Maxar Technologies Inc.
Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Good evening, ladies and gentlemen. My name is Leoni, and I will be your conference operator today. I would like to welcome you to MDA’s Q1 2016 Conference Call and Webcast. 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 Instructions] We would like to remind you that part of today's discussions, including responses to various questions, may contain forward-looking statements, which represent the company's estimates, future plans, objectives and expected performance as of today's date. These statements are based on current assumptions that the company believes are reasonable, but are subject to a wide range of uncertainties and risks that could cause actual results to differ materially from the forward-looking information. You are referred to the advisory regarding forward-looking statements contained in the first quarter earnings news release and in the company's most recent Management’s Discussion and Analysis and Annual Information Form, both of which are available on the company's website or SEDAR. I will now turn the call over to Mr. Dan Friedmann. Please go ahead.

[Dan Friedmann:]

Thank you, Leoni. Good afternoon, ladies and gentlemen and thank you for joining us today for MDA's first quarter 2016 conference call. With me is Anil Wirasekara, our Chief Financial Officer. I will discuss some of the key business events that have taken place since our last call, Anil will review our financial results for the first quarter 2016, and then we will open the line to answer your questions. In the Communications sector, the company signed a contract for EUTELSAT 7C, a powerful all-electric communications satellite ordered by one of the world’s leading operators. This satellite is designed to provide broadcast services to multiple regions including Africa, the Middle East and Turkey. All-electric satellites provide efficient solutions by reducing the launch mass while retaining payload performance. Bidding activity in the commercial satellite sector is at near record levels for both traditional, geostationary communication solutions and less traditional satellite communication solutions. Since last report, one satellite was successfully launched, EUTELSAT 65W, a large multi-mission satellite built for EUTELSAT. The satellite will be used to provide broadband, broadcast and data services in Brazil and throughout Latin America. Post-launch of the satellite, EUTELSAT and SSL has successfully carried out transmissions in extremely high frequencies using an experimental payload on the satellite. The two companies are analyzing the potential of Q/V band as an enabler of future terabit satellite broadband programs. In addition, one satellite was completed and is in final preparation for launch, JCSAT-14 is at the launch base. It was built for the leading satellite operator in Japan with a fleet 15 satellites. The satellite will help meet the growing demand for telecommunication infrastructure in the Asia-Pacific region. In the emerging Low Earth Orbit satellite communications market, the company signed a contract with Telesat to build a prototype Ka-band satellite that Telesat expects to launch into Low Earth Orbit next year as part of our test and demonstration phase for our global constellation that Telesat is now designing. The company also signed a contract to develop and launch a Low Earth Orbit satellite for a new undisclosed well-funded customer. This satellite will be built at our dedicated facility for manufacturing small satellites in Palo Alto. The company will also operate the satellite on Orbit. In Canada, our Montreal operations signed a contract to provide sub-systems to Thales Alenia Space for environmental monitoring satellites and received an authorization to proceed from Airbus Defense and Space for communication subsystems. In the Surveillance and Intelligence sector, DigitalGlobe awarded the company two contracts to provide new ground station solutions to two international customers. The ground stations will receive and process imaging and data from DigitalGlobe’s satellite constellation and are also configurable to receive and process data from RADARSAT-2, our satellite, enabling integration of optical and radar imagery. In addition, a contract for our satellite image processing solution was signed with an undisclosed new commercial customer. The company can now confirm that the customer for the six Low Earth Orbit satellites for Earth imaging that were announced last quarter is Google’s Terra Bella. This follow-on order demonstrates a successful progress the company has made on its initial order of 13 satellites for Terra Bella, many of which are scheduled to be launched later this year. In the robotics area, the company signed contracts with NASA’s Jet Propulsion Laboratory to provide the robotics Sample Handling Arm and the camera focus mechanisms for NASA’s Mars 2020 Mission. The Arm will be used on a rover vehicle exploring Mars to process and store mush and soil samples acquired from the planet’s surface. The company received another contract from NASA to conduct the first phase design studies for a spacecraft that can travel to an Asteroid, remove a large boulder and redirect it into lunar orbit in preparation for a future visit astronauts to the boulder in the 2020. This spacecraft design will be based on its proven geostationary satellite design using solar electric propulsion to move and maneuver large payloads including a boulder about 20 tons. Finally, the company will provide the Japan Aerospace Exploration Agency with additional grapple fixtures for robotic manipulator systems of the Japanese experimental module on board the International Space Station. Moving on to the service business in the Surveillance and Intelligence sector, the company signed three contracts related to RADARSAT-2. The first contract is to provide operational support for Canada’s East and West Coast RADARSAT-2 ground systems that support near real-time ship detection. The remaining two contracts extend the provision of RADARSAT-2 information to customers who will use the information for maritime surveillance and the detection of illegal unregulated non-reporting fishing vessels in the Southern Indian Ocean and to support applications relating to disaster management. Also in this area, the company was awarded a two-year contract to support the US Air Force Research Laboratory with an information solution to demonstrate the feasibility of more cost efficiently and securely sharing geospatial intelligence analysis in a cloud computing environment. Finally, since last report, the company booked over CAD15 million of geospatial information contracts with undisclosed customers within the United States. Last call, I reported on a very significant strategic progress towards establishing the company as a supplier to both the US government and the new commercial space players in the United States. As can be seen from what I have discussed today, progress in this front has continued unabated during the past two months. Based on the success to-date, the strong funnel of opportunities we see ahead of us, the company has now appointed a US-based CEO as of May 16 with deep experience in this market. The next step will be to obtain the necessary facility and security clearances for SSL and many of its employees. The company will then be in a position to fully execute its broader growth strategy and in particular bid and execute on much wider range of US government and commercial contracts. That concludes, MDA’s operational highlights since last report. I will now ask Anil to report on the financial results. Anil?

