Q2 2020 Maxar Technologies Inc Earnings Call

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Yeah.

Today's conference is scheduled to begin momentarily until that time your lots will be placed on hold thank you for your patience and police continue to hold.

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Ladies and gentlemen, thank you for standing by welcome to put them back far technologies. The Q2 2020 earnings call at this time, all participant lines our name listen only mode.

After the speakers presentation, there will be a question and answer session.

Ask a question during the fashion you what do you prefer a star wondering your telephone please be advised that today's call is being recorded.

If your car any further assistance. Please press star Zero I would now I think on the conference over to Mr., Jason Gursky, Vice President of Investor Relations and Treasurer. Thank you. Please go ahead.

Good afternoon to thanks, operator, welcome to banks, our second quarter 2020 earnings Conference call I'm joined today by the company's Chief Executive Officer, Dan's Your Blonsky and its chief financial Officer Big supporter.

Well, if they're going to make some opening remarks, after which we're going to open the line for your questions.

<unk> before we get started to like to refer listeners to the accompanying slides for today's call, which can be found on the company's website, Max or dot com Indian but investor events and presentations section of the site.

What's there please turn to slide to what I would like to remind you.

That part of today's discussion, including responses to various questions may contain forward looking statements, which represent the company's estimates future plans objectives that complements at today's date and assumptions that the company believes are reasonable but are subject to a wide range of uncertainties and risks that could lead to actual results to differ materially.

From the forward looking information.

You referred to the it contained in our quarterly earnings release.

The earnings call slide deck and the company's most recent Mdna section found in form 10-Q, which is available online at the company's cedar profile at Cedar Dot com under the company's Edgar profile, it FCC dot gov or on the company's website.

That makes our dot com.

With that I'd like to turn the discussion over to Dan Dan go ahead.

[noise], Thanks, Jason and good afternoon, everyone.

We appreciate you joining us for a view of our second quarter results and an update on our outlook.

Importantly, I hope this call signs you and your family safe and healthy.

As you're all aware the world continues to come back to Corona virus outbreak and our objective objective at Max ours to ensure the health and welfare of our employees and their families our customers and our communities.

We remain focused on protecting our workforce well producing the products and solutions needed by our partners to complete their critical missions.

I'm pleased to report that all Max our locations remain operational through a combination of work from home unlimited personnel working on site.

I remain encouraged to continue delivering on essential services.

While minimizing risks to employees and our communities.

As I mentioned last quarter, we identified four primary risk areas related to cope it.

Supply chain.

Workforce productivity.

Longer sales cycles, it's given social distancing restrictions.

We're also closely watching trends on infection rates vaccine development efforts and anticipating the impact that back to school protocols could have on our teammates with children at home.

Our mitigation strategies have been working so far so we're seeing some potential push outs on commercial awards in the Earth intelligence business given in the long getting sales cycle.

Redoubling, our mitigation efforts on commercial sales and hope to close out as many deals was practicable by the end of the year.

Overall, the demand environment for our products and services remains resilient and robust.

Our Earth intelligence customers continue to rely on us for important national security and commercial missions and we've seen a little to no impact on underlying demand for our Earth intelligence products and services. This.

Just modestly longer sales cycles with some of our commercial customers.

In space infrastructure demand to has been little affected.

In fact, we had another solid quarter of new orders in Q2 haven't announced over seven date.

I'll go.

As we go through the presentation.

Please turn to slide free three for some highlights of the company's recent performance.

This was another busy quarter and I'm pleased with a solid performance of the team.

First we began extending our debt maturity schedule with a $150 million notes offering that will come due in 2027.

Proceeds were used to acquire the remaining 50% of Threed technology company right John that we did not already own.

I'm really excited about the combination of these two transactions as it plays a key technology fully in our hands and put our capital structure on firmer footing.

Moving to quarterly performance, the Earth intelligence business posted solid 6% year over year revenue growth.

This is a great outcome by the team and we look forward to further success in the quarters in years ahead, particularly as lesion capacity comes online to help meet the solid demand we see.

Importantly, adjusted EBITDA margins expanded more than 500 basis points year over year, driven by mix and lower expenses in light of cobot related travel restrictions and other savings.

In space infrastructure, we saw a return to year over year topline growth and roughly 200 basis points of margin expansion.

This is a market improvement over the first quarter of the year, which absorb charges related to co bid on a satellite program.

I'm happy to report that that testing and.

Nominally related charges appear to have been sufficient and we're looking forward to getting the satellite shipped and launch.

We also had another solid quarter of diversified bookings and finished with a book to Bill over 2.5 times for the second quarter in a row.

[noise] getting just a little bit of background noise there.

Total company adjusted EBITDA increased $30 million year over year and margins expanded more than 500 basis points driven by solid performance at our intelligence.

Improvements at space infrastructure and lower expenses.

Free cash generation tracked in line with expectations at $11 million, which has an improvement from the first quarter, when we consume $73 million.

Total company book to Bill was roughly 1.6 times in quarter and now stands at approximately 1.4 times year to date.

That number of course has dampened by the continued drawdown of backlog related to the enhanced few contracts signed in 2010.

Without this effect book to Bill would have been higher.

As you know enhanced fee related backlog from the original contract will burn to zero this quarter and move to booking annual option exercises into backlog when we receive those orders, which is typically late in the third calendar quarter each year.

No no few words on guidance.

We are increasing both revenue and adjusted EBITDA guidance for the year.

Driven by solid execution in Q2, and the inclusion of right kind in the forecast and that's offset just given the elongating sales cycle I mentioned earlier.

Adjusted EBITDA guidance for the year moves up to a range of $415 million to $445 million.

Which is $40 million higher since last quarter and is now above the initial guidance, we issued on our fourth quarter earnings call in March.

Turning to slide four for an update of our.

2020 priorities.

First we said back in the fourth quarter call that we'd be focused on getting the MD a transaction closed.

So that we could reduce debt levels.

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

Despite coded we closed the MD a deal and reduced our indebtedness.

Our leverage ratio is healthy relative to covenants and we had over $500 million in liquidity at the end of the quarter.

