Maxar Technologies Inc (MAXR) 2018 Q1 法說會逐字稿

Welcome to Maxar Technology (sic) [Maxar Technologies] Limited's Q1, 2018 Conference Call. We would like to remind you that part of today's discussions, including responses to various questions may contain forward-looking statements, which represent the company's estimates, future plans, objectives, and expected performance at today's date. These statements are based on current assumptions that the company believes are reasonable but are subject to a wide range of uncertainties and risks that could actually result to differ materially from the forward-looking information. You are referred to the advisory regarding forward-looking statements contained in the first quarter earnings news release and in the company's most recent management's discussion and analysis and annual information form, which are available online under the company's SEDAR profile at www.sedar.com under the company's EDGAR profile at www.sec.gov or on the company's website at www.maxar.com. As we begin the discussion, we ask that you refer to the accompanying slides for today's call. They can be found on our Maxar website under investor, events and presentation's Q1 2018 event details.

I now would like to turn the discussion over to Mr. Howard Lance. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to our call. We're pleased to have you join us as we review our first quarter results and some key accomplishments from across the company.

I'd like to take the opportunity to thank the entire Maxar team for their contribution in Q1. We continue to focus the organization on long-term growth and value creation. We're proud to deliver mission-critical solutions to the U.S. government, international allies and our global commercial customers.

If you would please turn to Slide 2 in the webcast presentation. As today's press release detailed, we had a strong first quarter, and we exceeded our internal expectations on a number of metrics. We'll review the results in depth a little later in the call, but let me give you the high-level details upfront. Total company revenues declined 5% year-over-year in Q1 on a pro forma basis. This was due to expected year-over-year declines and our GEO communications satellite and RCM program lines of business, but revenue slightly improved sequentially over Q4.

More importantly, revenue from the remainder of our businesses increased roughly 15% over the first quarter of 2017, exceeding our expectations and demonstrating the strong fundamentals across the rest of the company as well as the value of our portfolio diversification. Imagery and Services segments had very strong year-over-year revenues in the quarter, as did revenues in SmallSats, U.S. government Space Systems and across MDA in Canada.

EBITDA margins increased 330 basis points year-over-year, also on a pro forma basis, driven by operational performance by realization of acquisition synergies and the timing of certain investment tax credits. This led to adjusted EPS of $1.47 per share, up from $1.17 pro forma in the year-ago period. Our book-to-bill was just above 1.0 in the quarter and this is, of course, despite the continued quarterly drawdown on the 10-year-enhanced GEO contract with U.S. government in the Imagery segment.

Excluding this contract, our book-to-bill was above 1.2, driven by strength in the commercial and International Defense portions of the Imagery segment and from our Services business. As expected, we consumed $58 million in free cash flow this quarter. Due to the timing of receipts and the ramp in spending on the WorldView Legion constellation. We affirmed our revenue, EBITDA and cash flow guidance for the year, with momentum coming off a strong Q1. And we increased our EPS guidance for the year.

Please turn to Slide 3. Our recent acquisition of DigitalGlobe combines 4 leading space brands across the value chain into 1 company, and it creates a global leader in the new space economy, where our capabilities in optical and radar imaging; Geospatial Services; large and small satellite design and manufacturing; and space infrastructure will be in demand as the new space economy develops and evolves. I believe Maxar is uniquely positioned to grow in the U.S., Canada and global markets by leveraging its end-to-end solutions and by accelerating innovations across all facets of the space economy.

As a combined company, we have more scale and credibility with U.S. government agencies and international government customers. We've added more predictable Geospatial data and services revenue streams while diversifying our product and services offerings. With a larger set of customers and end markets, we're better able to increase share in existing markets and grow in adjacent ones.

Please now turn to Slide 4. Key driver of our success will be the distributed operating model that we use. This brings the benefits of the focus and scale economics. Each of our operating companies own their customers, their strategies and their P&L's. But they're supported by enterprise-wide capabilities at scale in information systems, finance and accounting, human resources, procurement and marketing. In our view, this model will allow us to achieve the $60 million to $120 million in run rate EBITDA synergies by the end of 2019, as previously stated. Year-to-date in the first quarter, we've recognized roughly $9 million in cost synergies. So we're off to a good start.

