Q4 2019 Earnings Call

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She had the conference over to your Speaker today, Jason Gursky, Vice President of Investor Relations. Thank you. Please go ahead.

Great. Good afternoon, and thanks, operator, welcome to Max Sars fourth quarter and full year 2019 earnings conference call.

I'm joined today by the company's Chief Executive Officer, Dan Blonsky, <unk>, Chief Financial Officer Big supporter.

Both will make some opening remarks, after which we're going to open up the line for your questions.

We're shooting to wrap up the call in about an hour and as such we're going to ask callers to limit themselves to one single part question and one single part follow up during the Q on a session.

Before we get started I'd like to refer our listeners to the accompanying slides for today's call, which can be found on the company's website Macs are dot com and the investor events and presentations section of our site.

Finally, I would like to remind you that part of today's discussions including responses to various questions may contain forward looking statements, which represents the company's estimates future plans objectives and expected performance at today's date.

These statements are based on current assumptions that the company believes are reasonable but are subject to a wide range of uncertainties and risks that could lead actual results to differ materially from the forward looking information.

You are referred to the advisory regarding forward looking statements contained in our quarterly earnings release, the earnings call slide deck and the company's most recent Mdna section found in our form 10-K, which is available online and other companies see at our profile exceed our dot com.

The company's Edgar profile at FCC Dot Gov or on the company's website at Max our Dot com.

I'd like to turn the discussion over to Dans Your Blonsky Dan go ahead.

Thanks, Jason Good afternoon, everyone.

Please turn to slide three of the accompanying presentation.

I appreciate you joining us for a view of our fourth quarter and full year 2019 results as well as an update on our outlook for the company.

2019 was quite the or one that started with the failure won't be board that culminated with the announced divestiture of Mds.

In between we garnered several key wins across Earth intelligence and space infrastructure, both government and commercial customers. We engaged in the sale leaseback of our manufacturing facility in California, and we issued a 1 billion dollar bond to refinance near term maturities.

I'm pleased with our result, and with the progress we've made.

We generated roughly $1.7 billion in revenue.

$416 million adjusted EBITDA in 2019.

After adjusting out the results from M.D.A., which we've moved to discontinued operations given the announcement to divest our Canadian subsidiary.

On an apples to apples basis to our results for the first three quarters of the year.

Which included the M.D.A. business, our EBITDA performance was substantially inline with expectations.

Next we'll go into further detail during his portion of the call, but I feel this is a good outcome given the start we had to dear.

And these results demonstrate the traction we're seeing and our efforts to position the company for sustained revenue profit and cash flow growth going forward.

No we were roughly break even on free cash flow during the year, including M.D.A. versus the midpoint of our guidance the called for the consumption of $80 million driven by a keen focus on cash management.

Backlog decreased from $2.1 billion to $1.6 billion and included $450 million, an expected burn off from enhanced few follow one contract and $100 million from a failure worldview four.

Absent this burn off backlog actually increased modestly and we ended the year with a book to bill of a little over one for the total company.

Importantly, our space infrastructure business posted a book to Bill of 1.08 times.

Thanks will go into the details of our 2020 guidance later, but I thought I would highlight upfront that we expect revenues to be roughly flat year over year and adjusted EBITDA to fall in a range between 400 and $440 million, which at the midpoint suggests modest growth in.

Importantly, though this outlook includes a $40 million step down in deferred revenue and EBITDA from enhanced B program those pointing to growth for both metrics on a cash basis. This year.

I'd also like to provide a few comments on the President's recently released budget for fiscal year 21.

In a nutshell space was well supported.

Oh through the proposed 12% increase for NASA and the mix shift in d. spending towards the space for us and related programs.

This is an encouraging outcome for both our existing and pipeline programs and suggest to me that the U.S. government is likely to be a growth factor for us in the years to come.

Please turn to slide four.

As you know our top priority for the year was to reduce debt leverage levels and we ended the year with a flurry of activity.

Back in October we announced the sale lease back about facility in Palo Alto.

And then in December we announced the MD a divestiture.

We're pleased with the Delevering nature of these transactions.

And finally, we priced a 1 billion dollar bond during the quarter that better aligns our cash flow streams of future maturities, while providing us a track record in the market.

All key strategic moves that I believe better enable us to take advantage of the growth opportunities in front of us.

Please turn to slide five.

I know, we provided quite a bit a detailed in the press release announcing the M.D.A. transaction back in December, but I thought it might be worthwhile to recap again today and to provide some thoughts on how the divestiture will affect our positioning and strategy going forward.

