Q2 2021 Maxar Technologies Inc Earnings Call
[music].
Good day, and thank you for standing by and welcome to the maxillary technologies second quarter Conference call. At this time all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. The <expletive>.
The question during the session you will need the press star 1 on the telephone keypad and please be advised of the these conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the confluence of a day your speaker today, Mr. Jason Gursky, Sir Please go ahead.
Great. Good afternoon, and thanks, operator, welcome the Max <unk> second quarter 2021 earnings Conference call I'm joined today by the company's Chief Executive Officer, Dan Jablonsky, and as the Chief Financial officer of fixed quarter growth will make some opening remarks, after which we're going to open up the line for your questions preceding the wrap up the call on about an hour before we.
Started I would like to refer listeners to the accompanying slides for today's presentation, which can be found on the company's website at <unk> Dot com.
Once there please turn to slide 2 where I'd like to remind you that part of today's discussion including responses to various questions may contain certain.
Forward looking statements, which represent 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 be the actual results to differ materially from the forward looking information you referred to the advisory regarding.
Moving forward looking statements contained in our quarterly earnings releases earnings call slide deck and the company's most recent MD&A section founded on our form 10-Q under the company's Edgar profile of FCC Dot Gov or on the company's website at <unk> dot com and with that ill hand, the discussion over to Dan Dan go ahead.
Thanks, Jason and good afternoon, everyone. The same.
Afternoon, I am going to cover the key highlights for the quarter and provide an update on the progress we're making on our 2021 priorities.
Including where we are with the Legion program, our next generation satellite constellation.
I'll also spend time, providing some context on the company's artificial intelligence and machine learning capabilities as they apply to Earth intelligence on how we're using them to drive growth.
Please turn to slide 3 of the accompanying presentation.
We generated 16% year over year revenue growth in the quarter, excluding the effect of the noncash of UV differed.
Of note Earth intelligence grew 14% year over year. Despite the fact that we're currently capacity constrained on the head of the Legion launches.
Growth here was driven by sales of <unk> products, the commercial and government customers as well as solid performance in services to the U S government.
Importantly, we also saw a 150 basis points of adjusted EBITDA margin expansion, excluding EBIT deferred driven by improved execution of space infrastructure.
We recently signed our first leaching capacity sale during the quarter with an international government customer as part of the large multi year renewal.
This follows the for contracts, we announced last quarter, the upgrade customer ground infrastructure to be Legion ready.
We're making steady progress with our business development efforts ahead of the constellation launch.
Next we also received our 11th renewal the renewal of the enhanced <unk> program within our ROE for the period starting September 1 of this year.
As a reminder, we've been a trusted partner of the U S government for nearly 20 years, delivering commercial capabilities with superior quality cost security and reliability on the current <unk> program and its predecessors.
We're proud to support the U S government mission and look forward to continuing to work with the NRO as they increasingly adopt commercial imagery.
We continue to perform well on this program the track record, we believe sets us up nicely for the upcoming <unk> competition, which is the electro optical commercial layer the successor program to enhance view.
As we discussed during our recent investor webcast. The NRO issued a draft RFP in June for the upcoming <unk> program and we understand the expect to make award decisions by the end of the calendar year.
Please turn to slide for for a review of the progress, we're making on our 2021 priorities.
We remain focused on providing high quality Earth intelligence, which means driving bookings growth, including for capacity on Worldview Legion.
Growing <unk> capabilities and extending the enhanced fee program.
We're also continuing to make good progress on our AI ml and platform capabilities and I'll discuss those more on a bit.
Key recent wins included awards from the U S government to assist with geospatial product production and persistent change monitoring and in other related to space domain awareness.
And the international government vertical as I mentioned, a minute ago, we signed a large renewal of that includes the leaching capacity as well as the contract with the Australian government for both <unk> and imagery data.
Finally, I'm excited to announce that we signed a multiyear multimillion dollar of license agreement with the large social media company for imagery based maps, demonstrating our continued traction across all customer verticals.
From an execution perspective, it was a good quarter with the team generating solid book to ship activity and adjusted EBITDA margin performance.
Even while we enjoy strong backlog as we perform on multiyear contracts, we continue to find good vectors for growth with existing and new customers.
I'm pleased with the ability of the team to drive bookings and revenue in the same period on this quarter was a good example.
Moving to Worldview Legion.
We have decided to delay the launch from the fourth quarter of 2012.
'twenty 1 into next year.
This isn't the decision made lately.
Key drivers since the last update first while Honeywell has delivered the reaction will set for the first 2 satellites the hardware from Raytheon is coming to us later than anticipated.
The Max our team has been and also go on to this week for free shipping reviews, and the first instrument is in transit to our facilities.
The Raytheon teams have been working hard in the second instruments should arrive in September followed by the other for this fall.
However, we had expected both of the first 2 instruments to reach US in July and this has had a negative impact on schedule.
Second the return to work in California postal loosening of Covid restrictions on June 15th while very positive for a variety of reasons does not lead to the achievement of the schedule, we anticipated with our integration testing and software teams.
And of course, we're now we're now all watching the delta very closely.
We appreciate all of the teams have accomplished under challenging circumstances.
Covid has been a difficult operating environment for both our suppliers on us and it's clearly had an impact on the program.
Given the hardware delays and the remaining work streams, which includes software integration integrated systems of environmental testing and launch phase operations and the importance of this program for both our customers of Max or is the long term objectives, it's important to get the launch right and this requires a little more time.
While we continue to look for ways to reliably accelerate production of test. We now expect the launch timeframe between March and June next year for the first launch.
We are continuing our progress with the other for spacecraft for.
Remember this is of 6 satellite constellation.
Historically said that the second launch would be 3 to 6 months after the first.
We intend to get them up as soon as possible.
How quickly the launch after the first 2 will depend on how much we can overlap the remaining work, including hardware deliveries software and testing schedules.
To address the remaining work on the program, we have taken a number of actions.
We've assigned overall program responsibility of the Chris Johnson, who joined the axon ne and brings significant program expertise of the company.
2 we assemble the mission assurance on Red team to review and assess the program and remaining work streams.
