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

Good morning, ladies and gentlemen. Welcome to MDA Space Ltd. Conference Call and Webcast. This call is being recorded on May 8, 2025, at 8:30 a.m. Eastern Time. [Operator Instructions] I would now like to turn the call over to Shereen Zahawi, Head of Investor Relations at MDA Space. Please go ahead, ma'am.

Thank you, John. Good morning, and welcome to MDA Space First Quarter 2025 Earnings Call. Mike Greenley, our CEO; and Guillaume Lavoie, our CFO, will lead today's call and share some prepared remarks before taking your questions. A couple of housekeeping items before we begin. Today's call is accessible via webcast on our Investor Relations website. All our disclosures, including the press release, MD&A and financial statements, are available from our Investor Relations website and from SEDAR+. I would also 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, therefore, may not be directly comparable. Please see the company's quarterly report and other public filings for more information about these measures, including reconciliations to the nearest IFRS measures. And with that, it's my pleasure to turn the call over to Mike.

Thank you, Shereen. Before my remarks this morning, I just want to speak to my quality of voice. So a nasty cold has caught me in the last week. And as a result, my voice will seem a little bit weird today. In addition, I may break into an enthusiastic coughing burst from time to time. If that does happen, I will go on mute for a few seconds, and then I will come back. So good morning, everybody, and thank you to those for joining us today to discuss our first quarter 2025 financial results. The MDA Space team delivered another strong quarter in Q1, driven by solid execution, as we continue to convert our backlog and meet our customer commitments. Our Q1 revenues totaled CAD 351 million, up 68% year-over-year; adjusted EBITDA was CAD 69 million, up 63% versus last year; and adjusted EBITDA margin was a solid 19.5%. Operating cash flow was strong, at CAD 267 million, and we ended the quarter with no debt and a net cash position of CAD 376 million. Our backlog of CAD 4.8 billion at quarter-end provides us with good revenue visibility for 2025 and beyond. The strength of our backlog was significantly enhanced in February when we announced that MDA Space has been awarded a CAD 1.1 billion follow-on contract from Globalstar to manufacture its next-generation low Earth orbit constellation, which will include over 50 MDA AURORA digital satellites. This is our third LEO constellation contract in 3 years and second constellation with Globalstar, further highlighting the continued momentum we are seeing in our Satellite Systems business, driven by strong customer demand for our innovative technology. With a solid start to the year, we are reaffirming our previous 2025 full year financial outlook, which we provided with our Q4 2024 earnings release. We remain confident and continue to expect revenues to be between CAD 1.5 billion to CAD 1.65 billion, representing year-over-year growth of approximately 45% at the midpoint of guidance. We expect full year adjusted EBITDA to be between CAD 290 million to CAD 320 million, representing year-over-year growth of approximately 40% at the midpoint of guidance, and approximately 19% to 20% adjusted EBITDA margin rates. We continue to expect capital expenditures to be between CAD 210 million to CAD 240 million as we invest in our growth initiatives. We also expect free cash flow to be neutral to positive for the full year. Q1 and the subsequent period was a busy one for MDA Space. Throughout the quarter, our teams have continued to execute on our existing programs, including major programs like Telesat Lightspeed as well as both low Earth orbit constellations for Globalstar. We also continue to execute on the development of our Canadarm3 robotic program and MDA CHORUS, our next-generation Earth observation constellation. And subsequent to quarter-end, we announced that MDA Space has entered into a definitive agreement to acquire all outstanding shares of SatixFy Communications Ltd. in an all-cash transaction of USD 2.10 per share. The transaction, which represents an equity value for SatixFy of approximately USD 193 million, is expected to further enhance the end-to-end Satellite Systems offering of MDA Space, as demand for next-generation digital satellite communications continues to accelerate. The transaction represents a total cash consideration of approximately USD 269 million after accounting for SatixFy's existing debt, which MDA Space plans to retire immediately upon closing. We expect the transaction to close in the third quarter of 2025, subject to customary closing conditions and required regulatory approvals. As always, our strong performance in Q1 would not have been possible without the hard work and continued dedication of the entire MDA Space team, whom I'd like to thank and acknowledge. As we look to the balance of 2025, the team is energized by the solid momentum we are seeing in our end markets, and MDA Space has the right technology portfolio to capitalize on the opportunities ahead of us. I'll now give you an update on our 3 business areas and then pass it over to Guillaume for a deep dive on the financials. 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 Q1, our teams were busy advancing work on a number of programs. On the Telesat Lightspeed program, our teams have now transitioned to the program's detailed engineering and manufacturing phase, including the critical design review, which is taking place later this year. This follows the successful completion of the preliminary design review, which took place in Q4 of 2024. With all critical subsystem suppliers now under contract, the stage is set for work volumes to accelerate this year, consistent with our program plans. As I noted earlier, MDA Space has been selected by Globalstar to be the prime contractor for the satellite operator's next-generation LEO constellation, where MDA Space will manufacture more than 50 MDA AURORA software-defined digital satellites. The contract value of approximately CAD 1.1 billion is a follow-on to an initial Authorization to Proceed contract we previously announced in November 2023 with an undisclosed customer. A contract value of approximately CAD 750 million was added to the company's backlog in the first quarter of 2025. This amount is in addition to the ATP value of approximately CAD 350 million