Maxar Technologies Inc.

Good day. Thank you for standing by. Welcome to the Maxar Technologies Q3 2021 conference call and webcast. At this time, all participants are in listening only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Jason Gersky, Vice President, Investor Relations and Corporate Treasurer.

Good afternoon, and thanks, Operator. Welcome to Maxar's third quarter 2021 earnings conference call. I'm joined today by the company's Chief Executive Officer, Dan Jablonski, and its Chief Financial Officer, Biggs Porter. Both will make some opening remarks, after which we're going to open up the line for your questions. We're shooting to wrap up the call in about an hour. 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 at maxar.com. Once there, please turn to slide two, where 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 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. He referred to the advisory regarding forward-looking statements contained in our quarterly earnings releases, earnings call slide decks, and the company's most recent MD&A section found in our Form 10Q on the company's website at maxr.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'd like to welcome Tom Wayne, our Chief Strategy Officer, and Colleen Campbell, Chief Marketing Officer to the Maxar team. Both are seasoned executives and have deep experience in the aero defense industry. Tom is a space industry veteran, having held both banking and operating roles over his 20-plus year career. He also has a long history with Maxar, having advised DigitalGlobe, one of our predecessor companies, as far back as 2012. Tom will lead corporate strategy, corporate development, and strategic investments as we look to drive long-term growth for our shareholders. Colleen most recently led marketing and communications at Allion, a leading AI and cyber platform. Previously led digital strategy at Northrop, and earlier in her career had leadership roles at Glover Park and Ogilvy. And now we're leading our global marketing, media relations, and communications teams. We're very excited about the ecosystem in which we operate and the demand environment in front of us. This lends itself to a multitude of opportunities, and we want to be best positioned to take advantage of them. I'd like to remind investors that our 3D capabilities, which are a big driver of our current product growth, came by way of the Vricon JV 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, we're on the path to our long-term leverage targets, which should provide the company even more flexibility to execute on our strategic growth plans. Okay, now for the quarter and 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 with the Legion program, our next-generation constellations. We'll also spend time describing our commercial business in the Earth Intelligence segment to provide some context on the breadth of our offerings and marquee customers, as well as the financial contribution this vertical makes to 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 EV deferred, and 11% year-to-date. Earth 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 EV deferred, driven by improvement in both segments. Bookings were solid this quarter, and we generated a book-to-bill of 2.2 times. Key wins in space infrastructure included two GEO awards from SiriusXM, while in Earth intelligence we received our 11th renewal of the Enhanced View Program and were awarded numerous U.S. and international government contracts, including another renewal of the Global EGD Program. Year-to-date, total company book-to-bill is 1.1 times, reflecting solid demand for both multi-year contracts as well as strong book-to-ship activity in the Earth Intelligence segment this year. Importantly, we generated robust free cash flow and are now positive for the year to the end of the third quarter. Bank-defined leverage finished below four turns. Biggs will go into these metrics in more detail during his remarks, but I can say we're 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 Biggs will discuss in more detail, we have increased our outlook for adjusted EBITDA and cash flow. Please turn to slide four for an update on our 2021 priorities. We remain focused on winning in Earth intelligence, which means driving bookings growth, including for capacity on Worldview Legion, growing 3D capabilities, and extending enhanced view through the upcoming EOCL, or 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 that two new customers signed multimillion-dollar contracts earlier this year to subscribe to our rapid access program, including the first customer in Latin America. Importantly, we also signed a contract with a close U.S. 