It provided important insight, which we've incorporated into the revised schedule discussed today.
And 3 we have added additional internal and external software engineering resources.
We're driving forward diligently with a focus on maximizing the value of this program for both of our shareholders and customers.
With respect to our largest customer the draft RFP for the <unk> program I mentioned earlier contemplates a 10 year program, which aligns with the 10 year plus design life of the Legion constellation.
This is a good fit we continue to expect that our current on orbit assets that provide service to the U S government now as well as the Legion constellation are tailored to meet the current and future needs of the U S.
Turning now to space infrastructure, where we're committed to delivering the best possible solutions and systems for our customers and from a business standpoint have been focused on establishing the foundation for future growth.
On the power propulsion element for NASA, we completed preliminary design reviews and were awarded additional change orders.
We were also awarded study contracts for National Security classified work as we continue to look to shape new programs and further diversify the business.
Importantly, we are beginning to demonstrate our competitive positioning for national security work.
Having recently been down selected for <unk> competitors to 5 on a program.
Debt field will continue to narrow but is a positive sign that we've made it through this gate and now we need to drive for wind on the program.
We've also continued to execute.
We launched the Sirius XM 8 in the quarter successfully conducted commissioning ops and turned the keys over to the customer last week.
Last week, we also launched our <unk> 2 for <unk> and I'm pleased to report that we've been awarded Sirius XM 9 Sirius is next year of communication satellite.
From an investment standpoint, we continue to work on new satellite constellation designs, including modular space craft and proliferate constellations as we look to serve commercial civil on classified programs with highly engineered and affordable solutions.
Reflected in the financial results, we had a solid quarter as adjusted EBITDA margins continue their improvement, reflecting better performance in health care program mix.
Finally on financial flexibility, we're continuing to drive strong financial results of the business in CRH of significant cash generation in the quarters and years ahead.
Both of which should drive debt and leverage levels lower.
So overall pretty good financial performance in the quarter and some good booking moment, the bookings momentum across both segments and across our addressable verticals.
Let me be clear, though I'm not pleased with the addition of Legion delays.
That said the methodical work, we're doing on the program of the right steps. We're building a generational constellation that is going to drive growth profits and cash flows for the next 10 years.
Want to be confident that we've got it right.
Before I hand, the call over to the Biggs I'd like to shift the discussion about the an exciting and other exciting portion of the business.
Over the past few quarters I've done a deeper dive on some of the innovative technology, we've been developing and deploying and Earth intelligence to support the U S government by reducing sensor to shooters timelines on the battlefield and in space infrastructure to support both government and commercial missions.
Today I'd like to pivot back to Earth intelligence talk a little bit about our AI and ml capabilities and how we are increasingly using them to drive growth.
And the timing of this is pretty good given the amount of discussion on the marketplace about this technology and the various capabilities that exist out there.
We've been at this for quite some time and we benefit from having the best commercially available Earth intelligence data in the market.
Please turn to slide 5.
Before we get started I thought it'd be useful the level set and quickly outlined with artificial intelligence and machine learning in the context of geospatial intelligence.
As you are aware, our constellation assets generate vast amount of the highest quality commercial data available every day over $3.5 million square kilometers of the Earth's landmass from all over the globe.
To make that data useful for intelligence and commercial application. It helps us snap it all together to create a geo referenced data set that provides a reliable foundation to conduct analysis.
Comparability incompatibility of high quality of data sets of preconditions for AI and ml algorithms to run that speed of net scale.
Feature extraction change detection and object identification of our examples.
Using artificial intelligence and machine learning techniques, we're applying algorithms to data to identify objects in the tech change at a small fraction of the time it would take him to do so.
Importantly, we're doing this at scale on the Hyatt with high levels of predictability and accuracy of.
This in turn starts the virtuous cycle, where we can proliferate products on analysis to provide geospatial intelligence, the answers, which in turn drives more demand for the underlying high quality data.
Please turn to slide 6.
The foundational elements of our AI ml capabilities include analysis ready data for <unk>.
<unk>.
The core platform capabilities like globally, Gd and secure watch and cloud accessibility of industry, leading imagery data, which will be further enhanced with Worldview Legion.
<unk> is comprised of pre process time series stacks of imagery that are aligned produced at a set standard and geo referenced for accuracy using our precision <unk> registration software.
Aligned image stacks from Arg provide increased usable content more accurate feature extraction faster processing of lower storage cost and homogenized inputs for analytic workflows.
Our precision <unk> registration software also allows us to take other sources of data, whether or not geospatial and lock them down on a highly accurate fashion on the same reference chips.
This kind of data helps our customers save time and jump ahead to the next stage of their analytic workflow with a more accurate and AI ml ready baseline.
Organizations and government agencies are enabled to use machine learning and artificial intelligence to extract roads.
<unk> and buildings as well as identify land use and vegetation of scale for pick out an count objects like military vehicles, where commercial automobiles.
As you'll note, we get better results with higher quality datasets.
It's also helpful that we can train the algorithms against our vast 20 plus year archive of the planet.
Please turn to slide 7.
<unk> core is a machine learning engine that is a cornerstone technology. The company uses to perform its AI and ml projects Steve.
The default for Max our direct experience as an industry leader developing automated computer vision techniques for commercial and national emissions importantly.
Importantly, it has deployed more than 100 models to detect the 130 plus object types using multiple machine learning models frameworks and networks against multiple satellite.
Airborne Clearone and terrestrial sources and its been using commercial and government clouds as well as bare metal in hybrid environments scaling from a standalone machine to an infinitely scalable cluster.
With deep core users can leverage the services and experience of the Max our team or Mix-and-match training data models and digital the visualization capabilities within deep core for other repository and tools.
Please turn to slide 8.
We maintain a constellation of satellites that generates the most and the highest resolution most accurate geospatial data in the market.
We're adding to that with the Worldview Legion constellation, which will play an important role in our AI and ml capabilities.
Slide 9 shows the power of our deep core on high resolution data working together for the car counting use case.
As noted this type of work completed.
Completed in seconds versus the hour long timeframe as needed using traditional methods.
