fourth quarter 2018 earnings calls22.q4cdn.com/683266634/files/doc_financials/quarterly/... ·...

Fourth Quarter 2018 Earnings Call

February 28, 2019

2

DAN JABLONSKY

President and CEO, Maxar

3

What we will cover today

▪ 2018 financial results

▪ Update on leverage, liquidity and cash flows

▪ Resolution of the go-forward plan for our GEO Comsat business

▪ Our new operating model: leaner, better able to serve customers and unlock the value in our combined businesses

▪ Expected synergies and cost-outs resulting from these changes

▪ An update on WV-4 and how we are proceeding to serve customers

▪ A high level view of our strategy evolution and outlook for the future

4

Summary

CEO Observations

Business Strengths

▪ Imagery: Solid underlying demand across both government and commercial markets

▪ Services: Robust demand, low capital intensity, margin expansion opportunities

▪ MDA Canada: Solid franchises and continued opportunities for profitable growth

Opportunity for Improvement

▪ Leverage: Too high; committed to deleveraging over time

▪ SSL: Retaining GEO Comsat business in the portfolio; right-sizing to drive profit and cash flow improvements

▪ Running the business: better operational execution and focus on profit / cash growth

Taking Action

Capital Structure

▪ Covenants: Negotiated amendment to credit agreement creating more headroom

▪ Dividend: Reduced dividend to $0.01 saving $60M annually

▪ Asset sales: Land sale in Palo Alto ($70M); continue to right-size portfolio & asset base

Strengthening the business

▪ Revised Operating Model: One Maxar with lean and agile organizational structure

▪ Cost Reductions: Reduce cost structure to offset WV-4 loss and improve profit outlook

▪ Invest in the future: WV-4 replacement capacity and services products to meet demand and drive growth

5

In 45 days we have:

▪ Commenced review of alternatives to deleverage the balance sheet and fix the capital structure;

▪ Reduced the dividend to US$0.01, to preserve cash;

▪ Addressed GEO Comsat with a clear focus for the future: continue to operate on a smaller scale, re-engineer the business to focus on competitive advantage in the 500kg and 1300kg bus lines;

▪ Stopped RSGS, which would not be a good use of capital in 2019;

▪ Initiated full recovery against the loss of WV-4, replaced much of that capacity near term; potentially accelerating WV Legion for longer term replacement;

▪ Significantly restructured operating model to be leaner and more nimble, including almost $60 million in annual cost-out in 2019; and

▪ Evolved our strategy to best leverage our core business and unique assets.

6

Guiding Principles

1. We will pursue our purpose, which is to help our customers build a better world.

2. We are going to work to drive sustainable growth across our businesses.

3. We will seek to pay down our debt over time.

4. We will aim to expand our returns on invested capital each and every year.

5. We will work to create a leading edge, collaborative work environment that allows our team members to do the best, most challenging, and exciting work of their careers.

7

We have resolved the near-term outlook for financing, leverage, cash flows and covenants and have ample liquidity to fund our plan

▪ Received approval from our lenders to amend our credit agreement to provide additional financial flexibility with regard to our consolidated debt leverage ratio.

▪ Reduced dividend from CAD$0.37 to US$0.01 per share providing an additional $60 million in annual cash flow.

▪ Sold a portion of our real estate in Palo Alto with proceeds totaling $70 million, applied to pay down debt.

▪ We are focused on all levers to drive cash flow and pay down debt.

8

We have reached resolution on the GEO Comsat business: the value of the business is worth more to us than anyone else

▪ We will continue to operate the GEO Comsat product line on a smaller scale as part of a streamlined facility to drive improved profitability and cash flow.

▪ We will:

◦ Continue to execute on our backlog with the high level of performance customers expect;

◦ Accelerate growth in new markets, particularly U.S. Government, focused on 1300kg and 500kg bus products; and

◦ Maintain the right footprint and infrastructure to execute on both backlog and new orders, while repositioning the facility for the next wave of state-of-the-art satellites and constellations.

