National Fuel Gas Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

There are 11 speakers on the call.

Operator

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the MDA Q4 2023 Earnings Conference Call. Note that all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the call over to Sherine Zahawi. Please go ahead.

Speaker 1

Thank you, operator. Good morning, and welcome to MDA's Q4 2023 earnings call. Mike Greenlee, our CEO and Vida Kalmoni, our CFO, will lead today's call and share some prepared remarks before taking your questions. Before we begin, I would 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.

Speaker 1

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.

Speaker 2

Thank you, Sherine. Good morning, everyone, and thank you to those joining us today to discuss our Q4 and our full year 2023 financial results. We delivered a strong quarter in Q4 with double digit revenue growth, solid profitability and record backlog. Our Q4 revenues totaled $205,000,000 up 10% year over year as we continue to execute on our backlog, which stood at $3,100,000,000 at year end. Our adjusted EBITDA in the quarter was $42,000,000 and adjusted EBITDA margin was a solid 20.5%.

Speaker 2

This was a busy quarter for MDA with a number of milestones worth highlighting. In October, we announced a selection of SpaceX as our launch partner for Chorus, our next generation earth observation constellation and confirmed our launch window for Q4 2025. We also completed the acquisition of the digital payload division of Satixby Communications in late October as we continue to invest in our digital satellite technology and our talent. And in November, we announced that we've secured a $180,000,000 authorization proceed contract to initiate work on a new non geostationary orbit satellite constellation with the full contract expected to be awarded this year. We have now secured 3 constellation contracts in the past 2 years, highlighting the strong momentum we are seeing in our satellite systems business driven by customer demand for communication satellite constellations.

Speaker 2

Late last year, we also announced plans to double our workforce and operational footprint in the United Kingdom as we continue to grow and scale our business globally. The 4th quarter's financial results and operational progress showcase the team's continued strong execution and the momentum we are seeing in our business and in our end markets. As we wrap up the year, I would like to thank our employees for their dedication and commitment to delivering for our customers. Our 3,000 talented people are key to our success and we are fortunate to work in a field that energizes and attracts talent and pushes the boundaries of innovation every day. In 2023, the MDA team delivered another year of strong growth and execution with double digit growth in revenue and adjusted EBITDA, further solidifying our position as a trusted mission partner and leader in the expanding space industry.

Speaker 2

We secured a number of strategic contracts, including the Telesat Lightspeed Low Earth Orbit Constellation Award valued at $2,100,000,000 and the previously noted $180,000,000 authorization to proceed contract to initiate work on a new non geostationary orbit satellite constellation. We also continue to advance work on the Canadarm 3 program with the first elements of the external robotic interfaces going into production in 2023, a major milestone for the program. On Corus, the team made significant development progress and has started subsystem unit assembly as we prepare for the mission launch in late 2025. These accomplishments reflect tangible progress against our strategic growth plan and position us well for the coming years. Our backlog at year end stood at $3,100,000,000 a record level for the company, And we continue to see a significant growth pipeline across our businesses.

Speaker 2

In 2023, we secured $2,500,000,000 in awards, which included the Telesat Lightspeed Constellation Award in addition to other strategic awards across our three business areas. We grew our revenue to $808,000,000 for the year, an increase of 26% year over year and expanded our adjusted EBITDA to $174,000,000 up 24% versus last year's levels when excluding non recurring items. This translates to a robust 21.6 percent adjusted EBITDA margin for the full year. To support current and future growth, we continue to focus on talent and recruitment. In 2023, we added 8.90 new staff.

Speaker 2

We also deployed $193,000,000 in capital expenditures, which included research and development spending on technologies related to Corus, commercial robotics products, digital satellite technologies and other growth initiatives. Our research and development efforts are a critical differentiator for MDA. Market research firm, Research Infosource, which is focused on the Canadian R and D ecosystem, ranked MDA as 33rd in its ranking of Canada's top 100 corporate R and D spenders based on 2022 data. In line with our long term strategic plan, we continue to invest in the business to meet current and future growth across our business areas. We are in the early innings of a multi decade growth cycle playing out in our end markets and MDA is uniquely qualified to take advantage of the growth.

Speaker 2

With that growth market as our backdrop, today we are introducing our 2024 financial outlook. We expect 2024 to be another year of strong growth for the company. For the full year, we expect revenues to be in the $950,000,000 to $1,050,000,000 representing robust year over year growth of approximately 25% at the midpoint of guidance. We expect full year adjusted EBITDA to be $190,000,000 to $210,000,000 representing approximately 19% to 20% adjusted EBITDA margin. We expect capital expenditures to be in the $210,000,000 to $230,000,000 range as we continue to invest in our growth initiatives.

Speaker 2

In summary, 2023 was a year of strong growth for MDA, and I'm extremely proud of how the team executed. As we look to 2024, the team is energized by the strong momentum and positive trends we are seeing in our end markets, and MDA has the right technology portfolio to capitalize on the opportunities ahead of us. I'll spend a few minutes now to give you a view of the industry, an update on MDA's 3 business areas, and then I'll pass it over to Vito for a deep dive on the financials. Starting with the global space market, 2023 was another strong year for space with research firm Euroconsult estimating the space market grew to US462 billion dollars last year, up approximately 9% from 2022 levels. While the space economy, which also includes non contracted government activity, reached USD509 billion.

Speaker 2

Governments around the globe continue to invest in space with 90 nations spending a total of $117,000,000,000 in 2023, up 15% year over year and marking a historic high for government space spending. Governments are allocating a higher share of their space budgets to defense programs as the gap between civil and defense spending continues to narrow. 2023 marked the 1st year where defense spending at US59 $1,000,000,000 exceeded civil space investments. We are seeing increased integration of space based capability as a routine component of defense and military budgets, driven by geopolitical tensions and demand for space based surveillance and detection systems as well as space based communications for defense purposes. Looking at the big picture, Euroconsult estimates the size of the global space economy will grow to over $822,000,000,000 within a decade, representing a compound annual growth rate of 6% over the forecast period.

Speaker 2

The U. S. Chamber of Commerce projects that the space economy will exceed $1,500,000,000,000 by 2,040. Closer to home, notable developments last year included approximately $3,000,000,000 of incremental funding for space programs announced by the Canadian by the Government of Canada, including $1,000,000,000 of funding over 15 years for the Radarsat Plus portfolio, an initiative aimed at ensuring continuous, efficient and sustainable access to critical and high quality earth observation data for Canada. That October funding announcement builds on the momentum we saw earlier in 2023 when Canada announced $2,300,000,000 of investments for 2 space initiatives, continuing Canada's participation in the International Space Station and developing and contributing a lunar utility vehicle or rover to assist astronauts on the moon.