This is a huge breakthrough on the use of geospatial intelligence and is a key reason why we see robust demand signals from customers and continued growth.
Slide 10 provides some details on our globally Chi and secure watch platforms.
Slides 11 through 17 provide additional examples including the use of algorithms to more effectively monitor real estate development to build <unk> models and base maps of scale.
<unk> detect ships in the ocean of to produce <unk>.
<unk> built on multiple mission sets.
We've been working on these kinds of customer needs for years and believe the continued investments, we're making and our data generation capacity and AI and ml technologies will allow us to continue to drive revenue growth in the future.
I'd like to end of the slide 18, which is 1 of I shared earlier this year.
As I mentioned that 1 of the key goals of the investments of the U S government has been making and its AI ml and joint all domain command and control efforts is to achieve an advantage on the battlefield by shortening the sensor to decision timeline from space, which is all about seeing identifying targeting and prosecuting dynamic targets at scale in the distance.
Ultimately Vod is driving the combined broad area of surveillance and automatic target recognition to support long range of precision fires at speeds required on future battlefields.
We believe the breadth of our coverage of the quality and accuracy of our inventory as well as our software processing capabilities are key enablers.
Hopefully all of this gives a better sense of how AI and ml fit into the overall mix of our story and the continued investments we're making we.
We believe our efforts position us well on the market versus competitors and then we will drive sustained growth for the company with customers to increasingly unlocked value out of geospatial data and intelligence.
And with that I'm going to turn the call over to Biggs for a deeper dive on quarterly performance.
Thanks.
Thanks, Dan Please turn to slide 19, where we present year over year comparisons for the second quarter.
Our net income for Q2 was $45 million driven primarily by strong performance of both our intelligence and space infrastructure.
Revenue increased 8% for the quarter and 5% for the year to date period.
Excluding the effects of the nasty of contract deferred revenue burn off total company revenues increased 16% year over year, driven by our recent wins in space infrastructure and new programs that Earth intelligence on.
On a year to date basis total company revenues increased 14%, excluding the effects of the EBIT deferred revenue burn off and adjusted EBITDA margins increased 260 basis points.
Please turn to slide 20.
Earth intelligence revenue without the effects of <unk> deferred increased 14% year over year in the second quarter, driven primarily by increases from international defense and intelligence customers as well as additional growth seen with commercial on U S government customers.
The increase as experienced this quarter, particularly from international defense and intelligence on commercial customers for driven in large part for book and ship orders on archived on <unk> inventory, which had a positive uplift on adjusted EBITDA margins adjusted.
Adjusted EBITDA margin in the second quarter of 2020, we're also a typically high due to the timing of the international defense and intelligence revenues.
On a full year basis without the effects of <unk> deferred revenue increased 9% year over year, driven by increases across our 3 customer verticals and adjusted EBITDA margins were consistent.
Please turn to slide 21.
Space infrastructure revenue increased 12% year on year, while margins expanded 710 basis points driven by the profitability of the recent awards as well as a reduction of negative EAC impacts, including those related to COVID-19 taken last year as we adjusted our operating posture to the pandemic.
On a full year basis revenue increased 14%, primarily driven by an increase in revenues from commercial programs as well as lower EAC growth due to the COVID-19 impacts we experienced the 2020.
Adjusted EBITDA margins expanded 1310 basis points driven by the profitability of recent program awards, partially offset primarily by reductions in revenue from the Sirius XM 7 charges taken in the first quarter.
And modest increases in indirect and SG&A costs with the.
The $28 million of Sirius XM 7 charge taken in Q1 year to date adjusted EBITDA margins will be roughly 11%.
We have spoken over the last several quarters about the potential we see in this segment for sustained adjusted EBITDA margins of 10% or better.
There will always be quarter to quarter on year here fluctuations based on ECA counting and program mix that way.
We are pleased with our progress.
Please turn to slide 22.
The company generated $23 million of operating cash flow for continuing operations for the first quarter.
And invest.
$55 million of Capex.
Apologize on quarter to quarter operating cash flow for the quarter was negatively impacted by the timing of cash receipts, including $26 million from international customers are of collected in Q3.
We have of $13 million tax benefit we recorded in the quarter for a recovery of beat tax paid last year. This was enabled by our equity issuance, but that cash is not in our cash from ops yet on the likely come in later this year or next year.
Please turn to slide 23.
We had roughly 429 million of liquidity at the end of the quarter and our bank defined leverage ratio ended the quarter of approximately 4 times.
Net debt increased modestly quarter over quarter due to the timing of the few large cash receipts slipping into Q3.
Define leverage increased slightly primarily due to the roll off of any of the deferred revenue on a trailing 12 month reported basis.
And now please turn to slide 24.
Guidance remains unchanged from what we issued the previous quarter and this slide is inclusive of the charge. We took in the first quarter related to Sirius XM 7 satellite.
We are leaving the range is wider than we typically would at this point in the year as the second half of the year it could be impacted by the timing of product and data deliveries cash as we experienced in the current quarter.
Revenue guidance for Earth intelligence remains unchanged from what we issued at year end for the targeted range of 1.5 to 1.0 of 95 billion.
At the midpoint of our guidance, we expect revenues in the third and fourth quarters to fall slightly below our Q2 run rate, which has the uplift of the book shift dynamic I spoke to earlier.
Revenue expectations for space infrastructure remain in the range of $735 to $770 million and.
And we expect revenues to remain roughly consistent with Q2 as we continue to execute on commercial awards.
Turning to adjusted EBITDA, No change to the outlook range for Earth intelligence margins. This quarter were positively impacted by the Q2 book shift dynamic and we expect to see modest margin contraction in the second half of the year.
Additionally, as we pointed to in the last quarters call. We expect some incremental costs for the second half of the year related to the Legion constellation as we continue the investments on our ground and secure operations architecture.
No changes to adjusted EBITDA per space infrastructure, and we have left the same guidance range as presented last quarter.
We continue to expect margins of space infrastructure to be 10% or better as we continue to execute on our backlog.
On a consolidated level our guidance for adjusted EBITDA also of is unchanged.
