MAXR (2021 - Q4)

Good afternoon. My name is Sabiana and I will be your conference operator for today. I’d like to welcome to the Maxar Technologies’ Q4 2021 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn your conference over to Jason Gursky, Vice President of Investor Relations and Corporate Treasurer. Please go ahead. Jason Gu

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 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 -- excuse me 10-K on the Company’s website @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 bill, 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. Biggs will then take over with a review of four quarter and full-year results, as well as our guidance. Please turn to Slide 3 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 1x with Earth Intelligence tracking above 1 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 US 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 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 Whayne, who is a space industry veteran with 20-plus years of experience, is serving as our Chief Strategy Officer. All 4 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 4 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 2 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 of acoustics the satellites will go through during launch. In this slide, you can see the first of the satellites entering the thermal vac chamber and opts 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 in 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 time line margin for the May 15 to June 15 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 2 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 3 and 6 months, respectively. Please turn to Slide 5. 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 when combined with our existing constellation will provide revisit rates of up to 15x 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 6 for a quick update on the EOCL program, which we expect will replace the EnhancedView 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 heard me discuss on prior earnings calls, we continue to hear from our government customers the 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 and 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 time lines 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 7 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 SaaS and DaaS offerings, double our precision 3D coverage and accelerate our mission via the reference flow 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. In Space Infrastructure, we'll 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 6 WorldView 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 several 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 and 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 8. 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 GEO comsat market and we sold some assets to reduce indebtedness. 2021 and 2022 were 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 from mix and operating expense leverage, higher levels -- 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 free cash flow that's used to reduce debt and leverage. Please turn to Slide 9. 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 of 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 4 main categories: data philanthropy; climate and sustainability efforts; customer impact; and community outreach. I'll be focusing on the first 2 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 non-profits whose work aligns with our corporate values to make the world a better place. These organizations have deep relationships with Maxar, and their staff 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 our capabilities in blog posts and previously published impact reports. And today, I'd like to share our recent experience we have 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've 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’ve tasked that was used as evidence presented to the Colombian government. This is a perfect example of how 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 raid plus more on the story and a blogpost 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 enables first responders to arrive more quickly. Rescue teams know precisely where to deploy as they look to save lives and governments they 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 4 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 our offerings help to understand the global 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 robotic arms we 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 communication satellite. And lastly, we're currently running a campaign with the World Wide Life 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 our 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 valued to our investors as well. And 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 year-over-year comparisons for the fourth quarter. Our net income for Q4 was $71 million, including a $49 million gain recognized in Q4 from the reversal in 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 at Space Infrastructure. Excluding the effects of the enhanced feed 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 the EV deferred revenue burn-off, 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 and 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 U.S. government programs neared 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 at the XM-7 satellite which adversely impacted revenue and adjusted EBITDA 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 the 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 free cash flow generation for the year. Please turn to Slide 27. I would just note quickly that we had roughly $519 million liquidity at the end of the quarter. And now please turn to Slide 28 for a discussion of our '22 guidance. We expect revenue in the Earth Intelligence segment to be between $1,155 million and $1,235 million, 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 EOCL 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 ship 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. Adjusted EBITDA of 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 for the 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 2 years. But keep in mind that there is 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-to-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'll be some skewing towards 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 million 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 in free 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 costs 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 EBITDA 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 the segment, given the dependency on an anticipated mix of new business needed to be awarded this year. Our '22 guidance for Space Infrastructure implies adjusted EBITDA margins of roughly 6% to 9%, with a midpoint of 7.5%. In 2023, we expect revenue base 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 however continue to look promising as governments focus on military and intel capabilities as well as our 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 in Earth Intelligence segment, which from a mix 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 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.

[Operator Instructions] Our first question will come from Seth Seifman with JPMorgan.

I guess just start to out, a quick question on the 2023 targets and the change in the Legion launch schedule and whether that had -- it seems like that had very little or no impact on the outlook for 2023. Is that -- A, is that fair; and B, should we then think that the full impact of Legion is kind of recognized in the 2023 guidance or to the extent that there is a further kind of ramp-up period beyond?

