Maxar Technologies Inc.
Q3 2015 Earnings Call Transcript

Published: 29 Oct 2015

[Operator:]

Good afternoon. My name is Leoni and I will be your conference operator today. At this time, I would like to welcome everyone to the MacDonald Dettwiler and Associates, Limited, 2015 Third Quarter Results Conference Call and Webcast. [Operator Instructions]. We would like to remind you that part of today's discussion, 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 third quarter earnings news release and in the company's most recent Management discussion and analysis and annual information form, both of which are available on the company's website or SEDAR. I would now like to turn the conference over to Mr. Dan Friedmann. Please go ahead.

[Dan Friedmann:]

Thank you. Good afternoon, ladies and gentlemen and thank you for joining us today for MDA's third quarter 2015 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 third quarter and then we will open the line to answer your questions. In the communications sector, the company signed a contract for Azerspace-2/Intelsat-38, a communications satellite ordered by the national satellite operator of Azerbaijan, in collaboration with Intelsat, the leading provider of satellite services worldwide. This satellite is designed to provide direct-to-home TV and government and corporate network services in Europe, Asia, the Middle East and Africa. The company also announced that it has joined the OneWeb team. Under this partnership, MDA is now participating in the design and engineering of OneWeb's satellite constellation payload. OneWeb plans on building over 900 low earth orbiting satellites to enable affordable broadband access to emerging markets and rural areas. MDA aims at a significant participation in the high-volume manufacturing during the build phase. Despite the relatively low number of satellite procurements so far this year, bidding activity in the commercial satellite sector continues at near record levels for both transitional geo communication solutions and less traditional communications solutions. Since last report, two satellites were successfully launched and are performing post-launch maneuvers. Intelsat-34, built by the company for Intelset, will provide expansive coverage of the Western Hemisphere, with specific focus on Latin America media customers as well as broadband for aeronautical companies serving the busy North Atlantic routes. The Skymaster satellite, built by the company for an Australian government business enterprise, will provide broadband service to hundreds of thousands of Australians who do not otherwise have access to high-speed Internet and will supplement fixed-line and fixed-wireless services. In one of the company's new expansion areas, SSL is the key industrial partner for the Psyche mission which was selected by NASA as a candidate for its next discovery mission. The Psyche mission proposes to visit a metal asteroid and is one of the five selected candidate missions from which one or two missions will be down-selected for implementation in late 2016. Our role as the only industrial partner on the Psyche team is a demonstration of the company's ability to participate in new U.S. government markets. This is the first time in the company's history that it gets a material role in such a mission. In the surveillance and intelligence sector, the company was awarded a $9 million contract by the U.S. Air Force Life Cycle Management Center. In the robotics area, the company signed a contract amendment with the Canadian Space Agency for $33 million extending funding for ongoing support of the mobile servicing system on the International Space Station through October 2017. The International Space Station is expected to operate through 2024 and the mobile servicing system supports a variety of operations ranging from re-supply, maintenance and servicing tasks that are critical to the ongoing operation of the station. The company was also awarded a contract by the U.S. Defense Advanced Research Projects Agency to study on-orbit robotic assembly of geostationary communications satellite. The program is intended to enable larger and more powerful satellite that cannot be launched fully assembled to be packaged in pieces within a standard launch vehicle. The satellites will then self-assemble from a stored state while in orbit, with a focus on the installation and reconfiguration of large radio-frequency antenna reflectors. Also in this area, a contract amendment was received from Orbital ATK for additional interface units to enable capture and berthing of their Cygnus commercial re-supply spacecraft to the International Space Station. Moving on to the services business in the surveillance and intelligence sector, the company signed an Indefinite Delivery-Indefinite Quantity contract with an undisclosed customer for the provision of information products and services derived from the exploitation and analysis of space-based imagery, open-source information and geospatial data. The contract does not have a minimum amount and has a potential total value over five years of up to $350 million. The company also signed contracts with The MITRE Corporation to service sites in Latin America with complex topography and provide digital mapping products incorporating information from optical satellite images. The products are used to conduct aeronautical studies and to identify objects on the ground that could adversely affect the aviation safety. In addition, since our last report, the company booked over $17 million of geospatial information contracts with other undisclosed customers within the United States. 