[Anil Wirasekara:]

Thank you, Dan. Good afternoon and welcome everyone. We appreciate all of you joining us today. I am very pleased to report that we had a very good start to the 2016 fiscal year with solid first quarter results. We achieved consolidated revenues of CAD562 million and operating EBITDA of CAD97 million, both of which are record highs for the company. We have also achieved operating earnings of CAD56 million or CAD1.53 per share. We ended the first quarter with order backlog of CAD2.5 billion. The amount that we report as order backlog includes only the value of firm and funded orders. We do not include the value of unexercised contract options and unfunded purchase commitments under indefinite delivery, indefinite quantity contracts. Let me now review our first quarter results with comparison year-over-year. Consolidated revenues of CAD562 million compared to CAD534 million in the first quarter of last year. The increase reflected higher revenues in both segments; the Communications segment accounted for 72% of consolidated revenues of CAD403 million and the Surveillance and Intelligence segment accounted for 28% or CAD159 million. Operating EBITDA was CAD97 million compared to CAD93 million for the same period last year. The increase was driven by higher contributions from the Communications segment, which provided operating EBITDA of CAD59 million for the first quarter of 2016 and Surveillance and Intelligence segment contributed operating EBITDA of CAD38 million. Operating EBITDA margin as a percentage of revenue this quarter was 17%, consistent with the first quarter and the 12 months of last year. The margin percentage reflect the mix of construction contracts in progress as well as the volume of flow-throughs for the quarter. Operating earnings was CAD56 million or CAD1.53 per share, which were consistent with the same period last year. The effective income tax rate on operating earnings this quarter was 14%. We expect that tax rate for the full year to remain near this percentage. The impact of foreign currency translation on operating EBITDA and operating earnings was considerably less pronounced as the favorable impact on revenue was more than offset by significant expenses, denominated in US dollars including certain fixed cost, interests and amortization. I remind everyone that operating EBITDA and operating earnings are non-GAAP financial measures and the reconciliation to net earnings is provided in our latest MD&A. Net earnings on the IFRS for the quarter of 2016 were CAD41 million, up from CAD38 million for the same period a year ago. Income tax expenses for accounting purpose this quarter was CAD8.4 million representing an effective income tax rate of 17%. Net earnings for the first quarter included enterprise improvement cost of CAD4.8 million. Together with our consultant, we have identified a number of new efficiency optimization projects and they're helping us implement these projects over the next several quarters. The cost that we have provided for this quarter covers the expected consulting fees for the entire agreement including applicable performance incentives. Now let's look at our cash flow for the first quarter of 2016. We generated neutral cash flow from operating activities this quarter compared to a very significant cash inflow of CAD113 million in the previous fourth quarter. Given our portfolio of large construction programs, operating cash flow can vary significantly from period to period with the timing of working capital changes. We continue to invest in working capital as it is critical to managing lead times in the construction activity and growing our business in a competitive environment. In investing activities, we made capital expenditures of CAD8 million in property, plant and equipment. We also invested CAD16 million in technology and software, a large part of which relates to the development cost of key satellite research programs that we have progressed to the development phase. In financing activities we paid dividend of CAD13 million representing a quarterly dividend of CAD0.37 per common share. Turning our attention to our financial condition of the Company, we efficiently fund our cash flow requirements with our syndicated credit facility. Long-term debt, net of cash balance was CAD931 million at the end of March. Our net bank debt to EBITDA ratio as of 31 March was 2.5 compared to covenant of 3.5. The unused capacity in our credit facility and cash flow from operations are more than sufficient to fund our operating requirements as well as capital expenditures, working capital, dividend and our growth initiatives. We continued with our initiative to enhance financial flexibility of the Company, our discussions with third-party about securitization of portion of our long-term receivables orbital receivables are proceeding well. And we expect to close this transaction in the next quarter. To recap, we continue to post solid results despite continuing challenges in the business environment. In the first quarter of 2016, we achieved consolidated revenues of CAD562 million, operating EBITDA of CAD97 million and operating earnings of CAD1.53 per share. We have a secure funded order backlog that is supported by high volumes of outstanding bids and proposals. We are very optimistic and excited about the broad range of opportunities ahead of us particularly in the United States government and commercial markets. And with our borrowing capacity and ready access to capital market, we have the financial capability to execute our US access plan and to exploit those opportunities. Our financial position is sound and have we have declared a quarterly dividend of CAD0.37 per common share payable at the end of June. Before I conclude my discussion I just wanted to say how much I have enjoyed working with Dan, with this means Dan’s last earnings call. Together Dan and I have had the pleasure of sharing our perspective with you in consecutive quarterly calls for the past 16 years. Dan’s contribution to MDA is immeasurable. Under his leadership, MDA has grown from CAD100 million privately held ground station solutions company to a publicly traded global satellite communications and information company with over CAD2 billion in revenue. On behalf of all us Dan, I wish you much success in your post MDA endeavors. I look forward to presenting our earnings call next quarter with our new CEO Howard Lance. Dan, I hand this back to you for one last time.

