MDA Ltd

TSX:MDA

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the MDA Q3 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Amy Macleod, Vice President of Corporate Communications. Please go ahead.

[Amy MacLeod, Vice President of Corporate Communications]

Thank you, Michelle. Good morning, and welcome to MDA's Q3 2021 Investor Call. Mike Greenley, our Chief Executive Officer; and Vito Culmone, our Chief Financial Officer, will lead today's call and share some prepared remarks before taking your questions. The Q3 earnings release and financial information referenced on this call are accessible on the Investor page of our website as well as in the interim financial statements and the MD&A for Q3 filed today on SEDAR. Before we begin, I would like to remind you that today's call will include estimates and other forward-looking information, which may differ from actual results. Please review the cautionary language in today's press release and our other public filings, regarding various factors, assumptions and risks that could cause actual results to differ. In addition, during this call, we will refer to certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, these measures do not have any standardized meaning under IFRS, and our approach in calculating these measures may differ from that of others. Please see the company's quarterly report and our other financial -- other public filings for more information about these measures, including reconciliations to the nearest IFRS measures. I will now turn the call over to Mike.

[Mike Greenley, CEO & Director]

Thank you, Amy. And good morning, and thanks to those for joining us today to discuss our Q3 2021 financial results. I'm pleased to report that in the third quarter, MDA delivered another strong performance highlighted by a 30% increase in backlog over Q2, double-digit revenue expansion on a year-over-year basis and solid adjusted EBITDA. In addition, as we head towards the end of the year, we are pleased with the ongoing progress of next phase contract negotiations, program definition and development and risk reduction activities on all three of our flagship programs. Since the end of Q3, we have seen some shifts on the timing of flagship contract awards, including the Lightspeed program delay announced by Telesat last week, driven by global supply chain issues. I want to be very transparent about that. As you know, MDA is not a 13-week quarterly cadence type of business. It is not at all uncommon for complex multiyear technology development programs like ours to move around in time. We see these shifts as measurable in months or quarters, definitely not in years. They do not affect the total value of the contracts and investors can be assured that nothing has gone away. Time and shifts do have an impact on our near-term revenue profile, and Vito will fill us in on that map in a moment. Having said that, with solid financials, operational momentum in Q3 and growing backlog heading into 2022, we remain bullish about our ability to deliver long-term growth. As always, before we get into a more detailed quarterly update, I'd like to start with a bit about what we saw happening in the broader space market in the quarter, and what it means to our ability to create long-term value for MDA shareholders. Q3 was a historic quarter for human space flight and record space infrastructure investment. With all of us watching in July, Virgin Galactic and Blue Origin both took passengers to the edge of space for several minutes, including their respective founders, Richard Branson and Jeff Bezos, breaking 4 world records in the process. In September, SpaceX took the big step by setting 4 tourist to an orbit higher than the International Space Station, where they stayed for 3 days. During that period, there were a record 14 people in Orbit between the ISS, the Chinese station and the SpaceX Inspiration4 mission. Since then, legendary Canadian and intergalactic space, icon Captain James T. Kirk, became the oldest person to fly in space at the age of 90. Achievements in human space flight are more than entertainment. They also showcase the pace of commercial innovation and investment that are driving the rapidly growing space economy. Looking at it by the numbers, iivestment in space continues to rise and infrastructure companies have already hit a new annual record, driven in part by investments in all types of firms with $10 billion invested year-to-date, more than -- 6% more in the full year of 2020. As a world-leading mission maker for commercial space ventures, MDA benefits from broad-based industry expansion and record levels of investment in space infrastructure. Those investments fund our customers' programs and drive demand, growth and downstream opportunity for MDA. With all of these as concrete indicators of market growth and opportunity, both on the commercial and in the government