Maxar Technologies Inc.

Today, my name is Savannah and I will be your conference operator for today. At this time, I would like to welcome everyone to the MaxR Technologies Q2 2022 conference call and webcast. Today's call is being recorded. 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 this time, simply press star one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you, and I would now like to turn the conference over to Johnny Bell. Please go ahead.

Good afternoon, and thanks, operator. Welcome to Maxar's second quarter 2022 earnings conference call. I'm joined today by the company's chief executive officer, Dan Javonsky, 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'd like to refer listeners to the company's slide 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 to actual results to differ materially from the forward-looking information. You can refer 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 maxcar.com. And with that, I'll hand the discussion over to Dan. Dan, go ahead.

Thanks, Johnny. Good afternoon, everyone. Today, I'm going to review the highlights of our performance in the quarter, go through our priorities, and talk a bit about recent successes we've had with our strategic plan. provide an update on the Legion program, and provide some information on the environmental work that Maxar has been doing. Please look at a more detailed review of financial results and our recent refinancing activities. Please turn to slide three. We had a solid quarter. In Earth Intelligence, we saw sequential growth in product revenues. Although revenue on the services side was a little light, which is a reminder, is a lower margin business due to challenges hiring cleared personnel and delays in awards. In space infrastructure, we posted solid margin performance at roughly 10%. Consolidated performance, as expected, reflected good growth from the first quarter. Total company booked to bill this quarter was four times, driven in large part by the Electro-Optical Commercial Layer Program Award announced in May. As a reminder, this award added $1.5 billion in backlog for the first five years of the contract, and is a $3.2 billion contract that provides great revenue visibility for Maxar over the next decade. Importantly, it also provides multiple paths for growth with the NRO, other U.S. government agencies, and our diversified customer base moving forward. Beyond AOCL, the Earth Intelligence segment had a diversified set of bookings across the U.S. government, international allies, and enterprise customers. Maxar was recently awarded an option year three contract renewal with the NGA for the Global EGD program. The annual contract value is approximately $44 million. This is the third of three option years for the contract, which has a total value of up to $176 million. We continue to see strong support for this program, and we expect to negotiate additional option years until the next iteration of this contract is recompeted. We've been providing some version of this capability for about a decade now, And with this award, Maxar will continue to provide more than 400,000 U.S. government users with unclassified, online and offline, on-demand access to high-resolution commercial imagery from Maxar, in addition to geospatial data from other industry providers. I'm pleased with the momentum we have in the earth intelligence business and expect recent bookings growth to drive continued revenue growth in the quarters ahead. In space infrastructure, Similar to last quarter, the segment book-to-bill continues to be impacted by the large number of GeoCommSAT awards received in 2020 related to the C-band transition, which are nearing completion. As a reminder, orders tend to be a bit variable and it's hard to predict precise timing. We continue to expect to end the year with a book-to-bill greater than one in the space segment. We have a good set of opportunities in front of us as we continue to perform on our legacy GeoComm business and pursue our strategy of customer, and product diversification. I'll go into it in a little more detail later, but two great examples of diversification have been our teaming with L3Harris as their subcontractor on the STA T1 tracking layer program, where we're providing buses for their 14 satellites, and our down select on the GeoXO program with NASA to perform study phase work for next-gen weather satellites. We're also seeing good traction with our PLEO investments in the commercial sector. On the balance sheet, Our key priority has been to manage through near-term maturities and to provide longer-term financial flexibility to pursue growth initiatives. We've done exactly that. As Biggs will address in more detail, we successfully refinanced our 2023 and 2024 maturities out to 2027 and 2029 and transitioned to a new $500 million revolving credit facility with a stronger and more supportive bank group. These transactions provide us ample runway to execute on our long-term plans for the business And along the way, significantly reduced debt and leverage driven by growth and free cash flow and profitability. Moving on to guidance. BICS will provide more details on the full year in a few minutes, but the quick take is that we are not making any substantive changes to our outlook for revenue and adjusted EBITDA, although we are modifying cash flow guidance to reflect the higher interest rate environment. Please turn to slide four for a discussion on the Legion program. Last quarter, I described a test configuration anomaly on Legion that led to us delaying the first launch to September. Since then, we've continued to make progress and have completed environmental testing on the first two Legion satellites and are in final closeouts. That means we are essentially hardware ready for the first launch. We've also completed integration of hardware and initial performance testing on the third of six Legion satellites, and that spacecraft will be moving on to environmental testing in the next few weeks. The fourth satellite is in its final test phase prior to environmental testing. So we will be hardware ready for the second launch in short order as well. The fifth and sixth satellites are progressing in logical sequence. So from the hardware side, we're on track. Moving to software validation. Our software is code complete. Unfortunately, it became apparent in July that we had delays in software validation and testing that could impact overall timelines. We've made significant progress against these challenges and now estimate a fourth quarter launch window instead of late third quarter. Once these software validation 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, commissioning, and the beginning of revenue generation. Back on the positive side of the ledger, we have been conducting launch and commissioning rehearsals, and teams have been working to reduce the timeframe between launches. We now believe we can reduce the time period between the first and second launches to two months versus the three months we had previously estimated. Additionally, we've been working