MDA Space Ltd.

Welcome to MDA Space Limited conference call and webcast. This call is being recorded on November 15, 2024 at 8.30 a.m. Eastern Time. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has difficulties hearing the conference, please press star followed by zero for operator assistance at any time. I'd now like to turn the call over to Shireen Sahawi, head of investor relations at MDA Space.

Thank you, operator. Good morning and welcome to MDA Space third quarter 2024 earnings call. Mike Greenlee, our CEO, and Guillaume Lavoie, our newly appointed CFO, will lead today's 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 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. 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 thereby may not be directly comparable. Please see the company's quarterly report and other public filings for more information about these measures, including reconciliations to the nearest IFRS measures. And with that, it's my pleasure to turn the call over to Mike.

Thank you, Shireen. Good morning, everyone. And thank you to Joel for joining us today to discuss our third quarter 2024 financial results. The MDA Space team delivered another strong quarter in Q3, driven by solid execution, as we continue to convert our backlog and meet our customer commitments. Our Q3 revenues totaled $282 million, up 38% year over year. Adjusted EBITDA was $55.5 million, 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. 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 are raising our revenue guidance, narrowing our adjusted EBITDA guidance, and reaffirming our CapEx guidance. 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 185,000 square feet of advanced manufacturing capacity capable of delivering two MDA Aurora digital satellites per day. On our major programs, the MDA Space Team successfully conducted the preliminary design review for the Canadarm3 program, a key milestone for the program. We also continue to advance the manufacturing of MDA Chorus, our next generation Earth observation constellation. And in our satellite systems business, the team made solid progress advancing the engineering work for the Telesatellite Speed Program. None of this, of course, would be possible without the hard work and dedication of the entire MDA Space Team, who I'd like to thank and acknowledge. I'd also like to welcome Guillaume Lavois to the MDA Space Team. Last week, we announced that Guillaume had been appointed to the role of Chief Financial Officer at MDA Space. Guillaume is 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. I look forward to working with him to support our long-term growth plans and help us deliver successfully for our customers and shareholders. As he's come in, Guillaume has dug right in and is truly understanding our business and is an excellent fit amongst our executive leadership team. I also want to extend my sincere thanks to Janet McEachern for stepping in as our interim CFO during this transitional period. 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. We will continue to draw on Janet's deep financial expertise in her ongoing role as Vice President of Finance. I'll now give you a view of the industry, an update on our three business areas, and then pass it to Guillaume 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. 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 Quebec, at our satellite manufacturing facility in Montreal to mark the finalization of government funding for the Telesat Lightspeed Low Earth Orbit Satellite Constellation, and MDA Spaces expansion in the province. The Telesatellite Speed 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. South of the border, notable commercial activities include Global Star's 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. This 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. Additionally, in early October, SpaceX conducted the fifth 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. This marks another important milestone for the development of Starship, a 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. Globally, we continue to see increased interest in space exploration. with the Dominican Republic, Estonia, Cyprus, and Chile being 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 47 nations now, as we continue to see steady interest from non-traditional spacefaring nations, which are now building their own national space programs, a development that bodes well for the broader space market into the future. Now I'll turn to our three business areas. In satellite systems, we continue to see 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. In Q3, we received a contract from SWISTA 12. to provide antenna systems for three of the company's HummingSat satellites for geostationary orbit. The satellites will be deployed as part of the Inmarsat-8 program to provide crucial safety services and support advances in emergency tracking. MDA 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 GeoSmallSat platform. This is MDA's second contract in the geosmallsat market with SWISTA 12. 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 are progressing the design work and our teams are preparing for the program's engineering and manufacturing phases of development. 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. Originally awarded under a $180 million authorization to proceed contract, and subsequently increased to $300 million to accommodate additional work scopes. The full constellation, valued at a minimum of $750 million, is expected to include a minimum of 36 MDA Aurora digital satellites. The definitive contact for the full constellation, for which MDA would be the prime contractor, is expected this year, as previously mentioned. We also continue to advance work on the GlobalSTAR program. In Q3, the team progressed flight hardware production and flat-sat testing of the bus and payload systems and successfully conducted the spacecraft integration readiness review. The team has started the integration of the first satellite. As you know, MDA 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. This quarter, we announced that construction is underway on a 185,000 square foot expansion to our satellite production facility in St. Anne de Bellevue, Quebec. The building foundation has been laid and the steel structure is currently being assembled. Once complete, it will be the world's largest high-volume manufacturing facility in its satellite class, with capacity to deliver two MDA Aurora digital satellites a day. The production line is expected to be operational in the second half of 2025. 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-real-time data and analytics to governments and private enterprise. In Q3, MDA Space was selected by NASA as one of eight companies for a 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. The Commercial Small Sat Data Acquisition Program has a maximum value of $476 million, cumulative among all selected contractors, and the performance period that runs through 2028. We will be providing synthetic aperture radar, or SAR data, to aid NASA's efforts to better understand climate change impacts and to support other Earth science applications. During the quarter, we also continued to advance work on MDA Chorus. 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 spacecraft security enhancements for MDA Chorus. As a result of these enhancements, and to provide some additional time for testing, we are now targeting a mid-2026 launch for MDA Chorus. Overall, we are very pleased with the progress to date on MDA Chorus. 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 deployment structure, and conducting multiple ground segment operations demonstrations. We are seeing strong interest in MDA Chorus from both existing and new prospective end users, and business development with potential Chorus customers continues to accelerate, with approximately three dozen customers having signed letters of interest for future Chorus data and services. This is excellent. we are confident that MDA Chorus will deliver enhanced functionality to all of our current and future customers. 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. 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. Moving to our robotics and space operations business, we continue to see good traction and activity levels on both the government and commercial fronts. In Q3, we successfully conducted the preliminary design review for the Canadarm3 program, which we were awarded in early 2022 from the Canadian Space Agency. This marks the final milestone for Phase B of the Canadarm3 program, In parallel, we are ramping up work volumes on Phase C, which we were awarded together with Phase D in June of 2024. Phase C will see us completing the final design, whereas Phase D covers the construction, system 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 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 also includes planning and personnel training in preparation for on-orbit mission operations. On the commercial side, we continue to explore opportunities to incorporate our robotic technology on applications to support space exploration and lunar mobility. During the quarter, we received a contract from Lunar Outpost to integrate our MDA SkyMaker 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 a lunar terrain vehicle that Artemis astronauts will use to travel around the lunar surface, a rover for the moon. 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 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. To recap, we are pleased with our performance this quarter and the momentum we are seeing in our markets. The team is energized, and we remain laser-focused on our priorities, a 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. With that, I'll hand it over to Guillaume to walk us through the detailed financials.

