MAXR (2021 - Q3)

Good day, and thank you for standing by, welcome to the Maxar Technologies’ Q3 2021 Conference Call and webcast. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Jason Gursky, Vice President, Investor Relations and Corporate Treasurer. Jason Gu

Good afternoon. Thanks, operator. Welcome to Maxar’s third quarter 2021 earnings conference call. I’m joined today by the Company’s Chief Executive Officer, Dan Jablonsky; and its Chief Financial Officer, Biggs Porter. Both will make some opening remarks, after which we are going to open up the line for your questions. We are shooting to wrap up the call in about an hour. Before we get started, I would 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 2 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. We refer to the advisory regarding forward looking statements contained in our quarterly earnings releases, earnings calls, slide decks on the Company’s most recent MD&A section found in our Form 10-Q on the Company’s website@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 would like to welcome Tom Whayne, our Chief Strategy Officer; and Colleen Campbell, Chief Marketing Officer to the Maxar team. Both are senior executives and have deep experience in aero & defense industry. Tom is the 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 advice Digital Globe, one of our predecessor companies as far back as 2012. Tom will lead corporate strategy, corporate development and strategic investments, because we want to drive long-term growth for our shareholders. Colleen most recently led marketing and communications at Alion, the leading AI and cyber platform. Previously led digital strategy at Northrup and earlier in her career had leadership roles at Clover Park and Ogleby is now leading our global marketing, media relations and communications teams. We are 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 we want to be best positioned to take advantage of them. I would 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 would also like to remind everyone that we remain committed to generating cash and to reducing debt and leverage in the years ahead. At this point, on the path to our long-term leverage targets, we should provide the company even more flexibility to execute on our strategic growth plans. 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 constellation. I will also spend time describing our commercial business and 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 3 of the accompany presentation. We generated 5% year-over-year revenue growth in the quarter, excluding the effect of EV deferred and 11% year-to-date. Of note, Earth Intelligence grew 7% year-over-year in the quarter, and is now about 8% year-to-date. Despite the fact that we are currently capacity constraint 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 differed, driven by improvement in both segments. Bookings were solid this quarter and we generated a book-to-bill a 2.2 times. Key wins in Space Infrastructure included 2G awards from Sirius XM. While in Earth Intelligence, we received our 11th renewal of the EnhancedView 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 Earth Intelligence segment this year. Importantly, we generated robust free cash flow and we are now positive for the year to the end of the third quarter. Bank - to find leverage finished below four turns. Biggs will go into these metrics in more detail during this remarks. But I can say we are excited by the progress we have 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 4 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 EnhancedView 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 the 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. allay to upgrade the country’s ground infrastructure, so it is ready for the Legion constellation. This marks the fifth country to commit to a ground upgrade. As a reminder, one of these five countries has already committed to capacity by on the constellation and we expect the 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 a team generating both revenue and margin growth, excluding easy defer, which as I mentioned earlier, is a great outcome given the capacity constraints we faced ahead of the Legion launch. In early October, we attended the Annual GEOINT Symposium an event that brings together leaders from across government and the industrial base. There we continue to hear the 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 is going on in every corner of the planet. And importantly, they are increasingly looking for answers to tough questions and technology solutions, not just data. As I’ve discussed on prior earnings calls over the past couple of years, Maxar is positioned well for this demand environment. We have been making investments in our constellation to provide the highest quality data available in the commercial market. We have invested in platforms, such as SecureWatch, and Global EGD, which provides 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 have been investing in AI and machine learning capabilities that helps turn data into insight and that drive improved sensor to shooter timelines. We are excited about what the future holds for our government customers. It is clear that the geopolitical environment is driving investment on their end, particularly in the areas of focus for Maxar. And we have been making investments for years to address this demand with well proven technologies. I’m confident has positioned as well to continue to be a trusted partner on our nation’s most critical national security missions in the years ahead. Turning now to Space Infrastructure, where we are committed to consistent execution against some of the world’s most complex space programs and to establishing a foundation for future growth. In