[Dan Friedmann:]

Thank you Anil, I didn't know you had that speech in there. Leoni we are ready to answer questions now please.

[Operator:]

[Operator Instructions] Your first question comes from Steve from RBC Capital Markets. Steve please go ahead.

[Steve Arthur:]

Great thanks so much maybe I'll just begin with a couple of questions on the US access market, seems to be having great strong announcements there over several agencies over the past little while. Can you just give us some sense of the process now for getting the required US security clearances, clearly when you see as a major step for that but any sense of the other steps that are involved in the timeline for those things?

[Dan Friedmann:]

Sure, we have applied, we have to produce a number of plan, all of which are familiar to us because we’ve operated special security arrangements and proxy arrangements in the past. And we are getting the sponsorship from the agencies that want us to do work for them. And that whole process is going on as we speak and our target has been to have a facility clearance by the third quarter, we’re targeting a little earlier than that but that's one we needed to hopefully execute some new build projects.

[Steve Arthur:]

Secondly just around the LEO orders you been announcing for a while, there has been relatively limited information in the press releases, but they seem like quite exciting programs. I completely understand that some of the customers want to keep their work quite but any other color you can add on the nature of some of these programs be that in the communications or observation and I guess more broadly just context around all of these programs where you see this heading over the next months or years and how big of a contributor might it become for MDA?