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 buy on the Constellation, and we expect the others to do the same once the satellites are operational. This is a good sign that the demand environment remains robust. From an execution perspective, it was another good quarter, with the team generating both revenue and margin growth, excluding EV deferred, 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 G1 symposium, an event that brings together leaders from across government and the industrial base. There, we continue to hear that government demand for geospatial data and analytics is 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're increasingly looking for answers to tough questions in technology solutions, not just data. As I've discussed on prior earnings calls over the past couple of years, Maxar 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 SecureWatch and Global EGD, which provide 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 help turn data into insight and that drive improved sensor-to-shooter timelines. We're excited about what the future holds with our government customers. It's clear that the geopolitical environment is driving investment on their end, particularly in the areas of focus for Maxar. And we've been making investments for years to address this demand with well-proven technologies. I'm confident this positions us 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 SiriusXM 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 bill this quarter was a robust 2.5 times and now sits at a touch over one times for the year. The pipeline remains robust across both commercial and government and markets, but the precise timing of 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 and are 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, on 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, both of which should drive debt and leverage levels lower. Moving to Worldview Legion, please turn to slide five. First, the punchline. We remain on track for a first launch in 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 before 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 mention in the past, the program has already made its way through various design and integration reviews, and we've taken delivery of components and various subsystems from both internal and external suppliers, which we've been integrating. A key gating item this year was 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 schedule. 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 performance testing. Then comes environmental testing, starting with thermal vac, then acoustics, and then vibration, all designed to simulate 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, we'll 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 and the beginning of revenue generation. On the right hand of this slide, we've included some photos that should give readers a better sense of the program. The top left picture is an artist's depiction of a Legion satellite on orbit And then the one on the top right is 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. Of note, there are two employees 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're on the right path for a launch in the March to June window next year, with the 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 side, Legion, which will fly in both polar and mid-inclination orbits, will eventually replace GOI-1 and WorldViews 1 and 2, which fly in 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 its value to customer missions. 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 that, 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, sensor-to-shooter applications, and is a key enabler of our ability to derive highly accurate and lifelike 3D models, which we believe positions Maxar well to continue to be an industry leader as customers transition from 2D to 3D to address critical missions such as GPS-denied navigation, simulation and training, autonomy, and network planning. Please turn to slide seven. Before I hand the call over to Biggs for a more detailed discussion of the numbers, I'd like to spend a few minutes double clicking on the earth intelligence segments activity in 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 we're 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 we look forward to growing with them in the future. Importantly, year-to-date performance is 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. What I'd like to do now is walk you through the four primary product areas on offer to commercial customers, and then move to focus on one of them. I'm going to move quickly through these 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 nine. In general, our products span satellite access, geospatial foundation, precision mapping, and on-demand intelligence. I'm going to highlight Geospatial Foundation, a product area where we provide the highest quality satellite imagery, base maps, and 3D 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 metaverses, simulation, and gaming. Slides 12 and 13 showcase how we use our 15-centimeter HD product in the autonomous driving area, while slides 14 through 17 demonstrate how our 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 23 highlight how our capabilities with 3D 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 helps 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 in the Legion Constellation, investments in 3D, and our investments in AI and ML, all of which are topics that I've covered in depth on previous earnings calls. And with that, I'm going to turn the call over to Biggs for a deeper dive on quarterly performance and how 2022 and 2023 are shaping up. Biggs?