On a consolidated basis revenue is expected to increase in the second half of the year. This is driven primarily by the nonrecurring $28 million charge. We took in Q1 on a Sirius XM 7.
As well as we continued backlog execution, we expect to see in the second half of the year.
Revenue and adjusted EBITDA are expected to be more heavily weighted in Q4 than Q3.
We have not changed for operating cash flow guidance on we expect to be free cash flow positive on the second half of the year end of the full year.
Recall, we typically face quite of bit of uncertainty given the timing of working capital changes for the first half of the year operating cash was in line with our expectations, but was negatively impacted by $161 million on unfavorable working capital changes.
Of the unfavorable $161 million of working capital $72 million is from accounts receivable and includes the $26 million from the international customers with already collected in Q3 as well as an additional $46 million that we expect to collect this quarter from customers, including on the recently announced awards.
Accounts payable on other liabilities accounts for another $60 million and.
And we expect that to flip on our failure paper took on a large part by the timing of incentive of interest payments debt fell.
In the second quarter.
And in the first half.
David at the high level. These working capital changes were driven by the normal outflow in the first half for interest in their time on of year end liabilities.
The timing of programs in progress of space infrastructure, and a few large cash receipts the slip from Q2 to Q3 on.
Operating cash flow of ramp up in the second half of the year is that dynamic flips in our favor and we realized the interest savings in the second half of the year with the first quarter equity raise and debt paydown.
The range is for Capex remained the same and we expect to see a ramp in the second half of the year driven by the Legion program.
Total capex on the Legion program has grown as a result of the delays we've experienced and will primarily affect next year by roughly $30 million.
This year's spend includes approximately $25 million of launch in the insurance payments associated with the first launch.
Even though of first launched in March to June would likely put those payments in the February to May of 'twenty 2 timeframe, we do not want to take those payments out of this year's guidance until a certain they will slide into next year.
We still expect to be free cash flow positive and with the current year, even with the insurance and launch payments.
We've not given guidance for the claim to.
22 beyond what I, just covered up around pelagian capex.
Edition.
There will be puts and takes but we still expect growth in earnings next year, even with the bleaching delay. We also expect to be increasingly free cash flow positive regardless of the where the first launch payments plan from the timing standpoint.
As you know our 23 of 3 outlook contemplated of $165 million of adjusted growth in Ortho challenge between 'twenty and 2023.
With half of that about $80 million attributable to allegiant capacity.
The delay on the program could have an impact on our ability to ramp capacity driven growth, but it's too early for us the St deliberate definitively.
We'll look to update you further as the schedule for launches becomes clearer.
To wrap up we had a solid quarter with growth across both Earth intelligence and space infrastructure and we are tracking for our 2021 guidance targets.
Looking forward, we're focused on the iOS the L program with the NRO driving non capacity related growth through investments in Earth intelligence products and diversifying the space infrastructure segment across commercial civil and National security programs.
The demand backdrop and interest in space based capabilities is robust.
And we believe we are well positioned to take advantage of the growth opportunities in process.
Operator, let's now begin the Q&A.
Thank you as a reminder to ask the question you will need to price side and the number 1 on the telephone keypad again that will be tier 1 on the telephone keypad until the joint question press the pound key.
The first question comes from the line of Seth. Please the line of Jpmorgan. Your line is now open you may ask the question.
Okay, Thanks, very much and good afternoon.
Yes.
Ken.
<unk>.
Maybe if you could lay out.
For more detail sort of the sky.
Total for launch from.
<unk> day.
Until kind of the spring of next year and what the various boxes are that the company needs to check in.
What what bought 1 of those boxes.
All of it has emerged.
Recently.
Yes sure thing Seth.
So we do have a slight delay to the Legion program a few months.
As we knocked down.
The large pieces of the program I get more and more confidence on the schedule as we go out so.
On the kind of reiterate the hardware deliveries have knocked us off schedule, some as well as some of our expectations about the loosening of Covid restrictions and what it meant to be getting back to the office and how fast we can accelerate some of the remaining work that has to happen on the other.
The thing we have done is we've done a red team and a mission assurance analysis, and that's factored into our schedule.
The assumptions going forward.
As we go forward. The first thing we've got to do is we got to make sure. We got all of the hardware for the launches. So we do have the 2 sets of reaction wheel assemblies for from Honeywell. So thats good.
There is still have to come to the other 6 lesions, but we believe we're on a scheduled to do that and.
And we've got to have instruments the.
First instrument has completed its free ship review and is on route to our facilities in the Bay area right now.
So that's good and we got 1 of 6 we expect the second 1 to show up.
On the sometime in the September timeframe and then the other for to show up throughout the fall.
Once we get those instruments in place then we can that we can complete our final integration of that hardware into the the space vehicles and began thermodynamic our thermal vac and vibration testing on the entire spacecraft. So there hasnt been testing done at the component level with our suppliers.
And that's why we had originally had some of the delays to get through that with Raytheon.
But now we need to get the fully integrated spacecraft into our environmental testing protocols. We also need to run hardware and software simulations on the system by system and some of those will do on the thermal Vac chamber on some of those will do on our metal lab facility in San Jose in Palo Alto.
Once we complete those and load on fully integrated and finalized software and we'll be running software simulations.
On our.
In our virtual environments as well to run lots of lots of different stimulations across different sets of Gpus will then complete the depreciate for review on the <unk>.
Fully integrated software tested spacecraft sandoz down of launch range than we've got X number of weeks down at the facilities with Spacex at the Cape Canaveral location will complete our final pre launch protocols and then we'll go into launch phase of operations. After we finish the launch phase of operations then there is somewhere on the.
Order of 30 to 90 days of Iot that we go through the satellite to put it through its shakeout phases.
I'll make sure. They are both work and this will be just a little more complicated because of the first 1 will be commissioning of 2 satellites the ones, we haven't done that before.
And then we'll go into imaging imagery and revenue operations and we've definitely got pent up demand for them.
I guess the other thing I'd just dresses.
We've got 6 coming through the process too. So the first 2 of definitely important but once you get that first barrier breakthrough than the rest of kind of followed more smoothly in the wake and we've seen that with the instruments, we've seen the other action.
