Q3 2021 Maxar Technologies Inc Earnings Call
Good day, Thank you for standing by welcome to the Max Our Technology S Q3, 20th 21 conference call and webcast. At this time all participants are in the same old Nemo.
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I would I would like to hand, a conference over to your speaker today, Mr. Giessen, Gursky, Vice President Investor Relations and corporate treasure.
Good afternoon, and thanks, operator, welcome to Max Ours third quarter 2021 earnings Conference call I'm joined today by the company's Chief Executive Officer, Dan Jablonski, and its Chief Financial Officer Big supporter, both will make some opening remarks after which we're gonna open up the line for your questions were shooting to wrap up the call in about an hour.
<unk> before we get started I'd like to refer listeners to the accompanying slides for today's presentation, which can be found on the company's website and Max R. Dot com once they're please turn to slide to <unk> I'd 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 and expected performance at today's date these.
These statements are based on current assumptions that the company believes are reasonable but are subject to a wide range of uncertainties and risks that could lead actual results to differ materially from the forward looking information you referred to the advisory regarding forward looking statements contained in our quarterly earnings releases earnings call slide decks on the company's most recent M D N a SEC.
<unk> found in our Form 10-Q on the company's website at <unk> dot com and with that I'm going to turn the discussion over to Dan Dan go ahead.
Thanks, Jason and good afternoon, everyone.
Before I get started I would like to welcome Tomlin, Our Chief strategy Officer, and calling Campbell, Chief marketing officer to the Max our team.
Both are seasoned executives and if deep experience an arrow defense industry.
Tom as a space industry veteran having held book banking and operating rolls over a 20 plus year career.
He also has a long history with Macs are having advise digital globe one of our predecessor companies as far back as 2012.
Commonly corporate strategy corporate development and strategic investments, because we look to drive long term growth for our shareholders.
<unk>, most recently led marketing and communications at Allen, a leading AI and cyber platform preview.
Previously led digital strategy at Northrop and earlier in her career have leadership roles that global Park and Ogilvy.
Cause now, we're leaving our global marketing media relations and communications teams.
We're very excited about the eco system in which we operate and the demand environment in front of us.
This lends itself to a multitude of opportunities we want to be best positioned to take advantage of them.
I'd like to remind investors that are three D capabilities, which are a big driver of our current product growth.
Came by way of the <unk> J V that we set up way back in 2015.
I'd also like to remind everyone that we remain committed to generating cash and to reducing debt and leverage in the years ahead.
At this point.
On the path to our long term leverage targets, which should provide the company even more flexibility to execute on our strategic growth plants.
Okay now for the quarter on our progress.
I'm going to cover the key highlights from the quarter and provide an update on our 2021 priorities.
Including where we are at the Legion program, our next generation constellation.
Also spend time, describing our commercial business in New York Intelligence segment to provide some context on the breath of our offerings and marcie customers.
As well as the financial contribution this vertical make sure the company.
Please turn to slide three of the accompanying presentation.
We generated 5% year over year revenue growth in the quarter, excluding the effect of UV differed and 11% year to date.
Of note.
<unk> intelligence grew 7% year over year in the quarter and is now up 8% year to date. Despite the fact that we are currently capacity constrained ahead of the Worldview Legion launches.
Growth here was driven largely by product sales to commercial and government customers.
Importantly, we saw 380 basis points of adjusted EBITDA margin expansion year over year, excluding Evie differed driven by improvement in both segments.
Bookings were solid this quarter and we generated a book to Bill of 2.2 times.
He wins in space infrastructure included to Geo Awards from Sirius XM.
While on Earth intelligence, we received our 11th renewal of the enhanced program and were awarded numerous U S and international government contracts, including another renewal of the globally Gd program.
Year to date total company book to Bill is 1.1 times, reflecting solid demand for both multiyear contracts as well as strong book to ship activity in New York Intelligence segment. This year.
Importantly, we.
We generated robust free cash flow and are not positive for the year to the end of the third quarter.
Bank to find leveraged finished below four turns.
<unk> will go into these metrics in more detail during his remarks, but I can say we are excited by the progress we've made over the past couple of years on both.
And we look forward to continued momentum in the years ahead.
Finally, as Bakersville discussing more detail, we have increased our outlook for adjusted EBITDA and cash flow.
Please turn to slide for for an update on our 2021 priorities.
We remain focused on winning an earth intelligence, which means driving bookings growth, including for capacity on Worldview Legion.
Growing three D capabilities and extending enhanced you through the upcoming UCL four electro optical commercial layer program with the NRO.
In addition to the awards I mentioned, a moment ago. We won an award to continue development and operations of a classified big data analytics program for the U S government.
We renewed a contract with a large technology company.
And we announced the two new customer signed multimillion dollar contracts earlier this year to subscribe to a rapid access program, including the first customer in Latin America.
Importantly, we also signed a contract with a close us ally to upgrade the country's ground infrastructure. So that it is ready for the Legion constellation.
This marks the fifth country to commit to a ground upgrade.
As a reminder, one of these five countries has already committed to capacity by on the constellation and we expect the other seducing once the satellites are operational.
This is a good sign the demand environment remains robust.
From an execution perspective, it was another good quarter with the team generating both revenue and margin growth, excluding eby differed which as I mentioned earlier is a great outcome given the capacity constraints. We face ahead of the Legion launch.
In early October we attended the annual Gon's supposing.
An event that brings together leaders from across government in the industrial base.
There we continue to hear the government demand for geospatial data and analytics as as robust as ever.
Our customers at the NRO NGA and military services seek to leverage the capabilities of the industrial base to better understand what's going on in every corner of the planet.
And importantly, they are increasingly looking for answers to tough questions and technology solutions not just data.