Yes. Legion will be ramping up during 2023. So it's certainly not at a run rate in terms of revenue and margin and cash impact, the accretive impact that we'll have when it does reach a full run rate. So -- and the -- as we've said before, there's capacity to grow in Legion. So irrespectively, even if we were fully operable, if you will, at the start of '23 and at a full year in there, we'd still expect it to grow in '24. So there is growth coming. There was an impact on '23 in our guidance from the fact that we are launching later than we originally anticipated. But as I think I noted in the last call, our growth on the product side has really made up for that. And so Legion isn't the only way to get accretion in the business. We still have so much -- we can grow from a product standpoint as we've demonstrated from the 3D products otherwise.

Great. And then maybe as a follow-up question. When we think about the decline in CapEx that's coming in 2023 and beyond, where will investment be focused after the Legion constellation is fully built? And I guess, what are the major opportunities that you think about post Legion? And maybe even specifically for the Space Infrastructure business, will there be investments to make at some point to kind of drive future growth there?

Yes, absolutely. When we look at the business and we think about growth in the smartest place to invest money to create shareholder value, the first place we look is organic growth, those opportunities where we know we've got good customer contact, good adoption of our products and continued acceleration of how they're using them. I think 3D and the success we've had with Vricon is a really good example of that. But other Earth Intelligence products have been growing as well. So we're really pleased to see the investments we've been making there as well. It's our secured infrastructure and our direct access program with international customers as we've gone out to those markets as well. On the -- we'll look as we get to continue to delever and we get to that nominal sort of 2x to 3x as Biggs has I talked about before. We'll look at inorganic opportunities. We'll continue to pay down debt along the way. And we'll continue to look for different ways to return value for shareholders. On the Space Infrastructure side, we're seeing some really good positive trends with [PLEO] constellations and some of the study contracts we've been winning and some of the business we're chasing there. Nothing to announce today, but things are going well, and we've been increasing our [IRAD] to support that type of business. We've got really solid robotics and propulsion characteristics for our spacecraft and we'll continue to think about smart investments there. And then we're also making investments as we continue to pursue that the U.S. government business transitioning not just in the sim programs, but into the defense and intelligence programs for secured infrastructure like we've had on the Earth Intelligence side of the business, secure protocols for facilities and people with clearances to be able to do that kind of work as well. We're finding a lot of uptake on our bus design and the spacecraft heritage that we've got in that market. Biggs, anything to add on that?

I think that pretty much covered it, Dan. I think 1 thing we might add in, I don't know if you commented on it, we are seeing a lot of opportunity to partner with others in Space Infrastructure as well as we pursue new business and is not solely dependent upon our own capabilities, but we bring some capabilities to play that others don't have. And so the teaming opportunities seem to be going up.

Our next question will come from Robert Spingarn with Melius Research.

Dan or Biggs, I wanted to just get an idea if we can figure -- think about Space Infrastructure post Legion build. I figure you're running a fair amount of that through the P&L now. And $1 billion revenue is down to about $700 million. What does this business look like once that's done and finished and you win some of the things you're talking about? Is there a new normal here that we should think about?

Well, we gave guidance in '23, which is after the Legion program is complete. So you can look at that as what a fairly near-term outlook is. But beyond that, because of all the things that we're pursuing and the opportunities we see, we do see it as a growing business. Now as I noted, the margin rates on it are lower and will be lower than the Earth Intelligence business. So Earth Intelligence is, in all likelihood, going to be the much greater driver of consolidated results, but we do expect Space Infrastructure to be contributing on an increasing basis at the time as we succeed in growing the business and diversifying it as we've talked about.

Yes. Probably the thing I'd add to that is we're most focused on being able to grow those businesses where we've demonstrated some more specialized capabilities because that gives us a better chance to compete there. And a handful of those are our power, like the power propulsion element, JUPITER 3, those types of very large satellites. That the higher kilowatt levels are -- that's a pretty good platform for us. We're building some of the biggest satellites in the world and the high throughput side there. Propulsion, robotics and then the [PLEO] bus design, we're finding a lot of derivatives of Legion and some other stuff we've been designing here that have gotten some good customer uptake so far.

Okay. Just switching over to thinking about the Legion build-out. What are the pinch points that are remaining? You've gone through some of this in the monologue, but if we could get a little bit more specific as to whether it's supply chain, hardware testing, software? How do you think of those relative to one another?