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 space team. Joining MDA at such a pivotal moment for the company and for the space sector is an exciting personal and professional opportunity. Good morning, everyone. For my update, I will walk you through our financial results for Q3 and provide more color on our 2024 outlook. Overall, Q3 was another good quarter for MDA space. We are pleased with business performance and execution. In the quarter, we saw solid revenue growth and profitability, strong free cash flow generation, and we ended the quarter with a significant backlog, giving us good visibility for revenues into 2025. Total revenue for the third quarter was $282 million, This represents a 78 million or 38% increase over the same period last year. The year-over-year increase is driven by higher work volumes across our business with strong contributions from our satellite systems and robotics and space operations businesses. By business area, revenues and satellite systems of 168 million in the third quarter were 73 million or 77.5% higher compared to the same quarter in 2023. The strong showing was driven by higher contributions from new programs, including Telesat Lightspeed and the authorization to proceed contract for the NGSO satellite constellation announced in Q4 2023. In robotics and space operations, we saw LT year-over-year growth with revenues of 66.5 million in the latest quarter, representing a 4.6 million or 7.4% increase versus Q3 of last year. The growth is largely attributable to a higher volume of work performed on the Canada ARM3 program. Revenues in our geo-intelligence business of 48 million in the latest quarter were relatively flat year over year, reflecting steady work volumes as we expected. Moving to gross profit. 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. 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. The year-over-year change in gross margin is driven by evolving program mix and higher depreciation expense as new assets come into service. 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 SGN expenses as we scale up the business. 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. The increase was driven by higher volume of work and steady operating expenses. 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 20.9% reported in the third quarter of 2023. Adjusted net income for Q3 was $35 million compared to $22 million reported in the same period last year. The year-over-year increase of $13 million was driven by higher operating income. 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 and backlog is driven by new order bookings, including the $1 billion award for phases C and D of the Canada ARM3 program announced in Q2 of 2024. 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 and other growth initiatives, including the expansion of our Montreal satellite production facility to support growth in our satellite systems business. 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. We expect continued positive working capital contributions for the balance of the year as we ramp up activity on the Telesat Lightspeed program. Turning to our balance sheet, we ended the quarter with a strong financial position. Our net debt sits at $155 million. We have ample available liquidity of $535 million. and our leverage ratio ended at 0.8x. 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 flexibility for the future. 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. Now let me turn to our outlook. As Mike noted, we are updating our financial outlook given the strong performance to date. For fiscal 24, we are raising our full year revenue guidance to a billion 45 to a billion 65 million, up from a billion 20 to a billion 60 million previously, representing a robust year-over-year growth of approximately 30% at the midpoint of the range. We are also narrowing our 2024 adjusted EBITDA guidance to 205 to 210 million, from $200 to $210 million previously, representing approximately 19% to 20% adjusted EBITDA margin. We are reaffirming our 24 CAPEX guidance of $200 to $220 million, comprising primarily of growth investments to support chorus and the previously outlined growth initiatives across our businesses. 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. With a solid backlog, strong operational performance, and a healthy balance sheet, We are well positioned for the balance of 2024 and look forward to delivering another successful year. Mike, with that, I'll turn it over back to you.