Speaker 2

These commitments signal not only the speed of the market opportunity before us, but the growing importance of the space economy on a national level. In the U. S, both NASA and the U. S. Department of Defense Space Development Agency or SDA continue to advance civil and defense space programs including Artemis, NASA's lunar exploration program to send humans back to the moon and SDA's multiple LEO constellations, which will create a new ecosystem of satellites designed to enhance space infrastructure and help protect national interest, which has resulted in repeat orders for core technology suppliers like MDA.

Speaker 2

On the space exploration front, India became the 1st country to land a spacecraft near the Moon's South Pole, an unchartered territory that scientists believe could hold vital reserves of frozen water. With this landing, India also becomes the 4th country to ever achieve a soft landing on the moon after the United States, Russia and China. Earlier this month, MDA joined space enthusiasts around the world and congratulated Intuitive Machines on completing the first U. S. Moon landing in 50 years.

Speaker 2

These are just 2 of a number of countries with lunar and space exploration ambitions. The number of space exploration missions are projected to exceed 750 in the next decade, more than tripling the 236 missions we saw in the previous 10 years as governments around the world support ambitious space exploration plans. In addition, we are seeing growing global interest in space exploration. In 2023, NASA added 9 new signatories to its Artemis Accords, signaling these countries' commitments to safe, long term and ethical space exploration. As of February, 36 nations have signed up to the Artemis Accords.

Speaker 2

The Accords, which was unveiled in October 2020 to align nations on a common set of principles for space exploration, has steadily grown in size over the last 3 years, with interest from many nontraditional spacefaring nations, which are now building their own national space programs. In terms of space infrastructure, the spacecraft activity continued to unfold at a record pace. In 2023, there were a total of 223 orbital launch attempts, up 20% versus 2022. A total of 2,911 payloads launched globally, representing an increase of 17% versus 2022 levels. The higher activity levels are driven primarily by growth in commercial low earth orbit or LEO constellations.

Speaker 2

All of this activity bodes well for MDA and our future opportunity set, which we estimate today at approximately $17,000,000,000 cumulative pipeline over the next 5 years, a level that we would characterize as very robust for the company. Now I'll turn to our 3 business areas. In satellite systems, we are seeing 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 seeing good activity levels from customers and our opportunity funnel remains strong. On the operational front, the team commenced engineering and program procurement activities on a new non geostationary orbit satellite constellation in Q4 under the $180,000,000 authorization to proceed contract, which we mentioned.

Speaker 2

The full constellation, valued at a minimum of $750,000,000 is expected to include a minimum of 36 MDA software defined digital satellites. The definitive contract for the full constellation for which MDA would be the prime contractor is expected this year. This latest award includes the selection of our newly introduced software defined satellite product line, which offers significant benefits to satellite operators looking to improve performance, while at the same time driving time, cost and complexity out of their LEO constellations. This is also our 2nd customer for the fully integrated portfolio of modular digital satellite products and components we are rolling out following the Telesat Lightspeed Constellation Award last August, where MDA was selected as the prime satellite contractor for the 198 satellite constellation. On the Lightspeed program, we made good progress on ramp up activities in Q4.

Speaker 2

Our teams have been busy engaging with our supplier base and progressing early design work, systems requirements analysis and subcontractor tender planning and preparation. We are currently focused on finalizing supplier selection for the program. We also continue to advance work on a number of programs, including the Globalstar program. In Q4, the team initiated flight hardware production and began flat sat testing of the bus and payload systems. Additionally, following the completion of the satellite critical design review in Q3 of 2023, the team is currently progressing towards a spacecraft integration readiness review to take place this quarter.

Speaker 2

For the Globalstar program, MDA was selected as the satellite prime contractor to enhance Globalstar's LEO constellation through the addition of 17 satellites, which support SOS feature and direct to device communication on certain Apple products. And in late October, we completed the acquisition of SADEX V Space Systems in the United Kingdom, the digital payload division of SADEX V Communications. The U. K. Based team has been integrated into MDA U.

Speaker 2

K. And brings with it strong capabilities and expertise in digital payload technology. This team, which is collaborating closely with our satellite systems business in Montreal, helps expand our footprint in the U. K. Market and add strategic encrunching capability to produce satellite payloads.

Speaker 2

Moving to our Geo Intelligence business unit, customer demand for our earth observation offerings remains robust and we are seeing increased recognition of the role the commercial EO satellites can play to provide near real time data and analytics to government and private enterprise. During the year, we made significant progress on the Chorus constellation program, which includes a 4th generation MDA built C band synthetic aperture radar satellite in addition to an X band satellite, which will be supplied by Eisai. Our team completed the payload critical design review and is currently advancing unit and subsystem level work for the platform, payload and bus avionics as well as building the ground segment subsystems and detailing constellation operations, plans and processes. In the Q4, we also announced a selection of SpaceX as our large partner for Chorus with a launch window for Q4 2025. We continue to engage in active discussions with both new and existing customers on how Corus can help address their earth observation data and analytics needs and are pleased with the response from customers thus far.

Speaker 2

In terms of other notable programs, work on the Canadian Surface Combatant Program or CSC, one of our long term government programs, is progressing in line with our expectations as the team continues to meet our technical milestones and complete capability testing as required. MDA is responsible for the design and integration of the electronic warfare system for the ship, which comprises a suite of sensors, including laser warning and electronic system technologies used to detect aerial threats to help protect the men and women of the Royal Canadian Navy. Moving to our robotics and space operations business, we continue to see good traction and activity levels on both the government and commercial fronts. On the government side, we continue to progress the design work on Phase B of the Canadarm III contract, which MDA was awarded in early 2022. And that will see us completing the preliminary design of Canadarm3's robotic systems to be used aboard the NASA led Lunar Gateway.

Speaker 2

In 2023, we successfully closed out the systems definition review and made good progress towards the preliminary design review milestone expected to take place in 2024. We also secured follow on contracts for the Canadarm 3 external robotics interfaces, including the final construction and delivery of the interfaces. With these awards, the external robotics interfaces become the 1st Canadarm III hardware components to go into production, a major milestone for the Canadarm 3 program. In Q4, the team continued to engage with the Canadian Space Agency regarding contract awards for the next phases of work on Canadarm 3, including advancing detailed design and assembly manufacturing integration and test basis. We are also working with the Canadian Space Agency on follow on services contracts to provide engineering support to the International Space Station Robotics, including Canadarm2 as part of Canada's continued commitment to support the International Space Station until its retirement in the 2,030 timeframe.

Speaker 2

On the commercial side, we are exploring a number of opportunities to incorporate our robotic technology on applications to support space exploration and mobility and are encouraged by the level of customer activity in this area of the market. Shifting to operations, we continued our hiring efforts to support the anticipated revenue ramp up. In 2023, we added 890 new hires. With more than 3,000 highly skilled MDA staff today, we have the people and the talent to help propel our growth and give us the scale to execute on the market opportunities we see emerging. In Q4, the team was busy planning and preparing for the move to our new global headquarters and space robotics centre of excellence here in Brampton, Ontario, which is currently underway.