To begin the sales prices $1 billion Canadian.

Northern private capital a Canadian entity is the buyer.

They appreciate the long term value this franchise and the strategic nature, but to the Canadian government.

The assets being sold include M.D.A., Canada, India UK.

The radar set to program and a small team down in Houston that supports the operations of Canada arm.

Importantly, the sale does not include our U.S. based Pasadena, robotics business, which supports a multitude of programs with NASA and quoting the work, including the work we're doing on Mars Rover and restore L. program.

Next I will be retaining a rich heritage and cutting edge space robotics.

As far as radar sent to is concerned Max several Tim retain the relationship with U.S. government.

And we'll act as a reseller of data and certain other markets as well.

Also importantly, Max I will retain Mds is a key supplier going forward and Macs are will be mds largest customer out of the gate.

At this point, we expect the transaction to close sometime over the spring early summer as we're well underway in our efforts to garner the required regulatory approvals.

The only the Cps process here in the U.S. remaining.

Please turn to slide six.

Our core strategy and customer alignment do not change because of the transaction.

As you can see in this chart Max ours, losing very little in the way of capabilities and franchise programs and we will certainly be looking to partner with M.D. and others, when we sense market opportunity.

I think the clear take away is that our capabilities and opportunity sets will remain diverse.

And we look forward to focusing our efforts squarely on growing the company with the U.S. government Allied nations and commercial customers.

Please flip to slide slide seven as we recap our other 2019 priorities.

We made significant progress in 2019 with the reengineering of space infrastructure, which is the legacy SSL business.

To begin the name change for this segment.

Throughout all of our products and services and in all of our interactions with customers. We're now branded as Max or.

We believe space infrastructure for this part of Max ours business better reflects what we do for our customers given that we're providing flexible space hardware and software architecture is across multiple mission sets, including communications remote sensing robotics power and propulsion.

All in multiple orbitz, including Leo Geo lunar and deep space.

This name better embodies our strategy going forward as well, which is focused on diversifying this business into the civil space and U.S. National and defense intelligence areas.

During the year, we made several announcements to provide positive proof points with this strategy has momentum, including the power propulsion element and Temple Awards.

With NASA.

More recently, we announced that we'll be working with the agency to expand the mission of the restore L. program by attaching to more robotic arms to the spacecraft originally designed for a refueling mission and lower Corbett.

With these additional robotic arms will be demonstrating on orbit assembly a capability that is likely to solve multiple mission needs for both civil and national security customers in the future.

For those keeping score this program is called Spider.

The other one listed here sampler isn't award to provide a complete robotic system for lunar lander, there will be used to explore the moon by acquiring samples of its surface.

All in a pretty good start to moving this business away from its historic single threaded focus on the Geo comps that market.

As far as to your orders are concerned we did announce to during the year, one that will utilize our 1300 class bus and the other utilizing the Legion architecture.

2019 ended up ended as an up here for the industry off what we hope was a trough in 2018.

We're not in the business a forecasting industry volumes, but analysts are suggesting 2020 is likely to see flat to modest volume growth from 2019.

We have solid pipeline coverage that we expect will provide us with solid business on our reengineer footprint.

We saw it more work ahead of US we're moving in a positive direction and once this trend transformation is complete we expect less cyclicality and more predictable financial outcomes from this segment.

On the performance side of things, we made some progress with EBITDA up $58 million year over year.

Thanks will go into more detail later.

Please turn to slide eight.

Our third priority was positioning MDD for long term growth. Following the recently completed radar set constellation mission, which created revenue and adjusted EBITDA headwinds in 2019.

Importantly, we won several awards during the year that better positioned the business for growth over the next several years.

Year over year financial performance was negatively affected by the roll off the RCM program, which launched this past summer and has successfully performing it's on orbit mission requirements.

Please note of course that MD a subsidiary is now part of discontinued operations in our financial statements given the contract we announced in December to divest the business.

Please turn to slide nine.

Our fourth priority was to position, our Earth intelligence business, which historically, we split into imagery and services for long term growth and to make sure that we minimize the impact of the Worldview four satellite loss.

We made good progress to begin we posted 2.5% revenue growth. Despite the worldview four loss driven by recent contract awards with our government customers and our ability to replace some of the lost Worldview four revenue by using other constellation assets.

We also experienced solid adjusted EBITDA growth driven largely by the cost actions. We took at the beginning of the year and growth in JV income the source of which I will describe in a moment.