We also began extending our maturities that have no material debt due until the end of 2023.

And more importantly, we deployed capital into the for icon asset, which we believe will extend our leadership in the Earth intelligence business.

There's a great steps and provide us with flexibility to execute on our multiyear growth plan.

Our second priority is to continue to position our Earth intelligence business for long term growth.

Focusing on the Worldview Legion build.

Ramping our sales and marketing efforts of the capacity this constellation will add to our existing operations and continuing to leverage our investments in artificial intelligence machine learning analytics platforms and products.

Here again, we're making good progress the segment is growing 6% year to date. In addition to the Janice here and Toyota Awards, we announced in Q1, we signed five large international fence renewals this quarter as well as a 23 million dollar contract with the department of Homeland security to develop an analytics system for characterizing and tracking the.

Behavior of vehicles in multiple domains at scale and in near real time.

The brick on acquisition will be a key part of our growth story going forward given unique threed capabilities software and technology it brings to our customers.

Few words about the Legion program, which remains in line with budget expectations and we continue to expect launches to begin in the first half of 2021.

We're in active conversations with both government and commercial customers about Legion.

And we expect the constellations capacity will be a driver of growth over the next several years given the solid demand signals, we continue to see.

The sales cycle is tracking in line with our expectations and we will provide further updates as we get closer to launch.

I'd like to take a minute to remind investors of our longstanding relationship with our largest customer the U.S. government.

Macs are has been a trusted provider of commercial satellite imagery to the U.S. government for nearly 20 years.

Delivering innovative solutions with superior quality cost to speed security and reliability.

And we continue to innovate.

We provide online near real time access to geospatial data for more than 300000, U.S. government users through our relationship with a national Geospatial Intelligence agency.

We're helping stand up a threed synthetic training environment with the Us Army.

And our recently completed commercial imagery study contract with the U.S. National Reconnaissance office.

Coupled with the enhanced few follow on agreement signed back in 2018 demonstrates that the U.S. government recognizes the value of commercial satellite imagery and highlights the U.S. governments confidence in Maxxforce current and future capabilities like Worldview Legion.

We're proud to support the government's missions and look forward to continuing to work closely with the end GA.

Army and with the Anoro as it increasingly adopt commercial imagery.

As you are aware the enhanced to follow on his predecessor as a multiyear agreement subject to annual renewals on September Onest of every year.

This renewal dynamic has been very predictable in the past and we expect the same outcome later this quarter.

However, our current expectation is that sometime prior to the next renewal cycle in September of 2021, better customer is likely to put us on a new contract vehicle as it looks to potentially expand its use of commercial geospatial data sources in future years.

From what we understand this acquisition process is likely to include other companies interested in providing data to the U.S. government.

Max or is the leading commercial provider geospatial data and analytics and as long competed successfully with advanced technologies and a track record of solid execution.

We're also a U.S. company with satellite assets that were and are being manufactured here in the U.S. launched with us providers and are operated out of U.S. facilities.

We think we have great advantages that position us well in future competitions for commercial and government contracts here and abroad.

Earth intelligence is a growing market and a strong competitive environment is positive for both the industry and as customers as far as innovation lowers costs and proliferates the use of the industry's products and services.

We are excited about the opportunity to continue to provide world class service and are confident in our ability to match, our product and service capabilities to the U.S. governments and other customers growing needs.

Turning now to our third set of priorities for the year, which has been the continued reengineering and diversification of space infrastructure.

Again, we've made solid progress year to date with bookings in both the civil and commercial markets and that combination has led to more than $700 million, a new awards year to date.

And a book to Bill of 2.5 times for our space segment.

On re engineering, we continue to make progress on plans to reduce our footprint and a streamline processes and operations.

On the performance side of things for space and for second quarter, both on a year over year.

Here and a quarter on quarter basis.

Revenue returned to growth.

Driven by ramping U.S. government to 6% better reflecting the underlying profit potential we see overtime.

Hi.

Recall this business is working its way through some programs and forward loss positions, which 21.

We expect to normalized adjusted EBITDA margin.

And this quarter's performance provides.

The view of the underlying health of our remaining backlog.

Pretty full pipeline across the commercial civil.

Both military and classified domains.

In commercial we're seeing a mix of Geo and Leo demand while in civil we continue to pursue missions that leverage our 1300 class architecture, and our robotics and solar electric propulsion and power capabilities.

On the military and classified side of things there are a number of programs related to the U.S. governments increasing investments.

Space.

Particularly in systems with distributed architectures for suffocation and believe that successful execution of our strategy will lead to sustained growth overtime.

Before moving on I want to double click for a moment on the commercial Leo Coms area, given the high profile nature of some of the recent headlines.

Over the past few quarters, we've seen a bankruptcy to.

Discussion of operations and even some successful launches.

We're going to remain very disciplined in our approaches across both Leo angio offerings, and we'll look to carefully balanced risk with reward as the dynamics of customer plans and initiatives evolve.

We have an outstanding range of capabilities across both Leo Angio and the capability to design develop and build the wide span of network architectures that our customers are exploring.

But we will not likely pursue nor when every available program and importantly, we have not factored the proposed telesat Leo program into our current and multiyear outlook.

I hope that our investors I just on profitably growing the come.

Funny.

We will be steadfast and pursuing our diversification strategy to drive sustained growth overtime, both in terms of risk and reward.

Which leads me to.

To emphasize what we view as the core investment thesis in Mexico.

First.

As I discussed we have solid visibility across the.

Some of our revenue streams are derived from the Earth.

Data analytics and platforms.

To domestic and international International Governmentally through recurring multiyear contracts.

The other 40.

Percent of our revenues come from the space infrastructure side of the business, where we provide commute indications and earth observation satellites.

Space exploration spacecraft robotics, and other space hardware to commercial and government customers orbit service contracts.

We don't have perfect visibility and there are always unknown unknowns out there, but our current revenue streams or direct world, who rely on our products.

Since services for critical missions, and we've been performing you're in that affords us some level of comfort on the outlook for our business over the near medium and.

Longer term.