Please turn to Slide 5. As we illustrated at our investor days conferences, we are operating in an environment with very positive tailwinds. U.S. and International Defense and space spending is on the uptick, driven by a global threat environment that requires high-resolution, persistence and resiliency from space-based assets.

We were pleased with the recent passage in the U.S. over the Consolidated Appropriations Act of 2018, which provides much-needed funding for the nation's military and national security. This act raises DoD spending 14% above 2017 levels, representing the largest year-to-date increase in base budget funding in well over a decade.

Our commercial markets are also growing, driven by GEOINT demand for mapping, location based services, autonomous vehicles, telecom, agriculture and climate applications. And all of these developments are aided by advances in AI capabilities, especially machine learning.

Please turn to Slide 6 for some details of order activity, key accomplishments in Q1. In Imagery, the U.S. government line of business continued its stellar execution on the EnhancedView contract, marking the 69th consecutive month delivering at or above the required performance metrics. We continued to be the commercial mission partner for the National Geospatial Intelligence Agency. And we fully expect this relationship to continue. There has been discussion that the National Reconnaissance Office may manage the enhanced new contract in future years.

So we are actively working with both NGA and NRO to ensure the continuity of access to our Imagery and GEOINT data going forward. Our high-resolution imagery, precise location accuracy and global distribution speed are unmatched in the commercial marketplace. Our DigitalGlobe business is honored to serve the U.S. government mission, and we're excited to see the NRO affirm the ongoing value of our commercial capabilities as a complement to the national systems.

You know that we've been a trusted partner of the U.S. government for more than 15 years and are committed to providing the highest resolution commercial imagery and data to the nation's military, intelligence agencies, civil organizations and foreign partners while delivering exceptional taxpayer value. Also during the quarter, we received additional funding on the global EGD contract with U.S. government, bringing fiscal 2008 (sic) [2018] funding for that program to $47 million, consistent with the prior year. In the International Defense and Intelligence markets, we received renewals from 2 important direct's access program customers as scheduled, and we continue to build our pipeline of additional countries interested in this service.

At the GEOINT Symposium last month, DigitalGlobe announced the launch of their Rapid Access program. This is a secure, cloud-based platform seamlessly connecting customers to the world's highest resolution and most accurate imagery and actionable intelligence. This program is designed to give customers a flexible and efficient imagery collection that they want over their region of interest with the highest available priority level on our constellation. That means that collections submitted against the sign satellite access time is assured. This product makes it easier for current and potential customers to secure mission-critical images from our satellite constellation.

We believe it will drive further customer intimacy and revenue streams going forward. We also continued to expand the capabilities of SecureWatch, the company's cloud-based Geospatial intelligence platform now being used by over 20 customers globally.

And now with the inclusion of WorldView-4 Imagery and later this year, RADARSAT-2 Imagery. This easy- to-use, very powerful product is targeted at a broad set of defense customers the world over. And we expect this program to be another growth driver. And we'll be launching our comparable online offering for commercial customers later this summer.

Also in commercial, we announced during the quarter that we signed an extension expansion of multiyear agreements with 2 major commercial technology customers, one of which is now DigitalGlobe's largest commercial contract ever. These new multiyear agreements feature increased annual contract values.

DigitalGlobe also signed a multiyear, multimillion dollar contract in Q1 to expand our partnership with HERE. The open location platform company and one of the leading providers -- high definition maps for autonomous vehicles. This extended contract will allow HERE to produce maps for in-car navigation systems from DigitalGlobe products, which provide regularly updated 30 centimeter satellite imagery of all the major cities around the world.

HERE will use DigitalGlobe's imagery to create accurate and visually-consistent maps to enable our customers to have the best experience within the HERE platforms.

DigitalGlobe also announced a partnership with Ecopia Tech Corporation that will utilize their proprietary artificial intelligence algorithms and cloud-computing capabilities to create building footprints.

By using Ecopia U.S. building footprints powered by DigitalGlobe, customers will have the most current and accurate information of structures within their areas of interest, enabling them to make business decisions with unprecedented speed and efficiency. We expect this product to be used by a number of our vertical markets over time.