Thank you, Guillaume. With that, operator, we will open it up to questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star, followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. If you wish to decline from the pulling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Doug Taylor with Canaccord Genuity. Your line is now open.

Thank you. Good morning, and congratulations on another good quarter, and welcome to Guillaume as well.

Thanks, Doug. Thanks.

I'll start by speaking about this, the ATP customer. You're confirming you expect that to be formalized by year-end. I just wanted to start by clarifying a question we've been getting regularly in recent weeks. Can you confirm whether or not that ATP you've been working on has anything to do with GlobalStar or Apple, or is that a completely separate situation?

We're just not in a position to be able to comment on our unnamed customer. I realize that that probably causes some people some grief, 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, you know, a strong business is doing well. We continue to grow 25 to 30% a year. We continue to hold 20% adjusted EBITDA margins. We continue to convert margins to cash. 75% to 80% of EBITDA is 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. We have a very strong pipeline, especially in satellite systems for low Earth orbit operations. constellations. I've characterized that as at least a $13 billion pipeline. It's probably more like a $15 billion plus pipeline right now based on new conversations that have started in the last quarter. So everything's very healthy there. So there's two things I can't comment on, which is what is the identity of my unnamed customer? That's unfortunate, but it will get resolved. And 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 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.

Yeah, okay. I just wanted to make sure everyone was on the same page, so that's fair enough.

And 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 it's a source of interest and excitement. There's 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 down when we're allowed to.

Fair enough. So maybe then just changing gears there, because I mean, with regards to Apple's next investment in GlobalStar and, you know, I guess, can you first remind us, you know, the timetable to the completion of the current, you know, work that you are contracted on with GlobalStar, whether they've exercised any of their options 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 the next phase versus what you're providing with the initial satellites that you're building for them. Any help you can give us there?