Even if the world looks a bit less certain today given the pandemic.

This leads me into the second investment point.

Our portfolio of products and service.

Says is well aligned with our customers mission needs and in particular with a national defense strategy here in the U.S, which emphasizes investments in space resiliency.

Before I answer and autonomous systems.

The markets that both space infrastructure and Earth intelligence address our growing and we are well positioned to win our fair share of future customer work.

We'll also make investments in critical technologies, such as the Threed software and intellectual property. The Viacom brings to the table to assure that we are in advance position to help our customers perform their critical missions.

The third point is that we haven't through improved execution in our space infrastructure business and via mix, which we believe is likely to favor our data and data analytics data analytics businesses.

Said another way, there's some self help here as well as some growth driven margin expansion.

We will achieve that both by streamlining our operations being disciplined with new bookings and making investments to drive growth.

And lastly capital intensity.

We operate in two relatively capital intensive businesses, so the incremental capital in our space infrastructure business is relatively light at this point given the long heritage of the company and its operational footprint.

With that said, we're very focused on driving higher returns on invested capital across both space infrastructure and Earth intelligence and believe the lesion constellation will be the biggest driver over the next several years.

These six satellites are less expensive and will be more capable than the predecessors that they will be replacing.

And when combined with a growing revenue stream should drive incremental ROI C.

So these four items when taken together are likely to drive growth and higher returns of Macs are which we believe will create expanding value for our shareholders over time.

Now with that I'd like to hand, the call over to bags for discussion of this quarter's financials.

Thanks, Dan.

Please turn to slide six where weve quarter over quarter, usually your comparisons for Q2 results.

Total company revenues increased 7% year over year in the quarter driven by growth across the company.

Syntel as this growth was driven by new contract awards and changed programs within international that from the customers.

Thanks infrastructure returned to growth driven by.

For the government programs, you part offset by lower commercial revenues, given the cadence of bookings over the.

The reverse in the second half of year to give them.

Recent commercial awards that are beginning to ramp.

Adjusted consolidated EBITDA margins increased 520 basis points year over year doesn't buy margin expansion, both were operating segments and lower corporate expenses as a year ago period or pension costs related to 2019 program. This base infrastructure.

Quarter over quarter here in Q1 total company revenues increased 15% because it by modest growth in the intelligence the sharp increases based infrastructure given the charges. This segment experienced in the first quarter, Russia, which affected revenue.

Adjusted EBITDA margins expanded 1120 basis points.

Driven by quarter over quarter margin expansion in both segments corporate expenses, primarily due to an increase in stock based compensation.

Yes, F 15, 20 versus pick on that particular for 33 cents the SEC.

Third quarter 2019.

The change of per share results is due primarily to the 118 million of insurance proceeds received in Q2 19 associated with Worldview four.

Year to date.

Revenues are down 3%, while adjusted EBITDA margins increased 160 basis points.

Please turn to slide seven.

There is intelligence revenues increased 6% year over year in the quarter, driven by international Defense and intelligence customers New contract awards expansion of existing programs with us on margins increased 540 basis points year over year.

Given by the timing of international Defense.

And intelligence revenues mentioned earlier lower service costs.

Increasing income recognized from the right on joint venture the acquisition, which closed after quarter end.

As a reminder.

We will see a 10 million sequential revenues adjusted EBITDA declined.

The third quarter.

Additional $20 million sequential decline in the fourth quarter.

As deferred revenue on the original enhanced few contract.

First intelligence revenues increased 3% quarter to quarter due to the timing of customer renewals well adjusted EBITDA margins expanded 340 basis points driven by higher International Defense intelligence revenue.

Our travel costs due impart to our continued work from home posture.

We expect adjusted EBITDA margins in the second half of the decline is where the $40 million reduction associated with the burn off.

Let me go.

Okay.

They see slightly higher expenses in the second half on changes in mix slightly higher discretionary spending.

On your name basis revenues increased 6% year over year adjusted EBITDA margins are up 260.

Basis points due in part.

A large part to higher margin revenue nor cost demand for the Packers mentioned earlier.

Please turn to slide eight.

This infrastructure revenues increased 2% year over year, primarily as result of increased volume on us government contracts offset by reductions in volume on commercial programs.

Adjusted EBITDA margins expanded 210 basis points year over year as mix begins to favor the more recent bookings offset by 6 million incremental literally the AC growth as we shifted our assumption is that return to more normal level operating environment for the second half of this year to the first half.

2021.

The impact we recorded additional 15 million estimated loss due primarily to continued supplier performance issues related to the one large satellite program in backlog. We've discussed is in a loss position.

However, we.

We also saw solid and in some cases outperformance on other programs in the quarter that offset this charge, which reflects positively on the business overall note weekly cost of state.

In the social distancing mode in our space infrastructure facilities is now running much lower than our initial experience.

On a quarter over quarter basis, compared to Q1 revenues increased 40%.

This was driven by the three teaming charges taken in Q1 on covered and related the AC grows the identification of the design anomaly in the final stages of the testing process.

Well, we did experience additional covered related charges or the current quarter, given our new assumptions about the return to normal operations.

We believe we capture the full extent of the design anomaly charges in Q1.

Quarter over quarter compared to Q1, adjusted EBITDA margins based structure expanded roughly 3500.

3500 basis points.

6%, the second quarter, driven by the coated and program related charges taken in Q1.

And improved performance generally in current quarter as I described earlier.

The second half of the year, we expect revenues grow sequentially is commercial program Awards. We also expect adjusted EBITDA.

Oh improvements in the second half the year to offset the wind down of deferred revenue.

With a healthier programming.

In addition, our expectation the significant charges taken in the first half of the are related to Covance developmental and supplier who have any AC growth. The design anomaly identify the Q1 will not recur at that level if they occur at all.

Revenues were down 19% due in large part produced volumes commercial programs and year to date Covet 19 related EA series.

These factors are partially offset by an increase in volume related U.S. government contracts.

Adjusted EBITDA margins are down one does a pretty big normally identified Q1.

Good day coded 19 related.

See charges and program loan losses incurred on development Bill.

