Maxar Technologies Inc (MAXR) 2021 Q2 法說會逐字稿

Good day, and thank you for standing by, and welcome to the Maxar Technologies Second Quarter Conference Call. (Operator Instructions) And please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Jason Gursky. Sir, please go ahead.

Great. Good afternoon, and thanks, operator. Welcome to Maxar's Second Quarter 2021 Earnings Conference Call. I'm joined today by the company's Chief Executive Officer, Dan Jablonsky; and its Chief Financial Officer, Biggs Porter. Both will make some opening remarks, after which, we're going to open up the line for your questions. We're shooting to wrap up the call in about an hour.

Before we get started, I'd 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'd like to remind you that part of today's discussion, including responses to various questions, may contain certain 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.

You refer to the advisory regarding forward-looking statements contained in our quarterly earnings releases, earnings call slide decks and the company's most recent MD&A section found in our Form 10-Q, under the company's EDGAR profile at sec.gov or on the company's website at maxar.com.

And with that, I'll hand the discussion over to Dan. Dan, go ahead.

Thanks, Jason, and good afternoon, everyone. This afternoon, I'm going to cover the key highlights from the quarter and provide an update on the progress we're making on our 2021 priorities, including where we are with the Legion program, our next-generation satellite constellation. I'll also spend time providing some context on the company's artificial intelligence and machine learning capabilities as they apply to Earth Intelligence and how we're using them to drive growth.

Please turn to Slide 3 of the accompanying presentation. We generated 16% year-over-year revenue growth in the quarter, excluding the effect of the noncash EV deferred. Of note, Earth Intelligence grew 14% year-over-year despite the fact that we're currently capacity constrained ahead of the Legion launches.

Growth here was driven by sales of 3D products to commercial and government customers as well as solid performance in services to the U.S. government. Importantly, we also saw 150 basis points of adjusted EBITDA margin expansion, excluding EV deferred driven by improved execution in Space Infrastructure.

We recently signed our first Legion capacity sale during the quarter with an international government customer as part of a large multiyear renewal. This follows the 4 contracts we announced last quarter to upgrade customer ground infrastructure to be Legion-ready. We're making steady progress with our business development efforts ahead of the Constellation launch.

Next, we also received our 11th renewal of the EnhancedView program with NRO for the period starting September 1 of this year. As a reminder, we've been a trusted partner of the U.S. government for nearly 20 years, delivering commercial capabilities with superior quality, cost, security and reliability on the current EV program and its predecessors.

We're proud to support the U.S. government mission and look forward to continuing to work with the NRO as they increasingly adopt commercial imagery. We continue to perform well in this program, a track record, we believe, sets us up nicely for the upcoming EOCL competition, which is the electro-optical commercial layer, the successor program to EnhancedView.

As we discussed during our recent investor webcast, the NRO issued a draft RFP in June for the upcoming EOCL program, and we understand they expect to make award decisions by the end of the calendar year.

Please turn to Slide 4 for a review of the progress we're making on our 2021 priorities. We remain focused on providing high-quality Earth Intelligence, which means driving bookings growth, including for capacity on WorldView Legion, growing 3D capabilities and extending the EnhancedView program. We're also continuing to make good progress on our AI, ML and platform capabilities, and I'll discuss those more in a bit.

Key recent wins included awards from the U.S. government to assist with geospatial production and persistent change monitoring and another related to space domain awareness. In the international government vertical, as I mentioned a minute ago, we signed a large renewal that includes Legion capacity as well as a contract with the Australian government for both 3D and imagery data.

And finally, I'm excited to announce that we signed a multiyear, multimillion dollar license agreement with a large social media company for imagery-based maps, demonstrating our continued traction across all customer verticals.

From an execution perspective, it was a good quarter with the team generating solid book-to-ship activity and adjusted EBITDA margin performance. Even while we enjoy strong backlog as we perform in multiyear contracts, we continue to find good vectors for growth with existing and new customers. I'm pleased with the ability of the team to drive bookings and revenue in the same period, and this quarter was a good example.

Moving to WorldView Legion. We have decided to delay the launch from the fourth quarter of 2021 into next year. This isn't a decision we made lightly. There are 2 key drivers since the last update.

First, while Honeywell has delivered the reaction wheel set for the first 2 satellites, the hardware from Raytheon is coming to us later than anticipated. The Maxar team has been in El Segundo this week for preshipping reviews and the first instrument is in transit to our facilities. The Raytheon teams have been working hard and the second instrument should arrive in September, followed by the other 4 this fall. However, we had expected both of the first 2 instruments to reach us in July, and this has had a negative impact on schedule.

Second, the return to work in California post a lifting of COVID restrictions on June 15, while very positive, for a variety of reasons has not led to the achievement of the schedule we anticipated with our integration, testing and software teams. And of course, we're now all watching the Delta variant closely.

We appreciate all of the teams have accomplished under challenging circumstances. COVID has been a difficult operating environment for both our suppliers and us and it's clearly had an impact on the program.

Given the hardware delays in remaining work streams, which include software, integration, integrated systems and environmental testing and launch phase operations and the importance of this program for both our customers and Maxar's long-term objectives, it's important to get the launch right and this requires a little more time.

While we continue to look for ways to reliably accelerate production and test, we now expect the launch time frame between March and June next year for the first launch. We are continuing our progress with the other 4 spacecraft. Remember, this is a sixth satellite constellation. We've historically said that the second launch would be 3 to 6 months after the first. We intend to get them up as soon as possible.

How quickly they launch after the first will depend on how much we can overlap the remaining work, including hardware deliveries, software and testing schedules. To address the remaining work on the program, we've taken a number of actions. One, we've assigned overall program responsibility to Chris Johnson, who joined Maxar in May and bring significant program expertise to the company.