As I have discussed on prior earnings calls over the past couple of years, Max Art is positioned well for this demand environment.
We've been making investments in our constellation to provide the highest quality data available in the commercial market.
We've invested in platforms, such as secure watch and global HED, which.
Online access to our geospatial data and analytical tool sets to hundreds of thousands of users across the U S government and Allied nations.
And to commercial enterprise customers.
And we've been investing in AI and machine learning capabilities that helped turn data into insight and that drive improved censor to shooter timelines.
We're excited about what the future holds for government customers. It's.
It's clear that the geopolitical environment is driving investment on their end, particularly in the areas of focus for Mac Sir.
And we've been making investments for years to address this demand with well proven technologies.
I am confident dispositions as well to continue to be a trusted partner on our nation's most critical national security missions in the years ahead.
Turning now to space infrastructure, where we are committed to consistent execution against some of the world's most complex space programs and to establishing a foundation for future growth.
In addition to the Sirius XM Awards I mentioned earlier, we booked a contract modification with NASA for work on the power propulsion element and study contracts for National Security work as we continue to look to shape new programs and further diversify the business.
Book to build this quarter was a robust two five times and now sits at a touch over one times for the year.
The pipeline remains robust across both commercial and government and markets for the precise timing awards is always difficult to access.
We're pleased with our bookings performance so far this year and look forward to updating investors as new awards are made.
From an investment standpoint, as I mentioned last quarter, we continue to work on new satellite and constellation designs, including modular spacecraft and proliferated constellations as we look to serve commercial civil and classified programs with highly engineered and affordable solutions.
We also remain focused on our payloads proactively working on comprehensive packages that will solve our customers demanding mission needs.
Reflected in the financial results, we had a solid quarter as adjusted EBITDA margins continued their year over year improvement, reflecting better performance and healthier program mix.
And finally, a financial flexibility, we're continuing to drive strong financial results in the business and see our way to significant cash generation in the quarters and years ahead.
Of which should drive that and leveraged levels lower.
Moving to Worldview Alicia please turn to slide five.
First the punch line, where.
We remain on track for a first launch and the March to June window of 2022, and we continue to expect the remainder of the constellation will launch three to six months after the first.
Importantly, the first flight unit is largely through its integration phases and is prepping for thermal back.
I know investors are interested in the remaining work, but for the satellites go into service. So I thought I'd provide some insight on the outstanding phases of the program.
As you've heard me mentioned in the past the program has already made its way through various design and integration reviews, and we've taken delivery of components in various subsystems from both internal and external suppliers, which we've been integrated.
A key gating item this year with some hardware coming in from Honeywell and Raytheon and as we reported out on last quarter's call. The Honeywell equipment to support the first launch has been delivered.
With Raytheon, we've received and have integrated the first instrument and expect the second in the coming weeks.
That's a short delay for the second one, but we do not expect this to cause any pressure on the overall program scheduled.
At this point, we expect the remaining hardware for the other satellites to flow during the fall and winter.
Once all in we complete the integration of the hardware and conduct initial performs testing.
Then comes environmental testing, starting with Thermo back then acoustics, and then vibration all designed to stimulate the launch characteristics and eventual environment. The satellites will operate in in space once on orbit.
After all the testing is complete including software validation will begin launch campaign activities, including the shipment of the satellites to the launch facility down at the Cape.
And lastly of course on orbit testing in the beginning of revenue generation.
On the right hand of the slide we've included some photos that should give readers a better sense of the program.
The top let picture is an artist's depiction of allegiance satellite on orbit.
And on the one on the top right because the optical instrument before being integrated into the satellite bus.
The larger picture at the bottom is what the first unit looked like on the factory floor recently.
There you see things like thermal blankets around the bus and the instrument integrated into the satellite.
Note there are two employ standing off to the right. This should give you a pretty good sense of the scale of the satellite itself.
We continue to believe we are on the right path for a launch of the March to June window next year with a critical remaining steps being what I just described.
Going forward, we will continue to provide updates on our progress on quarterly earnings calls and we look forward to having you join us either virtually or in person at the launch site next year.
Please turn to slide six.
I'd like to take a moment to remind listeners that the legion constellation represents both replacement and growth capacity.
When initially launched Legion will significantly augment our current constellation.
On the replacement site Legion, which will fly in both polar and mid inclination orbits will eventually replace Joey one and worldviews wanted to which flying polar orbit.
Additionally, Legion will provide 30 centimeter class resolution versus the 40 to 50 centimeter capabilities of the satellites that it will be replacing.
Both are important nuances.
The mid inclination orbit will allow us to collect more imagery in the areas with the most demand.
Since 95% of the world's population lives between plus or minus 50 degrees latitude.
And higher resolution data has historically garnered better price levels, given us valued customer emissions.
In our view the combination of additional capacity in the in demand areas of the world and a significant enhancement in the quality mix of the data should drive solid revenue growth in the Earth Intelligence segment. Once Legion is on orbit.
Importantly, Legion and the existing constellation assets are broad area collectors that allow for monitoring type missions and then when combined with our existing constellation will provide revisit rates of up to 15 times per day.
This type of high resolution highly accurate collection capacity feeds wide area artificial intelligence and machine learning modeling censored a shooter applications and is a key enabler of our ability to derive highly accurate and lifelike three D models, which we believe physicians macs are well to continue to be an industry leaders customers transitioned from two.
<unk> to <unk> to address critical missions, such as GPS denied navigation simulation and training autonomy and network planning.
Please turn to slide some.
Before I had to call over to <unk> for a more detailed discussion of the numbers I'd like to spend a few minutes double clicking on the Earth intelligence segments activity and the commercial vertical.