Speaker 2

The purpose built facility features state of the art labs, manufacturing, R and D and assembly integration and test facilities. The Center of Excellence will also house a unique space robotics mission control center, enabling MDA to provide critical on orbit operations capabilities to commercial and government customers worldwide. With a number of sizable programs currently under contract, we remain vigilant when it comes to our supply chain and continue to deploy a number of proactive measures that have served us well. These include designing around known shortages, finding alternatives that are more readily available, ordering materials as early as possible and building up inventory for some components. For new programs, we are ensuring that our supply chain organization has full visibility early in the process to ensure orders are placed promptly and monitored constantly to mitigate delay risks.

Speaker 2

To recap, I'm very proud of what the team has accomplished in 2023 and optimistic about the opportunities that lie ahead. Our team is energized and we remain laser focused on our priorities. A strong focus on execution, converting opportunities in our funnel and expanding our leadership in core markets, while maintaining strong profitability and a healthy balance sheet to help us fund our growth initiatives. With that, I'll hand it over to Vito to walk us through the prepared financials.

Speaker 3

Thanks, Mike. I echo your comments around such an exciting time in the industry and for MDA, an incredible year. Thank you everybody and good morning to you. Hope you're all doing well. For my update, I'll walk you through our Q4 and full year 2023 financial results and provide a little more color on our 2024 outlook.

Speaker 3

Overall, Q4 was another strong quarter for MDA and we're pleased with how the team is executing. In the quarter, we saw strong revenue growth, solid profitability and record backlog at quarter end, which all bode well for our performance in 2024. Total revenues for the quarter were $205,000,000 This represents an increase of $18,900,000 or 10% over the same period last year, driven by higher revenues primarily from Robotics and Space Operations and Satellite Systems Businesses. On a full year basis, total revenues of $807,600,000 were up $166,000,000 or 26% over 2022 levels. The increase in revenues were primarily driven by strong contributions from our Satellite Systems and Robotics and Space Operations businesses.

Speaker 3

By business area, revenues in SaaS Systems of CAD90,200,000 in Q4 2023 were CAD5,900,000 or 7% higher compared to the same quarter in 2022. And this was driven by slightly higher work of volume on the Globalstar program and the initial ramp up of the Lightspeed program, which was awarded in Q3 of 2023. On a full year basis, revenues from satellite systems increased to $362,000,000 for the latest year, representing $110,000,000 increase or 43% growth over full year 2022, again driven by higher volumes related to satellite constellation work, including the Globalstar program, which as you recall commenced in Q1 of 2022 and several additional rewards to support U. S. Department of Defense Constellations.

Speaker 3

In Robotics and Space Operations, we saw healthy year over year growth with revenues of CAD65 1,000,000 in the quarter, representing CAD17 1,000,000 or 35% increase versus Q4 of last year. The growth is largely attributable to higher volume of work performed on the Canadarm 3 program. For the full year 2023, robotics and space operations revenue were $248,000,000 representing $54,000,000 or 28% year over year growth largely driven by increased activity on the aforementioned Canada 3 program Canada ARM 3 program, excuse me. Revenues in our Geo Intelligence business of $49,900,000 in the quarter represents a decrease of $4,000,000 or 7.4 percent year over year due to the timing of programs. For the full year 2023 revenues for GeoIntelligence were just under $198,000,000 and that represented a $2,000,000 or 1% increase compared to 2022 levels, reflecting a relatively steady volume of work.

Speaker 3

The gross profit moving on to gross profit and just as a reminder, gross profit represents our revenue less cost of revenue, which includes material labor, allocated overhead and SR and ED credits and depreciation. For Q4, gross profit was just under $58,000,000 representing a $1,000,000 or 1.9 percent decrease over the same period last year. And this decrease was driven by program mix and higher depreciation expense as new assets come into service offset by higher work volumes year over year. Gross margin in the latest quarter was 28.2%, which is very healthy and in line with our expectations and that compares to 31.6% margin for the same period of in 2022. On a full year basis, gross profit was $244,000,000 and this represented a $15,600,000 or a 7% increase over 2022.

Speaker 3

The year over year increase was driven by higher work volume performed partially offset by $17,000,000 of higher investment tax credits or ITCs. You recall that were recorded in Q1 of 2022 related to the resolution of historical claims. Gross margin for the full year 2023 was 30.2%, which again is in line with our expectations and driven by an evolving program mix and higher depreciation expense. Comparatively gross margin in 2022 was 33%, excluding the impact of the aforementioned ITC claim. Operating expenses, Q4 operating expenses of just under $42,000,000 slightly above last year's metric of CAD40 1,000,000 again reflecting slightly higher SG and A and R and D expenses, somewhat offset by lower intangible amortization.

Speaker 3

On a full year basis, our operating expenses were $166,000,000 in 2023 compared to $154,000,000 for the 12 months comparative period. The year over year increase is primarily due to higher SG and A expenses to support growing work volumes and higher R and D costs driven by the development activities on Corus and other proprietary technology programs. Overall, we're very pleased with the cost control, our SG and A programs. Adjusted EBITDA. Adjusted EBITDA in the latest quarter were $42,000,000 was $42,000,000 compared to $39,900,000 in Q4 of 2022.

Speaker 3

This was driven by higher work volume as we continue to execute on our backlog. Adjusted EBITDA margin in the quarter was 20.5% compared to 21.4% in the same period last year. On a full year basis, adjusted EBITDA was 174,200,000 and this is up from 22 levels of 158,000,000. This represents a 16% increase, excuse me, dollars 16,000,000 increase or just over 10% on a year over year basis. Excluding the impact of historical ITC settlement recognized in 2022 of $17,000,000 adjusted EBITDA was $141,000,000 in 2022 compared to $174,000,000 in 2023, representing a year over year increase of approximately 23%.

Speaker 3

Adjusted EBITDA margin for the full year 2023 was 21.6% compared to 20 22% for 2022 excluding the previously noted historical ITC resolution. Throughout 2023, we demonstrated strong operating performance, focusing on program execution and cost control, while simultaneously investing in growth initiatives, which contributed to higher levels of R and D expenses. Adjusted net income in the latest quarter was 27,800,000 compared to CAD 22,300,000 in Q4 2022. The increase over previous year of CAD 5,500,000 24.7 percent is driven by lower income tax expense and finance costs in Q4 of 2023. For the full year 2023, adjusted net income was $97,900,000 up $19,000,000 or 24% year over year, driven by higher operating income and lower finance costs.