Two, we assembled a mission assurance and red team to review and assess the program and remaining work streams. It provided important insight, which we've incorporated into the revised schedule discussed today. And three, we've added additional internal and external software engineering resources. We're driving forward diligently with a focus on maximizing the value of this program for both our shareholders and customers.

With respect to our largest customer, the draft RFP for the EOCL program I mentioned earlier contemplates a 10-year program, which aligns with the 10-year-plus design life of the Legion constellation. This is a good fit. We continue to expect that our current on-orbit assets that provide service to the U.S. government now as well as the Legion constellation are tailored to meet the current and future needs of the U.S.

Turning now to Space Infrastructure, where we're committed to delivering the best possible solutions and systems for our customers. And from a business standpoint, been focused on establishing a foundation for future growth. On the Power Propulsion Element for NASA, we completed preliminary design reviews and were awarded additional change orders. We were also awarded study contracts for National Security classified work as we continue to look to shape new programs and further diversify the business.

Importantly, we're beginning to demonstrate our competitive positioning for national security work, having recently been down selected from 8 competitors to 5 on a program. That field will continue to narrow, but it's a positive sign that we've made it through this gate and now we need to drive for a win on the program.

We've also continued to execute. We launched SiriusXM in the quarter, successfully conducted commissioning ops and turned the keys over to the customer last week. Last week, we also launched our One D2 for Embratel, and I'm pleased to report that we've been awarded SiriusXM-9, Sirius' next GEO communication satellite. From an investment standpoint, we continue to work on new satellite and constellation designs, including modular spacecraft and proliferated constellations as we look to serve commercial, civil and classified programs with highly engineered and affordable solutions.

Reflected in the financial results, we had a solid quarter as adjusted EBITDA margins continued their improvement, reflecting better performance and healthier program mix.

Finally, on financial flexibility, we're continuing to drive strong financial results in the business and see our way to significant cash generation in the quarters and years ahead, both of which should drive debt and leverage levels lower.

So overall, pretty good financial performance in the quarter and some good bookings momentum across both segments and across our addressable verticals. Let me be clear though, I'm not pleased with the additional Legion delays. That said, the methodical work we're doing on the program are the right steps. We're building a generational constellation that is going to drive growth, profits and cash flows for the next 10 years, and we want to be confident that we've got it right.

Before I hand the call over to Biggs, I'd like to shift the discussion about another exciting portion of the business. Over the past 2 quarters, I've done deeper dives on some of the innovative technology we've been developing and deploying in Earth Intelligence to support the U.S. government by reducing Sensor to Shooters time lines on the battlefield and its base infrastructure to support both government and commercial visions.

Today, I'd like to pivot back to Earth Intelligence to talk a little bit about our AI and ML capabilities and how we're increasingly using them to drive growth. And the timing of this is pretty good, given the amount of discussion in the marketplace about this technology and the various capabilities that exist out there.

We've been at this for quite some time, and we benefit from having the best commercially available Earth Intelligence data in the market. Please turn to Slide 5.

Before we get started, I thought it would be useful to level set and quickly outline what artificial intelligence and machine learning mean in the context of geospatial intelligence.

As you're aware, our constellation assets generate vast amount of the highest quality commercial data available every day, over 3.5 million square kilometers of the Earth's land mass from all over the globe. To make that data useful for intelligence and commercial applications, it helps to snap it all together to create a GEO reference data set that provides a reliable foundation to conduct analysis.

Comparability and compatibility of high-quality data sets are preconditions for AI and ML algorithms to run at speed and at scale. Feature extraction, change detection and object identification are examples. Using artificial intelligence and machine learning techniques, we're applying algorithms to data to identify objects and detect change at a small fraction of the time it would take humans to do so.

Importantly, we're doing this at scale with high levels of predictability and accuracy. This in turn starts a virtuous cycle where we can proliferate products and analyses to provide geospatial intelligence answers, which in turn drives more demand for the underlying high-quality data.

Please turn to Slide 6. Foundational elements of our AI/ML capabilities include analysis-ready data or ARD, DeepCore, platform capabilities like Global EGD and SecureWatch, and cloud accessibility of industry-leading imagery data, which will be further enhanced with the WorldView Legion. ARD is comprised of preprocessed time series stacks of imagery that are aligned, produced at a set standard and georeferenced for accuracy using our precision 3D registration software.

Aligned image stacks from ARD provide increased usable content, more accurate feature extraction, faster processing, lower storage costs and homogenized inputs for analytic workflows. Our precision 3D registration software also allows us to take other sources of data, whether or not geospatial, and lock them down in a highly accurate fashion in the same reference chips. This kind of data helps our customers save time and jump ahead to the next stage of their analytic workflow with a more accurate and AI/ML-ready baseline.

Organizations and government agencies are enabled to use machine learning and artificial intelligence to extract roads, parcels and buildings as well as identify land use and vegetation at scale or pick out and count objects like military vehicles or commercial automobiles.

As you'll note, we get better results with higher quality data sets. It's also helpful that we can train the algorithms against our vast 20-plus year archive of the planet.

Please turn to Slide 7. DeepCore is a machine learning engine that is a cornerstone technology the company uses to perform its AI and ML projects. It evolved from Maxar's direct experience as an industry leader developing automated computer vision techniques for commercial and national missions.

Importantly, it has deployed more than 100 models to detect 130-plus object types using multiple machine learning models, frameworks and networks against multiple satellite, airborne, drone and terrestrial sources, and it's been using commercial and government clouds as well as bare metal and hybrid environments scaling from a stand-alone machine to an infinitely scalable cluster.

With DeepCore, users can leverage the services and experience of the Maxar team or mix and match training data, models and visualization capabilities within DeepCore or other repositories and tools.

