Welcome to the Jefferies Virtual Space Summit. I am Greg Konrad from the Aerospace and Defense Equity Research Team at Jefferies. We are very excited to have MDA Space, sorry, with us today, and Mike Greenley, CEO. Welcome back, Mike.
Thank you.
Maybe just to start, can you give a little bit of background on MDA and its mission?
Absolutely. So we always say that our mission is to bridge the space between proven and possible. And so in those words, we're speaking to our heritage as a 55-year-old space company with over 450 successful missions. That's the proven part of our life and possible. Working with our partners as a trusted mission partner to be able to accomplish their objectives in space no matter what they are. So leveraging our very solid history to be able to always take people to new places and do new things.
And then you mentioned it a little bit, but how do you think the heritage differentiates the company versus maybe some of the newer space entrants out there? What are the advantages that you see from that heritage?
From what I've seen in terms of the various projects and things that are in the product lines that the teams are working on, the heritage certainly results in a reliable partner, someone who's very knowledgeable about space. It results in a team that takes a mission view. So even if someone is really only interested in getting a component or a subsystem from us for their overall mission system, our teams work with a mission mindset. And so we listen. We try to understand well what the person is trying to accomplish with their mission in space. We'll contribute our element, but we'll always do that in the context of their overall mission. And so as a result, I get a lot of positive feedback that our teams really understand, and they engage to solve the whole customer's problem, even though we're only maybe just supplying like a part.
Often, if folks are really focused on their startup and they've got a new widget and they want to just sell their new widget, they'll sell their new widget and get out. Whereas we are delivering our system element and we are contributing to the overall mission success. So I find there's a whole customer relationship thing there that's really strong as a result of that heritage.
You do have a pretty diverse business across space, but what do you think is maybe the core capability? Where is there the highest level of IP and how does that maybe tap into a market that could grow, let's say, high single digits over the next 10 years?
Yeah. So I think we have probably three core capabilities. I think it's okay to say we have three core capabilities. That's all right. That's not too many. So one is in synthetic aperture radar-based Earth observation. The second is in space-based robotics. And the third is in space-based communication satellites across all bands, like just the building of communication satellites. Those are our three core capabilities. Each of those three core capabilities is doing two things at the moment. It is becoming more and more commercial, so productized, more productized, more commercial. And it's becoming more digital, more software-defined, more constantly adjustable as we go through that technology transformation in each of those areas: radar-based Earth observation, space-based robotics, and space-based communications. In the market, we like to talk about that the cost of launch continues to decline, which is true.
As a result, more countries and more companies can get into space and conduct their business. The three big reasons why people would go into space is first, to observe the Earth, have satellites that observe the Earth and observe space. Our geointelligence business does that. A second reason would be to put up space-based networks for communication. Our satellite systems business does that. The third is to live and work in space, have space stations, industrial parks, assemble things in space. Our robotics and space operations business does that. The intensity of each of these elements of the market, though, is different. We think of them as three different waves of intensity. Right now, the biggest wave is space-based communication. It's the most commercial. It's growing the most rapidly. Our satellite systems business is really surfing that wave at the moment.
The space infrastructure business, to live and work in space, is coming up fast in terms of a lot more commercial projects to be a part of, and that's expanding that business area. And then the geointelligence business globally continues to require a really solid base in anchor defense and intelligence customers, which we have. And then over time, it'll become more commercial, and we expect that wave to break out third and in future. So we have good exposure, we feel, to the primary reasons to operate in space. We get to surf the waves of these different pockets as they become more and more commercial, which accelerates their growth. And as a result of that, we are experiencing high levels of growth. So you were mentioning single-digit CAGRs over the next decade. We have been growing at about 25% a year for the last three years.
We would expect to, for the next 5, continue at that 20%-30% growth pace top line as we go into the future with our ability to take advantage of these different waves of growth in the market.
And then kind of related to that, if I look at this year, I think you are expecting 25% growth. What are the biggest drivers and why now, given H2 volumes are expected to accelerate? And you mentioned you are growing faster than the market. I mean, how sustainable is that? I mean, you talked about five years. Maybe if you can just talk about that a little bit.