Moving on to space systems. We successfully launched the advanced Hispasat 30W-6 satellite built for the leading operator in Spain. It's performing well on orbit. This satellite provides multiple services, including television distribution, broadband access, corporate network access and other telecommunications applications for customers in Europe, North Africa and the Americas. It carries several technological advances, including the largest and most complex antenna tower design we've built to date, using 3D printed parts.

Our primary focus continues to be to deliver technological advances that improves satellite performance, flexibility and cost. Development and construction work continues on several ground breaking satellite programs. JUPITER 3 for Hughes networks will provide unprecedented broadband capacity and cost per gigabit from the GEO orbit for targeted regions.

In addition, U.S. government space robotics projects, including RSGS, Restore-L and Dragonfly will enable our future on orbit-servicing missions to become a reality. We were very pleased to report in the quarter that we were awarded 2 new GEO communications satellites. Broadcasting Satellite System Corporation, or B-SAT is the leading broadcast satellite operator in Japan and selected SSL to build a Direct-to-Home television satellite to ensure exceptional ultra high-definition video distribution for the 2020 Tokyo Olympics.

SSL launched a similar satellite for B-SAT in November of 2017, ahead of schedule, and we believe there is no greater endorsement of our capabilities than repeat orders from satisfied customers. Israeli satellite operator space comp selected SSL to build the AMOS-8 satellite. This will deliver state-of-the-art broadcast, broadband and data services from its 4-degree West hot spot to Europe, Africa and the Middle East. AMOS-8 will include flexible, high-power Ku-band and Ka-band payloads, with steerable antennas to enable space comp to deliver a number of value-added services.

SSL also signed a contract with the NASA Jet Propulsion Laboratory to design and build critical equipment for spacecraft that will explore Europa, one of Jupiter's moons. SSL will provide the remote engineering unit, a critical interface between the various attitude control systems, thermal sensors and the flight computer of the spacecraft. This contract demonstrates SSL's continuing legacy in support of NASA mission success, it utilizes our commercial capabilities and furthers the goal to develop disruptive technologies that advance humankind's missions in space.

Space Systems also signed 2 contracts related to unmanned aerial systems during the quarter. MDA will provide turnkey unmanned aircraft system surveillance services for an unnamed international customer. This includes the end-to-end acquisition of all the systems, required infrastructure, training, airworthiness, logistics, supply chain, maintenance and flight operations. Contract includes options for additional years. MDA will also support the Canada Department of National Defence and provide maritime, miniature unmanned aircraft systems. This contract includes services to support training, equipment and capabilities development.

This new system will offer enhanced capabilities by extending the reach of the communications and sensor capabilities over contentious or hostile areas during maritime security operations. We believe both contracts demonstrate MDA's broad capabilities and leadership in servicing and supporting defense missions, helping to solve our customer's most complex challenges.

Turning to services. I'm proud to announce that Radiant Solutions was named one of the top work places in the Tampa Bay area for the second consecutive year and was the only defense contractor on the list.

Our team in Tampa, Florida includes highly-skilled Geospatial analysts, sociocultural analysts, software developers and data scientists that support a variety of customers at MacDill Air Force Base.

Key services wins during the quarter included a contract with the U.S. National Geospatial Intelligence Agency to provide more than $1 million labeled objects within high-resolution satellite imagery, and this will be used to accelerate the development of machine-learning algorithms, which can extract valuable information from imagery at scale.

We also signed a follow-on contract with the Army Geospatial Center for their remote ground terminal program.

This program option extends Radiant Solutions' provision, systems engineering and software development to enhance the RGT program, provide critical information directly to military and humanitarian aid in disaster relief missions by providing timely access to our high-resolution commercial imagery.

The business environment in services remains robust. This is allowing for a high level of pipeline in bid activity for the company, including a couple programs identified in our long-term opportunities set at the Investor Days meetings.

And with that, I'd like to hand things over to our CFO, Anil Wirasekara, for a further discussion of the quarter.

Thank you, Howard, and good morning, everyone. Before I get started, I want to bring to your attention that we are now reporting segment revenues and EBITDA on a gross basis and eliminating intersegment activities on separate lines in the income statement.

