Sunday, July 31, 2016

Q2 Canadian Sales Up but MDA's Real Future is Yankee Doodle Dandy

          By Chuck Black

New MacDonald Dettwiler (MDA) CEO Howard Lance is working towards "tech sharing" and the creation of "go-to-market synergies" between US and Canadian operations as his firm "ramps up on recruiting," at its US based Space System Loral (SSL) subsidiary.

This sharing between the existing, mostly Canadian based employees and what are expected to be mostly US based new hires at SSL, is simply one of the requirements which MDA must fulfill in order to obtain the US security clearances needed to bid on upcoming US military and government contracts, a strategy considered fundamental to the company’s future growth.

As outlined in the July 28th, 2016 MDA press release, "MDA reports second quarter 2016 results, declares quarterly dividend," consolidated revenues for Q2 were "$503Mln CDN as compared with $524Mln CDN for the same period of 2015. The decrease reflected the variability in quarterly revenues inherent in long-term construction programs. Operating EBITDA increased to $96.4Mln CDN compared with $94.6Mln CDN for the same period of last year." Operating earnings were $57Mln CDN, or $1.57 per share, which was "on par with the same period of last year." MDA has declared a quarterly dividend of $0.37 per common share which will be payable on September 30th, 2016 to "shareholders of record." Graphic c/o MDA

The US based MDA CEO made those comments during the MDA Q2 2016 investors conference call, which was held on July 28th, 2016. He was joined on the call by MDA CFO Anil Wirasekara, who provided an overview of the fiscal situation.

Lance also announced the creation of a new US based holding company which will manage both Canadian and US operations, "a process that should be completed by this autumn."

How far the nominally Canadian based MDA can "Americanize" itself without losing its current credit advantage with Export Development Canada (EDC), which helps to finance satellite deals, is currently unclear. So far, and as outlined in the August 1st, 2016 Space News post, "MDA Corp. says more HTS satellites coming; pursues repositioning as U.S. entity," MDA remains eligible "for EDC financial backing even when the bulk of the satellite development and manufacturing is done at SSL in California."

As outlined by Lance:
Geostationary satellite bid activity continues to be very strong, consistent with our last call (as per the May 5th, 2016 Yahoo Finance post, "Edited Transcript of MDA.TO earnings conference call or presentation 4-May-16 9:30pm GMT"), led by requests for both replacement satellites and new high-throughput satellites (HTS). SSL is the leader in HTS flight heritage and we continue to invest actively in R&D to introduce innovative new bus payload and solar panel designs. 
CEO Lance. Photo c/o MDA.
The 2016 industry outlook appears to be on track for a fairly typical year at this point with nine GEO (geostationary Earth orbit) year-to-date awards by our count, and four of those coming to SSL...
He also singled out the Montreal operation for praise:
Montreal has signed a major contract in the quarter with OneWeb Satellites to develop and manufacture 3,600 communication antenna subsystems for integration on 900 satellites for the OneWeb Low Earth Orbit Constellation. 
This work follows Montreal's successful delivery of antenna subsystems to other LEO satellite constellations, namely O3b and Iridium next-generation, and will further improve our position as the leading merchant supplier of low-cost, high-performance antennas now in high volume. These scale economies will also serve to leverage and improve our competitiveness on our lower volume product lines for GEO customers. 
During the quarter, our Montreal team also signed a contract with Boeing to provide a communication subsystem to be installed on a Boeing 702MP satellite platform...
Lance also referenced the recent Canadian Polar Epsilon 2 contract to assess Radarsat Constellation Mission (RCM) data for the Department of National Defence (DND). As outlined in the July 4th, 2016 post, "That 2013 "Fixed Pricing" Contract for RCM Might Not be Entirely Fixed," the Federal government considers the latest contract to be outside the scope of the 2013 RCM contract as negotiated by the previous Conservative government, and therefore a new contract.

As well, according to Lance, the RCM original constellation did envision two groups of three, or a total of six satellites:
That's what will provide the greatest revisit time to any given target and the most persistence over a given target. And so we are certainly continuing to work with our customer to promote the benefits of continued investment (in this area)...
It's old, mostly derived from 1970's technology developed by DSMA Atcon to load fuel into CANDU nuclear reactors, but MDAs space robotics technology still performs a useful function on board the ISS, and helps drive MDA revenue. The Mobile Servicing System (MSS) is a movable work platform and storage facility that slides on rails across the ISS's main truss (or backbone) which facilitates the transport of the Canadarm2 (on the left) and the Special Purpose Dexterous Manipulator (SPDM), commonly known as Dextre (on the right) plus other equipment from one location to another on the external structure of the ISS. Photo c/o CSA

In the robotics area, MDA has "signed multiple contracts with the Canadian Space Agency (CSA) to assess robotics solutions and advanced innovative sensor and guidance navigation and control technologies for future space exploration missions." MDA also received a contract amendment to extend ongoing robotic operations support for the Mobile Servicing System (MSS) on the International Space Station (ISS).

However, although the dollar value of Canadian contracts in the first two quarters this year has doubled when compared to the same period last year (a "bit of a pickup in Canada," at least according to Robert Peters from Credit Suisse Securities) and Lance believes that the current Liberal government has recognized that "space technology is in fact one of the most important markets indigenous to Canada and one that (the Federal government) needs to continue to be supportive," the priority of the current MDA business plan remains access to the US market.

According to Lance:
The process to position the company to more aggressively pursue US government and new commercial space business is proceeding as planned. The new US holding company structure is now registered and in place and we have begun to build an experienced leadership team based in the US. During the quarter, we filed with US government to complete the process related to mitigation of MDA's foreign ownership, control or influence on the new US holding company and its operations. 
The process appears to be on track for completion in the next few months, although of course there can be no guarantee in this regard. Once complete, we will be able to obtain the necessary facility and personnel security clearances and be in a position to fully execute our broader growth strategy in particular to bid and execute a much wider range of US Government and commercial contracts.
To get that access, MDA will need to eliminate, or at least mitigate, any influence the Canadian corporate management structure might conceivably have over the US operations. That's why Lance announced the creation of the new US based holding company.

Chuck Black.
As ex-CEO Dan Friedmann used to take great joy in reminding Canadians, all the big opportunities are in the US.

To be fair, that's also where new CEO Lance was born, raised and continues to dwell.

He's a Yankee Doodle Dandy!

Chuck Black is the editor of the Commercial Space blog.

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