MDA Space Ltd. (MDA.TO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to MDA Space Conference Call and Webcast. This call is being recorded on September 8, 2025, at 9:00 a.m. Eastern Time. [Operator Instructions] I'd now like to turn the call over to Shereen Zahawi, Head of Investor Relations at MDA Space.

Thank you, operator. Good morning, and thank you for joining our call and webcast. Today, we will discuss our recent announcement regarding the EchoStar contract update. Joining me on the call this morning is Mike Greenley, our CEO; Guillaume Lavoie, our CFO; and Luigi Pozzebon, our VP of Satellite Systems. Mike will share some prepared remarks before taking your questions. I would like to remind you that today's call will include forward-looking statements, 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. We undertake no obligation to update or revise any of these statements, except as expressly required by applicable law. In addition, during this call, we may refer to certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, these measures do not have any standardized meaning under IFRS, and our approach in calculating these measures may differ from that of other issuers and therefore, may not be directly comparable. Please see the company's latest quarterly report and other public filings for more information about these measures, including reconciliations to the nearest IFRS measures. And with that, I'd like to turn the call over to Mike.

Thank you, Shereen. Good morning, everyone, and thank you for joining us on a short notice. Earlier today, we announced that MDA Space has received a termination for convenience notification from EchoStar Corporation related to the satellite constellation contract that we had announced on August 1, 2025. Under the terms of that contract, MDA Space was selected by EchoStar as the prime contractor for a nonterrestrial network, low earth orbit, direct-to-device satellite constellation, responsible for the design, manufacturing and testing over 100 software-defined MDA-Aurora direct-to-device satellites valued at approximately CAD 1.8 billion. The contract termination is the result of a sudden change to EchoStar's business strategy and their plan in the wake of spectrum allocation discussions with the Federal Communications Commission, or FCC, in the United States, whereby EchoStar has agreed to sell its AWS-4 and H-Block spectrum to SpaceX. This arbitrary and unexpected development is completely unrelated to MDA Space performance and our products and services. While we are disappointed with this outcome, it is our practice to structure our contracts in a manner that ensures we are protected in the event of any unforeseen circumstances and our EchoStar contract is no different. MDA Space will be compensated for all related termination costs and fees as per the contract. We are also -- that's just it. Notwithstanding this development, our business fundamentals are as strong today as they were back in July with a backlog of $4.6 billion at the end of Q2 2025, not including the EchoStar contract, providing revenue visibility for 2025 and several years into the future. We are also reiterating our 2025 financial outlook and guidance, which we provided with our Q2 2025 earnings release on August 7. With a differentiated technology portfolio, including a world-leading digital satellite offering for communication satellites, robust opportunity pipeline that today stands at $20 billion, of which $13 billion relates to satellite constellations and a solid balance sheet, we have a strong and growing business. We continue to pursue a strong digital satellite constellation pipeline for both broadband data and direct-to-device communication satellites with commercial and government customers worldwide. Our priorities have not changed: a laser focus on execution, converting opportunities in our funnel and expanding our leadership in core markets while maintaining strong profitability and free cash flow generation to create value for all stakeholders. We remain very enthusiastic about the opportunities for MDA Space and our customers moving forward. With that, operator, we will open it up for any questions.

[Operator Instructions] Your first question comes from Konark Gupta with Scotiabank.

Maybe I just want to kind of start off with the contract terms. Mike, you mentioned, I mean, obviously, every contract has its own terms and they could be unique. For this one, I think you guys have flagged. Before that obviously, EchoStar has had some challenges and issues in the past with FCC and all that. So you have taken some commensurate sort of measures in the contract writing. Can you help us understand in terms of the magnitude of the compensation we are talking here and the timing? I mean, is it like insignificant amount? Or is it a significant amount given some of the numbers they have disclosed for the asset sales they have done, they are significant billions of dollars, right? So is compensation kind of adequate to that?