Speaker 3

Adjusted diluted earnings per share of $0.23 in Q4 of 2023 and $0.81 for the full year of 2023 were up 27.7 percent and 26 0.6% respectively versus the same period last year. Backlog, moving on to backlog. We ended the quarter with 3.1 $1,000,000,000 in backlog and that represented an increase of 125% compared to 2022 year end levels. The growth in backlog was driven by new order bookings including of course, Telesat Lightspeed LEO constellation, which was awarded in Q3 of 2023, partially offset by a continued conversion of our backlog into revenue, of course. Moving on to CapEx, we remain focused, as Mike has alluded to, on making the right investments in the business to support our strategic growth initiatives.

Speaker 3

That's all going very, very well. In Q4 2023, we spent 57 $600,000 on capital expenditures. This was up from $47,000,000 last year as we ramped up the development on Corus and other growth initiatives. Growth CapEx was $48,000,000 in the latest quarter, up from $38,000,000 in Q4 of 2022. And on a full year basis, our capital spend was $193,200,000 and that compares to $180,000,000 in 2022.

Speaker 3

We expect this level of spend to continue in 2024 as we advance Corus and invest in initiatives to support our growing business, including expanding and modernizing our physical infrastructure. In Q4 of 2023, we closed the acquisition of Satisfye Space Systems UK Limited. This is the digital payload division of Satisfye Communications Limited. You'll recall that the total value of that transaction was for US40 $1,000,000 and during the quarter US18 $1,000,000 approximately CAD25 1,000,000 of that CAD40 1,000,000 was paid to the seller. A further CAD20 1,000,000 is payable in 2024 through the issuance of notes payable on demand over 7 months and the remaining $2,000,000 holdback will be released to the seller in 2025.

Speaker 3

Cash from operations during the quarter was a use of $41,200,000 compared to cash generation of $40,000,000 in Q4 of 2022, not unusual to see some swings quarter over quarter there. Operating cash flow in Q4 2023 was impacted by higher working capital requirements including $29,000,000 related to vendor deposits for the Kourous constellation launch expected in Q4 of 2025. For the full year 2023 cash from operations generated 13,500,000 dollars and this was compared to a cash generation of just under $57,000,000 in 2022. And again, operating cash flow in 2023 included a total of close to $60,000,000 in working capital outlays related to prepayments made in 2023 for future inventory and vendor deposits for the Kors Constellations I noted in Q4. Balance sheet, moving on to our balance sheet.

Speaker 3

We ended the quarter with net debt of $416,000,000 available liquidity of close to $150,000,000 and net debt to trailing 12 months adjusted EBITDA ratio of 2.4 times. All of this is in accordance with our plan and expectations. And clearly, the increase in debt levels reflect our investment in strategic growth initiatives to support our future growth. In summary, this was a very strong quarter to wrap up fiscal 2023 and we're encouraged, very encouraged by the positive momentum we're seeing across our business. Turning to outlook, as Mike noted, we're introducing our 2024 financial outlook and are well positioned to capitalize on strong customer demand and robust market activity given our diverse and proven technology and product offerings.

Speaker 3

For fiscal 2024, we expect full year revenues to be between CAD 950,000,000 and CAD 1050,000,000 representing robust year over year growth of approximately 25% at the midpoint of guidance. We expect full year adjusted EBITDA to be $190,000,000 to $210,000,000 and this represents approximately 19% to 20% adjusted EBITDA margins. We expect capital expenditures to be $210,000,000 to $230,000,000 in 2024, primarily comprising of growth investments to support Corus and the previously outlined growth initiatives across our three business. Interesting to note that through 2024 then we'll be approximately 90% done with our Chorus CapEx. Turning to Q1 2024, we expect revenues to be between $205,000,000 $215,000,000 as we continue to execute on our backlog and you'll see continued growth in quarter over quarter revenues here through 2024.

Speaker 3

With a number of large programs now in backlog, our book of business is strong. We remain focused on disciplined execution on our customer commitments and leveraging our capabilities and technology to grow profitably in core and emerging markets in line with our long term plan. Mike, with that, I'll turn it back to you.

Speaker 4

All right.

Speaker 2

I guess with that, we're opening up to questions. That's really what's next. So operator, you are in charge.

Operator

Thank you, And your first question will be from Doug Taylor at Canaccord. Please go ahead.

Speaker 5

Yes. Thank you. Good morning and congratulations on a strong year of growth. A lot of focus here on the 2024 guidance given some of the substantial programs ramping up this year. Are you able to break down for us the degree to which you factored in contributions from programs like Telesat so we can better understand how to think about the growth profile this year and as that program really hits stride in the years ahead?

Speaker 2

I won't use exact numbers whatever. We continue to talk about Telesat being in a ramp up year. I think you can see that on a number of these programs as we kind of come out of Q4 and into Q1 and we're just ramping up as we go through the year. So it will be a ramp up year is the phrase that we would use to be able to do that. And so we've appropriately characterized those ramps in the guidance that we've given.

Speaker 2

Obviously, these are large programs that have schedules, and therefore they will get done on time. So 'twenty five, 'twenty six, 'twenty seven, these are going to be very chunky years with much larger revenues in those out years as these projects get completed. But there will be a gradual ramp up through 'twenty four. Vito, anything else on that?

Speaker 3

No. The only other thing I'd add, Mike, is Doug, it's great to hear your voice here, but clearly as you think about the quarterly revenue profile here in 2024, the exit velocity coming out the projected exit velocity coming out of 2024 boats for obviously a robust 2025. We're not here giving 2025 guidance, but that consistent sort of 20% to 25% plus growth projected for this organization is very visible to us.

Speaker 5

Okay. I appreciate that. Maybe I'll come at that in a different direction then. To what degree is the schedule for the design and early stage work for Telesat and the other award for which you've been working under authorization to proceed known now? And would those be large considerations in the range of guidance, the $100,000,000 from top to bottom?

Speaker 2

I'd say like there is a level of which is certainly known, which we've included in guidance. I think if you listen to our words like and we have engineering activities on the authorization to proceed with the unnamed customer, which will then convert into the full execution contract at sometime during the year. The pace at which that switch is thrown could bring more enthusiasm. Similarly with Lightspeed, you've heard us say that we are finalizing all of our supplier procurement decisions and getting ready to move out on that. The pace at which we move out on that can affect revenue.

Speaker 2

So we're giving guidance on things that we're very comfortable and confident in, but there is opportunities for giddy up levels that you could do a bit better. But it's important for us to make sure we're always doing what we say.

Speaker 3

And maybe that'll be a point there Mike to add is approximately 75% of our that revenue guidance that we provided is in backlog as we come into 2024. So that's $75,000,000 to $80,000,000 as Shireen is showing me here is in backlog as we stand here today.