Please turn to Slide 8. We maintain a constellation of satellites that generates the most and the highest resolution, most accurate geospatial data in the market. We're adding to that with the WorldView Legion constellation, which will play an important role in our AI and ML capabilities.

Slide 9 shows the power of ARD, DeepCore and high-resolution data working together with a car counting use case. As noted, this type of work can be completed in seconds versus the hour-long time frames needed using traditional methods. This is a huge breakthrough in use of geospatial intelligence and is a key reason why we see robust demand signals from customers and continued growth.

Slide 10 provides some details on our Global EG and SecureWatch platforms. Slides 11 through 17 provide additional examples, including the use of algorithms to more effectively monitor real estate development, to build 3D models and base maps at scale, to automatically detect ships in the ocean and to produce crowdsourced maps built on multiple mission sets.

We've been working with these kinds of customer needs for years and believe the continued investments we're making in our data generation capacity and AI and ML technologies will allow us to continue to drive revenue growth in the future.

I'd like to end to Slide 18, which is one I shared earlier this year. As I mentioned then, one of the key goals of the investments the U.S. government has been making in its AI/ML and Joint All-Domain Command and Control efforts is to achieve an advantage on the battlefield by shortening the sensor-to-decision time line from space, which is all about seeing, identifying, targeting and prosecuting dynamic targets at scale in the distance.

Ultimately, DoD is driving to combine broad area of surveillance and automatic target recognition to support long-range precision fires at speeds required on future battlefields. We believe the breadth of our coverage and the quality and accuracy of our inventory as well as our software processing capabilities are key enablers.

Hopefully, all this gives a better sense of how AI and ML fit into the overall Maxar story and the continued investments we're making. We believe our efforts position us well in the market versus competitors and that we will drive sustained growth for the company with customers to increasingly unlock value out of geospatial data and intelligence.

And with that, I'm going to turn the call over to Biggs for a deeper dive on quarterly performance. Biggs?

Thanks, Dan. Please turn to Slide 19, where we present year-over-year comparisons for the second quarter.

Our net income for Q2 was $45 million, driven primarily by strong performance in both Earth Intelligence and Space Infrastructure. Revenue increased 8% for the quarter and 5% for the year-to-date period. Excluding the effects of the EnhancedView contract deferred revenue burn-off, total company revenues increased 16% year-over-year driven by recent wins in Space Infrastructure and new programs at Earth Intelligence.

On a year-to-date basis, total company revenues increased 14%, excluding the effects of the EV deferred revenue burn-off and adjusted EBITDA margins increased 260 basis points.

Please turn to Slide 20. Earth Intelligence revenue without effects of EV deferred increased 14% year-over-year in the second quarter, driven primarily by increases from international defense and intelligence customers as well as additional growth seen with commercial and U.S. government customers. The increases experienced this quarter, particularly from international defense and intelligence and commercial customers, were driven in large part from book and ship orders on archive and 3D imagery, which had a positive uplift on adjusted EBITDA margins. Adjusted EBITDA margin in the second quarter of 2020 were also atypically high due to the timing of International Defense and Intelligence revenues.

On a full year basis, without the effects of EV deferred, revenue increased 9% year-over-year driven by increases across our 3 customer verticals and adjusted EBITDA margins were consistent.

Please turn to Slide 21. Space Infrastructure revenue increased 12% year-over-year, while margins expanded 710 basis points driven by the profitability of recent awards as well as a reduction in negative EAC impacts, including those related to COVID-19 taken last year as we adjusted our operating posture to the pandemic.

On a full year basis, revenue increased 14%, primarily driven by an increase in revenues from commercial programs as well as lower EAC growth due to the COVID-19 impacts we experienced in 2020. Adjusted EBITDA margins expanded 1,310 basis points driven by the profitability of recent program awards, partially offset primarily by reductions in revenue from the SiriusXM-7 charges taken in the first quarter and modest increases in indirect and SG&A costs.

Without the $28 million SiriusXM-7 charge taken in Q1, year-to-date adjusted EBITDA margins will be roughly 11%. We have spoken over the last several quarters about the potential we see in this segment for sustained adjusted EBITDA margins of 10% or better. There will always be quarter-to-quarter and year-to-year fluctuations based on EAC accounting and program mix but we are pleased with our progress.

Please turn to Slide 22. The company generated $23 million of operating cash flow from continuing operations in the first (sic) [second] quarter and invest $55 million in CapEx, I apologize, wrong quarter, second quarter. Operating cash flow for the quarter was negatively impacted by the timing of cash receipts, including $26 million from international customers that were collected in Q3. We have a $13 million tax benefit we recorded in the quarter for a recovery of BEAT tax paid last year. This is enabled by our equity issuance, but that cash is not in our cash from ops yet and will likely come in later this year or next year.

Please turn to Slide 23. We had roughly $429 million of liquidity at the end of the quarter, and our bank defined leverage ratio ended the quarter at approximately 4x. Net debt reached modestly quarter-over-quarter due to the timing of a few large cash receipts slipping to Q3. Bank defined leverage increased slightly, primarily due to the roll-off of EV deferred revenue on a trailing 12-month reported basis.

And now please turn to Slide 24. Guidance remains unchanged from what we issued in the previous quarter, and this slide is inclusive of the charge we took in the first quarter related to SiriusXM-7 satellite. We're leaving ranges wider than we typically would at this point in the year as the second half of the year could be impacted by the timing of product and data deliveries just as we experienced in the current quarter.

Revenue guidance for Earth Intelligence remains unchanged from what we issued at year-end with a targeted range of $1.05 billion to $1.095 billion. At the midpoint of our guidance, we expect revenues in the third and fourth quarters to fall slightly below our Q2 run rate, which has the uplift of the book ship dynamics I spoke to earlier.