[Dan Friedmann:]

Sure, obviously we tried to put as much as we possibly can in the press release but many of these are competitive and we are trying to work with everybody. So obviously there are some constrained information but TELUS has been I think fairly public that they are planning a constellation and we've won one of the two prototype satellites that they’ve put out there, we’re obviously going to try and win the constellation as it goes forward. The other undisclosed customer is also planning a significant constellation, we are the only winner in that case of the proof of concept satellite both of those are communication and of course we continue to work very, very hard on many aspects of the OneWeb project as it proceeds to procurement on that. So that's the communications, I think all of those are supported by very strong business plans and some cases in-house financing, other cases raising financing but pretty strong support. On the Earth observation side, our primary customer of courses is Google now with 19 satellites in our factory and a big chunk of those, I can't remember the exact number launching this year. And of course what their business is, they are well positioned to do really change the world with us. And we have a number of other potential customers out there some of them constellations and some of them one-offs but larger satellites. In terms of the potential this [indiscernible] request for proposals out there, I think in terms of future businesses it’s pretty clear that there is going to be some communication constellations out there, it’s pretty clear that we will keep growing and others is harder to tell because they have got a particular business model. But from our perspective, we have from gone from zero to arguably one of the top players in this area in very little time and that is a huge focus area for us and we are very concentrated on it.

[Steve Arthur:]

And I guess just a final point Dan just to echo Anil’s comments and say congratulations on an outstanding run as CEO of MDA, felt a pretty terrific business there over the past 20 years and have been fun to watch for the last 15. So congratulations, Anil tells me you’re looking forward to even an bigger challenge with taking up golf, so best of luck with that as well.

[Dan Friedmann:]

I think that’s his plan not my plan.

[Steve Arthur:]

We can be persuasive with golf.

[Dan Friedmann:]

Thank you Steve and thank you for - I thank everybody but yourself also for following our company and always asking us good questions.

[Operator:]

Thank you. Your next question comes from Thanos from BMO. Thanos please go ahead.

[Thanos Moschopoulos:]

Dan as you’re talking to your customers about these LEO projects, to what extent if any is it causing them to maybe think twice about investing in GEO, is there any postponements on the front or are they going full steam ahead on GEO for the time being as well?

[Dan Friedmann:]

Well most of LEO customers are now GEO customers, TELUS I think is the exception and I guess now SCS was taking a stronger position in O3B. We don’t - we have never and we’ll continue to have that belief that this is not a matter of one eating the market of the other, the satellite communication market is 6% of the communication market and I think all of us in the industry are focused on making that 6% a bigger number not in cannibalizing each other. So, we believe that the LEO constellations as we've spoken in the past about OneWeb and so on are complimentary, are expanding the market to other geographic areas or expanding the market against industrial competitions which is a real competition. And in the facts, numbers, we don't see the interest in LEO diminishing on the contrary, we've had now seven requests for terabit satellites in the last three months from customers, perhaps spurred by further competition or further opportunities, so and as I mentioned, our funnel is at near record levels and I just said near, because we came out with a record levels, but I think it is bigger numbers I have seen and of course 90% of that funnel is still geo, so the geo bids today are at near record level if not a record level. So I think it's just very healthy, the whole industry is trying to move its share of the pie from 6% to something larger.

[Thanos Moschopoulos:]

We were taken aback by that number, the seven RFPs for satellites, to what extent is the funding in place for those based on your knowledge?

[Dan Friedmann:]

I didn't say RFPs, so if I did I got it wrong, request for information.

[Thanos Moschopoulos:]

Okay, so a little bit early in the process.

[Dan Friedmann:]

Yeah.

[Thanos Moschopoulos:]

But as well pretty remarkable.

[Dan Friedmann:]

Yeah, it just shows the interest in the marketplace.

[Anil Wirasekara:]

But many of these are well funded organizations, startups.

[Dan Friedmann:]

But they are not RFPs.

[Thanos Moschopoulos:]

Yeah, startup would be less likely to go orbit satellite I would imagine.

[Dan Friedmann:]

Yes.

[Thanos Moschopoulos:]

Maybe a question for Anil. The S&I margins were lower than typical this quarter, was there a material FX translation loss on the -

[Anil Wirasekara:]

There is nothing any material - of any material concern. This is the quarterly ups and downs that happen. We have significantly higher flow-throughs that went through in some of our programs. That certainly distorted. That was one big contributing fact. The other was in our GSI business, the mix this particular quarter, the mix of GSI products was slightly towards the lower margin system type work rather than the higher margin imagery work and that just happened to be how the revenue was recognized in these programs and it's certainly not a reflection of what we expect the rest of the year to be.

[Thanos Moschopoulos:]

One last one, would you able to quantify the magnitude of the enterprise improvement cost that we should anticipate through the balance of year?