Thanks, Dan. Please turn to slide 24 where we present year-over-year comparisons for the third quarter. Our net income for Q3 was $14 million, driven primarily by strong performance in both Earth intelligence and space infrastructures. Revenue was roughly flat year-over-year for the quarter and is up 4% year-to-date on a reported basis. Excluding the effects of the enhanced fee contract deferred revenue burn-off, total company revenues increased 5% year-over-year, driven by recent wins in space infrastructure and product growth to Earth intelligence. On a year-to-date basis, total company revenues increased 11%, excluding the effects of the EB deferred revenue burn-off, and adjusted EBITDA margins increased by 300 basis points. Please turn to slide 25, where I'll discuss Earth intelligence results without the effect of EV deferred. Revenue increased 7% year-over-year in the third quarter, driven primarily by increases from international defense and 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 up 8% year-over-year, driven by increases from international defense and 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 120 basis points, driven by the profitability of recent awards, as well as fewer negative EAC impacts, including those related to COVID-19 taken last year. This was offset partially by an increase in indirect costs and selling general and administrative costs. Here to date, revenue is 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 the profitability of recent program awards, offset by reductions in revenue from the serious XM7 charges taken during the year and modest increases in indirect and SG&A costs. Before moving on to discussion cash flows, I did want to comment more generally on the supply chain issues and COVID vaccination requirements 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 already have approximately 92% of our workforce that has submitted proof of their vaccination status. We'll 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 of liquidity at the end of the quarter, and our bank-defined leverage ratio ended the quarter at approximately 3.8 times. Net debt decreased $84 million from last quarter due to our cash generation in Q3. Now please turn to slide 29. Overall, we're narrowing and improving our guidance ranges for just EBITDA and cash flows. Revenue guidance has decreased slightly, driven by an increase in intercompany work. We've tightened the revenue guidance for Earth Intelligence by $20 million to a range of $1.06 to $1.085 billion. The midpoint remains unchanged from what we issued previously. We spoke earlier this year about our goal of driving up to $100 million in new product growth at Earth Intelligence this year, including on 3D 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 in our government customer base as well. At the midpoint of our guidance, we expect fourth quarter revenue to be roughly in line with the average quarterly run rate of the first three quarters of the year. As space infrastructure, we've increased the bottom end of our range by $5 million and lowered the top end of our guidance range by $10 million and expect the full year to fall between $740 million and $760 million, representing low to mid-single-digit growth. We expect fourth quarter results to roughly mirror the second quarter, driven by the timing of revenue recognition, particularly on recent commercial awards. As Dan spoke to earlier, space infrastructure had a booked bill of two and a half times in the third quarter. It's important to note that last year's fourth quarter benefited from a steep ramp in revenue associated with commercial geocomsats that were awarded earlier in 2020 and from a greater contribution from U.S. government work, including on the PPE and Psyche programs. Guidance for intersegment eliminations has increased modestly to an expected total of $65 million for the full year, driven by increased spend on the Worldview Legion program. As a result of the changes at space infrastructure and the change in intersegment eliminations, consolidated revenue guidance is now expected to fall into a range of $1.735 billion to $1.780 billion, down $12 million from our midpoint last quarter, driven predominantly by the increase in intercompany eliminations. Excluding the effects of EV deferred, the midpoint of our guidance applies approximately 7% growth for the year. Turning to adjust the 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 at Earth Intelligence can vary with the timing of awards and the nature of those awards can impact the margin profile quarter to quarter. Growth in our services portfolio continues to be constrained by the pace at which the government is making awards, with a significant number of proposals remaining outstanding. This is lower-margin business, however, so we are clearly benefiting from the growth in the higher-margin product revenues. We aren't making any changes to the full-year adjusted DAA 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 percent complete accounting and as volume and mix effect results. As such, it's important to look at trends over a longer period and on a year-over-year basis where we continue to see steady progress. As a reminder, margins of space infrastructure have fluctuated this year given the impacts of the XSM-7 charge and the start of new programs, but we are clearly up on a year-to-date basis. Expectations for intersegment adjusted EBITDA eliminations have increased to $25 million for the full year, driven by the World View Legion program. At a consolidated level, our guidance for adjusted EBITDA has increased $5 million, implying roughly 300 basis points of margin expansion for the year, excluding the effects of EV deferred. Moving on to operating cash flow, we've increased both the low and the top end of the range on our operating cash flow by $20 million to a range of $260 to $290 million. As expected, the working capital changes we walked through during the second quarter call flipped to our favor in the third quarter. We were free cash flow positive on a year-to-date basis, and we continue to expect to 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. I said on our last earnings call that we clearly expect profit growth next year. At this point, the extent of that growth will be driven by a number of factors, including the level of investment we make back into the business to drive growth to 2022 and beyond. We should guide in each year on our fourth quarter calls to provide more clarity then. That said, if you simply take the midpoint of our guidance for the fourth quarter and annualize that, you get to a higher adjusted EBITDA number than the midpoint of our guidance for the full year 2021. And, of course, we'd expect some growth as we move through next year. On cash flow, growth will depend on where we end 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 from Legion in 2023 as part of the 165 million improvement from 2020 to 2023 in Earth intelligence. Let's use that 165 million number to create some perspective. This year, we are projecting approximately $40 million of growth in Earth Intelligence Adjusted EBITDA over 2020. That is net of expenses incurred to support future growth, reductions in certain government spend that is expected to come back, and an environment of delay in our services awards. If we do nothing more to continue that $40 million a year of net growth for the next two years, we will cover $120 million of the $165 million of growth from 2020. That would leave us with $40 million but just EBITDA to be achieved from Legion or other sources, not the $80 million we pointed to almost two years ago prior to our 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 that thought, On space infrastructure, we said we were targeting $95 million in adjusted EBITDA growth from 2020 to 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 booked bill of 1.1x. And, of course, we remain focused on executing on Worldview Legion construction and the EOCO program with the NRO. All of this should have positive impact on the trajectory of cash flow, which we intend to reduce indebtedness and drive down leverage over time. We're excited about the trends we see in front of us, and we believe we're well-positioned to drive total company growth in the years ahead. Operator, let's now begin the Q&A.