Revenue expectations for Space Infrastructure remain in the range of $735 million to $770 million, and we expect revenues to remain roughly consistent with Q2 as we continue to execute on commercial awards.

Turning to adjusted EBITDA. No change to the outlook range for Earth Intelligence. Margins this quarter were positively impacted by the Q2 book ship dynamic and we expect to see modest margin contraction in the second half of the year.

Additionally, as we pointed to in the last quarter's call, we expect some incremental costs in the second half of the year related to Legion constellation as we continue investments in our ground and secure operations architecture.

No changes to adjusted EBITDA for Space Infrastructure, and we have left the same guidance range as presented last quarter. We continue to expect margins of Space Infrastructure to be 10% or better as we continue to execute on our backlog. At a consolidated level, our guidance for adjusted EBITDA also is unchanged.

On a consolidated basis, revenue is expected to increase in the second half of the year. This is driven primarily by the nonrecurring $28 million [target] in Q1 on SiriusXM-7 as well as the continued backlog execution we expect to see in the second half of the year.

Revenue and adjusted EBITDA are expected to be more heavily weighted in Q4 than Q3. We've not changed our operating cash flow guidance, and we expect to be free cash flow positive in the second half of the year and the full year. Recall, we typically face quite a bit of uncertainty given the timing of working capital changes.

For the first half of the year, operating cash was in line with our expectations but was negatively impacted by $161 million in unfavorable working capital changes. Of the unfavorable $161 million of working capital, $72 million is from accounts receivable and includes a $26 million from international customers we've already collected in Q3 as well as an additional $46 million that we expect to collect this quarter from customers, including on recently announced awards.

Accounts payable and other liabilities account for another $60 million and we expect that to flip in our favor due in large part by the timing of incentive interest payments that fell in the second quarter and in the first half.

Stated at a high level, these working capital changes were driven by the normal outflow in the first half for interest in the retirement of year-end liabilities, the timing of programs and progress of Space Infrastructure and a few large cash receipts slipped from Q2 to Q3. Operating cash flow will ramp up in the second half of the year as that dynamic flips in our favor, and we realize the interest savings in the second half of the year with the first quarter equity raise and debt paydown.

The ranges for cap mix remain the same, and we expect to see a ramp in the second half of the year driven by the Legion program. Total CapEx on the Legion program has grown as a result of the delays we've experienced and will primarily affect next year by roughly $30 million. This year's spend includes approximately $25 million of loans and insurance payments associated with the first launch. Even though a first launch in March to June would likely put those payments in the February to May '22 time frame, we do not want to take those payments out of this year's guidance until it is certain that will slide into next year.

We still expect to be free cash flow positive in the current year, even with the insurance and launch payments. We've not given guidance for 2022 beyond what I just covered up about employees and CapEx addition. There will be puts and takes but we still expect growth in earnings next year even with Legion delay. We also expect to be increasingly free cash flow positive regardless of where the first launch payments land from a timing standpoint.

As you know, our 2023 outlook contemplated $165 million of adjusted growth in Earth Intelligence between 2020 and 2023. With half of that, about $80 million, attributable to Legion capacity. The delay in the program could have an impact on our ability to ramp capacity-driven growth, but it's too early for us to say definitively.

We'll look to update you further as the schedule for launches becomes clearer. To wrap up, we had a solid quarter with growth across both Earth Intelligence and Space Infrastructure, and we are tracking to our 2021 guidance targets.

Looking forward, we're focused on the EOCL program with the NRO, driving noncapacity-related growth through investments in Earth Intelligence products and diversifying the Space Infrastructure segment across commercial, civil and national security programs. The demand backdrop and interest in space-based capabilities is robust, and we believe we are well positioned to take advantage of growth opportunities in progress. Operator, let's now begin the Q&A.

(Operator Instructions) We have the first question comes from the line of Seth Seifman of JPMorgan.

I guess, Dan, along the -- maybe if you could lay out in some more detail sort of the schedule for launch from where we are today into kind of the spring of next year and what the various boxes are that the company needs to check and what of those boxes kind of has emerged more recently?

Yes, sure. Thanks, Seth. So we do have a slight delay to the Legion program of a few months. As we knock down the large pieces of the program, I get more and more confidence in the schedule as we go out. So -- but to kind of reiterate, the hardware deliveries have not just [off scheduled] some as well as some of our expectations about the loosening of COVID restrictions and what it meant to be getting back in the office and how fast we can accelerate some of the remaining work that has to happen.

The other thing we had done is we've done a red team in a mission assurance analysis, and that's factored into our schedule assumptions going forward. As we go forward, the first thing we got to do is we got to make sure we got all the hardware there for the launches. So we do have the 2 sets of reaction wheel assemblies for -- from Honeywell. So that's good. The others still have to come to the other 6 Legions, but we believe we're on schedule to do that.

And we've got to have instruments. The first instrument has completed its preship review, and is en route to our facilities in the Bay Area right now. So that's good. We got 1 of 6. We expect the second 1 to show up sometime in the September time frame and then the other 4 to show up throughout the fall.

Once we get those instruments in place, then we can complete our final integration of that hardware into the space vehicles and begin thermodynamic or thermal vac and vibration testing on the entire spacecraft. So there has been testing done at the component level with our suppliers. And that's why we had originally had some of the delays to get through that with Raytheon. But now we need to get the fully integrated spacecraft into our environmental testing protocols. We also need to run hardware and software simulations on them system by system. And some of those we'll do in the thermal vac chamber and some of those we'll do in our metal lab facility in San Jose and Palo Alto.