[Anil Wirasekara:]

The dollar, what we have provided for is the entire thing. There is no further, we might have some employee related issues, cost that come in but this pretty much covers everything right throughout the program including anticipated performance incentives that we have to pay our consultants.

[Thanos Moschopoulos:]

Okay, great. Dan, I will let go Anil and so congratulations on your very successful tenure at MDA. I wish you the best of luck in your role as a board member and what you do next.

[Anil Wirasekara:]

Thank you very much. Operator. Thank you. Your next question comes from Deepak from GMP Securities. Deepak, please go ahead.

[Deepak Kaushal:]

Hi, good evening guys, can you hear me?

[Dan Friedmann:]

Yes.

[Deepak Kaushal:]

Okay, just couple of questions. I will try to be brief. First off on the government clearance, are you talking about - has the timing changed on that with the change in CEO or does that have no debt on the timing this process?

[Dan Friedmann:]

We are on a multi-face plan. The CEO appointment was part of the plan. I was hoping he was going to be a little earlier, but it didn’t hit the critical path so we're still on track for a third quarter.

[Deepak Kaushal:]

Okay. And I think if I remember correctly last quarter you said you had about CAD2 billion pipeline of the US government opportunity, is that still the case? And any color on how much of that pipeline is dependent on receiving the clearance and how much of it you can execute without the clinic?

[Dan Friedmann:]

Yeah, first of all to be clear when I said we have 2 billion that was what I normally report - those are bids, bids that are out there. We have several other billions in prospects and suspects that we haven't bid yet and we may or may not bid. So that’s not the entire pipeline, but it is - the number of bids, we’ve won some, we’ve lost some and we’ve bid some and within our 5% we are still at the same number two months ago. And of the 2 billion just getting down at 1.5 billion requires clearance.

[Deepak Kaushal:]

Okay, that’s helpful.

[Dan Friedmann:]

Basically all the government stuff, we have commercial stuff in there.

[Deepak Kaushal:]

Okay, that's helpful. That's very helpful. And then I just have a kind of a bigger picture question on the market. We've seen some news in the trade press about on-orbit servicing and a competitor has won some deals and in their previous iteration looks like they had a pipeline of about CAD300 million. What can you tell us about the on-orbit servicing market, how big this market be kind of on an annual basis and the split between government versus commercial?

[Dan Friedmann:]

The on-orbit servicing situation is a little bit complicated because there is a bunch of government programs and of course the commercial initiative that we initiated and [indiscernible] have initiated. So in terms of the government programs we are expecting a NASA RFP eminently for a LEO refueling system which of course is not what we commercially being going after. We are expecting and have announced DARPA RFP for our geo robotics servicing mission, that includes repair, inspection and relocation but not fueling. We are of course working with both NASA and DARPA already on self-assembling satellites in orbit with our contracts that’s underway right now, which is several tens of millions. So we have this government programs. So they are all on our list to win and we're working on it extremely hard. And of course we have our own commercial program which is the original SIS program we announced way back, but has since been completely redesigned around the completely US solution, built in the US, operated in the US based on SSL buses and our robots that we are still working on and as we said a few years back and we're still saying today, we are not going to launch that until we see what the government does. We are not in the business of competing with government. And of course orbital has their own - different solution that you’ve read about. So, yeah, there is a fair amount of activity and we are talking to commercial customers and we are trying to get all of this to - I think this year as things go forward. It’s hard at this point to predict how it will go. The commercial market is still difficult to predict as people are modifying satellites pretty fast, right and so fueling all satellites may or may not be the best idea today.

[Deepak Kaushal:]

Okay. So any kind of insight on how much the commercial market might be? Will it support annually, is this like a CAD500 million a year opportunity or bigger than that or smaller than that?

[Dan Friedmann:]

Significantly smaller than that.

[Deepak Kaushal:]

Significantly smaller than -

[Dan Friedmann:]

Yeah, CAD500 million a year both orbital and us, we are fully funded and running at full speed today, significantly smaller than that.

[Deepak Kaushal:]

Okay, that’s helpful. I’d be remiss without offering my congratulations as well Dan. Obviously appreciate your candor on the calls and your insight into the business and answering all my strange questions. Best of luck in the future, looking forward to the next book even though I don’t understand it. All the best.