In 2020, we generated $143 million in revenue from a who's who of the largest enterprise users of geospatial data products and analytics.
We've been a trusted partner for the world's largest technology and telecommunications companies for well over a decade.
And were consistently onboarding, new and innovative customers every year, including in the automotive and autonomous areas.
These customers value, our high quality data and the products services and analytics that are derived from it and.
And we look forward to growing with them in the future.
Importantly year to date performance has a pretty good indicator of how things are going on that front.
With revenue up 23% through the third quarter of 2021 versus the same period a year ago.
But I'd like to do now is walk you through the four primary product areas on our on offer to commercial customers and then moved to focus on one of them.
I'm going to move quickly through the slides to provide a general overview, but encourage listeners to read through them in detail offline to fully appreciate the power and significance of our offerings to a broad set of enterprise customers.
Please turn to slide not.
In general our product span satellite access Geospatial Foundation precision mapping an on demand intelligence.
I am going to highlight Geospatial foundation of product area, where we provide the highest quality satellite imagery base maps and three D data over any location on the Earth for solutions across a multitude of verticals.
Slide 11 shows some of the areas, where we're focused including automotive and logistics consumer mapping.
Risk management and monitoring.
Telecommunications and met a versus simulation and gaming.
Slide 12, and 13 showcase how we use our 15 centimeter HD product and the autonomous driving area.
While slides 14 through 17 demonstrate how are vivid base maps and analyst ready data allow users to unlock location intelligence for both consumer and first responder mapping applications.
And finally slides 18 through twenty-three highlight how our capabilities with three D technology are helping customers in the technology and telecom simulation and gaming and autonomous verticals.
I wanted to highlight the commercial vertical today, because I know that it often gets overlooked given the critical national security missions for the U S government and our closest allies that we help to support.
But at $143 million last year and growing the commercial vertical is incredibly important to us and as such to our investors.
It's an area that help spur innovation across our products and services and it's an area that we are going to be increasingly focused on in the future as we see any number of applications across the commercial sub verticals I mentioned earlier benefiting from the investments, we're making a allegion constellation investments in three D.
And our investments in AI and ml, all of which are topics that I've covered in depth on previous earnings calls and.
And with that I'm going to turn the call over to begs for a deeper dive on quarterly performance and how 2022 and 2023 are shaping up.
Thanks.
Thanks, Dan Please turn to slide 24, we present year over year comparisons for the third quarter.
Our net income for Q3 was 14 million driven primarily by strong performance of both thirst intelligence and space infrastructure.
Revenue was roughly flat year over year for the quarter ends up 4% year to date on a reported basis.
Feeling the effects of the enhanced C contract deferred revenue Bernoff total company revenues increased 5% year over year, driven by recent wins and space infrastructure and product growth <unk> intelligence on year to date basis total company revenues increased 11%, excluding the effects the deferred revenue burn off and adjusted.
<unk> margins increased by 300 basis points.
Please turn to slide 25 were all discuss Earth intelligence results without the effect of EV differ.
Revenue increased 7% year over year in the third quarter, driven primarily by increases from international events or intelligence commercial customers offset slightly by a reduction of revenue from U S government customers.
Adjusted EBITDA margins expanded 330 basis points, driven by the expansion of contracts with existing commercial and international defense and intelligence customers contributing to positive margin growth.
On a full year basis revenues, 8% year over year, driven by increases from international dependent intelligence commercial customers and adjusted EBITDA margins expanded 100 basis points.
Please turn to slide 26.
Space infrastructure revenue was essentially flat year over year, while margins expanded to 120 basis points driven by the profitability of recent awards.
As well as fewer negative EAC impacts, including those related COVID-19 taken last year.
This was offset partially by an increase in indirect costs and selling general and administrative costs.
Year to date revenues up 9%, primarily driven by an increase in revenues from commercial programs as well as lower EAC growth.
Adjusted EBITDA margins expanded to 860 basis points driven by their profitability of recent program awards offset by reductions in revenue from Sirius XM seven charges taken during the year and modest increases in indirect and SG&A costs.
Before moving on to discussion cash flows I didn't want to comment more generally on the supply chain issues and cover the vaccination requirements that.
That have impacted various industries.
We continue to monitor our supply chain closely and do not expect to see any material impacts at this time.
Also we're pleased to report we have are already have approximately 92% of our workforce suggests submitted proof of their vaccination status.
We will continue to work through the various protocols.
Please turn to slide 27.
The company generated 136 million in operating cash flow from continuing operations in the third quarter and invested $51 million in Capex.
Operating cash flow for the quarter was positively impacted by the timing of cash receipts and other favorable working capital changes as expected, which we outlined in the second quarter call.
Please turn to slide 28.
We have roughly $508 million liquidity at the end of the quarter in our bank defined leverage ratio ended the quarter at approximately three eight times.
Net debt decreased $84 million from last quarter due to our cash generation in Q3.
Now please turn to slide 29.
Overall, we are narrowing and improving our guidance ranges for adjusted EBITDA and cash flows.
Revenue guidance has decreased slightly driven by an increase in intercompany work.
We've tightened the revenue guidance Earth intelligence by $20 million to a range of one point O six to 1.5.
5 billion.
The midpoint remains unchanged issue previously.
We spoke earlier this year about our goal of driving up to 100 million new product growth at Earth intelligence this year, including on <unk> sales.
We remain on track to accomplish this by year end.
Earlier, Dan highlighted the 23% year to date growth, we have seen with our commercial customers and we continue to drive growth and our customer base as well government customer base as well.
At the midpoint of our guidance, we expect further fourth quarter revenue to be roughly in line with the average quarterly run rate of the first three quarters of the year.