Once we complete those and load on fully integrated and finalized software, and we'll be running software simulations in our virtual environments as well to run lots and lots of different simulations across different sets of GPUs. We'll then complete the pre-ship review on the fully integrated software test and spacecraft, send those down the launch range, then we've got x number of weeks down at the facilities with SpaceX at the Cape Canaveral location. We'll complete our final pre-launch protocols and then we'll go into launch phase operations. After we finish launch phase operations, then there's somewhere in the order of 30 to 90 days of IoT that we go through the satellite to put it through its shakeout phases, make sure they both work in this.

It will be just a little more complicated because the first one, we'll be commissioning 2 satellites at once, and we haven't done that before. And then they'll go into imagery and revenue operations and we've definitely got pent-up demand for them.

I guess the other thing I'd just stress is this is -- we've got 6 coming through the process, too. So the first 2 are definitely important, but once you get that first barrier breakthrough, then the rest kind of follow more smoothly in the wake. And we've seen that with the instruments, we've seen that with [the reaction], we've seen that with every piece of the program along the way.

Okay, okay. That's helpful. And then maybe as a follow-up, can you talk about the opportunity set in Space Infrastructure for new orders in the second half and how you think about where the backlog for that segment might [up] the year?

Yes, sure. So we've said before and we kind of expect this at the same time today is that we expect the GEO Comsat market to be about flattish, but we'll be looking to get our fair share of those awards going forward. I think it's a great sign we got the SiriusXM-9 award, and there are definitely awards out there for us to win. On the LEO opportunities, those are a bit more nascent, but we're in the hunt on some of those, and we've been paid to do engineering study contracts on some of those recently. And so we're working on that front as well.

And then on the other 2 pillars of the strategy that we continue to work with NASA, time lines and budgets are always a little more subject to the U.S. government, but we think that's going to be a strong hunting ground for us, particularly as we perform well on NASA programs like OSAM and SPIDER and the PPE that just completed its preliminary design reviews.

And then on the National Security front, we're still in the early innings. But it's a good sign that we're getting pay per study contracts, that we made it through a first set of down selects, which they got more to go to win that program. But with the national priorities the way they are, we think Maxar provides a lot of great capability for the U.S. government to work with us on future programs.

The next question comes from the line of Thanos Moschopoulos of BMO Capital Markets.

Dan, just regarding Vricon and the traction there with the 3D imagery. Just remind us, do Vricon sales tend to be onetime in nature, or do you have a subscription offering there, the way that you did one on your 3D imagery?

Yes. Sorry, Thanos. So there are certain aspects of the programs. For example, One World Terrain is one of the biggest programs that are running, that is much more of a subscription-based nature to it. So larger contract award, services on top of the imagery and then creating the full-on simulated and virtual environments that we'll be doing and that encompass the 3D imagery. We do have some recent awards, though, and we'll continue to do this, too, where it's operated more like our traditional earth imagery side of the business where we do a data delivery, get paid for that and recognize them in the same quarter. So we saw some of that happen in Q2 here, and that had a nice trend of the positive results we were able to report.

Okay. And just on the 3D side, any update in terms of your subscription offerings there, like SecureWatch and others, how that's progressing?

Yes. We're really excited about the continued performance that they have. Global EGD is the largest program we have with the U.S. government, and we've got over 400,000 users on that program and continue to see very strong demand signals as we continue to fund that out to the future. SecureWatch is the commercial version of that, that we've been working with International Defense and Intelligence customers on as well as commercial customers. And it's been a really good sign for those and our online base maps and other product offerings that that's what -- in a capacity-constrained environment, those are the things that led to the growth in this quarter for us.

Okay. And then finally, just in terms of -- just to clarify, I mean, obviously, strong peak this quarter, but you're not raising guidance. So as part of that dynamic because the upside versus what you were expecting currently, had a lot of that came from sort of nonrecurring revenue?

Yes. I'll let Biggs take that one in a second. I think what you were asking about was the strong beat in the quarter, why didn't we take guidance up? Part of that has to do with the -- some of these large type of awards that we got factored into Q3 and Q4 and depending on what side of the line they slip on, we don't want to get ahead of our skis. But Biggs, would you like to add any more color on that?

I think that's fair. The -- we said we were expecting a substantial increase this year, $100 million in product sales, including 3D sales, other products. And the timing of those, obviously, can vary in one quarter to the next, it creates some lumpiness. And we just felt like we had roughly an acceleration of those into the first half, just some of this great second quarter, and we were going to not presume that it's a net positive for the year at this point in time. Obviously, we left the range of our guidance fairly high to accommodate the possibility that there could be some boost in the second half above our baseline assumption that puts more of that in this year, and that would be great.

Your next question comes from the line of Michael Ciarmoli of Truist Securities.

Just on the WorldView Legion here and the delays. I mean, can you parse out how much of these delays are sort of on you guys and how much are on the suppliers? I mean, I kind of -- there's always supplier challenges, but at the end of the day, it's your satellite, it's your program. It seems like the slips are encompassing a little bit more than just kind of hardware issues.

Yes. Thanks, Michael. So I think, look, the hardware delays have definitely contributed to it. You can't get into integration and testing and you can't launch about things like fractionals and instruments. Some of them are also on us. Some of that was expectations we came from operating out of a COVID environment and some of the acceleration for a variety of factors we thought we'd see in the program coming into -- as things snapped together and you get to run integrated testing on hardware and software and the procedures we're doing. And so part of what we've done to address that is to do the mission assurance analysis that we've done, and that's helped us firm up our understanding of the schedules and the remaining work items that we have.

We've been adding additional resources to the program in the software and the engineering side. And we've got very strong program management people, including Chris Johnson now that's on board here.

So it's a combination of everything, but we are where we are and we're taking decisive action to get the program launched in the right format for it's very important missions that it has to do.

So what -- I guess, and the other -- talking about the pressure of the slide, we're looking at a worst case of June or maybe other delays, why not just pull the '23 targets that you guys have out there right now? I mean, are they actually achievable and realistic?