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. As always, we appreciate all of you joining us today. Once again, we reported solid quarterly operating results. We achieved an 8% increase to third quarter operating earnings of CAD55 million or CAD1.50 per share, on consolidated revenues of CAD515 million. We also achieved quarterly operating EBITDA of CAD94 million and solid margins of 18%. The strong U.S. dollar has had a positive impact on program revenues and margins, but this was offset by other U.S. dollar-denominated expenses, such as interest, amortization, as well as unrealized foreign exchange losses on unhedged contract commitments that have adversely impacted our financial results. We ended the third quarter with a funded order backlog of CAD2.5 billion, consistent with the balance as of the end of June. As Dan discussed earlier, we recently signed a satellite construction contract with Azercosmos and an Indefinite Delivery-Indefinite Quantity contract with an undisclosed customer for geospatial services. As these contracts are signed after quarter end, their values are not included in order backlog as of the end of September. Also, our reported order backlog never includes the potential value of unexercised contract operations and unfunded orders under IDIQ contracts. Let's review our third quarter financial results with comparisons year over year. Consolidated revenues this third quarter increased to CAD515 million, compared to CAD507 million for the same period last year. The communications segment accounted for 74% of consolidated revenues or CAD384 million and the surveillance and intelligence segment accounted for the remaining 26% or CAD131 million. Third quarter operating EBITDA increased to CAD94 million, from CAD85 million in the same period last year. Operating earnings increased 5% to CAD55 million or CAD1.50 per share, compared to CAD51 million or CAD1.41 per share, for the third quarter last year. Once again, I remind everybody that operating EBITDA and operating earnings are non-GAAP financial measures and the reconciliation to net revenue is provided in our latest MD&A. Third quarter net earnings on IFRS was CAD55 million, up from CAD21 million a year ago. Now let us review our year-to-date results with comparison to prior year. For the nine months ended September 30, 2015, consolidated revenues was CAD1.6 billion, consistent with the same period of last year. Revenues from the communications segment was CAD1.2 million, on par with the prior year and revenues from surveillance and intelligence were CAD418 million, compared to CAD443 million for the prior year. The decrease reflected variability in activity levels on certain programs -- in particular, flow-through activity. The geospatial services business continued to perform well, with revenues continuing to rise on strong activity in the United States. Operating EBITDA for year to date increased to CAD282 million, compared to CAD261 million for the prior year. The communications segment contributed EBITDA of CAD165 million. The surveillance and intelligence segment contributed operating EBITDA of CAD117 million. It's important to point out that year-to-date operating EBITDA for surveillance and intelligence includes a non-cash foreign exchange loss of CAD8.2 million for a mark-to-market adjustment on unhedged U.S. dollar commitments with respect to the launch of the RCM satellite constellation. Operating earnings for the first nine months of 2015 rose by 8% to CAD166 million or CAD4.58 per share, compared to CAD154 million or CAD4.27 per share, for the same period in 2014. The effective income tax rate on operating earnings for the year was 15%. We expect the income rate for the full year to remain in the mid to high teens. Net earnings for the first nine months of 2015 were CAD257 million, up from CAD83 million in the same period last year. Looking at our cash flows in the third quarter, we generated cash inflows of CAD30 million from operating activity after changes in working capital. This represents a positive swing of CAD124 million compared to the second quarter. Our operating cash flows can vary quite significantly quarter to quarter given our portfolio of large construction programs and the timing of milestone payments and receipts with customers and suppliers. We will continue to invest in working capital and research and development, as they are fundamental to our industry and given our commitment to growth and technology leadership. Investment in working capital is also critical in managing lead times and construction activities and maintaining quality in an increasingly complex and global supply chain. We endeavor to effectively and efficiently fund our working capital requirements with our syndicated credit facility. Our long-term debt at the end of September was CAD936 million, with over 60% of that increase over the last nine months attributed to foreign currency translation, as most of our debt in denominated in U.S. dollars. Net bank debt-to-EBITDA ratio at the end of September was 2.5 which leaves us with considerable room in our credit facility to operate effectively and pursue growth and investment strategies. For year to date, we invested CAD49 million in capital expenditures. This was down from CAD54 million for the same time last year. We paid CAD40 million in dividends in the first nine months of 2015. Now, to summarize our results, we achieved third quarter operating earnings of CAD1.50 per share and operating EBITDA of CAD94 million. Our funded order backlog as of September 30 was CAD2.5 billion, providing us with good long-term revenue and cash flow visibility. Our bidding activity remains very active and it continues to be supported by a strong pipeline of opportunities. We continue to execute a balanced capital allocation strategy with dividends to our shareholders and investment in working capital and technology and infrastructure to support future growth. We're in a good financial position, with ready access to capital markets and substantial financial flexibility to fund our growth initiatives and continue to drive shareholder value. We have declared a quarterly dividend of CAD0.57 per common share payable at the end of December. That concludes my discussion and I will hand it back to Dan.