Yeah, sure. Yeah. So we're definitely getting and seeing this growth. It's all happening. In terms of drivers, what are the main drivers of the growth that we're seeing in the business? Our geointelligence business at this time is steady. It's at the low single-digit CAGR as new customers onboard onto RADARSAT-2, our synthetic aperture radar satellite, in anticipation of the new CHORUS capability that will be launching at the end of 2025. So as that gets closer, we're seeing a slight uptick in Earth observation business, and we'd expect, obviously, more uptick there once that capability is more commercial. In robotics and space operations and in satellite systems, they are each growing at much higher rates, doubling every couple of years at the moment. That's their current pace. In robotics, that's driven by two things.
One is the Canadarm3 delivery, which is to provide the artificial intelligence-based robotics for Lunar Gateway, the new space station that will orbit the moon. That's a large program over a 5-6-year period to do that development. And it'll be followed by 15-20 years of us operating those robotics at this new space station. So that drives a lot of growth. And then second is the release of MDA SkyMaker, our new line of commercial robotics that's derived from the Canadarm3 technology. And we have a growing pipeline of commercial opportunity there that is driving additional growth in that regard. The sustainability of the robotics growth is going to be based on an increasing commercial opportunity. There's multiple commercial space stations under development. There are multiple on-orbit servicing and active debris removal commercial business activities under development.
There will be the return to the Moon, where we are on teams to design rovers for the Moon, which will include our robotics. There'll be a number of other platforms, rovers and cargo handling and potentially in-situ resource management, more like mining type activity on the Moon, all of which will require robotics as that continues, which will provide a good pipeline for sustainability in that regard. In addition, we are transitioning to an operator of these robotics in orbit now, which has a great recurring revenue sustainability aspect to it. On Canadarm2, which is currently on the International Space Station, we've just announced that we've added the role of flight controller or robotic operator added to our scope of work for the next 5 years, the last 5 years of that station. We'll get our personnel trained up and certified by NASA as robotic operators.
Canadarm3, we have robotic operations in our scope for that 20-year run. Then in new relationships, like the recently announced Starlab commercial space station, where we join that joint venture, we have the commercial robotic systems and the operations of it as our scope. So we've got a good pattern growing here of delivering the systems and their operations. In satellite systems, we have our other doubling area of business that's doubling every couple of years, which is driven by the commercial growth in space-based communications. And there's three reasons for that. One is for broadband communications, access to the internet worldwide. We still have a third of the world that's not on the internet, and we'll get access to it through space networks. So that's a big deal. And all rural areas, of course, and the like.
So that'll be a really good growth opportunity as we support various broadband networks and continue to do so. The second reason for space-based networks is direct-to-device communications, to have satellites talk directly to our smartphones and devices, which is a growing market area. And then the third to come will be the internet of things, machine-to-machine communications that will lead to things like smart agriculture vehicles and smart cars and all that kind of stuff, where corporations want to have large space networks for connectivity to all of their assets. And so that'll be future growth to come in space-based communications. In each of these areas, then, we have three opportunities for business. The first is what I call the initiating orders, when somebody wants to create a new network in space, a constellation of satellites working together, and they place orders with us for the initial capability.
So examples for us would be Globalstar buying 17 satellites or Telesat buying 200 from us or an unnamed customer recently buying at least 36. All of these folks are building space networks, and they're placing their initial orders. The second wave of growth will be network expansion. So they'll load up their network with customers and traffic. And then with success, business success, they'll need more satellites in their constellation, and they'll expand their network. So for example, Globalstar and their customer with Apple, they bought 17 satellites from us, but they have permission to fly 3,000 satellites with the ITU. Telesat has bought 200 satellites from us, but they have permission to fly 1,300 or 1,600 satellites with the ITU. So these businesses have expansion in mind. And with business success, they'll be ordering more satellites.
The third reason for sustained business with these constellations is that in the sort of 5- or 6-year mark, folks are going to want to order the replacements for the first satellites that they bought. We get the initiating order, then we get the expansion order, then we'll get the replacement order. We've never seen that in the satellite business in the past, and it's now emerging as the new way the market can work. We feel that there's a lot of strong sustainability in the growth that we're seeing in satellite-based communications moving forward into the future.