We have provided a supplemental table in the earnings release that restate these figures on a quarterly basis for the years 2016 and '17. We have made this change to provide consistency with our peers and also to provide more transparency as we expect intercompany activities to ramp up significantly over the coming years. We believe this data will provide greater insight into the operations and financial health of our company.

I would also like to alert all of you that, during my review, I will be comparing our 2018 quarter 1 actual results to 2017 quarter 1 pro forma results as if the merger was completed in Q1 2017. This should provide a much better and more appropriate year-to-year comparison than a comparison to 2017 Q1 actuals, which is provided more as a statutory requirement.

Please turn to Slide 17, where we present year-over-year comparisons for the first quarter.

Please turn to Slide 7. As Howard suggested earlier, the total company revenues declined in the quarter, but is in line with our expectations.

The Imagery and Service segments recorded strong revenue growth, however, this was more than offset by declines in the space systems segment where the step down in award values and continued weakness in the GEO Comsat market since 2015 continued to flow through as lower revenues in the current quarter.

We also experienced, as expected, a lower level of planned activity on the RCM project for the Canadian government.

Overall, our adjusted consolidated EBITDA margins increased over 330 basis points, driven by strong performance in our Imagery business and the timing and recognition this quarter of certain tax credits and program reserves in our space business.

As mentioned many times previously, the nature of our space business is such that it needs to be evaluated over a longer period and is subject to quarterly volatility.

Please turn to Slide 8. Imagery segment revenues were up a strong 9% year-over-year, driven by increased utilization of the WorldView-4 asset by our International Defense and Intelligence customers and by growth with the U.S. government.

Adjusted EBITDA margins for the segment expanded 310 basis points year-over-year to 65.3%, driven by higher revenues, contract mix and synergies.

As Howard mentioned earlier, we had several key wins in the commercial market and with International Defense and Intelligence customers that contributed to the growth.

We also continued our development work on the Legion constellation and made 2 key product announcements at the GEOINT conference last month.

We expect both the Rapid Access program and the SecureWatch product to be key drivers of growth for the Imagery segment going forward.

Please turn to Slide 9. Space Systems experienced a 14% year-over-year revenue decline in Q1 2018.

As the 92% increase in our U.S. government and SmallSat businesses were more than offset by the decline in the GEO communication satellite revenues and the winding down of our work on the Canadian RCM program.

The increase, in particular, in the U.S. government business demonstrates that our diversification strategy implemented in 2016 is working and that once the RCM project winds down in Canada, and the GEO comp SAT market stabilizes, this segment should return to growth.

Adjusted EBITDA margins expanded by 40 basis points year-over-year to 18.6%.

Reported margins were driven by a variety of timing issues related to the recognition of tax credits, program reserves and contract provisions.

Please turn to Slide 10. Our services business posted a 21% increase versus Q1 2017 pro forma revenues, driven largely by the timing of U.S. government contract modifications.

Going forward, we expect revenue growth to moderate to levels closer to our guided range of 9% to 11% for the year.

Adjusted EBITDA margins declined 30 basis points year-over-year to 10.1%, driven largely by the mix of fixed price and cost reimbursable contracts.

Customer demand for our Geospatial Services remains solid, particularly for things like predictive analytics and machine learning as demonstrated by our recent wins with the NGA and the U.S. Army.

Going forward, this segment continues to have a strong pipeline across its capability set, and we expect it to be a consistent contributor to our long-term growth.

Please turn to Slide 11. The company generated roughly $20 million in adjusted operating cash flow in Q1. This is on the heels of a massive cash inflow we had in Q4 2017, where we generated $225 million in positive cash flow.

As in the past, we will continue to have quarterly fluctuations in cash flows, and going forward, we will report a rolling [3 and 4 quarter] cash flow from operations. This should more closely represent the operations of the business.

As a reminder, we define adjusted cash flow as the operating cash flow, less interest and Orbital receivable securitization payment. It excludes integration costs. A reconciliation of these items can be found in the appendix of the accompanying slides we are using during this call. During the quarter, we invested $77.5 million in capital and capitalized R&D. Going forward, we expect a keen focus on working capital and other drivers of cash flow to allow us to achieve our guidance targets for the year.