[Dan Friedmann:]

Thanks, Anil. Leoni, can you please open the line to questions?

[Operator:]

[Operator Instructions]. Your first question comes from Thanos from BMO Capital Markets. Please go ahead.

[Thanos Moschopoulos:]

Dan, you mentioned that bidding activity is very high. When should we expect to start to see actual order activity start to get back to a normal pace? It seems like it might be happening already, but do you think that as of now, we should start to see some more orders across the industry start to come in or might that still take a few weeks for some issues to resolve before that happens?

[Dan Friedmann:]

Yes, long term we don't see any issues. We think it's fairly normal. The strong demand is there. Like you said, the bidding activity is high. But things continue to be slow in terms of awards. In fact, sometimes -- many satellites have been awarded this year and not gone through, including for ourselves. And we're still under the same issue that Exim is not reauthorized, so that has made good progress, but it still has a bit of a ways to go and we still have the issue that there is -- that SpaceX hasn't flown and so I wouldn't say it's weak. I think we're still waiting and I don't have a crystal ball, but we're still in a slow period of awards.

[Thanos Moschopoulos:]

It might be preliminary to make a guess, but would you say that 2016 might have the potential to be a catch-up year or do you think that it would be more likely to go back to normal levels once these issues are resolved?

[Dan Friedmann:]

Our current forecast is that 2016 will be a normal year.

[Thanos Moschopoulos:]

Okay. And you mentioned less traditional types of opportunities in the pipeline. Could you elaborate? I presume you're talking primarily about LEO constellations.

[Dan Friedmann:]

Yes, there is obviously activity in the LEO constellations that we're pursuing. There's also some not publicized new activity by startups in the geo area that we're pursuing. Of course, they're not funded yet and neither are the LEO opportunities, but they're certainly causing lots of proposals and work on our side. So both LEO and geo, but so far not fully funded.

[Thanos Moschopoulos:]

Okay. And one last one from me. On the last call, you had mentioned that you had been ramping up your M&A initiatives. Does that remain the case and can you provide us with an update on that?

[Dan Friedmann:]

Sure. We actually slowed down after the last call, because we saw an influx of organic opportunities, as I mentioned, in these constellations, both geo and LEO and we had to work the OneWeb situation also, so we've been super busy with some significant opportunities on that and also some significant opportunities in the U.S. government area. And at the last call, I had predicted that the organic side was going to slow down, but it actually is at record levels, so we had to put more focus on the organic side and spend less time on M&A, but we have continued to work the M&A situation -- nothing to report at this stage.