Yes. So on the first -- I'll just segregate them a little bit between launches here. But on the first launch, we have all the hardware in. That one's within our control. So getting through testing is the major feature we've got to get done there, and we talk about thermal vac, vibration, jitter, acoustics, all of those kind of things. I think I'd note, it wasn't in the prepared remarks, what we've been in thermal vac for the better part of a month now, the testing process is going as expected with no major issues so far. And that's a really important step for us. So we're excited about that. And to finish off, we're asking those kind of things. But those satellites are -- they're fully integrated. They have the instruments. They've got all the hardware they need. They're going through the testing protocols. And when they complete the testing protocols to our satisfaction, that's when we'll shift to the launch range and do launch ops. On the other satellites, again, we're doing 3 launches now, not the 2. We expect those to be on about 3-month center lines after the first launch goes up. I don't have any red flags right now. We've got 3 of the 6 instruments in. We expect all the remaining ones to come in through the spring. No red flags right now, dependent on COVID, that's slowed different parts of the supply chain down. But we do expect to have all the hardware for the second launch by the April time frame and all the hardware for the third launch in time to be able to complete launches this year. It's not a given. There's some risk in that, but that's what we're driving for, and we'd like to accomplish that in this calendar year.

Okay. And then just, Biggs, forgive me for going back to the first question, but just a clarification. How much of the Space Infrastructure revenue and EBITDA in the '23 guide is under firm order right now? And what still needs to be awarded?

So we're not going to give stats out there, but we want to get it for the instant year. And if you look at next year, we're pretty much in line with what we've historically been at with about -- as I said, 84% of what we have in backlog is covered for 2022's revenue. If you look at what that leaves us with is about a little less than $300 million of backlog remaining going into '23, okay? The -- that's pretty close to where we were coming out of last year. Last year, we were around $320 million of opening backlog left going -- you project it to be left going into '22. So not a big difference here in terms of what we have in backlog going into the next year. So all I can say is it's, like every other year, it's important for us to go in new business. There is new business in the pipeline, and we expect to succeed at getting that in support of '23 and beyond.

Our next question will come from Thanos Moschopoulos with BMO Capital Markets.

Dan, there's obviously a lot happening geopolitically. Can you provide some color as to what that does for the book-to-ship business? I mean, are most of your defense customers simply covered through their existing contracts? Or is that a key driver of incremental book-to-ship business?

Well, as you know, Thanos, it's not just book ship business, but there's also access business layered on top of that. In the past, we have seen benefits from geopolitical events of the type we're seeing now heating up, and we may see some from that. But we're also fairly capacity constrained right now. So we'll have to see how that plays out. We've been -- as with the assets the way they're designed, they've been in very high demand in this type of activity. And I think that's a good signal for us that we're doing the right thing for our customers, both with the assets we have on orbit, which are the best constellation in the world right now, as well as the capacity and type of capacity we'll be adding with the Legion Constellation. But I guess beyond that, the products that we've also been -- we do have some upside from the types of products we've been developing. So the 3D sensor-to-shooter applications have been in very high demand, and we've been ramping up production there. So we can see some upside there even as we don't have satellite capacity to benefit the current situation.

Okay. Great. And just to focus on the services business. Has that been kind of constrained for growth just given its kind of a headcount kind of business where you might be hiring constrained? Or what kind of growth do you see in that part business?

Yes, that's been a little more challenging lately. It had less to do with it being related to headcount, although I think all services companies face that to some extent. It's been more impacted, I think, across the board by the fact that we're in a continuing resolution. It's harder to get the new programs up and running, going there. But I guess what I'd say is we've been really successful, and even as revenue has been a little light there, the types of business we're winning which are architecturally right in line with our strategy, especially as that relates to some of the other big programs we've got like One World Terrain and those kind of analytics programs have been really, really positive. And again, it's a low-margin business. So as revenue goes up and down there, it doesn't impact the bottom line as much as you'd see in the rest of the Earth Intelligence side of the business.

Okay. Great. Then finally on the timing of the EOCL contract. Is that going to be dependent, to a large extent, on the timing of the overall U.S. budget and if and when they get fast? Or any greater color you can put on that?

Yes. So I'll talk about our understanding with everything. We're not in the government. But our understanding is that the extension of the current program is not a new start. So that the continuing resolution that's underway now is not impactful if you wanted to continue at those levels or the budget amounts that they're working with now. So we're -- the award could drop at any day. We're not aware of any holdups. Now we do believe we're well positioned for potential upside scenarios, and those are probably more dependent on the full appropriation bills being passed to be able to fund at those levels. And the numbers that have been put into the budget by the House and the Senate are very -- for commercial imagery, for the commercial aspect of this, are very -- we're very positive about that. We think the investments we've made, not just in the current constellation, but what we're doing with Legion, our secure operations and our long track record of performance are very positive. And so we'll -- nothing holding up right now, but upper positive scenarios might depend on the full budget for that.

