Third Quarter 2018 Earnings Call. October 31, 2018

Transcription

1 Third Quarter 2018 Earnings Call October 31, 2018

2 Investment highlights New space leader comprised of four commercial space technology brands serving global government and commercial markets Executing on a clear long-term strategies for growth and value creation Trusted partner with unmatched ability to deliver end-to-end space solutions and meet complex mission requirements Strong end-market tailwinds and investment momentum Robust pipeline of large, actionable, new business opportunities Ample liquidity and ability to generate cash to fund internal growth, capital expenditures, dividends and pay down debt Redomiciling to U.S. by 2019, including adoption of U.S. GAAP accounting Experienced management team, including addition of new CFO 2

3 YTD: Solid progress against strategic priorities 1 2 Continued growth in Imagery and Services Return to growth in Space Systems +6% YTD in Imagery and 0% YTD in Services EnhancedView and Janus Geography awards Commercial and IDI growth USG, Comm l Smallsat, and MDA up +17% YTD USG momentum & Telesat LEO design contract Pursuing strategic alternatives for GEO Comm s LOB 3 Deliver revenue and cost synergies $21M YTD $28M to $30M expected for full-year 2018 On-track for $60M to $120M run rate in 4Q19 4 Improve free cash flow with priority to pay down debt and reduce leverage $161M Adj. Op. cash flow YTD vs. $32M in 2017 Full-year expected at $300M to $400M Continue to expect significant de-levering post- Legion in

4 EnhancedView Follow-on Contract Highlights What the customer is saying Transferred EnhancedView commercial imagery acquisition contract from NGA to NRO Includes a one-year base contract for 2019, with one option year for 2020, valued at $300 million annually Additional multi-year contract award to fund cloud-based infrastructure investments, improving integration and interoperability with customer Commercial imagery is an increasingly important part of satisfying both existing and emerging security and intelligence challenges. Betty Sapp, Director NRO The award of the EVFO is an important first step in the NRO strategy of embracing commercial imagery as a key element of our current overhead architecture and a critical and integral element of our future overhead architecture. Sapp The partnership between NGA and NRO has directly strengthened our nation. For the past eight years, DigitalGlobe via EnhancedView has grown its contributions to NGA s GEOINT service. As the GEOINT Functional Manager, I value how this transition enables our broader enterprise to leverage data analytics and the broad spectrum of emerging commercial GEOINT services. Robert Cardillo, Director NGA 4

5 Business environment US Government Persistent global security threats Rising defense budgets Increasingly seeking to use viable commercial alternatives Imagery and insights in great demand Space is a focus of investment Solid tailwinds with recent wins demonstrating momentum International Governments Persistent global security threats Rising budgets Imagery in great demand and strong funnel of new programs Space is a focus of investment Nascent but growing services opportunities Solid tailwinds with growing pipeline Commercial Strong imagery demand driven by new use cases enabled by AI Space-based remote-sensing pipeline experiencing growth LEO communications programs underway (OneWeb) and in the pipeline (Telesat) GEO communications market remains very weak Core markets healthy and growing 5

6 Key Highlights from Q3 Maxar - US domestication plan targeted for January 1, 2019; shareholder vote set for November 16, Biggs Porter appointed CFO; brings vast experience across multiple industries, including aerospace and defense Imagery Segment EnhancedView Follow-On contract; transition to NRO Awarded multi-year contract by NRO to fund investment in cloud infrastructure Global-EGD contract renewed for 7 th year Awards from DARPA, NASA, GM, and large tech company Introduced EarthWatch product Space Systems Segment NASA program awards Space exploration and highpower electric propulsion On-orbit servicing, assembly and manufacturing DoD program awards Secure satellite communications Missile Defense concepts Small Spacecraft Prototyping, Engineering Development and Integration Lockheed team selected as preferred bidder for CSC program Services Segment Multiple classified awards to develop special communications and collection technologies and other mission requirements Won first two task orders on Janus Geography IDIQ contract vehicle Multi-year award with NGA to develop, prototype & deploy AI capabilities 6