On the business development side of things, we were awarded a four year contract with the FDA for a global enhance geospatial delivery service, putting this revenue stream from putting well into the future and ensuring that the 300000 plus users inside duty continued have access to this important platform.

We were also awarded the study contract for the Anoro that will enable the U.S. government to gain a better understanding of Max ours current and future commercial imagery capabilities.

The one year contract will support the arrows efforts to further research and assess the U.S. industrial bases ability to task collect process and deliver satellite imagery.

As a reminder, we have been a trusted partner of U.S. government for nearly 20 years, delivering commercial capabilities with superior quality cost security and reliability.

This new study contract with the interim coupled with our recent enhanced few follow on agreement demonstrates that the U.S. government recognizes the value of procuring commercial satellite imagery, both now and into the future.

And it demonstrates the government's confidence and Max ours current and future capabilities.

We are proud to support the U.S. government mission and look forward to continuing to work with the interboro as the increasingly adopt commercial imagery.

Our dry con joint venture with sub which I mentioned, a moment ago and that specializes in the production of Threed models using high resolution imagery.

Was awarded a $95 million ceiling contract for the one world to rain capability of the U.S. armies common synthetic environment.

When combined with the military's training management tool and training simulation software for icon solution will enable units and soldiers to conduct realistic multinational and collective training anywhere in the world.

This is a great example of innovation being driven by a combination of high resolution geospatial data high performance computing and powerful software.

We're very excited about the growth trajectory right, John and the potential uses of cases of threed imagery across multiple verticals, both inside and outside of National security applications.

Importantly, we have a call option on the JV, which is exercisable in the first halves of both this year in 2021.

We also brought several additional countries into the installed base of our offerings this year, including the Netherlands, We recently announced will begin using secure watch.

And finally I would note in the commercial arena, we signed renewal contracts with both here and as rate with here awarding us with their 2019 America's most innovative supplier award.

Both signings demonstrate the continued value we bring in helping to solve difficult problems and two enabling industry innovation.

We are proud to be working with both companies look forward to many more years combined success.

Turning to Legion.

At this point the program is on track with at 600 million dollar budget and is set to start launching in early 2021.

As I mentioned on our third quarter call, we expect customer benefits from the constellation to include regularly refresh coverage of the Europe as well as accurate mapping monitoring and analytics at scale.

Additionally, we will capture best in class image resolution that will allow for accurate and current models of your high resolution three D. A capability that we believe we'll have many applications across our customer set in the future.

We continue to see strong signals from our customers, suggesting that if anything demand likely goes beyond the capacity of our lesion constellation and if there was a significant opportunity for us in the future with our government and commercial customers, both domestically and internationally.

Please turn to slide 10.

We made progress in our efforts to reshape and restructure the business in 2019, and we're seeing good traction with the deployment of the new operating model.

Showing up with customers as one Macs are has had a powerful marketing impact.

Our product teams continue to work across the company and our global field operations team is building in executing on a robust pipeline.

Our finance and operations staffs are continuing the consolidation and streamlining efforts.

As a reminder, we expect this initiative to save money improve our time to market with new products and services and improved collaboration across the organization all of which are beginning to unlock growth synergies and improved team member engagement.

Please turn to slide 11.

Looking ahead to 2020, our priorities will not likely come as a surprise to those that have been following us over the past several quarters.

We'll be focused on getting the MD transaction close that we've reduced debt levels.

We'll also be looking to deploy capital in a disciplined fashion and maintain the financial flexibility will need to fund the growth opportunities, we see in front of us.

In the space infrastructure business, we will be focused on executing well on our existing backlog, particularly the underperforming programs that have put pressure on financial results over the past couple of years.

We will also continue to work our investments in power proposing robotics and modular spacecraft architectures. All key technologies that we believe will support the future and current missions of our government and commercial customers.

And of course, we're going to be laser focused on our business development efforts in the civil and U.S. defense and intelligence markets.

And our intelligence will be focused on completing the worldview Legion constellation build and getting ready for launch ramping up our sales and marketing efforts of the capacity. This constellation will add to our existing operations and continue our investments in artificial intelligence and machine learning.

Analytics platforms and products, all with an eye toward getting this business set up for sustained growth.

Please turn to slide 12.

Before I hand, the call over to Biggs I'd like to revisit the framework, we introduced back in the third quarter to help investors understand how we're thinking about the outlook in the near medium and longer term for the company.