[Dan Friedmann:]

Thank you. I am going to miss you running after me in Paris and Washington.

[Deepak Kaushal:]

All the best then.

[Dan Friedmann:]

Okay.

[Operator:]

Thank you. [Operator Instructions] Your next question comes from Robert from Credit Suisse. Robert, please go ahead.

[Robert Peters:]

Hi, thanks very much. Dan, just wanted to echo my congratulations. I think you are probably going to get this throughout the call, but it’s been a pleasure working with your over the past couple of years. Maybe just a standard question from me in terms of the backlog breakdown. I was wondering if you could potentially provide the breakdown between communication and S&I in the quarter.

[Dan Friedmann:]

Yeah, just give me minute, 75-25 which is kind of the normal trend. It doesn’t really more than a couple of percent up and down once again it’s 73-27.

[Robert Peters:]

Okay.

[Dan Friedmann:]

[indiscernible] 27% S&I.

[Robert Peters:]

And then when we look at the pace of the backlog for the year, I was just wondering if there was any - in terms of the orders if there was anything that was announced that maybe slipped into the second quarter booking and maybe also when we think about the size of the pipeline in the commercial market, I mean obviously I think the past couple of years we’ve seen the awards be more backend weighted, but is there anything that you think needs to happen to get more of those contracts realized?

[Dan Friedmann:]

No, I think things are moving. Our current projection for this year is that it’s going to be backend loaded again like last year with perhaps a couple of awards in Q2, but a big pile in Q3 and Q4. That’s just the way things are happening. Of course we had that last year, so that kind of works for us factory-wise. It just depends on what people are up to and how they are working their business plans.

[Robert Peters:]

Perfect. Thank you very much. Maybe a question for Anil, obviously I think everyone is pretty well aware that working capital can vary pretty - can swing quarter-to-quarter, and you guys addressed that on the call, but I was just wondering, was there anything in particular, either coming in to or coming out of the factory in the quarter that impacted the working capital and additionally how do we think about any potential reversal over the course of the year?

[Anil Wirasekara:]

Reversal of the course of the year is scheduled to happen. I mean we are confident about that and nothing unusual, I mean, there were a few contractual delays that we are having on some contracts as they work their way through financing phases, but nothing unexpected, nothing out of the ordinary, nothing that we hadn't planned for this year. So I wouldn't say that this was a shock to us, it's just that when you take a year and divide into three months and 22 projects going on, all at the same time, your milestones are especially when you are paid by milestones, these can vary and vary fairly significantly. And sometimes beyond our control, launches can get delayed and you’re still keeping things in the factory, path can come in late, milestones get deferred due to a variety of things, it slips one week from one quarter to the other quarter and that could be a CAD25 million, CAD30 million impact. So I mean that's the nature of the business, we kind of understand it, we look at working capital more from a two-year rolling standpoint because that's kind of the best way to look at it and manage it and that's kind of what we do, but that was nothing extraordinary unusual this quarter at all. Neither was there anything unusual in the previous quarter, where we had CAD120 million of positive working capital.

[Robert Peters:]

Perfect, thank you. And maybe just one last one for me and then I'll pass the line, on the communication margins, they were up quite a bit on a year-over-year basis, and it seems to be continuing the trend from last year. I was just wondering if there was - how you kind of think about gross margins going forward as you guys begin to win new contracts on the communication side?

[Anil Wirasekara:]

Once again, it just depends on the life cycle of all these programs. As Dan mentioned, we have several satellite programs at the tail end of the construction phase and that's when you kind of generally level the extra margin because you have eliminated a lot of, once again, it just depends on the timing of all these events.

[Operator:]

Thank you. Your next question comes from Paul from Scotia Capital. Paul, please go ahead.

[Paul Steep:]

Great, thanks. Dan or Anil, could you maybe talk a little bit about the geospatial market and how you’ve seen that progressing as well, maybe just what it roughly produced in the quarter in terms of topline revenue?

[Anil Wirasekara:]

Topline revenue in the geospatial side was about, yes, it was about, it has about 50 plus million dollar run rate per quarter. So that's what we do, we had 48 million. I believe this 48 point something million this quarter. So run rate is around 50 million, maybe a little bit more.