Speaker 5

Maybe one more line of questioning before I pass the line. You reiterated a number of large Canadian government programs. You've mentioned some of these in the past that have received indicative funding over the past year. Can you speak to perhaps your updated view on the translation from funding announcement to into procurement process timing and potential award on some of these other Canadian emissions for which you've been a material supplier in the past?

Speaker 2

Yes. Obviously, that will be at the pace of the government agencies that are doing the procurement. I think and we have not seen procurement documents being circulated for those as of yet. I think if I was reading body language, the activities around a RADARSAT plus activities where the government would want to get on with picking up another synthetic aperture radar satellite to provide enhanced reliability to the Radarsat constellation mission. I would expect that to get moving probably before, a lunar utility vehicle, for example, in terms of a large program there.

Speaker 2

All of this remains to be seen. I'm just expressing my own personal view based on body language and enthusiasm. But the and no one has expressed specific schedules yet. So the things to watch out for in terms of triggers would be draft request for proposals that come out to industry that we would be asked to comment on, that all industry would be asked to comment on, followed by final request for proposals for actual bids. And certainly, we will keep you posted as those things occur, which would give us some solid indications that we're once we start to see draft proposals, we're probably within a year, and we haven't seen that yet.

Speaker 5

All right. Thank you, Mike. Your personal views appreciated. I'll pass it on.

Operator

Thank you. Next question will be from Konark Gupta at Scotiabank. Please go ahead.

Speaker 6

Thanks, operator. Good morning, everyone. Morning. If I can ask you about Chorus first perhaps, how soon do you or would you expect Mike to see some customer signing commitments or contracts before the Q4 2025 launch?

Speaker 2

Yes, that can happen anytime over the next couple of years. The big announcement that was necessary was the October announcement where we actually said Q4 2025 as the launch window and announcing that we had signed SpaceX as the customer. And as Vito mentioned, we start to make launch down payments and things like that. So everything becomes very real as a result of those Q4 activities, which then absolutely turns the conversation to orders and signing people up. So that activity is absolutely ongoing.

Speaker 2

We see really strong conversations with existing customers on RADAR-two that would have the opportunities to roll and expand their services with Chorus in addition to new customers that would potentially want to secure priority positions on Chorus. There's a bit of a thing there whereby with a fully taskable satellite, where people give us their request and we can look left and look right and use different imaging modes and give them the imaging that they want, the data that they want, being at a certain level of priority in the request line for that tasking of the satellite matters to some customers. And so coming in early and securing their place for that is important to them. So these conversations all get going or all are ongoing at the moment. They have expanded a number of new customers.

Speaker 2

I can think of 3 immediately. That would be new potential customers in our life, have engaged in conversations since those October's announcements. The pace at which those will turn into orders, a lot of those are government, defense and intelligence customers. Those are the nice solid stable recurring customers that you want to have on a data driven satellite like this. And so some of that procurement needs to occur at the pace of government.

Speaker 2

So it will be a continual process throughout 'twenty four and 'twenty five as we had to launch and then we'll make announcements as we go as we sign people up.

Speaker 6

I appreciate that. Thanks. And in terms of financial outlook for that course program then, I think to Vito's point, if the CapEx is done for the vast majority this year by the end of this year, it seems like if you get more contracts or new contracts on Corus next year or this year, you might see cash flow profitability on this program in 2025. Is that fair to believe?

Speaker 2

The cash flow could there is opportunity for people to put some cash upfront. We always look for that opportunity and that helps sometimes people secure their priority access. So that can occur. I think you used the word profitability. You wouldn't be generating revenue yet because you wouldn't be delivering a service.

Speaker 2

So you might get some upfront cash, but you're not going to start picking up revenue and profit until you're actually flying in 2026.

Speaker 6

Okay. Thanks. And if I can follow-up on CapEx and working CapQuick. I mean, it sounds like in 2023, there was like a $60,000,000 one time sort of outlays for future inventory and the Chorus launch deposits, etcetera. Is there anything this year in 2024 where you guys expect some sort of one time payments or advances for future projects and activities like Corus or Palace or something else or even satisfy?

Speaker 3

No. Thanks for the question. You're absolutely correct. 2023 included roughly $60,000,000 of call them one time prepayments that clearly will unwind here in 2024 2025. So we'll get the benefit of those with a high degree of certainty when you look at the ultimate suppliers in both those cases and whatnot.

Speaker 3

So there's no risk associated with that in our mind. In regards to 2024, I expect us to be converting operating cash flow, pre interest costs against our EBITDA in the range of 65% to 70%. So no expected one timers.

Speaker 6

Okay. Appreciate the color. Thank you.

Operator

Thank you. Next question will be from Thanos Moschopoulos at BMO. Please go ahead.

Speaker 7

Hi, good morning. Vito, I guess, maybe we can do the math based on the answer you just gave, but remind us where your current thinking is on where the leverage

Speaker 3

I think we'll we definitely don't expect to be too much above 3 ish, I'd say call it the 3 ish range, plus or minus 0.1 or 0.2 there. And then we expect a very accelerated deceleration from there as we move into not only the back half of twenty twenty four, but into 2025. So very comfortable with those levels of leverage in our existing arrangements.

Speaker 2

Right on the plan.

Speaker 7

Great. Mike, can you you alluded to the strength of the satellite systems backlog with other constellation programs, any color you can provide in terms of the nature of those programs? Is it a mix of government as well as commercial, more of a ladder? Is it just any color you can provide, realize it might be limited to

Speaker 6

what you can say. Thanks.

Speaker 2

Sure. You're talking about pipeline, right?

Speaker 7

Pipeline, yes.

Speaker 2

Yes. So it's a lot of commercial activity for sure. And you see that in our order book with like the GlobalStars and the Telesat type things coming through. So there's a significant amount of commercial activity that we're seeing in the satellite systems pipeline. The application areas would include folks that want to build space based networks for broadband communication.

Speaker 2

There are folks that want to build networks for direct to device communications, such as we're seeing with the Globalstar example where people want to talk directly from satellites to smartphones and smart devices, so direct to device communications. And then there's a world out there of customers looking at the we use the word Internet of Things, right? So like that Internet of Things market where people want to connect all their things up through space based networks. That could be connecting all their agriculture vehicles or connecting all their cars for smart cars or connecting all their anything else's. There's a very large future potential market in the Internet of Things in terms of space based networks.

Speaker 2

So those are the 3 categories, largely commercial. And then commercial customers would include folks that are traditional space network operators like GlobalStars or Telesat that you've seen us get orders from, in addition to new market entry potential. So people that are raising money to be able to do that and or corporations that are putting money aside to be able to do that. So that's kind of how I would best characterize the situation. I think in general with the space market, it's kind of cool because when you see things that start space markets typically have started with government activity and you get a certain stability from that.