7 Q3 financial results Revenue down 10% y/y Driven by growth in Imagery offset by declines in Space Systems and Services Ex-GEO operations down only 1%; GEO declined by 31% y/y Adj. EBITDA Margins down 470bps Driven by lower Space Systems volumes and EAC adjustments Adj. EPS (2) of $0.75 vs. Pro forma $1.28 in 3Q17 Driven by lower volume and margins offset by D&A and taxes IFRS EPS of ($7.31) vs. $0.34 in 3Q17 Driven largely by $384M impairment and inventory obsolescence charges related to GEO Comsat product-line $600 $500 $400 $300 $200 $400 $300 $200 $100 $0 3Q Revenue and Adj. EBITDA Margin Total Company* $ % 3Q17-10% $ % 3Q18 3Q External Revenue* and Adj. EBITDA Margin* EX-GEO COMSAT 1 $394 $390-1% 41.9% 3Q % 3Q18 2 The Company defines adjusted earnings as net earnings excluding the impact of specified items affecting comparability, including, where applicable, special income and expense items, amortization of acquisition related intangible assets, sharebased compensation, and income tax expense associated with the specified items * In USD Millions. 3Q17 is pro forma as if DigitalGlobe had been combined with the company since January 1, Does not include intra-company sales within the space systems segment 7

8 YTD financial results Revenue down 6.3% y/y GEO down 27% y/y Remainder of business up 4.4% y/y Adj. EBITDA Margins down 90bps y/y Driven by lower Space Systems volumes and EAC adjustments $2,100 $1,800 $1,500 $1,200 $900 $600 $300 $- YTD Revenue and Adj. EBITDA Margin Total Company* $1, % -6.3% $1, % YTD 17 YTD 18 Adj. EPS (2) of $3.44 vs. Pro forma $3.69 in 3Q17 Driven by lower volume and margins offset by D&A and taxes IFRS EPS of ($7.29) vs. $0.98 in 3Q17 Driven largely by $384M impairment and inventory obsolescence related to GEO Comsat product-line Book-to-bill of 0.75x YTD Excluding the burn-down of the multi-year US Government Imagery contract $1,500 $1,200 $900 $600 $300 $0 YTD External Revenue* and Adj. EBITDA Margin* EX-GEO COMSAT 1 $1, % +4.4% $1, % YTD 17 YTD 18 * In USD Millions. 3Q17 is pro forma as if DigitalGlobe had been combined with the company since January 1, Does not include intra-company sales within the space systems segment (2) YTD is pro forma as if DigitalGlobe had been combined with the company since January 1, The Company defines adjusted earnings as net earnings excluding the impact of specified items affecting comparability, including, where applicable, special income and expense items, amortization of acquisition related intangible assets, share-based compensation, and income tax expense associated with the specified items 8

9 Imagery Q3 results Revenue growth driven by demand from International Defense & Intelligence and Commercial customers Margins roughly flat on synergies benefits offset by mix $250 $200 $150 $100 Q3 Revenue* & Adj. EBITDA Margin* $202 +4% $ % 63.5% EV Follow-on contract awarded as service contract transitions to NRO $50 $- 3Q17 3Q18 Global-EGD contract renewed International Defense & Intelligence opportunity pipeline remains robust $800 $600 YTD Pro-forma Revenue* and Adj. EBTIDA Margins* $633 $597 +6% New and/or follow-on awards with: DARPA NASA General Motors Large tech company $400 $200 $- 63.2% 64.4% YTD 17 YTD 18 * In USD Millions. 2Q17 is pro forma as if DigitalGlobe had been combined with the company since January 1,

10 Space Systems Q3 results Revenue driven by higher costs, lower GEO and RCM revenue, partially offset by increases in Small Sat, US Government and MDA Canada revenue GEO down 31% (1) y/y in Q3 Segment +13% (1) y/y ex-geo in Q3 Segment +17% (1) y/y ex-geo YTD 3Q Adj. EBITDA margins driven by lower volumes, EAC adjustments, and supplier issues causing delays US Access Plan is progressing Multiple NASA awards Multiple DoD related awards $400 $350 $300 $250 $200 $150 $100 $50 $- $1,000 $750 $500 Q3 Revenue* and Adj. EBITDA Margins* $299-12% $ % 7.2% 3Q17 3Q18 YTD Pro-forma Revenues* and Adj EBITDA Margins* $981-10% $ % 13.1% Canadian Surface Combatant program progressing RCM satellites shipped; launch expect in 1Q19 1 Does not include intra-company sales within the space systems segment $250 $- YTD 17 YTD 18 * In USD Millions. 2Q17 is pro forma as if DigitalGlobe had been combined with the company since January 1,

11 Services Q3 results Revenue driven by contract transitions with USG and lower volume levels recognized on sub-contractor work Margins driven by mix, particularly lower sub-contactor volumes New awards valued at $180M lifetime $80 $70 $60 $50 $40 $30 $20 $10 $- Q3 Revenue* and Adj. EBITDA Margins* $72-14% $ % 12.9% 2Q17 2Q18 Product development effort for International and Commercial markets continues; 4Q18 launches expected New and/or follow-on awards: NGA develop, prototype and deploy AI capabilities Janus Geography awarded first two task orders Multiple classified awards to develop special communications and collection technologies $250 $200 $150 $100 $50 $- YTD Pro-forma Revenues* and Adj. EBITDA Margins* $199 $ % 11.4% 11.8% YTD 17 YTD 18 * In USD Millions. 2Q17 are pro forma as if DigitalGlobe had been combined with the company since January 1,