addition to the Sirius XM awards I mentioned earlier, we booked a contract modification with NASA for work on the Power Propulsion Element and study contracts for National Security work as we continue to look to shape new programs and further diversify the business. Books to bill this quarter was a robust 2.5 times and now sits at a touch over one time for the year. The pipeline remains robust across both commercial and government end markets, but the precise timing award is always difficult to access. We are 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 are 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 Slide 5. First, the punch line. We remain on-track for first launch in the March to June window of 2022 and we continue to expect the remainder the constellation will launch three to six months after the first. Importantly, the first flight unit is largely through its integration phases and as prepping for Thermal Vac. I know investors are interested in the remaining work before the satellites go into service. So I thought I would provide some insight on the outstanding phases of the program. As you have heard me mentioned in the past, the program has already made its way through various design and integration reviews and we have taken delivery of components and various subsystems from both internal and external suppliers, which we have 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 have received and integrated the first instrument and expect the second in the coming weeks. That is 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 integration of the hardware and conducts 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 space once on orbit. After all the testing is complete, including software validation, we will begin launch campaign activities, including the shipping of the satellites to the launch facility down at the Cape and lastly, of course on orbit testing in the beginning of revenue generation. On the right hand of this slide, we have 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 satellites, on orbit, and on the one on the top right to 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 are on the right path for launch in the March to June window next year with the critical step 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 6. I would 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 JOI1 and WorldViews one and two which fly in polar orbit. Additionally, Legion will provide a 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 then when combined with our existing constellation will provide revisit rates of up to 15 times per day. This type of high resolution, highly accurate collection capacity feeds a 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 7. Before I hand the call over to Biggs for a more detailed discussion of the numbers I would like to spend a few minutes double-clicking on the Earth Intelligence segment’s 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 have been a trusted partner for the world’s largest technology and telecommunications companies for well over a decade. And we are consistently on-boarding 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 would like to do now is walk you through the four primary product areas on our, 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 9. In general, our product 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 are focused, including automotive and logistics, consumer mapping, risk management and monitoring telecommunications and metal versus 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. Within $143 million last year and growing the commercial vertical is incredibly important to us, and especially to our investors. It is an area that helps spur innovation across our products and services. And it is 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 were 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. With that, I’m going to turn the call over Biggs for a deeper dive in on quarterly performance, and how 2022 and 2023 are shaping us. 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 Infrastructure. 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 EnhancedView contract deferred revenue burn off. Total company revenues increased 5% year-over-year driven by recent wins in Space Infrastructure and product growth Earth Intelligence. On a year-to-date basis total company revenues increased 11% excluding the effects the deferred revenue burn off and adjusted EBITDA margins increased by 300 basis points. Please turn to Slide 25, where I will 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, intelligence commercial customers offset slightly by 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 assistant tells us customers contributing to positive margin growth. On a full-year basis, revenue is at 8% year-over-year, driven by increases from international defense and intelligence commercial customers and adjusted EBITDA margins expanded on 100 basis points. Please turn to Slide 26. Space Infrastructure revenue was essentially flat year-over-year, while margins expanded to 120 basis points driven by their 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. Year-to-date was revenues up 9% primarily driven by an increase in revenues from commercial programs, as well as lower EAC growth. Adjusted EBITDA margins expanded 860 basis points driven by the profitability of recent program awards, offset by reductions in revenues from the Sirius XM7 charges taken during the year and modest increases in indirect in SG&A costs. Before moving on to discussion cash flows, I do 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 are pleased to report we already have approximately 92% of our workforce that is submitted proof of their vaccination status. We will continue to work through the various