Yes. So I think it's premature to go pull them. We don't literally update them for every line item every quarter. That's just not practical when you talk about long-term guidance. But clearly, there is some risk here. So that's why, in my prepared comments, I mentioned the $80 million that we assumed that we would have as a ramp-up associated with the Legion capacity coming online. But there's a lot that we're doing to mitigate that as well. Really, it's not just a matter of the timing of the launch. It's also the slope of the ramp up in the revenues.

And we've been a discussion with customers on being Legion-ready. We've signed -- that's 4, signed 4 customers to date for ground infrastructure improvements so that they can be ready for Legion and they're spending their resources to do that. We've announced our first Legion capacity sales. So our sales teams are out there working with the customers to ensure the best we can that the ramp-up will be as steep as we can make it. So we're giving you an idea of what the risk range is, it's just a little too early to say definitively exactly where we'll land and how much of that might be realized or how much might be offset by other things that we would do. It's just a little too early to be definitive and just literally revise the guidance.

And maybe on top of that, I'd just note -- yes, maybe on top of that, I'd note that beyond the Legion growth, there was also product growth coming from 3D and our other products as well. And those are doing well. So we're going to look at all of the line items and the puts and takes to them, and the things that are in our control and the things that aren't. And we'll give our best view of it when we have that.

Got it. Last one on the EOCL contract, I mean this is seemingly becoming a pretty crowded space. I think we've talked about it prior with all these upstarts. But I mean how important is it that you have a operating satellite in orbit by the time this is awarded? I mean, is this going to have any impact on that contract award, maybe how the award gets parsed up among certain participants?

Yes. Well, I think the first thing I'd note is we have the world's best constellation on orbit right now. The 4 satellites that we operate provide not just amazingly high quality, but high accuracy and large-scale coverage of the planet and our -- were designed to meet the government's mission needs.

The Legion constellation comes in beyond and -- behind that and beyond and on top of it. So as we worked our way through our -- that EOCL trapped RFP and all of the other -- the work associated with it. We think for mission continuity purposes and otherwise, we're in a good spot. We still got to go out and win. Nothing is ever given, of course, but where we are today and with the assets we have and with the assets we'll be bringing on a few months later with the lesion constellation, we feel like we're in a pretty good spot. This isn't the first space program that slid a little bit to the right, and that customer's understanding of it as well.

Next question, we have the line of Ron Epstein of Bank of America.

So the reup of the EnhancedView contract, have terms changed? I mean how are the terms in the reup compared to what just ran out?

Well, so nothing's run out, just to kind of clarify that. The September announcement was the option exercise of the 11th year of the EnhancedView and the EnhancedView follow-on program, which we've been performing on and meeting all of our mission criteria dozens and dozens of months in a row now. So I want to kind of clarify that piece of it.

The -- and that -- and we're under contract through 2023 on that. If nothing happened on EnhancedView, the EnhancedView commercial follow-on layer, then this we'd stand to that contract. We think we're very well positioned with the EOCL as it comes forward because like they are very important components for mission continuity, past performance, operating in the type of environment the U.S. government likes to operate, as well as the quality and consistency of the data -- and coverage of the data that Maxar provides. So definitely, they were 1 of 3 companies that want study contracts, but we continue to perform very well. We think the share of the amount that the NRO will spend in the future on commercial satellite programs is growing based on funding decisions we've seen, as well as statements made by NRO, as well as what we see as the direction of the theme in the U.S. government here.

So we think we're in a pretty good spot, but we've got to keep driving hard. We should never take anything for granted. We've got to go win.

So I mean wasn't it just awarded? I mean, did you have an announcement?

Yes. Yes, we announced the exercise of the option year for the 11th year of the EnhancedView follow-on program.

All right. And that option is similar economics to the previous...

Yes, it's the exact same as what we've been performing on for the past several years in a row here.

Okay. All right. I just wanted to confirm that. And then can you -- I mean just maybe it's semantics, but what's red teaming mean? I mean I get defense companies, things mess up and they say red teaming and then they continue to mess up. I have no clue what red teaming means. So...

No, that's good. We mean -- I'll tell you, we do a lot of jargon around here. We do a lot of acronyms, and you got to get a code book almost when you join the company. But the -- what we mean by that is we had people completely independent from the program come in and do a deep dive review of the program, and the schedules, and the remaining work streams, and the mission assurance that we've got related to it, which have informed the next steps we're taking as well as the schedule decisions we're making here. So it was -- experts independent from the Legion program that went in and did a deep review here.

Now okay. So help me understand, why was that necessary if a core business is what you guys do is this? Because aren't you the experts?

Yes. But just like when you have internal audit committee come in and look at the books on the auditors, it's nice to have people come in independently, particularly people that aren't associated with the program and the level of expertise we've got across the company and some external resources as well to double check us. I mean these are 10-year assets. We're spending a lot of money on them. They're critical for national defense priorities. And it's good to have somebody test the theories that we've got even though we're very good at what we do. It's not at all unusual in aerospace.

I guess. I don't know it seems to come up when programs are off the rails but...

We have the next question comes from the line of Peter Arment of Baird.

Dan, maybe just the solid margin performance we saw at Space Infrastructure. Maybe if you could -- I know there was less EACs and it seems like you had some growth on some commercial programs. But maybe you could just talk a little bit about how sustainable this margin level was because it certainly seems like a pretty high level?

Yes, I'll turn it over to Biggs for the forecast in sustainability. But I just want to give a shout out to our teams that are performing on the space side of the business. I mean, they've been working and grinding really hard to keep programs on track and on record. And mix has certainly helped us in that dynamic, but a lot of great work has gone on to set the preconditions for those kind of results. Biggs?