The near term, including 2020 is about resetting stabilizing our business. After the order decline experienced them geo comps that market over the past several years philosophy will before and completing the buildout of our Worldview Legion constellation.

We've been laser focused on reengineering execution in business development to position the company for return to growth in the medium term.

Well I cant declare victory on that yet I do believe we've made tremendous progress in 2019.

Longer term, we expect to accelerate growth by deploying our new constellation assets in New York Intelligence segment executing on our growing bat backlog in analytics and services and reaping the rewards of our diversification efforts in space infrastructure.

With that I'd like to turn the call over to the begs for review the financials. Thanks.

Thanks, Dan.

Excuse me four would begin to discuss results for the year.

I don't be helpful to extend the GP activities took place during the fourth quarter.

First we issued 1 billion in 2023 nodes and we closed on the sale of our Palo Alto real estate.

And leaseback sale leaseback transaction during December.

Net proceeds received from the real estate note transactions were used to repay all the borrowings that were outstanding Septemberthirty 2019 under revolving credit facility and term loan a.

As well as certain fees and expenses related operating on the notes.

This transaction also extended maturities to better align with our forecasted cash flow straight.

Second we entered into a definitive agreement to sell M.D.A. for $1 billion Canadian.

Plan to use the proceeds from this sale net of expenses in any reserve for contingencies to reduce leverage and continue to improve our capital structure.

The transaction included all of them Da's Canadian businesses.

There is important to note that as a result through sale the results of Mds segment.

That being classified as discontinued operations in the financial statements for all periods presented.

Also we re segmented the way we report our results throughout 2019, we implemented strategic initiatives to stabilize and position the company for growth.

Part of this included take you look at how we view our businesses, particularly in light of Dan's appointment as CEO Macs are in January.

We solidified our view during the fourth quarter, which resulted in a recent inpatient over business units into three segments.

Intelligence space infrastructure in India.

Our legacy imagery in services business, excluding the radar imagery business that was a part of the MD 80 transaction.

Our now included in what is called the Earth Intelligence segment.

Our legacy space system segment included the results of the Storable SSL slashed based solutions business as well as MD.

We are separated these out so that now the results of legacy SSL are reflected as a space infrastructure segment in continuing operations, while India. The radar imagery businesses are now included in discontinued operations.

Also included in discontinued operations or taxes, and certain corporate costs, which align with India is legal entity.

It's worth noting that as a part of putting India in discontinued operations. It is now accounted for as if it were a totally separate enterprise.

This means that former intersegment intercompany eliminations related to M.D.A. are no longer reflected in our consolidated financials.

Finally in 2018 or auditors flag material weaknesses in our internal controls over financial reporting.

This was largely attributable to the amount of change being managed in 2018, which was our first year under Sox requirements.

We initiated the remediation plan during the year and are happy to report that these material weaknesses have been remediated and are reflected as such in our 10-K.

Please turn to slide 13.

Where we present year over year comparisons for Q4 and full year 2019 results.

Total company revenues declined 2% year over year in the quarter due to decline in the space of structures segment, partially offset by an increase in our intelligence.

Adjusted consolidated EBITDA margin increased 770 basis points year over year, driven by higher margins in both segments, the detail, which I will go into in a moment.

Corporate and other expenses were higher year over year, driven primarily by their attention cautious space infrastructure that I have discussed in prior quarters.

These are tension costs were encouraged to stabilize the workforce efforts TG shifts over the last two years.

We believe it has had the desired effect. The recent Linzess based infrastructure also are having a very positive effect on the workforce.

There was also an increase in expense as result of a shift a certain functional cost to corporate in conjunction with our refining of our segments.

Some of these costs also shifted to space infrastructure with a corresponding reduction to Earth intelligence.

GAAP EPS from continuing operations was 87 cents versus a loss of $8.18 in the fourth quarter of 2018.

Been largely but the impairments taken in Q4 2018 related to the continued decline in the overall June comps at business environment.

A large drop in the stock price during Q4 2018.

As well as a loss of Worldview four satellite.

For the full year 2019 revenues declined 8% driven by lower volumes as based infrastructure in part offset by the growth in.

The north and in the Earth Intelligence segment.

Adjusted EBITDA margins increased 280 basis points, driven by higher margin in both segments.

EPS from continuing operations was $1.38 versus a loss of $15.03 last year, driven by the Worldview four insurance company sure its recovery.

In Q2. This year. In addition, the gain on the sale and leaseback to the Palo Alto real estate transaction.