[Dan Friedmann:]

And in terms of business development and strategic progress, we continue to make progress. I mean, you’ve seen what we are doing with DigitalGlobe, which is clearly the top optical supplier in the world and we are arguably the top radar supplier in the world, we are working together now, we are both seeing increased revenue separately and jointly as a result of that, but it is still early days as we go forward. We are improving our whole global change detection technology, which drives a lot of extra business in this market, you’ve seen with radar set that we’re pretty operational as the illegal shipping cups of the world today and the monitoring of illegal oil and so on. So we have really built in operationally into areas where this technology has proven to add value, there is a lot of promises about pretty pictures, but you have to really make them operational and you have to have the right satellites to make them operational. And so all that is going very well and we believe that as we move forward on our US plan, that's going to make a big difference because quite frankly, most of our geospatial radar business in Canada is blocked at the moment from the US market and that will be opened wide for us momentarily as we go forward. So we are seeing good promise in the whole geospatial area.

[Paul Steep:]

Okay. Anil, could you maybe comment just a little bit, you talked around the optimization program and I fully appreciate the costs are all baked in, broadly, what does the scope look like and maybe in terms of savings, are those savings, should we expect almost all those to hit in ‘17 at this point?

[Anil Wirasekara:]

The optimization program has been ongoing for a while, we’ve added more of the savings have been hitting, they hit last year quite a bit, we have a very aggressive target of savings that have to hit this year and of course those savings have gone against decreasing prices in the marketplace and the whole Euro pressure, which is pretty intense, as we have to basically compete with the European pricing. So we have a strongly scheduled process improvement, but it is typically passed on to the customer on or ahead of schedule and we managed to maintain our margins that continue to be under huge pressure despite the dropping prices with these programs and we continue to look for more savings in different areas and more efficiency and the program continues on. So today - last year, we added another 10%, 15% cost savings to the program. I'm not going to talk about numbers, because they are incredibly competition sensitive and of course that's costing us more money to achieve and it's having quite amazing results, not only are there savings there, but our satellites are finishing early. We are early on several deliverables in the last few months. That's always problem satellites of course, but on average, they’re earlier. So that also leads to savings, not to mention happy customers. So that program continues, we are going to institutionalize the program. Of course, it won't be of this magnitude and then it will become a recurring - you won’t see this anywhere below the line. You’ll see it as part of the normal business. But at the moment, it's still a special program run by a special program manager, tens of people are working on it as we tried to improve our processes and our efficiency and learn from our legal programs which are run differently in a separate production line and of course we plan to learn some more as we go to higher and higher volume productions, we’re doing 96 tenants now for O3B. That's going to create some more learning in that area at least, and so on.

[Dan Friedmann:]

So this is all about factory efficiency, this is not so much about cutting man power and cutting costs and getting one-time gains for one year and then it's all over, it is all about making the factory more efficient and enhancing the cost of production. All the savings are ongoing.

[Paul Steep:]

Fantastic, that helps. Dan, I just want to say it's been a pleasure watching you grow MDA into a global company over the last 15 years and it's been great being able to talk to you on a quarterly basis. All the best, thanks.

[Dan Friedmann:]

Thank you so much.

[Operator:]

Thank you. We have a follow-up question from Deepak from GMP Securities. Deepak, please go ahead.

[Deepak Kaushal:]

Hi, guys. Sorry, just one last quick one for me. I know on the securitization, on the receivables, can you remind me or us how much you guys are targeting to securitize and use the proceeds for that again. Thanks.

[Anil Wirasekara:]

Approximately 200 million, that's the target number. It might be 180 million, it might be 210 million, but in that range.

[Deepak Kaushal:]

. Okay. And any specific plans earmarked for those funds?

[Anil Wirasekara:]

No. As I said, we will pay down debt and keep more dry powder available to do lots of things that we have do to, and we want to do.

[Deepak Kaushal:]

Okay, that's helpful. Thanks again. That's all for me.

[Operator:]

Thank you. There are no further questions at this time. Please proceed.

[Dan Friedmann:]

Thank you, Leoni. Thank you all for listening. I've really enjoyed working with you over many years and I thank you for all your insightful questions which help us improve our strategy always as we reflect on them and I look forward now to passing the baton on to Harvard who will be joining Anil next quarter, and I will be listening intently to the call myself as a big shareholder. Thank you very much. Bye-bye

[Operator:]

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