protocols. Please turn to Slide 27. The company generated 136 million in operating cash flow from continuing operations in the third quarter and invested 51 million in CapEx. Operating cash flow for the quarter was positively impacted by the timing of cash receipts and other favorable working capital changes as expected, which we outlined in the second quarter call. Please turn to Slide 28. We have roughly 508 million 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 are narrowing and improving our guidance ranges for adjusted EBITDA and cash flows. Revenue guidance has decreased slightly driven by an increase in intercompany work. We have tighten the revenue guidance Earth Intelligence by 20 million to a range of 1.06 billion to 1.085 billion. The midpoint remains unchanged what we issued previously. We spoke earlier this year about our goal of driving up to 100 million of 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 that 23% year-to-date growth we have seen with our commercial customers and we continue to drive growth in our customer base as well -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 in the first three quarters of the year. At Space Infrastructure, we have increased the bottom end of our range by five million and lowered the top end of our guidance range by two 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 book-to-bill of 2.5 times the third quarter. It is important to note that last year’s fourth quarter benefited from a steep ramp and revenues associated with commercial geo concepts that were awarded earlier in 2020 and for a greater contribution of the U.S. government work and putting on the PPE and safety programs. Guidance for intersegment eliminations is increased modestly to an expected total of 65 million for the full-year, driven by our increased spend on the WorldView Legion program. As a result of the changes that Space Infrastructure and a change 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. Suing the effects of EV deferred, the midpoint of our guidance supplies approximately 7% growth for the year. Turning to adjusted EBITDA, at Earth Intelligence we have raised the midpoint by 15 million, and now expect to be in a range of 465 million to 475 million for the year. As we highlighted earlier this year, earnings at Earth Intelligence can vary with the timing awards, and the nature of those awards can impact a margin profile quarter-to-quarter. Growth in our services portfolio continues to be constrained by the pace at which government is making awards with a significant number of proposals remaining outstanding. This is lower margin business however, so we are clearly benefiting from growth in the higher margin product revenues. We aren’t making any changes to the full-year adjusted EBITDA range for Space Infrastructure, and expect margins to expand in the fourth quarter to levels similar to what we saw in the second quarter. Margins will fluctuate from quarter-to-quarter due to the nature of percent-complete accounting and as volume and mix effect results. As such, it is important to look at trends over a longer period and on a year-over-year basis, where we continue to see a steady progress. As a reminder, margins of Space Infrastructure have fluctuated this year, given the impacts of the exit from XM7charge and to start a new programs, but we are clearly up on a year-to-date basis. Expectations for inter segment adjusted EBITDA eliminations have increased the $25 million for the full-year, driven by WorldView Legion program. On a consolidate a level, our guidance for adjusted EBITDA has increased five million, declining roughly 300 basis points of margin expansion for the year, excluding effects of EV deferred. Moving on to operating cash flow. We have increased both below and the top end of the range on our operating cash flow by 20 million to a range a 260 million to 290 million. As expected the working capital changes we walk through during the second quarter call, flipped to our favor in the third quarter. We are a 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 is 220 million to 240 million, a decrease of roughly 18 million in 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, we feel that growth will be driven by a number of factors, including the level of investment we make back into the business to drive growth at 2022 and beyond. We should guide each year on our fourth quarter call so 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 would expect some growth as administered 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 are still evaluating the effects of the Legion delay and the opportunities to offset whatever effect that has. We previously said, we expected 80 million in growth for 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’s adjusted EBIT 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 environmental of delay in our services award. If we did nothing more to continues at 40 million a year of net gross for the next two years, we will cover 120 million off the 165 million of growth from 2020. That would leave us with 40 million adjusted EBITDA we 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 of adjusted EBITDA growth from 2020 to 2023. If you exclude the Sirius XM charge this year, we are already on-track to achieve that in 2021. We have a solid backlog as demonstrated by the total year-to-date book-to-bill of 1.1x and of course, we remain focused on executing our WorldView, Legion construction. And the EOCL program with the NRO. All this should have positive impact on objective cash flow, which we intend to reduce indebtedness and drive down leverage over time. We are excited about the trends we see in front of front of us and we believe we are well positioned to drive total company growth in the years ahead. Operator, let’s now begin the Q&A.