Please turn to the company generated 79 million.

In an operating cash flow this quarter.

Just a 68 million in Capex and develop the tangible.

Year to date free cash consumption 62.

Yes.

As a reminder, cash interest payments on our 23 nodes.

Our daily Q2 in Q4, this leads to higher cash interest payments in those quarters compared to Q1 Q3.

Please turn to slide 10.

We finished the quarter with decided that roughly 2.4 billion.

680 million from Q1 of this year.

Thanks, Hi leverage ratio ended the quarter to approximately 4.4 down roughly three test this term from Q1.

And by the repayment of debt during the quarter. This compares to our covenant southern half times.

Beginning this quarter the covenant calculations only include our continuing operations and the repayment of debt more than offset the loss of earnings from the sale of note. The current leverage ratio includes 150 million weekly seven nodes used to pay for the rights on asset does not yet fully capture the adjusted EBITDA.

Uplift, we expected future periods.

We had roughly 513 the liquidity at the end of the quarter, excluding a 140 million to cash used to complete the purchase of bright gone after quarter close.

Please turn to slide 11 quick update on our projected debt structure going forward.

As you know we generated roughly one being with US 12 months through asset sales of divestitures.

Refinanced our near term debt last fall and moved maturity schedules out.

As a result, we do not have any material debt coming due until December 2023.

Proceeds from those recent sale transactions were used to reduce advantages, including repurchase the portion of our term loan b in our between 23 bonds.

The financial dry confident is actually issued a view 15 million seven though with a lower coupon et cetera have person.

Laggard covenants the four year note, we issued back in December last year.

Overall, a good trade that puts our capital structure and firmer footing as maturity dates align better with future cash flow streams.

We remain focused on de levering and expect to use forecasted cash flow streams over the next several years to reduce indebtedness.

At the same time, we expect the investments we are liking that making now.

However, the leasing constellation of right on to drive future revenue and profit growth.

Our medium term target leverage remains forex and over the longer term, we would like to drive it were three eggs.

At this point, we have no major maturities due until the end of 2.33.

Please turn to slide 12 for discussion on 2020 guidance.

Dan mentioned, we're increasing our adjusted EBITDA guidance to a range of 415 quarter 45 million.

This brings the midpoint of our guidance of 40 million from the first quarter earnings call.

Tim mean from the midpoint of guidance 2020, we spoke to on our fourth quarter I'd like to remind investors, who initially lowered our guidance in the first quarter due to 32 million charges. We took in this space infrastructure business.

North intelligence, we've increased the revenue outlook modestly to incorporate the benefit.

Having 100% of right comes off.

Raisins flowing through our financial statements.

As Dan mentioned earlier, we're still seeking still seeing some risk.

With intelligence business due to longer commercial sales cycle stemming from coveted.

Which acts to offset this benefit somewhat.

However, as a reminder, we will experience 40 main decreased revenue and adjusted EBITDA in the second half of the year as original and he has to be a deferral.

Burns off.

For space infrastructure revenue guidance is higher than the scope growth on existing programs and recent bookings.

EBITDA moves higher given the improved revenue outlook.

We're optimistic view how that impacts.

Yes look close out of the test normally disclose last quarter as well as solid performance and other programs in backlog.

With respect to cash we've not changed our guidance was originally issued 2019 fourth quarter earnings call.

In general the ultimate impact of the Tobin 19 pandemic remains uncertain.

Made reasonable assumptions based on our assessment of information available to us at this time.

So to summarize my comments, we are progressing for medium and longer term revenue profit and cash flow growth.

This is demonstrated by our continued growth in Earth intelligence solid bookings for the second second quarter in space infrastructure.

And the acquisition the remaining interest in the right Con joint venture.

We have successfully de leverage from year end, our liquidity is strong and we've continued to appropriately mays effects until that 19.

We continue to successfully operate in our current posture, we will continue to deliver on mission critical solutions to our customers.

With that I'd like to turn the call back over to the operator for acuity.

Operator.

And at this time with your line is that no question that stopped keypad.

Let's start from.

Well the number once asked that question.

In our first question comes from ban on staying with Jpmorgan.

Thanks and.

Good afternoon.

Good luck.

Hey, Ben.

I was hoping that you might be able to give us some more insight on how you see you did a walk to cash flow and 2021, and specifically if you could kind of touch on how much spending so have in front of your per hour.

I'll take that will take that one if you like yes ticked up in danger.

Yeah, it's still too early to guide on a 21 explicitly.

We do expect.

Certainly Legion spending too.

Winds up obviously next year and get to launch.

But the exact timing of expanding this year versus next year.

Can always agree a little bit we have other discretionary capex that we'll have to watch as we go this year versus next year.

Always said in general was that we do expect.

Next years of free cash flow that certainly be much better because of the completion of leasing program and the wind down of it coming out of this year into next year.

And that we do expect a good operating cash flow otherwise we.

That would not guiding we said next year could be free cash flow positive.

This point in time, there's too many.

Timing variables.

To a truly be predictive.

At this point year.

We feel.

Certainly good about will accomplish.

Allegion program is still.

Aggressing as we expected from the overall budgetary standpoint.

And still expect.

To launch in the first half of next year.

No.

Everything is.

Positive.

And our free cash flow next year or possibly be.

Okay. Thanks.

Can you just kind of quickly break down I mean, the at the midpoint that EBITDA guidance is up 40 million how much of that is coming from biocon space infrastructure or other intelligence.

So.

Looking at.

The guidance increase I would say.

Oh.

A lot it is reflecting what we saw strong performance.

And then with respect to Rob.

It would.

Jeremy $15 million to $20 million.

Viacom is lumpy in turn.

Maybe for that from fourth quarter performance last year.

<unk>.

Can be some timing fluctuate suspected or icon, but we're thinking between 15 and 20.

If you may not be CNG than theirs.

What's left is really what we see is the potential softness in commercial.

Sales.

On a on Earth, So who were Oh some.

Some variation and it's been second half versus first half.

Thank you you at all by things together and you're right the mill that range.

Well you know.