Ladies and gentlemen, if you have a question at this time, please press star and then the number one key on your touch-tone telephone. Again, that is star one. We'll pause for just a moment to compile the Q&A roster. Your first question is from Matt Sharp from Morgan Stanley. Your line is open.

Dan, Viggs, Jason, good afternoon and nice quarter.

Hey, Matt.

Hey, Matt. Thanks. Dan, I appreciate the details on the path forward for Worldview Legion. That's very helpful. Maybe just stepping back here and looking at the remaining key phases, I was hoping you could tell us which have maybe been more difficult and which have been less difficult based on past performance or the company's experience. Set another way. Where do you see variability in the schedule ahead here, and what milestones maybe do you think you'll have ticked off come the fourth quarter?

Thanks, Matt. You know, I think probably the best way to answer that is to reflect on what we've gotten done so far and then kind of think just through those steps ahead of us. But the legacy of the Maxar team going all the way back through the SSL days is a very experienced satellite program management and satellite manufacturing and testing team. So as we've completed the things that threw us just a little bit this year were the Raytheon and the Honeywell supply chain issues. We've got the Honeywell parts. We've 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 next big milestones we'll be looking at are making our way through ThermalVac, final integration and testing of all the flight software and the full complete on-orbit simulated testing of the satellite in the various environments, and then down to the 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. We're very focused on the March to June timeframe and looking forward to getting that and getting these up and getting them tested and providing service for customers.

Got it. That's helpful. And then I think Biggs might have mentioned 92% of the workforce vaccinated. Are the employees working on legion subject to the president's mandate? And if so, is the workforce flexible enough to sort of backfill any employees that might choose not to be vaccinated by the December 8th deadline?

Yeah, we're in pretty good shape. 92% is a 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 protocols and the exemptions 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, you know, to the main business or to the Legion program throughout the rest of the years we comply with the executive order. We'll continue to watch developments as they occur. I know some other large contractors are looking at timelines for the final vaccinations and stuff and working through those, but we've been, you know, sort of full steam ahead with it and a high degree of compliance.

Fantastic. And then maybe one more, if I may. The SDA program transport layer tranche one move into an OTA. Does that change anything for Maxar there? And then maybe just thinking about the program over the longer term, what's the opportunity, the potential there in terms of satellites or dollar figures?

Yeah, I think probably maybe just as a headline, Maxar is really, really committed to its diversification efforts. And we're getting 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. We 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 right with that quick reversal. They've now since moved to an OTA methodology. We're continuing to assess and review that. But we think we've got some great commercial capabilities for SDA and the national architecture as they build out Trance 1 layers and other aspects of what Space Force and SDA and the Department of the Air Force are all looking at. So 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 they're significant and will contribute to the resiliency of the space business going forward. Great. Thanks, Sam. Thanks, Matt.

next question is from tyler bolanos from jp morgan your line is open hey good afternoon guys just a quick question on legion and then one on space um just starting on legion uh is there any update you guys could provide on the other four instruments from right beyond that you guys expected i think uh previously you expected it to come this fall Just wondering if that's still the right time, maybe by the year end. And then on space infrastructure, if you could just touch on the backlog growth and maybe what the opportunities there are for 2022 and where we could see that segment go.

