Our view: MDA reported a relatively in-line 4Q21 results. However, on the back of recent significant contract wins, the company was able to maintain its 2022 guidance (adjusted after its 3Q21 results) and is entering 2022 with an $864M backlog (up 54%). We believe the 4Q21 results will support increased confidence in the 2022 outlook. Management called out some lingering supply chain and COVID risks, and it expects the revenue growth to inflect in 2Q22 and strengthen across the year. We expect top-line visibility to remain important for investor sentiment, and we are increasing our price target to $15.
Key points:
MDA Ltd. (MDA) reported in-line 4Q21 results with total revenues of $115.5M, up 15% compared to 4Q20, but slightly missing our estimate of $119.7M. Adjusted EBITDA was $26.8M compared to our estimate of $22.2M for the quarter with adjusted EBITDA margin beating our estimate of 27.5% at 28.7%. The Geointelligence segment revenues were $53M for the quarter, up 11% year-over-year due to higher sales of satellite imagery and analytic services along with higher volume from the Canadian Surface Combatant (CSC) program. Revenues in Robotics & Space Operations were $30M (up 16%) due to higher volume on the Canadarm3 program while 4Q21 revenues in Satellite Systems were $33M (up 22%).
The company maintained its previous 2022 guidance. We are slightly adjusting our 2022 revenue (raising) and adj. EBITDA (raising) estimates to now $770M and $147M, respectively. We believe a more conservative EBITDA ramp in 2022 is prudent.
Total FY21 bookings were $768M, led by the recent Globalstar LEO satellite ($415M) and Canadarm3 phase B ($269M) contracts. The contracts represent significant bookings on the company’s flagship programs and new business opportunities, while helping generate a book- to-bill ratio of 1.6x over the last twelve months. At the end of 4Q21, the total backlog has increased to $864M, up 54% from the year prior. The company sounded confident about the potential for continued bookings strength in 1H22, which should be a positive catalyst for the stock.
MDA delivered strong de-leveraging in 2021 (current leverage ratio of 0.4x) but FCF continues to lag EBITDA. For 2021, the company posted a cash use of $23M. While the 4Q21 FCF was just a use of $3M, the elevated 2022 capex guidance of $200M implies that the company remains in growth mode. Company management estimates maintenance capex at just ~$30M. We expect investors will remain supportive of the elevated capex as long as growth is tracking to plan.
Valuation: We are maintaining our Outperform rating, and increasing our price target to $15 (up from $13) as the increased bookings have given us increased confidence in the company's growth opportunities. Our price target reflects a 9.0x EV/EBITDA multiple on our revised FY23 estimates. We believe future multiple expansion is possible as the company continues to build its backlog.