12 Cash flows Adj. Operating Cash Flow* CapEx and Capitalized Development $300.0 $250.0 $225.4 $50.0 $200.0 $150.0 $100.0 $50.0 $- $(50.0) $(100.0) $91.9 $23.4 $32.7 $19.8 $49.0 $(24.3) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 $- $(50.0) $(100.0) $(25.7) $(23.7) $(21.3) $(55.9) $(62.7) $(77.5) $(82.6) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 * In USD millions. Defined as cash provided by operating activities, excluding acquisition/integration expense, less net interest and securitization payments, and other Q3 adjusted operating cash flows driven by DigitalGlobe acquisition and working capital release Higher CapEx driven primarily by the DigitalGlobe acquisition and construction of WorldView Legion $161M in YTD Adjusted Operating Cash Flow; $223M YTD in Capex 12

13 Net debt balances $3,300 $3,200 $3,100 $3,000 $2,900 $2,800 $2,700 $2,600 $2,500 Net Debt* $3,112 $3,116 $3,057 $2,976 4Q17 1Q18 2Q18 3Q18 Net debt roughly flat q/q Leverage ratio of 4.3x well below covenant restrictions of 5.5x No material debt maturities until 2020 We continue to evaluate balance sheet levers to reduce leverage * In USD millions 13

14 Financial outlook 2018 Total Revenue Growth down ~6.5% Imagery up ~6% Space Systems down ~9% Services up ~4% Total Segment Adj. EBITDA Margin ~ 32.0% Imagery ~ 64.0% Space Systems ~ 12.0% Services ~ 12.0% Corporate Expenses (in millions) ($38) to ($40) Net Interest Expense (in millions) ($195) to ($200) D&A (excluding acquisition amort., in millions ) ($190) to ($195) Adjusted EPS $4.05 to $4.10 Adj. Operating Cash Flow* (in millions) $300 to $400 Capital Expenditures (in millions) $300 to $315 Tax Rate 11% to 12% Avg. Diluted Sharecount (millions) ~ 58.5M * Cash provided by operating activities, excluding acquisition expense, less net interest and securitization payments, and other 14

15 Summary Executing against strategy Core markets and businesses are growing U.S. government momentum is strong Pipeline of new business opportunities continues to grow Solid operational performance ex-geo Comsat Commitment to de-levering the balance sheet is unwavering 15