Sure. On our current contract that we're in the progress of executing, process of executing, that was for 17 satellites with an option for nine more. And in our current state, we are executing on the original 17 satellites. They need to be delivered through 2025. So that will be the third year of that three-year program, 2025. So those satellites will be delivered. As I probably mentioned in my remarks, they're certainly under assembly right now. We are starting to assemble those satellites. So that's all in hand and on track, which is very good. To answer your next question, thus far, no, we have not been turned on for our optional nine more. That remains as an option in the contract. And it is there and available and ready to be used, but has not yet been activated. In terms of, I think you're talking about similarities or differences between whatever we are currently delivering. in the Global Stars Network and whatever they're going to do in their next generation of network that they're now discussing about. 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 all have to wait and see where they're going to go with that now that they're clearly set up and financed and funded to be on their way.

That's very helpful. You know, one last question for me, I'll pass the line. This one I'll shift to light speed and the ramp there. Obviously, it's got significant implications on 25 and 26 and beyond. You said you're working through the design and planning phases 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 as it relates to light speed specifically at this point?

Yeah, we have a very strong contract there that we're executing on. Project management is well in hand. Things are on 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 and price profiles to us. So, you know, it is fully known here at the moment. And so as we head into 2025 with a well-baselined program and we include Telesat Lightspeed, obviously as an element of our portfolio in guidance we'll provide for 2025, we will have extremely good insight in terms of what that year 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.

All right. Thank you very much. I'll pass the line. Thank you, Doug.

Our next question comes from Konar Gupta with Scotiabank. Your line is now open.

Thanks, and thanks for taking my question, and welcome, Jerem, from our side as well. I wanted to ask you about this on the chorus, Mike. It seems like the launch is pushed out by six months or so. Can you talk about some of the drivers behind that push out? Is it driven by SpaceX and some of their high-priority launches, or is it because of the development progress you're making on chorus?

Yeah, I'd say at this point this is our choice. So this is not a SpaceX item at this time. 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've both got things going on in your life. But at this point, the shift from Q4 25 to mid-26, that's six months, as you mentioned, is our decision. It's related to technical work that we would 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 are in the satellite. When you launch something with a 15-year design life, which means it's probably doing business for you for over 20 years, you want to make sure you've got it right. And 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 to take the time to do that. In our business, RadarSat-2 continues to be extremely healthy, and so we're very comfortable that we can continue to operate RadarSat-2 while we do a little bit of extra enhancement of chorus.

Okay, that makes sense. Thanks. And then on the working cap side, you know, the Q3 cash flow was extremely high, close to, I think, 260 all in. You know, if I look at the year-to-date cash flow EBITDA conversion, it's like probably close to 300%. I know we talked about, you know, this year might be an anomaly in terms of, you know, the TELUSAT program ramping up and all that. But, like, historically, you said 60%, 70%, 80%. It's probably a good process. Heading into next year, 2025, what's your sort of pin on the cash conversion? I mean, are we looking at another outsized conversion or are we going back to that 60 to 80 percent?

Hey, good morning. Guillaume here. I'll take this question. So, you know, Mike stated today, again, our sort of a long-term cash flow conversion from EBITDA target to be around 75 to 85%. That's, you know, 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 into the working capital. And, you know, we will try to guide everyone as best as we can. but obviously the working capital is tied to a lot of milestones and inflows that are subject to a lot of changes. So yes, Q3 was very strong, primarily driven by 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 $260 million. So 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'll have likely an operating cash flow between 150 to 250 million. That's up from what we had said previously back in Q2. And with regards to next year, obviously, we're not ready to guide at this stage. We're going to our planning cycle just right now, and we'll release the guidance as usual at our Q4 earnings call. But what we said previously remains true, where we think the cash flow for next year, the free cash flow for next year will be positive, slightly positive. And from our perspective, this can only improve if we get additional orders.