Yes. So for us, the termination fees -- costs and fees that will be compensated for will certainly be covering off all of our related costs and any of the liabilities that we have obligated in the execution of the contract to date. So we will be in a solid financial position. We will not take any hit from this as a result. The -- yes, that's really it. In terms of the timing for that, we'll work through that in due course. This is obviously a very sudden development that's kind of like come up very quickly here. And so we'll work through that over the next quick period of time to be able to bring quick resolution to that. So certainly, this fiscal year, I would expect something to be resolved. That would be my expectation anyway. And then yes, for us, like we've said, for the remainder of this year, we just continue to hold guidance and continue to execute on our plan.

Okay. And if I can follow up, how do you compare and contrast -- this contract to the existing contracts you have in the backlog? I mean you have a pretty solid backlog at $4.6 billion, right? But you do have obviously some concentration there, right, with the likes of the Telesat, the Globalstar, Canadarm3, et cetera, right? And again, like obviously, every contract is different, every customer is different. But how do you compare sort of the risk profile of the existing backlog you have versus what you had on EchoStar?

Sure. The existing backlog would have a much -- well, certainly a much lower risk profile. This was not a super high risk profile. This is a very unexpected event. You can imagine like EchoStar in this scenario right now has like completely changed their business plan. They were about to embark and had contracted with us to build and operate as space-based network. They have suddenly decided not to do so and instead are selling their communication spectrum rights to operate such a network to SpaceX so that SpaceX can operate a network. This is like obviously very sudden and drastic change to the entire trajectory of EchoStar's business. And so that's a highly, highly unusual situation. The existing backlog is well into execution and is -- just well into execution, obviously, with Telesat. We're coming up on CDR with Canadarm. It's a government of Canada contract coming up on CDR with Globalstar's first constellation. We're in the process of delivering satellites with Globalstar's second constellation. We're coming up on CDR. All of these projects are deep into execution, and we'll continue to do so.

Your next question comes from Thanos Moschopoulos with BMO Capital Markets.

Can you comment on whether this will have an impact on your near-term OpEx or CapEx plans? Do we see some related restructuring stemming from this?

No, no change to our current plans at all. No, we continue with our current spending. We continue with the completion of our expanded satellite manufacturing facility so that we can be in high-volume production in 2026. All the rest of our conversations in our pipeline continue to rely on the need for that capacity. So we just continue on our current plans.

And Mike, just to clarify a point, I hear you that your other customers are well underway in executing the contracts. Just to clarify, would your contracts typically have termination for convenience clauses whereby the customer can walk away if they pay you for any remaining obligations and costs? Or was there something unique about how the EchoStar contract was structured in that regard?

No, termination for a convenience clause is a normal clause in a contract, both commercial contracts or government contracts. And then it's typical in contract negotiations that you would negotiate and establish what would be the process for a termination for convenience and what would be the financial framework that would be used for that. So that's all very normal. In the case of the EchoStar contract, it was mentioned in an earlier question that they were obviously coming out of some challenging financial times. And so we put extra effort into ensuring our protection in that contract, which is why we're comfortable that we will be properly compensated in the termination for convenience.

Your next question comes from David McFadgen with Cormark Securities.

So a couple of questions. So Mike, given you said this is obviously a drastic change in their business plan. I have to ask the question, was -- did the FCC force strongly persuade EchoStar to sell the spectrum and they were going to lose it. So that's why they did this deal?

It would only be speculation on my part. We were not in those conversations, obviously. Those are between EchoStar and the FCC. But certainly, even in EchoStar's press release, they've noted and indicated that this change in business direction has resulted from their discussions with the FCC regarding their spectrum. And so that's all we know. And everything else would be speculation on the exact nature of that conversation.

Okay. So then the other question would be do you know much about the next-gen satellite that Starlink is going to deploy for the direct-to-device constellation and how it would stack up versus your current satellite technology?

No, no, we don't. And I don't have any specific insights into that. In reading the joint press release from EchoStar and SpaceX this morning, I noted that they talked about the development of a next-generation satellite. So I'm not sure where they stand in that regard.

Okay. Okay. And then when you announced the EchoStar deal, you talked about receiving some upfront payments to finance future spending and just to keep you on side with your working capital. Do you get to keep those payments? Or do you have to return any of those?