16 Caution concerning forward looking statements This slide presentation and associated earnings release, conference call and webcast, which includes a business update, discussion of the third quarter 2018 financial results, and question and answer session (the Earnings Release ), 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, 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 Release. 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: the loss or termination in scope of any one of the Company s primary contracts; the Company s ability to generate a sustainable order rate for its satellite manufacturing operations in a market where the number of satellite construction contracts awarded varies annually; changes in government policies, priorities, regulations, use of commercial data providers to meet U.S. government imagery needs, government agency mandates, funding levels through agency budget reductions, the imposition of budgetary constraints or a decline in government support or deferment of funding for programs in which the Company or its customers participate; changes in U.S. government policy regarding use of commercial-data providers, or material delay or cancellation of certain U.S. government programs; the Company s ability to effectively execute its U.S. government access plan and realize anticipated benefits of contract awards from the U.S. government and failure by the Company to comply with U.S. regulations could result in penalties or suspension and failure by the Company to maintain the relevant clearances and approvals could limit its ability to operate in the U.S. market; certain U.S. subsidiaries of the Company are subject to the requirements of the National Industrial Security Program Operating Manual for their facility security clearance, which is a prerequisite for their ability to obtain and perform on classified contracts for the U.S. government; risks inherent with performance on fixed price contracts, particularly the ability to contain cost overruns and schedule delays; foreign and domestic resellers fail to market or sell the Company s products and services successfully; inability of the Company s limited vendors to provide key products and services; quality issues, failure of systems to meet performance requirements, potential for product liability, or the occurrence of defects in products or systems could result in lost revenue and harm to the Company s reputation; occurrence of delays in obtaining regulatory approvals, satellite damage or destruction during launch, launch failures, or incorrect orbital placement; failure of the Company s satellites to operate as intended; natural disasters or other disruptions affecting the Company's operations and resulting in an interruption or failure of the Company s infrastructure; failure of the Company or inability to protect and maintain the Earth-imagery content stored in its ImageLibrary; loss of, or damage to, a satellite before the end of its expected operational life and the failure to obtain data or alternate sources of data for the Company s products; reliance on information technology systems and threats of disruption from security breaches and cyber-attacks; limited insurance coverage, pricing and availability; failure to anticipate changes in technology, technical standards and offerings or comply with the requisite standards, or failure to maintain technological advances and offer new products to retain customers and market position; potential infringement of the intellectual property rights of others and inadequate protection of the Company s intellectual property rights; significant competition with competitors that are larger or have greater resources, and where foreign currency fluctuations may increase competition from the Company s non-u.s. competitors; changes in regulations, telecommunication standards and laws in the countries in which the Company conducts business; export restrictions or the inability to obtain export approvals; failure to obtain necessary regulatory approvals and licenses, including those required by the U.S. government; a competitive advantage for competitors not subject to the same level of export control or economic sanctions laws and regulations faced by the Company; exposure to fines and/or legal penalties under U.S. and Canadian securities regulations; exposure to fines and/or legal sanctions under anti-corruption laws; the Company s ability to attract and retain qualified personnel; the Company s ability to receive satellite imagery, including from third parties for resale and performance issues on the Company s on-orbit satellites; the Company s failure to raise adequate capital to finance its business strategies, including funding any future satellite; uncertainty in financing arrangements and failure to obtain required financing on acceptable terms, or credit agreements may contain restrictive covenants which may be limiting; failure to identify, acquire, obtain the required regulatory approvals, or profitably manage additional businesses or successfully integrate any acquired businesses, products or technologies into the Company without substantial expenses, delays or other operational, regulatory, or financial problems; the Company s ability to obtain certain satellite construction contracts depends, in part, on its ability to provide the customer with partial financing of working capital and any financing provided by the Company may not be repaid or the Company may be called upon to make payments; certain customers are highly leveraged and may not fulfil their contractual payment obligations, including vendor financing; the risk that the Company will not be able to access export credit financing to facilitate the sale of the Company s communication satellites and other products to non-canadian and non-u.s. customers; exposure to foreign currency fluctuations; failure to comply with environmental regulations; and impairment of the carrying amount of certain of the Company s assets.. There may be additional risks and uncertainties applicable to the Company related to its acquisition of DigitalGlobe, including that: the Company may not realize all of the expected benefits of the acquisition or the benefits may not occur within the time periods anticipated; significant demands will be placed on the managerial, operational and financial personnel and systems of the Company to support the expansion of operations as a result of the acquisition; the Company may not have discovered undisclosed liabilities in the course of the due diligence review of DigitalGlobe and the Company as a successor owner may be responsible for such undisclosed liabilities; and the Company is a target of securities class action and derivative lawsuits and appraisal proceedings which could result in substantial costs. For additional information with respect to certain of these risks or factors, reference should be made to the section entitled Business Risks and Uncertainties of the Company s annual Management s Discussion and Analysis and the notes to the consolidated financial statements of the Company for the year ended December 31, 2017 and the three and nine months ended September 30, 2018, as well as to the Company s continuous disclosure materials filed from time to time with Canadian securities regulatory authorities, which are available online under the Company s SEDAR profile at under the Company s EDGAR profile at or on the Company s website at The foregoing lists 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. Should one or more of these or other risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may vary in material respects from those expressed or implied by the forward-looking statements contained herein. As a result of the foregoing, readers should not place undue reliance on the forward-looking statements contained herein. The forward-looking statements contained in this Earnings Release 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 Release 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. 16

17 Non-IFRS measure disclosure This presentation is based on and demonstrates non-ifrs financial metrics in order to provide more meaningful comparisons. Please see the company s regulatory filings and slides in the appendix of this presentation for a full description of our financial statements using IFRS accounting standards. Adjusted earnings, adjusted earnings per share, adjusted EBITDA, and adjusted free cash flow do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. The Company cautions readers to consider these non-ifrs financial measures in addition to, and not as an alternative for, measures calculated in accordance with IFRS. 17

18 Quarterly Results of Operations Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q ($ millions, except per common share amounts) Consolidated revenues Net (loss) earnings (432.5) (18.6) Net (loss) earnings per share, basic (7.31) (0.33) Net (loss) earnings per share, diluted (7.31) (0.33) Adjusted earnings Adjusted earnings per share Adjusted EBITDA Weighted average number of common shares outstanding: (millions) Basic Diluted Diluted (for purposes of calculated adjusted earnings per share)