While the loss last year was driven largely by the impairments described earlier.

Please turn to slide 14.

Earth intelligence revenues increased 8% year over year in the quarter, primarily as a result of new contract Awards program expansion on existing contracts across the us government business.

Partially offset by the loss of Worldview four revenues.

This growth is very strong when you consider that with the loss review for.

At a negative effect on revenue.

Adjusted EBITDA margins expand the 850 basis points year over year in the quarter, primarily due to growth very bright gone JV and cost reduction efforts, partially offset by the loss were all before revenues, which had higher margins.

With regard to strike on we're seeing this entity now reached the point, where significant awards are coming in and the product is maturing.

For the full year 2019 Earth intelligence revenues were up 2%, primarily as a result to the items mentioned earlier.

Adjusted EBITDA margins increased 180 basis points also driven by the factors mentioned earlier in addition to a shift a certain functions to corp.

Please turn to slide 15.

Space infrastructure revenues were down 13% year over year in Q4, driven primarily by decline NGL comps at activity and see growth.

Actually offset by liquidated damage charge taken in 2018, which did not recur during 2019.

Adjusted EBITDA margins increased.

270 basis points.

And by the lower research and development spend cost improvement as a result, the restructuring efforts and the 2018 occurred liquidation liquidated damages charge previously mentioned.

This was partially offset by a seat growth during the quarter on certain projects and the higher allocation to corporate expense referred to earlier.

For the full year 2019 space infrastructure revenues declined 14% driven largely by the factors mentioned previously.

Adjusted EBITDA margins have increased 670 basis points also as a result of the factors mentioned earlier.

The overall adjusted EBITDA loss of 17 million for 2019.

As a marked improvement over the loss of 75 million at the end of 2018.

And while we are not yet where we expect this business to be we continue to be encouraged by the progress. This segment is making.

I want to pause here on space infrastructure.

About how it has progressed despite some major headwinds.

We've talked about the decline in revenues as a burns off legacy business.

Under the fact that there are contracts, which are underperforming.

In the fourth quarter, we increased cost of one of these contracts in large part due to cost growth passing through to space infrastructure from MD a there previously would have been eliminated.

This included the conversion of the MD, a subcontractor effort to space infrastructure to a fixed price arrangement.

All in the detrimental effect in the quarter attributable to India.

It was 6 million.

For the full year, the negative effects of India is cost growth flowing through to the bottom line of continuing operations was 20 million.

By converting this to a fixed price arrangement, we compensated M.D.A. for taking risk, but also significantly reduced our continuing operation risk going forward.

Most divestiture.

Another supplier engaged at a cost type development some contract had similar overruns in 2019.

But as now set to start delivering hardware, which should reduce risk.

Combined with some internal cost challenges will be worked our way through development efforts in early assembly.

This one program head over 50 million cost increases affecting space infrastructure segment earnings over the course of all four quarters or 2019.

Once again in part due to the separation of India, which is now treated as an independent company.

Individually each quarter these cost increases or moderate when you look at it from a full year standpoint, there are worth noting.

So despite over $50 million costs hitting the bottom line from this one program space infrastructure.

The only had a 17 million dollar loss.

Given the conversion of the MD effort to fix price and maturing of the other subcontractors, we're past the development phase as real opportunity for future improvement in space infrastructure results.

New contract wins continue to support the business base combined with improved performance on new business will be or other critical success indicators.

Please turn to slide 16.

Moving back to results.

Quarter over quarter net loss from discontinued operations and attacks from the MD. A settlement was 10 million in Q4 19 compared to loss of 456 million.

In Q4, 2018, primarily driven by goodwill impairment taken in this segment.

For 2018.

Also impacting these results will decline in volume 2019, which decreased revenues and costs.

Net income from discontinued operations and then attacks from the Mds segment was 26 million for the full year 2019 compared to net loss.

307 7 million.

In 2018.

Largely driven by the factors mentioned previously.

In addition to the expected wind down the RCM program and a 32 million reserve contingencies recorded in Q4 2019.

Please remember that this should operations includes taxes and certain corporate costs associated with EMEA is legal entity and that these numbers are not directly comparable to what we previously indicated Mds adjusted EBITDA was expected to be for 2019.

Oh put this in more context in just a moment.

Please turn to slide 17.

This slide bridges, our reported consolidated adjusted EBITDA from continuing operations. So the way we've previously guided our results, which had included India is a continuing business.