and space agency sectors, we are extremely positive about our ability to create long-term value for MDA shareholders. Turning to the execution of our flagship programs. As I mentioned, we continue to make significant progress on next phase contract negotiations, program definition and development and risk reduction activities on all three of these multiyear, multiphase programs. On Canadarm3, as we discussed on our Q2 call, MDA was awarded a $35 million contract in Q3 for the design of the robotic interfaces, a key foundational component of the Canadarm3, which we installed on the international Lunar Gateway. In August, we also completed our planning for the next phase of the Canadarm3 main robotic system with the Canadian Space Agency. On Lightspeed, MDA continue to advance development activities under our existing Telesat Lightspeed contract. Notwithstanding the supply chain delay announced last week that I mentioned, in the third quarter, Telesat announced a series of significant funding announcements, including a $1.4 billion investment from the government of Canada, substantially advancing the program. Telesat has now confirmed that they expect to complete their own IPO in the coming week and close their export credit financing in the near term. And on the Canadian Surface Combatant program, working on the requirements analysis phase continued to advance, and the team is now putting final touches on a number of Electronic Warfare suite sensor contracts. We look forward to updating the market further as the next phases of all three of the flagship program contracts are finalized. Turning to our three business areas. In Q3, our Satellite Systems team completed a major production milestone, with the build of Serial number 500 of the OneWeb Gateway LEO Constellation program and Serial number 1000 of the Ku cluster antennas. This is a significant production achievement for MDA, surpassing our internal previous records of 486 Iridium NEXT Ka-Band antennas set in 2017. We are on track to complete production on OneWeb in March 2022 with total deliveries of around 650 gateway antennas and 1,300 Ku clusters. Congrats and thanks to the entire Satellite Systems team. With OneWeb, MDA entered the industry 4.0, expanding our high-volume production capacity with extensive usage of collaborative robots and automation on the production line. Our ability to scale and execute these high-volume production runs is giving us real credibility for future participation on LEO constellation programs. All that experience will also benefit the Lightspeed program, which will move the needle on our production record even further. With the market for LEO broadband mega constellations continuing to expand, our timing couldn't be better. As a leading provider of satellite subsystems with a proven track record on constellations, MDA is ideally placed to capitalize on near-term opportunity in the rapidly growing Satellite Systems market. We are equally well positioned in our GeoIntelligence business, where we are seeing significant new capital investments across the value chain, which is enabling deployment of new types of sensors, the build-out of constellations, infrastructure updates for ground stations as a service operators and the development of new analytics and exploitation tools. In the third quarter, we released the first details of our next industry-leading Earth Observation mission. Leveraging legendary RADARSAT heritage, the new system will include a large C-band Synthetic Aperture Radar satellite operating in a mid-inclination orbit. Capable of covering a 70,000 swath in a single pass, the new system will provide the broadest area of coverage on the market, changing how, when and what can be seen. In September, we also hosted our inaugural MDA Insight Customer Conference. During two live global broadcast held over 2 days, more than 100 customers across the globe heard firsthand about our latest earth observation investments, innovations, programs and product developments. The growth and maturation of this sector continues to help unlock new use cases, and speed the adoption of Earth Observation based insight into new verticals. In Robotics & Space Operation business, in the third quarter, we announced a series of new contracts, reflecting rapid global market growth driven by near-term space exploration missions. MDA has been awarded the full contract from MELCO, which is Mitsubishi Electronic Corporation in Japan, to provide a Laser Rangefinder altimeter for the Japanese mission to the moons of Mars. MDA has signed an agreement with Intuitive Machines to provide lunar landing sensors to support its upcoming lunar missions. As a result, MDA landing sensors will support the soft landing U.S. vision to the moon scheduled for early 2022. MDA landing centers will also support the mining mission to the South pole of the moon in late 2022. MDA continues to