that was previously added to backlog in '23 and '24. The team is making good progress on the engineering, development and program procurement activities for this program and has transitioned towards the critical design review taking place in the second half of this year. We are also continuing to advance work on the initial Globalstar program, where MDA Space is the prime contractor, to enhance Globalstar's LEO constellation through the addition of 17 satellites which support SOS features and direct-to-device communication on certain Apple products. In Q1, the team progressed flight hardware production and FlatSat testing of the bus and payload systems. The team continues to advance satellite integration work following a successful spacecraft integration readiness review. We're also making good progress on our facility expansion in Quebec, which will add 185,000 square feet to our existing satellite production facility. The building shell has now been completed, and we continue to progress construction on the interior elements of the facility. Once complete, it will be the world's largest high-volume manufacturing facility in its satellite class, with capacity to deliver 2 MDA AURORA digital satellites per day. The production line is expected to be operational in the second half of 2025. Moving to our Robotics & Space Operations business, we continue to see good traction and activity levels on both government and commercial fronts. In Q1, we continued to ramp up work volumes on Phase C of the Canadarm3 program, which we were awarded together with Phase D in June of 2024. Phase C will see us completing the final design before we move on to the Phase D, which will see the construction, system assembly, integration and test of the full robotic system as well as 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. I also wanted to briefly comment on the NASA budget developments south of the border. Last week, the White House unveiled its recommendations for NASA spending levels for the 2026 fiscal year, including contemplation of ending the Gateway program, the lunar space station that is part of the Artemis program and for which the Canadian Space Agency is contributing the Canadarm3 robotic technology. As a reminder, our contract for Canadarm3 is with the Canadian Space Agency and the government of Canada, and not NASA, and there has been no change to any MDA Space contract as a result of these U.S. budget recommendations. We are in discussion with the CSA and the government of Canada officials with respect to government-to-government dialogue on this matter. With respect to the U.S. budget process, as you know, it is a lengthy process that requires congressional discussion, review and approval, and the final budget may differ from recommendations based on stakeholder input. In its recent update, NASA has signaled its commitment to work with Artemis partners, which include the Canadian Space Agency, on expanding opportunities for meaningful collaboration on the moon and Mars and to repurpose components for use in other missions. NASA is also committed to commercialization efforts in space, including replacing the International Space Station with private commercial stations upon its retirement in 2023. The Canadarm3 contract serves multiple purposes, including both space agency and commercial opportunities. Irrespective of the Gateway project, NASA's increasing commercial orientation bodes well for MDA Space. We continue to advance opportunities to incorporate our robotic technology on multiple near-term opportunities, including lunar mobility programs; on-orbit operations, including commercial space stations; and ongoing space exploration opportunities. During the quarter, we progressed the design and development of the MDA SKYMAKER robotics for the Lunar Outpost Lunar Terrain Vehicle Services, or LTVS, contract and supported Lunar Outpost on its NASA LTVS preliminary design review with NASA. Moving to GeoIntelligence business, customer demand for our 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 both governments and private enterprise. In Q1, we continued to advance work on MDA CHORUS. The MDA Space team finished harness installation and started unit installation in the main spacecraft body. The first 4 SAR antenna panels progressed through its electrical characterization. Our solar assemblies were delivered. We are now well into a busy second quarter, where we plan to test and characterize the second SAR antenna panel and expect to complete testing of the remaining units before installation into the aircraft. The MDA Space team also delivered another iteration of the ground segment software and are tracking continuous development and release plans. Overall, we continue to make good progress in MDA CHORUS and are excited to deliver the constellation's enhanced functionality to all of our current and future customers. Shifting to operations, we continued our hiring efforts to support the growth we see in our business. With close to 3,500 highly skilled MDA Space staff today, we have the people and talent to help propel our growth and give us the scale to execute on the market opportunities we are seeing. I also wanted to provide an update on the imposed U.S. tariff and counter-tariffs announced by the Canadian government. As we noted in our last earnings call in early March, we see the situation as very manageable for MDA Space. We continue to actively engage with government and regulatory bodies in both the U.S. and Canada regarding tariff mechanics, and our teams are assessing mitigation strategies, including compliance with USMCA. On the latter, our preliminary analysis for some of our more complex product that we export, including finished satellites, suggests that these products are largely USMCA-compliant. As a reminder, at the end of Q1, approximately 80% of our backlog of CAD 4.8 billion derived from geographies outside of the U.S. And when we look at our supply chain, particularly for our satellite manufacturing business, it's well diversified, with a little over 1/4 of suppliers based in the U.S. In most cases, the technologies and products we are offering are differentiated and cost-competitive and, as a result, not easily replaced. We continue to see strong desire by customers and potential customers to engage with us, and our opportunity pipeline remains very strong. We'll be monitoring this situation closely, as it remains dynamic, and we'll update you as necessary. To recap, we're pleased with our performance this quarter and the momentum we are seeing in our markets. Our team is energized. 