Maxar Technologies Inc.

Good afternoon. My name is Savannah, and I will be your conference operator for today. I'd like to welcome everyone to the Maxar Technologies Q4 2021 earnings call and webcast. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star one. Thank you. I would now like to turn your conference over to Jason Gursky, Vice President of Investor Relations and Corporate Transfer. Please go ahead.

Good afternoon, and thanks, Operator. Welcome to Maxar's fourth quarter 2021 earnings conference call. I'm joined today by our company's Chief Executive Officer, Dan Jablonski, and 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'll 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 would like to remind you that part of today's discussion, including responses to various questions, may contain forward-looking statements which represent the company's estimates, future plans, objectives, 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. You 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, excuse me, 10K, on the company's website at maxar.com. With that, I'm going to hand the call over to Dan. Dan, go ahead. Thanks, Jason, and good afternoon, everyone. Today, I'm going to review the key highlights of our performance in 2021 and provide an update on the Legion build. as well as the Electro-Optical Commercial Layer Program with the National Reconnaissance Office. I'll then discuss our priorities and outlook for 2022 and beyond, and wrap up by discussing an important ESG topic, Maxar's product impact on the world. FIGS will then take over with a review of fourth quarter and full year results, as well as our guidance. Please turn to slide three for a review of key highlights. We had a very solid year, generating top-line growth, margin expansion, and positive free cash flow. Without the effects of EV deferred, revenues grew 8% and margins expanded over 300 basis points. Importantly, we generated $60 million of free cash flow from continuing operations and look forward to growth in this metric as work on the Legion CapEx program wraps up later this year. Total company book to bill ended the year at one times. with Earth intelligence tracking above one and space infrastructure slightly below after experiencing solid bookings in 2020. We had key wins across a diverse set of customers, including the NRO, the NGA, the U.S. Army, Intel agencies, several key U.S. allies, and a multitude of enterprise customers representing the who's who of large technology companies. Importantly, we continue to see increased government and enterprise adoption of our 3D and other advanced geospatial products, which helped to drive 9% revenue growth in the Earth Intelligence segment without the effect of EV deferred. That's roughly $100 million of growth using existing data sets and constellation capacity, demonstrating the company's robust ability to sell products and data as a service, as well as the strong demand we're seeing from a broad set of customer verticals. I'm very pleased with the foundation we've set with our product and enterprise go-to-market strategies, and I expect both to be key drivers of revenue growth in the future. We also made some key hires across the organization. Chris Johnson is an experienced leader now running our space infrastructure segment. Dan Nord came from Amazon in the gaming world and is now driving our product and enterprise efforts in earth intelligence. Colleen Campbell has a wealth of expertise in global and digital marketing and is serving as our CMO. And Tom Wayne, who is a space industry veteran with 20 plus years of experience, is serving as our chief strategy officer. All four of these executives have made an immediate impact on the company and will help to drive our growth strategy in the future. And finally, we continue to improve our capital structure and financial flexibility with the results we just reported and with the proceeds of an equity issuance in the first quarter that was used to retire debt. We continue to see significant cash generation in the years ahead, which should drive debt and leverage levels lower. Please turn to slide four for an update on the Legion program. Last quarter, I walked you through the various phases remaining prior to the first launch, and I'm happy to report that we continue to make progress. The integration of the hardware and initial performance testing of the first two satellites is now complete, and we've moved on to environmental testing, which again includes thermal vac, acoustics, and vibration, all of which are designed to simulate, as much as we can, the extreme temperatures and the environment the satellites will see in space, and the vibration and acoustics the satellites will go through during launch. In the slide, you can see the first of the satellites entering the thermal vac chamber and ops for the second satellite before it was transferred to Palo Alto from our San Jose metal lab. In addition to all of this, we're also in the process of software validation. Once these steps are complete, 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. We continue to progress through these steps with no significant exceptions to date. However, we did lose critical testing personnel to COVID quarantine and contact tracing protocols in late December and January when Omicron was spiking. This absorbed our timeline margin for the May 15th to June 15th launch window. While we're still working to make that window, assuming no major issues arise, the more likely range for the first launch runs from June through July at this point. We have also made the decision to add a third launch to the manifest with each launch carrying two satellites. Although higher cost, we believe it is in the best interest of mission assurance to reduce the concentration of risk associated with the program. This approach also provides an opportunity to get to our targeted full run rate revenue more quickly on the second set of satellites, as we'll be able to better