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?