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, and good morning, everyone. For my update, I will walk you through our Q1 financial results and provide an update on our 2025 financial outlook. Overall, Q1 results were strong, with growth in revenue and profitability. We remain with a solid balance sheet and backlog, positioning us well for the remainder of 2025 and beyond. Total revenues for the first quarter were CAD 351 million. This represents a CAD 142 million, or 68%, increase over the same period last year. By business area, revenues in Satellite Systems of CAD 222 million in the first quarter were CAD 135 million, or 155%, higher compared to the same quarter in 2024. The strong growth was driven by the ramp-up of the Telesat Lightspeed program and the Globalstar next-generation LEO constellation program. The latter contract was finalized in February of 2025. In Robotics & Space Operations, revenues of CAD 77 million in the latest quarter represent a CAD 7 million, or 9%, increase versus Q1 of last year, driven by the gradual ramp of Phase C of the Canadarm3 program, which was awarded in Q2 2024 by the Canadian Space Agency. As Mike noted in his remarks, there have been no changes to the Canadarm3 program as a result of the recent budget deliberations in the U.S., and we continue to engage closely with the CSA on this program, while focusing on executing our work. Revenues in our GeoIntelligence business of CAD 52 million in the latest quarter were flat year-over-year, reflecting steady work volumes in line with our expectations. Moving to gross profit. For Q1 2025, gross profit was CAD 80 million, representing a CAD 22 million, or 38%, increase over the same period last year, driven by higher volumes of work performed in our Satellite Systems and Robotics & Space Operations businesses. Gross margin in the latest quarter was 22.7%, which is in line with our expectations and compares to 27.7% for the same period in 2024. The year-over-year change in gross margin is driven by our evolving program mix and higher depreciation expenses as new assets come into service. Adjusted EBITDA in the latest quarter was CAD 69 million, compared to CAD 42 million in Q1 2024, representing an increase of CAD 27 million, or 63%, year-over-year, again driven by higher work volumes as we continue to execute on our backlog. Adjusted EBITDA margin was 19.5% in Q1 2025, consistent with the company's full year margin guidance of 19% to 20%, and compares to adjusted EBITDA margin of 20.1% reported in the first quarter of 2024. Adjusted net income in Q1 2025 was CAD 37 million, compared to CAD 18 million in the same period in 2024. The year-over-year increase of CAD 19 million, or 103%, is largely due to higher operating income in Q1 of 2025. Moving to backlog, we ended the quarter with a solid CAD 4.8 billion in backlog, representing an increase of 46% year-over-year. The growth in the backlog was driven by the addition of a number of sizable awards, including the Globalstar next-generation LEO constellation program, Phases C and D of the Canadarm3 robotic program, the contract extension from the Canadian Space Agency to support robotics operation on the ISS as well as other awards across our business areas. Moving to CapEx. We remain focused on making investments in the business to support our strategic growth plan. In Q1 2025, we spent CAD 62 million on capital expenditures, up from CAD 44 million last year, as we continue to progress our development of CHORUS and the expansion of our Montreal satellite manufacturing facility. Operating cash flow during the quarter generated CAD 267 million, compared to CAD 25 million in Q1 of 2024. The year-over-year increase was driven by favorable working capital contributions, primarily from the Globalstar next-gen LEO constellation and Telesat Lightspeed programs. Free cash flow was CAD 205 million in the latest quarter and compares to negative CAD 16 million in the previous year, with the year-over-year improvement largely due to the previously noted working capital contributions. Moving to our balance sheet. We ended the quarter with a strong financial position, with net cash of CAD 376 million, available liquidity of CAD 690 million under our revolving credit facility and total liquidity of close to CAD 1.1 billion. As a result of our strong cash position year-to-date, we expect our net debt-to-last 12 month adjusted EBITDA ratio to be below 1x EBITDA once the SatixFy acquisition closes, which is expected in Q3 of this year, again, subject to the closing conditions and required regulatory approvals. In summary, this was a strong quarter and a solid start to 2025. Now let me turn to our full year outlook. As Mike noted, we are reaffirming the previous 2025 outlook provided in our Q4 '24 earnings release, and we are well positioned to capitalize on strong customer demand and robust market activity given our diverse and proven technology and product offerings. For Fiscal 2025, we continue to expect full year revenues to be CAD 1.5 billion to CAD 1.65 billion, representing a year-over-year growth of approximately 45% at the midpoint of the guidance. We continue to expect full year adjusted EBITDA to be between CAD 290 million and CAD 320 million, representing year-over-year growth of approximately 40% at the midpoint of the guidance, and approximately 19% to 20% adjusted EBITDA margin. We reaffirm capital expenditures to be between CAD 210 million and CAD 240 million in 2025, comprised of growth investments to support the previously outlined growth initiatives across our business areas. Finally, we expect full year free cash flow to be neutral to positive in 2025. For the second quarter of 2025, we expect revenues to be between CAD 360 million to CAD 380 million as we continue to execute on our backlog. As Mike noted in his remarks, our current assessment is that potential tariff exposure is manageable and that the MDA Space team works with our customers to identify solutions and explore potential mitigation strategies. We will continue to monitor the situation and may elect to update our financial outlook if necessary. With a solid backlog and healthy pipeline, we remain focused on disciplined execution on our customer commitments and leveraging our capabilities and technology to grow in a profitable way in core and emerging markets in line with our long-term plan. Mike, with that, I'll turn it back to you.