Yeah, sure. I'll hit the Raytheon one first, and then I'll talk about space infrastructure and backlog and some of our pipeline opportunities there. On the instrument, we did find a minor issue during the first instrument integration. Not really unexpected during the first build, but that learning did require some slight modifications. Those are already in process for the other instruments, and so had a slight delay on flight modules two through six. As that gets corrected, we'll be back on, you know, the center lines we expect to be with the schedule as we stated, you know, the March to June timeframe for the first launch and then three to six months for the remaining satellites getting up. I just stress one point. I think it's important to note that we at Max are here to consider that change to be extremely low risk, so it wasn't something that knocked the program off its schedule or anything. It was just something we had to work through and that we had to work through with Raytheon, and they've been very helpful and cooperative in the process. So good news there. Let's see, your other question was about the space infrastructure and where we're seeing some of the pipeline and what's going forward. So I guess probably, you know, the good news is we continue to diversify. We had some really strong awards last year in the geomarket, geocomm market commercially with the C-band awards. Sirius XM 9 and 10 have certainly been great awards for us this year. And That overweights the commercial sector a little bit more than we thought initially, but they're great wins, and we'll take that kind of good business with customers wherever it comes from. On the defense intel side, you know, we said it would be, you know, a three- to five-year story during our investor day back in March of 2020, and we've been booking study contracts, which are a precursor to production work. You know, we've got solid capabilities in spacecraft, propulsion, robotics, commercial heritage, and a very strong quality track record. We'll continue to assess our partnering strategy there where we can be either a prime or a sub for some of the larger other defense and aero companies. We've also been bolstering our mission architecture and business capture teams. On the pipeline, we see geomarket being mostly flattish with a solid replacement pipeline, both for bent pipe and digital solutions. uh leo market opportunities are a bit nascent but we're engaged in a number of engineering studies there and with the civil agencies timelines and budgets are gating items but we're really encouraged by the administration's support for the space programs moving forward your next question i hope i hit your question yeah yeah and your next question is from peter armand from baird your line is open

Hey, good afternoon. You actually have Eric Gruden on the line for Peter today. I appreciate the color on the 2023 targets and the EBITDA growth and Earth intelligence kind of ex-lesion there. But just to follow up on that, you know, given the delays to the remaining Raytheon instruments, and it seems like the first batch here is more de-risked than the second, can that first batch do that 40 million of EBITDA growth by 2023? once that first launch takes place?

So I'd say the first thing I think I'd stress is that we're not expecting the issues that we uncovered and 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. So I'd just like to make sure we clarify that if I wasn't sort of rock solid on that earlier. In terms of the growth path, you know, 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 start providing revenue service. In terms of capacity, any two legions have more capacity than the Worldview 4 satellite we lost last year. in early 2020. 2019, sorry. Yeah, first part of 2019. And at that time, that satellite had over $80 million of revenue on it and very high EBITDA. So, you know, 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.

I think it's important to note, if you reflect back on Dan's prepared remarks regarding the Legion schedule, that the first two go up in the March-June timeframe, and the remaining satellites will go up three to six months later. So the issue that he talked about here on Raytheon, to his point, has not knocked 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 impact to CapEx for next year from the Legion delay still the right number? It looks like you took down the gap 15 to 20 million this year. Is that savings or is that just timing being pushed out to 22?

No, that's a great question. I think as to the, you know, the peer effect to the Legion cost growth we had through the delay, the $30 million is still a good number. The 20 million, I think it's a little early to say whether that dominoes directly into next year or not. That's one of the things that we'll 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. I'll hop back in queue.

Your next question is from Tim James from TD Securities. Your line is open.

Thanks. Good afternoon, everyone. Quick question actually for Biggs first, and forgive me if you covered this in your commentary, but I don't think I heard it. The change in the DNA guidance for the year, the increase of about 25 million for the year, could you talk about what was the cause of that?