That makes sense. Again, thanks so much for that additional color on Q4. And last one before I turn over, Mike, you mentioned about the Global Star Apple transaction recently. You know, I don't want to kind of get into that ADP disclosures and all that, but I just want to understand high levels. You know, when these announcements are made by your customers and their, you know, vendors who are your customers as well, Global Star, How much time does it take for these things to come to fruition in terms of a potential opportunity for you? They just announced the deal. Does it mean that if they decide to award a contract to MDA or somebody else, would that be next year or the year after?

Yeah, each customer... Your question there was sort of generic. Each customer... is working at their pace every customer has to work through their business plan and business model then 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 in this discussion with their satellite provider So there's a number of factors, as you can imagine, that any customer or contract would have to work through. In the case of GlobalStar's announcement, based on my observation of it, they seem to have a concept for what they want to do for next generation Constellation. They'd have to probably continue to finalize that. It appears in their relationship with their largest customer in Apple that they've got their financing arranged, so that's a very strong position for them. And then they would have to just move forward into a commercial situation to be able to 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 figured out, it's 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 a satellite. So, and I'm trying to imagine two or three customers in my head when I'm answering that question there.

Okay, no, that's great. And thanks for that. All the best for the future. Thanks. Thanks so much, Mike. All right. Thank you. Thank you.

Your next question comes from David McFadden with Cormark. Your line is now open.

Okay. Yeah. A couple of questions. I'll just start in the backlog. So, I think previously you indicated that you expected to finish 2024 with a $5 billion backlog. Is that true?

Yeah, 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 definitized contract. So I'm expecting that that would provide that lift up to around the $5 billion level. That's correct.

Okay. Because I think right now that contract's 300, right? So you would expect another 450 would be finalized sometime between now and the end of the year?

Yeah, based on all the words that I'm using, which is that we've got an authorization to proceed at 300, which is in backlog, and that we're going to have a contract for at least 750. Absolutely, that's correct.

Okay. So if you had another, say, 450 contract, there's still a bit of a gap to fill because, you know, if you're at $4.6 million in Q3, you're going to take $300 million plus out in the fourth quarter. So now you've got a $700 million gap. So $450 million would be filled with the expectation HBs finalized. So then there's still, you know, $250 million to fill. So does that mean that we should expect some other announcement coming in the next six weeks?

There's lots of little things that happen in the business all over the place, right? So, you know, you end up with your, you know, your Radarsat 2 sales all over the place. You end up with small satellite merchant supplier activity happening here and there. So, you know, there's... There's always a series of activities. I could never break all that down right now, but across all of our pipeline, I'm comfortable saying the $5 billion number. That's the number that we use in our internal planning, and I'm sharing that with you.

Okay. And assuming you finalize it, you expect that the customer will be announced by who it is?

Yeah, when we sign a contract, unless it's a, yeah, 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. And so this is not that. We would explain who our customer is and the nature of that contract, like we always do.

Okay. So given you're making changes to Core S, you know, enhancing it, What's the update of CAPEX then for that program?

Yeah, there's no material change to the CAPEX. This is a lot of labor and testing activity. And so there's no material change in the CAPEX. The program, you know, would just get launched mid-26. Mid-2026 was a year of commissioning and putting chorus to work. It will continue to be a year of commissioning and putting chorus to work. As a result of that, there's no material change to our current thinking about our 2026 business plans. We had expected Corus to get an uptick in 2027 in the geointelligence line of business. We continue to expect Corus to cause a bit of an uptick in the 2027 geointelligence line of business. So all these things continue to stay in place. It's just taking a look. We're just going to use a little bit more time. That's all.

Okay. And actually, if I can just ask another question just on the ATP. Can you confirm that this constellation, is going to enable direct-to-device connectivity?

I just continue to confirm that it's an NGSO Constellation. Those are my speaking points, Mr. David.

Okay. And then can you give us an update on when you think the Canadian government would announce a contract award for the replacement for the RadarSat Constellation mission?

