Second Quarter 2018 Earnings Call. July 31, 2018

Transcription

1 Second Quarter 2018 Earnings Call July 31, 2018

2 Key elements of our strategy Continued growth in Imagery and Services New products for International government and Commercial customers Leverage GBDX cloud-based imagery platform and advanced AI capabilities Extend market lead with WorldView Legion constellation Return to growth in Space Systems Attractive U.S. Government space programs pipeline with Security Clearances in place Expand SmallSats product lines for commercial and government applications Leverage growing Canada space and defense pipeline Marginalize impact of the GEO Commsat market declines Deliver revenue and cost synergies International government and commercial satellite/imagery combinations Integrated optical and radar imagery products and cross-sell Take advantage of scale cost reductions in procurement, real estate, public company expenses Implement enterprise shared services for marketing, IT, accounting, human resources Improve free cash flows with priority to pay down debt and reduce leverage Improve operating cash flows across the businesses Increased near-term capex required for WorldView Legion construction 2

3 Recent noteworthy announcements Biggs Porter appointed Executive Vice President and Chief Financial Officer Telesat LEO Selected with consortium partner TAS for design phase Janus Geography win in Services segment first of long-term opportunity set Engaged employees driving workplace awards, including Forbes 500 mid-sized companies Foreign private issuer test / domestication update Settlement with preferred shareholders 3

4 Q2 summary Pro forma revenue down 4% y/y, in-line with expectations GEO communications and RCM program revenues down ~18% y/y Remainder of business up ~5% y/y Pro forma Adj. EBITDA margins declined 140 bps y/y to 29.6% Adj. EBITDA margins up 60bps when adjusted for the timing of investment tax credits Pro forma Adj. EPS of $1.22, down $0.02 y/y Backlog stands at $3.05B Includes $105M in burn-down of multi-year US Government Imagery contract 1 st Half book-to-bill of ~0.95 Adj. free cash flow consumption of $34M in Q2-18 vs. consumption of $58M in Q1-18 Full year revenue and adj. cash flow from operations reaffirmed; Adjusted EPS expected at high end of range 4

5 YTD summary YTD Pro-forma Revenue and Adj. EBITDA Margin* $1,191 $1, % $1,137 Pro forma revenue down 4.6% y/y, in-line with expectations GEO communications and RCM program revenues down ~25% y/y Remainder of business up ~9% y/y $900 $600 $ % 31.6% YTD 17 YTD 18 Pro forma Adj. EBITDA margins expanded 90 bps y/y to 31.6% Pro forma Adj. EPS up 11.6% y/y * In USD Millions. YTD is pro forma as if DigitalGlobe had been combined with the company since January 1, YTD Pro forma Adj. EPS** $3.00 $2.69 $2.50 $ % $2.00 $1.50 $1.00 $0.50 YTD 17 YTD 18 **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 5

6 Q2: Key accomplishments and order activity Imagery segment 72 nd consecutive month meeting performance criteria on USG Enhanced View (EV) contract NGA noticed intention to renew the EV contract providing the 9 th year of funding International Defense & Intelligence demand signals remain strong across product portfolio New Commercial products and partnerships: EarthWatch, CGIAR Agriculture Service segment Janus Geography win on $920M IDIQ contract vehicle Several classified wins across the US Intelligence Community Product development continues in order to address new markets, including commercial and IDI Space Systems segment Neptec acquisition to bolster space robotics and sensors position and drive international growth Telesat LEO design and risk management award Development work continues on Jupiter 3, RSGS, Restore-L, Dragon-Fly and WorldView Legion 6

7 Q2 financial results $700 $600 $500 $400 $300 $604 Revenue* Adj. EBITDA* and Adj. EBITDA Margin $200 $187-4% $579-9% $171 $ % 29.6% $100 $50 $200 2Q17 2Q18 2Q17 2Q18 * In USD Millions. 2Q17 is pro forma as if DigitalGlobe had been combined with the company since January 1, Revenue driven by growth in Imagery offset by declines in Space Systems and Services Adj. EBITDA Margins driven by growth in Imagery offset lower Space Systems revenue and timing in recognition of investment tax credits 7