The calculations for termination for convenience is -- would be based on a certain amount. And then that amount paid to us would include any monies that we've already received plus additional monies that were owed to compensate us according to that framework.

Okay. So in terms of the compensation, is it just to make you whole? Or do you actually make a margin on it?

It's really just to compensate us for all of our costs and fees in the project. So by saying fees, there would be a bit of margin on that work. But anyway, yes.

Okay. And then -- I'm sure investors will wonder now given this. If this deal wasn't forced by the FCC, other people might wonder, could other people follow EchoStar's lead and also buy Starlink's direct-to-device constellation on a wholesale basis as well? I mean, what would you say to that?

Yes. Right now, I think that there are a number of people around the world that have direct-to-device business plans. Starlink obviously has a direct-to-device business plan, and they were challenged in their ability to have access to space spectrum, and now they've been able to acquire EchoStar's space spectrum as that enables their particular business plan. The other people in our pipeline, they have their spectrum and their business plans, and they're continuing the dialogue with us. So I think that just like we see with mobile phone networks around the world, there will be multiple mobile phone networks today, and there will be multiple space networks that are direct-to-device that will emerge in the future. And we'll continue to talk to all the folks in our pipeline to be able to make those come to reality.

Your next question comes from Doug Taylor with Canaccord Genuity.

So with the results you -- or this announcement, you reconfirmed your guidance for this year. It was, I think, my understanding that there was some revenue, but relatively small related to this in your guidance. So is it fair to assume the impact would just be moving potentially within that guidance range? And then just to think about the impact for next year, I know you don't have guidance for next year, but just to put this into context as we adjust our models, you had expected mostly design phase work related to this next year, potentially in the several hundred million dollar range. I just wanted to make sure we're on the same page with respect to that this morning.

Yes. So I think that you're right. Like this year, we're just maintaining guidance, and we're maintaining the range that we gave on August -- in early August in our earnings call there. Obviously, we have puts and takes happening on all kinds of projects, hundreds of projects across the company. So we've quickly done an assessment of what the status of everything is, including the small amount of revenue for this year that was going to be from EchoStar, and we're very comfortable that we're still within that same range. So the guidance doesn't change. For next year and the year after that and part of the year after that, we're certainly -- we have a very, very strong backlog that is driving the continued execution of our business moving forward. And what we talk about, which is sort of 20% to 30% CAGRs over 5 years, continues to stand in our minds. With that backlog and the growth that it will drive, we continue to move forward with the business, like I said, just as -- just as we talked about it in July, we talk about it the same way in September and as we move forward into the future. We had expected a couple of hundred million, I think, of revenue activity related to EchoStar design work, like you've mentioned, as part of the business plan next year. As we get closer to next year and start talking about that plan, we'll see what things look like. We continue to work on all of our projects, including -- yes, all of our projects and the profiles on those projects, and we continue to talk to lots of folks in our pipeline. And so we'll see what the world looks like as we enter into the new year. But a large majority of next year is driven by already contracted backlog.

I appreciate all that color. And then so one follow-up question based on your discussion about the active pipeline of additional opportunities you have in satellite systems. You obviously said there was a constellation you thought could be awarded. This year, presumably, that was EchoStar. I mean, I guess my question is, to what extent your pipeline of opportunities within this space could yield other awards in the near term? And do you have opportunities that would have overlapped with the production profile that EchoStar was on and maybe you might change your approach as a result of this development today?

No, I think that the pace in the pipeline is, of course, always based on customer maturity. When we said that we expected to get a constellation in the next 12 months or we saw a high probability of getting the constellation in the next 12 months, certainly, EchoStar was one of those opportunities. And -- but there are others. And so I would still say right now that we would expect to see a constellation in the next 12 months, like I would still say that. And so the production profile of each customer obviously depends on when the order comes in and what their pace of production is that they want to see. With the completion of our -- expansion of our factory this year as we head into 2026 with increased capacity, we have a fair amount of flexibility in terms of our ability to respond to whatever demand the customers would like to throw our way. And so we'll be able to take on whatever -- any new constellation opportunity would bring.