benefit from a heightened level of global activity in space exploration and increased activity on various lunar programs. These programs are often kicked off with a Phase A or study contracts that are awarded to 1 or 2 suppliers as a precursor to a full request for proposal. Since midyear, MDA has been selected to participate in three such contracts: A study contract with the European Space Agency named Moonlight announced in April that is investigating the infrastructure required for communication and navigation services for future exploration missions to the lunar surface. The second study announced by the U.K. space agency in October, involving an active debris renewal mission to capture and deorbit two client satellites. Our partner, Astroscale, is leading that study program, which they call COSMIC, an acronym for Cleaning Outer Space Mission through Innovative Capture. And as we announced this week, MDA has been awarded a contract by the Canadian Space Agency to undertake a Phase A initial design study for a Lunar Rover mission to the moon. The Rover will conduct its mission at the South pole of the moon, providing the opportunity to explore resources in the permanently shadowed regions, including lunar volatiles and water ice as well as thermal and radiation safety analysis for future human lunar landings. MDA is leading a superb largely Canadian team of subject matter experts, scientists and academic experts. These types of payday contracts are the front edge of the wedge that drives our next-generation opportunity pipeline and help keep us at the forefront of the new commercial space race. Operationally, we continue to take strategic steps to structure the business to scale and maximize our growth opportunities. Investing to attract and recruit top talent to drive our future growth continues to be a strategic priority. Since the beginning of the year, we have hired more than 600 new employees. With respect to COVID-19, in September, we started to return to the office in volume in a hybrid model. Throughout the pandemic, MDA has kept pace with public health policy and guidance, adjusting and aligning our work-related health and safety policies when needed. Federal regulations in Canada now require government suppliers and contractors to confirm vaccination status for their employees working in government facilities. To stay ahead of the curve and ensure responsible and safe work environment for all our employees wherever they were, in October, we introduced a mandatory vaccination policy that requires all MDA employees to be fully vaccinated against COVID-19 by November 30. I am incredibly proud of the team's response. Time and time again, MDA employees have risen to the challenge to keep themselves healthy and to contribute to the health and safety of others in our company and our communities. Bringing things to a close. Last winter, as we talked about our financial thesis for the IPO, we identified a few key strategies that we believe would drive our long-term growth, including executing on our flagships, expanding our market leadership in GeoIntelligence, maximizing our Robotics & Space mission participation and deepening our constellation market share, developing digital solutions for the satellite communications industry. In less than a year, we have made significant strides in all of these strategic pillars. We are executing on all of our flagship programs, and our backlog is building. We are steadily advancing SARnext, while investing in new GeoIntelligence products. We are bidding as we just discussed and winning as we just discussed, winning new programs for lunar and other space exploration missions. And we have modernized our satellite production processes, introduced state-of-the-art digital capability and are investing in new facilities to further increase capacity, which has helped open the door to a meaningful new growth market opportunity. The company is fully focused on these priorities, and we are seeing the results. We feel better than ever about our timing and our opportunity to capitalize on the rapidly emerging new space economy. Finally, I want to take a moment to acknowledge a major milestone. 40 years ago today, on November 12, 1981, Canadarm was launched into space aboard space shower Colombia. As the first robotic arm to go to space ever, it became an immense source of pride for the country and for those in our predecessor company that built it. Designed to function flawlessly in space with the dexterity of a human arm, Canadarm wrapped up 3 decades of successful operations in 2011. Canadarm is inexplorably linked to MDA's success past, present and future. And I just wanted to take a moment on this special anniversary to salute all those who worked on or with Canadarm and who set the bar so high for the world of space robotics. With that, I'll hand it over to Vito to walk us through the detailed financials.