A space infrastructure, we've increased the bottom end of our range by 5 million and lowered the top end of our guidance range by two men.
And expect a full year to fall between $740 million and $760 million, representing low to mid single digit growth.
We expect fourth quarter results to be to roughly mirror, the second quarter driven by the timing of revenue recognition, particularly on recent commercial and large.
As Dan spoke to earlier space infrastructure had a book to bill of two and half times in the third quarter.
It's important to note that last year's fourth quarter benefited from a steep ramp and revenue associated with the commercial Geo concepts that were awarded earlier in 2020 and from a greater contribution of the U S government work, including on the PPE and psyche programs.
Guidance for Intersegment eliminations has increased modestly.
So and expect a total of $65 million for the full year driven by increased spin on the Worldview Legion program.
As a result of the changes that space infrastructure and the change in her segment eliminations consolidated revenue guidance is now expected to fall into a range of 1.7 hundred 35 billion to 1.7801 billion down $12 million from our midpoint last quarter, driven predominantly bud increase in intercompany eliminate.
<unk>.
Excluding the effects of Edie Edie deferred the midpoint of our guidance supplies approximately 7% growth for the year.
Turning to adjusted EBITDA.
At Earth intelligence, we have raised the midpoint by $15 million and now expect to be in a range of $465 million to $475 million for the year.
As we highlighted earlier this year earnings that Earth intelligence can vary with the timing awards and the nature of those awards can impact a margin profile quarter to quarter.
Growth in our services portfolio continues to be constrained by the pace at which the government is making large.
With a significant number of proposals remaining outstanding.
This is lower margin business. However, so we're clearly benefiting from the growth in the higher margin product revenues.
We are making any changes to the full year adjusted EBITDA range for space infrastructure and expect margins to expand in the fourth quarter to levels similar to what we saw in the second quarter.
Margins will fluctuate some quarter to quarter due to the nature of precinct complete accounting and his volume and mix effect results as.
As such it's important to look at trends over a longer period and and on a year over year basis, where we continue to see steady progress.
As a reminder margins of space infrastructure fluctuated this year, given the impacts of the <unk> some seven charge.
And the start of new programs, but we are clearly up on a year to date basis.
Expectations for Intersegment, adjusted EBITDA eliminations of increased to $25 million for the full year driven by the royalty Legion program.
That a consolidated level our guidance for adjusted EBITDA increased 5 million, implying roughly 300 basis points of margin expansion for the year, excluding effects of EDI differed.
Moving on to operating cash flow, we've increased both below the top end of the range on our operating cash flow by $20 million to a range of $260 million to $290 million.
As expected the working capital changes, we walk through during the second quarter call flip to our favor in the third quarter, where free cash flow positive on a year to date basis, and we continue to spectra remain free cash flow positive for the full year.
The ranges for Capex are now 220 to 240 million.
A decrease of roughly $18 million from the midpoint as of the second quarter.
Turning now to a few comments about 2022.
Ah said on our last earnings call that would clearly expect profit growth next year.
At this point extended that grows will be driven by a number of factors, including the level of investment we make back into the business to drive growth to 22 and beyond.
We should guide and each year on our fourth quarter calls will provide more clarity.
That said, if you simply take the midpoint of our guidance for the fourth quarter and annualize that.
You get to a higher to just hire adjusted EBITDA number than the midpoint of our guidance for the full year 2021.
And of course would expect some growth as we move through next year.
On cash flow growth will depend on where we ended up this year and finalizing our investment decisions for next year.
On 2023, we're still evaluating the effect of the Legion delay and the opportunities to offset whatever effect that has.
We previously said, we expected $80 million in growth Legion in 2023, as part of the 165 million improvement from 2000, 22023 and Earth intelligence.
Let's use that 165 million number to create some perspective.
This year, we are projecting approximately $40 million growth in Earth intelligence adjusted EBITDA over 2020.
That is net of expenses incurred to support future growth reductions in certain governments spend that is expected to come back in an environment of delay in our services Awards.
If we did nothing more to continue that $40 million a year of net growth for the next two years, we will cover 120 million of $165 million a growth from 2020.
That would leave us with 40 million, but just EBITDA <unk> from Legion or other sources not the 80 million reported two almost two years ago prior to a more developed product efforts.
It is still too early for me to say that our 2023 targets are unchanged due to the Legion delay, but I think this should help you understand that there are other considerations and you can't look at long term guidance on a line item basis.
Continuing this thought.
I'll space infrastructure, we said, we were targeting $95 million, an adjusted EBITDA growth from 2020% of 2023.
If you exclude the Siriusxm charge. This year, we are already on track to achieve that in 2021.
We have a solid backlog as demonstrated by the total year to date book to Bill of one point on eggs.
And of course, we remain focused on executing a worldview Legion construction and the ELC L program with CSIRO.
All of this should have a positive impact on the trajectory of cash flow, which we intend to reduce indebted inch and drive down leverage over time.
Excited about the trends, we see in front of us in.
In front of Us and we believe we're well positioned to drive total company growth in the years ahead.
Operator was now begin to Q&A.
Ladies and gentlemen, if you have a question at this time. Please press star and then the number one key on your Touchtone telephone again that is star one.
We will pass for just a moment to composite Q&A Foster.
First question is from Matt Sharp from Morgan Stanley Lane is open.
Dan <unk>, Jason good afternoon, and nice quarter.
Hey, Matt Hey man Thanks.
Dan I appreciate the details on the path forward for World view Legion, that's very helpful.
Maybe just stepping back and looking at the the remaining key phases.
I was hoping you could tell us which has maybe been.
More difficult and which have been a little less difficult based on past.
