MDA Space Ltd T.MDA

RBC

[retiredcf]

January 29, 2025

MDA Space Ltd.

Apple's satellite diversification with Starlink suggests further appetite for constellation networks

TSX: MDA | CAD 27.10 | Outperform | Price Target CAD 35.00

Sentiment: Neutral

Yesterday, it was reported that Apple's (AAPL) new software will support SpaceX's Starlink network. Apple has been secretly working with SpaceX and T-Mobile to add support for the Starlink network in the iPhone's latest software update (released Monday). Previously, T-Mobile (TMUS) only provided Starlink as an option for Samsung phones. Meanwhile, Apple already provides a Globalstar (GSAT) offering that allows consumers to text and contact emergency responders when out of cellular range, with the partnership having started in 2022. While the new T-Mobile Starlink service is only in beta for a small group of consumers, supporting just text messages in the US, T-Mobile plans to expand the program in February. The eventual full launch will support the vast majority of modern iPhones and expand service to data connections and voice calls, and SpaceX has indicated that it looks to further expand Starlink to other carriers globally.

What are the current contract terms that MDA (MDA-CA) has with Globalstar? MDA's initial contract with Globalstar was for $400M and included 17 satellites with the option for 9 more. MDA is finalizing the delivery of the satellites for this year, but the revenue contribution is expected to be immaterial in 2025, as the revenue has already been recognized throughout 2022-2024. Although the option has not been exercised for the additional 9 satellites, Apple and Globalstar announced in November 2024 that they are planning to build a new constellation with Apple contributing ~$1.1B USD for infrastructure. Apple also announced a $400M investment into the Globalstar SPE, representing a ~20% stake in the SPE established by Globalstar. We believe it is important for investors to remember that Apple is utilizing 85% of Globalstar’s current and future capacity to support its iPhone features. Coming out of the 3Q24 earnings period, MDA highlighted that it hopes to announce the specific partner by the end of December 2024 for an ATP contract that the company received with a value of ~$750M. Many investors have asked whether the contact could be a follow on from Globalstar and Apple, but management continued to detail that they could not comment on the details. With the details emerging that Apple is looking to diversify its satellite constellation with Starlink, investors have assigned incremental risk to MDA's prospective contracts with Globalstar and Apple.

What is the end impact for MDA and when could the ATP contract be announced? We believe the current stock reaction (down ~10% at the time of this note) is overblown. From a broader market perspective, Apple looking to Starlink to expand its satellite constellation options suggests to us that AAPL is signaling the LT viability and application of satellite constellations for cell phone use. Given Apple's contract agreements with Globalstar, we believe the ATP contract that MDA has yet to announce could still be Apple, although not confirmed. If the contract is a customer other than Apple, we would continue to point to the broader adoption of the commercial applications for these satellite constellations. In speaking with MDA's IR team, they do not have an update on the timing of when they could announce the ATP contract. We can appreciate though that contracts of this magnitude and complexity take a while to finalize all of the details. We believe the contract is likely announced sometime in 1Q25 given management's confidence that it was to be announced in 4Q24. We also believe the U.S. elections have added some complexity to MDA's business and its future contracts.