[Vito Culmone, Chief Financial Officer]

Thank you, Mike. Well, that's pretty cool. Good morning, everyone. We're delighted to be with you this morning to talk about our third quarter results and the future outlook for MDA. Just a quick reminder that Q3 is the first quarter where we had clean quarter comparative to the prior year. And that's, of course, because the company commenced operations through the sale from Maxar to Northern Private Capital on April 8, 2020. On a year-to-date basis, however, the interim condensed consolidated financial statements other than the balance sheet, continue to include comparative information for the period from April 8, 2020 to September 30, 2020. We have continued to provide constructed year-to-date carve-out results, and all our commentary is for the full comparative period. Let's now delve into our Q3 results. Overall, as Mike has indicated, we're pleased with our Q3 financial results. First off, the backlog as of September 30, 2021, was $829 million, an increase of $266 million compared to year-end 2020 levels, reflected incremental awards across our business. Our 2022 revenue outlook, that I will talk to you about in a few minutes, reflects continued robust build of the backlog through the remainder of calendar year 2021 and into 2022. Total revenue for the 3-month period ended September 30, 2021, was $111.3 million. This represents a 13% increase over prior year levels. And on a year-to-date basis, total revenue is $361.4 million, an increase of 16% for the same period in 2020. Revenues in our GeoIntelligence business decreased from $45.6 million for the 3 months ended September 30, 2020, to $40.7 million for the 3 months ended September 30, 2021 and increased slightly from $136.9 million for the 9 months ended September 30, 2020, to $137.9 million for the 9 months ended September 30, 2021. Year-to-date sales of satellite imagery and analytics services remained relatively constant year-over-year, and the Q3 revenue decrease is driven by a temporary decrease in activity on certain service contracts, a onetime event that was halted for maintenance in Q3 2021. In Robotics & Space Operations, revenue was $33.1 million, which is a 6% increase over prior year Q3. And on a year-to-date basis, Robotics & Space Operations, revenue was $103 million, showing growth of 15% compared to the same quarter prior year. A large proportion of this growth in revenue continues to be the increase in activity of the Canadarm3 program. Satellite Systems. Revenue continues to see strong growth once again on both the quarter and the year-to-date. In Q3, Satellite Systems generated revenue of $37.5 million, which is an impressive 74% increase over Q3 2020. We see similarly impressive results on a year-to-date basis where Satellite Systems grew year-to-date over 2020 of 42% with revenue of $120.5 million. This growth in satellite systems is attributable to higher volume stemming from new program awards the restart of the OneWeb program in the first half of 2021 and improved program performance over the same period in 2020. Although the revenue growth over prior year is strong across the business, I wanted to take a minute to talk about the slide if in revenue we experienced in Q3 versus Q2 of this year. Our Q3 revenue of $111.3 million was down from $126.7 million in Q2. And the decline in quarter-over-quarter revenue is substantially timing related and not unusual in our business. This lumpiness in revenue can be expected given the nature of our contracts and the timing of spend on programs using percentage of completion revenue recognition. While our labor profile on programs remains relatively constant, big ticket spend on material and subcontractors can drive higher revenue in one period comparative to another. This is what we saw in Q3 versus Q2 of this year. Moving on to gross margin results. As a reminder, gross profit represents our revenue -- less cost of revenue, which include materials, labor, overhead, threat credits and depreciation. For Q3, our gross profit was $39.4 million versus $30.5 million in Q3 of 2020. For the quarter, this translated into a gross profit percentage of 35% versus 31% in prior year. The year-to-date results for gross profit are $122.4 million with a 34% gross profit versus 88.7% in Q2 2020 and a 28% gross profit. Both the quarter and year-to-date improvements over prior year are due to increased volume and improved program performance over 2020. That makes for 3 strong quarters thus far in 2021 in terms of GP percentage. And although Q4 is likely to show a slight drop due to the impact of seasonality in our business over the holiday shutdown, we're very pleased with our operational performance. Operating expenses. Q3 operating expenses were $38.8 million compared to $32.5 million in Q3 of 2020. And on a year-to-date basis, our operating expenses are $105.9 million compared to $81.1 million for the 3 months comparative period. This increase is primarily due to the additional quarter of amortization of intangible assets resulting from the April 20 acquisition of MDA