[Operator Instructions] Your first question is from Matt Sharpe from Morgan Stanley. Your line is open.

Dan, Biggs, Jason good afternoon and nice quarter. Dan I appreciate the details on the path forward for WorldView Legion. That is very helpful. Maybe just stepping back here and looking at the remaining key phases. I was hoping you could tell us which has 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 will have ticked off come the fourth quarter?

Thanks, Matt. You know, I think the probably the best way to answer that is to reflect on what we have gotten done so far. And then kind of think, just through the steps ahead of us, but the legacy of the Maxar team going all the way back through the SSL days is a very, very experienced satellite program management and satellite manufacturing and testing team. So as we have completed the things that threw us just a little bit this year, were the Raytheon and the Honeywell supply chain issues. Where we have got the Honeywell parts where we have 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 will be looking at are making our way through Thermal Vac final integration testing of the all the flight software and the full complete on orbit, simulation, simulate testing of the satellite in various environments, and then down to the launch range for final prep and launch. So I’m not sure that there is one I’m concentrating on any more than the others. We are very focused on the schedule we are very focused on the March to June timeframe. And looking forward to getting that and getting these up and getting tested and provide service for customers.

Yes, that is helpful. And then I think big has might have mentioned 92% of the workforce vaccinated. Are the employees working on legions 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 deadlines?

We are in pretty good shape 92% very good number and we are continuing to get, some other people filtering in, or a handful of people that we are going to work through the protocols and the exemptions that are listed under the executive order. But we are really encouraged with how the teams move forward on this and don’t expect any type of material impact other the main business or to the Legion program. Throughout the rest of the years we comply with the executive order. We will 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 have been 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 1 move into an OTA. Does that change anything for Maxar there and then maybe just thinking about the program over the longer term what is the opportunity, the potential there in terms of satellites or dollar figures?

Yes. I think probably maybe just as a headline Maxar is really, really committed to its diversification efforts. And we are getting some strong traction across different agencies, and we can remain committed to supporting the SDA all of our government customers with innovative solutions, we really think we have got to compete. We did challenge the SDA transport layer, initial RFP because we thought it was unduly burdensome to industry and favorite large companies. And I think we were right with that quick reversal. They have now since moved to an OTA methodology, we are continuing to assess and review that. But we think we have got some great commercial capabilities for SDA and the national architecture as they build out trance one layers and other aspects of what SpaceForce 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 are in the middle of a lot of competitions right now. But we think they are significant and will contribute to the resiliency of the space business going forward.

Great. Thanks Dan.

Thanks Matt.

Your next question is from Tyler Bolanos from JPMorgan. Your line is open.

Good afternoon guys. A quick question on Legion and then what on stage. Just starting on Legion, is there any update you guys can provide on the other four instruments from Raytheon that you guys expected? I think previously you expected to come this fall. Just wondering if that is still the right time, maybe at year-end. And then on Space Infrastructure, if you could just touch on the backlog growth and maybe what the opportunities are for 2022 and where we can see that segment go?

Yes sure. I have Raytheon one personnel talked about Space Infrastructure backlog in some of our in 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 will be back on the center lines we expect to be with the schedule as we stated, 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 is important to note Maxar going to consider that change to be extremely low risk. So it wasn’t something that not the program off the schedule or anything, it was just something we had to work through and then we had work through with Raytheon and they have been very helpful and cooperative in the process. So good news there. But the other question was about Space Infrastructure and where we are seeing some of the pipeline and what is going forward. So I guess, probably, the good news is, we continue to diversify. We had some really strong awards last year in the GEO market, GEO comp market commercially, with the C-band awards Sirius-XM9 and 10, certainly been great awards for us this year and that overweights the commercial sector a little bit more than we thought initially. But they are great wins and we will take that kind of good business with customers wherever it comes from. On the defense Intel side, you we said it would be a three, five-year story, during our Investor Day back in March to 2020, and we have been booking study contracts, which are a precursor to production work. You have got solid capabilities and spacecraft propulsion, robotics, commercial heritage and a very strong quality track record. We will continue to assess our partnering strategy there where we can be either prime or for some of the larger other defense and aero companies. So, we have also been bolstering our mission architecture and business teams. On the pipeline, we see geo market being mostly flattish, with a solid replacement pipeline, both for bend pipe and digital solutions. Leo market opportunities are a bit nascent, but we are engaged in a number of engineering studies there. And with the civil agencies, timelines and budgets are gating items, but we are really encouraged by the administration support for the space programs moving forward. I hope that answers your questions.

Yes.

Your next question is from Peter Arment from Baird. Your line is open.