Please turn to Slide 12. We finished the quarter with our consolidated net debt at $3.057 billion, up modestly from the fourth quarter 2007 (sic) [2017], driven primarily on program milestones and 2 quarters of cash interest payments made in the first quarter of 2018. Our leverage ratios, however, declined sequentially and ended the quarter at 3.9x, well within our covenant range. We have no material debt maturities until 2020.

As a reminder from our Investor Day in March, we expect limited delevering to offer in the near term as we continue to work on the Legion constellation belt. However, once done, we expect the company to generate free cash flow streams to allow for significant reduction in debt and leverage. The management team remains fully committed to paying down debt levels as soon as possible.

That concludes my presentation, and I will hand it back to Howard.

Thank you, Anil. Please turn to Slide 13 and our updated guidance.

We believe we're off to a good start in 2018 and are increasing our EPS outlook by $0.15 on the bottom and top end of the guidance range, and this is driven by a modest increase versus our previous expectations in interest expense, but offset by much lower expectation out for depreciation and amortization.

Our outlook for revenue, EBITDA and cash flow remains unchanged at this point and are still early in the year. But we believe our efforts to drive growth, cost synergies, cash conversion will allow us to achieve our objectives and our goals during 2018.

As Anil indicated, please note that we've raised the revenue outlook for the Space Systems segment to reflect the move to reporting gross revenue rather than net revenue at the segment level. There is no change in the outlook for net revenue for the corporation.

I'd like to wrap up by again thanking our employees for their efforts to drive performance across all areas of our company. With their help and the execution of our strategies, I remain convinced Maxar will deliver both long-term growth and increased shareholder value.

With that, I'm going to ask the operator to open the line, and we'll be glad to take your questions.

(Operator Instructions) And your first question so will be from Rob at Crédit Suisse.

A couple of things. Howard, just going back to your comment on the revenue and the net versus the gross, and I might be a little confused here, but should we have had some adjustment in the growth rates, given the restatement of the '17 revenue line?

Well, we have presented the pro forma '16, '17 and our guidance for '18 and of course, the first quarter actuals on the same basis. So we're looking -- so we are considering intersegment eliminations as a separate line and reporting the gross activity. Primarily, this is a Space Systems segment issue, and we're reporting the gross activity, which we think better represents, Rob, the work being done in the factories across Canada and at Silicon Valley.

Okay. I think I noticed, and I don't recall which version of the revenues it was that Space Systems' revenue for last year's '17 went up by about $25 million, $30 million. And I just figured somehow or another, that might factor into these growth rate changes...

And that is correct. So remember toward -- at the end of fourth quarter, we began construction of WorldView Legion, and that's an intercompany elimination. So it would be represented in the gross revenue at SSL within space's segment and eliminated them to corporate level.

Okay, okay. And then I wanted to also see -- and I don't know if this is for you or for Anil, I had a couple of questions, one was the contribution of the tax credits to the margins at Space Systems in the quarter (inaudible) were obviously very strong and sequentially up significantly from December but if we could just do an apples-to-apples and sort of x out those credits to understand how the underlying business is performing, I don't know if we compare Q1 to Q4 or Q1 to last year's Q1, and I'm talking about Space Systems EBITDA.

Yes. Got it. So let me first remind you that these tax credits are direct offsets to R&D spending. So they are operational in nature. Last year, and our expectation for this year is approximately $30 million in EBITDA contributing to that segment for the total year. So about the same year-over-year. Last year, we saw the credits roll through in Q2 and Q3 more than Q1 and Q4. This year, we started off seeing those in Q1. The timing has to do with milestones that are achieved in these various R&D programs and when we believe those credits, therefore, become recognizable. But overall, for the year, we're expecting about the same this year as last year. So if you take that round number of $30 million and divide it by 4, you might have said normalized flat would've been $7.5 million or $8 million in the first quarter, and we had around $20 million. So I'm thinking of it in terms of around $12 million, maybe $13 million of what you might call extraordinary in the quarter earnings in the Space Systems segment, which will then get normalized throughout the year as we'll have lower in future quarters since about $20 million of the $30 million came in the first quarter. I hope all of that makes sense.