by NPC and increased share-based compensation expenses following the introduction of a new stock option plan with commencement of grants awarded in Q4 of 2020. Another contributor to the growth in Q3 and year-to-date is an increase in our R&D expense due to heightened activity on our SARnext program. Adjusted EBITDA in the quarter was $31.8 million. This is $3.3 million lower than Q3 2020. And this reduction is reflective of an increase in R&D spend due to SARnext and lower Canada wage subsidy program income on a year-over-year basis, offset substantially by stronger gross profit. In the current year, we recorded -- in the current quarter, excuse me, we recorded $9.1 million in CEWS as compared to $11.1 million in the same quarter previous year. On a year-to-date basis, our adjusted EBITDA was $110.3 million, up from 2020 levels of $96.7 million, and adjusted EBITDA, as a percentage of revenue year-to-date, was 31%, which is flat compared to year-to-date 2020. Excluding the impact of CEWS altogether, on a year-to-date basis, we continue to see a meaningful increase in our EBITDA margin. Year-to-date, 2021 EBITDA margin is 24%, over the 20% year-to-date 2020, which is reflective of the strong improvement in our operating results. In terms of capital spend, Q3 capital spend aggregated to $28.3 million and reflects the continued expected ramp-up of our CapEx investments, supporting our key strategic growth initiatives, including our SARnext program, which is our next-generation commercial EO satellite and telesatellite speed, the Telesat LEO Constellation program. We expect our level of capital spend to increase as we continue to advance these important growth initiatives. We ended the quarter with minimal net debt of $62 million and $424 million of available liquidity. In closing, we continue to be pleased with our first 9 months of financial results, and we continue to see strong results across our key metrics and are continuing to be focused on the successful execution of base and growth programs. Let me now turn to our financial outlook and growth strategies. We're executing, as Mike has said, on specific growth strategies and leveraging our competitive strengths to capitalize on the fastest-growing areas of the space economy. To maximize our growth opportunities, we're investing in R&D, manufacturing, product development and in scale in our business. Our strategic initiatives include investing to develop our next industry-leading EO vision that will provide the broadest synthetic aperture radar area coverage on the market with cloud-enabled ground infrastructure to provide best-in-class download times. We're expanding our high-volume capacity by investing in new satellite manufacturing facilities and modernizing existing facilities with state-of-the-art digital capability. We're investing to maintain our global leadership in robotics design and development by leveraging next-generation advanced technologies, including artificial intelligence and augmented reality. And lastly, investing to attract and recruit top 10 to drive our future growth, including hiring more than 600 new employees since the beginning of the year. A significant portion of this expected growth is underpinned by the existing contract awards of our flagship programs with Telestar, Lightspeed, Canadarm and the Canadian surface combatant programs already under initial contracts. In Q3, we made and are continuing to make significant progress on next phase contract negotiations product definition and risk reduction activities. While initial contract awards for our flagship program provide high visibility into MDA's long-term future growth pipeline, shifts in the timing of contract awards on complex multiyear task-based technology development programs are not on com. And as Mike has said. We continually monitor backlog and contract award timing and we assess their impact on our financial projections. Timing ships, including the Lightspeed program delay announced on November 5, 2021, in conjunction with Telesat most recent financial results, citing, of course, global supply chain disruptions do not affect the lifetime value of our flagship programs estimated cumulative to be $3.5 billion. However, they can impact MDA's near-term 2022 calendar year flagship revenue profile. That impact is mitigated by the diverse nature of MDA revenue, which is well balanced between flagship and nonflagship programs. In addition, we are well positioned to capitalize on near-term new opportunity in the rapidly growing satellite systems market. With all of this, we have narrowed our 2022 revenue target, and we now expect it to be in the $750 million to $800 million range, representing robust year-over-year growth of approximately 50% to 60%. And correspondingly, our 2022 adjusted EBITDA target is now at $140 million to $160 million range. It's an exciting time for all of us at MDA, all 2,200 of us as we embark on this speed growth trajectory and longer-term value creation journey for us, our employees and our shareholders. Mike, with that, I'll hand it back to you.