Speaker 2

And then your explosive potential comes from strong sudden growth in commercial activity. And so we're seeing that now in satellite communications whereby 50 years ago when we all started working on satellite communications and over the decades, it was all about a lot of government activity, military and weather and all that kind of stuff. And then now as we're seeing these space, these commercial markets go, we're seeing the rapid expansion. In robotics and space operations, historically, it's always been about NASA missions and government space stations. Now we're seeing the emergence of commercial space stations and commercial missions, and we're seeing a pickup there.

Speaker 2

And then in Earth observation right now, the big stable customers are governments, defense and intelligence agencies that just want really good data for surveillance. And then we all watch and wait and see and work on what's that explosive moment going to be where the commercial market finally kicks in. So that's the pattern that we always watch for and that we're starting to experience. And certainly in satellite systems, to go back to your question, we're seeing the commercial side of it really hit now in the pipeline.

Speaker 7

Great. Thanks for that color, Mike. I'll pass the line.

Operator

Thank you. Next question will be from Ken Herbert at RBC Capital Markets. Please go ahead.

Speaker 8

Yes. Hi, thanks. Good morning, Mike and Vito. Hey, I wanted to first start out with a question on margins. You ended 23% with better EBITDA margins, I think, than you'd started the year guiding to.

Speaker 8

Can you talk about sort of the key factors as we think about the upper and lower end of the EBITDA expectations for 2024? I can appreciate mix is a big factor in this. But how should we think about the range of the EBITDA guidance and the potential to maybe outperform the 19% to 20%?

Speaker 3

Yes. Thank you, Ken. Good to hear your voice. So when you think about very pleased the biggest driver of EBITDA performance is strong program execution, disciplined pricing mechanics, strong market demand for our services and obviously good cost control on the SG and A as you heard me reference. So I'd say check mark to all those as we progress through 2023 as the teams have put forth their 2024 and strategic program.

Speaker 3

So I'm relatively bullish on our margin profile. You've seen us move from that 2018 to 2020 marker that we've sort of noted to a 2019 to 2020. So perhaps we're taking a bit of a measured step here. And we've got a lot of big things happening in our business here over the next 3 years when you talk about automation, large volume productization that are going to have meaningful implications to our margins. And from where we stand today, that's clearly neutral to what we're describing to potential upside associated with that.

Speaker 3

But we'll take one step at a time when it comes to that and move forward. So we're pleased with our guidance here in 2019 to 2020. We have over delivered against what we've described there, but we'll take it one step at time and give you a little bit more color as we make our way through the calendar year here as we proceed through 2024. Anything else Mike to add there?

Speaker 2

No, that's good. Okay.

Speaker 8

Thanks, Vito. Appreciate that. And maybe just as a follow-up, you've obviously signed a lot of large contracts here in 2023. The cost environment seems to be much improved relative to prior years, but you just went through some of the offsets, but how can you or what comments can you make to really increase confidence that some of these large contracts won't face maybe incremental margin pressure down the road? How have you as you go through the bidding and the contracting process maybe derisked some of the cost assumptions in the out years?

Speaker 2

Yes, it's no real change from like our normal tricks that we always talk about, which is that typically these types of firm fixed price contracts are 2 to 4 years in duration and these all fall into that bucket. We have therefore ensured that we have very up to date quotes going into that period of time. We ensure that quotes from our suppliers are firm fixed price to us and then we are firm fixed price to our customers. That ensures that the large what we call non labor or subcontracted basis is firm fixed to us. And then with our own labor and controls, we included escalation factors in that, that are consistent with our business practices.

Speaker 2

So we don't expect surprises there. And then we will include we do include risk in our pricing that is natural. And that is commensurate with the actual risk on the program. Our teams, we have a 50 year history of firm fixed price program. So with these types of advanced technologies in space, so our teams are used to assessing what is the risk on this and including risk factors in their firm fixed price contracting with the customers.

Speaker 2

So those tools bode well for us when mapped up against a strong project management process to be able to monitor and control the execution of those firm fixed price contracts.

Speaker 8

Great. Thanks, Mike. I'll pass it back there.

Speaker 4

Okay.

Operator

Thank you. Next question will be from Kristine Liwag at Morgan Stanley. Please go ahead.

Speaker 9

Hey, good morning guys. Mike, Vito, Doreen, it's great to see you executing your growth strategy, especially with all these new program wins. I wanted to ask on operating cash flow. In 2020 3, you had some pressure with on working capital for future inventory and vendor deposits for Chorus. You've noted that that could start reversing in 2024 or 2025.

Speaker 9

But for these other big programs that you've won, can you talk about the timing of cash flow? Do you also have to pre fund vendor payments and things like that before you get customer cash? And ultimately, how do we think about operating cash flow in 2024?

Speaker 2

Before Vito goes, I'd just say like, it always is our practice to be cash neutral to cash positive on our projects. And so, our default position, regardless of project size, is to be able to make sure that we are bidding, negotiating and signing cash neutral to cash flow positive projects. And so there's our natural state is not to have some unique profile we're spending money upfront. Occasionally, for competitive reasons or to be a trusted mission partner, We will help somebody if we are confident in the return and that it's going to really make something work. That can happen, but our natural state is always going to be cash flow neutral to positive.

Speaker 2

But I just wanted to say that upfront and then pass it over

Speaker 3

to you. Yes. No, so Christine, there's nothing in those large programs at all that has us prefunding and or outside normal cadence of what Mike just described. So those are all very, very positive and they will be cash flow positive if you will as we make our way through 2024. If you're looking for a sort of guidance on operating cash flow maybe just before cash interest, cash taxes are negligible for our organization given our tread profile that we have our SR and ED.

Speaker 3

So they're de minimis and continue to go down which is positive. But pre cash interest as I said earlier in the call, I expect to convert roughly 70% to 80% off of our projected 2024 EBITDA into cash. So very, very healthy and obviously that's a we generate although 2023, but for those one timers that I described, we generate strong cash from operations and I expect that to continue here in 2024 2025 without any material anomalies to that.

Speaker 9

Great. And I wanted to follow-up on a few of that. So Mike, you mentioned that the target and the norm for the company is a neutral free cash flow. Is that factoring in both operating cash flow headwinds and also CapEx? Or is that just on a working capital basis?

Speaker 9

And the second follow-up to that, I mean, Vito, you talked about 70%. Adjusted EBITDA in 2024 is $190,000,000 to $210,000,000 And you have cash taxes negligible, but then you also have CapEx of $210,000,000 to $230,000,000 So absent a big tailwind to working capital, it looks like 2024 could be another negative free cash flow year. How do you think about funding that? And am I missing anything on cash reversals that would be a tailwind in 2024 to make the full year be a positive free cash flow year?