I'm sorry. Yeah, I'll take this one. It's the modest uptick in the depreciation and amortization guidance for the year. That's fully rolling in all of the amortization from the Vricon acquisition and the CapEx that we've brought on so far this year.

Okay.

Thanks, Jason.

And my second question is, Dan, just want to go back to, you know, you made reference a couple times and it's not a surprise your capacity constrained on the imagery side. Just interested, what does that mean? Where does that demand go? Do customers look to competitors to fill their needs, or do they just hold off on acquiring imagery? How does your customer base adjust, or how should we interpret that when you see your capacity constraint, which presumably I assume means that you could be selling more imagery if you had it 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 in the commercial side that we're up 23% year-to-date and continue to see strong applications for our data and products. 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 call, five nations now enhance their ground capacity ahead of the Legion launches, and we've had one pre-capacity sale of the Legion capacity. We are aware of one customer that did delay a competition because they want Legion to be in the mix when that comes out, an international customer. I mean, 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 large technology customers as well. So we think there's 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 just sneak one quick one in here, Dan? Great slide that talks about the five emergent commercial industries for geospatial data and analysis. Could you comment, is one or two of those, would you say, a bigger opportunity than the others? Or do you think they all represent pretty equally sized opportunities for Maxar over the next three to five years?

You know, I think they all represent really compelling opportunities for us. That's why we put them in the slide that way. But we're, you know, just kind of like this year, 23% year-to-date is coming from a range of applications and customers. Right now the tech companies seem to be growing their revenue and profit profile with us faster than the others, but we see really strong growth. Indications that autonomy and autonomous vehicles are going to be a large driver in the future. Risk management applications we see as being a very strong area of growth for us. And then back to autonomous, not automotive, but we're actually picking up customers that do things like using our data to be able to fly drones around and that kind of application. What we're watching really kind of close to as well is not just the traditional mapping applications you might see through Google and like tech companies like that, but gaming, simulation, metaverse applications, which we're 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 simulated training environment based on that 3D type application and the high accuracy data that goes into it. So, Yeah, 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 in those markets. Great. Thank you very much for the answers. Thanks, Tim.

Your next question is from Ron Epstein from Bank of America. Your line is open.

Good evening. It's actually Elizabeth on for Ron tonight. You know, we've been seeing a lot of relatively new entrants to the Earth observation market, whether it's Planet or Black Sky or Spire. And I was just wondering how you think of them in the competitive landscape, given that some of them also do imagery, but then, for example, Spire is a little bit of a different angle on the Earth observation market.

Yeah, I mean, you know, we continue to be very aware of the environment around us, including the new companies and what's going on. We're also, I think, you know, most focused on meeting our customers' current and emerging needs. And I think it's pretty clear from the Q3 results we've continued to demonstrate, you know, strong growth here at Maxar. 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 3D capabilities. That commercial business, off a base of $143 million in 2020, growing 23% year-to-date, which is bigger than, you know, I guess all the SPACs combined if you start to roll up numbers. And, you know, we think we're positioned well moving forward with the investments we've made, with the investments we'll continue to make, and as we drive towards what we think the customer solutions look like. So we're not standing still. We're aware of what's going on, and we're continuing to drive forward.

It's probably worth pointing out, too, that Planet Black Sky really aren't new. They've been in the market for many years.

Yeah, I think that's a fair point, Biggs. I mean, some of these companies have been around for a decade or so and, you know, getting a lot more press now with the SPAC market, but look, we're watching it. We're intrigued by some of the TAMs out there. We think if, you know, 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 TAMs turn out to be a fraction of what some of the people say they are, we expect to take a very large percentage of that market share as well.

Thank you.

Thanks.

Your next question is from Thanos Moscapoulos from BMO Capital Markets. Your line is open.

Hi, good afternoon. Good afternoon. Dan, maybe expanding on the competition question, I guess one more recent development is Airbus having launched some of their satellites. So for the first time, there's another 30 centimeter resolution competitor with commercial imagery. Now, I guess from your commentary, you know, it sounds like you're obviously seeing strong demand regardless. Just curious if that's 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 to the customer beyond just the resolution.