Okay. Thank you, Guillaume. Operator, we can now open it up for questions.

[Operator Instructions] We now have our first question, and this comes from Konark Gupta, from Scotiabank.

Maybe I can begin with the Canadarm3 contract. Obviously, the recent headlines were clearly not indicating that there's a lot of confidence with the NASA budget, clearly. But I don't think you guys are suggesting that you're seeing a lot of risk to Canadarm3, given CSA is the backstopping customer on that. Now the question I have is, what have been the discussions lately with CSA or indirectly with NASA on Canadarm3? I mean, if NASA does not get the budget they want, how can they support the program, the Artemis? And what could Canada do differently to continue to fund this program?

I think there's not a strong history of talking about this particular topic because the inputs from the White House on the budget were just that; like, the preliminary inputs from the White House on the budget. So that kind of essentially comes out of nowhere. It's just their suggestions of the things they would like people to talk about as they go through the budget cycles. So those inputs have now been received within the last week, and now everyone will start to talk about them. So for all of us, we just continue to do our work. We have a contract with the Canadian Space Agency. The Canadian Space Agency continues to have a commitment to NASA to provide robotics for the moon, and we just continue with that. As we go through the next several months, the U.S. budget will obviously go through its process. These inputs, including the White House input, will be reviewed by all the various departments. The congressional staff will start to opine on things that they care about. There will be, I guess, a draft budget that will come out later in May, and then there'll be the congressional review process that occurs through the summer. And I think the normal U.S. budget cycle is an October season for a budget, should it get conducted and it doesn't go into Continuing Resolution. So for us, that means that largely 2025, for us, at the moment, is just get your work done, keep developing the program, keep advancing the robotic system and let that budget process continue in the background. So that's really the position that we're in at the moment.

Okay. That's fair, Mike. I understand. Obviously, a lot of things are on the move here. On LEO, shifting gears, the LEO market, you guys have obviously 2 big contracts, with Telesat and the Globalstar next-gen, I guess, but you also had Globalstar from before. I mean, you have 2 big customers there, and there's a pipeline which is pretty strong. Would you say, like, given your positioning in the market, being sort of an early mover on digital satellites, the reason why you don't have more than 2 customers on the digital side is because of the lack of capacity, which you are building right now in Montreal? Or is it because of the brand reputation, that the market did not recognize your reputation, like, a few years ago?

I'd say that we have a very strong pipeline. We're in a very good position with a number of additional constellations, and all that remains in place. People who would make orders for new satellites, say, if anybody ordered some in 2025, they would not be in production in a factory until sometime in late '26 and early '27. And so those customers in our pipeline understand the capacity that's being built. They've seen it, they've viewed it, they've seen computer animations of it, they've toured through the construction sites. They're very aware of what will come as we go through 2025, and they believe in our ability to have capacity. So there are no concerns with the limitations of our capacity. I think MDA Space as a provider of satellites for low Earth orbit constellations is very well known by those that are building low Earth orbit constellations in the market. I would say all of the premier constellation projects that are available for competition would probably be talking to MDA Space in one way or another, and those are very good dialogues. I think that that's it. You have not, I don't think, because I'm not aware of any, heard of any constellations outside of SpaceX or Amazon Kuiper that would be progressing. Any announced constellations that are in construction is SpaceX doing Skyline, Amazon building Kuiper or MDA Space building for Globalstar and Telesat. As we go through the pipeline, we will see how many of the additional next-generation constellations MDA Space is also the provider of satellites for, but we are not losing any competitions.

And the next question comes from the line of Ken Herbert, from RBC.