With every piece of the program along the way.
Okay. Okay. Okay. Thanks, Thanks, very much the that's helpful.
And then maybe as a follow up.
Can you talk about.
The opportunity set in space infrastructure for.
New orders in the second half of that.
How do you think about where the backlog for that segment of <unk>.
Here.
Yes sure so.
We've said before on the kind of expect us at the same time today is that we expect the geo comsat market to be about flattish.
But we'll be looking to get our fair share of those.
All awards going forward.
It's a great sign and I get the Sirius XM Non award in the definitely awards out there for us to win.
On the Leo opportunities those are a bit more nascent footwear in the hunt on some of those and we've been paid the do engineering study contracts on some of those recently.
And so we're working on that front as well.
And then on the other 2 pillars of the strategy that we continue to work with NASA.
And the budgets are always a little more subject to the vicissitudes of the U S government, but.
We think thats going to be of strong hunting ground for us, particularly as we performed well on NASA programs like <unk> and Spider and the PPE. The just completed its preliminary design reviews, and then on the National Security front, we're still on the early innings, but it is a good sign that we're getting paid for study contracts that we made it through the first set of down selects we still got more to go to when that program.
But with the national priorities. The way. They are we think Max or provides a lot of great capability for the U S government to work with us on future programs.
Okay, great. Thanks, Thanks, very much debt. Thanks.
Thanks, Ed.
Thank you. The next question comes from the line of Janet Ms. Coppola of BMO capital markets. Your line is now open you may ask the question.
Hi, good afternoon.
Dan just regarding a price on.
On the traction there with rig inventory just remind us on.
On sales tend to be net of onetime in nature or against the current operating there.
1 year relative to the imagery.
Yes.
Alright good.
Good to speak with you.
So there are certain aspects of the programs. For example, Oneworld train is 1 of the biggest programs are running that is much more of a subscription based nature to it. So large larger contract awards services on top of the imagery and on creating date the.
So on.
Stimulated in virtual environments that we'll be doing that encompass the <unk> imagery, we do have some buzz.
The recent awards flow and we will continue to do these 2 where.
It's operated more of like our traditional.
Inventory side of the business, where we do of data delivery get paid for that and recognize some of the same quarter. So we saw some of that happen in Q2 here and that had a nice trend.
The positive results, we were able to the report.
Okay and just on the.
On the CD side any of it.
In terms of your construction operating fair, Mike Goss care of auction.
Okay.
Yeah, we're really we're really excited about the continued performance that they have global <unk> is the largest program we have with the U S government and we've got over the <unk>.
400000 users on that program and continue to see very strong demand signals.
As we continue to fund that under the future secure watches the commercial version of that that we've been working with international defense and intelligence customers on as well as commercial customers and it's been a really good sign for those and our online based maps on other product offerings debt.
That's in the capacity constrained environment that those of the things that led to the growth in this quarter for us.
Okay.
And then finally I'm trying just to clarify the obviously strongly this quarter, but youre not raising guidance so as part of that dynamic.
The of 5 versus what you were expecting internally a lot of that.
Moving from sort of non recurring revenue.
Yes, I'll, let <unk> take that 1 of the second I think what you were asking about was the.
The strong beat in the quarter why didn't we take guidance up as part of the assets.
Yes, part of that has to do with the <unk>.
Some of these large type of awards that we've got factored in the Q3 and Q4.
Depending on what side of the line I slip on.
We don't want to get ahead of our Skus, but the <unk> would you like the add anymore color on that.
That's fair.
The we simply of were expecting.
A substantial increase this year of $100 million on product sales, including the <unk> sales of other products and the timing of those obviously in the.
Barry and of 1 quarter of the next creates the Lumpiness and we just felt like.
We had roughly an acceleration of those into the first half because of some of this.
Second quarter end.
We're going to not presume that it's a net positive for the year at this point in time, obviously, we left the range of our guidance fairly high to accommodate.
The the.
Ability that there could be some.
Some of those in the second half above our baseline assumption.
That's more of that in this year and that would be great.
Alright, thanks, all for flow.
Thank you. Your next question comes from the line of Michael share Molly up till the Securities. Your line is now open you may ask the question.
Hey, guys. Good evening, thanks for taking the question.
Just on on the the Worldview Legion here on the delays I mean can you parse out how much of of the delays are sort of on you guys and how much are on the suppliers I mean I kind of.
Theres always supplier challenges, but at the end of the day. It's your satellite at your program.
Seems like the slips are encompassing a little bit more than just <unk>.
Kind of hardware issues.
Yes, Thanks, Michael.
Look the hardware delays of definitely contributed to it you can't get into the integration and testing and you can't can't launch about things like Jacksonville is on instruments.
Some of them are also on us the some of that was the expectations. We came from operating out of the Covid environment and some of the acceleration for a variety of factors, we thought we'd see on the program coming into as things snapped together and you'll get to run integrated testing on hardware and software and the procedures, we are doing and so.
Part of what we've done to address that is to do the mission assurance analysis that we've done and that has helped us firm up our understanding of the schedules on the remaining work items that we have.
We've been adding additional resources to the program and.
And the software and the engineering side and.
We've got very strong program management people, including gross Johnson now that it's on.
On board here so.
It's a combination of everything but.
Where are we of our when we're taking decisive action to get the program launched in the right format for US it's very important missions that it has to do.
So what I can.
Yes, and the other.
<unk> talking about the pressure of the slide.
We're looking at a worst case of June or.
Maybe other delays why not just pull the 'twenty 3 targets that you guys have out there right now.
Are they actually achievable on realistic.
Yes.
I think.
If the <unk>.
Premature to go pull them.
We don't literally.
Update them for every line item every quarter.
Thats just not practical when you talk about long term guidance.
But clearly there is some risk here so thats why in my prepared comments mentioned the $80 million that we assumed.
That we would have us on ramp up associated with the.
Of the Legion capacity coming online.
But there is a lot that we're doing to mitigate that as well.