Your next question comes from Ken Herbert with RBC.

I'm just curious, I know you've just obviously started work on this, but is there anything beyond just the financial compensation you can take from the short time you've worked on this either technologically or from a supply chain perspective or operationally that can get applied down the road to other potential opportunities?

Yes, there's a number of things. I don't know if you'll recall, but like the announcement of this opportunity, we talked a fair bit about the 5G compliant version of the Aurora digital satellite for EchoStar. And so the -- a lot of work went into the competition and winning the award from EchoStar, which included maturing all of those designs, and they would have been the anchor customer for that 5G variant. As a result, being in the market in our pipeline with a 3G PP, 5G compliant satellite that can talk directly to any 5G compatible device on earth is a tremendous advancement in our MDA-Aurora digital satellite product. And so the efforts that have gone into this, we were doing anyway, but EchoStar was the anchor customer. And of course, rushing towards a customer that was on a path to get to market quickly always helps accelerate these things. And so it definitely did help accelerate those things in this case. But as a result, we're ready to go with a mature 5G design, 5G product in the market. And so that is already in conversations with a number of folks in the pipeline, but it does kind of give us an edge in a number of those conversations.

And I just wanted to follow up on one of the things you just mentioned. Obviously, since you assigned EchoStar, obviously, now the termination. But what did that do to other potential customer conversations you could have had over the last month or 2? I'm just curious with that work and with the EchoStar work, were you seeing maybe other opportunities getting pulled to the left? How do we think about now just to follow up on some of the further prior questions on chunkier contract opportunities here in the next 6 to 12 months?

Yes. Obviously, we're going to see how people behave. But the behavior coming into this has been a bit of a race. So there's the direct-to-device market, the time to revenue in that market, getting the networks up operational, getting your piece of the worldwide direct-to-cell phone opportunity, developing partnerships and relationships with mobile phone companies, that still remains a high pace, pretty competitive environment for the space network operators. I think that the announcement of EchoStar back at the start of August was like caused a bit of a giddy up kind of a feeling in the market. People wanted to get moving quicker. I personally would expect that if now SpaceX has that spectrum and they're going to get on with building that same network that EchoStar was going to build, it even, at least equally, if not further adds to the giddy up feeling for those in the market, which is that we better get going here because things are moving. That's the sense that we get.

Your next question comes from Michael Kypreos with Desjardins Capital Markets.

Just curious, do you believe that Starlink going ahead with their own D2C constellation and product could impact the global star constellation in any way in terms of competition? Like do you believe it could invigor them to be more aggressive and order more satellites or kind of have the opposite effect?

Yes, it remains to be seen there what happens. There's certainly going to be -- like I said, there's always going to be a number of networks in the market. And we've already seen like Globalstar's primary customer is Apple, but we've also already seen Apple want to make sure that iPhones are available in other space networks as well that only makes sense. It's just like terrestrial networks. Apple is going to want to make sure that iPhones work everywhere on everybody's networks because that's going to be super important to them. And so -- but they are still going to want the Globalstar network to be a strong thing, I would assume, because a lot is going into this. And so yes, I would expect that there'll be just multiple networks and that folks will want to make sure that their mobile devices work on multiple networks, just like we see in the terrestrial mobile phone business.

I appreciate the color. And maybe just a quick follow-up. Do you expect any type of maybe geopolitical response from the Canadian government or maybe Telesat being used in any way as a response to this or it's still early days given the whole situation?

Yes. So Telesat is a broadband data network. So it's more like Internet services in its network. It's not a direct-to-device play. So it's not really kind of part of this dynamic. I think that maybe from Canada, but probably more like just globally. Like we've already seen in 2025, a fair amount of geopolitical activity of countries and corporations in countries outside the United States wanting to stand up a bit taller and work on and improve their high tech, their defense, their security, their sovereignty in their country to be a little bit more independent for both commercial and military activity. That is -- we've seen that same effect in space-based communications for sure, as nations and regions and corporations outside the United States wanted to make sure that they could take care of themselves a little bit more. And so this type of development may affect that overall -- that sentiment is already in play, but this might add a little bit more fuel to that fire.