8 Imagery Q2 results Revenue growth driven by International Defense & Intelligence demand for core imaging and elevation products and from Commercial customers Margin expansion driven by revenue growth and realized integration synergies Received NGA s intention to renew the EV contract providing the 9 th year of funding $250 $200 $150 $100 $50 Q2 Revenue & Adj. EBITDA Margin* $202 +5% $ % 63.8% 2Q17 2Q18 YTD Pro-forma Revenue and Adj. EBTIDA Margins* International Defense & Intelligence opportunity pipeline remains robust $400 $395 +7% $423 Key product releases and partnerships EarthWatch GBDX Notebooks CGIAR partnership in Agriculture $ % 64.8% YTD 17 YTD 18 * In USD Millions. 2Q17 is pro forma as if DigitalGlobe had been combined with the company since January 1,

9 Space Systems Q2 results Gross revenue driven by lower y/y GEO Comsat and RCM program revenue, partially offset by increases in Small Sat and US Government revenue GEO and RCM combined down ~18% Total segment up 34% ex-geo and RCM Significant growth in SmallSats and USG $400 $350 $300 $250 $200 $150 $100 $50 Q2 Revenue and Adj. EBITDA Margins* $340-3% $ % 12.8% 2Q17 2Q18 Adj. EBITDA Margins driven by lower revenues and timing differences in the recognition of investment tax credits Telesat LEO and several government awards, including for the Canadian Space Agency, the US Air Force, and NASA Acquired Neptec to bolster space robotics leadership and international growth opportunities $700 $600 $500 $400 $300 $200 $100 YTD Pro-forma Revenues* and Adj EBITDA Margins $ % -9% $ % YTD 17 YTD 18 * In USD Millions. 2Q17 is pro forma as if DigitalGlobe had been combined with the company since January 1,

10 Services Q2 results Revenue driven by unfavorable timing of US Government contract modifications Margins driven by mix of fixed-price and cost-plus contracts Janus Geography win first of long-term opportunity set Other wins include classified work to provide software development, engineering services, and social cultural analysis Product development effort for International and Commercial markets continues; 2H18 launches expected $80 $70 $60 $50 $40 $30 $20 $10 $150 $100 $50 Q2 Revenue and Adj. EBITDA Margins* $69-3% $ % 10.4% 2Q17 2Q18 YTD Pro-forma Revenues* and Adj. EBITDA Margins $136 $127 +8% 10.6% 10.3% YTD 17 YTD 18 * In USD Millions. 2Q17 are pro forma as if DigitalGlobe had been combined with the company since January 1,

11 Cash flows Adj. Operating Cash Flow* CapEx and Capitalized R&D $300.0 $50.0 $250.0 $225.4 $200.0 $150.0 $100.0 $50.0 $(50.0) $(100.0) $23.4 $32.7 $19.8 $49.0 $(24.3) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 $(50.0) $(100.0) $(25.7) $(23.7) $(21.3) $(55.9) $(77.5) $(82.7) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 * In USD millions. Defined as cash provided by operating activities, excluding acquisition/integration expense, less net interest and securitization payments, and other Q2 cash flows driven by DigitalGlobe acquisition offset by working capital Higher CapEx driven primarily by the DigitalGlobe acquisition and construction of WorldView Legion 11

12 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 $3,057 $2,976 4Q17 1Q18 2Q18 Net debt increase driven by short-term working capital requirements Leverage ratio of 4.1 well below covenant restrictions of 5.5 No material debt maturities until 2020 We continue to evaluate balance sheet levers such as securitizing Orbitals and Sale-leaseback to reduce leverage * In USD millions 12

13 Financial outlook 2018 Total Revenue Growth -4% to -2% Imagery 5% to 7% Space Systems -4% to -2% Services 8% to 10% Total Segment Adj. EBITDA Margin ~ 33.0% Imagery ~ 64.0% Space Systems ~ 15.5% Services ~ 11.5% Corporate Expenses (in millions) ($31) to ($35) Net Interest Expense (in millions) ($195) to ($200) D&A (excluding acquisition amort., in millions ) ($185) to ($195) Adjusted EPS $4.65 to $4.85 Adj. Operating Cash Flow* (in millions) $300 to $400 Capital Expenditures (in millions) $300 to $350 Tax Rate 13% to 15% Avg. Diluted Sharecount (millions) ~ 58.5M * Cash provided by operating activities, excluding acquisition expense, less net interest and securitization payments, and other 13

