and what their financing framework is going to look like and then there is some commercial activity there where they need to set up a contract in this discussion with their satellite provider. So theres a number of factors as you can imagine that any any customer contract would have to work through.
Speaker Change: <unk>.
Speaker Change: In the case of Globalstar as announcement based on my observation of it.
Seem to have a concept for what they want to do for next generation constellation they'd have to probably continue to <unk>.
Speaker Change: Finalize that.
It appears in their relationship with their largest customer and Apple that they've got their financing a range. So that's a very strong position for them.
Speaker Change: And then they would have to just move forward into into a commercial.
Situation to be able to.
Speaker Change: Finalize any contractors with their vendors and so I think that those three steps are going to vary and I would say typically what we've seen for people, especially once you get financing and figure it out.
Speaker Change: Anywhere from straight away to six months would be normal I think depending on how much time you spend on the technical aspects of finalizing the technical aspects of the satellite so and I'm trying to imagine two or three customers in my head when I'm answering that question there.
Speaker Change: Okay, No that's great. Thanks.
Speaker Change: Thanks for that and all the best of luck for the future. Thanks, So much Mike Alright.
Thank you. Thank you.
Speaker Change: Your next question comes from David Mcfadden with core Mark Your line is now open.
Speaker Change: Okay.
Speaker Change: Yeah, a couple of questions.
Speaker Change: <unk> backlog. So I think previously you indicated that you expected to finish 2024 with a 5 billion backlog is that true.
Speaker Change: Yes, that's still the expectation because I continue to say out loud that we expect our unnamed customer commercial situation to be resolved in the year, which would add some additional backlog obviously as we transition from an authorization to proceed to a full definitive contracts. So I'm expecting that that would provide that lift up to the around the $5 billion level that's correct.
Okay, because I think right now that contact 300, right. So you would expect another 450 would be finalized sometime between now and the end of the year.
Though they are based on all the all the words that I'm using which is that we've got an authorization to proceed at 300.
As in backlog and we're going to have a contract where at least 750, absolutely that's correct.
Okay.
Speaker Change: So if you add another.
Speaker Change: Let him take for 15.
Speaker Change: There's still a bit of a gap to fill.
Speaker Change: Yeah, Hey, Jeff.
Speaker Change: Since the end of Q3, Youre going to take 300 million plus out.
Speaker Change: In the fourth quarter. It seems that you've got a 700 million gap so forklifts.
Speaker Change: Would be filled with the expectation hps finalized so than theirs.
Speaker Change: $250 million. So does that mean that we should expect some other announcements coming in the next 60.
Speaker Change: There's lots of little things that happen in the business all over the place right. So.
Speaker Change: You end up with your radar sought to sales all over the place you end up with small satellite merchant supplier activity happening here and there.
Speaker Change: So.
Speaker Change: There's always a series of activities. So there's like I could never break all that down right now, but I think across all of our pipeline.
Speaker Change: Comfortable I'm comfortable saying that $5 billion number or that's the number that we do we use in our internal planning and I'm sharing that with him okay.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: And assuming you finalize it.
Speaker Change: Back that the customer will be announced by fluid ends.
Speaker Change: Yes, when we sign a contract we unless it's a yes. It is I do expect so there are very few conditions. When we would sign a contract and not tell you who we're doing the work for.
Speaker Change: And so it's this is not that we would we would we would explain who our customer is and the nature of that contract like we always do.
Speaker Change: Okay.
Speaker Change: So, giving you youre, making changes to core at enhancing it.
Speaker Change: What's the updated Capex has been for that program.
Speaker Change: Yes, Theres no material change to the Capex. This is a lot of labor and testing activity.
Speaker Change: And so theres no material change in the Capex. The program. We're just get launched mid 'twenty six mid 2026 was a year of commissioning and putting chorus to work. It will continue to be a Europe commissioning and putting chorus to work we all expected.
Speaker Change: So there is known as a result of that Theres no material change to our current thinking about our 2026 business plans.
Speaker Change: We had expected course, I get an uptick in.
Speaker Change: In 2027 in the Geo intelligence line of business, we continue to expect chorus to cause a bit of an uptick in the 2027 Geo intelligence line of business. So all these things continue to stay in place.
It's just taken a look we're just going to use a little bit more time, that's all.