Mike, maybe to start off, you're involved in a number of the commercial space station opportunities that are very early stages. But I'm just thinking, depending upon how the NASA reorganization goes, to what extent could commercial opportunities for the Canadarm3 technology maybe offset some potential risk or timing from the CSA? And maybe can you just give us a little bit more detail on your commercial initiatives on the robotics side as it relates to C3?

In terms of the construct of offsetting Canadarm3 opportunities, so when you speak of that you're suggesting that perhaps in the final execution of the entire budget process, that later in 2025, we learn that, yes, for real, Canadarm3 would not go to Gateway as a space station. In that outcome, we have already heard the leaders of the space agencies indicate that they are all communicating with each other and will continue to communicate with each other about the use of their contributions to the lunar program. So the lunar program includes the space station Gateway. It includes the spaceships that go to the moon. It includes all the logistics vehicles and activities to move things around the moon. It includes the vehicles that will be used for doing tasks on the lunar surface. So there's a number of different elements to the lunar activity. So they're all in discussions about where can they use all these different elements to do good things on the moon and make sure that everyone's contributions are recognized and useful. So that would be an area of reuse, for example, if the worst outcome was to ever come, like, a year from now. In terms of the use of Canadian robotics technology for the commercial space stations in low Earth orbit, yes, we talk with all of those commercial space stations today. Our MDA SKYMAKER derivatives of the Canadarm3 technology are bid to a number of those different commercial space stations, and we remain engaged in that. So there is strong opportunity for us to deploy Canadian robotics to the commercial space stations in low Earth orbit as well, yes.

Great. That's helpful. And maybe a question for Guillaume. You had really good cash generation in the first quarter. You've maintained the full year breakeven to positive. How should we think about the cadence of the free cash flow? Do we continue to see positive free cash in the second quarter? Or how does this flow through the year?

Yes, we're pretty happy with the free cash flow generation in the first quarter. Again, like I said, it's a good start to the year, but we still have 3 quarters to go. So we maintain our guidance of neutral to positive free cash flow. I think the way to think about Q2, 3 and 4 is, yes, neutral-ish, with potentially some variation in between the quarters with regards to the working capital. But again, we just want to be prudent here. We had a strong start to the year. And then from my perspective, we keep the guidance, and we'll update everyone as we progress through the year.

And the next question comes from the line of Stephen Machielsen, from BMO Capital Markets.

Mike, so I have a question about tariffs. I know you've said in the past that you've been able to manage them for the existing projects. But I'm just wondering in your conversations for prospective constellations or other projects, how are tariffs coming into those conversations?

The notion of tariff is always in a contract. It's a little more popular at the moment as a topic area in contract negotiations. But it's really just working through who owns what responsibility for what aspects of tariffs, that's a normal contract negotiation construct, and then working with the customers with our mutual understanding of how would tariffs work on this particular project: how would tariffs work, what would the potential impact be and which of us is going to be responsible for which pieces of them. And so that's the discussion that we have on each contract.

Okay. And have the answers to any of those questions been changing in the last 6 months versus what you've seen historically in terms of who is responsible for what?

Not really. It goes back and forth with different customers in different situations. I think maybe the only difference might have been that on some contracts we might want to consider changing roles of who's responsible for what, just to be able to make the situation work out optimally. But no big changes.

Okay. And on M&A, so after you close the acquisition of SatixFy, how do you think about your capacity to do more M&A? And are you seeing any more opportunities maybe amongst your supplier base just given the disruption that tariffs might cause?

I think that we will continue with our M&A plans as we've indicated them previously. We've always indicated that there's 2 categories of M&A for us. One is vertical integration, to be able to maybe bring some suppliers vertically integrated into the business, like we're doing with SatixFy, in order to secure the supply chain and make sure we can control our road maps for the future. There are some very small activities in addition to M&A, maybe some licensing deals and things like that, that we work on in that category as well, just to make sure that we are doing that. That's a theme for us in the business. The second theme would be capacity and geographic expansion to be able to get more production capacity, maybe in Europe or the United States, try to open up the government pipelines more in those regions. We will continue to look at those things as well. We definitely have capacity to do so. As we've indicated, we'll do this deal on SatixFy, but we're in a good strong cash position. And of course, our revolver is fully available. So we might get into a situation, as Guillaume said, where we may end up with a small bit of leverage, less than 1 turn, as we go through the year and close that transaction, which means we definitely still have capacity on the debt side. And of course if anything substantial came that was really going to be transformational, I'm sure we could raise equity if we needed it. We have an enthusiastic and supportive community around us. So we feel we can do acquisitions if the right opportunity comes along, and we continue to work on those things.

The next question comes from David McFadgen, from Cormark Securities.

A couple of questions. First of all, just start off with the Canadarm, if I may. So last year, you announced the CAD 1 billion contract for Canadarm3, comprised of 2 phases, Phase C and D. Can you give us a breakdown of that CAD 1 billion between C and D?

No, I can't off the top of my head. Sorry.