We are presenting his view to give investors a full picture of 2019 adjusted EBITDA against the guidance given throughout the year.

There are various ways to look at this but Mds actual EBITDA was 81 million compared to 85 million in our guidance.

The rest of the company was 416 million compared to 425 million our guidance.

The $9 million below guidance performance continuing operations is more than explained in the fourth quarter by the 6 million dollar effect of higher share price on incentive comp expense and cost increases as space infrastructure related to MD Eightys subcontract work.

Please note this will be the last time, we present this view of our business from now on we will give guidance and report just in our continuing operations under the new segmentation as previously described.

Please turn to slide 18.

The company generated $175 million, an operating cash flow this quarter and invested 115 million in capex develop intangibles.

For the full year, we generated through and 17 million operating cash flow, it's been three and 21 million on Capex and intangibles.

We outperformed the middle of our prior guidance on operating cash flow largely due to improved cash receipts on new business it space infrastructure, some which accelerated into 2019 point 2020.

We spent less on capex and our prior guidance as a result to good discipline and the timing of expenditures, which also had some carryover into 2020.

Space infrastructure generated nine managed solid operating cash flow in the quarter.

And consume $75 million for the full year as recent New award activity had a positive effect.

As a reminder.

Let me discuss cash interest payments in the fourth quarter 2019, or what that means going forward into 2020.

Q1 to 2019 included a doubling up of interest that added $42 million of cash outflow in that quarter relative to the norm.

We paid a full quarters, where the cash interest in Q2 in Q3.

We previously had a deferral feature on our debt, where we did not hit to pay interest in the fourth quarter, which led to the doubling up in Q1 of this year.

Sales of 19.

However in connection with the refinancing in Q4, we repaid 12 million and accrued interest on the term loan a and revolver.

Going forward interest payments on a 23 three notes began in June 2020, or payables semi annually.

We will not have the deferral feature on these notes that we previously.

With that we did previously and we'll pay interest in the fourth quarter 2020.

And going forward.

Please turn to slide 19.

We finished the quarter with consolidated net debt of roughly 2.9 billion down 220 million from Q3 as result of our de leveraging efforts during the quarter.

Our bank to fund leverage ratio ended the quarter approximately.

5.0.

Up roughly 110th of a turn from Q3 as trailing 12 month. Thank adjusted EBITDA declined due to the roll off with FX allowed for under the credit agreement.

Importantly.

We remain well below our covenant.

We had roughly 587 million of liquidity it at the end of the quarter. The a combination of cash on hand on availability on our credit facility.

Please turn to slide 20.

As mentioned earlier, we closed on our sale leaseback transaction on our Palo Alto manufacturing facility during the fourth quarter, we used the net proceeds to retire our 2020 maturities.

We are happy with the execution or Delevering strategy during the pier we plan to use a net proceeds received from the MD sale once closed to pay down debt, which will bring down our current debt levels significantly.

Looking to the future, we expect increase cash generation in future years from expansion and adjusted EBITDA and lower Capex as our investment in a world be lesion constellation will continue for two more years after which we'll be we will be positioned so much greater free cash flow to de lever.

Please turn to slide 21.

From revenue perspective, we expect or is intelligence to be roughly flat year over year, Despite a $40 million headwind from the burn off of deferred revenue in 2020.

We also expect flattish revenue space infrastructure in 2020, as we see the revenue declines in this segment beginning to abate. After several years of decline given the awards we received 2019.

At this point approximately 75% of space infrastructures 2020 revenue is in backlog.

We expect intercompany eliminations to be approximately $80 million as ESI continues to work on the Legion program.

Ticket in total we expect consolidated revenues to be roughly flat in 2020.

Moving on to adjusted EBITDA guidance, we expect Earth intelligence margins to be between 47% to 49%, which is roughly flat when normalizing for the deferred revenue burn.

We expect space infrastructure to be roughly breakeven.

We expect intercompany eliminations to be approximately 25 million and corporate other expenses to be approximately 65 million.

We expect to decline in corporate and other expenses in 2020 is largely driven by the roll off of the onetime retention cautious based infrastructure previously mentioned.

In total we expect consolidated adjusted EBITDA adjusted EBITDA to be between 400 and 440 million.

In this year.

We're not going to keep in mind as stock comp expense, which is embedded in this segment level.

As we saw during the fourth quarter 2019 stock comp expense can fluctuate depending on performance of our share price.

Operating cash flow, we expect a range of 150 million to 250 million, excluding transformation and restructuring costs.