Just to follow up on your last point, you said 5- or 6-year market replacement. What did that replacement cycle used to be when we were maybe a little bit more GEO-focused?
Yeah. So often geo satellites had sort of 15-year design lives. The LEO, we have some customers that want a satellite with a 10-year design life. And then we have some customers that want satellites with a 5-year design life. So a 5-year design life, you're probably starting to replace them, working on replacements after the 3-year mark. In the 10-year design life, you're probably looking at working on replacements, starting in that sort of 6-year mark. And so, yeah, we're seeing that come shorter now as we get into operations in low Earth orbit. And different people have different business models based on initial affordability in terms of how much they'd like to invest upfront in their first capability. And then the second reason is technology refresh.
Some folks have a business plan whereby they want to change out their satellites quicker and use modern technology as a differentiator in their network.
Then you mentioned the three different segments. I'm going to dig into each a little bit more. I mean, first, robotics and space operations. You gave a great overview there and the drivers. You mentioned MDA SkyMaker. Can you maybe talk about that a little bit more? I think you launched that relatively recently, how this kind of taps into some of those trends that you're seeing.
Yeah, for sure. So SkyMaker is a product, but it's not just like one arm. So what we're doing is we're productizing our robotic arm capability so that we have joint teams, control system teams, things like that. And as a result of that, we're treating the elements of a robotic system as a product. And we have different sizes and shapes and configurations of that solution that we can click together for each customer depending on their space station, spacecraft, or their purpose. And so the SkyMaker product line allows us to engage with a wide range of customers from a large space station customer down to a small servicing vehicle to a medium-sized rover moving cargo. It's the same product line with the same totally proven control system that we've developed and used on Canadarm over the years.
It gives a very highly reliable, repeatable product for the customers. By productizing the capability, we're able to do two things: produce them cheaper in addition to produce them faster. And so that's both excellent differentiators to have the world's most proven space robotic system available in a productized fashion through MDA SkyMaker to be able to give people rapid and affordable robotics capability for their systems. We've just moved into a new robotic center of excellence, a new facility in Brampton, Ontario. That has multiple mission control centers in it so that we can be able to have our robotic operators provide operation support of this product line to both government and commercial customers.
That's really important as well that some folks want to have robotics capability on their mission, but they don't have a lot of experience grabbing or manipulating objects in space, which can be a trick. So our teams have millions of hours of experience planning and providing technical support to robotic operations through 100 Space Shuttle flights, through 25 years now of operations on the International Space Station. We just have a lot of experience in our team. It makes sense for us to be able to provide very highly skilled robotic operation services to our customers as part of the product line offering.
Then maybe transitioning to satellite systems. I mean, you provide components, subsystems, antennas, electronics, payloads. When you think about content, how much of a satellite cost does MDA touch on and cover? And maybe how do satellites evolve? I think you announced MDA AURORA fairly recently. How do you think about that evolution on the satellite side?
Yeah. So I think we've got a great business being a merchant supplier of satellite components and subsystems to other satellite manufacturers. Great reputation there, especially in the area of antennas. We really are a legitimate world leader in satellite antennas of all kinds. And that continues to be a go-to area in the market for us. Satellite manufacturers will come to us to get their antennas. There are some customers that will come to us for payloads for their communication payloads and the like. The big transition for us in this area is the transition from analog to digital. So most of our merchant supplier customers are coming to us for analog products. And then increasingly, we're now building complete digital satellites that you see in that MDA AURORA product that you mentioned. And so this is a big transition.
So we now end up with a satellite that has a dynamic beamforming onboard processor and dynamic beamforming on the satellite. So what that means is that an analog satellite, the communication beams or the sort of the pipes of communication from the satellite down to the ground will be in a fixed pattern and of a fixed size and shape and therefore a certain capability to transmit communication up and down those beams. And that's great. That works well. But it's not super efficient. And so with dynamic beamforming, we're constantly able to, well, first of all, we get many, many more beams in the same satellite.
And we are able to dynamically adjust the size and the shape of the beams in real time, which means that from a satellite operator perspective, they are able to, through software control, constantly be adjusting their beams to be always making money and to be able to put communication services where their customers need it as it's flying over the Earth. So if a satellite was flying up the East Coast of the United States, an analog satellite could have half its beams pointing out into the ocean and half the beams pointing up the coast and picking up Savannah and Washington and New York and Boston as it goes up the coast.