Speaker Change: Okay and actually if I can just ask another question just on the ATP.
Speaker Change: Can you confirm that.
Speaker Change: Constellation is gonna Naval objected device connectivity.
Speaker Change: My just continue to confirm that it's in and GSO constellation. That's those are my those are my speaking points Mr. David Okay.
Speaker Change: And then can you give us an update on when you think.
Speaker Change: The Canadian government announced the contract award for the replacement for the radar sat constellation mission.
Speaker Change: Yes, you're referring to the radar side plus item they announced in November and November of 2023 that they were going to put aside $1 billion to do a couple of things with it one would be to buy one more satellite to put into the RCM constellation and then also to start the work. The early design work on the future replacement obviously of.
Speaker Change: The RCM constellation and so.
Speaker Change: Yes, we're waiting for that we would expect request for information or request for proposals.
To come out.
Speaker Change: The government hasn't announced a hard date on that.
Speaker Change: So.
Speaker Change: At this time.
Speaker Change: Calendar year, I would naturally say that that would likely come in 2025.
Speaker Change: We can always be surprised I guess, if something came out.
Speaker Change: Before Christmas.
Speaker Change: Governments always lob, releasing our advisor Rfps right before Christmas so they can take a break and industry has to write a proposal, but that's just me joking around.
Speaker Change: But I would say we haven't seen any hard signals. So I was expected to be a 2025 activity.
Speaker Change: Okay alright, thank you.
Okay. Thanks.
Speaker Change: The next question comes from Thanos, Michelle Poole Lewis with BMO. Your line is now open.
Speaker Change: Hi, good morning.
Speaker Change: Mike for the <unk>.
Speaker Change: Minimum 36 satellites under the ATP.
What would you expect the delivery timeframe for that could be would that be through 2027 or what would you expect.
Yes, so I'm not I'm not permitted to comment on that.
Speaker Change: Just had the remarks that I have so it was important for us a year ago to disclose the existence of this unnamed customer it's been a bit awkward for us all over the last year. We felt it was inappropriate to be in the market buying additional components for satellites that tends to get around instantly that everyone would be saying why is MDA doing this so it was important for.
Speaker Change: To make sure that you knew that we were definitely working on another constellation we have definitely been turned on to proceed and there is at least 36 satellites in play here. So that you knew we werent just doing something else that was really towards the customer and so hopefully that has helped us all over the last year just to understand that this theres a real thing happening here and then there's been a bit of frustration.
<unk>, just obviously for us all waiting for this full contract to get definitive eyes, but when that happens at the customers discretion.
Speaker Change: We will obviously announce what it is what it's for and what's going on.
Speaker Change: Hopefully I continue to do my best at Holdings in my speaking points on this topic and I realize that causes a little bit of frustration, but it'll all come out soon enough.
Speaker Change: I look forward to that disclosure.
Speaker Change: Okay in terms of the other opportunities in the pipeline. So the $15 billion you cited for SAP.
Speaker Change: Satellite systems can you comment on how some of those opportunities have been progressing.
Speaker Change: Inching forward or something getting solved or what's your expectation on when some of these might reach.
Speaker Change: Susan.
Sure any of these constellations. They can be worked for if you look at past constellation is.
Speaker Change: From a year to three years, you could be working these things.
Speaker Change: And then they go through different levels of kind of maturity, you'll start off with high level of technical concepts, you'll be asked to comment on those contribute a rough order of magnitude quotation to say kind of looks like this kind of cost. This much and then that causes iteration cycles and that can happen multiple times.
Speaker Change: As they mature that you can feel the mature the technical characteristics of the constellation will settle down.
And the the.
The pricing will get more firm more definitive with.
Speaker Change: With the MBA Aurora product it actually accelerates that cycle, it's very interesting and accelerates the cycle because theres less there is less.
Speaker Change: Need to invent whats the satellite going to look like or how is this going to work once we describe a solid product that's going into high production that's available on good schedules at a reasonable price.
Speaker Change: Backend settled down that churn quickly and is actually potentially shortening our time to order and also the customers time to revenue, which is very attractive for the customers. So that's been an excellent dynamic to see emerge over the past year there are.
Speaker Change: I would say at least a couple of items in the pipeline that are in the more mature phases, where things have settled down technically we kind of are settling down on price, which would mean, it's at the customers discretion when they want to pull the trigger in initiating work on those on those constellations.