9

Changing our operating model to be leaner, better able to serve customers and unlock the value of combined businesses

▪ Revised operating model moves faster to achieve customers’ objectives and delivers the solutions they need

▪ Restructured the business and leadership team from four business units to one operating company with a separate Canadian business with the following benefits:

◦ Strengthen key customer relationships

◦ Unlock growth opportunities

◦ Increase speed of execution

◦ Improve employee engagement and retention

◦ Achieve further synergies and cost reduction

▪ Moving to a single brand, Maxar, while maintaining the MDA logo and its linkage to Maxar to preserve our Canadian identity

▪ Changes already in effect; new teams already moving forward to implement plans

10

Expect synergies and $60-$70 million in annual cost-outs from these changes

▪ We expect to deliver approximately $60M in cost reductions in 2019, $70M annualized savings.

▪ Includes approximately 4% reduction in workforce.

▪ Is in addition to our previously announced post-merger synergy target of run rate $60M to $120M by the end of the fourth quarter of 2019.

11

Progress on serving WV-4 customers and insurance recovery

▪ WV-4 is insured for $183 million and we have initiated the claim process for the full amount.

▪ We have identified actions to replace the imagery collected by WV-4 and meet as much of the customer commitments as possible, until we have WV Legion in place.

▪ Our investment in WV Legion, is underway, with an expected launch of early 2021, or possibly late 2020.

▪ This next generation constellation will replace the capacity of WV1 and WV2 and provide next generation technologies and a configuration that can be used to address current and expected demand from our customers.

12

We have evolved our strategy to support priorities and leverage strengths

▪ We are evolving our strategy to achieve our goals:

◦ Intensifying our focus on improving capital allocation and capital structure;

◦ Stabilizing the business with the goal of driving profitable growth; and

◦ Changing our operating model with the aim of unlocking capabilities and technologies across our business.

▪ Our strategy leverages Maxar’s unique capabilities:

◦ Deep customer intimacy with USG, Canadian government and ID&I;

◦ Leading-edge talent;

◦ A commercial mindset;

◦ Unrivaled product quality, which goes hand-in-hand with the use of AI to unlock value in our content;

◦ Industry-leading satellite manufacturing capability with track-record of on-orbit success and ability to expand into the USG market; and

◦ Worldwide / regional salesforces.

13

Imagery

▪ Backlog: $1.2B

▪ Unfunded Backlog: $900M

▪ Major Programs:

◦ EnhancedView

◦ Global-EGD

◦ Roughly a dozen DAFs

◦ 400+ commercial customers

▪ Major Pipeline Pursuits:

◦ Legion X

◦ Additional DAFs

◦ Dozens of commercial customers across a multitude of industries

◦ Defense programs

Satellite

Imagery

▪ Native 30cm resolution imagery

▪ Advanced multispectral capabilities including short-wave

infrared (SWIR)

▪ 18-year, 100+ petabyte image archive

Analytics

▪ Scalable cloud-based environment

▪ Machine learning and computer vision algorithms

▪ Multiple content sources, including DigitalGlobe, Landsat,

RADARSAT-2 SAR

Information

Products

▪ Advanced Elevation Suite

▪ Building Footprints

▪ Telco Geodata

Subscription

Access

▪ EarthWatch

▪ SecureWatch

▪ Spatial on Demand

14

Services

▪ Backlog: $246M

▪ Unfunded Backlog: $100M

▪ Major Programs:

◦ SBIR Phase III AI & Predictive Analytics

◦ Classified Intel Mission Support

◦ Classified Space ISR Mission

◦ NGA Janus Geography GEOINT


◦ Classified DoD Predictive Analytics

◦ Classified GEOINT Data Processing

◦ Army Remote Ground Terminal Program

◦ DHS and International Defense GEOINT Production

Sensor & Ground

Modernization

▪ Sensor Modeling & Systems Engineering & Prototyping

▪ Constellation Modeling & Mission Management

▪ Tactical Remote Ground Terminals

▪ GEOINT Processing, Cataloging, Discovery & Access

Data to

Insight

▪ Sensor Data Enrichment

▪ Land Classification

▪ Persistent Change Detection

▪ Automated Feature Extraction & Object Detection

▪ Foundational GEOINT Production

Agile

Intelligence

▪ Interactive Mission Planning

▪ Geospatial Data Visualization

▪ Predictive Analytics

▪ Advanced Tradecraft and Agile Intelligence

15

Space Systems

▪ Total Backlog: $935M

▪ GEO Comsat Backlog: ~$525M (8 satellites)