Which we expect to be immaterial this year.

We expect capex for the year to be in the range of 275 million to 300 million, excluding capitalized interest of roughly 40 million.

Both 2020 operating cash flow and Capex reflect the carrier effects of the favorable timing of cash receipts and expenditures in 2019.

We expect depreciation and amortization roughly 335 million this year.

Interest expense is expected to be in the range of their RG 165 million 285 million and as interest expenditures.

Our expected to come in at roughly 210 million this year.

With approximately 40 million of that capitalized.

We continue to forecast roughly zero percent effective tax rate does it benefits over and it will carry forward.

Listing of shares will increase our share count slightly to 62 million.

Please turn to slide 22.

I'd like to revisit the discussion we had during our third quarter earnings call back in November of last year.

About how we see cash adjusted EBITDA and free cash flows playing out over the next several years at least as we see it today.

As you'll recall, we suggested that we saw a path for 200 million and adjusted cash EBITDA growth and 500 million of free cash flow growth by the 20 to 2023 time period relative to 2019 guidance after normalizing for 120 million a deferred revenue and higher.

And 83 million insurance proceeds from Worldview four loss.

We then went on to say the time of the MD eight transaction that we expected the outlet did come down by 50 million for both EBITDA and cash flow. After the divestiture was complete.

So starting with it.

Cash adjusted EBITDA lift and column of this slide.

We were expecting at the time of the third quarter call roughly 309 million in cash adjusted EBITDA.

Which was the.

The 510 million or greater guidance list of $120 million and deferred revenue.

To that we added several items, most notably the growth in North intelligence post launch Allegion.

That leads to roughly 540 million in cash adjusted EBITDA.

And at that 20 to 23 timeframe after the MBK sale.

The right column gets into the same bottom line number in that timeframe, but shows you how to get there when starting from our 2019 actual results from continuing operations.

We start with 300 million in cash adjusted EBITDA.

Which is the 416 million, we reported less than $120 million and deferred revenue.

So that we're adding Legion driven growth that Earth intelligence, and then in turn and profitability in space infrastructure.

Importantly, we incurred 60 million in negative.

In 2019, including the one program as discussed earlier that we do not expect to recur.

As well as 25 million and retention costs that we don't expect to recur.

We also expect continued to see other growth across the company.

Unwrapped altogether, we continue to see $540 million cash adjusted EBITDA in that 20 to 23 timeframe.

Please turn to slide 23.

Turning now to the free cash flow outlook.

Similar set up the prior slide with the left 10 calm representing what we discussed on third quarter call as well as the update we provided in the NDA Divesture announcement.

Starting at the top the midpoint of our cash flow guidance, excluding the 183 main insurance proceeds.

Called for cash consumption of 260 million.

From there, we guided to 500 million and cash flow growth driven by reduction and capex retention in restructuring payments as well as EBITDA growth across the business.

With introduced that outlook by 50 million to account for the M&A transaction, which resulted in 450 million cash swing, but time will get out to that 20 to 23 timeframe. All that gets you to higher 90 million and free cash flow.

Now the right hand column here gives you our current outlook building from 2019 actual results from continuing operations.

And as you see the end result is the same $190 million in free cash.

20 to 23 time period.

We start with the 240 million cash consumption again normalized for the 183 million in insurance proceeds and add to that a decline in capex retention restructuring a cash interest costs.

As well as EBITDA growth from the business importantly, this outlook has patients infrastructure generating a modest amount of positive cash flow, assuming roughly 75 million in 2019.

And finally, please note that we have set aside 70 million for negative working capital or timing given the difficulty of rejecting collections of payments that far out with any precision.

Wrapped together, we see $430 million and cash flow growth, which brings us to the same targeted total of $190 million of free cash flow and the 20 to 23 time period.

As we've said before we remain committed to the Capex holiday and would take something truly compelling change that.

So to summarize my comments.

We have grown earth until his despite the loss, we won't before and have positioned it for further growth.

We've operated near breakeven is space infrastructure. Despite the challenges of the development program and are building a sound base for the future.

We outperformed on cash flow and de levering actions and have a clear path to future leverage improvement.

With that I'd like to ask the operator remind listeners how to queue up for questions and open up the line.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby will be compiled acumen a roster.

And your first question comes from Ben Arnstein from JP Morgan.

Thanks, and good afternoon, everyone.

Hey, good afternoon.

Okay.

Yes, so I appreciate all the kind of the detail around the.