[Mike Greenley, CEO & Director]

Okay. Thank you. Well, we provided a lot of information. So I think we'll -- with that, we'll open it up to questions. Operator?

[Operator]

[Operator Instructions]. Ladies Your first question comes from Doug Taylor of Canaccord.

[Douglas Taylor, Director]

Mike, Vito, you mentioned in your preamble there that you believe the light speed delays will be measured in months and quarters and not years, which I thought was interesting. I'm curious has Telesat communicated anything about the remedies related to the chip shortage to be able to alleviate that issue that gives you some visibility on what the delays will be limited to?

[Mike Greenley, CEO & Director]

Right now, like the teams are all engaged in the planning process for that. So that everyone is doing their reassessment based on the concerns that Telesat that identified. Our expectations of sort of the pace and length of any delays are based on the project schedules for rebaselining the plan and moving forward. So that's what we're basing that information on.

[Douglas Taylor, Director]

Okay. I'm just curious if they've gone out and started purchasing anything or they found some work around with respect to the actual components that are in shortage or if you're kind of subject to the semi market as a whole right now as many people seem to be?

[Mike Greenley, CEO & Director]

They're in the effect of reworking that off at the moment.

[Douglas Taylor, Director]

Okay. Obviously, any company that deals with hardware, the chip shortage is becoming source of -- subject of conversation. Has that impacted anything outside of the Lightspeed ramp for MDA and any of the other programs or parts of your business?

[Mike Greenley, CEO & Director]

Certainly, there's global supply chain stuff all over the place as everyone talks about these days. We haven't had a negative impact on any of our other programs thus far. The program planning for other programs are taking into consideration sort of the new normal in terms of delays. And so we're finding ourselves buying like long lead items with a bit longer leads, for example, and including the planning for these delays into the programs themselves. So we've not experienced significant hiccups on other programs because it's been planned in.

[Douglas Taylor, Director]

Brings me to another question about the working capital investment in the quarter. Is some of that investment related to, as you just said, buying some longer lead time items and building your inventory to help with this issue? And should we expect a reversal in terms of working capital in the coming quarters?

[Vito Culmone, Chief Financial Officer]

Yes, Doug, it's Vito here. Thank you for the question. Working capital is something clearly we keep a close eye on. And you're absolutely right. It did pop in Q3. A large component of the C3 factor actually was our [indiscernible]. So there was a receivable at the end of the quarter, substantially which we received post Q3. But you're absolutely right. We're working obviously with our clients and our customers and all aspects of that, and we do expect a comprehensive bounce back in Q4 with respect to working capital. I don't see it as a major issue at this point in time for sure.

[Douglas Taylor, Director]

Okay. Last question for me. I mean you had -- I think you said at some point you expected, I think, $350 million in revenue in 2022 from the flagship programs next year. Is it fair to say that your updated revenue now includes about $275 million? And so the entire difference in the guidance is related to the Lightspeed or the flagship programs as opposed to any other machinations with respect to other programs and projects?

[Mike Greenley, CEO & Director]

For folks like us with the kind of portfolio we have, we can now shift across a number of programs. Certainly, at the moment, we see a number of short-term slips in the flagships, amongst others, but primarily driven by the Lightspeed announcement of last Friday. That's the overall picture.

[Operator]

Your next question comes from Thanos Moschopoulos of BMO Capital Markets.

[Thanos Moschopoulos, VP & Analyst]

You alluded to a onetime event in the GEO segment, which is back in the quarter. Could you provide some more color on that?

[Mike Greenley, CEO & Director]

Go ahead. Sorry, can you repeat the question?

[Thanos Moschopoulos, VP & Analyst]

Yes. Sorry, you alluded to a onetime event in GEO, which impacted revenue in the quarter. And I appreciate it was one time of nature, but if you could provide some more color on that?

[Vito Culmone, Chief Financial Officer]

Yes, Thanos we don't give specifics on a program, but this -- it's back up and running in Q4, and it's part of our GEO business. And -- so nothing more specific on that. We just wanted to highlight that really it was a onetime shortfall event in the in the quarter related to a maintenance of a particular service we provide for a very important customer.

[Thanos Moschopoulos, VP & Analyst]

Okay. On Telesat, I appreciate there's some moving parts here, but just given that maybe there's some ongoing uncertainty in the timing, how would you characterize your approach to building that forecast for 2022? Just trying to gauge whether there could be risk of further slippage. How conservative have you taken that program at this point?

[Mike Greenley, CEO & Director]

Right now, like our forecasts are based on, obviously, being very tightly engaged in the program. We have good lines of insight into all the major players, engagements with Telesat with Talos as the prime. Engagement with funding agencies that Telesat will be speaking with. So we use our own information pulled from all those people in terms of everyone's expectations for schedule. And then take a bit of a conservative approach in terms of giving ourselves a little bit of buffer around expectations in our planning.