Really it's not just the matter of the timing of the launch of its also the slope of the ramp up in the revenues and we had been a discussion of the customers on <unk> Legion of already signed.
Signed with.
Thus for assigned for customers to do.
Date for ground infrastructure improvements so that the it can be ready for Allegiant and Theyre spending their resources do that we've announced our first of all ages of capacity sales so on.
Our sales teams that are out there working with the customers to ensure the best we can.
The ramp up will be as steep as we can make it.
So we're giving you an idea of what the risk range is it's just too early to say definitively.
Exactly where we'll land in.
How much of that might be realized for how much might be offset by other things that we would do.
It's just a little too early to be definitive.
And literally revise the guidance.
And maybe on top of that I'd just note.
Maybe on top of that I would note that the.
On the lesion growth there was also product.
The growth coming from <unk> on our other products as well.
Those are doing well so.
We're going to look at all of the line items on the puts and takes to them and the things drew on our controlling the things that arent then we'll give our best view of it.
When we have that.
Got it last 1 on the iOS CL contract I mean this of <unk>.
The becoming a pretty crowded space I think we've talked about the prior with all of these upstart, but I mean, how important is it that you have on.
Operating satellite in orbit by the time. This is awarded I mean is this going to have any impact on.
That that contract award maybe how the award gets parsed up among certain.
All participants.
Yes, I think the first thing I'd note is.
We have the world's best constellation on orbit right now.
The for satellites that we operate provide not just an amazing on high quality, but for the high accuracy and large scale coverage of the planet and are designed to meet the government's mission needs. The Legion constellation comes in.
Beyond and behind that and beyond and on top of it so.
As we worked our way through our.
That <unk> draft RFP and all of the other the work associated.
Weighted with it.
We think for mission continuity purposes, the otherwise we're in a good spot we spoke.
On a go out and win.
Nothing's ever of Kevin of course, but where we are today and with the assets. We have on what the assets will be bringing on a few months later with the the Legion constellation we feel like we're on a pretty good spot.
And the first space program, that's that slowed a little bits of the right net customers.
Understanding of it as well.
Got it thanks, a lot guys. Thanks.
Thanks, Michael.
Thank you next question, we have the line of Ron Epstein of Bank of America. Your line is now open you may ask a question.
Hey, good.
Good afternoon guys.
So the the rehab of the <unk>.
Hence the contract terms changed and how are the terms and the re up compared to where it just ran out.
So nothing is drawn out just to kind of the clarify that.
The subprime yet as of September announcement was the option exercise of the the 11th year of the enhanced view of the enhanced the follow on program, which we've been performing on and meeting all of our mission criteria.
Dozens and dozens of months of neuro now so.
1 of kind of clarify that piece of it.
The net and we are under contract through 2023 on that.
If nothing happens on enhanced.
A history of commercial follow on later than we'd standard of that contract.
We think we're very well positioned with the <unk> as it comes forward because the.
There are very important components for mission continuity past performance operating and the type of environment. The U S government likes us to operate as well as the quality and consistency of the data and covers of the data that the Macs are provides so definitely there for 1 of 3 companies that 1 study contracts but.
We continue to perform very well, we think the share of the amount that the NRO, we'll we'll spend in the future on commercial satellite programs is growing base.
Based on funding decisions, we've seen as well as statements made by <unk> as well as what we see is the direction of the.
The theme of the U S government here. So we think we're on a pretty good spot, but we've got to keep driving hard.
Never take aided brand for granted we got it we got to go win.
So I mean wasn't it just.
Awarded to have on it.
Announcements yes.
Yes, Yes, we announced we announced the exercise of the option year for the 11th year of the enhanced the follow on program.
Alright, and that option is similar economics to the previous it's the exact same as what we've been performing on for the past several years on a roker okay.
Okay. Just wanted to confirm that and then can you just maybe it's the metrics, but what's red TV man.
The best company things mess up and they say red teaming and then they continue to mess up I have no clue what range.
So.
We man I'll tell you we do a lot of jargon around here, we do a lot of acronyms you got to get a code book almost when you joined the company but.
On the what we mean by that is we had in <unk>.
The people completely independent from the program to come in and do a deep dive review of the program in the schedules on the remaining work streams and emission of assurance that we've gotten related to it.
Which have informed the next steps, we're taking as well as the scheduled decisions, we're making here. So it was it was.
Experts independent from the Legion program that went in and did a deep deep.
The per view here.
Now Okay. So help me understand why was that necessary if of core business of what you guys. Do is this is already the expert.
Yes.
Like when you have internal audit come on and look at the books on the auditors, it's nice to have people come in independently.
Particularly people that aren't associated with the program and the level of expertise, we've got across the company and some external resources as well to double check on so this is these are 10 year assets, we're spending a lot of money on them. They are critical for national defense priorities and.
It's good to have somebody tests the theories that we've got it even though we were very good of what we do.
It's not at all unusual.
In aerospace.
It seems to come up when the programs are off the rails.
Alright, guys. Thank you.
Thanks, Michael.
For Ron So we have that.
We have the next question comes from the line of Peter Arment of Baird. Your line is now open you may ask a question, yes, good afternoon Dan.
Dan maybe just.
The solid margin performance, we saw at space infrastructure, maybe I know there was less eac's. It seems like you had some growth on some commercial programs, but maybe you could just talk a little bit of of how sustainable.
Of this margin level is because it certainly seems like a pretty high level.
I'll turn it over to begs for a forecast on sustainability of I, just want to give a shout out to our teams that are performing on the space side of the business I mean, they've been they've been working and driving really hard to keep programs on track on record in May.
It certainly helped us in that.
The dynamic, but a lot of a lot of great work has gone on to set the preconditions for those kind of results.
So it's.
It's a great question.
It's not a real simple 1 to answer I can say certainly that are.
As we've said before our targets for the B 10 per cent or better for running hotter than that right now so.
While this is very good it's not something we're going to stay he will always be that way there are always be.
The differences in program mix.
From the standpoint of cost type versus fixed price as they go forward is mainly execute our strategies on diverse on.
Diversifying the business base.
And Youre also going to have differences of my contract to another.
Just in terms of its performance characteristics.