Yes, right on outperforms or we can capture.

Commercial and I say.

Bills or are we.

On a run on.

Its expenses during the second quarter.

Great.

American.

Next question comes from Steve right, there with RBC.

A couple of quick follow ups.

And your perspectives on the ongoing in a row.

Since then your comments earlier and.

I'm sure you're somewhat limited, but you can say, but any color on their decision process.

And timeline has it been them.

Thank you mentioned.

As well as the scope of the program.

And the work is being discussed the competing for.

Kind of relative to the current enhance your program.

Yeah sure Thanks, Steven and Great to have you back deal you know [laughter] you guys as I mentioned.

As continue to pace.

In sort of along the lines, what we've expected so.

Hi track back in June of 19, and we completed that earlier this year.

We do expect the renewal on enhanced.

Three contract, but but like I said, we do expect also that sometime prior to September of 2021.

For meant a different type of a contract.

Nicole.

And.

Not more a lot to say about it at this point other than you know, we're we're kind of capabilities we provide.

Customers expectations and needs.

I believe we're very well positioned both with.

The architecture, we have on orbit now the ground systems in two to satisfy the now.

National needs on a time Domino architecture coming on line of moving seamlessly.

Into that environment.

So we continue overall I guess to believe that are really.

I see chip with U.S. government will will grow in the future.

We feel good about where we're positioned for this though the national needs in that variable.

For the customer.

What's that.

Finally, just following up on dry cargo it gets its only been a month.

The purchasing best that business.

I guess is what are you seeing there in terms of Ics.

And has your sales approach.

But your your development efforts change materially.

Yeah. Thanks said I mean, we're really excited it it has only been about a month now.

The company, but I'd say it's.

The we've worked with other icon team very closely over the years, So we know them well dates.

No loss.

The teams or I have really excited of too.

Source data and the constellation planning and and.

Also the product teams are working very closely together to be able to figure out ways to accelerate essential for current and future.

Customer missions.

So I think I did if not more excited than.

When we when we completed the a city acquisition here.

Other we see some really.

Great technology and software.

Yeah, and other capabilities coming out of the combination of the products and services that we have together.

Yeah. Thanks, I'll be back now thank you.

Great. Thanks, Steve.

Next question comes in they know matchup <unk> with BMO capital markets.

Just to clarify and <unk>.

But just to be clear as executed.

Business that you're actively pursuing at this point.

Now as we're it's kind of every quarter.

Sure it's been a next quarter.

Expecting active participation, we're very happy to help the customer if if it.

Are there their export.

Hi stations or timing change here, we just.

Didn't want people.

Thinking we were deepen the throws at us it and getting ready to announce something that's been a longtime customer of ours Custer.

Number of ours, Yeah, we've built a lotta geo satellites for them it if and when they need us.

Either for that or for.

For the Telesat Leo program as it may more from the future. We're very happy to provide services. So its potential upside the future, but I wouldn't say something we modeled into the guidance, we've given long term.

Can you spend a bit on the supply chain improving at this point.

Like sense are there still risks or.

Let's now.

Yeah. Thanks, you know what I think what.

We're we're very actively monitoring the supply chain Uh huh.

Really.

Laser focus.

Just on that now by enlarge the supply chain most areas across the world, particularly the U.S., but other jurisdictions are well then designated as essential industries. So they've continued operating continue to work.

But as we're watching really closely you know as covert researches in different parts of the U.S. different parts internationally. It could impact I don't think the overall health and supply chain in general, but it could impact the timing of some things and so works, we're not <unk>, it's a lot better than our outlook was in Q1.

But we're continuing to get close eye on it.

And sort of monitor the situation but.

Overall, we feel okay, but but I don't want to declare any kind of victory given the.

Some of this step backs the cobot.

As you know what's happened across the world and across the rest in some states right now.

Great and then just finally, let me turn they talk about next year, but you mentioned you'd expect normalized based infrastructure margins north of 10% engineers and so given the current strengths of the especially your backlog and the timing of a programs that you haven't had could you see that potential for 2021.

As Biggs would remind me we haven't given [laughter] for 22 anyone.

By getting out of my head of my skis, there are large loss lead program.

We're rolling off a in the fan.

Factory those those dual role out in 2000.

21, so until there.

All the way you know past the phases and everything.

We're going to be a little cautious about going all the way to where we'd like to future the business to be but I think probably what you see or some green shoots or some you know indicative performance or what the business can do going forward in this quarter and we're really excited about that and hopefully seeing that trend continue and accelerate.

Great. Thanks, Dan.

Thanks Dennis.

And our next question comes from Robert Spingarn with Credit Suisse.

Hi.

Good afternoon has it gone couple how are you.

Really just some some clarifications I'll start with telesat.

Dan should I interpret what you were saying as it just may not materialize into an eye not work for you.

Well I I don't want to get asked him or may or may not do.

For Us I think the the answer there is.

Some combination what you just said we're not in it it may or may not materialize eventually backing up our business I'm not sure, but we don't want to give anybody the impression because its talked about quick.

But it's been in the press that were.

No we haven't announcement around the corner or anything along those lines.

The second part of that though is we're we're fortunate programs we had.

Yeah, we're very cognizant I know this particularly in very very large programs, making sure the risk reward profile matches, what we expect the business to do.

So if there's a lot of development work, if there's a lot of potential for a increase caught us or anything like that is you take on.

Some of these firm fixed price programs, we've got to be very thoughtful about the the risk reward profile in the equation and where we do take risk make sure. It's you know, it's manageable risk and we can mitigate it as we believe we can going forward and also that there was a commensurate will reward for that which is very different than the cost plus type programs that we were able to provide here.

Okay.

Hi, I'm speaking to U.S. government.

If we think about your objectives to penetrate that customer more how do we think about the current relative size of the government business domestic between the various segments and where you could be down the road and can you refresh a refresh us on how big it is right now and.

What your aspirin, yeah, well were so the <unk> kinda just on the space infrastructure side. This would probably be the best place to think about it that's where we're really striving for diversification. We've got great penetration on the Earth intelligence that already on the space side of the business Abouts were about 60 for.