14 Caution concerning forward looking statements This slide presentation and associated earnings release, conference call and webcast, which includes a business update, discussion of the second quarter 2018 financial results, and question and answer session (the Earnings Release ), may 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 the opinions and estimates of management as of the date such statements are made and represent management s best judgment based on facts and assumptions that management considers reasonable. 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 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 or government agency mandates, or funding levels through agency budget reductions, the imposition of budgetary constraints, failure to exercise renewal options, or a decline in government support or deferment of funding for programs in which the Company or its customers participate; 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; the risk that security clearances or accreditations will not be granted to or maintained by certain U.S. subsidiaries of the Company subject to the requirements of the National Industrial Security Program Operating Manual or other security requirements, which is a prerequisite for their ability to obtain and perform on classified contracts for the U.S. government; the loss or damage to any of the Company's satellites; delays in the construction and launch of any of the Company's satellites; the Company's ability to achieve and maintain full operational capacity of all of its satellites; interruption or failure of the Company's ground systems and other infrastructure; 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; 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; significant competition with competitors that are larger or have greater resources, and where foreign currency fluctuations may increase competition from the Company s non-united States 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 United States 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 Canadian and U.S. securities regulations; exposure to fines and/or legal sanctions under anti-corruption laws; the Company s ability to attract and retain qualified personnel; reliance on information technology systems and threats of disruption from security breaches and cyber-attacks; the Company s ability to receive satellite imagery, including from third parties for resale and performance issues on the Company s on-orbit satellites; potential infringement of the intellectual property rights of others and inadequate protection of the Company s intellectual property rights; 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; uncertainty in financing arrangements and failure to obtain required financing on acceptable terms, or credit agreements may contain restrictive covenants which may be limiting; risks inherent with performance on fixed price contracts, particularly the ability to contain cost overruns and schedule delays; 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-united States customers; exposure to foreign currency fluctuations, interest rates, energy and commodity prices, trade laws and the effects of governmental initiatives to manage economic conditions; natural disasters or other disruptions affecting the Company's operations; failure to comply with environmental regulations; insufficient insurance against material claims or losses; and general business and economic conditions in Canada, the U.S. and other countries in which the Company conducts business. 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; the Company incurred substantial transaction fees and costs in connection with the acquisition; 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. You are referred to the risk factors described in Maxar's most recent annual and quarterly Management's Discussion and Analysis, Annual Information Form and other documents on file with the 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 forward-looking statements and information contained in this earnings release and the associated conference call and webcast represent Maxar s views only as of today s date. Maxar disclaims any intention or obligation to update or revise any forward-looking statements, whether because of new information, future events or otherwise, other than as required by law, rule or regulation. You should not place undue reliance on forward-looking statements. 14

15 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. 15

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

17 Reconciliation of non-ifrs measures Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q ($ millions) Net (loss) earnings (18.6) Items affecting comparability: Share-based compensation (recovery) expense 10.6 (1.3) (3.9) (2.3) Amortization of acquisition related intangible assets Acquisition and integration related expense Interest expense on dissenting shareholder liability Loss from early extinguishment of debt 23.0 Restructuring and enterprise improvement costs Foreign exchange differences 2.6 (1.1) (1.3) (0.3) (10.0) (0.1) 5.4 (1.5) Loss on sale of subsidiary Settlement with preferred stockholders 3.2 Equity in (earnings) loss from joint ventures, net of tax (2.8) Recognition of previously unrecognized deferred tax assets (122.4) Income tax expense adjustment (16.0) (20.2) (51.3) 0.6 (1.1) (2.0) 5.4 (1.3) Adjusted earnings Net finance expense Depreciation and amortization Income tax expense on adjusted earnings Adjusted EBITDA 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. 17

18 Reconciliation of Adjusted Cash Q Q Q Q Q Q Cash provided by operating activities per Statement of Cash Flow (20.1) Less: Cash interest (7.2) (8.8) (9.2) (15.3) (54.3) (44.1) Less: Securitization of liabilities (5.2) (5.7) (5.1) (5.7) (5.4) (3.7) Add: Interest on dissenting shareholders Add: Disposal of ST investment Add: Decrease in restricted cash (1.2) Add: Integration costs paid Add: Others (0.6) 0.8 (1.9) Adjusted Operating Cash Flow (24.3) Less: Capital Expenditures (25.7) (23.7) (21.3) (55.9) (77.5) (82.7) Adjusted Free Cash Flow (50.0) (0.3) (57.7) (33.7) Dividends (10.0) (10.1) (11.0) (16.3) (16.2) (16.1) Less: Interest on dissenting shareholders (4.9) Add: Repayment of note receivable Borrowing of debt , Investment in DigitalGlobe (2,273.0) - - Acquisition/integration costs (6.5) (4.8) (9.1) (81.0) (7.9) (4.7) Change in Cash per Statement of Cash Flow (6.0) (10.0) 18

19 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. 19