19 Reconciliation of non-ifrs measures ($ millions) 1 Excludes interest expense from dissenting shareholder liability. 2 Excludes amortization of acquisition related intangible assets. 3 Excludes income tax expense adjustment related to adjusted earnings. Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q Net (loss) earnings Items affecting comparability: Impairment losses and inventory obsolescence Amortization of acquisition related intangible assets Acquisition and integration related expense Share-based compensation expense Interest expense on dissenting shareholder liability Loss from early extinguishment of debt Restructuring and enterprise improvement costs Foreign exchange differences Loss on sale of subsidiary Legal settlement and provision Equity in (loss) earnings from joint ventures, net of tax Recognition of previously unrecognized deferred tax assets Income tax (recovery) expense adjustment Adjusted earnings Net finance expense Depreciation and amortization Income tax expense on adjusted earnings Adjusted EBITDA

20 Reconciliation of Adjusted Cash Q3 Q2 Q1 Q4 Q3 Q2 Q ($ millions) Cash provided by operating activities per Statement of Cash Flow $ $ 82.0 $ 59.3 $ $ 36.0 $ 26.9 $ (20.1) Less: Cash interest (41.2) (44.1) (54.3) (15.3) (9.2) (8.8) (7.2) Less: Securitization of liabilities 10.6 (3.7) (5.4) (5.7) (5.1) (5.7) (5.2) Add: Interest on dissenting shareholders Add: Purchase of short term investment, interest received and disposal of subsidiary (4.8) Add: Decrease in restricted cash (1.2) Add: Acquisition and integration related expense paid Add: Other (3.1) (1.9) 0.8 (0.7) Adjusted Operating Cash Flow $ 91.9 $ 49.0 $ 19.8 $ $ 32.6 $ 23.4 $ (24.3) Less: Capital expenditures (62.7) (82.6) (77.5) (55.9) (21.3) (23.7) (25.7) Adjusted Free Cash Flow $ 29.2 $ (33.6) $ (57.7) $ $ 11.3 $ (0.3) $ (50.0) Dividends (16.6) (16.1) (16.2) (16.3) (11.0) (10.1) (10.0) Interest on dissenting shareholders - (4.9) Cash collected on note receivable Borrowing of debt , Investment in Neptec and DigitalGlobe (5.9) - - (2,273.0) Acquisition and integration related expense paid (10.8) (4.7) (7.9) (81.0) (9.1) (4.7) (6.5) Change in cash per Statement of Cash Flow $ (3.9) $ (9.9) $ 3.0 $ 7.9 $ 16.7 $ 4.6 $ (5.9) 20

21 Historical pro forma quarterly results Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q ($ millions) Pro forma revenues: Space Systems Imagery Services Intersegment eliminations (9.7) (7.9) (6.6) (6.2) (6.6) (5.2) (5.8) (5.5) Total Revenue Pro forma adjusted EBITDA: Space Systems Imagery Services Intersegment eliminations (1.0) (1.3) (0.6) (1.1) (0.7) (0.5) (0.9) (1.0) Pro forma adjusted EBITDA: Corporate Expense (6.4) (8.5) (10.0) (9.5) (10.1) (8.2) (8.3) (7.7) Pro forma adjusted EBITDA Net finance expense (47.8) (49.1) (50.2) (47.0) (38.0) (36.9) (38.0) (42.1) Depreciation and amortization 1 (56.5) (52.3) (52.5) (50.7) (47.0) (48.0) (50.0) (54.0) Income tax expense on adjusted earnings 2 (13.5) (14.8) (14.3) (13.6) (11.9) (12.2) (12.7) (10.9) Pro forma adjusted earnings Adjusted earnings per share Items affecting comparability: Share-based compensation expense (12.6) (11.2) (7.7) (11.4) (0.1) (2.8) (23.2) (7.0) Amortization of acquisition related intangible assets (57.8) (58.6) (58.6) (58.6) (56.6) (57.1) (56.6) (56.6) Interest expense on dissenting shareholder liability (1.9) (1.9) (1.8) (1.7) (1.7) (1.7) (1.7) (1.7) Loss from early extinguishment of debt (0.5) (35.7) Restructuring and enterprise improvement costs (20.5) (1.3) (4.9) (11.1) (3.8) (3.2) (2.3) (7.4) Executive compensation settlement (2.3) - Foreign exchange differences (5.4) 1.5 (1.7) 2.9 Earnings (loss) from joint ventures (1.1) (0.4) (1.3) (1.3) (0.9) Income tax expense adjustment Pro forma net earnings (loss) (22.5) (5.1) (7.9) Excludes amortization of acquisition related intangible assets. 2 Excludes income tax expense adjustment related to adjusted earnings. 21