In any given quarter also can have positive uplift for margin changes our EAC changes of negative 1 so.
Youre going to have fluctuation in time, that's kind of pretty certain.
We feel good about our ability to enter into contracts and perform at the kind of levels.
At 10% or better.
But a lot will just depend upon quarter to quarter and year to year total volumes on the mixed contract.
Okay I appreciate the color of <unk> and then just Dan if I could just circle back on on Legion, just you've talked a little bit of out.
Or I guess prepping for signing up for your customers, but this does look like a pretty steep ramp I mean, maybe you could just.
How do you de risk.
Some of that or give a little color around the <unk>.
Steepness of the ramp of signing of the customers.
Yes, so the first way to de risk of us actually to get the customer signed up.
We've been doing well here before international defense and intelligence customers that we announced they are upgrading the ground infrastructure to work with Legion.
As well as the 1 we announced this quarter that actually signed up for Legion capacity as part of their program.
We believe that commercial customers will be pretty soon on the table as well. So we'll look forward to 2 <unk>.
Announcing them in future future business here future calls.
The other things we're doing are remember this was a 6 satellite constellation of not just the first 2 so we have levers and of 6 satellite program too.
2 matches get through the first launch but to then look at how we model the work after that for follow on.
The space based work as well as the lessons, we get and the lessons we learned from the first set of commissioning.
As well as the fact that on.
This isn't the first set of needs for the first satellites of this class we've commissioned but we've commissioned satellites before.
On into revenue operations pretty expeditiously.
The other thing I'd say is like look I don't like the delays.
We prefer to be talking about being on the on time on the program here, but but it does give us some additional prep time on the ground.
To work on the commissioning protocols and other things that can ramp faster into the production and revenue operations for the satellite. So we do expect to take full advantage of that use all of the levers we've got and meet the meet the customer objectives for US. It's definitely has a business case on for the investors, it's about getting to that revenue as fast as we can for the customers it's about delivering world.
Glass capacity and services for their defense and intelligence and technology in commercial needs. So we're hearing it from them. The same at the same time, we are hearing it from for everybody else I.
I appreciate all of the detail thanks, Dan.
You bet.
Thank you. The next question comes from the line of the Robert Spingarn of Credit Suisse. Your line is now open you may ask the question.
Hi, good afternoon.
So.
Dan <unk> I'm going to go back to the same question. That's already been asked I think Mike asked the question but.
If the satellites take 90 days to reach proper orbit after launch and we may not see launch till June of 'twenty 2.
Yeah.
We might not have the first tranche up there until the end of the third fourth quarter and 22 and on the last few overlap of the second tranche then.
Those won't deliver or at least be ready until the middle of 'twenty 3 so why not pull the guidance.
Yes, I just wanted to create a couple of the credit for a couple of misconceptions. Rob. These are not like Geo assets, where they take.
Do you have on orbit raising events or anything like that these are these are leo assets they will be in the correct.
There'll be there'll be at orbit within.
A handful of minutes after I comment of launch operations. So there is no.
There is no.
Because I recall in the past.
We're going to have them up and then it was going to take some time before they were generating revenue yes. It does take some time before the generating revenue that's the commissioning phase, but we don't have an additional order rate range of phase on it like you would with the Geo constellation.
So.
From the time.
When the satellite starts as we go through launch of potential ignition.
X number of minutes later it starts to reach its altitude and we start to get signals and check ins with the satellite we didnt go into <unk>.
The safety protocols on the commissioning operations.
That's typically been between 30 and 90 days.
<unk> on the very low side 90 days would be on the upper bound of that but thats. We will learn a lot in the first set of launches that will incorporate into the second set.
So if you took the worst case scenario on worst case scenario worst case scenario, yes, Im sure you can get to the point, where it makes it really challenging for 'twenty, 3 but but we're not we're not in any way shape of forming that position right now okay pigs can the first 2 satellites deliver the $80 million on EBITDA.
No. The first 2 wouldn't do that.
Okay.
It does take.
All on operation, but there is a question as to as you point out what is the period of time between the first 2 and the second for being launched.
The.
How quickly noticed operations that you get customers.
Lined up too.
The generate revenue off of them.
Trust me, we've done modeling.
There are a number of scenarios here.
Which.
I think would warrant fully are not pulling the guidance at this point in time.
Hey.
Just 1 other thing on this Dan.
I am not suggesting this is connected at all but just given the amount of space action that there is out in the market now a lot of new companies and some of them not so new but we're starting to see the grow and develop their presence is there are a lot of talent moving around both to and from all of these companies, including <unk> and <unk>.
<unk>.
Disruptive in any way.
I think the way I would answer that Rob is that we've always got a certain amount of of <unk>.
Turnover in our business with talent.
And we certainly know a lot of the talented at other companies that both on the Eric intelligence side as well as other companies based companies with a lot of other non of our consultants based companies are being launched.
And of match of our is known for its quality of the talent. We will certainly have people moving around but we've done a really good job of.
Back filling and being aggressive in our.
Talent acquisition profile, we hired over 600 people during COVID-19.
Some of them are coming to Max our facilities for the first time now on.
For some amazing talent, that's entering the building so.
We're always sad when we lose great talent, we're always really excited when we bring new talent into the organization as well it hasnt really impacted our operations.
To date.
Think about the point to like 1 area that the war for talent is really extreme on its software engineering talent.
On your consultant side Thats just.
Net software engineering talent across all of the Bay area and every every place else that people are people working with the people can't find of software engineers of these days.
Okay. Thanks for the help.
You bet.
Thank you. The next question comes from the line of Austin Muller of Canaccord. Your line is now open you may ask the question.
Hi, Dan on bags.
So just the start I think of.
Heard correctly the.
The first Jalisco from Raytheon in transit and should arrive in the.
The number does the current volume.
No no no.
Glad it doesn't take that long to get from <unk> 2 of Palo Alto the.
The first telescope is in transit and.
Let this morning I'm just looking on my watch right now, but it should be at our facilities or be there in the next day 30 minutes. So I'm very much looking forward.