on reducing in-orbit commissioning time from our previously disclosed estimate of 60 to 90 days. These steps should allow us to pull forward revenue generation and recoup some of the schedule impacts. Additionally, we have increased our insurance coverage for our World View Legion satellite launches from $520 million to $620 million, with a heavier weighting toward the earlier launches. These policies cover the launches, including our additional third launch, plus the first year in orbit. Following the first year in orbit, we will seek to obtain in-orbit coverage similar to what we currently have on our existing satellites. So to recap, hardware is essentially complete for the first launch. We're in a good position for our schedule on the second launch with closer center lines. We're progressing through software validation and are rehearsing to execute multiple launches and commissioning. And we've bumped up our insurance coverage. Along the way, we've also been making solid progress with our Legion presales and DAF ground systems upgrades and remain confident in the long-term success of the program. Let's now turn to slide five for a quick review of our 2022 priorities. At the top of the list are EOCL and Legion. As I just discussed, we've accomplished one and are making progress on the other. As far as investments in products and go-to-market strategies are concerned, these continue, particularly investments focused on our higher margin products, where we see a long runway for growth. As a reminder, I did a deep dive on our earth intelligence product business back on the third quarter 2021 earnings call, and I would encourage you to revisit the associated slides with that discussion for more details on our focus areas. As far as other key priorities are concerned, The space infrastructure segment executed well this quarter, generating solid margin performance, and the pipeline remains robust as we focus on capturing awards going forward. We've been investing in differentiated capabilities like proliferated low Earth orbit, or PLEO satellites, and continue to expand our partnerships with large defense companies as we develop efficient, commercially oriented solutions for national defense, security, and civil missions. For the SDA tranche one layer, tracking layer, L3Harris is the prime, and Maxar will execute a subcontract for the design and production of 14 spacecraft platforms and associated support for the prototype Constellation. The Space Development Agency commissioned this program as part of the missile warning and tracking warfighting capability of the National Defense Space Architecture. The Tranche 1 tracking layer will provide limited global indications, warnings, and tracking of conventional and advanced missile threats, including hypersonic missile systems. This is a big win and a validation of Maxar's expanding national security scope, where we plan to showcase our capabilities more going forward. These modular satellite platforms illustrate the company's ability to adapt and leverage our deep experience, particularly with proliferated low Earth orbit constellations. Also, two weeks ago, Maxar was selected by NASA as one of two companies to conduct the Geostationary Extended Observations, or GEOEXO, spacecraft phase A study. It's down to two teams. Our space team will develop the concept for this next generation of weather monitoring spacecraft. This continues a legacy of work that started decades ago. Our space team built the first and second GOES satellites in the 1970s and 1990s, which operated well beyond their expected lifetimes. GEO EXO is the follow-on to the GOES series. The Phase A work will establish the performance requirements for GEO EXO and help define the spacecraft's potential performance and development schedule. Please turn to slide six. Couple of other items I'd like to briefly address. We've discussed in prior earnings calls how our news bureau program is working with media outlets to increase global transparency and help combat the spread of disinformation in relation to the war in Ukraine. This current war, more than any other in the past, has helped the general public better understand what Maxar and the geospatial community does with satellite imagery and the importance of understanding what is happening where and when. Maxar has been releasing more than just satellite imagery, which is quite impactful itself. We've been showcasing our precision 3D capabilities that are particularly powerful in running change detection algorithms. You can see a demo of that if you click the link on slide seven. This is a high-precision, AI-enabled environment that allows users to make their way through massive amounts of information at scale. We've also been using our weather desk solutions to monitor Ukraine's agricultural industry. As you know, the country is one of the world's top grain exporters and supplies many parts of the world that are already facing food insecurity. WeatherDesk is our on-demand product that transforms regularly changing weather data into actionable insights. The team has been assessing Ukraine's 2022 spring crop. Farmers planted less acreage this year, as indicated in red on the map on slide eight, and they will likely harvest up to 50% fewer crops if the conflict continues as it's going. The WeatherDesk team is also tracking Europe's ongoing extreme heat wave. For more details on both the assessment and heat impacts, please review slide nine. We also published a blog post about the planting assessment and harvest prediction, which you can read online. Maxar's strengths in global high resolution imagery, multispectral capabilities for doing things like methane detection, analytics expertise, and upcoming leaching capacity provide a competitive advantage to be the trusted standard for environmental applications that require geospatial data. In 2021, our environmental related offerings generated more than $50 million of revenue. and we're on track to grow this business by roughly 20% this year. This is becoming a substantial and leverageable growth vector for us, and we have to be the geospatial industry leader for future public sector and enterprise environment revenue opportunities. And finally, this quarter, we published our first environmental, social, and governance report and are pleased that our ESG scores from ISS have significantly improved in the last two years. Importantly, it provides details on our efforts to build upon good governance practices, develop a more diverse workforce, invest in the communities where Maxar and its customers do business, create more sustainable practices, and leverage our data to help customers and partners make a better world. That report is also available online. So to summarize, we had a solid quarter. We had good wins with EOCL, T1 tracking, our global EGD renewal, continued environmental capabilities growth, and we got the refinancing work done. We still have work to go on leaching, and we're laser-focused on that effort. And with that, I'm going to turn the call over to Biggs for a deeper discussion on our performance. Biggs?