MDA Space Ltd T.MDA

RBC

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June 7, 2023

MDA Ltd.
MDA receives Space Development Agency Tranche 1 contract award from L3Harris, positive for bookings

TSX: MDA | CAD 8.61 | Outperform | Price Target CAD 12.00

Sentiment: Positive

Today, MDA Ltd. (MDA) announced that it has received a contract from L3Harris Technologies (LHX) as part of the Space Development Agency's (SDA) Tranche 1 Tracking Layer program. For its part, MDA will design and build 14 flight sets of Ka-Band steerable antennas and control electronics for LHX as part of SDA's LEO constellation of satellites. The contract comes exactly one year (June 7, 2022) after MDA was awarded a similar contract by Lockheed Martin (LMT) to build the antennas and control electronics for 42 LEO satellites within the Transport Layer. Although we do not believe this single contract will materially shift expectations, we believe investors should note the continued antenna work that MDA is awarded. Incrementally, we believe the contract is a positive for the company, as MDA continues to establish relationships with additional U.S. prime defense contractors. The company is building a significant reputation across multiple countries' space agencies as well as across the largest global contractors, with its antenna technology viewed as industry leading. On a LTM basis, MDA has recognized 40% of its revenues from the United States.

The Space Development Agency's Tranche 1 Tracking Layer currently consists of 174 planned satellites. Within Tranche 1, the constellation will include 128 satellites in the Transport Layer, as well as 28 in the Tracking Layer, and another 18 experimental satellites. The SDA awarded $1.8B in contracts to York Space Systems, Northrop Grumman (NOC), and Lockheed Martin for development of the 128 Transport Layer satellites in February 2022. The agency then awarded L3Harris and Northrop ~$600M — $700M contracts to build 14 Tracking Layer satellites each in July of last year. The first satellite to be launched for Tranche 1 is expected to be in September 2024, with a cadence of one satellite per month thereafter.

A primary focus of the SDA is space-based missile defense using a global satellite constellation. The Space Development Agency is a United States Space Force direct-reporting unit. Through Tranches 0 and 1, the aim is to deploy a global constellation of satellites to better detect ballistic missiles and other space-based interceptors. While the award is small in terms of revenues, it does contribute to the positive bookings narrative for MDA that is a primary focus for 2H23. We continue to expect the company will raise its full year 2023 outlook with its 2Q23 results, and confidence in a recovery in 2H23 bookings will be a positive for the stock.