Speaker Change: Should they accuse us of course like the pipeline is a competitive place. So I would expect to get to the nub of it and I would expect in 2025 to hear about at least one constellation I would I would think that that's a possible things. So we've got a strong business a really good backlog we maintain our.
Speaker Change: Our conviction on growing at 25% to 30% a year for the next several years all of that remains in place certainly with the size of the backlog. We have we can do that rolling into 'twenty five so that's.
Speaker Change: In hand, and we'll get more specific on that as.
Speaker Change: As we give guidance the first week of March but as we go through the year next year I would not be surprised if one of these things come to fruition.
Speaker Change: Great and then finally with the leverage ratio having come down.
Speaker Change: Are you spending more time thinking about tuck in M&A, what are your thoughts on that.
Speaker Change: Yes, we do spend more time I indicated going through the summer that I expected in Q4, and Q1 that we would start to spend more time on that as our executive team management team and as a board and.
Speaker Change: That is the case, we do talk about it more I've characterized the two categories of M&A that we pay attention to would be securing our supply chain looking at elements of our supply chain to make sure that in our technical Roadmaps that we have the access we need to the technologies that we need for that supply chain and so.
Speaker Change: One of the biggest you know with these transitions, especially on the satellite side into higher volume production Youre looking at always technical capability and price, but increasingly now after we saw those two things. We look about scalability can the firms that are supplying us scale up with us through these larger larger volumes.
Speaker Change: It's become a key thing in our life in terms of who our plan any supplier is who our plan b supplier might be but then also talking to firms about the long term relationship here's our bigger pipeline under Nondisclosure agreements, Here's where we're thinking we're going can you keep up with us.
Speaker Change: And if that feels great really good if not maybe that's something we might consider tuck in M&A is getting a little bit more vertically integrated here and there. If we thought that was important to ensure success in the future. So that'll be one key category for us.
Speaker Change: Other key category would be.
Speaker Change: Bucket into that sort of capacity slash.
Speaker Change: Geographic locations so.
Speaker Change: As we continue to scale up and get more volume.
Speaker Change: Their established businesses that could give us more capacity and then are they locally where are they located lake could they be in Europe or could there be in the United States and then would they open up as a result additional pipeline to us because we could be a domestic provider in other parts of the world. So we'll keep an eye on those two categories, securing the supply chain and capacity.
Speaker Change: And geographic position as we go through the next period of time as.
Speaker Change: As you say now that theres a bit more dry powder.
Great I'll pass the line thanks, guys.
Speaker Change: Your next question comes from Ken Herbert with RBC capital markets. Your line is now good morning.
Speaker Change: Good morning, again, Yeah, Hey, Hey, good morning, Mike and welcome Joe.
Speaker Change: Just to start off Mike your.
Speaker Change: Your comments on adding capacity imply that your you have a relatively high degree of confidence in continuing to sort of build the backlog can you just talk about where we are today in terms of satellite manufacturing capacity in the path from here to two a month or I'm sorry, two day, you talked about exiting 25.
Speaker Change: And what are the risks around that in terms of hiring capital how do we just think about that.
Speaker Change: New capacity coming online and the trajectory into 'twenty five.
Speaker Change: Sure.
Speaker Change: So in terms of like needing capacity.
Speaker Change: Mentioned it is a topic for M&A, but I also incorporated in my words to open up new markets as well right and so I.
Speaker Change: I think thats important is that if we if we looked at other places to exist or function.
Speaker Change: That would give more capacity, yes, but hopefully we'd be using that capacity because we would also be opening up more markets and so if you look at our current pipeline and the things that we talk about the transition to two satellites a day with 200 work days a year approximately that's obviously 400 satellites a year I'm just demonstrated by advanced math skills here.
Speaker Change: So if you got 400 satellites a year over like a five year block, let's say that's 2000 satellites in the next five years from 26% to 30, you've got 2000 satellite capacity, you've only seen orders from us for basically 240 <unk> a couple of hundred Lightspeed and then maybe 36 from somewhere else. So theres 1800.
Speaker Change: <unk> out there to fully to still be ordered to fill to use the capacity that we're establishing Montreal. So there's no. We don't have a capacity problem, we have lots of capacity.