position them in orbit with the launch vehicle. At this point, We expect the second and third launches to follow the first within three and six months respectively. Please turn to slide five. I won't dwell on this slide as I presented it on the third quarter call back in November, but I did want to remind listeners that the Legion satellites we'll be launching this year represent both replacement and growth capacity that support our guidance for 2022 and beyond. Importantly, Legion and the existing Constellation assets are broad area collectors that allow for monitoring type missions and that would combine 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 AI and ML modeling, sensor to shooter applications, and is a key enabler of our ability to drive 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 guide navigation, simulation and training, autonomy, and network planning. Please turn to slide six for a quick update on the EOCL program, which we expect will replace the enhanced view follow-on program later this year. As a reminder, we have been a trusted partner of the U.S. government for over 20 years, delivering commercial capabilities with superior quality, cost, security, and reliability. And as you've heard me discuss on prior earnings calls, we continue to hear from our government customers that 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. Importantly, they are increasingly looking for answers to tough questions in technology solutions, not just data. We believe the investments we've been making in our constellation assets, secure ground infrastructure, data platforms, 3D capabilities, AI and ML analytical tools, and technology to support relevant sensor-to-shooter timelines position us well to deliver significant value to our customers. We are very proud to support the U.S. government mission and look forward to continuing to work with the NRO as they increasingly adopt commercial geospatial data sources through the EOCL program. Please turn to slide seven for a discussion of our priorities for 2022. In Earth intelligence, we are going to be focused on getting the Worldview Legion satellites completed and launched and successfully winning an award on the EOCL program with the NRO. We'll also be focused on further developing our product roadmaps and enterprise strategies. In fact, we're investing an additional $30 million back into the business this year to improve our SAS and DAS offerings, double our precision 3D coverage, and accelerate our mission to be the reference globe for the immersive 3D applications of the future. We're also making strategic investments and recently established a partnership with radio frequency, or RF, data and analytics firm Aurora Insight. The company observes the RF environment with both terrestrial and satellite-based sensors. using machine learning algorithms to build continuously updated mapping products for government and commercial customers. By combining Aurora Insight's RF spectrum capabilities with high resolution imagery, advanced AI analytics, and 3D capabilities, Maxar will be able to offer its public sector and enterprise customers more comprehensive and accurate geospatial solutions and insights. Importantly, this transaction provides a path for Maxar to take control of the company in the future much the same way we brought Vricon fully into the Maxar family back in 2020. We're excited about the prospects for this technology and about the ability of our team to both source and execute these types of transactions. And space infrastructure will be focused first and foremost on execution. It's going to be a busy year for the team out in California as they look to finish building 15 satellites, including the six World View Legions. On the business development side of things, we'll be looking to capture our historic share of commercial communication satellites, where we continue to see a stable market from a unit volume perspective. We'll also be focused on diversifying both our products and our customer mix. On the product side, we are making investments in proliferated LEO platforms and technologies. And on the customer side, we remain focused on civil and national security pursuits. As a reminder, We've had some demonstrated success with civil programs like Artemis and continue to believe we'll be successful with national security programs over time. And lastly, financial flexibility. We'll be looking to take care of upcoming maturities, maintaining sufficient liquidity to support our growth initiatives, and setting ourselves on a path to generate cash to further reduce debt and leverage to our targeted ranges. Please turn to slide eight. I thought I'd also provide a reminder today of the journey we've been on here at Maxar. As you know, 2019 and 2020 were about resetting and stabilizing the business. We recovered from the loss of a satellite and a cyclical downturn in the geocom set market, and we sold some assets to reduce indebtedness. 2021 and 2022 is the growth inflection period, with this year's results a very positive proof point that we're executing on our strategy. I am particularly excited about the growth we were able to generate in the Earth Intelligence business from our product portfolio, demonstrating solid demand for the unique capabilities we bring to both government and enterprise customers. As we look out to 2023 and beyond, we see an acceleration of growth as Legion provides more capacity and we benefit from the investments we're making today in product and go-to-market strategies across both earth intelligence and space infrastructure. In the future, we expect to see margin expansion for mixed and operating expense leverage, higher levels on higher returns on invested capital as we reduce the capital intensity of the business with assets like Legion, and a more optimized capital structure from solid pre-cash flow that's used to reduce debt and leverage. Please turn to slide nine. As you recall, each of the last several quarters, I've