[Vito Culmone, Chief Financial Officer]

Thanos, we'll shy away from giving specifics as to obviously on the three flagships, what our timing reflects or what our forecast reflects from a timing perspective. We're confident, obviously, in the numbers that we put forward here. There is sensitivity to those, both to the plus and to the minus respect to the timing of it. But as Mike alluded to a high degree of confidence in the number as we put it forth at this point in time based on...

[Mike Greenley, CEO & Director]

Based on everybody's plans and expectations.

[Thanos Moschopoulos, VP & Analyst]

Okay. And then finally, just in terms of your CapEx outlook, is that still kind of -- are you holding the same plan for 2022 as previously discussed? Or has there been any change in timing with respect to how you're thinking about CapEx next year?

[Vito Culmone, Chief Financial Officer]

Yes. At this point, Thanos, we'll probably come back to Q4 and give you guys some -- to give the market some guidance as to our capital. We're going to lean in, continue to lean in for all the reasons we've described. Well, we'll be very, very methodical and measured obviously, as we look at our capacity and our debt availability and whatnot, but no material change from what we described and put forth and discussions to date as reflected in the IPO material.

[Operator]

Your next question comes from David Strauss of Barclays.

[David Egon Strauss, Research Analyst]

Vito, CEWS, how much longer is that going to run? How much more do you expect there?

[Vito Culmone, Chief Financial Officer]

We're pretty well done. The program is -- ended in October.

[David Egon Strauss, Research Analyst]

Okay. And then I guess following up on the Lightspeed question. It looked like, based on the IPO materials, you had been assuming like $80 million, $90 million in revenue from that in '22. So is it fair to assume that you're expecting very little in the way of revenue associated with Lightspeed next year?

[Vito Culmone, Chief Financial Officer]

We have revenue for Lightspeed in there. There's a bunch of puts and takes that occur in the program. I don't want to disclose the actual number for competitive reasons. But yes, we're still assuming activity on Lightspeed next year.

[David Egon Strauss, Research Analyst]

Okay. And I guess a follow-up on the CapEx question. In terms of SARnext, are you -- Vito you think you're holding pretty close to the profile in terms of CapEx for that, that you've previously outlined?

[Vito Culmone, Chief Financial Officer]

Yes. We are -- yes, David. I mean it's early days, obviously, is an incredibly important initiative for us. And we'll look at a lot of alternatives as we move forward. Obviously, as I said, when it comes to balance sheet, we're very, very plus. We've got a business that generates a significant amount of cash from operations. We expect that number to increase over the years to come. But no material change to report in our SARnext outlook at this point.

[David Egon Strauss, Research Analyst]

Okay. And last one for me. In terms of cash balance, what do you think you need to have on hand in terms of cash Vito to run the business quarter-to-quarter?

[Vito Culmone, Chief Financial Officer]

We ended the quarter with $88 million and we have a revolver. So it's less about perhaps the cash on hand and just the availability of the liquidity available to us. And as you heard me report, we are over $400 million of liquidity at this point in time. So we're -- I think the broader question you might be asking there is how do we think about leverage and those sorts of things that -- we talked about that in the past, 2 to 3 is sort of -- we're well below that at this point. We'll be really, really consider measured as we move forward and not a short-term consideration for us at all at this point in time.

[Operator]

Your next question comes from Paul Steep of Scotia Capital.

[Paul Steep, Analyst]

On flagships, just can you talk to timing on where we should think about in terms of the next steps for the major programs? And what -- recognizing not all the announcements will be out there for us to watch, but what we should be watching for maybe over the next 12 months in terms of end of the next steps in meters?

[Mike Greenley, CEO & Director]

Yes. The biggest thing for us to track is just the backlog building as we go through the next period of time. So the biggest activities on the flagships is they're all -- we work on the current phase of work, but we're very busy processing the next round of orders for the next larger phases of those. So the biggest thing to track is the overall backlog build as we go through time. Some of those will have announcements, some of them won't dependent on what we're allowed to say when, but watching that backlog number is a key indicator.