Speaker Change: And we continue to execute well on our pipeline and we spend a lot of time with customers. One of their first questions is what are the characteristics of MDA Aurora, They get pretty excited about that and our next question is can I fit into your production capacity and availability and we take them all through that and Theyre impressed by that and then we keep talking so.
Speaker Change: That's all working out well in terms of the ramp.
Speaker Change: 2025 is a year of facilities.
Speaker Change: Expansion. So the addition to Montreal. The 185000 square feet addition will be being constructed and it will be then fed up with all of its equipment to cause. These assembly lines to be created for these two satellites a day and the intent is as we enter 2026, then that would be in place 2026 is by no.
Speaker Change: Means a 400 satellite year, we have a few satellites that we have to produce for light speed. We have a few satellites, we have to produce for unnamed customer and thats can be a ramp up year as we work all the kinks out of this higher volume production capability. In 2026 2027, then it starts to be it starts to hit.
Speaker Change: You are starting to produce you are getting into the hundreds now and youre doing it for real.
Speaker Change: With this fully now fine tuned high production capacity environment. So that's kind of how it's going to flow in our business planning, we do have some contingency planning whereby if we ever hit a spike whereby maybe due to customer overlap.
Speaker Change: And we did we had a pinch point in two satellites a day could we ever get another set of kit and use existing spaces no more additions, but just use existing spaces and maybe have another shift or some weekend work or something and maybe do three satellites a day would that be physically possible and yes. That's physically possible. So so we do have production teams.
Speaker Change: But look at sort of.
Speaker Change: Contingency plans, whereby if we had if we had to create a little higher peak just to be able to allow customers to overlap better.
Speaker Change: Could we do that.
Speaker Change: So those are all the things that are going on around us.
Speaker Change: Satellite capacity does that makes sense.
Speaker Change: Yes, that's very helpful. Thanks, Mike I'll actually stop there and pass it back thank you.
Speaker Change: Thanks, a lot.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one. Your next question comes from Ben <unk> with <unk> capital markets. Your line is.
Speaker Change: Thank you very much good morning, everyone. Congrats on the results in the latest development in our welcome to the team.
And thank you Sir thanks for picking up coverage welcome to the party, but can we do for you.
Just a couple of questions Mike.
Mike Alright: You mentioned a lot of great details around core is the fact that it's pushed out a little bit mid 2026.
Mike Alright: It looks like that there is no peak potential implication from a revenue standpoint in 2026.
Could you maybe comment whether there are some implications on the working capital front.
Mike Alright: Given the little daily.
Speaker Change: No theres nothing material there like if there is anything it'll be like a like a low single digit million type number.
Speaker Change: Just based on some extra labor and things like that but there is no material shift in Capex now.
Speaker Change: Okay, that's great and sorry to come back on the ACP, but when you mentioned the operating cash flow target of 150 to 260.
Speaker Change: In Q4 I was just wondering.
Speaker Change: It seems that the bulk is related to a positive advance from telesat, but I was just wondering whether it was assuming some advanced from the ETP or would it be incremental to that if you sign just trying to gauge a sense with respect.
Speaker Change: Yes.
Speaker Change: I think the ATP allows us to just work and a nice steady place pace leaning into that program.
Speaker Change: If we sign or sorry, when we sign in Q4, there is no sudden immediate change in revenue pace <unk>.
Cash pace, which we just continue on with the year as we've characterized in our forecasting getting the contract signed in the full contract signed in Q4 is really all about what is the profile of 2025 as we continue to get this done so that will all be reflected properly in the guidance. We gave that first week of March.
Speaker Change: Okay. That's great and we also saw an interesting development with the Australian government that cancel at multibillion dollar with Lockheed So I know you were not involved.
Speaker Change: It was a sizable program for about five Geo satellite than what is interesting that they will instead be looking at multi orbit solution. So just wondering if it's a trend that you see overall.
Speaker Change: Moving from <unk> to <unk>.
Speaker Change: Leo It and also if you believe that it could be a potential a fortunate for you.
Speaker Change: I think there's a couple of trends that could be in play there I don't have a lot of detail on the exact insider thinking on Australia, but yes, there are trends from Geo to Leo there are trends to mixed orbit constellations, yes, those two trends exist.
Speaker Change: I think we've seen a a worldwide geosynchronous satellite market this year and I don't know five or six satellite market size, so not not at all what it used to be back in 2017 that might have been 22, a year and so we know and we all float that global market in the five to seven year range. These.