▪ Noteworthy non-GEO Comsat programs:

◦ Restore-L

◦ OneWeb

◦ Legion

◦ ISS Robotics

◦ Psyche


◦ Canadian Surface Combatant

◦ Legion X

◦ Telesat LEO

◦ GEO

◦ Dragon Fly

◦ Classified Programs

◦ Task orders on SSPEDI

◦ Ovzon

◦ Power Propulsion Element (PPE) for Deep Space Gateway

◦ Canadarm 3 for Lunar Gateway

Communications

Satellites

▪ GEO, MEO and LEO satellites

▪ 100 – 1300 kg

Remote Sensing

Satellites

▪ Earth Observation

▪ Signals Tracking

Radar

Satellites

▪ Satellites

▪ Radar Imagery

▪ Services

Satellite Ground

Stations

▪ Earth Observation ground stations

▪ Optical and Radar Imagery

Robotics

▪ Robotic manipulators

▪ Rovers

▪ Visual sensor systems

Satellite

Components &

Payloads

▪ Merchant antenna and components

▪ Engineering design and production

Defense

Systems

▪ Complex systems engineering, development and support

▪ ISR, EW, Command & Control, Communications

16

Summary – Key Focus Items

▪ Serving customers

▪ Growing business

▪ Reducing costs

▪ Paying down debt

▪ Allocating capital in a disciplined fashion

17

BIGGS PORTER

CFO, Maxar

18

Key items of note

▪ Move to the United States

◦ Effective January 1, 2019

◦ Canadian shares exchanged for US company shares

▪ Move to US GAAP

◦ Reconciliations from IFRS to US GAAP can be found in supplemental document found on the Maxar website

▪ Revised definition of Adjusted EBITDA

◦ Reconciliation from prior presentation in IFRS to revised presentation in US GAAP can be found in supplemental document found on Maxar website

19

Q4 financial results

▪ Revenue down 9% y/y

◦ Driven by growth in Imagery and Services offset by declines in Space Systems

◦ Pro forma revenue declined 10% driven by Space Systems offset by growth in Imagery and Services

▪ Adj. EBITDA1 Margins down 400bps y/y

◦ Driven by lower Space Systems volumes, EAC adjustments and LDs

◦ Adjusted segment EBITDA margins of 20.4% on an IFRS basis vs. 34.7% in 2017 driven in large part by Space Systems

▪ US GAAP EPS of ($16.10) vs. $0.99 in 4Q17

◦ Goodwill impairment: ($636M)

◦ WV-4 Loss: ($162M)

◦ Various SSL-related impairments: ($116M)

◦ Gain on sale of Palo Alto real estate: $33M

$545

$496

$200

$300

$400

$500

$600

4Q17 4Q18

4Q Rev. (in millions) and Adj. EBITDA1 Margin

21%

17%

-9%

1 See supplemental financial information found on the company’s website www.maxar.com

for a definition and reconciliation of these non-GAAP financial metrics.

20

2018 financial results

▪ Revenue +31% y/y

◦ Driven by the acquisition of DigitalGlobe

◦ Pro forma revenue declined 7% driven by Space Systems offset by growth in Imagery and Services

▪ Adj. EBITDA1 margins up 700bps y/y

◦ Driven by DigitalGlobe acquisition offset by lower Space Systems margins

◦ Adjusted segment margins of 29.7% on an IFRS basis vs. guidance of ~32% driven largely by pressure in Space Systems

▪ US GAAP EPS of ($21.76) vs. $1.41 in 2017

◦ Goodwill impairment: ($636M)

◦ WV-4 Loss: ($162M)

◦ Various SSL-related impairments: ($331M)

◦ Gain on sale of Palo Alto real estate: $33M

◦ Adj. EPS of $3.47 on an IFRS basis vs. guidance of $4.05 to $4.10

▪ Book-to-bill of 1.0x for year

◦ Including unfunded bookings for contracts such as the EVFO program that extends to 2023