[Operator:]

Your next question comes from Deepak from GMP Securities. Please go ahead.

[Deepak Kaushal:]

So just a question on the U.S. government. Has your approach or how has your approach changed to winning more U.S. government business? You've made some good progress with NASA and DARPA, but are you changing your approach at all since you've acquired SSL?

[Dan Friedmann:]

Yes. I mean, the whole program is based on having acquired SSL. We're pursuing the U.S. government from SSL as a U.S. company which we've never had an opportunity to do before with real capability and it has taken us a bit of time to get the right technology transfer and even the right technology development at SSL, for example, what's required for the discovery mission we just won which is a very high-powered bus which will have good spinoff for our commercial business. And it has taken us time to build that pipeline and book the studies and get there and that pipeline continues to grow significant in the last quarter, actually, but it doesn't happen overnight. It just keeps building.

[Deepak Kaushal:]

Okay. And when you look at SSL's, their traditional geo satellite commercial business, historically it's been cyclical. Have you seen any change in that pattern of cyclicality or have you made any changes in the way the organization down there in California manages that cyclicality?

[Dan Friedmann:]

If you look at it on an average of two or three years, it's not that cyclical. In any particular year it might be down, but last year we were about average. This year, we're below average. So nothing has changed there. When you have a long period without contracts, you end up with a mismatch of staff versus need and you have to go up and down in staff and that's what we're having to do. But, no, no significant change.

[Deepak Kaushal:]

Okay. So when you look at growth and you mentioned organic growth at record levels in terms of opportunity. When you look at that growth opportunity beyond 2016, so we're talking 2017, 2018, what are the key drivers of that? Is that going to be driven by your traditional geospatial business, communications equipment or is a lot of this growth dependent on new technologies that you develop through government-based work?

[Dan Friedmann:]

Our single biggest way to grow is to get new customers and those new customers are coming from putting SSL and MDA together and going after both new commercial initiatives like the LEO constellations and some of the geo constellations and all the government business. That's the new customers. Of course we continue to try and grow our existing customer base and we have some growth there, but to really pick up, we need to make that synergy between the two companies work and that's what we've been focused on for the last two years, but it takes time to start and we're starting to see the benefits now.

[Deepak Kaushal:]

And I just have one kind of housekeeping question. Is it possible to get a sense of the split of construction revenue between SSL and Montreal? I know you've been transferring some work. You talked about the production improvements that you're putting down there in California. Any sense of that split?

[Anil Wirasekara:]

That's really hard to give a credible answer between the two, because there is so much of work that is done by one party for the other party, so it'll be unfair to and not meaningful to give what a split is. You can just say that a substantial amount is SSL and a lesser amount is Montreal.

[Operator:]

Your next question comes from Paul from Scotia Capital. Please go ahead.

[Paul Steep:]

Dan, maybe you could talk a little bit just about how you think about the timing of any opportunities in Canada post a new government coming into power federally here. How should we think about when those opportunities would sort of unfreeze? Is it wise to think about that sort of mid-2016 before things actually start to maybe get rolling again?

[Dan Friedmann:]

Well, as you know, we just had the election and we haven't talked to anybody in the government, so it's just complete speculation. All I can tell you is that in the run up to the election, the Liberals made positive statements with both respect to space and the defense part that we're interested in, because they spoke about a renewed focus on surveillance and control of the Canadian territory, in particular the Arctic which is what our two biggest space programs are centered on. They also spoke about developing a long-term strategy and so on. So they're the ones that were focused on that and I think we can remember that the last time the Liberals were in power, they were incredibly supportive of space and international partnerships and science and the country's space industry and MDA had a very, very thriving existence at that time in Canada. But that's just what's been said so far and what happened in the past. I have no basis to be able to tell you whether things are going to revive in 2016 or not. It is an emergency situation. I think the government is aware of that because a lot of work is winding down and capabilities being lost. So I think they're aware of the issues, but I don't know how they rank with respect to everything else they have to do.