[Operator Instructions] Your next question comes from Konark Gupta with Scotiabank.

Just a quick follow-up, Mike. As you head to the World Space Business Week next week, I think that's in Paris, can you help us understand like with this -- with the onset of this change in the contract with EchoStar, like how do you want to approach sort of the conversations at the upcoming conferences -- industry conferences?

Yes. The only real change to World Satellite Business Week next week would be that we would have been doing normally some collaborative work with EchoStar that suddenly will not make sense to do. The rest of our meetings, though, are all with new customers in our pipeline, people that want to talk about our products and services and how we can help them with their space-based networks and activities. We will have the same slate of customers having the same conversation that we've always had about MDA Space-Aurora Satellites, direct-to-device -- 5G compatible direct-to-device capability and what we can do for them and what kinds of schedules they would like to try to meet as they get their networks operational. So I'm expecting a typical World Satellite Business Week. And then, of course, we'll be a member of a number of panels and presentations throughout the week. We regularly get called on these days to be thought leaders as it relates to modern day space networks. And we've got a full slate of activities in terms of both meetings and presentations that we'll be making in Paris.

Your next question comes from David McFadgen with Cormark Securities.

Yes. I just wanted to ask a question just about the appointment of a new Managing Director for MDA Space U.K. Just looking at resume, given you worked at Thales and Airbus and so on, do you think that makes you more European, your MDA Space business for potential European awards?

The MDA Space Business is -- in the U.K. is in a strong spot. We've got about 4 sites in the U.K. right now. We have increasing interactions with the U.K. government for sure. With the acquisition of SatixFy as we become a bit more vertically integrated there in the digital technology aspect, the United Kingdom government has put a fair amount of investment into SatixFy at the start of growing it up. And so we've got a strong talent pool there in the U.K. around the digital satellite product elements. And so we'd expect that we definitely -- that will continue. And with Andrew as the new Managing Director, certainly, his background in space-based communications, and as you've mentioned, all of those companies around Europe gives us a strong set of relationships heading out into the future. In terms of if the U.K. would be perceived as more European, I think that's more of a geopolitical issue. As we look at, again, this trend that we've talked about, about different parts of the world wanting to stand up and be a little bit more independent, we see that in Europe for sure. We see an increase in Canada interacting with Europe. The Canadian Space Agency is part of the European Space Agency. There's some strong links there. Canada has signed up to the European Defense collaboration. So that activity continues to be strong. Of course, the U.K. has that historically pre and post Brexit. There's still strong relationships there. So I think both Canada and the United Kingdom would be looking for opportunities to have Canadian space capability being included in European opportunities as all these things continue in the future, just as we continue to look for opportunities for our technologies in the United States as well. But Europe is certainly a busy place right now, and the U.K. piece of business gives us another strong tool in those discussions with Andrew and the leadership, as you mentioned.

Your next question comes from Justin Lang with Morgan Stanley.

Mike, you mentioned expectations for another constellation announcement within the next 12 months or so. So just to clarify, would you expect that to be a direct-to-device constellation? And then of the $13 billion pipeline you mentioned, is there any way to get a sense of what portion of that is specifically direct-to-device related?

Yes, it could be direct-to-device or it could be broadband. I think that both are active in the pipeline. We talked about $13 billion of constellation opportunities. That is largely split between broadband networks or direct-to-device networks. And so we're certainly actively quoting those things, both of those types of networks in the market. And so either of them could come to the forefront depending on customers' ambitions.

There are no further questions at this time. I will now turn the call over to Mike for closing remarks.

Okay. Thanks for your time this morning. Sorry for pulling a quick one there. Obviously, there's some events unfolding really quickly here, and we had to make sure that people had the best chance possible at understanding the situation. We appreciate the time and the questions. And obviously, as per normal, if people have any follow-up calls or needs, please get a hold of our Investor Relations team, and we will do our best to make sure that everybody is connected and informed as we continue to move forward. Thanks a lot, and we'll -- barring any other meetings, we'll talk again at the November earnings call. Talk to you later. Bye.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.