Yeah, thanks, Thanos. And, I mean, as 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, you know, very capable data and service for the customers. We'll continue to compete with them across the world in those areas, but that's nothing new really for the legacy digital globe or where we are with Maxar today. So we're just kind of, we're confident in the way we're seeing that unfold across the world.

Okay. And just on the margins, so looking at the space infrastructure margins, they were up year over year, but they dipped relative to Q2, and if you're calling them to rebound in Q4, anything to call out there, or is that just a function of the cadence of the various programs?

Yeah, it's just driven by product sales mix one quarter to another. The increase in revenues we have on product are going to create a little bit more lumpiness from one period to the next as you look quarter to quarter.

Yeah, and that's on the Earth intelligence side, and then on space infrastructure. Oh, sorry, he was asking. Yeah, on space infrastructure.

Space infrastructure, it's a little bit different story. There's some mix in there. But if you look at the second quarter, we had a number of smaller positive upticks on programs, on EACs, which boosts both revenue and margins. And then in the third quarter, there were a few small adjustments going the other way on EACs, not singularly material. And then there was one pass-through cost that really represented a contingency that 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 pass-through cost in the third quarter. And so, you know, you put all that together and it creates a little bit of volatility from second quarter to third quarter, but still, you know, really good margins compared to the past and overall on a good trend through the year. If you look at fourth quarter, it would be projected to be relatively, you know, normal without noise upwards or downwards in terms of what we project if you look at the middle of the range for the fourth quarter.

And then finally, in terms of when the first part of Legion launches, is that going to have any impact on gross margins at all in either direction, or should that be relatively neutral as an event just on a short-term basis?

Well, it first has to become operational. It's not just a matter of instantly upon launch. And so it will go through in-orbit testing and commissioning. And so then it will ramp up. So it will be a very gradual, you know, production. I shouldn't say gradual. I was trying to make it as fast as I can. But it will be a gradual increase of revenue. It will be high margin, though, when it comes on.

Yeah, we won't have to spend a lot more on infrastructure. The current infrastructure supports the operations of the Legion Constellation. substantially, and the way we're set up for production, the products and the types of services we provide at those satellites will scale very nicely into the existing cost base.

Yeah, and the thing that I would add, Thanos, is that, you know, the billion one roughly in Earth intelligence revenue, 300 million of it is in that services business. It runs at 10% to 12% EBITDA margins. And as we bring Legion capacity online, the other 800 million will be growing a bit faster than the services business. So that by kind of definition should be margin accretive for us.

Great. Thanks, guys.

Your next question is from Peter Osterland from Trova Securities. Your line is open.

Hey, good evening. This is Pete on for Mike Tramoli tonight. Thanks for taking our question. Last quarter, you called out some internal mission assurance and engineering resources that you were adding to address some of the delays you've experienced with the Legion launch. So just wanted to ask how that has progressed. Are there 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 bake into how we were thinking about the business going forward and the program in general. I do think it's an advantage for us, you know, as OneMax 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 Intel side or from the Earth Intel side to 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 or those kind of things. So I think it's good to see the teams operating cohesively and driving forward for customer mission success. Thanks very much.

Your last question is from Chris Quilty from Quilty Analytics. Your line is open.

Hi, guys. 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 You know, is it existing customers buying additional products or more volume of legacy products? Some kind of flavor of where that growth is coming from?

Yes. Hey, Chris. Yeah, so it's a combination. We're seeing really good traction with some of the existing customers on new products. So the 3D capabilities would be something I'd highlight there, but also 15 centimeter HD and our worldwide solution base 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 really intrigued by how 3D helps not just lock data sources down, but also conduct things like autonomous navigation and otherwise. There are a healthy dose of new customers coming in with that 3D technology as well that we're seeing solutions being provided for. So that's really exciting to see. And then I'd say the product growth generally across has been something I'm really glad we've been investing in, those 3D capabilities, the AI and ML capabilities we're bringing to bear, helping solve people's problems, not just providing data or software access to them.