[Paul Steep:]

The other one I wanted to get your perspective on is -- one of your competitors yesterday gave their view of the commercial COMSAT market and made some comments around maybe where the traditional part of the market had been and maybe a bit of a slowdown there. I wanted to get your take on where you're seeing activity in the pipeline. Is that the same dynamic that you're experiencing from some of those same customers or is it other opportunities in the commercial SAT market?

[Dan Friedmann:]

I haven't caught up with whoever said that yesterday, so I don't know what they said, but I've been saying for a bit that the traditional geocom customers are slower than anticipated and the newer kind of customers which are sometimes sovereign governments, have picked up and our current contract that we just booked is an example of both issues, where our Azerbaijan team with Intelsat -- instead of having two separate satellites. So we continue to see that trend where the more traditional customers are buying a little less and the new, emerging customers are buying more. And then no purchases yet, but a lot of our bidding activity relating to people with new ideas about doing new services and approaching things differently -- and I don't just mean LEO, but geo. But those programs by and large remain unfunded, so I don't know if they're going to come true. If they did come true, we'd have a good growth year.

[Operator:]

Your next question comes from Stephanie from CIBC. Please go ahead.

[Stephanie Price:]

In terms of the OneWeb contract, can you give us a bit more information around that contract in terms of when you think that a full-scale rollout might run out? I know that there are still some hurdles to go there, but maybe you could walk through that.

[Dan Friedmann:]

Okay. I wouldn't characterize it as a contract. We're getting paid, but we don't have a fixed-price contract. We're just a member of the team. I think everybody is in a similar boat. We have a substantial number of people working at different levels and the program is proceeding towards defining what this is going to look like and still has to race a couple billion dollars of financing which we're trying to help with. And at that point, when things are defined and the financing is clear, there will be long-term contracts for production. I don't have a good date for that. It's somewhere in 2016 is the target. You would have to ask them. And we're working, so at the moment we're doing some very important work, but things still have to be defined and financed.

[Stephanie Price:]

And in answer to another question, you had mentioned that some satellites awarded haven't gone through, including one of yours. Can you just clarify that? I wasn't sure what you were referring to in that sentence.

[Dan Friedmann:]

There are only eight satellites in my counting that are being worked on today, including the Azerbaijan one we just started work on. So there are eight in total, but [indiscernible] been a lot more satellites awarded. Some of them have been publicized. We don't publicize satellites, unless we're really working on them. And for different reasons, whether it be financing, whether it back lack of launch vehicle or whether it be export permit issues -- there are a lot of activity in China right now and that's an export challenge situation. They haven't proceeded, so there have been more awards than we're working on in the industry. That's what I meant to say.

[Stephanie Price:]

Okay. And so going back to Thanos's question earlier, I guess it could be a couple months before this sort of sorts itself out? Is that how we should think about it?

[Dan Friedmann:]

Like I said, if I had a crystal ball, it'd be easy. No, I think everybody is reading the same thing I'm reading on Exim and everybody is reading the same thing I'm reading on SpaceX. Everybody is seeing what our customers' financial statements look like. From a bidding activity point of view, it seems normal. From our winning so far, it doesn't seem so normal.

[Stephanie Price:]

Okay. And then just, finally, on Montreal, maybe a bit of an RCM update and discussion about utilization at the plant. I think that you're moving some of the OneWeb work over there as well.

[Dan Friedmann:]

Yes, well generally on RCM, I think we all know we're well past the peak. We're going down. We have downsized, but that's all taken into effect in the plants and there's no change for the last year. We think that OneWeb is a very good candidate for more than replenishing all that work, but we're in the early stages and it is targeted at Montreal, that's the team that's working on it. So we're on our way to transition to something else.

[Anil Wirasekara:]

But at the same time, we expect a very substantial amount of revenue yet to come from RCM both for the remainder of this year as well as next year, so it's not going to decline materially a significant amount at all year over year.