Hi. Good afternoon. You actually have [Eric Rutan] (Ph) on the line for Peter. I appreciated the color on the 2023 targets and EBITDA growth and Earth Intelligence kind of ex Legion there. But just to follow-up on that, given the delays to the remaining Legion estimates, it seems like the first batch is more derisked than the second. Can that first batch do that 40 million of EBITDA growth by 2023, once that first launch takes place?

So, I would say, the first thing, I think I would stress is that, we are not expecting the issues that we uncovered, the minor issues we’d had to in the integration to knock the overall program schedule off. So, we do still continue to expect to march forward with the rest of the program. I 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, we are continuing to grow on the current constellation. We do expect the Legion’s the first two and then the additional four Legions to provide strong, incremental growth to us, as soon as they are commissioned and start providing revenue service. In terms of capacity, any two Legions have more capacity than the WorldView four Legion - the WorldView 4 satellite we lost in early 2020, 2019, sorry. But at that time that satellite had $80 million of revenue on it and very high EBITDA. So just to kind of give you a perspective there, two Legions could generate a lot of revenue and a lot of EBITDA for the business.

And I think it is important to note, if you reflect back on Dan’s prepared remarks regarding the Legion schedule, that the first two grew up in the March to June timeframe and the second or the remaining satellites will go up three to six months later. So the issue that he talked about here on Raytheon to his point is not knock that schedule off, at this point. So, we reflect back on the prepared remarks for that one.

Okay. Thank you. Appreciate that. And then maybe just a quick one on the CapEx. Is this 30 million impact to CapEx for next year from the regional is still the right number? It looks like you took down the guide to 220 million this year. Is that savings or is that just time and getting pushed out to 2022?

No. That is a great question. I think, as to the pure effects of the Legion cost cut we had through the delay in the 30 million is still a good number, the 20 million I think it is too early to say whether that dominoes directly in the next year or not, that is one of the things that we will just have to consider as we set our guidance for next year when we come back in the fourth quarter call.

Okay. I appreciate the color. I will hop back in queue.

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

Thanks and good afternoon everyone. Question actually for Biggs Porter. 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 increasing so 25 million for the year, could you talk about what was the cause of that?

Yes, I will take this why this. It is the modest uptick in the depreciation and amortization guidance for the year that is fully rolling in all of the amortization from the Vricon acquisition and the CapEx that we brought on so far this year.

Okay, interesting. And then my second question, Dan, just go back to you made reference a couple times and it is not a surprise your capacity constraint, on the imagery side. Just interested what does that mean? Like where does that demand go to customers look to competitors to fill their needs or do they just hold off on acquiring imagery like, how does your customer base adjust or how should we interpret that when you see a capacity constraint, which presumably I assume that you could be selling more imagery if you had it available?

Yes, as we have been discussing, for some time, now, we are sold out in certain regions of the world. But even with that we have continued to grow. And I think that is kind of, we wanted to highlight that in the commercial side that were up 23% year-to-date, and continue to see strong applications for our data and products. On the straight issue of capacity, our current constellation does provide the world’s best data and satellite access for our customers. We have had, as I mentioned, on the call five nations now enhance their ground capacity, like the head of the Legion launches. And we have had pre capacity, - Legion capacity. We are aware of one customer that didn’t delay a competition, because they want Legion to be in the mix when it comes out in international customer. So I think what we are 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 is unmet demand in the marketplace. And we are 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 here Dan. Great slide that talks about the five emerging commercial industries for geospatial data and analysis. Could you comments, 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 is why we put them in the slide that way, but we are, 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 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, very of growth for us. And then back to autonomous, not automotive, but we are actually - we are picking up customers that do things like using our data to be able to fly drones around and that kind of application. What we are watching really kind of close to as well as not just the traditional mapping applications you might see through Google and like, tech companies like that. But gaming simulation, Metaverse applications, which we are far in advance on now with the work we are 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 we are pretty excited about some of this technology is 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 is actually Elizabeth on for Ron tonight. We have seen a lot of relatively new entrants to the Earth observation market, whether it is Planet or Black Sky or Spire. I was just wondering how you think of them and the competitive landscape, given that some of them also do imagery, but then for example, Spire, there is a little bit of a different angle on the Earth observation I guess.