Next question will come from Peter Arment with Baird.

Dan, maybe just to circle back on just to make sure we understand the Legion kind of the move here and obviously, Omicron. But just maybe if you could just go through the adding the third launch to the manifest kind of the derisking, just kind of the key points on why you did that and why it, ultimately, I think, probably going to be helpful.

Yes. We continually assess all of our programs here at the company, and we continually assess what impacts could be on our customers of downside type events happening. And as we took a look at that, we thought we want to further derisk the program. These are critical assets for our customers, national security and intelligence customers as well as technology customers that rely on this for their business case and their product development. And we thought it was appropriate to further derisk the program at this point. This provides better mission assurance for shareholders and our customers, the better mission assurance for us. And the cost is in the numbers that we gave out. So it's all contemplated in the '22 and '23 guidance we've given. We think the business supports it, and we think it's the right thing to do.

That's helpful. And then maybe just quickly and maybe if you could just give us a further update on how Vricon, the growth is going as we think about 2022, I know you've had a lot of success with kind of rolling that out.

Yes. We're really excited about that being part of our product portfolio. It's being integrated into many of the other things we're doing. And that was obviously a very strong contributor to the $100 million of product growth we saw this year. And a big reason we think it's appropriate to be investing back into the business for our product suite, for the 3D-type capabilities, for the enterprise customers as well as the government customers that are coming to rely on that. So we're excited about it, and we don't see anything slowing down. In fact, we're -- part of those investments are to double the amount of 3D production we've got going into our base case this year.

Our next question will come from Ken Herbert with RBC.

I wanted to see if I could just follow up on that. On the growth you saw in the products business, it seems like that was a source of upside to maybe better than expectations as you headed into this year. What should we think about in terms of the opportunity to -- for similar type of upside or growth in that business here in '22? And how are you seeing pricing or margins in the products evolve here as you start to capture more growth?

And I'll let Biggs chime in on this as well. He's got a lot of the details behind the numbers. But look, the $100 million of product growth, the 26% CAGR growth we saw in the enterprise side of the business are being driven by the investments we've made in the high quality of the products. We've had margin expansion throughout the year. So I think as you're seeing that we've held up pricing power pretty well as we rolled those products out into the market. And as Biggs gave out the '22 and the '23 guidance, we do expect to see product growth moving -- continuing strongly into the future, which is why we're making the decision to keep investing into it for our customers.

Yes. So it is possible that has the same kind of growth in product in '22 that we had in '21. So that's certainly one of the potential drivers in our overall range. So as Dan says, it's very worthy of the investments we're making, and we have high expectations over time for continuing to -- having that continue to be a big driver of long-term growth.

I think one thing I'd note on top of that was it was really broad-based growth as well. It wasn't just sector-specific. It was across the U.S. government, International Defense and Intelligence, our enterprise customers, which really are who's who of technology. And we saw really solid adoption of that 3D type of technology and increased usage of it. A great proof point that we've talked about before is the One World Terrain program with the U.S. Army. That's underwriting a lot of the types of technology we've been developing, but also where we see the future of this propagating across a very important customer like the U.S. government.

Yes, the $100 million, just to make -- is more than just 3D. So it's not the only thing that we're working on and the customers are relying upon and showing greater demand for.

That's great. I appreciate all the color there. If I could, on Space Infrastructure, as you continue to push diversification and civil and maybe national security customers there, can you just talk about how the pipeline of opportunity is changing, maybe what we should watch out for in the next few quarters, either in terms of bookings there or other ways we can think about better monitoring your progress and success as you look to diversify the Space Infrastructure segment?

Yes. And we've got a very solid commercial business to start with, and there's a replacement CapEx cycle going on. So I don't want people to not think about that as part of how we're thinking about our space business as well. Really important commercial customers. And we've been developing the technology speed and efficiency, including high throughput and other types of satellites to be able to continue to compete there. When we started talking about how we were moving into the defense and intel market, we talked about it as building on success of our summer programs, and we always said it would be a 3- to 5-year story. We're a couple of years in at this point. We've been booking really good study contracts. We've been getting really good feedback from customers. And we've also really importantly, I think, been getting noticed by the other primes. So we will see, as part of this, more partnering with other prime contractors going forward. And that will help as we underwrite [IRAD] and continued investment in that side of the business. In terms of milestones and when we get to that, [they’re lined as] 1/3, 1/3, 1/3, I think. It's going to be a little lumpy as we get there, but we do expect to see some wins this year, and hopefully, we'll be able to announce those in the near future.