So it's a great question. It's not a real simple one to answer. I can say certainly that our -- as we've said before, our targets were to be 10% or better. We're running harder than that right now. So while this is very good, it's not something we're going to say, hey, it will always be that way. There will always be differences in program mix both from the standpoint of cost type versus fixed price as they go forward. I mean we execute our strategies on diversifying the business base and you're also going to have differences in one contract to another just in terms of its performance characteristics.

And any given quarter also can have positive uplift from margin changes or EAC changes or negative ones. So you're going to have fluctuation in time that's kind of a pretty certain. We feel good about our ability to enter into contracts and perform at the kind of levels of 10% or better. But a lot will just depend upon quarter-to-quarter and year-to-year total volumes and the mix of contracts.

Okay. Appreciate the color, Biggs. And then just, Dan, if I could just circle back on Legion. Just -- you've talked a little bit about or I guess, prepping for signing up your customers. But this does look like a pretty steep ramp. I mean maybe you could just -- how do you derisk some of that or give a little color around the steepness of the ramp of signing up customers?

Yes. So I mean the first way to derisk is actually get the customer signed up, which we've been doing well here, the 4 International Defense Intelligence customers that we announced that are upgrading the ground infrastructure to work with Legion as well as the 1 we announced this quarter that actually signed up for Legion capacity as part of their program.

We believe that commercial customers will be pushing the tables well. So we look forward to announcing them in future business here, future calls. The other things we're doing are -- remember, this is a 6-satellite constellation, not just the first 2. So we have levers in a 6 satellite program to not just get through the first launch, but to then look at how we model the work after that to follow on, space-based work, as well as the lessons we get and the lessons we learned from the first set of commissioning as well as the fact that this isn't the first set -- this will be the first satellites of this class we've commissioned, but we've commissioned satellites before and gone into revenue operations pretty expeditiously.

The other thing I'd say is like, look, I don't like the delays. We prefer to be talking about being on time in the program here. But it does give us some additional prep time on the ground to work on the commissioning protocols and other things that can ramp faster into the production and revenue operations for the satellite. So we do expect to take full advantage of that, use all the levers we've got and meet the customer objectives.

And for us, it's definitely as a business case. And for the investors, it's about getting to that revenue as fast as we can. For the customers, it's about delivering world-class capacity and services for their defense and intelligence and technology and commercial leads. So we're hearing it from them at the same time we're hearing it from everybody else.

We have the next question from the line of Robert Spingarn of Credit Suisse.

Dan and/or Biggs, I'm going to go back to the same question that's already been asked. I think Mike asked the question. But if the satellites take 90 days to reach proper orbit after launch, and we may not see launch until June of '22. And we might not have the first tranche up there until the end of the third, fourth quarter in '22. And unless you overlap the second tranche then, those won't deliver or at least be ready to the middle of '23. So why not pull the guide?

Yes. I just want to create a couple -- correct a couple of misconceptions there, Rob. These are not like GEO assets where they take -- you have an orbit-raising event or anything like that. These are LEO assets. They will be in the correct -- there'll be at orbit within a handful of minutes after going to launch operations. So...

There's no -- because I recall in the past, you were going to have them up and then it was going to take some time before they were generating revenue.

Yes, it does take some time before they generated revenue. That's a commissioning phase. But we don't have an additional order raising phase on it like you would with the GEO constellation. So from the time when the satellite starts, we go through launch, intentional ignition, x number of minutes later, it starts to reach its altitude and we start to get signals and check-ins with the satellite. We think going to health and safety protocols and the commissioning operations, that's typically been between 30 and 90 days. 30 is on the very low side, 90 days would be on the upper bound of that. But that's -- we'll learn a lot in the first set of launches that will incorporate into the second set. So if you took a worst-case scenario, and worst-case scenario, and worst-case scenario, yes, I'm sure you can get to the point where it makes it really challenging for '23, but we're not in any way, shape or form in that position right now.

Okay. Biggs, can the first 2 satellites deliver the $80 million in EBITDA?

No. The first 2 wouldn't do that. It does take them all in operation, but there's a question as to as you point out, what is the period of time between the first 2 and the second 4 being launched? And how quickly, not just operations, but you get customers lined up to generate revenue off of them. Trusting we've done modeling and there's a number of scenarios here, which I think would warrant fully our not pulling the guidance at this point in time.

Okay. Just one other thing on this, Dan, and I'm not suggesting this is connected at all, but just given the amount of space action that there is out in the market, now a lot of new companies and some of them not so new, but we're starting to see them grow and develop their presence, is there a lot of talent moving around, both to and from all of these companies, including Maxar? And is that disruptive in any way?

I think the way I'd answer that, Rob, is that we've always got a certain amount of turnover in our business with talent. And we certainly know a lot of the talent at other companies that -- both on the Earth Intelligence side as well as other companies -- space companies with a lot of other non-Earth Intelligence space companies are being launched. And what Maxar's known for its quality and its talent, we'll certainly have people moving around. But we've done a really good job of backfilling and being aggressive in our talent acquisition profile. We've hired over 600 people during COVID. Some of them are coming to Maxar facilities for the first time now, and there's some amazing talent that's entering the building.

So we're always sad when we lose great talent. We're always really excited when we bring new talent into the organization as well. It hasn't really impacted our operations to date. I think if I'd point to like one area that the war for talent is really extreme on, it's software engineering talent on the Earth Intelligence side. That's just -- that software engineering talent across all the Bay Area and every place else that people are -- people working with -- you can't find enough software engineers these days.

We have the next question comes from the line of Austin Moeller of Canaccord.

So just to start, I think if I heard correctly, the first telescope from Raytheon is in transit and should arrive in September is the current plan?