Sent commercial almost 40%.

Yes civil programs now primarily NASA.

Some other stuff tossed in there overtime I think what we'd like to see as a third of.

Third and a third so about a third become more than a thered be.

Defense.

We're pretty Weve why did we started winning some study contracts on the national old Defense intelligence side, but were.

Pretty nascent in terms.

So.

Getting to the point, where we can win the big bigger done stuff, which is encouraging.

Oh, we're getting good positive feedback signs from the customers as we continue to develop duck explained the story, what we do have.

Develop particularly or things that were they.

Hey, things to go fast or in a cost effective manner, we think we're particularly.

The architectures for example.

The the long term I would think there are <unk>. The the is we do our market analysis of this the biggest cost.

Summer set in the World is the U.S. government and the two biggest customer and NASA.

And so we're very excited with the trial for today, when we can confidently say.

You know look back and talk about how much.

There yet.

Okay, Great answer. Thank you I'm just one last one.

I think <unk>, you mentioned the possibility to outperform.

The guide.

North intelligence and I wondered if you could just elaborate on that a little bit I. I imagine you want to say too much but.

Now, how we should think about that comment.

Flooding elaborate a bit here.

Yeah.

Nick I, Oh was indicating that.

Our guidance at the mill.

Well the range.

Presumed that we had a softness in the second half on a commercial Mr. Dan commented on.

His remarks as being the one area, where the sales cycle is is extending a in the current covered environment.

Oh, I said that.

If you looked at what can take us to the upper end of our range.

I was trying to say was if you take if you look what my take is the up into the range. One other things that might do that would be is if we in fact succeed and a meeting our.

What we would like to have as our terminal.

Oh Earth intelligence sales.

So the sales cycle.

Oh.

So we've we've been observing.

Okay, Okay that helps I'd actually ask on that.

There are companies that we follow.

Has the sales cycle.

We've just noticed with some of the services companies, we talk to that customer focus is a little bit more keen or acute since people aren't running around.

Traveling and getting distracted with those sorts of things. So have you seen some positive.

Behavior in the say in the in the sales process in other areas.

Yeah, we have I you know the C band.

Moving through is obviously been helpful. In the space side on New York Intelligence side.

We've really seen some interesting <unk> dynamic positive long term trends for us.

Where do you so commercial non classified imagery the ability to hit our platforms for many placement world, including a some of the products and in analytics tools were increasingly putting into that online platform environment or getting a lot of uptake and in <unk> and it's easier for people to access them.

And then they can drill down into the more training on them now as well.

So we're excited by that trend and the world hasn't gotten any quieter.

In the past six months at all.

The need for our analytics tools in our intelligence aspects of the or the intelligence out of the business have been we've seen good uptake.

So the commercial side, a little longer but the defense intelligence in the U.S. government side of seem to be clicking right along and in some cases.

We are doing things more intimately with customers and we might have been a normal normal type of environment.

Excellent. Thank you very much for all the help.

Yeah. Thanks, Laura.

Your next question comes from Tim Jain with TD Securities.

[noise], Okay sounds good afternoon, hi.

I'm just wondering if you can talk about youre kind of longer term adjusted EBITDA and free cash flow thinking minimed on kind of going back to.

Some of the targets that would put out at the Investor day last year obviously.

So things have changed like the purchase of the.

The interest in break on et cetera is there any reason that we shouldn't sort of.

Take these positive developments with the business since that time and and accordingly.

Higher.

Adjusted EBITDA on free cash flow potential relative to some of those targets that you had originally identified.

I'll, let big answer that question, but I'll just noted.

This year I know it feels like it was over a year ago [laughter] events, we've had in the world, but it was it is March of this year, just a couple of quarters ago that.

There are you doing to give some more color on on the.

Question.

Sure Yeah I was just a early March.

We gave the outlook.

Our least laid it out most recently.

We had.

Giving it a you know.

Just detailed level part of that doing back last year, but in March we related to how the level of detail for everybody to follow I think that.

You know on that it was you had it too.

To this year.

Yes.

Logically.

You know additive to the business overall, that's why we did it.

Having said that.

We're not at this point in time or discreetly go ahead.

Change a long term guidance or for that one item because there's so many things to monitor over time and I'm not trying to say, there's anything negative going on I don't think there is but we're not to you know update the long term guidance.

Every quarter or for a for changes.

We'll do that judiciously as we go through time.

Okay. That's helpful and I guess in many banks I think you sort of answering my question. There in net eat there's nothing going against that plan relative to the original indications I guess.

No I you know we're still we're still marching ahead to executing our strategy is reflected in his comments.

We feel good about what we've accomplished what we have in front of those no no.

Nobody knows what what hope it does over the next year, but that's one of the you know that.

Guidance is out you no longer period beyond that and I don't see how.

At this point in time.

Around how does it affect the longer term.

Oh.

As I said, we're not you know formally really going to confirm or Oh, but we feel good about where we are.

Okay. Okay.

Okay. That's helpful. Thank you and then just one last question. They did 70 me.

In development until I guess the losses in that side in the second quarter is there anyway to think about how should.

Progress or trend going forward.

Is it sort of the gradually decline decline with that future quarters.

Yes. So are we made the assumption on how the I guess, what your questions back to them.

Sure.

And.

And.

Holds up.

And there aren't any other.

We're seeing impacts.

And we really expect future charges because.

Oh, we account for word on up you know forecasted isn't that a complete basis.

Oh also some of our you know newer business we've bid knowing the environment, we're operating in an already and with some contractual protection on top and that should there be.

So.

I I certainly can't tell you there won't be future charges that if our assumptions hold together I would hope that theres not.

The.

So.

Like everybody else, we just have to watch as it goes that things don't get worse that we've got.

Act or are able to operate more normally is starting early next year.

If it extends beyond that.

That we have top right in this environment.

There could be increased costs in Chardy, we went out six months.

Yeah, I know he took an additional $6 million of here you see grows so.

That gives you an idea of.

The impact as we see it now.

Oh that being much less than what we were looking at when we were doing a first read on this.