Four minutes are are the companies experienced set another way where do you see variability in the schedule ahead here and what milestones <unk> do you think you'll have kicked off come in the fourth quarter.
Thanks, Matt.
I think the probably the best way to answer that is to reflect on what we've gotten done so far.
Kind of thing.
Just through those steps ahead of us but.
The legacy of the Max our team going all the way back through the SSL days is a very.
Very experienced.
Satellite program management, and satellite manufacturing and testing team.
So as we've completed the the things that through US just a little bit this year, where the the Raytheon and Ah Honeywell supply chain issue.
We've got the Honeywell parts were.
Got the first Raytheon instrument integrated second one on its way shortly here so as we move into the testing phases now I think the the next big milestones will be looking at are making our way through thermal back final integration and testing of all the flight software and the and the full complete.
On orbit.
Simulations simulated testing at a satellite and the various environments and then.
Down to launch range for final prep and launch so I'm not sure that there's one I'm concentrating on any more than the others.
We're very focused on the schedule very focused on the March to June timeframe and.
Looking forward to getting that and getting these up and getting tested and.
Providing service for customers.
Got it that's helpful and then I think pigs might've mentioned.
92% of the workforce vaccinated.
The employees working on Legion subject to the President's mandate and if so is it the workforce flexible enough to sort of backfill any employees that that might choose not to be vaccinated by the December 8th deadline.
Yeah, we're we're in pretty good shape, 92% of very good number and we're continuing to get.
Some other people filtering in there are a handful of people that we're going to work through the protocol than the exemptions that are that are listed under the executive order, but we're really encouraged with how the teams move forward on this and don't expect any type of material impact either from the main business or to the Legion program throughout the rest of the year as we comply with the executive.
Order will continue to watch developments as they occur I know some some other large contractors are looking at timelines from the final vaccinations and stuff and working through those but.
We've been sort of full steam ahead with it and a high degree of compliance.
Fantastic and then maybe one more if I may.
The the SDA.
Graham.
Transport layer tranche on.
Move into an OTI does that does that change anything for for Macs are there and then maybe just thinking about the program over the longer term, what's the the opportunity that potential there in terms of satellites or or dollar figures.
Yes, I think probably the maybe just as a headline Max or is really really committed to its diversification efforts.
And we're getting some some strong traction across different agencies, and we remain committed to supporting the SDA and all of our government customers with the innovative solutions, we really think we've got to compete.
Did challenge the SDA transport layer.
Initial RFP, because we thought it was unduly burdensome to industry and favored large companies and I think we were we were right with that quick reversal, they've now since moved to an OTK.
<unk>, we're continuing to assess and review that.
What we think we've got some great commercial capabilities for SDA in the National architecture as they build out tramps one.
Layers and other other aspects of what space Force an SDA in the department of the Airforce are all looking at so.
And Ah I don't want to give any particular dollar numbers because we're in the middle of a lot of competitions right now but.
We think there are significant and will contribute to.
The resiliency of the space business going forward.
Great. Thanks have thanks.
Thanks, Matt.
Your next question is from Tyler Banana was from J P. Morgan Your line is open.
And good afternoon guys.
Okay.
A quick question on Legion, and then one on space.
Just starting Omnigen is there any update and you guys can provide on the other four instruments from Raytheon that you guys are expected I think previously you expected it to come this fall.
Wondering if that's spelled right time, maybe about a year and and then on space infrastructure and if you could just touch on the backlog growth and maybe what the opportunities there are for 2022, and where we can see that segment.
Yeah sure.
I hit the Raytheon one first and then we'll talk about space infrastructure backlog in some of our in our pipeline opportunities.
On the instrument, we did find a minor issue during during the first instrument integration.
Not really unexpected during the first build.
But it did that learning did require some slight modifications those are already in process for the other instruments and so had a slight delay on <unk> modules 236.
And that gets corrected will be back on.
The center lines, we expect to be with.
The schedule as as we stated March the June timeframe for the first launch and then three to six months for the remaining satellites getting up.
It just.
Stress one point I think it's important to note that we had and Max I hear consider that change to be extremely low risk. So it wasn't something that knocked the program office schedule or anything. It was just something we had to work through and we had to work through with Raytheon and they've been very.
Very helpful and cooperative in the process. So good news there.
Let's see your other question was about those space infrastructure and we're we're seeing some of the pipeline and what's going forward. So I guess probably.
The good news is we.
We continue to diversify we have some really strong awards.
Last year in the Geo market Geochem market commercially with the C band Awards Siriusxm nine and 10, a certainly been great awards for US this year in.
That overweight the commercial.
Sector, a little bit more than we thought initially, but the great wins and we'll we'll take that kind of good business with customers wherever it comes from.
On the defense Intel side, we said it would be.
Three to five year story during our during our Investor day back in March of 2020, and we've been booking study contracts word which are precursor to production work, you've got solid capabilities and spacecraft propulsion robotics commercial heritage and very strong quality track record will continue assessor partnering strategy, there, where we can be there a prime more sub for some of the larger.
Other defense narrow company so we've.
We've also been bolstering our mission architecture and business capture teams on the pipeline, we see geo market being mostly flattish.
With a solid replacement pipeline both for bent pipe in digital solutions.
Leo market opportunities are a bit Nathan who were engaged in a number of engineering studies, there and with the civil agencies timelines that budgets are gaining items, but we're really encouraged by the administration support for.
The space programs moving forward.
Your next question I Hope I hit your question.
[laughter].
And your next question is from Peter <unk> from bearing in your line is open.
Hi, Good afternoon, you actually have Eric Rutan online for Peter today.
I appreciate the color on the 2023 targets on that you could talk gross and our intelligence kind of X lesion, there, but just to follow up on that.