Speaker 3

No, no, you're absolutely right. 2024 and this is all in line with what we've been communicating to the market and our internal strategic financial plan. 2024 will be a negative free cash flow year. However, we need to account that obviously we're largely funding growth strategic initiatives. And as I described in our commentary, through 2024 will be essentially 90 percent through course, which has been the lion's share of that CapEx expenditures.

Speaker 3

So 2024 will be negative cash flow. We expect our leverage incorporating all of that to sort of get to the 3 ish levels, all within our existing capabilities and capacity. And then as we move into 2025, obviously, you start to see a growing EBITDA profile, growing operating cash flow profile and perhaps that's the year where we're at a crossroads there where inflection period where free cash flow is plus or minus breakeven going forward. So the long term prospects for this business, I wouldn't call them long term anymore, call it 2025, 2026 is significant free cash flow generation, but we're making our way through 2024 and it's an important strategic year for us. And we will essentially largely derisk that with the EBITDA and the backlog profile through the activity in 2023.

Speaker 3

So feeling incredibly confident and secure in the position this organization is in.

Speaker 9

Great. Thank you for the color guys. I appreciate it. Thank you.

Operator

Next question will be from David McFadgen at Cormark Securities. Please go ahead.

Speaker 10

Yes. Hi, everyone. So a couple of questions. Just first of all, start with some of them on guidance. Could you confirm that embedded in your guidance is about $100,000,000 $150,000,000 of revenue from Telesil XV?

Speaker 3

Yes. I mean, we shied away from the program related guidance, but that guesstimate on your part, David, is not unreasonable.

Speaker 10

Okay. And then just on the ATT contract, obviously, it hasn't gone to $750,000,000 yet. So therefore, the amount from that, I guess, would be pretty modest in guidance right now. Is that the case?

Speaker 2

Yes, I guess, we could say it's modest, yes, for sure. When you're in ATP mode, so for sure it's modest, yes. And when you're in ATP mode, we announced that dollar value there, which was the approved ATP back in the fall. When you're in an authorization to proceed on a program, it can flex a bit. So like if we burned it all and we needed a bit more, if we need to spend a bit more because the full contract wasn't signed yet or something then we would just be authorized to do so.

Speaker 2

Like you're just you're in that contract and you're moving and you have an authorization to proceed. So we can always even if we're not out there talking about a full contract yet, we can be getting top ups on the ATP. But it's still whatever your word was modest or moderate. It's not super enthusiastic yet because we haven't signed the full thing.

Speaker 10

Okay. So I believe, you can correct me if I'm wrong, but I believe you were hoping to have that contract move up to be $750,000,000 on or before you issued your Q4 results today. So I was just wondering what's the reason for the delay. Can you share anything with us on that?

Speaker 2

No, we're just continuing to do work on it. Like we've said I don't remember all the words that we said, but for sure it's just a 24 thing. Like the teams are working at a good pace. All the teams are working together very well, making good progress on the activity. So that's that.

Speaker 2

The yes, just in terms of just what work at the customer level, is necessary to be able to do the definitization. It is not I will say, it is not a financing issue. It is more of a just commercial activity issue. And so that has to be completed to be able to get it in place. So we're not worried about it.

Speaker 2

The team continues to work at solid pace, strong customer engagement and collaboration. And yes, just it will come out in its natural pace as the customer gets their work done.

Speaker 10

Okay. So if we hypothetically assume that sometime in this year that $180,000,000 goes to $750,000,000 then there's obviously reasonable expectation that the guidance could be bumped, right?

Speaker 2

It will depend on the burn profile of the contract. So it depends on where we've gotten to. And one of the big swingers will just be similar to the Lightspeed conversation is when you turn on your subcontractors and suppliers and at what pace you turn them on. So you'll notice on the authorization to proceed on the unnamed customer, we've not talked about schedule. And so some of that we're obviously doing the authorization to proceed.

Speaker 2

We're moving out on this thing because there is some schedule pressure. So the final the final kind of like shotgun start, here's the contracts on gold, will be dependent on what work we've accomplished on the ATP phase of it and then what is the schedule that we've all agreed we're going to strive towards. Those two variables will be needed to be able to talk about the burn rate. So in those combination of options, yes, there's a possibility that you could say, hey, we've accomplished some stuff and we're going to go super fast and therefore, we're going to burn a bit hotter than we forecast and get a bit more work done in 'twenty four. That is possible as one of the options, but obviously that's not in our guidance.

Speaker 10

Okay. Because I was under the impression that unnamed client is kind of in a rush to get this constellation up in space, no?

Speaker 2

Often customers are in a rush and certainly the existence of an authorization to proceed, encourages to support the notion that they're in a rush, but you still got to get it all definitized. So it's still it needs to get definitized to get everybody aligned that this is the schedule we're all going to work towards. And the engineering questions that we're answering during the authorization to proceed work, people need to have confidence in those answers to really step on the gas. And so we just need to work this through

Speaker 3

a little bit. And David, obviously, 2024 revenue is important and I feel where I hear where you're going on, couldn't be higher. But Mike, really the more important thing here is just the overall market demand that we're seeing, our services, our capabilities in the space, people knocking on the door, the conversations we're having, right? That's the bigger picture for I think.

Speaker 2

That is the bigger picture and which could also of course cause other activities to occur. Like we talk we characterize our pipeline, we've talked about the number of opportunities, information that's in our investor decks would say we have a $17,000,000,000 pipeline. The $10,000,000,000 of that is over in satellite systems side of the house on these constellations, which means we're talking to a number of different constellations, giving them quotes, going back and forth. We don't control their pacing. We just answer questions as fast as we can and give them confidence in our answers.

Speaker 2

If and when people pull the triggers, then off we go. So those can come into the house at any time in the journey based on customer behavior in their organization. So that's the other really interesting thing to keep our eye on as well for sure.

Speaker 10

So just following up on those remarks, given you were able to lower the cost the Lightspeed Constellation from US5.5 billion dollars down to US3.5 billion dollars Can you comment about activity in terms of potentially getting another prime contractor role for another constellation? Like what do you think the probability is of that in 2024?

Speaker 2

Like I say, that's the hard thing to give you the probability in 2024 because it's customer centric in terms of when they want to pull the trigger on something. I will say and I continue to say like we are actively engaged in that $10,000,000,000 pipeline we're talking about. Like we're not just sitting there watching it. Those are all people that we're talking to, we're giving quotes to, we're answering questions to. Some of those quotes are in early phases, rough order of magnitude quotes.

Speaker 2

Some of those quotes are in the firm fixed price phases where you're like getting very close to being definitive about estimates. And then it's up to the customers in terms of are you the path they want to go and how fast do they want to move out. I will say that it I have characterized our pipeline as robust or very robust. The people that we are quoting and talking to have the money that they need in the, I would say, 90% of the cases. And a couple of people just finishing up securing some funds.