Okay. And how much of the backlog right now, CAD 4.8 billion, is represented by Canadarm3?

It's under CAD 1 billion, obviously, as we've been executing the program since we were awarded the Phases C and D. So it's, I would say, under CAD 900 million at the moment.

Sorry. Under CAD 900 million?

Under CAD 900 million at the moment.

Okay. So I was just wondering, by the time Congress decides yes or no about the Gateway project, what percentage of the Canadarm, the CAD 1 billion contract, do you think you will have fulfilled?

It all depends on when that stuff happens, right? So like, I think we'll go through 2025 normally while the U.S. finishes its budget process. That budget process could conclude that Gateway remains and everything stays exactly the way it is. That can be an outcome. The 2 big things related to the Artemis program that are discussed in the budget is the SLS rocket system and Gateway, the space station. And there are certainly a number of congressional elements out there that are not willing to allow that to go through the budget. And so there's going to be a lot of review and discussions that will occur as people go through the summer, and we'll see what happens. In terms of the U.S. reaching a budget, which is obviously a large-cut budget, with a proposed USD 163 billion of reductions in government spending, people have to get aligned around that and approve a budget. That could happen on time through October, or there could be a Continuing Resolution that is necessary while they continue to debate budgets that could go on until this time next year. So who knows? We will just continue to work on the projects as we are, full steam, and keep getting our work done. It's also important to note that in a situation on large programs like this in the aerospace and defense sector, like globally, if a project sometime in the future was ever shut down, there's a whole process to pay industry and all of its suppliers for all of their costs and the associated expenses with actually buttoning up the project and shutting it down if that were to ever occur. And so there's a lot of water to flow under the bridge here as we go forward into the future. Anybody who feels that because the U.S. White House budget input made a suggestion that Gateway be closed means that, that will lead to Canada not building Canadarm3 and that will lead to us not doing anything more work on this contract, that's a false interpretation of a situation. We will continue to work fully through '25, I would expect, and I would expect there would be significant work beyond that whenever the budget is done. And I know that all the parties are working on what different purposes on the moon or commercially can Canadarm3 serve in the future. So we are a very, very long way away from talking about any changes to our contract structure.

Okay. And just on Artemis, have you heard any discussion about that USD 4 billion contract for the Lunar Training Vehicle? Because it was expected to be announced, I believe, in April. We heard nothing. Just wondering, have you heard anything about that one and an update there?

It still continues in their evaluations. For sure, that is progressing. We have to submit updated inputs into that process on a regular basis. We're doing some updated inputs at the moment. So yes, that continues as a live pursuit.

Okay. And then just moving on to satellites. So just when you look at your pipeline, do you see more demand to build your broadband satellite or your direct-to-device satellite?

There's definitely demand for both. I think the most active discussions at the moment are probably more on the direct-to-device side, but there are some broadband folks that have continued to come along and ask for proposals. So both parts of it are active, with maybe a little bit more enthusiasm on the direct-to-device these days.

Okay. And then just lastly, just on SatixFy, there's a go-shop period that's still live. I would imagine if there was another interested party in the company, you would be aware of it. Have you seen any competing bids for SatixFy?

We have matching rights, we've announced that publicly, in that process, and we have not been informed of any formal bids that we would need to respond from a matching perspective against. That has not occurred yet.

And if I may just add, the go-shop ends on May 16. So it's coming quickly.

The next question comes from Kristine Liwag, from Morgan Stanley.

This is Justin on for Kristine this morning. A quick one, just to start with, for Guillaume. It looks like gross margin stepped down a bit in the quarter, and you noted it was in line with expectations. But maybe you could just talk quickly about the drivers there and what you're expecting moving through the year. Is this low-20s range sort of the new normal? Or do you expect to get back up to that kind of mid- to high 20s, approaching 30%, as you've done historically?

I think we've been very clear that our gross margin is evolving due to our changing program mix. And then the other component is really all the investments that we're doing and that we've made into the business. Now we're getting more depreciation as all those assets come into service. So yes, the gross margin was right where we expected it to be. And again, this translates into us delivering between 19% to 20% EBITDA margin, and we expect that this will continue for the foreseeable future. So everything is as per our plan and consistent with our expectations.

Okay. Very helpful. And then, Mike, just going back to the NASA budget and maybe putting Gateway and Canadarm3 aside, are there any other sort of risks or opportunities? I understand this is an initial proposal, but did anything pop out to you outside of sort of Gateway, Canadarm3? And then is there a good way to think about total NASA exposure for you as an end customer, even considering that Canadian Space Agency is the contracting -- you have a contract with them, but ultimately, NASA is the end customer? Any way to sort of size that exposure?