taken a few minutes to double-click on some of our capabilities and product offerings, including the technologies we're developing in space infrastructure, our AI and ML capabilities at Earth Intelligence, and most recently, our burgeoning enterprise business in Earth Intelligence. Today, I wanted to spend a couple of minutes to highlight the impact these products have on our customers and broader communities with an ESG lens. We think of our impact in four main categories, data philanthropy, climate and sustainability efforts, customer impact, and community outreach. I'll be focusing on the first two today. Please turn to slide 10 where we highlight one of our largest data philanthropic initiatives, the work we do with our purpose partners. Our purpose partners are nonprofits whose work aligns with our corporate values to make the world a better place. These organizations have deep relationships with Maxar and their staffs understand how to harness the power of geospatial data to further each of their respective efforts. We've shared detailed stories about our partners and how they utilize Maxar capabilities in blog posts and previously published impact reports And today I'd like to share a recent experience we had with one of them. Please turn to slide 11. The Amazon Conservation Team supports indigenous people's reserves in the Amazon region to protect non-contacted tribes, return lands to indigenous communities, and protect the rainforest. We've historically supported the team by providing pro bono access to our satellite imagery through the SecureWatch platform, which includes both our 20-plus year archive as well as recent tasking. However, we recently upped our game and helped them with a complex problem. Illegal gold mining is widespread in the Amazon, including in Colombia, and it can have a negative impact on the environment as the toxic chemicals used in the activity threaten local food sources. Since the pandemic, local enforcement agencies have been forced from these areas under threat from illegally armed groups, leaving the riverways even more vulnerable to illegal mining. The Amazon Conservation Team reached out to Maxar to explore potential solutions, and we were able to task our high-resolution satellites to generate imagery that identified illegal mining barges. This evidence was then shared with the Colombian government, who in turn executed a raid to arrest the illegal miners, seize their chemicals, and destroy the barges. On slide 12, you'll find some of the high-resolution imagery we tasked that was used as evidence presented to the Colombian government. This is a perfect example of the power of our capabilities and how they can be used to protect both vulnerable communities as well as one of the most cherished natural resources on the globe, the Amazon basin. You can find video of the rate plus more on this story in a blog post on our website. Please turn to slide 13. Our open data program, launched in 2017, helps first responders during natural disasters, and it plays a significant role in our data philanthropy initiatives. Our collection planning team, works to task our industry-leading constellation in affected areas to generate geospatial data that provides invaluable insights and enables first responders to arrive more quickly, rescue teams to know precisely where to deploy as they look to save lives, and governments to have a source of truth to support coordination and recovery efforts. Please turn to slide 14. The Maxar News Bureau is our partnership program with respected and trusted media organizations. And our team is in regular contact with hundreds of journalists, both here in the U.S. and abroad, investigating stories, providing high-resolution satellite imagery to supplement good journalism, and working to increase global transparency. Whether it's the Wall Street Journal, New York Times, or the Associated Press, if you've seen high-resolution satellite imagery published in connection with an important story, that image was more than likely taken by a Maxar satellite. The next four slides provide examples of the types of imagery and analysis that the News Bureau has provided to journalists, including the recent buildup of Russian troops around Ukraine. Slides 19 through 21 highlight our climate and sustainability efforts, with slide 20 focusing on how our offerings help to understand the globe at scale, including mapping land and water use, monitoring the Arctic, and understanding the effects of conservation efforts. Slide 21 highlights examples of how our offerings enable our U.S. government customers, allies, and enterprise customers to timely respond to events that have the greatest impact. And finally, on slide 22, highlights how Maxar's capabilities facilitate Earth science and deep space missions, starting with the robotic arms we've built for every Mars rover, including the sample handling assembly on the most recent mission. Our 1300-class platform is being used for Tempo, a NASA mission that will monitor air pollution across North America on a commercial geostationary communications satellite. And lastly, we're currently running a campaign with the World Wildlife Fund and the British Antarctic Survey to detect and count walrus in the Arctic using our imagery and crowdsourcing products. The resulting data will inform broader conservation efforts as walrus habitats change with warming global temperatures. All that I've shared here today is important not just to the partners we work with, but to every Maxar employee. We are a passionate, mission-driven team, and we believe in utilizing the technologies we're privileged to work with every day to provide better outcomes for the Earth and the most vulnerable amongst us. It's my sincere hope that these efforts are of value to our investors as well. With that, I'm going to stop and hand the call over to Biggs for a discussion of our fourth quarter and full year results, as well as our guidance for 2022 and beyond. Biggs? Thanks, Dan.