Yeah, so you're referring to the Radarsat Plus item. They announced in November of 2023 that they were going to put aside a billion dollars 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 the RCM constellation. And so, yeah, we're waiting for that. We would expect requests for information or requests for proposals. to come out. The government hasn't announced a hard date on that. So at this time of a calendar year, I would naturally say that that would likely come in 2025. We can always be surprised, I guess, if something came out before Christmas. Governments always love releasing RFIs or RFPs right before Christmas so they can take a break and industry has to write a proposal, but that's just me joking around. But I would say we haven't seen any hard signals, so I would expect it to be a 2025 activity.

Okay. All right. Thank you.

Okay. Thanks.

The next question comes from Thanos Moshopoulos with BMO. Your line is now open.

Hi, good morning. Mike, for the minimum 36 satellites under the ATP, what would you expect the delivery timeframe for that to be? Would that be through 2027 or what would you expect?

Yeah, so I'm not permitted to comment on that. I just have 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 us to make sure that you knew that we were definitely working on another constellation. We had definitely been turned on to proceed. And, you know, there's at least 36 satellites in play here so that you knew we weren't just doing something else. It was really towards a customer. And so hopefully that's helped us all over the last year, just to understand that there's a real thing happening here. And then there's been a bit of frustration just obviously for us all waiting for this, you know, full contract to get definitized. But when that happens, at the customer's discretion, we will obviously announce what it is, what it's for, and what's going on. And hopefully, I continue to do my best at holding to my speaking points on this topic. And I realize that causes a little bit of frustration, but it'll all come out soon enough.

I look forward to that disclosure. Maybe in terms of the other opportunities in the pipeline, so the $15 billion you cited for... satellite systems. Can you comment on how some of those opportunities have been progressing? Are some of them inching forward? Are some of them getting installed? Or what's your expectation on when some of these might reach a decision?

Sure. Any of these constellations, they can be worked for, if you look at past constellations, You know, from a year to three years, you know, you could be working these things. And then they go through different levels of kind of maturity. You'll start off with high-level technical concepts. You'll be asked to comment on those, you know, contribute a rough order of magnitude quotation to say it kind of looks like this, kind of cost this much. And then that causes iteration cycles. And that can happen multiple times. As they mature, you can feel them mature, that the technical characteristics of the Constellation will settle down, and the pricing will get more firm, more definitive. With the MDA Aurora product, it actually accelerates that cycle. It's very interesting. It accelerates the cycle because there's less delay. need to invent what's this satellite going to look like or how's 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, that can settle down that churn quickly and is actually potentially shortening our time to order and also the customer's time to revenue, which is very attractive for the customer. So that's been an excellent dynamic to see emerge over the past year. There are, I would say, at least a couple of items in the pipeline that are in the more mature phases where, you know, things have settled down technically, you know, we kind of are settling down on price, which would mean it's at the customer's discretion when they want to pull the trigger in initiating work on those constellations, should they choose us, of course. Like, you know, 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 expect, I would think that that's a possible thing. So we've got a strong business, a really good backlog. We maintain 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 backlog we have, we can do that rolling into 25%. So that's kind of in hand, and we'll get more specific on that. 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 comes to fruition.

Great. And then finally, with the leverage ratio having come down, are you spending more time thinking about tech and M&A? What are your thoughts on that?

Yeah, 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 an executive team, management team, and as a board. And 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 and 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 one of the biggest, you know, with these transitions, especially on the satellite side into higher volume production, you're looking at always technical capability and price. But increasingly now, after we solve those two things, we look about scalability. You know, can the firm's that are supplying a scale up with us through these larger volumes. And it's become a key thing in our life in terms of who our plan A 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 non-disclosure agreements. Here's where we're thinking we're going. Can you keep up with us? And if that feels great, really good. If not, maybe that's something we might consider tucking M&A. Let's get 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. The other key category would be I bucketed it as sort of capacity slash success. geographic locations. As we continue to scale up and get more volume, are there established businesses that could give us more capacity? Where are they located? Could they be in Europe or the United States? Would they open up as a result additional pipeline to us because we could be a domestic provider in other parts of the world? We will keep an eye on those two categories, securing the supply chain and capacity and geographic position. as we go through, you know, the next period of time, as you say, now that there's a bit more dry powder.