I don't really have a NASA exposure number. I think there's a growing NASA opportunity, for sure. Earlier questions on the NASA LVTS program, that's us teaming with American firms and bidding directly into NASA, for example. So that's also part of our life, in addition to the work that we do through the Canadian Space Agency with NASA. Important to note, we also do work with the European Space Agency, and the Canadian Space Agency is also part of the European Space Agency. So the global space community continues to be very, very active. I think in the discussions around the budget, one of the most encouraging things that was said was the geopolitical competition with China on getting to the moon, and I think some statements were made about ensuring that the United States gets boots on the moon before or at least as fast as China. I think both sides are endeavoring to do that before 2030. What that means is a strong focus on launch systems and return systems to get back and forth to the moon over the next 3, 4 years, in addition to making sure that things like lunar terrain vehicles, habitats and the other things that you need on the lunar surface once you have humans on the lunar surface continue to progress at pace to be able to keep up with that. And so I think that's one of the most important dynamics for everyone to keep in mind, that the Artemis Accords have been signed by over 50 countries, working with the United States in collaboration to live and work on the moon, and that consortium of enthusiastic participants is not going to concede to China and the 11 countries working with it their activities on the moon. So I think that geopolitical tension continues to hold and did hold in the budgetary remarks. So the reconfiguration of budgets to focus on certain things like ensuring we get to the moon and ensuring there's a follow-on effort to Mars, I think, are very positive for the opportunities that we continue to track in our pipeline.

The next question comes from the line of Benoit Poirier, from Desjardins.

Just talking about your bidding pipeline for satellite systems, back in December you mentioned earlier that you were seeing about half of winnable bidding opportunities over the next 2 years. Obviously, the geopolitical situation brought increased dialogue. So I was curious to know if you're seeing more than a handful of winnable bidding opportunities these days. And given the acquisition of SatixFy, I was wondering if you got any feedback from potential customers and whether you're getting more confidence that you could get at least one this year, or maybe we could see 2, constellation awards in 2025.

I think the feedback from customers on the acquisition of SatixFy has been very positive. People are very supportive of that. They thank us for doing that, and they see that as us -- the whole phrase that we use as trusted mission partner, that's not a marketing buzzword or anything. Like, it's a real thing. It's, like, our customers see that we get it. We're committed to these digital satellites, we're going to own the solution, and we're going to be able to evolve the road map for that solution through MDA AURORA version 1, 2 and 3 as we go through the next several years. And so people really appreciate that and are congratulating us and thanking us for doing that. So that's really good. The pipeline does remain strong. People continue to move forward with their plans for space-based networks. People want to get those things done quickly, which is good to see. And as a result, our bidding activity with network operators remains robust. It's a very, very busy period of time. I had indicated lately that I think over the next year that we should expect to be able to see an opportunity for at least another constellation, maybe 2. I still believe that, that over the next year that, that can happen, that 1 or 2 can come through, based on the maturity that some of these bids are at that we have with people. Bids will move from early discussions to rough orders-of-magnitude estimates to then not-to-exceed estimates often to firm fixed-price commitments and then with the terms and conditions around them. They go through a process of increasing maturity. And there's a couple out there that are mature enough that if the customers decided to move, they could, as they go through the next year. So that remains the case.

Okay. That's great. And Mike, when we look at the supply chain environment, you've done a good job securing your supply chain in the past. Could you talk a little bit about the state of the supply chain environment and if there are any parts that are more fragile at this point?

I think it's strong. It's solid. Like, we always want really strong performers. Obviously, that's been a big part of our history, having delivered over 450 missions to space in our history. Having suppliers that have the proven ability to work and deliver in space is very important to us to maintain our trusted mission partner status with our customers. So we're very comfortable with our supply chain. I have commented a number of times that as we've gone through, especially on satellites, as we've gone through the next year, the ability for our suppliers to scale with us has become increasingly important. So that as we're now bidding on 50 or 200 satellites out for different customers, that we need the supply chain to keep up with that. So we have increasing dialogue around that. We're seeing that people are able to do that. They're committed to doing that. They're willing to invest in that. With SatixFy getting part of the company, then that's going to help us really get very clear on our road map over the next 2 or 3 versions of satellites and mature our conversations with our customers about what we might need from them over the next 5 years. And so it's just a good conversation with everybody that's maturing and letting everybody have information that they need to stay a little bit ahead of demand to be ready to be able to scale up or be ready with the next generation of solution. So it's generally working well.

Okay. That's great. And maybe last one, for Guillaume. I appreciated your comment with respect to the release of free cash flow in the remaining quarters for 2025. Could you maybe talk a little bit about the assumption in terms of booking activity in order to -- what you're assuming for the remaining quarters in terms of free cash flow and also maybe the key milestones to watch that could influence the working capital contribution, such as the critical design review with Telesat that will take place later this year?