[Dan Friedmann:]

Yes, we've already passed the decline.

[Anil Wirasekara:]

Yes.

[Operator:]

Your next question comes from Rob from Credit Suisse. Please go ahead.

[Rob Peters:]

Dan, you mentioned on the last call, I believe, that you were doing some improvement or some development on your existing geo platform at SSL. I was just wondering if you could provide us an update on how that's going.

[Dan Friedmann:]

Sure. We're making very good progress. We have a number of R&D programs in place. On the platform side, what we call the bus which everything is built on, we're pushing down and up in the sense that we have a good product in power. We're going higher up in power. That's part of the discovery program, but we have an internal R&D program that's related to the geo side. And we're pushing to be more competitive on the lower end. Some of the recent satellites are smaller satellites than our traditional satellites. And, yes, in general we're expanding and standardizing and making our platform much more competitive across the whole range of needs that we see out there. We also have an extensive program to improve and modernize our payloads which I don't want to talk a lot about, but targeted at future market need.

[Rob Peters:]

And is that something where we might be seeing more information about those offerings in 2016 or is that more of a 2017 event?

[Dan Friedmann:]

Most of those offerings are what we call bid ready. In other words, they've advanced sufficiently in development that they're being bid. Some are being used in the latest satellite, but the development still continues for many more months. But it goes in parallel with the production contracts.

[Rob Peters:]

And maybe just a housekeeping question. Anil, I believe you mentioned that the revenue for RCM is still kind of consistent with what we've seen in recent years. Could you just remind me, I believe it was around CAD120 million to CAD140 million for RCM on an annual basis or are we closer to probably CAD120 million right now, we're on pace for that this year? How should we kind of think about that?

[Anil Wirasekara:]

Yes, I mean, for this year, it'll be a little over CAD100 million and just to put it into context, at the end of this year, we expect the RCM backlog to be in excess of CAD300 million, so it's by no means declining rapidly. There is still a lot left in that program.

[Operator:]

Your next question comes from Kris from National Bank. Please go ahead.

[Kris Thompson:]

Dan, I hopped on this late, so hopefully these questions haven't been asked, but on October 13th you announced that CAD350 million IDIQ. Can you just tell us, is that a renewal of an existing contract? Is it the same size of the existing, if so or is it larger or smaller?

[Dan Friedmann:]

It is a renewal and an expansion of a prior IDIQ, but it was completed from scratch and the last five years and we bid from scratch and we bid with an expanded offering and product team, so we expect to do more work per year than we have done in the past.

[Kris Thompson:]

Okay. So you guys are the sole vendor on that IDIQ?

[Dan Friedmann:]

Oh, no, there are several contractors and there were last time too.

[Kris Thompson:]

Can you give us an idea of how much you did annually under the last five-year deal?

[Dan Friedmann:]

We did a little less than -- we did about a quarter of the work last time and a similar size and we hope to do a third to half this time.

[Kris Thompson:]

Okay. And what about the margins? Are they going to be better or worse?

[Dan Friedmann:]

Same margins.

[Kris Thompson:]

And just on the three commercial geosats that were awarded today and yesterday, were you bidding on any of those?

[Dan Friedmann:]

The three commercial geos that were awarded today and yesterday? Can you tell me what those are?

[Kris Thompson:]

Orbital, Boeing and [indiscernible] all announced one in the last 24 hours.

[Dan Friedmann:]

Oh, I missed them all, I guess.

[Kris Thompson:]

We should talk more frequently, Dan.

[Dan Friedmann:]

Yes.

[Kris Thompson:]

All right. So we'll talk about that later, maybe.

[Dan Friedmann:]

Okay.

[Kris Thompson:]

On M&A, I don't know if this has been touched, but last quarter you mentioned you're looking at some large, game-changing deals since May and actively pursuing a couple. Can you give us an update there or if you already talked about it, I can just talk to you guys later.