No, no, no. We're glad it doesn't take that long to go from El Segundo to Palo Alto. The first telescope is in transit, and we -- it left this morning, I'm just looking at my watch right now, but it should be at our facilities or be there in the next 30 minutes. So I'm very much looking forward to getting out to Palo Alto and San Jose and seeing the long-awaited instrument, the first one. The second one, we're expecting right now to arrive in September. So for the 2 vehicle launch, that second instrument becomes part of the gating item and the delays we've looked at as we put the overall schedule together.

Okay. And then the additional telescope show up later in the fall essentially?

Yes. Some of the Raytheon teams are working 7 days a week and double shifts right now or 2 shifts a day. So they're -- and they're putting tremendous effort into this to clear that backlog and to keep us on the best schedules they can. Nominally, those are coming in at 3- to 6-month center lines -- I'm sorry, 3 to 6 weeks centerlines. I misspoke there. So we should have all 6 instruments in Maxar facilities being integrated and then tested and going through their protocols throughout the fall.

Okay. Great. And then just following the trail of bread crumbs here. So if you're launching in March and you put the first 2 satellites up, then there's going to be, I guess, on average, 60 days of checkout time for those satellites to enter them into service. So best case scenario, at least for starting to generate revenues, I guess, May of next year is the best way to think about it?

Yes. I think that's a fair way to think about it. Yes. You've done the math correctly. In the best case scenario with the guidance we've given here, that's where we think.

Okay. Great. And then, of course, the next launch will be somewhere between 3 and 6 months after that.

Right. And we're doing everything under our control to keep that to the -- and we'll continue to refine that along the way, but to the very shorter end of that methodology there.

Okay. And then just to finalize it here. If you've got $80 million in incremental EBITDA from all 6 satellites essentially firing on all cylinders, should we be thinking about -- should we be thinking about $20 million for each batch of satellites?

It's probably a little more complicated than that because it's not just a straight capacity. It will depend on how much of that's used with different government customers, what their model is, and then how much of that is going into products like Vricon and other things that flow through faster. So, yes. I mean you can kind of average it out that way, but there's a lot of different access agreements and a lot of different products that feeds in to get those revenue numbers generated from the capacity on the satellites. And just, I guess, for example, the current revenue base is existing on the 4 satellites we have in operation right now.

Next question comes from the line of Chris Quilty of Quilty Analytics.

I wanted to do a follow-up on the large booking shift that you -- we booked in the quarter. I mean I've been following the company for about 10 years, and I don't recall any single big order hitting like that. Was there something particular either in the lifting of COVID restrictions or new products that you offered or budget cycle that you'd attribute that to? Or is that maybe just the early wave of what could be follow-on business at the same level?

Yes. I think the way I'd talk about that, Chris, is I know you've been following the company for a long time. But I think probably one thing you've noticed is how much better some of our products have gotten like our base map, our subscription products, our integrated full-on world-level systems. And then beyond that, now the 3D products. And so what we saw in this quarter, we really saw some traction with the 3D capabilities tied to the other things that we offer in the data set.

So -- and then probably the best way to explain that is as people see some of the work we're doing with Project Maven and One World Terrain simulations and Sensor to Shooter and sensor to decision time lines, they're realizing the value of the 3D point cloud data registration, how effective that data can be for training and simulation environments. And that's what drove a lot of the upside in the second quarter there.

Got you. And I know you don't break out Vricon separately, but can you talk about the rate of growth within that business relative to when you fully acquired it? And whether you're just seeing a continuation of programs take the One World thing out. Are there any specific actions you've been able to take to land new customers or expand the product portfolio?

Yes. There are 2 very definitive things we've done. One is, as we've shown this -- not just shown it, but then the sales process and the full-on testing with International Defense and Intelligence customers. And as they cycle back through with their U.S. ally here, they're understanding the value of the data and the technology, and that's contributed to the sales cycle and some of the wins we've seen.

The second thing we've done, and we announced this, I think, last quarter, the quarter before, but we secured all of the commercial rights to the 3D sales as well. So we're seeing really good pipeline opportunities on the commercial side as we've now got full licensability of the 3D data sets, the 3D technology and the data point cloud registration 3D data sets that we've got there. So those are the 2 things that are really contributing to where we're performing now as well as to what we see as the good growth prospects driving forward.

Great. And final question on the launch. You're still going with a dedicated Falcon 9, right?

Yes. Dedicated Falcon 9. We procured 2 launches from SpaceX. We'll do -- a little unusual compared to what we've done in the past. We've typically launched that at Vandenberg for the Sun sync missions, but we're going to do both of these out of the Cape. It's easier. We don't have to get things back and forth. We can do all the testing and integration at the One launch facility. SpaceX has 2 launch pads there. And there's plenty of horsepower on a Falcon 9 to get the satellites for the right spots.

Well, my question, I guess, is going to be the March to June time frame. Is that an assumption that well, we think we're going to deliver in March, but we don't know whether we'll get a launch availability until June or do you feel like given the DX rating on this program that SpaceX is going to move things around to get you launched as soon as possible?

Well, I'm glad you pointed out that we do have a DX rating. That's been very helpful along the way here. And I think proof point positive about the importance of some of these assets. We've been in discussions with SpaceX. We've talked to them about the parameters we're working with, what our schedule looks like and they, without even having to talk about the DX rating, they've been very amenable to working with us on the launch schedule for this.

Thanks, Chris. Well, we look forward to seeing you down there.

Yes, absolutely. And thank you, operator. We've gone over the 60 minutes that we've set to try to complete the call and I want to thank everybody for joining us today. We look forward to seeing all of you virtually at some of the upcoming conferences and reconnecting on our third quarter call later in the year. That's it for now, operator. We can conclude the call.

Thank you so much presenters. That concludes today's conference call. Thank you all for participating. You may now disconnect.