Great. I'll pass the line. Thanks, Mike.

Your next question comes from Ken Herberth with RBC Capital Markets. Your line is now open.

Morning again. Yeah. Hey, good morning, Mike, and welcome, Guillaume. Maybe just to start off, Mike, you're Your comments on adding capacity imply that 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 and the path from here to the two a month, or I'm sorry, two a day you talked about exiting 25, and what are the risks around that in terms of hiring capital, how we just think about that? the new capacity coming online and the trajectory into 25? Sure.

So, in terms of like needing capacity, I mentioned it as a topic for M&A, but I also incorporated in my words, you know, to open up new markets as well, right? And so, I think that's important is that if we looked at other places to exist or function, you know, that would get 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 workdays a year approximately, that's obviously 400 satellites a year. I'm just demonstrating my advanced math skills here. So if you've got 400 satellites a year over like a five-year block, let's say that's 2,000 satellites in the next five years, from 26 to 30, you've got 2,000 satellite capacity. You've only seen orders from us for... basically 240, right? Like a couple hundred light speed and then maybe 36 from somewhere else. So, you know, there's 1800 satellites out there to fully, to still be ordered to fully use the capacity that we're establishing in Montreal. So there's no, we don't have a capacity problem. We have lots of capacity And, you know, we continue to execute well on our pipeline. And we spend a lot of time with customers. One of their first questions is, you know, what are the characteristics of MDA Aurora? They get pretty excited about that. And their next question is, can I fit into your production, you know, capacity and availability? And we take them all through that and they're impressed by that. And then we keep talking. So that's all working out well. In terms of the ramp, 2025 is a year of facilities expansion. So the addition to Montreal, the 185,000 square feet addition will be being constructed and it will be then fit 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 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 that can be a ramp up year as we work all the kinks out of this higher volume production capability in 2026. 2027 then then it starts to be it starts to hit you're starting to produce you know you're getting into the hundreds now and you're and you're doing it for real um with this fully now fine-tuned um high production capacity environment so that's kind of how it's going to flow in our business planning we do have you know some contingency planning whereby if we ever hit a spike whereby maybe due to customer overlap you know, and we had a pinch point in two satellites a day, you know, could we ever get another set of kit and use existing spaces, no more additions, but just use existing spaces and, you know, 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 we do have production teams that look at sort of, you know, contingency plans whereby if we had to If we had to create a little higher peak just to be able to allow customers to overlap better, could we do that? So those are all the things that are going on around satellite capacity. Does that make sense?

Yeah, that's very helpful. Thanks, Mike. I'll actually stop there and pass it back. Thank you.

Okay, 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 Benoit Poirier with Desjardins Capital Markets. Your line is

Thank you very much. Good morning, everyone. Congrats on the results and the latest development and welcome to the team, Guillaume.

And yeah, thank you, sir. Thanks for picking up coverage. Welcome to the party. What can we do for you?

Yeah, no, just a couple of questions, Mike. So you mentioned a lot of great details around chorus, the fact that it's pushed out a little bit mid-2026. It looks like that there's no big potential implication from a revenue standpoint in 2026. Could you maybe comment whether there's some implication on the working capital front given the little delay?

No, there's nothing material there. Like if there is anything, it'll be like a low single-digit million type number. So, you know, just based on some extra labor and things like that. But there's no material shift in CapEx, no.

Okay, that's great. And sorry to come back on the ATP, but when Guillaume mentioned the operating cash flow target of $150 to $250 million in Q4, I was just wondering, it seems that the bulk is related to a positive advance from Telesat, but I was just wondering whether it was assuming some advance from the ATP or would it be incremental to that if you sign? Just trying to gauge a sense with respect to the equipment.