[Dan Friedmann:]

Sorry -- say that again?

[Kris Thompson:]

If you've already talked about that on this call, I can call you guys later.

[Dan Friedmann:]

Okay.

[Kris Thompson:]

Have you?

[Anil Wirasekara:]

What was the question, Kris?

[Kris Thompson:]

M&A, you guys were looking at large, game-changing deals.

[Anil Wirasekara:]

Yes, Dan spoke on M&A [indiscernible].

[Dan Friedmann:]

Yes, I covered it already.

[Operator:]

Your next question comes from Daniel from Salman Partners. Please go ahead.

[Daniel Wong:]

I may have missed a bit of commentary on RCM, but in the last conference call, you mentioned that it was on a decline and with geospatial picking up, how should we look at S&I revenue next quarter and overall over the next year? Which way is it trending?

[Anil Wirasekara:]

As I've always said, it's really hard to look at these things on a quarterly basis, but we have always said that S&I is a business that we believe organically can grow at 5% to 10% per annum and that remains the same. There are programs that will wind down, new programs will come up, satellite build will come down, ground station build will go up and there are different cycles. So on a consolidated basis, when we put all this together, we think that the segment can grow on an EBITDA basis at 5% to 7%, that's where we're.

[Daniel Wong:]

And I just want to get more sense on geospatial. First, what percentage of your S&I revenue would geospatial be roughly and how would geospatial growth be relative to growth in other parts of your business?

[Anil Wirasekara:]

So right now, our geospatial business is at about a CAD50 million run rate and, yes, I mean, geospatial is growing faster than some of the other segments, but that's not always the case. There are times when geospatial is flat to declining which was last year, some quarters last year and the other areas of surveillance and intelligence was growing. It's difficult to take each product line and try to forecast trends. That's why we run a diversified offering within our S&I business. We have satellite, we have ground, we have geospatial services and the combination helps us to grow the business in a fairly steady way by being diversified.

[Daniel Wong:]

Okay. And would you be able to estimate the size of your unfunded order backlog?

[Anil Wirasekara:]

No. We don't even look at it as an indicator, but I can certainly make some inquiries what the unfunded IDIQs and unfunded options are. It could be substantial, but I don't know.

[Dan Friedmann:]

It's really only substantial in geospatial, not anywhere else.

[Daniel Wong:]

Now, Dan and lastly, would you say you're in a position to win more than your fair share of geosat business I guess in the next half year given your advantage with EDC access?

[Dan Friedmann:]

Contrary to popular belief in the press, we don't have an advantage with EDC access. We've been hit by Exim probably harder than anybody else by the Exim situation, because they're our main source of financing satellites, so we haven't seen the financing be an advantage for us and we don't foresee that to be in the next couple of months. So, no, there's no advantage there. We continue to suffer a disadvantage against the Euro, of course and predicting winning rates of geo comps is very difficult.

[Operator:]

Your next question comes from Deepak from GMP Securities. Please go ahead.

[Deepak Kaushal:]

Just a quick follow-up question for me, back to the geo market. So when I look at the history of SSL and the long-term average of geo satellites in their factory backlog, it's averaged at about 17. My math suggests you guys have it at nine right now. Three scheduled to deliver this year would bring you down to a backlog of 16 by the end of the year absent any further orders. Next year, when I look at what's in your backlog and that you've announced, you've got about 11 deliveries which would put you at a very low backlog at the end of next year and the need to have virtually record orders on the geo market. Is that a fair way to still look at this business or has the LEO opportunity substantially changed the dynamics here and capacity utilization or have the structural changes you've done in California changed the dynamics here versus history?