[Paul Steep, Analyst]

And then maybe within Satellite Systems, Mike, can you talk to what the split is right now between LEO and GEO just broadly? And then maybe your outlook for we've seen lots of news around the LEO constellations continuing to happen, but how we think about awards in that area that might help continue to build into backlog?

[Mike Greenley, CEO & Director]

Yes. These will be days, I think we have a solid mix of LEO and GEO at the moment, with certainly the pipeline, as we would have talked about during the IPO process in terms of dollar volume, highly biased towards the LEO constellations moving forward into the future. We've always maintain that there's a geo base there that we're successfully a part of, and we ebb and flow with the geo market in terms of maintaining our sort of market share for geo-satellite sub-systems. Our pipeline that we talked about during the IPO process for LEO constellations continues to remain strong. It's maturing very well. So a number of the opportunities are getting more and more mature. So as we go through the next period of time, we would expect to see increased success in the LEO constellation market. So you'll hear us talking about that more as we go through the future for sure.

[Paul Steep, Analyst]

And then maybe finally not that it's, I think, top of mind, but I noticed it was removed, and maybe it's just the layers getting excited or wanting to cut down your page count in your MD&A this morning, but there was a removal of commentary relating to M&A. Is there any change in your thoughts around M&A, maybe more tempered on that front just near term as you work on what's in hand?

[Mike Greenley, CEO & Director]

No, there was no -- nothing I'm aware of in terms of some big conscious decisions to invest around with M&A language. Like any business, we'll consider M&A where it makes sense moving forward. In terms of where it can be advantageous to us. And so that's just our normal posture. There's been no change to that posture.

[Vito Culmone, Chief Financial Officer]

No read through there, Paul.

[Operator]

Your next question comes from Kristine Liwag of Morgan Stanley.

[Unknown Analyst]

This is Justin on for Kristine this morning. I was wondering if you could provide a little more color on hiring efforts. Do you plan to maintain the same cadence to the end of the year in 2022? Are you seeing any recent issues related to either labor supply or wage inflation that might lead you to think differently that hiring plans?

[Mike Greenley, CEO & Director]

We don't think that differently about hiring plans. We need to hire for sure. So we're -- we have a very good talent recruitment team. They are doing an excellent job working with our hiring managers across the business. We hired about 350 last year. We've hired over 600 this year. So we continue to do so at pace. That's a -- certainly a pan-Canadian activity, but also a global activity as we look for talent that are interested in joining MDA as we go through this next period of growth. It's competitive for sure. Lots of people are going through hiring challenges in the markets these days, and we're hiring for a top end of talent in the engineering and the technical sectors primarily, we're hiring for all functions. But certainly in the large majority is the technical stuff for the program growth that we're seeing and the business activity that we're seeing. That's going well. It's attractive to people to work at MDA. It is an exciting time for the company with a lot of growth. People want to be a part it. And so we're pleased with that. We do have to maintain ourselves as a desirable place to work, and we have to maintain ourselves as a competitive compensator in the market. So in terms of being able to maintain fair compensation and a very exciting work activities with a very solid purpose within the space sector, these things combine well in terms of our ability to track top talent. And that will continue. In terms of the pace, it's based on the pace of programs and initiatives. We will be definitely hiring and continue to be hiring throughout 2022. The -- we've done a lot in '21, as I said, which sets us up for the next phase of growth. There will be some, but it will be in pockets based on specific program needs as we round out specific talent areas inside the larger programs as they progress through their next phases.

[Unknown Analyst]

Great. And on the existing workforce, you mentioned you have the vaccine demand coming up. Do you anticipate any potential disruptions there? And if so, what are the mitigation plans if any?

[Mike Greenley, CEO & Director]

Yes, we don't expect any major disruptions there at all. Everything is moving ahead really well in that regard.

[Operator]

[Operator Instructions] Mr. Greenley, there are no further questions from the phone line, sir. I'll turn the conference back to you.

[Mike Greenley, CEO & Director]

Okay. Thanks very much, everyone, for a great conversation. It's nice to finish the quarter, and we'll talk to you again the next time. Thanks a lot.

[Operator]

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