And our next question will come from Matt Sharpe with Morgan Stanley.

Biggs, I just wanted to talk a little bit about the cap stack and how you're thinking about that at this point in time. You've got a cash flow profile now and there's probably some opportunity here to refi or reduce debt potentially in 2022. But just overall, what's the strategy at this juncture? And could there be some upside here in 2022 as a result of it?

Yes. So actually, I'll let Jason chime in here. As Dan has already commented, we're still focused on delevering, first and foremost, over time and getting the leverage down to the 2 to 3 turns kind of level. There is opportunity continuously to improve the cap structure as we go through time other than that. But I'll let Jason...

All right. Thanks, Biggs. Yes, as you can expect, we can't really comment on the timing of such things, but I think it's pretty clear if you're looking at some of our debt securities that are out there. Today, our notes are trading pretty tight, suggesting that there's an opportunity here for us to improve our cost of capital. And I suspect, given what Dan had to say at the outset of the call here that we're going to be looking to shore up some of these near-term maturities, particularly given the higher coupon rates that we see on some of those and afford ourselves an opportunity to reduce our overall cost of capital. And as we look out to the future, that 2 to 3 turns is big focus item for us at this point. We've all committed to getting to that level and then coming back to you all and assessing where we go from there and looking at our -- both our organic and inorganic opportunities at that point. So more to come. It's certainly a big focus item for us and something we put in our own internal expectations to get some work out on that.

Got it. That's very helpful. And then, Dan, you've made some nice progress here on signing customers up for Legion and preparing the ground infrastructure ahead of the launch of the constellation. Just given that progress, how should we think about the speed at which you can ramp revenue on the first 2 satellites? And is there any sort of indication of how much capacity is either sold or sold out at this juncture for those satellites?

Good question. We try not to give too much specifics about which customers and exactly what the size of those contracts are. But the -- we did announce we've had already 2 capacity sales with other countries, and many more have been upgrading their ground infrastructure. Huge kudos to our team here, but our ops team's got a ground infrastructure work done even during COVID. They traveled to a lot of places around the world and got everything ready for Legion. So that's been on track and a really important piece of work we got done last year. We're seeing strong demand signals. The sales and marketing teams are, of course, at work. And some of that's modeled into the '22 and '23 numbers that Biggs gave. But assuming some level of Legion-derived growth this year, it's quite -- the guidance range is probably just a little wider than normal. But we're seeing some really, really positive signals here. We've got to complete the programs, get them checked out on orbit and get them producing revenue as expeditious as we can at this point.

Our next question will come from Pete Osterland with Truist Securities.

In Space Infrastructure, in the past, you've referred to a target of potentially getting to a level of 10% margins in the segment. Is that still the goal? And where do you see additional opportunities to expand margins in the segment beyond the expectations you set for '22 and '23?

Yes, that remains the goal. Obviously, depending on the program mix we get and the timing of it and how well the business is performing, it's a little bit lumpier going through. We always said the first piece in the turnaround was to get to breakeven. And then we drove from there. I think we've had some good program mix as newer programs have come in and some harder performing programs that started rolling off. And so we've seen some of the margin expansion there. We're going to be watching that really closely as we got into the future here, particularly as we think about what types of programs we bid for and how aggressively we work on what we want to do there. But a 10% business is pretty close to what our competitive sat does out there. We think there are some great trends in our favor with the investment space, both on the commercial side and then the national security infrastructure. And that should provide a sort of a nice backwind as we look to capture more business and increase the performance of the business.

I think we showed -- as I said in my comments, with good business base and mix, we can be at 10%. But we've also, in the guidance for '22 and '23, talked about being under that, driven by a little lower volume, especially in '22, and some mix shifts. So it is going to vary with volume and mix. But as Dan said, getting to 10% stays the objective. That's what we think the long-term target should be, 10% or better.

Yes. And I'd also note that in '22, we're investing $10 million back into the business that's flowing through this year.