Yes. I mean, we continue to be very aware of the environment around us, including new companies and what is going on. We are also I think, most focused on meeting our customers, current and emerging needs. And I think it is pretty clear from the Q3 results, we have continued to demonstrate 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 have been investing in AI, ML and 3D capabilities, that commercial business alpha base of $143 million in 2020, growing 23% year-to-date, which is bigger than I guess all those facts combined if you start to roll up numbers. And we think we are positioned well, moving forward with the investments we have made with investments we will continue to make and as we drive towards what we think the customer solutions look like. So we are not standing still we are aware of what is going on, we are continuing to strive forward.

It is part of our planning activity that play on Black Sky aren’t really aren’t new. They have been in the market for many years.

Yes. I think that is a fair point Biggs. I mean, these companies have been around for a decade or so and getting a lot more press knows the stock market, but we are watching it. We are intrigued by some of the terms out there. We think, we are trying to take the view that we see of them based on what we see current customer and future customer nice looking like but if those terms turn out to be, fraction of what some of the people say they are and we expect to take a very large percentage of that market share as well.

Thank you.

Thanks.

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

Hi good afternoon. Dan maybe extending on the competition question, I guess when more recent development is Airbus having launched some of their satellites. So for the first time, there is another 30 centimeter resolution competitor with [central imagery] (Ph). I guess some of your commentary, it sounds like you are obviously seeing strong demands regardless. Just curious if that is changing the dynamic at all. And I guess there is one of the answers that, there is a lot of other parameters that matter to the customer beyond just revolution.

Yes. Thanks Thanos. And I mean, as you have 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 is not new. They have been launching the Neo satellites and all indications are, they provide very capable data and service for the customers. We will continue to compete with them across the world in those areas. But, that is nothing new really for the legacy guys from over where we are with Maxar today. So we are just kind of, we are confident in the way we are seeing that unfold across the world.

Okay. And just on the margins. So, looking at the Space Infrastructure margin state, we are up year-over-year, but they get through up into Q2 and your inventory down in Q4, and I need to call out there. Is that just a function of the cadence of the various programs?

Yes. It is 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 if you look quarter-on-quarter.

Yes, that is good, that is on the Earth Intelligence side. And then on the infrastructure side.

It is a little bit different story, there is some mix in there, but if you look at the second quarter, we had a number of smaller positive upticks on programs, on EAC, which boost both revenue and margins. And then in the third quarter, there were a few small adjustments, going the other way on EACs not similarly material. And then there was one pass-through costs, surely represented contingency that was outstanding, that we may still not have to incur when it is all said and done. But we booked $3 million dollars on a pass through cost in the third quarter. And so, you put all that together and it creates a little bit of volatility from second quarter to third quarter. But still, really good margins compared to the past. And overall, good trend through the year, for the fourth quarter, it would be projected to be relatively normal without the doubt noise upwards or downwards, in terms of what we projected if you look at the middle of the range for the fourth quarter.

Thanks. And then finally, in terms of, when the first products Legion launches, is that going to have any impact on gross margins at all either direction or should that be probably neutral 11 as event just on a short-term basis?

Well, it first has to be become operational. It is not just a matter of instantly upon launch. And so, through a in-orbit testing and commissioning, and so then it will ramp up. So, it will be a very gradual production. I shouldn’t say - where I’m trying to make it as fast as we can. There will be gradual increase of revenue. It will be higher margin though when it comes on.

Yes, we won’t have to spend a lot more on infrastructure, current infrastructure supports for the operations of the Legion constellation substantially in the way we are set up for production. The products and the types of services we provided the satellites will scale very nicely into the existing cost base.

And the thing that I would Thanos is that, the billion one roughly in Earth Intelligence revenue, 300 million of it is in that services business that 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 is shipping margin accretive for us.

Great. Thanks guys.