That'd be a into the first quarter when it was awesome.

Okay.

Thank you very much.

Thanks, Tim.

And our next question comes increased cool thing Quilty analytics.

Hi, Thanks, guys and then I wanted to start first with the enhanced few follow on sounds like that continues on with.

But the C.S.P. Ob.

C B program.

I assume you're indicating is incremental so does that mean, we should see incremental revenues, assuming you're one of the winners at the three three companies bidding on it.

I I'm not sure I'd I'd necessarily go right there yet Chris I think theres, a number of different potential outcomes I'm very reluctant to.

Speak for the customer until they issue their final Rps and their final words here.

And there they'll go through that phase on their timeline, but so I think theres it.

Okay, I think that the two things I would keep in mind here are that the national kind of since office leadership has said they expect to increasingly used commercial.

You know that to go up overtime.

And that they see it as part of the importations needs.

Hi.

So I think probably that's about as much as I'd say right now I think we're well positioned shunned, but I certainly don't want to speculate on where the customers going in at a clarification I It was minor.

We're standing that was awarded in the government's fiscal fourth quarter of this year I think you said 21.

For the program Award.

'cause it I want to I guess I want to make sure we're sort of talking about the same stuff right now, we're performing and continue to perform or the enhance we follow on program.

The program that we're currently operating under we expect the option gets picked up.

Sometime this quarter in Q3 as it as it normally does every year.

But that sometime between when this gets picked up in its current form and before it gets renewed in September 2021.

At the same they there's a chance or likelihood or we're getting into <unk>.

Okay.

Switching over to this space infrastructure.

Im specifically on the defense intelligence.

Given the fact that.

The audio de at least isn't buying many geo buses is it fair to assume that most of your proposals or on the Leo side.

ER Legion bus or the.

Constellation Leo constellation bus.

On the on the de anyway, I see side, what we're saying is an awful lot of interest on for lift from mostly that's showing up in the Leo.

Very right now, but there's a range of things that could end up in.

Communications or see for going forward and those can be oleo meal.

Giorgio and they each have their advantages and disadvantages.

And so we're we're we're in the we're in the hunt across all those chains, we believe we bring capabilities and all those environments as well.

I understand and specific to the Leo constellation boss that you were developing for Telesat do you see Italy.

Purpose built bus design.

Obviously, you are pending metals like are there other ways, you can take that effort and leverage into other programs.

Absolutely yes.

Yeah, that's a lot of the work in a lot of the technology, we are hearing I mean expertise and.

And technological work is going on to this point.

Is it still was under a looking at a number of different opportunities and I think we have very.

Very strong Leo capabilities, both for the defense and fruit defense until.

I'll just for infrastructure.

As well as for commercial applications, and you know sort of as a reminder of the.

Well the Legion of buses is Leo as well.

I understand and on the it's now that Weve.

Yes, I realize what they were working for what they were.

Pretty compressed time schedule on delivery there does that create any.

No unusual timing patterns, either in revenue or profit recognition.

And you know how well you expect that to women are you good on <unk>.

Well I'm very pleased to see if these are these slides.

Then very well into our current manufacturing capabilities.

And Ah we are confident in the timelines on which term lead time inventory aspects of this.

We file on these.

And believe we are.

Positioned very well to deliver on the customers timelines and so you'll see the <unk> sort of ramp and animal.

Model Accordingly on the on.

The builder delivery schedules, we played out.

You know, we we don't talk a lot about our exact customer schedules or anything contract by contract, but there's a lot more information about these there's a lot of public information from the.

The FCC side and the C band Awards, and what I'm lots of work, we're confident being able to me.

At the customers objectives there.

Great I was just add this either these are.

Yeah satellites that are very similar to monthly bill before so.

And that case.

More predictable in terms of cost into we Didnt work that has her protects the supply chain Oh on these and ourselves and disposition.

Great and final question on Earth intelligence and the the softness in the commercial order cycle. If I remember years ago. You you took a lot of those customers that were doing.

<unk> sort of bulk into year buys and converted them into the longer term contract vehicles, and if that so where would the softness come from if you're working off of that I believe a significant portion your customers there.

Yes, so I think the way to think about this that Chris is that we do have a very healthy set of longer term contract allergy space and we're comfortable about that piece of.

Some more of the transactional type stuff or some of the new business, we'd expected to win.

If you think about it regionally, it's more Asia than anywhere else right now.

It's it's harder to.

Throw people on airplanes and yeah.

<unk> spend as much time.

The time zones are pretty whack is well and we're just saying all where we're seeing the alone.

On gauge the sales cycle it.

So it sounds like you.

Cobiz related.

The facts.

Yeah, absolutely and I think probably the wed at the one where do you.

You said just triggered a little bit we're not seeing a softening of the market or the demand signals.

What we're seeing as an <unk> the demand is still there we still believe there's strong interest in and I'm missing services, we provide but but it's taking.

Through the different procurement aspects of the spaces.

A particularly as we try and knock down some new but.

I Miss in that region.

Yeah. Thanks, Chris.

And our next question comes from out seemingly team.

Hi, guys is Austin on for Ken.

Hi, Tom so.

I'm just given the affects of the cobot slow down the sort of on operations that SSL and the importance of <unk>.

You centimeter imagery and a higher rebids rate up on orbit.

Oh, the effect of the Pan.

What any pressure on the schedule margins or a you know the critical path in terms of getting those launched a hedge.

You've seen anything like that young.

That's a great question I know what I'd say is we've adapted I think on our side very very well to the.

It to the protective measures the social protocols, a protective gear those cadiz types of satellites is in.

It's a pretty safe environment to start with.

For people.

So, but I think what were for watching even more closely as whether they're already impacts on the supply chain, we haven't seen.

Specific kobin related aspects to that that you'd call out Oh, hey, that's covered about something else, but we do have.

It will go on into the final.

Assembly and then the.

On these and we're watching that S back to the closely it's just.

Everything feels just a little bit test retest, how fast things go through their own involved.

Permits for we're testing.

So we've been watching that very close we think that's appropriately built and all the safety.