Given the.
Delays to the.
Right down instruments and it seems like the first the first Bachelor is Marcie you guys and then the second cannot first batch to that 40 million EBITDA growth by 2023, one site first launched takes place.
So I would say the first thing I think I would stress is that we're not expecting.
The issues that we uncovered the minor issues, we'd had during the integration to knock the overall program schedule off.
So we do still continue to expect to March forward with the rest of the program I would just like to make sure we clarify that if I wasn't.
Rock salt on it earlier.
In terms of the growth path.
We're continuing to grow on the current constellation we do expect the legions. The first two and then.
The additional four legions to provide strong incremental growth to us as soon as they're commissioned and to start providing revenue service and.
In terms of capacity.
Any too legions.
Have more capacity than the Worldview for region.
Will be poor satellite we lost.
In early 20, 2029th 2019, sorry, Yeah, first 2019, but and at that time that satellite had.
Over $80 million of revenue on it and very high EBITA. So just to kind of give you a perspective, there two legions could generate a lot of revenue and a lot of EBITDA for the business.
And I think it's important to note.
You reflect back on Dan's prepared remarks regarding the Legion schedule that the first to go up in the March June timeframe and the second.
The remaining satellites will go up three to six months later, so we the issue that you talked about here on Raytheon.
His point is not not that schedule off.
At this point so reflect back on the prepared remarks for that one.
Okay. Thank you I appreciate that and then maybe just a quick one on the Capex is the $30 million attacked Capex for next year from the region delays still the right number it looks like you took down the guide $15 million to $20 million. This year is that savings or is that just timing being pushed off the point too.
Oh, that's a great question I think.
As to the.
The pair effect to the Legion cost grossly head through the delay the $30 million as target number.
The $20 million I think it's a little early to say whether that dominoes directly in the next year or not that's one of those things that will just have to consider as we.
Set our guidance for next year, when we come back in the fourth quarter call.
Okay I appreciate the color off back in queue.
Your next question is from Tim Games from Teeny Securities. Your line is open.
I think some good afternoon everyone.
Quick question actually too big for assisted and forgive me if you've covered this in your commentary, but I don't think I heard that the change in the DNA guidance for the year, the increasing it's about $25 million for the year could you talk about what was the cause of that.
I'm sorry, yeah, I'll take this whether it's the modest uptick in the depreciation and amortization guidance for the year that's.
Fully rolling in all of the the.
The amortization from the Racon acquisition.
And the Capex that we brought on so far this year.
Okay. Thanks, Jason.
And my second question.
Just want to go back to you made reference couple of times and it's not a surprise your capacity constrained.
On the imagery side.
Just interested where what does that mean like where does that demand go to customers look to competitors to fill their needs or did they just hold off on acquiring imagery like like how does your customer base adjuster, how should we interpret that when you see your capacity constraint, which presumably I assume means that you could be selling more image.
<unk> if you added available.
Yeah.
As we've been discussing for some time now we are sold out in certain regions of the world, but even with that we've continued to grow and I think that's kind of we wanted to highlight that and the commercial side that were up 23%. Your date and continue to see strong applications for our data and products on on the on the.
Straight issue of capacity.
Our current constellation does provide the world's best data and satellite access for our customers.
We have had as I mentioned on the on the call five nations now.
Enhance their ground capacity ahead of Allegiant launches and we've had one capacity pre capacity Selva Legion capacity. We are aware of one customer that did delay account a competition.
Asian, because they want Legion to be in the mix when it comes out in international customer.
So.
What we're seeing is.
A lot of the smaller competitors don't really meet the mission needs for what the Intel agencies and defense applications are or for what some of the high Tech applications are with our our large technology customers as well. So we think there is there is unmet demand in the marketplace.
And we're really looking forward to Legion getting on orbit to be able to meet that demand.
Okay. Thank you can I sneak one quick going in here then great slide that talks about the five emerging commercial industries for Geospatial Hall data and analysis.
Comment is one or two of those would you say a bigger opportunity than the others or do you think they all represent pretty <unk>.
<unk> sized opportunities for for Macs are over the next.
Three to five years.
I think they all represent really compelling opportunities for us that's why we put them in the slide that way, but we're.
Just kind of like this year, 23% year to date is coming from a range of applications and customers.
Now the tech companies seem to be.
Growing their their revenue and profit profile with this faster than the others, but we see really strong.
Indications that autonomy and economists vehicles are going to be a large driver in the future risk management applications.
We see as being a very strong very of growth for us.
And then.
Back to autonomous not automotive, but we're actually we're picking up customers that do things like using our data to be able to fly drones around.
And that kind of application.
We're watching really kind of close to as well as not just the traditional mapping applications you might see through Google and like tech companies like that but gaming simulation.
Diverse applications, which were were far in advance on now with the work we're doing on the one world terrain system.
For the U S army to be able to create a a simulated training environment based on that <unk> type application on a high accuracy data that goes into it so.
We're pretty excited about some of those technologies transitioning back and forth across the Intel defense and commercial establishments as we continue to see expansion on those markets.
Great. Thank you very much for your answers.
Thanks, Tim.
Your next question is from Ron Epstein from Bank of America. Your light is open.
Good evening, it's actually Elizabeth on foreign Tonight.
And you don't like seeing a lot of relatively new entrants to the Earth observation market, whether it's planet Earth.
Black Sky or aspire I was just wondering how you think of them and the competitive landscape given that some of them also Q imagery. But then for example, aspire is is a little bit of a different angle on the earth observation market.
Yeah, I mean, we continue to be very aware of of the environment around us, including the new companies in.
What's going on we're also I think.