Getting out to Palo Alto, and San Jose and seeing the long awaited instrument. The first 1 the second 1.
We're expecting right now to arrive in September so for the 2.2 vehicle launch that second instrument becomes part of the the gating item and the delays we've looked at as we put the overall schedule together.
Okay, and then and then the.
Additional pilots go so.
Later in the fall of essentially.
Yes.
Some of the Raytheon teams are working 7 days, a week and double shifts right now or 2 shifts a day so for a tremendous effort into this.
2 clear of that backlog and the keep us on the best schedule as we can.
Anomaly those are coming in at 3 months to 6 months on our lines I'm sorry of 3 to 6 weeks on all lines I misspoke. There. So we should have all 6 instruments in Max our facilities being integrated and tested and gone through their protocols throughout the fall.
Okay, Great and then just following the trail of Breadcrumbs here so.
If youre launching in March and you put the first 2 satellites up then there's going to be.
Yes on average 60 days of of checkout time for those satellites to the end.
2 of them into service.
That's the case scenario.
At least for for starting to generate revenue as I guess.
May of next year, but that's the way to think about it.
Yes, I think Thats, a fair way to think about it yes.
You've done the math correctly.
And the best case scenario with the guidance, we've given here, that's where we'd be.
Okay, Great and then of course, the next launch will be somewhere between 3 and 6 months after that.
Right and we're doing everything under our control to keep that to the.
And we'll continue to refine that along the way the to the very shorter end of that that methodology there.
Okay, and then just just.
Finally on here.
If you've got $80 million in incremental EBITDA from all 6 satellites essentially firing on all cylinders should we be thinking about.
Should we be thinking about.
$20 million for for each.
Bachelor of satellites.
It's probably a little more complicated than that because it's not it's not just a straight capacity the it'll depend on how much of that is used with different government customers. What the model is and then how much of that is going into products like for icon on other things that flow through faster. So.
Yes.
You can you can kind of average it out that way, but but there's a lot of different access agreements on a lot different products that feature and to get those revenue numbers generated from the capacity on the settlement.
And then just for I guess for example, the current revenue basis is.
Listing on the for satellites, we have an operating right now.
Okay that makes sense thanks for additional color.
Yes sure thing.
Thank you next question comes from the line of Chris Quilty of Quilty analytics. Your line is now open you may ask the question.
Alright, Thanks, I wanted to do a follow up on the the large book and ship that you.
Booked in the quarter.
I've been following the company for about 10 years, and I don't recall any single Big order hitting like debt was there something particular, either in the lifting of COVID-19 restrictions or new products that you offered or budget cycle that you would attribute that to or is that maybe just the early wave of of what could be.
The follow on business at the same level.
Yes, I think the way I would talk about that credit.
I know you've been following the company for a long time, but.
Probably 1 thing you've noticed is how much better our some of our products have gotten.
Like our base map of our subscription products are.
The integrated.
The <unk>.
Full on.
The level of systems and then the beyond that now the <unk> products and so what we saw on this quarter, we really saw some traction with the the <unk> capabilities.
Tied to the other things that we offer in the dataset. So.
And probably the best way to explain that as people see some of the work we're doing with project May then and the 1 world to range Stimulations and.
Sensor the shooter on sensor the decision timeline for realizing the value of the 3 point cloud data registration.
<unk> of that data can be for training and simulation environments and thats what the.
That's what drove a lot of the the upside in the second quarter here.
Got you and I know you don't break out for.
Icon separately, but can you talk about.
On the rate of growth within that business relative to when you fully acquired it and whether you are just seeing a continuation of programs take okay.
The Oneworld thing out.
Are there any any specific actions you have been able to take to land new customers or expand the product portfolio.
Yes, there are 2 very definitive things we've done 1 is as we've shown this net.
As shown it but on the sales process and the the pull on testing with the international defense and intelligence customers and as they cycle back through with their their U S. Ally here. They are understanding the value of the data on the technology and that's contributed to the sales cycle on some of the wins we've seen.
The second thing, we've done and we announced this I think last quarter the quarter before but we've secured all of the commercial rights to the 3 day sales.
Sales as well so we're seeing really good pipeline opportunities on the commercial side as we've now got full license ability of the <unk> datasets for <unk> technology, and the data point cloud registration of <unk> datasets that we've got there. So those of the 2 things that are really contributing to.
Where we're performing now as well as to what we see is the good growth prospects driving forward.
Great and final question on the launch.
Going with the dedicated Falcon 9 range.
Yes dedicated Falcon 9 we've procured 2 launches from Spacex.
We will do.
On a little unusual compared to what we've done on the past, we typically launch out of Vandenberg for.
The SUNS net commissions, but what we're going to do both of these out of the Cape It's easier we don't have to get teams back and forth. We can do all of the testing and integration of the 1 launch facilities based on access to launch pads there.
And there's plenty plenty of horsepower on the Falcon 9 to get the satellites for the right spots.
Well My question I guess is going to be the.
The March to June timeframe is that an assumption that while we think we're going to deliver in March but we don't know whether we will get a launch of availability until June.
Or do you feel like given the Dx rating on this program that.
Spacex is going to move things around to get you launched as soon as possible.
I'm glad you pointed out the we do have the Dx rating that's been very helpful. Along the way here and I think.
Proof point of positive about the importance of some of these assets.
We've been in we've been in discussions of Spacex, we've talked to them about the parameters, we're working with what our schedule looks like and day.
Without even having to talk about the Dx rating they've been very amenable to working with us on the launch schedule for this.
Great looking forward to it.
Thanks, Chris we'll.
We look forward to seeing you down there.
Yes, absolutely and thank you operator, we've gone.
Over the 60 minutes that we set.
To try to complete the call and I want to thank everybody for joining us today, we look forward to the.
Seeing all of you virtually at some of the upcoming conferences and reconnecting on our third quarter call.
Later in the year.
That's it for non operator, we can conclude the call.
Thank you so much for centers that concludes today's conference call. Thank you all for participating you may now disconnect.
Okay.
Okay.
<unk>.
Okay.
[music].
Yes.
Good day.
Yes.
Please.
Sure.
Yes.