A digital satellite would be able to aim all those beams on land and make them all be working and then merge them together and make them more intense, for example, for certain locations like around airports or certain urban areas where you want a whole bunch more bandwidth and capacity. So very dynamic, modern situation now with a digital satellite. And that is a new differentiating thing for us. So we're able to be able to sustain a nice solid business as a merchant supplier of analog components for people building satellites and then deliver a full digital satellite to the market, which is disruptive and very competitive we're seeing, especially in the low Earth orbit constellations.
I'm sure that over time, there'll be some elements of a digital satellite that we will offer on a merchant supplier basis as a product for others that want to build a digital satellite. But for now, we're very focused on the MDA AURORA product and delivering satellites directly into the market.
Then maybe just to go back to one big recent contract you were talking about before, the Telesat Lightspeed LEO constellation. How do you think about how quickly that ramps, the contribution, and maybe any background in terms of what you think were keys to that win?
Yeah. So I think that the genesis of the win, we've always been involved in Lightspeed. That's been an 8-year pursuit, probably. Always talking to the Lightspeed folks and Telesat and being on different teams and configurations of teams as different companies and groups have taken a shot at being there to provide Telesat for its solution. And there was a solid team there with the folks from Thales Alenia Space. And it was kind of organized and configured. But coming out of COVID, Telesat and Thales decided to look at do a relook at the supply chain and availability of things and the schedule and cost and the rest and weren't seeing a satisfactory answer to that. Over the years, we had been continuing developing our digital satellite product, our MDA AURORA . And we had talked to Telesat and many other customers about this.
It was very clear to us over a year ago that we were definitely going to start selling this MDA AURORA product now. It was time. It was mature. It really filled a legitimate need in the market. So we raised it again with Telesat. They thought about it and really dug in and did good investigations of it and decided that, yes, it was ready. It provided them with a cost performance advantage for their LEO constellation. So they switched to us as prime contractor last August with that initial $2.1 billion order there for 200 satellites. Off we go. So that's how that started. The project is going well.
We've been working at a slow ramp-up pace because we're doing a lot of engineering work and solving key technical challenges to make sure that everybody's lined up on how this network is going to operate. That was through Q4 of last year and the first half of 2024 now. Now we're transitioning to really pick up the pace. As a result of that, we're now out doing all of our procurement for the elements of those satellites. As we come through June, we're probably maybe 75% of our supply chain orders have been placed. By the time we get through July, maybe 90%. With that, all of those subcontractors and all of those suppliers, they'll start doing their work. That'll have a very large progress on the project as a result. Everyone on the team will be making progress.
Our revenue is based on percent-complete accounting. So as we make our own progress and all of our suppliers are making their progress, our Telesat Lightspeed project will make increasingly higher levels of progress. So our revenues will really tick up as we go through the second half of the year. When we had come into this year, we had talked about giving guidance for the company of around $1 billion in revenue for the year. We had said it would be back-end loaded, sort of 40% the first half, 60% the second half kind of a thing. That's exactly what's happening. We're executing early according to plan. It's all planned out as we expected. We lived through the first half of the year at that lower pace. Then we're absolutely picking up pace.
We'll see the numbers lift a bit in the second half of the year as we anticipated.
You mentioned it a little bit there, but both the prime and a merchant supplier business. I mean, who do you think of as your biggest competitors on the satellite side?
Yeah, it varies. Different people will show up in different competitions in different ways. So over the last few years, when we're in competitions, you'll see the traditional satellite manufacturers there, the Telesat, the Maxar, Northrop, Airbus, those types of folks showing up in various competitions for LEO constellations. Occasionally, you'll see some of the startup folks that we're starting to see mature on projects like the U.S. DoD SDA networks and stuff. So the folks like a Terran Orbital who supports Lockheed on those projects, sometimes they'll stick their head up on a commercial opportunity. But it's traditionally on these big constellations where people are spending billions of dollars that it's traditionally proven satellite manufacturers that are showing up in these competitions.
And then maybe just touching on the last business, geo-intelligence. I mean, we hear a lot around expansion and advances around government contracting. Can you maybe talk a little bit about the focus there? And then how does CHORUS contribute to maybe what is next for that business line?