The most focused on meeting our customers current and emerging needs and I think it's pretty clear from the queue. Through result, Q3 results. We've continued to demonstrate strong growth there at Max or.
We do continue as I mentioned earlier to have the most sophisticated and capable constellation on orbit now and Legion will only be adding to that for electro optical solutions.
And across that we've been investing in AI.
Ml and three D capabilities.
That commercial business.
Alpha based on $143 million in 2020, growing 23% year to date, which is bigger than I guess, all the specs combined if you start to roll up numbers and.
We think we are positioned well moving forward with the investments we've made with the investments will continue to make and as we drive towards what we think the customer solutions.
So we're we're not standing snow were aware of what's going on and we are continuing to drive forward is probably worth pointing out to play.
Planet Black Sky aren't really aren't new.
They've been in the Mark for many years, Yeah, I think that's a fair point big So I mean, some of these companies have been around for.
A decade, or so and getting a lot more press note the spec market, but we're.
We're watching it.
Were intrigued by some of the Tambs out there.
We think.
We're trying to.
Take the view that we see of them based on what we see current customer and future customer needs looking like but if those teams turn out to be a fraction of what some of the people say they are it we we expect to take a very large percentage of that market share as well.
Thank you.
Thanks.
Your next question is from channels must components from BMO capital markets. Your line is open.
Hi, good afternoon.
Extending on that competition question I guess, one more recent development. This Airbus having launched some of their satellites. So for the first time. This another 30 centimeter resolution competitor with partial inventory.
Well I guess from your commentary.
It sounds like you're having some strong demand carquest just curious if asked changing the dynamic at all.
And I guess, it's one of the answers that there's just a lot of other parameters that matter for the customer beyond just the resolution.
Yeah. Thanks Dennis.
You've been following us for quite a while Airbus has long been a competitor for both the international defense and intelligence and commercial industry. So that's not new.
They've been launching the neo satellites and all indications are they provide.
Very capable data and service for the customers.
Where will.
<unk> to to compete with them across the world and those.
Areas, but that's nothing new really for the legacy Digitalglobe or where we are with macs are to take.
So we're.
Just kind of.
We're confident in the the way we are seeing that unfold across the world.
Okay and touched on the margins.
Looking at the station prescription marketing state, we're up to every year, but they get relative to Q2, and you're calling from to rebound in queue for the call out there is that just a function of.
Kate and stuff.
The various programs yeah.
Yeah, just just driven by product sales mix.
One quarter to another.
The increase in revenues, we have on products are going to create a little bit more lumpiness from one period to the next quarter to quarter.
Yeah.
That's a good.
That's on the Earth intelligence side, and then on up a sense of strikes or sorry. He was.
Yes, it's based on the structure <unk> infrastructure, it's a little bit different.
The story, there's there's some mix in there, but if you look at the.
Second quarter.
We had a number of smaller positive upticks on <unk>.
Programs on Eac's, which.
<unk>.
Both revenue and margins and then in the third quarter there were a few small adjustments.
Going the other way on Eac's singularly material and then there was one.
Pass through cost a truly representative contingency there was outstanding that.
We may still not have to.
Incur when it's all said and done but we booked a few million dollars on a on a pass through cost in the third quarter and so you put all that together and it creates a little bit of volatility from second quarter to third quarter, but still really good margins compared to the past and overall on a good trend through.
A year it'll get fourthquarter, it would be project to be relatively.
Normal without without noise upwards or downwards in terms of Holy project. If you look at the mill arrange for the fourth quarter.
And thanks, and then finally.
In terms of when the first part of gluten launches is that going to have any impact on gross margins at all.
The direction or should that be relatively neutral of 11 events.
Short term basis.
Well at first test to be become operational if not just metal instantly upon launch.
And so it will go through in orbit testing commissioning and so then it will ramp up so it will be a very gradual.
Production I should say bags, where I was trying to make it as fast as we can but it will be a gradual increase of of revenue it will be high margin, though when it comes on yeah, we won't have to spend.
A lot more on <unk>.
<unk> the current infrastructure supports the operations of the Legion constellation.
Substantially and the.
The way we are setup for Predock production.
Products and the types of services, we provide the satellites will scale very nicely into the existing cost base, yeah, and the thing that I would add Thanos is that the 1 billion won roughly enter the intelligence revenue 300 million of it isn't that services business that runs at 10% to 12% EBITDA margins and as we bring Legion capacity on line the other 800 million.
It will be growing a bit faster than the services business. So.
That by kind of definition is shipping margin accretive for us.
Great. Thanks, guys.
Your next question is from Peter Oscar Lane from Troma Securities. Your line is open.
Hey, Good evening. This is Pete answer or amongst Trimboli Tonight. Thanks for taking my question.
Last quarter, you called out some internal mission assurance in engineering resources that you're adding to address some of the delays you've experienced with the.
<unk>. So I just wanted to ask Howard that has progressed other any efficiency improvements that you've been able to realize as a result and are there other areas within the company, where those resources have also been useful.
Yeah I'd say.
Probably nothing that we didn't expect or that we didn't bacon to how we were thinking about the business going forward and the program in general.
I do think it's an advantage for us.
As one Max or as a larger company, we've got lots of good resources across the organization that we can flex from the space side to the Earth until side of for the Earth until side of the space side.
Depending on where we need.
Particular types of engineering or.
Software or other types of support on programs or mission assurance reviews were those kind of things so.
Think it's good to see the teams operating cohesively.
And driving forward for customer mission success.
Thanks very much.
And your last question is from <unk> from Quilty analytics. Your line is open.
Hi, guys <unk>.
Question for you on the.
Commercial pipeline and I guess, the commercial growth that you've seen.