Yes, makes sense. And then just one more. In the current geopolitical environment, I just see that there's been a lot more press lately involving satellite imagery, including specifically calling out the provider, whether it's Maxar or a competitor. I'm just wondering, have you seen any meaningful change in the competitive landscape as a result of this? And have there been any new opportunities or benefits potentially on the commercial side for Maxar, just given the increased visibility?

Well, first, kudos to Colleen Campbell, our Chief Marketing Officer and the News Bureau team, as I mentioned in my remarks, and that's led by Steve Wood here. They've been doing an awful lot of round-the-clock work helping answer people's questions, help do analysis, help explain what's going on and why the satellite imagery, what's contained in that, and they've been doing a lot of mission update reports. So that's been really helpful. It has, I think, done a great job of continuing to highlight the importance of the types of services and products we provide as well as the quality and accuracy of the data that we're doing. And it matches really well into our ESG initiatives, providing transparency in the current situation. So it's been -- while the situation itself is tough, it's -- I'm really proud of the way our team has been responding there and help them solve those kind of hard questions.

And our next question will come from Chris Quilty with Quilty Analytics.

Put me back in the queue again. A question on the Legion program cost. I know you gave CapEx for next year, which is helpful, but obviously, there's a lot rolled into that. We had a $30 million plus op that's already been added to the program just due to COVID delays. And now the incremental SpaceX launch costs, which list price is $50 million for a reused one. Should we assume that, that's incremental on top of the overall CapEx program, which I think when we initially started it, Legion was sort of positioned as being 1/3 less CapEx intensive than the legacy WorldView programs. Is that still the goal or we can't get quite there? And maybe just as an add-on on the launch, is it fair to assume since you're going to, I think, a 53 inclination that you can probably do rideshare on that, maybe with some Starlinks or somebody else to mitigate costs?

Why don't I take the back part of that first, and then I'll let Biggs answer the CapEx piece. One feature of derisking the programs we actually get to revenue orbitology faster with the mid-inclination launches. So that's an important feature here. And so we're excited about that. That helps us solve customer problems faster. There are rideshare opportunities here. We'll be the primary customer on our own launch, as we like to handle them that way, and there's enough mass of the 2 Legion satellites to be that prime spot. But if we have some other things or we're working with some partners, kind of like sometimes we traded imagery for value in the past, trading some capacity on launches in terms of other third parties we're working with where it makes sense for us strategically, that's much more exciting to us than just a monetary transaction. The other probably just kind of piece side I’d note there, as you talk -- before Biggs talks about CapEx levels is, these are the first 6 Legions. And programs and NRE, in the first-of-its-kind space program, always take a little more upfront. But for future Legions, we don't have to repeat the NRE. We don't have to repeat software development. We've got test equipment procured and in operation. And so the future cost of the Legion Constellation will be much more in line with what we originally thought as we move forward here. But overall, yes...

Okay. There's -- I mean there's probably few different things to say around the question you had. First off, in terms of total program cost with the third launch and a little bit further delay here. The total program cost is over $700 million, excluding capitalized interest. Having said that though, it doesn't change what we think recurring cost would be for additional Legions in the future. I think it's just a very important point to make. So when you talk about the efficiency of producing Legions and what that means for the long term, that still stays intact. The -- in terms of the cost growth and how it's affecting our guidance, if you want to look at it this way, there's, I think, about $80 million increase in '22 over '21 in terms of CapEx. About $60 million of that will be associated with the timing on Legion, the shift from '21 to '22 and combined with the third launch cost. Another factor on CapEx growth is the additional product CapEx that I think I referred to we would have in '22 as a result of our investments there. I talked about $20 million hitting expense, but there's $10 million in CapEx. And then we haven't talked about it, but there's another $10 million we're spending on long lead for Legions 7 and 8. We've talked previously about having spares on the ground. We're not going that route as having spares on the ground for future growth. But we did think it made sense to go ahead and a best long lead in the event that the demand would be there for 7 or 8 sooner than we anticipate, but it's efficient overall to go do that. So that, if you will, is the combination of things driving CapEx in '22. I'll just note one more thing before I stop talking and that is that there's a little bit of CapEx trickle over on Legion into '23. So even if the launches all occur this year, there's some trailing cash in '23 that has really been the reason why '23's CapEx is a little bit higher than what we had said before. So that -- hopefully, that's the whole waterfront that I covered there in that answer.