Please turn to slide 23, where we present your of your comparisons for the fourth quarter. Our net income for Q4 was $71 million, including a $49 million gain recognized in Q4 from the reversal of an overall receivables allowance, given the improved financial positioning of one of our customers in the space infrastructure segment. Revenue was roughly flat year-over-year for the quarter and was up 3% for the full year on a reported basis, as growth in Earth intelligence was offset by programs maturing in space infrastructure. Excluding the effects of the enhanced view contract deferred revenue burn-off, Total company revenues increased 8% for the full year, driven by recent wins in space infrastructure and product growth at Earth Intelligence. For the full year, excluding the effects of EV-deferred revenue burn-off, the adjusted EBITDA grew 24%, with margins expanding 320 basis points. Please turn to slide 24, where I'll discuss Earth Intelligence results without the effects of EV-deferred. Revenue increased 12% year-over-year in the fourth quarter, driven primarily by increases from international defense and intelligence and commercial enterprise customers, while revenue from U.S. government customers held constant. Adjusted EBITDA grew 23%, with margins expanding 390 basis points, driven by the mix of revenue growth. On a full year basis, revenue increased 9% year-over-year, also driven by international defense and intelligence commercial enterprise customers, and adjusted EBITDA grew 14%, with margins expanding 170 basis points. Please turn to slide 25. Space infrastructure revenue decreased 11% year-over-year in the fourth quarter, as several US government programs near completion. Margins expanded 270 basis points, driven by the profitability of recent awards offset partially by an increase in SG&A. Full-year revenue increased 3%, driven by an increase in revenues from commercial programs, as well as lower EAC growth. The full-year results include the charge taken of the XSM-7 satellite, which adversely impacted revenue adjusted by $33 million. Excluding this charge, revenues would have increased 7%, and adjusted EBITDA margins would have expanded to 10.2%, driven by solid execution and the profitability of recent program awards. We are pleased with performance in the segment outside of the charge, which demonstrates the ability of the team to drive margins to industry standard levels when supported by good mix and adequate business base. Please turn to slide 26. The company generated $108 million in operating cash flow from continuing operations in the fourth quarter and invested $78 million in CapEx. For the full year, the company generated $294 million from continuing operations and invested $234 million in CapEx, yielding $60 million in pre-cash flow generation for the year. Please turn to slide 27. I would just note quickly that we had roughly $519 million in liquidity at the end of the quarter. And now please turn to slide 28 for discussion of our 2022 guidance. We expect revenue in the earth intelligence segment to be between $1,155,000,000 and $1,235,000,000, which implies 9% growth at the midpoint, similar to the 2021 growth rate, excluding EV deferred. The range is driven by a mix of factors, including our continued product and 3D growth efforts, the EOCL award, as well as our ability to ramp Legion sales once the satellites come online. We set this range a little wider than normal, given primarily our expectations for the potential for more upside than downside on EOCL. I should note, we believe the customer can award EOCL contracts under the continuing resolution but may not be able to increase the total awarded as much as they can after a budget is passed. Once the OCO is awarded, we will consider tightening the range. In space infrastructure, we expect 22 revenues to be roughly $700 million, or a 5% decrease from 2021, as several larger U.S. government programs near completion. Roughly $600 million of the guidance level is already in backlog, which stands at $865 million at 12-31-21. As a reminder, we remain focused on diversifying this segment further into civil and military and intel verticals. Adjusted EBITDA for earth intelligence is expected to be between $505 million and $570 million, implying 45% margins at the midpoint. Recall we had some good book shipped business in 2021 and our continued product growth will continue to drive margins higher earth intelligence, but this growth will be tempered in part by the $30 million we're investing back into the business that Dan mentioned earlier to drive further product growth in later years, $20 million of which flows through expenses this year. The Just Even Dodd space infrastructure is expected to be in the range of $45 million to $60 million for the year, implying roughly 8% adjusted EBITDA margins for the year. This includes $10 million we are investing in IRAD to take advantage of the near and long-term upside we see in proliferated LEO opportunities on both the commercial and national side. This $10 million is on top of our base spend. Corporate and other expenses are expected to remain largely consistent at approximately $85 million per year. On a consolidated basis, This all leads to 2022 revenue guidance at a range of $1.79 billion to $1.87 billion. At the midpoint, this implies consolidated growth of 3% in line with the consolidated growth levels we've achieved each of the last two years. But keep in mind that there's 9% growth at the midpoint in the higher margin earth intelligence business. Total adjusted EBITDA is expected to be between $440 