These factors and the risk margin, we've got the schedule right now which is why.

We said, we're still kind of we're watching it very closely Oh I will let people know as soon as we can't about that.

Oh, Okay, just <unk> kind of you know, we'll think about that through the entire phase in process as well we're watching to watch providers. These these satellites are going to be launched in the U.S. with Spacex and Spacex could seems to be keeping.

Pretty well on schedule with launch ops, we've got teams down in a French Guiana with arianespace.

Mostly as well and whether there's any impact extra timelines or how people operate on those facilities.

Some end so switching gears here just to sort of talk about you know you guys have all means what.

Stronger.

So it orders this year or wait until sell Blob also you know are on track.

So do you.

Guys see importance in you know investing more R&D in sort of inherent in baggies.

Oh, Gee, though or you guys have had that recent order with.

So do you see.

And you know expanding the product offering.

On the small geospace.

Yeah, I think what we're saying is that there are a lot more of a proliferation of business cases.

Then and use cases than.

Either you know really novel Leo ideas or traditional Geo and we're seeing a range of customer ideas and needs.

Yeah. As you note is a particularly good example of that where are we.

Reconfigured a smaller class bus or two.

To a a geo type mission.

I I think what it means for US is we're gonna have to be.

More nimble in the future less volumetrically driven in a lot more nimble in terms of the technology in the mission architecture needs a particular customer.

Requirements will look like we're very very good, particularly good and bus design, a and bus manufacturing in architecture, we're really good with the power and proposing elements of what those made in the communication side and so we'll try and play where we can to our strengths in those areas.

Okay and then just the last question here, so that the acquisition of right on do you see that has strategically I'm, especially with the you know the advantages of VIP just on three D. satellite imagery for either Oh I'm sorry.

Precision munitions typically on the government side.

Yes sure to me.

He difference as the contracting vehicle may change as we move past enhanced view.

I I wasn't tied necessarily directed directly to the contracting vehicle past enhanced view I think that or what you're seeing more it and I guess, you know sort of as the broad concept here, we see it is very strategic or the right kind of aquas.

Business ideas and plans.

With the Threed technology, and what remember, we're taking Max ours regular <unk> satellite data here and and using the software and the artificial intelligence and the algorithms and whatnot too to create a <unk> a photo realistic highly accurate threed dataset from that at speed.

And nobody else no one can do that and so.

Way more interesting.

In a threed environment or that the artificial intelligence algorithms for analytics.

Duty.

We get better accuracy on the two d. data using that.

So instead of being a 10 or five were driving towards three into and then.

In some cases, one meter atmosphere, ICL accuracy, and our models and able to offer that to customers and suddenly.

That's starts opening up new use cases for them like targeting a like autonomy vehicle navigation in ways that the.

Satellite data what in the prior manifestation. So we're.

Right and we're really excited about this as that creates more and more pull through the the people that a functional managers for the national Geospatial intelligence age CNG a.

The U.S. Army one world terrain.

Air Force the special operations command and others will drive the requirements back to Anoro and say Hey, we need more of this or we want more of this drive more demand for our.

[laughter] particular class of assets and service it is.

With the Arrow, I believe but I, but I think it's probably.

Too early to drive that direct correlation from one to the other right now.

Okay, yeah. Thanks.

You guys. So much for all the color appreciate it.

Sure.

Thank you.

And our next question comes from Steven Lee with Raymond James.

Hey, guys. Thanks.

That's one of the exact [laughter].

[laughter] they the cash will guide she did not have improved we've given the difficult notice from the Kazakh and the higher EBIT that guy.

What was then offset thanks.

I.

I think the easiest way for me to a answer that just say it was a very broad range to begin with.

Hi, and cashes as you know be Brady driven by timing of proceeds right at year end you may remember.

Hey, I'm a year ago.

If you go we had one payment from the government that slipped from right. The into December into January so there could be a lot of variables to go forecast and we did with all feel like at this point in time.

Even though there were operas positive obviously is.

Oh overall that it made sense to go.

Just against once a pretty broad range to begin with.

Oh My God. It so it's it's it's mostly timing thanks.

Yeah, I I the ranges abroad because of timing.

So yeah. When you I mean, you start to tweak one variable within that.

Well you don't necessarily produce.

Got it okay. Thanks, guys.

I you know type the right.

<unk> moves if appropriate thank you.

Never next question Richard Tse.

Yes.

Oh. Thank you that's just one quick one on the arrow and the potential for certain multi sourcing here.

Are there technology into their true net thing from your portfolio that would cause that and can you sort of buy into that or build that capability. That's the case.

[noise].

Thanks, Richard Let me think just about that for a second I think what I'd say is if it's electro optical imagery. We believe we are.

Oh, well, we you know the world leader here and we're going to take another leap forward with Allegion constellation. So were very good there the way anoro thinks about commercial imagery. It may include other things as well may include radar. It may include RF capabilities or other things a commercial providers can now a dull.

It's always possible that those are things that we may or may not to invest there.

We've got to see the.

You know sort of large investments in one of those areas.

Is there not.

We believe on the on the electro optical the Earth imagery part of what we're we're providing.

That large scale on it or.

Environment.

Okay, I was asking because that I think your comments, you said that they're increasing or looking at commercial and I was just sort of wanting that any commercial.

Capabilities that are out there that.

[laughter] cotton valley in that way.

I guess I guess, we'll figure that out down the road here.

Yeah, I think there's a lot of phenomenology is that their into it boils down to what's the best use case for sale.

Solving somebody's mission set on the other end of this.

So a monitoring or a mapping or an analytics mission Oh for the war fighters or or others in the U.S. government, they see that kind of data.

Okay, great. Thank you.

Okay operator.

I think weve reached the end of Q here as well as all the time, we've got it.

A lot it for this call. So I just want to thank you for helping us out today and for those that.

Dialed in to listen is what to ask some questions. Appreciate your.

Interested macs are a and look forward to catching up all with all of you.

The next quarter on our third quarter call.

Thanks, I have a good evening everyone.

In that that's concludes today's conference call. Thank you for your participation you may now disconnect.