Gotcha. And, you know, 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 putting hardware in place, how do you gauge the incremental demand that you may see from the commercial side? Are there any indicators you can point to or discussions you're having with customers that when you look at the 80 million of revenue ramp in whatever period, should half of that be coming from commercial or the majority or something less?

Oh, boy, kind of tough to parse out which will grow faster. It's fun when you put that challenge in front of the sales teams to see, you know, who's going to drive their numbers harder. And there's always been a promise in this business, but, you know, of a very large commercial market. I think at 143 and growing 23% year to date, we're seeing some attraction on that with the better refined products we've got as well as cloud compute environments and how AI and ML can help snap some of that together for solutions. So we're excited about that. The Vricon, it's not just a 3D solution that we're bringing to bear, but there are 3D point clouds that help disparate sources of information be layered in and made sense of for analyst-ready data and AI and ML-ready data. So that's really exciting as well. You know, on the government side, I'm not sure which one's going to run faster, quite honestly. But we're really excited to see the trend lines on the commercial side. And, you know, there's a future scenario where that could be a very material – it's already material, I guess – but a very comprehensive and large part of our business, much like the government business is now.

Gotcha. A clarification on slide six where you've got the 5 million square meters of – That clearly includes six Legion satellites, but what other satellites does it assume in that number?

That assumes the current constellation right now, I think minus GY1 at some point. So it would assume the worldview constellation plus the Legions. But, yeah, I guess we've got the capacity to, you know, if the market signals are there to add to the Legion constellation, if and when it's appropriate to do so.

And you typically update in the 10K, you know, where you currently assume the life cycle on those legacy satellites, which is it currently now being driven by fuel on the satellites or technical aspects of the system's performance and power and whatnot?

Yeah, none of them are fuel limited, which I think is good. We do update that table annually. And as you've noted several times in the past, we've extended those levels. It's basically just an engineering simulation for the depreciation and amortization schedules. I guess what I note that 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 premiums. So that probably gives some expectation that every year the satellites on orbit, we continue to expect them to last longer in space.

That's good, given what's been happening to insurance rates. Okay, final question, and maybe one we're going to get an unsatisfactory answer, but some recent news story rumors around potential funding issues with the EOCL. Unclear whether they're talking about the traditional optical or some of the new phenomenologies. 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 EOCL and funding levels in your position?

Yes, actually pretty confident in what we're seeing for funding levels for EOCL. The RFP was issued this morning by the NRO. Then responses would be December 3rd. Consistent with their expectations in the first calendar quarter of 2022, we do expect awards. And, you know, I think this follows an extensive review by the U.S. government over the past two years, both for industry studies as well as setting out requirements for the DOD and the intelligence community. And as Pete Moon said in his remarks to the press this morning, they continue to see expanded use of commercial to meet the nation's needs. So I spend a lot of time on Capitol Hill. I think there's a lot of strong support for the EOCL program, what it provides, and the fact that it's a good deal for the U.S. taxpayers.

Awesome. Thank you.

Thanks, Chris.

Yeah, I think we've got time for one more. Yeah.

Yes, sir. Your last question is from Austin Mulder from Clinical Genuity. Your line is open.

Good evening, Dan. I don't know if this has been asked already, but I just was wondering about the recent news report that IntelSat was planning to buy 10 geosatellites sometime early next year, and what percentage of that you think might be won by Maxar? And then 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 pursue.

Hey, thanks for the question. I guess, you know, we're We've got a long history with Intelsat and continue to engage closely with them to try and meet their mission solutions. We're aware of the article. Really no comment on that particular aspect of it other than to note that we do have technical solutions that allow us to compete for bids with Intelsat. We had strong performance on the C-band awards. Some of the ones that are referenced in the article are software-defined satellites, and we'll 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 you for the questions at this time. I would now like to turn the call back to Mr. Jason Gersky for any additional or closing comments.

Great. Thank you, Operator. Thanks to all for dialing in and for your interest in Maxar. 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.