Strong 4Q22 results with conservative guidance set floor for investor expectations in 2023
Our view: MDA Ltd. (MDA-TSX) reported 4Q22 results above expectations with revenues of $186M (up 61%) and adj. EBITDA of $40M with a 21.4% margin. Revenue outpaced consensus by 4% and adj. EBITDA outperformed estimates by 23%. The company introduced 2023 guidance, which we view as conservative, especially as it does not include Telesat Lightspeed. We believe the 4Q22 results demonstrated improved execution, and the strong backlog supports our positive view on 2023. MDA remains an important space merchant supplier in a growing market. We maintain our Outperform rating and $12 price target.
Key points:
4Q22 results set a stable floor for 2023 expectations. Total revenue growth was driven by Satellite Systems (up 157%), followed by Robotics & Space Operations (up 60%). Globalstar and Canadarm3 both heavily contributed to the above segments, respectively. Gross margin was down year-over- year as the company’s program mix continues to evolve, and it received fewer tax credits. We believe the quarter represents stability across the major programs (Canadarm3, Globalstar, and CSC) for MDA, with further upside that could be positive for sentiment on the stock.
Introduces 2023 guidance that appears conservative to us. Management’s guidance effectively bracketed the current consensus values for next year. However, management has continued to omit contributions from Telesat Lightspeed. The company expects total revenue to grow by ~20% with adj. EBITDA margins of 19–20% for 2023. Management also expects 1Q23 revenues to grow ~50% YoY, which they should have strong visibility into given the report timing. While the public commentary on significant new space programs has slowed, we believe MDA remains well positioned for new opportunities in the space ecosystem, especially leveraging the company’s antenna technology.
MDA ended 2022 with $1.4B in backlog, up 60% YoY with a 1.8x book-to- bill on a TTM basis. The company recorded $159M in bookings in 4Q and $1.2B for the full year. Management expects capex to be ~$230M in 2023 with about ~$200M to fund growth investments, primarily in CHORUS. We expect MDA to generate another use of FCF for 2023, with the increase in capex unlikely to be offset by operating cash flow. MDA has managed working capital well, and we expect this to continue.
Maintaining Outperform rating and $12 price target. We believe the company has done a good job of de-risking a lot of the business, as program revenue has stabilized. We continue to see some risk in CSC as supply chains normalize, but we expect Canadarm3 and Globalstar to provide steady growth. Additional government programs and Telesat Lightspeed could push expectations higher, which we believe underscores the conservatism within the guide.