Kind of longer term cash flow walk I guess, maybe a little bit more near term thinking about 2021, what are some of the headwinds and tailwinds to think about and can you be no cash flow positive next year.

I think I'll turn it over to bags of course, we haven't given guidance out to 2021, yet but.

Yes, so as Dan says, we're we're not going to give guidance or the 2021, but the answer your question is certainly.

Can be cash flow positive I think.

If you.

You might put a perspective this way.

We were.

Better than what we had guided two in 2019 by about 80 million and free cash flow and is that largely that was timing or a pull things in from 20.

The middle of our range for 20 is a negative 127, if you added that 80 back.

I had a negative 40 cents so.

The.

The ability is certainly there to continue to drive that improvement going forward.

Okay. Thanks.

And then you've got some of this growth I guess in Earth intelligence that is outside of Worldview. Four can you kind of clarify where that is.

Stemming from.

Sure so.

Really excited about the heavier intelligence business has done if you think about losing the satellite the beginning of year and.

Having lost the $85 million ish of revenue and pretty close to EBITDA on that.

Get back to the modest growth has been done a fantastic performance by the team.

We're seeing that across all of our customer segments.

US government International Defense intelligence and commercial.

And so we picked up across all those some of it was capacity related on the other assets in the constellation and so good job on teams getting that sold.

Some of it was related to some infrastructure investments we had.

The U.S. government as we move into.

Our what our new architecture and infrastructure will look like.

And some of it was.

Growth in the services component the business as well.

So I guess.

Pretty powerful against all those were really looking forward, though to getting both the leasing constellation online to really really see the growth.

Accelerate in the business.

And then as we also noted we had.

Some growth in the fourth quarter related to the bright conjoined venture with sobbing the threeg.

Offering behalf.

Great. Thank you.

Your next question comes from the line of Robert Springer from Credit Suisse. Your line is open.

Hi, This is Scott I guess for Robert Spingarn.

The question I have is for Worldview Legion are there any from customer agreements in place or strong signs of interest and as a follow up if there are some agreements in place can you provide some color on how much is recapture from worldview four how much is from new customers.

Yes. So we're we're in the final stages of getting the Allegion constellation built.

To start shipping towards the end of the air and then launching of.

Early in 2021.

Until the constellation is on orbit and checked out we won't be able to to book revenue on it. So thats more of a 2021 event in terms of revenue.

We have seen very strong interest from customers sales and marketing teams are hard at work and the demand signals are really strong.

What you should expect is that will make announcement, so overtime as appropriate and has allowed pro some of our customers as we've noted a few times were.

Some of the dependent or.

Teligent customers, we have our super excited about us announcing that they are in this constellations.

Okay. Thank you.

Sure.

And as a reminder to ask a question press Star one on your telephone. The next question comes from Tim James from TD Securities.

Thank you.

Just wondering if you could expand in your comments in.

That you see demand potentially going beyond the capacity of royalty region, and I see you're thinking longer term there, but it sounded interesting im just wondering if you could kind of provide some additional color around that.

Yes sure Tim.

As we make the highest percentages of our our revenue and profits.

We oftentimes make those in very constrained areas of the world.

And in some of those areas, we had been sold out on Worldview four and so we're looking forward to getting the Legion constellation up now we're really sold out in those areas. So we're seeing over demand in some areas there and I guess, that's what I'm referring to.

We're still in the sort of beginning innings of getting out and fully marketing the constellation capacity and.

Demand signals are very strong at this point of both on a worldwide basis, but also some of those areas, where we make most of our revenue and profit.

So if I can just clarify that make sure I understand so what you Musa those those high demand regions of the world you're suggesting.

We'll be region capacity is up an available there you you're seeing that the demand could exceed the capacity in this high demand regions.

Certainly possible and we'll be providing quite a bit more detail during the investor briefing on on Wednesday.

As well, but yes that that's generally what we're seeing right now.

Okay.

Great. Thank you very much.

Thanks, Tim.

And at this time there are no further questions I will turn the call back over to the presenters.

Okay great.

So Jason thanks, everyone for dialing in.

This afternoon.

As Dan just mentioned, we are hosting an investor briefing on Wednesday out in Palo Alto, there will be webcast from 11 am to roughly two pm.

Eastern.

For those of the you that.

Can't travel in person, we hope that Jill.

Listen in on the webcast and.

Happy to answer more of your questions after.

At the event and in the weeks.

Thanks for dialing in this afternoon.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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Yeah.

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