million and $520 million, with total margins increasing modestly due to a shift in the business mix between Earth intelligence and space infrastructure. At the midpoint, this is 13% growth. Note this includes the $30 million of incremental investments we're making back into the Earth intelligence and space infrastructure segments this year. Normalizing for that, the growth is 20%. In terms of quarterly cadence, both 2020 and 2021, Earth intelligence had strong fourth quarters, with a drop-off in Q1 of the subsequent year. This has been driven largely by the timing of book-ship business. We expect a similar drop-off in Q1 2022, then for revenues and adjusted EBITDA to grow sequentially through the year. At space infrastructure, There will be some skewing toward the first half of the year, but this is not likely to affect the consolidated results materially. Operating cash flows for 2022 are expected to increase from 2021 to a range of $340 to $420 million as we continue to improve the cash flow profile of the business. Capital expenditures are expected to be between $300 million and $320 million including capitalized interest, implying year-over-year growth and pre-cash flow generation at the midpoint. As with prior years, the precise timing of cash flows and capital expenditures can vary throughout the year. Importantly, CapEx is expected to be higher in 22 than in 21, given the cadence of work on the Legion program and the cost associated with the third launch we added to the manifest, as Dan discussed earlier. Please turn to slide 29. Turning now to our 23 targets. These remain largely unchanged from the outlook we provided a year ago. At this point, we expect 110 million in adjusted dog growth from the earth intelligence segment versus 2021 results, driven by increased capacity as Legion comes online and continued growth from our product portfolio. As a reminder, we generated roughly 100 million in product-related growth in 2021 and we're making investments this year that we believe will allow for solid performance in the years ahead. Our 2023 performance will have multiple drivers, including revenue from Legion, continued product growth efforts, as well as the EOCL award. In space infrastructure, we expect 35 million in incremental adjusted EBITDA over 2021 levels, which includes 25 million in mix shift from intercompany work. Representing a slightly more conservative view than the target we provided last year for this segment, given the dependency on and anticipated mix of new business needed to be awarded this year. Our 2022 guidance for space infrastructure implied adjusting the DOM margins of roughly 6% to 9%, with a midpoint of 7.5%. In 2023, we expect revenue to space infrastructure to yield margins in line with the top half of that range. Altogether, we expect roughly $570 million of adjusted EBITDA in 2023 versus the previous target of $580 million. Please turn to slide 30. For free cash flow, our 2023 target is $340 million. Last year we published a target of $325 million. As subsequently noted, there would be an additional $35 million expected in interest savings from the equity raise completed after that guidance was published. The modest change in free cash flow is driven in part by the slightly lower adjusted EBITDA target, as well as a slight increase in CapEx investments for 2023. As we look out beyond 2023, we see continued growth. Demand for geospatial data, products, and services remains robust from both our government and enterprise commercial customers, as Dan discussed earlier. I commented earlier that we were making investments in 2022. primarily in earth intelligence, to fuel future growth. While those investments may continue in 2023 and beyond, they are anticipated to be more than self-funded by the growth we expect from those investments. Prospects over the long term in space harbor continue to look promising as governments focus on military and intel capabilities, as well as earth science and exploration missions, and commercial customers look for new ways to exploit the opportunities in this domain to provide communications and business intelligence applications. We feel very positive about the number of opportunities in the pipeline. Overall, we remain very constructive on the outlook for our industry where we see mid to high single-digit growth for the customer verticals we address. Our goal is to outgrow those rates as we continue to make investments to bolster our industry-leading technologies and products. At this point, we expect long-term growth in both of our segments but higher growth earth intelligence segment, which from a mixed perspective would be margin accretive. Combine this with OpEx leverage, and we would expect margins to expand beyond 2023. And finally, on cash flow, we expect operating cash flow growth to be driven by adjusted EBITDA growth and lower interest expense, recognizing working capital swings can always have pluses and minuses in any given year. We continue to expect CapEx to step down to 23 after the Legion launch and remain in a relatively tight range thereafter, barring a significant new win requiring additional capabilities. To wrap up, we're pleased with the business growth and margin improvements experienced in 2021, and we are on course to our 2023 targets. And importantly, we don't think we'll be done once we get there given the very positive backdrop the industry is seeing and the investments we are making to further our offerings and position ourselves in the expanding marketplace. With that, I'd like to hand the call back over to the operator to begin Q&A.