[Dan Friedmann:]

No, the LEO hasn't changed the dynamics yet. It's early days on LEO. I don't have the same math you have. To be nice and healthy, we need to book an average of seven satellites. We booked nine last year. We've booked two so far this year. And so we're seven last year and four and so on. So I don't think at this point, we would like to have maybe a couple more bookings to be kind of on average. We're expecting a few more awards this year, hopefully to us too and when you look at next year, we're seeing a busy first half, whereas this year, the second half was a busy time of the year. So at this point, there's no big panic. Like you say, we have close to a normal number of satellites in the factory, but, yes, we need to make some more bookings.

[Deepak Kaushal:]

Okay. And there was some commentary in the trade press today at a conference with some operators in emerging markets saying that some of the new, nonconventional satellite operators, like sovereign governments or sovereign countries with their satellites are building more capacity than there is demand in these markets. Are you seeing this from your perspective? What's your team telling you about fundamental demand for satellite capacity and what's driving it in emerging markets?

[Dan Friedmann:]

Well, like I said before, when we look at the long-term trends, we don't see a significant change. There's some capacity that's less in demand and some capacity that's more in demand, but we're still seeing not just capacity but number of satellites to be steady as in the past.

[Deepak Kaushal:]

Okay. So these are cyclical or near-term headwinds that should reverse in the coming months and years.

[Dan Friedmann:]

Yes. That's not just my opinion. That's the opinion of the people that study the markets, yes.

[Operator:]

Your next question comes from Rob from Credit Suisse. Please go ahead.

[Rob Peters:]

Just maybe to kind of build on Deepak's question and I think, Dan, you mentioned in terms of pacing of orders for next year -- this week, we had what looks to be some positive news on the Exim front. I mean, I'm not trying to say where it's going to go from here, but if the bank were to be reauthorized, do you think that there are a number of orders in the system that are kind of waiting for that to happen and we may see in the start of 2016 an acceleration of orders from that fact? Is that what's driving your commentary there, Dan? And then maybe also if we talk about the demand side of things, we've seen the terrestrial providers starting to push a little bit more into the ultra HD. Is that something you see as a driver for longer-term demand for your customers?

[Dan Friedmann:]

Yes, on the first part, we think the restart of Exim is going to be fairly slow. There will be a lot of catch-up work to be done. A lot of things that were submitted will have to be refreshed. I don't see that starting up quickly by any means. And yes, the ultra HD is just one of the trends that happens to be going the right way versus otherwise, going the wrong way.

[Operator:]

We have a follow-up question from Thanos from BMO Capital Markets. Please go ahead.

[Thanos Moschopoulos:]

Just a quick one for me. There has been news reports recently that the U.S. government is looking to spend $6 billion over the next five years on space situational awareness. Can you speak to whether this may represent an opportunity for MDA?

[Dan Friedmann:]

Yes, we're participating in studies. We're bidding. We built the space situational awareness satellite for Canada which is operated in conjunction with the United States and it's working extremely well and we're working those opportunities through SSL actively.

[Thanos Moschopoulos:]

And how soon do you think we might see some contracts come through if you are successful in that regard?

[Dan Friedmann:]

We didn't have a U.S. budget yesterday. There's just no way to predict those things. In my opinion, it's irrelevant, really.

[Operator:]

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

[Dan Friedmann:]

I would just like to get back to you on the three satellites. Sorry, I've been tied up in a board meeting, but I've been given the information since you asked. There's one new award by [indiscernible]. We did compete that very heavily and I think if you read the space news articles, you will find that there has been some significant French government subsidies for particularly this area and we basically had a problem with that subsidy versus our competitor and in the end did not prevail. The other two satellites that have been named in our books are Q1 awards. Somehow, the satellite names are coming out now. They're not recent awards, to my knowledge and one has actually been awarded from a couple of years ago which was an option which was exercised the first quarter this year for Orbital. We have counted those in our numbers, but in terms of awards now, there is one new one, yes and we did compete on it. And I'll ask Leonis if there are any further questions on that or we cut it off now? Any other questions?

[Operator:]

There are no further questions.

[Dan Friedmann:]

Okay. Thank you, everybody for your attention and we look forward to updating you next time.

[Operator:]

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