Good. I wanted to switch back over to the Space Infrastructure business. You've got a big nut in the C-band satellites moving through the satellite. And as those exit on a pretty defined schedule that your customer needs to hit, can you give us a sense of what that looks like in terms of the roll-off of that program, both when it happens and magnitude of roll off? And when you think about filling the pipeline, obviously, you're investing more in small sats. But on the GEO side, it's a lot more challenging from the perspective that most of the traditional GEO operators aren't really buying many GEO satellites anymore. And the one that has been, Intelsat, one of your best customers, has made their last 4 orders from your European competitors, in part, because you lack a digital payload. So is there some point at where you need to make that investment in a digital payload? Or do you shift more of your effort into the LEO game where there's arguably a much bigger open field?

Chris, this is Jason. I'm just going to start it off on the timing of C-band and some of the dynamics around backlog. That was -- we trust that with the first questioner, I believe, and Biggs walked through some numbers, I'd certainly refer you back to that. And the amount of backlog that we're going to use on the guidance this year is in line with what we've seen historically. The amount of backlog that we're carrying in the -- outside of the current year is in line with what we've seen here over the last couple of years. And the business development team here is pretty focused on, like they have over the last couple of years, making sure that they are continuing to build up backlog throughout the year. So there's -- and note, I don't think we ever want to give you a date certain or a quarter certain on the delivery of a -- a group of satellite. But I'll just kind of give you that backlog and keep that in the back of your mind. This year is shaping up pretty similar to what we've seen here over the last couple of years and go back to the details -- the specific details that Biggs gave with that first question. I'll hand it back over to Dan for some of the other questions.

Yes. And there was a lot to unpack, so if I missed something, I'm happy to come back at it. But I kind of remind everybody from my remarks that we are working 15 satellite programs through the facilities in Palo Alto this year. And that's everything from the 6 Legions through the C-bands through NASA programs and big stuff like JUPITER 3. And beyond that, we've been winning. We've got to keep winning to keep the facilities at capacity the way they are this year. But things are humming there. It's standing room only in a lot of places. And the test equipment, everything is run pretty hot right now, which is good to see. I think maybe just kind of talking about the future that you talked a little bit about a recap of current constellations versus software-defined payloads versus [PLEO] or those types of constellations or other defense-type missions. And we're continuing, I think, to invest in where we have discriminating capabilities, we've got solutions that are with -- through our partner ecosystem for software-defined satellites. But we're seeing some customer -- continued customer demand as the replacement cap gets CapEx gets done for the power platforms they need and the efficiency of current technology as well. So I think it will continue to be kind of a mix of stuff. And I don't think it's going to everybody over on one side of the field versus the other side of the field. We're going to continue to make the investments where we think it best supports the business case and the value for our customers and shareholders.

Fair enough. And if I can throw one final question. Two of your emerging competitors in the EI side of the business have recently scaled back on their constellation plans. When you look at your future business model, do you have any concerns around the demand environment that would cause you to look at your capacity requirements? Or do you see all full steam ahead?

Boy, I'd say, from our chair here, the demand environment remains very strong. And that gives us a lot of confidence in the Legion Constellation plus future constellation ideas that we might have going forward. And there's growth capacity, there was always some replacement capacity as well. I think the most interesting thing we're seeing off that, Chris, is not just the satellite capacity itself, image by image or strip by strip or broad area collect by broad area collect, but how that's feeding the product investments we've been making. So analysts and AI-ready data, the global EGD and SecureWatch-type platform infrastructure, the 3D modeling in the point cloud. And they're not just pretty pictures, right? These are the hyper accurate global solutions for 3D point clouds that are unique to Maxar right now. And all of that satellite data is speeding that engine and then the analytics that come out the other side of it. So -- we're really excited by that. The data quality and accuracy and timeliness of that very much matter. And so where we're seeing -- the satellite capacity questions, it's mostly like how does that feed that chain and get answers to people on a more timely basis to solve mission or commercial needs.

Operator, we've exhausted our time for questions. So at this point, I'm going to thank both you and the listeners and participants on the call today for joining us. I certainly look forward to interacting with all of you on our next earnings call. And if we have the opportunity to cross paths between now and then, obviously, we look forward to that as well. Operator, back to you to wrap it up.

And that will conclude today's conference. Thank you for your participation, and you may now disconnect.