Sure. So Earth observation definitely continues to be important. We see big drivers of Earth observation in the defense and intelligence community. The world is just as conflicted as it always was. And with conflict zones in Ukraine and the Middle East now and future concerns around Taiwan and everything, there's definitely hotspots in the world and people care about Earth observation. So that continues to be a growing foundational element to the Earth observation market. Climate change, another big driver. We'll get contracts for monitoring the ice in the Arctic and deforestation and forests all over the world, the Amazon, places like that. So people, there's good reasons both in terms of global conflict activity on Earth and the preservation of the Earth that all matter in terms of Earth observation. So that continues to grow. For us, we still see steady, strong business in synthetic aperture radar-based capability.
Our expertise in broad area surveillance radar capability continues to be very strong and world-leading. Our RADARSAT-2 satellite can still be a great, unique service, fully taskable broad area surveillance satellite. And then CHORUS brings that same capability forward into the future in a satellite with a 15-year design life. So it'll most likely last over 20 years in terms of its operational capability. So it's a solid investment right now that pays back in less than 5 years and then can generate great revenue and profits for us for the next 20. And so that's a really good opportunity for us to continue with that part of our business.
CHORUS is going to have 2 satellites in the constellation, the latest broad area surveillance radar satellite to follow on from RADARSAT-2, in addition to what we call a narrowband or a zoomed-in view, X-band satellite that'll follow it by about 1.5 hours behind. So we'll be able to do very broad scans of the Earth's surface, 500-700 km wide scans, pick up objects and identify objects of interest, and then task the trailing zoomed-in X-band satellite to be able to get a closer look at areas of interest or targets of interest in that scan. So that's a unique service, one of the first or the first in the world in terms of commercial radar services with what we call a tip and cue capability like that. Our customers are very interested in that. Folks really want to continue their RADARSAT-2 relationship into CHORUS.
A number of new customers, new countries are approaching us now to be able to get involved in that. Many want to increase their historical levels of purchasing with us with this new capability. All that is boding well for the pipeline of opportunity. With the announcement of launch at the end of 2025, the teams are quite busy working people through the sort of sales process or the sales pipeline. We're looking forward to starting to book orders more and more as we approach launch a year and a half from now.
Then maybe just moving to the last wrap-up question, what are three takeaways that investors should come away with today on MDA Space and the overall market?
Yeah. So I haven't talked about the overall market a lot, but I would want investors to take away that the space market is real. It's a real, persistent market. It's not cyclical like it was 40 years ago where there's an occasional space project. The cost of launch now has gone from $20,000 a kilogram down to $2,000 a kilogram today. It will go down to $200 a kilogram over the next 5 years. People can access space and conduct business there. And they want to, and there's lots of good reasons to do so. The market will continue to expand and be a persistent market in space. And so that's like a very important thing for people to learn more about. And we're happy to engage with anyone that would like to learn more about the persistent space market.
In that market, MDA Space is connected into three of the big reasons why you go into space: to observe the Earth or space, to be able to provide space-based networks and communications, and to live and work in space with space infrastructure. And we're connected well with 55 years of experience into those. And we're able to ride and even, as we said earlier, kind of beat the market growth rate in these markets based on our technologies and connectivity to customers in this space. And so that's really positive. The third thing for me, we haven't talked a lot about the balance sheet or anything like that in this conversation, but investors pay attention to that stuff and they watch it. And they've seen us have a really good growth investment profile over the last few years.
We've invested CAD 600 million-CAD 700 million in the last few years in our growth initiatives in CHORUS, in SkyMaker, and in AURORA. They're all proving to be successful and they're working. As we go through this year and through a bit of 2025, that pace of investment is going to fade off now. We'll come down in our CapEx deployment levels. We'll start to see ourselves sort of hit peak leverage right now and then delever as we go forward as the business continues to grow, as we invest a bit less, and as our EBITDA rates raise. Our overall financial profile, which is great, is going to even improve more as we go through the next year. Those are three great takeaways, I think.
Well, Mike, I really appreciate the time today and look forward to staying in touch.
Anytime. We like talking about space. Thanks, guys.