Thank you for your question, Benoit. Well, on the free cash flow planning, we're typically conservative, in the sense that we really don't include inflows or advances for contracts that we haven't won just yet. So that's one thing. So obviously, if we have new awards, that could have a potentially beneficial impact to our plan. Secondly, in terms of the program execution, each of our programs have a lot of different milestones. You can think of a couple of hundred milestones, for example, on a given contract. And we're tracking all of those milestones very closely. We have reviews on a monthly basis to look at the progress of the work and how we're doing in terms of cash inflows and, obviously, cash outflows. So we have a good grasp on our forecast. And I would say, as Mike said, really, for Telesat, the focus is on the critical design review. It's the same thing with the Globalstar contract. And also with regards to the Canadarm3 program. We're working on the Phase C right now. So we're tracking all the milestones. And so far, our guidance takes into account the execution and a wide range of potential outcomes, which, again, we are comfortable with in saying that we'll be neutral to positive free cash flow this year. And again, we had a good start to the year. So we're happy about that, but we still have 3 quarters to go, and we're focused on executing those milestones so we can collect our cash.

And the next question comes from the line of Jason Gursky, from Citigroup.

Mike, I'd love to get your take on the Artemis program overall. This is something that was started by the Trump administration, Trump 1, so to speak. What do you think has changed here, kind of why the change of heart on Gateway at this point? What's been the major driver for the decision to make a move here?

I think that my sense of it is really just, like everything else in government, it's all about budgets and efficiencies. I think that the commitment to the Artemis program and the commitment to the moon remains, but folks are looking, like they are everywhere in government, for any opportunities for efficiency. The 2 main items that have been discussed as ideas to talk about in this latest budget input has been the SLS rocket system and Gateway as a space station. The SLS rocket system is extremely expensive. It's a multibillion-dollar per launch activity. And arguments have been made that there could be more effective or efficient ways of doing launch. And then when people talk about space programs, they talk about the architecture of a space program. And so in the architecture of the elements of the Artemis program, the Gateway was there as part of that architecture. So it's a space station that allowed people to launch from Earth, travel to the space station, spend some time there, then transit from the space station down to the lunar surface, do their business, maybe come back up to the space station, then continue back to Earth. There could be people in the space station providing supervisory roles over what's going on down on the lunar surface, et cetera. So there was a role for that space station in the architecture of lunar missions. Some folks, I'm assuming, in suggesting that maybe Gateway go away, are suggesting that maybe the architecture could change. Maybe we don't need a space station at the moon, and you could just launch from Earth and go directly to the moon, do your business and then launch back off the moon and come back to Earth and don't worry about having a space station there. I think there'll be lots of debate about that as we go through the summer, in terms of the pros and cons of that and the value of those things. And so people will be looking at those 2 items as, is this a way of saving money and focusing the effort while still ensuring that the Artemis program continues and that the Artemis Accords and all the countries involved still have an active and robust activity on the moon?

Right. Okay. That's helpful. And I think Lockheed Martin mentioned the Canadian Surface Combatant this quarter on their earnings call. I hadn't heard them do that in quite some time, which begs the question to you. Kind of what's the update there for MDA on the Canadian Surface Combatant?

We're seeing a bit of burst of activity there right now. I think that the designs and stuff are starting to get really finalized in terms of what's on the ship, what's off the ship and how is all of that going to work. There'll be contract movement, I think, over the next couple of quarters as people get under contract for what's called the implementation phase, which is, like, really get on with it and get these first 3 ships built, which is the first block of ships. So I think that -- I'm not aware of what Lockheed Martin's remarks were, but certainly, there's a leaning-forward posture, I think, that we're feeling right now as people are leaning into getting going and getting things done, and I know our people are busy responding to questions and answers and stuff within the project. So yes, I think that's what's happening. People are leaning into getting this first block of ships built.

Right. And to your point, Lockheed's comments was more about the pace of activity is picking up here. But I'm just kind of curious, has there been any change in what you think you're going to be doing on those ships? Has the addressable market, so to speak, shifted one way or another for you as you are moving now further into this project?

There's nothing official yet. In the discussion points, like, you get asked to chip in on stuff and give your inputs on this and that. And sometimes that is related to what things could be done, and then sometimes that's related to what if we didn't do this thing, what would be the implications of that. And so you answer that back-and-forth questions, but we're waiting to see what all the final strokes here is on these implementation contracts that now people are moving out with.

Thank you. And we don't have any further questions that came through at this time. I will now turn the call over back to Mike Greenley. Please go ahead, sir.

Okay. Thank you, operator. And for everybody else, thanks for your time this morning. It's been a great first quarter, a great start to the year. Really impressed with the team and everything that they're doing. People are working extremely hard, this new larger team that keeps getting larger here at MDA Space. But really appreciate the fact that people are working well together and doing a great job. And we will continue to lean into it. We look forward to updating you on our progress during our next earnings call, which will be in August. Have a great day. Thanks, everybody.

Thank you. This concludes our conference call for today. Thank you all for participating. You may now disconnect.