$1,631

$2,141

$-

$500

$1,000

$1,500

$2,000

$2,500

YTD 17 YTD 18

2018 Rev. (in millions) and Adj. EBITDA1 Margin

22%

15%

21

Imagery – Q4 results

▪ 4Q Revenue growth driven US Government

◦ Full-year pro forma revenue growth of 5% vs. guidance of 6%

▪ 4Q Adjusted EBITDA1 margins down y/y driven by mix and higher overhead

◦ Full year margins of 63.4% on an IFRS basis vs. guidance of 64%

▪ EnhanceView Follow-On (EVFO) through 2023

▪ International Defense & Intelligence opportunity pipeline remains robust

▪ Noteworthy product and contract announcements:

◦ Completed continent wide mapping Mission for PMSA Australia

◦ Ecopia-Tech Corp & DigitalGlobe produce first high-precision US building footprints dataset

◦ Vodafone partnership with DigitalGlobe to Create IoT Precision Agriculture Product

◦ Expanded NASA partnership with new sole-source contract

$200 $213

$-

$50

$100

$150

$200

$250

4Q17 4Q18

Q4 Rev. (in millions) & Adj. EBITDA1 Margin

63.5%

57.3%

$230

$845

$-

$200

$400

$600

$800

YTD 17 YTD 18

2018 Revenue (in millions) and Adj. EBTIDA1 Margins

62.2% 61.3%



22

Space Systems – Q4 results

▪ Revenue driven by higher costs, lower GEO and RCM revenue, partially offset by increases in Small Sat, US Government and MDA Canada revenue

◦ Full year pro forma revenue down 11% vs. guidance of down 9%

▪ 4Q Adj. EBITDA1 margins driven by lower volumes, EAC adjustments, and liquidated damages (LDs)

◦ Full year margins of 7.6% on an IFRS basis vs. guidance of 12% given performance at SSL

▪ 2018 SSL: $821M in Revenue and ($80M) in EBITDA

▪ Noteworthy product and contract announcements:

◦ On-Orbit servicing & space exploration

◦ PSN launch

◦ Two earth observation satellites shipped to be launched

◦ Selected by CSA to design Lunar Rover Concept

◦ Canadian Surface Combatant program progressing

◦ RCM satellites shipped; launch expect in 1H19

$1,270

$1,129

$-

$250

$500

$750

$1,000

$1,250

$1,500

YTD 17 YTD 18

2018 Revenue (in millions) and Adj. EBTIDA1 Margins

11.9%

0.4%

$292

$243

$-

$50

$100

$150

$200

$250

$300

$350

$400

4Q17 4Q18

Q4 Rev. (in millions) & Adj. EBITDA1 Margin

6.5%

(11.9%)



23

Services – Q4 results

▪ Revenue driven by growth in new contract awards and expansion of programs with DOD and the Intel Community

◦ Full year pro forma revenue increased 2% vs. guidance of up 4%

▪ Adjusted EBITDA Margins1 driven by mix toward cost-plus programs in the quarter vs. product / production

◦ Full year margins of 11% on an IFRS basis vs. guidance of 12% given mix in 4Q

▪ Product development effort for International and Commercial markets continues; now in beta phase

▪ New and/or follow-on awards:

◦ NGA contract award for SBIR Phase III program

◦ DARPA award to for next-generation optical telescope system for small satellite constellations

$63 $68

$-

$10

$20

$30

$40

$50

$60

$70

$80

4Q17 4Q18

Q4 Rev. (in millions) & Adj. EBITDA Margin1

15.9%

8.8%

$144

$266

$-

$50

$100

$150

$200

$250

$300

YTD 17 YTD 18

2018 Revenue (in millions) and Adj. EBTIDA Margins1

16.0%

9.4%



24

Cash flows

▪ 2018 Cash from operations on a GAAP basis of $139M

▪ 2018 Adjusted Operating Cash Flow (OCF) on an IFRS basis of $281M vs. guidance of $300M to $400M

◦ Government shutdown caused a delay in payments

◦ Payments have since been received

◦ Adj. OCF would have fallen inside guidance range with prompt government payments

▪ 2018 Capital Expenditures + Purchase / Development of Intangibles on a GAAP basis of $218M