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

Hey good evening this is Pete on for Mike Ciarmoli. Thanks for taking my question. Last quarter, you called out some internal mission assurance and engineering resources that you were adding to address some of the delays you have experienced with the WorldView Legion. So just wanted to ask how that has progressed. Are there any efficiency improvements that you have been able to realize as a result and are there other areas within the company where those resources have also been useful?

Yes, I would 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 is an advantage as when Maxar is a larger company, we have got lots of good resources across the organization that we can flex from the Space side to the Earth Intel side, for the Earth Intel side to the Space side, depending on where we need particular types of engineering or software, other types of support on programs or mission assurance reviews for those kind of things. So I think, it is good to see the teams operating cohesively and driving forward for customer mission success.

Thanks very much.

Your last question is from a 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 have seen. If you could maybe quantify the recent growth spurt? Is that driven more by adding new customers or adding new products or is it 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. So it is a combination, that we are seeing really good traction with some of the existing customers on new products. So the 3D capabilities would be something I would highlight there, but also 15 centimeter HD. And our worldwide solution face masks that vivid and those kind of things for the tech customers that are looking for highly accurate. But visually appealing information sets. And they are really intrigued by how 3D helps not just lock in 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 are seeing solutions being provided for so that is really exciting to see. And then I would say the product growth generally across has been, something I’m really glad we have been investing in those 3D capabilities, the AI and ML capabilities we are bringing to bear helping solve people’s problems not just not just providing data or software access to them.

Got you. And with the Legion program coming online, you have some pretty good visibility from your government customer and certainly international defense and Intel if they are 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 are having with customers that, when you look at the whatever 80 million of revenue ramp, in whatever period, should half of that be coming from commercial or the majority or something less?

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

Got you. A clarification on Slide 6, where you have got the five million square meters of square kilometers, excuse me, if capacity, that is clearly includes six Legion satellites, but what other satellites visit assuming that number?

That assumes the current constellation, right now I think mine is July one at some point. So it assumed that WorldView constellation plus the Legions. I guess, we have got the capacity to, if the market signals that the activation constellation if you want to produce.

And you typically update in the 10-K, where you currently assume the lifecycle on those legacy satellites, which is a currently now being driven by fuel on the satellites or technical aspects of the system’s performance and power and whatnot?

None of them are fuel limited, which I think is good. We do update that table annually and as you have noticed several times in the past, we have extended those. It is basically just an engineering simulation on for the depreciation and amortization schedules. I guess, what I would note this, I haven’t made remarks about before is that we didn’t just renew our insurance for all four satellites. We have 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 we every year the satellites on orbit, we continue to expect them to last longer in space.

Let’s get into what is been happening to insurance rates. Final question and maybe one we are going to get an unsatisfactory answer. But some recent news story rumors around potential funding issues with the EOCL unclear whether they are talking about the traditional optical or some of the new phenomenologies. I know we are not going to get a detailed answer because it is 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 are seeing for funding levels for EOCL. The RFP was issued this morning by the NRO, and responses are due December 3rd, consistent with their expectations in the first calendar quarter of 2022 we do expect awards. And I think, this follows an extensive review by the U.S. Government over the past two years, both for industry studies as well as sending out requirements for the DoD and the intelligence community. And as [Pete Moon] (Ph) 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 is a lot of strong support for the EOCL program, what it provides and the fact that it is a good deal for the U.S. taxpayers.

Awesome. Thank you.

Thanks, Chris.

I think we have got time for one more.

Your last question is from Austin Moeller from Canaccord. 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 geo satellites 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 have been planning to announce for next year, if that is something that you plan to have the Space Infrastructure business pursue.

Thanks for the question, I guess, we have got a long history with Intelsat and continue to engage closely with them to try and meet their mission solutions. We are aware of the article really, no comments on that particular aspect of it, other than the note that, we do have technical solutions that allow us to compete for a bid 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 will continue to work very hard to keep that long-term customer happy and keep winning business from them.

Okay, great. Thank you.

Thank you.

And I’m showing here for the question, at this time. I would now like to turn the call back to Mr. Jason Gursky 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, enjoy holiday season.

Ladies and gentlemen, this does conclude today’s conference. Thank you for your participation, and have a great day.