If you could maybe quantify the recent growth spurt is that driven more by adding new customers or adding new products or is it is it existing customers buying additional products or more volume of legacy products.
I'm kind of flavor of where that growth is coming from.
Yes.
Hey, Chris.
So it's a combination that we're seeing really good traction with some of the existing customers on new products. So the.
The three D capabilities would be something I would highlight there, but also 15 centimeter HD and our worldwide solution based maps, the vivid and those kind of things for the tech customers that are looking for highly accurate, but visually appealing information sets.
And they're they're really intrigued by by how <unk> helps not just locked data sources down, but also conduct things like autonomous navigation and otherwise there are there are a healthy dose of new customers coming in.
With that three D technology as well that we're seeing solutions being provided for so that's that's really exciting to see and then I would say the product Grove generally across has been something I'm really glad we've been investing in the street capabilities, the AI and ml capabilities were bringing to bear helping.
Helping solve people's problems, not just not just providing data or software access to them.
Gotcha and with the Legion program coming online you have some pretty good visibility from your government customer and and certainly international defense and Intel if they're they're putting hardware in place how how do you gauge the incremental demand that you may see from the commercial side are there any.
Peter's you can point to or discussions you are having with customers that when you look at the winter $80 million of revenue Ram in whatever period.
Should have a that be coming from commercial or or the majority or something laughs.
Oh boy kind of tough to parse out, which which will grow faster. It's fun. When you put that challenge in front of the sales teams to see who's going to is going to try their numbers harder.
The.
The.
And there's always been a promising this business but.
Large commercial market I think at 143 and grow and 23% year to date, we are seeing some attraction on that with the better refined products, we've got as well as cloud computing environments, and how ains milk and help snapped something that together for solutions. So we're excited about that.
The racon, it's not just a <unk> solution that we're bringing to bear but there are three point clouds medhelp disparate sources of information.
Be layered in.
And made sense ups for analysts ready data and Ains already data. So that's that's really exciting as well.
On the government side, where.
I'm not sure, which one is gonna run faster quite honestly, but we're really excited to see.
The trend lines on the commercial side, and there's a future scenario where that could be a very.
Material, it's already material I guess, but a very.
Comprehensive in large part of our business much like the government businesses ma'am.
Got Ya a clarification on slide six where you've got to 5 million square meters of square.
Square kilometers excuse me of capacity.
That's clearly include six Legion satellites, but what other satellites does it assume in that number.
That assumes that assumes the current constellation right now I think minus.
<unk> one at some point, so I would assume the worldview constellation plus the legions.
But.
Yeah, we've got the I guess, we've got the capacity to.
If the market signals are there to add to the Legion constellation different when it's appropriate to do so.
You typically update in the 10-K.
Are you currently assume the lifecycle on those legacy satellites, which is it currently no being driven by fuel on the satellites or technical aspects of of the system's performance and power and whatnot.
Yeah, no no none of them are fuel limited.
Which I think is good we do update that table annually and as you have noted several times in the past we've extended those.
Life.
Yeah, It's basically just an engineering simulation on for the depreciation and amortization schedules.
I guess, what I notice I haven't made remarks about before is that we did just renew our insurance for all four satellites.
We've got the same coverage levels as we had last year and there were really no material changes to the Premium's set probably give us some expectation that we every year. The satellites on orbit, we continue to expect them to last longer in space.
Given what's been happening to insurance rates, Okay final question.
And maybe when we're going to get an unsatisfactory answer, but some recent news story rumors around.
Potential funding issues with the CL unclear, whether they are talking about the British traditional optical or some of the new phenomenology is.
I know, we're not going to get a detailed answer because it's all still in process, but.
Do you feel as well today as you did a quarter ago about the outlook for.
<unk> and and funding levels in your position.
Yes actually.
Pretty confident in what we're seeing for funding levels for UCL.
Uhm.
The RFP was issued this morning by the NRO and responses, we do December 3rd.
Consistent with no expectations in the first calendar quarter of 2022, we do expect.
Awards.
And I think we are this follows an extensive review by the U S government over the past two years, both for industry studies as well as sending out requirements for the D O D and the intelligence community.
And.
As Pete Moon said it is his remarks to the press. This morning, they continue to see expanded use of commercial to meet the.
The nation's needs. So we're I spent a lot of time on Capitol Hill, I think there's a lot of strong support for the <unk> program. What it provides and the fact that it's a good deal for the taxpayers.
Awesome. Thank you.
Chris.
The operator, I think we've got time for one more yeah.
Yeah. The last question is from Houghton Mulder from 10 o'clock annuity Lane is open.
Good evening, Dan I don't know if this has been asked already but I. Just one was wondering about the recent news report that Intelsat was wanting to buy 10 G. O satellite sometime early next year and what percentage of that you think might be might be one buy macs are and then all.
Also on the non geostationary satellite.
Fleet that they've been planning to announce for next year. If that's something that you plan to have the space infrastructure business for sale.
Hey, Thanks for the question I guess.
We've got a long history with Intelsat and continue to engage closely with them to try and.
Meet their mission solutions.
We are aware of the article really no no comment on that particular aspect of it other than the note that we do have technical solutions that allow us to compete for bids with Intelsat we.
We have strong performance on the the C band Awards.
Some of the ones that are referenced in the article or software defined satellites and we will continue to work very hard to keep that long term customer happy and keep winning business from them.
Okay, great. Thank you.
Thank you.
And I'm showing no further questions at this time I would now like to turn the call back to Mister Jason Gretzky for any additional or closing comments.
Great. Thank you operator.
So all for dialing in and for your interest in Macs are we look forward to reconnecting with you. All early next year on our fourth quarter earnings call until then.
Have a great holiday season.
Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a great day.
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