▪ 2018 Capital Expenditures under IFRS of $291M vs. guidance of $300M to $325M

▪ SSL consumed roughly $95M in free cash flow in 2018



$281

$(291) $(400)

$(300)

$(200)

$(100)

$-

$100

$200

$300

$400

Adj. OCF Cap Ex & Cap Development

2018 Adj. Operation Cash Flow / CapEx and Capitalized Development1

25

Liquidity and Debt

▪ Liquidity:

◦ Cash on Hand: $35M

◦ Revolver: $637M

◦ Total: $672M

▪ Net debt down q/q

▪ Leverage ratio of ~4.2x well below covenant restrictions of 6.0x

▪ Maturity schedule:

◦ Oct. 2020: $250M Term Loan A

◦ Oct. 2021: $250M Term Loan A + Revolver ($595M drawn as of 12/31/18)

◦ Oct. 2024: $1.9B

▪ Debt Rating: B1 / BB-

$2,976

$3,057 $3,112 $3,116

$3,040

$2,500

$2,600

$2,700

$2,800

$2,900

$3,000

$3,100

$3,200

$3,300

4Q17 1Q18 2Q18 3Q18 4Q18

Net Debt ($M)

26

Financial outlook – 2019

Other Noteworthy ItemsDepreciation and Amortization: ~$410MInterest Expense: ~$210MTax Rate: ~0%Share Count: ~61M

Amortization on Purchased Intangibles

Enhanced View Deferred Revenue / Imputed Interest

In $ millions

Amortization of acquired intangible assets is based on the period over which the Company expects to

receive benefit from those assets. Assets are generally amortized on a straight-line basis.

In $ millions

2019 2020 2021

$120 $80 $0

2019 2020 2021 2022 2023 Thereafter

$234 $203 $145 $118 $47 $353

Revenue is reported in the Imagery segment and relates to the Enhanced View contract signed in 2010 that

expires in August 2020. There are no material costs associated with this revenue.

Imagery, Services, and MDA

net of corporate expenses>$550M in Adjusted EBITDA1

SSL

Improved EBITDA but higher cash

usage given timing of milestones and

restructuring

CapExHigher CapEx as Legion program

reaches peak spend

Debt Covenant Add Backs

Conversion from US GAAP to IFRS +

several add backs allowed for under

credit agreement

Leverage Ratio for Debt

Covenant Purposes<6.0x



27

Caution concerning forward looking statements

This presentation and associated earnings release, conference call and webcast, which includes a business update, discussion of the financial results as of and for the year ended December 31, 2018, and question and answer session (collectively, the “Earnings Information”), contain certain “forward-looking statements” or “forward-looking information” under applicable securities laws. Forward-looking terms such as “may,” “will,” “could,” “should,” “would,” “plan,” “potential,” “intend,” “anticipate,” “project,” “target,” “believe,” “plan,” “outlook,” “estimate” or “expect” and other words, terms and phrases of similar nature are often intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements are based on certain key expectations and assumptions made by the Company. Although management of the Company believes that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Any such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results and expectations to differ materially from the anticipated results or expectations expressed in this Earnings Information. The Company cautions readers that should certain risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected.

The risks that could cause actual results to differ materially from current expectations include, but are not limited to those set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K which is available online under the Company’s EDGAR profile at www.sec.gov or on the Company’s website at www.maxar.com, as well as the Company’s continuous disclosure materials filed from time to time with Canadian securities regu latory authorities, which are available online under the Company’s SEDAR profile at www.sedar.com or on the Company’s website at www.maxar.com. The risk factors detailed in the foregoing are not intended to be exhaustive and there may be other key risks that are not listed above that are not presently known to the Company or that the Company currently deems immaterial.

The forward-looking statements contained in this Earnings Information are expressly qualified in their entirety by the foregoing cautionary statements. All such forward-looking statements are based upon data available as of the date of this Earnings Information or other specified date and speak only as of such date. The Company disclaims any intention or obligation to update or revise any forward-looking statements herein as a result of new information, future events or otherwise, other than as may be required under applicable securities law.

28

Non-IFRS and non-GAAP measure disclosure

See supplemental financial information found on the company’s website www.maxar.com for a definition and reconciliation of the non-GAAP financial metrics found in this presentation.

29

Thank You

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