Speaker 2

But, yes, it's a very robust solid pipeline. And then it's based on when customers are comfortable and ready to move out. So it is absolutely possible. The other things could happen in 2024. It's also possible that they could slip into 2025, but there's lots of activity

Speaker 3

there. Okay.

Speaker 10

I'll just ask one more question. So you've partnered with Lockheed Martin and GM chasing a massive contract environment, I think it's like US4 $1,000,000,000 Are the initial contract awards for that still expected in March, like next month?

Speaker 2

Yes, that's correct. They were originally supposed to be last November, November 2023, and it was announced in the fall that they were going to slide that data to March. As far as we know, that is the date that continues to be held. So yes, next month, the we would expect them to announce a couple of teams that would be down selected and get going on some work there. And so we remain hopeful and watching and waiting to see what happens.

Speaker 10

Okay. All right. Thanks, guys.

Speaker 3

No problem.

Operator

Next question will be from Jason Gursky at Citigroup. Please go ahead.

Speaker 4

Yes. Good morning, everybody.

Speaker 3

Mike, I

Speaker 4

was wondering if you could provide a little bit of an update on the merchant component business in the hardware side of the house and talk about some of the trends that you've got going on there. I know you've had some nice success in getting some prime positions, but you do have a history of providing subsystems and components to others. Can you just kind of provide some color on what that market is looking like these days?

Speaker 2

Yes, sure. So that primarily exists in the satellite systems business. As you say, our sort of 60 year history there has been being a very strong merchant supplier of satellite subsystems and components to satellite manufacturers around the world. That work continues and it's an important sort of part of the base load on the satellite systems business. As you say, all the expansion is in this sort of NGSO constellation prime mode, but there is a very solid merchant supplier base there.

Speaker 2

There is growth in that base. It's very steady and or with a very small sort of more of a single digit CAGR to it. We continue to provide subsystems to the occasional geosynchronous orbit satellite awards that occur in the market. And so we whenever you hear one of those, we're often involved in providing some technologies to that. There are a number of those that are for the LEO and MEO type satellite levels in the LEO constellation market.

Speaker 2

We continue to support some constellations that ask for orders. And that goes well. One of the strongest areas of that is in the U. S. Department of Defense SDA market where we're providing antennas and then some other electronic boxes to all of the U.

Speaker 2

S. Primes on the U. S. DoD Constellation. So you'll hear us regularly be making announcements there.

Speaker 2

I think I try to keep score. I think we're coming into our sort of 10th 11th 12th in there in that kind of range repeat order across the primes on the U. S. DoD LEO constellations. So that's really nice to see.

Speaker 2

It's becoming like the standard product that everybody wants to have on their satellites. It's a solid product. It's a good price. It's highly reliable. People just come and take repeat orders.

Speaker 2

So it's nice recurring business to be able to feed these constellations at the merchant supplier level. And that's becoming very efficient business as well because it is highly repetitive. So that's very cool to see. They're good.

Speaker 4

Okay, great. And then you also mentioned commercial adoption of space based services and communications seems to be the place that everybody is today and maybe we get to space infrastructure at some point. And then you mentioned the geospatial world as well as a market that's potentially on the come. Can you just talk a little bit more about the geospatial side of things? Because obviously, you guys are building out a constellation there to provide services.

Speaker 4

Your expectation on customer mix for that constellation going forward, is it your view that this is going to be just largely governments at this point and that commercial adoption of this kind of technology is still a ways out?

Speaker 2

There'll be a bit of both, but it will be largely government. What we see on radarsat-two and the conversations that we have on Chorus, I would say the majority of those conversations are government. The majority of those are defense and intelligence type customers. They want to have really strong surveillance with a synthetic aperture radar satellite. You can see during the day, you can see during the night, you can see through clouds, you can see through weather because you have an active sensor that's pinging the earth and measuring a return.

Speaker 2

So you can see through things. And so that really helps those types of customers to be able to pick up broad area detection of what's going on regardless of time of day or weather. And so that's like super important to them. And then with the configuration of our constellation with a broad area surveillance C band satellite with a trailing more zoomed in X band satellite, the ability to detect something in a broad scan and then have a trailing satellite zoom in and see what's going on. It's just all set up for that government type of a mission, a defense and intelligence mission.

Speaker 2

So we see strong demand there. The world is no less secure, if not, it is less secure every day these days. More countries want to be able to monitor the activities in their nations, their coastlines. We're very good with our satellite configurations and maritime domain awareness. So especially maritime countries of which of course there are many care about that.

Speaker 2

The C band, X band combination will improve our ability to provide a range of services over land not just maritime. So it's a robust conversation with these folks. A lot of them are more sophisticated, so they want data. They want the data from the satellite to their ground stations. That's nice strong high margin business.

Speaker 2

You don't have to do anything. You don't have to process or you don't have a manual labor element to that. You are collecting the data and delivering it through to their ground stations and then they're processing it and doing their work. So it's nice, steady, high volume, high margin defense and intelligence customer work. So absolutely no complaints about that.

Speaker 2

And if you look at the market, anybody who's stable and growing in earth observation likely has those types of customers. Everybody is dabbling in commercial. For sure, everyone's dabbling in commercial. And so when you dabble in commercial, you typically are not delivering the raw data. You're doing the analytics.

Speaker 2

You're creating information products and you're answering someone's question. Someone might want an ICE report in the ocean or a deforestation report to a non government organization or an oil or mining report to their corporation. And so you're processing the data and delivering those reports. Analytics will come as a result, typically at slightly lower margins, but still good, but because you've got all the labor component that's in there. And then everybody's everyone's got a bit of that.

Speaker 2

Everyone's got a bit of that. People can get into the single digit, tens of 1,000,000 of dollars are doing that. But you've never seen anybody cross and say, I've got $100,000,000 of commercial earth observation. That has not happened in the global market yet. And so the product management and packaging of information products and services and corporations realizing that the speed and accuracy that they can get from space based earth observation data could change their lives.

Speaker 2

That all hasn't kicked in, in a way that you see now with space based communications. As I mentioned, it's pulling on commercial now. And so we'll keep pushing that. We will keep participating in that. And we will have part of Chorus that will be commercial for sure.

Speaker 2

But it's a nice stable base of defense and intelligence and keep working that future opportunity where the commercial market suddenly discovers and we help them discover what you can really do with all this stuff.

Speaker 4

Okay. That's great. Thanks, Mike.

Speaker 2

Thank you. Are we getting your time?

Operator

Yes. Please proceed.

Speaker 2

Okay. So we're good. All right. I just want to thank everybody for their time this morning. It's great to celebrate a good 2023.

Speaker 2

It's great to keep the growth going through 2024 and being able to talk about that now. That's excellent. I think you can tell that we're going to have some good conversations as we go through the year, and we look forward to updating everybody at our next earnings call in May. Thanks very much, and have a great day.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.

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