Speaker Change: And so people are doing more in the mid Earth orbit and a lower orbit.
Speaker Change: And then like you mentioned mixed constellation. So yes, that's a trend there is also a trend increasingly and defense departments to move from building and owning the assets themselves to buying their earth observation and their communications as a service.
Speaker Change: States has large in their department of defense transition to commercial services.
Speaker Change: NATO I was at the NATO summit in Washington in July and the big topic of conversation there in our defense working groups.
Speaker Change: Between governments and industry was on Nato's intent to in 2025 publish a commercialization strategy for NATO. So so we're seeing that trend as well in terms of.
Speaker Change: The shift to more commercial services and so so that's potentially where opportunities could be when you have.
Assets emerging in the market like like MDA chorus that can provide excellent broad area surveillance with synthetic aperture radar as a service to defense and intelligence customers around the world that trend to more commercial buying bodes well for us when you see folks interested in communications as a service.
Speaker Change: And youre delivering into.
Speaker Change: Customers like a like a light speed for example, then that bodes well for those customers and the more action they get on their networks and the more expansion satellites theyre going to need some day youll recall on something like Lightspeed, we're contracted for 198 satellites with an option for 100 more.
Speaker Change: We would love to see everybody load up and switch to commercial services for communications that can turn on a 100 more that would be great to see some days. So we see these things as encouraging as people rethink their approach and not just be stuck in doing a one way just because they progressed a progress a project that way and.
Speaker Change: Creating opportunities for higher levels of commercial service in the future.
Speaker Change: Okay, very interesting color, Mike and Viasat, we saw that we are in discussion to our core additional capacity just wondering whether there would be any positive implication with respect to the Telus Telesat lightspeed given those advance discussion.
Speaker Change: Yes, I'm not close enough to that to know if there if there would be an immediate impact. So I don't have any relevant comment on that okay, great and last one for me obviously with your strong balance sheet you opened the door for M&A.
Speaker Change: <unk> great color earlier on the call.
Speaker Change: Could you may be provide some comments about the valuation multiple range that you would be looking at given the momentum and the satellites. These days.
Speaker Change: There's nothing specific to talk about there I think when we look at M&A targets. The first thing is strategy does it meet the strategy of the business and then you look at industrial logic.
Speaker Change: With the integration and the combined industrial capability make really good sense. Those are I think we're only at that phase at the moment. When you move forward, you're looking for a financial characteristics that would make something accretive in the early in the early innings of bringing in a new capability, obviously what accretive means.
Speaker Change: To us is in flux at the moment as we continue to appreciate in our valuation that gives us a bit more room to consider what would be accretive to us which gives us a little bit more buying power in the market at the same time, but there's no specific targets that have been set at this time, we're more focused on early thinking of strategy in industrial.
Speaker Change: Logic.
Speaker Change: Great answer thank you very much.
Speaker Change: Okay.
Speaker Change: Your next question comes from Justin <unk> with Morgan Stanley. Your line is now open.
Speaker Change: Hi, good morning, Thanks for taking the question.
Speaker Change: Maybe just one quick one it looks like SBA is gearing up for tranche three here I'm, just curious how youre thinking about an MTA role, just especially given all the production capacity of bringing online. Thanks.
Speaker Change: Yeah, we continue to view SBA and USDA constellations as a great opportunity certainly on the earlier tranches all of the primes to the U S Department of defense have become excellent customers of ours, we've been in a fortunate position to have the opportunity to supply satellite technology in our merchant supplier side of the.
Speaker Change: Business to all the primes on SDA and that's been excellent.
Speaker Change: We will seek to continue to do so for sure our.
Our business development teams are in strong communications with all of those players.
Speaker Change: And so we will we'll be looking for whatever we can do to be helpful. On those on those next generation of satellites.
Speaker Change: Great I'll stick to one thanks.
Speaker Change: There are no further questions at this time I will now turn the call over to management for closing remarks.
Speaker Change: Okay, well thanks, everyone for your time. This morning, we look forward to updating you on our progress during our next earnings call in March which will also include a few thoughts on what we expect 2025 to look like so.
Speaker Change: Until then thanks very much.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, Thank you for participating.
Speaker Change: Connect your line.
Speaker Change: Yeah.