I think the ATP allows us to just work at a nice steady pace leaning into that program. If we sign or sorry when we sign in Q4 there's no sudden immediate change in revenue pace and or cash pace. We just continue on with the year as we've characterized in our forecasting. Getting 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 give that first week of March.

Okay, that's great. And we also saw an interesting development with the Australian government that cancelled a multi-billion dollar with Lockheed. So I know you were not involved initially. It was a sizable program for about five GEO satellites. And what is interesting, they will instead be looking at multi-orbit solution. So just wondering if it's a trend that you see overall moving from GEO to LEO, and also if you believe that it could be a potential opportunity for you.

There's a couple of trends that could be in play there. I don't have a lot of detail on the exact, you know, 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. You know, I think we've seen a worldwide geosynchronous satellite market this year in the, I don't know, five or six satellite market size. So, you know, not at all what it used to be back in 2017. That might have been 22 a year, you know. And so we know and we all float that global market in the five to seven a year range these days. And so people are doing more in the mid-Earth orbit and the low-Earth orbit. And then like you mentioned, mixed constellations. So yes, that's a trend. There's also a trend increasingly in defense departments to move from building and owning the assets themselves to buying their Earth observation and their communications as a service. The United States has large in their Department of Defense transition to commercial services. NATO, I was at the NATO summit in Washington in July and the big topic of conversation there in our defense working groups between governments and industry was on NATO's intent to in 2025 publish a commercialization strategy for NATO. So we're seeing that trend as well in terms of the shift to more commercial services. So that's potentially where opportunities could be. When you have assets emerging in the market like MDA chorus that can provide excellent broad area surveillance with synthetic aperture radar as a service to defence 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, and you're delivering into customers like a Lightspeed, for example, then that bodes well for those customers. And the more action they get on their networks, then the more expansion satellites they're going to need someday. You'll recall on something like Lightspeed, We are contracted for 198 satellites with an option for 100 more. We would love to see everybody load up and switch to commercial services for communications that can turn on 100 more. That would be great to see someday. We see these things as encouraging as people rethink their approach and not just be stuck in doing it one way just because they progressed a project that way and creating opportunities for higher levels of commercial service in the future.

Okay, very interesting call there, Mike. And via that, we saw that they are in discussion to acquire additional capacity. Just wondering whether there would be any positive implication with respect to the Telesat light speed given those advanced discussions.

Yeah, I'm not close enough to that to know 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, mentioned great color earlier on the call. Could you maybe provide some comments about the valuation multiple range that you would be looking at given the momentum in satellites these days?

There's nothing specific to talk about there. I think when we look at At M&A targets, the first thing is strategy. Does it meet the strategy of the business? And then you look at industrial logic. Would integration and the combined industrial capability make really good sense? I think we're only at that phase at the moment. When you move forward, you're looking for financial characteristics that would make something accretive in the early innings. of bringing in a new capability. Obviously, what accretive means 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 thinkings of strategy and industrial logic.

Great then, sir. Thank you very much for your time.

Okay.

Your next question comes from Justin Lang with Morgan Stanley. Your line is now open.

Hi, good morning. Thanks for taking the question. Maybe just one quick one. It looks like SDA is gearing up for Trench 3 here. I'm just curious how you're thinking about an MDA role, just especially given all the production capacity you're bringing online. Thanks.

Yeah, we continue to view SDA and the SDA constellations as a great opportunity. Certainly on the earlier tranches, all of the primes to the US 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 business to all the primes on SDA, and that's been excellent. We will seek to continue to do so for sure. Our business development teams are in strong communications with all of those players, and so we'll be looking for whatever we can do to be helpful on those next generation of satellites. Great. I'll stick to one. Thanks.

No further questions at this time. I will now turn the call over to management for closing remarks.

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 until then, thanks very much.