Yes. So that's why your guidance for the full year margin is static?

Yes. So we have not increased our view, the underlying performance in space segments nor the contribution from this ITC element. We're -- remain optimistic that this business is going to flatten out year-over-year throughout the quarters, as we talked about at Investor Day, as we start to see, hopefully, the bottoming of the impact of the GEO business and as we wrap up and conclude the RCM business and launch in the fourth quarter of 2018. We remain very encouraged by the underlying growth in the rest of the business posting double-digit numbers in Q1. So off to a good start, that gives me some reason to feel optimistic, but the year is just getting started, and we felt that changing guidance materially was not warranted at this time.

Okay. And then just a couple of quick ones for Anil. In the filings today, in the net finance expense, you have a line for interest expense on advanced payments from customers. Are these -- and this appears this quarter but not previously. Is this some kind of borrowing from a customer? How do we think about this interest expense? And then my final question is on the increase in capitalized cost and to what extent -- Well, I guess it's capitalized cost and CapEx, I understand some of that is Legion, but is there any change on what you're capitalizing relative to the past?

So let me answer the second question first and that is no. There are pretty rigid criterias on what you have to capitalize in your R&D program, and we're following the same criteria that we have always had in the past. So no, there is nothing different. What I think you're referring to is the interest that we have paid on the orbital securitization program that we have paid because we securitized some of those orbitals. That's what I think it is. But I will certainly reclarify -- clarify that and get back to you if it is different.

Next question will be from Steve at RBC.

Just a couple of questions. First, at the Investor Day, you talked about a large, long-term series of pipeline opportunities. Just wanted to follow-up on that a little bit just to see how that list was developing. Has anything been added or removed? And generally, what kind of expectation should investors have in mind? And the timeline for some of these things being decided?

Yes. Thanks for the question, Steve. That list really hasn't changed over the last couple of months. Nothing has been checked off in terms of a major announcement. We kind of went through program by program at Investor Day and the various presentations. So I won't repeat that. Several of the programs on this list, we expect to be monetized in some way in 2018 and virtually all or the rest of them in 2019. So we try to keep this to be a relatively short-term pipeline view but did not expect that most of them would be in 2018. But certainly, within the next couple of years, and that's why we wanted to discuss them at Investor Day. So the view remains solid, as you noted, several of these are very large opportunities, and we continue to pursue every program on the list. So nothing has come off at this point.

Okay. Great. And secondly, just a couple of items on the balance sheet and the debt levels. No change to 2018 cash flow outlook. Looking beyond that, any change to the thinking in that deleveraging chart that you had on the Investor Day, more strong repayments in 2021 and targeting something on the order of 3x by 2020?

Anil?

No. Steve, we are still totally committed to our delevering targets as I mentioned in my presentation, we don't expect to delever in the short term as our priority is to continue the build on the legion consolation, but once that is done, our top priority is to delever as fast as we can. Having said that, I think on Investor Day, we committed to ensuring that we delever some amount in 2018, and we're still firmly committed to that number. As you can see in our first quarter, we brought down our leverage slightly, but still, it was quite material for us because we get into a different bucket when we are below 4x and that certainly reduces our interest expense, and we will continue to aggressively manage our cash and our working capital.

Steve, we continue to drive both of the levers that create deleveraging: one is higher EBITDA, the denominator, and the other is driving higher free cash flow. We talked at Investor Day and reiterated today, activities that are underway, including looking at various assets on our balance sheet that can be monetized and turned into cash. Whether that's the securitization of additional orbitals or other opportunities. So we're working all of those, and our goal, as Anil said, is very clear to achieve 3.8x leverage by the end of 2018.

Okay. Great. And one other follow-up, just in terms of integrations of the businesses and synergy targets and so on, sounds like that's tracking well. I guess that's the first question, is that still targeting the same kind of $60 million to $120 million over the next couple of years? And secondly, you talked about $9 million being achieved so far. Just wondering how that's measured? How that's different from other changes in normal growth in the business? And how we should think about that?

We remain convinced that the opportunity is between $60 million to $120 million of EBITDA run rate synergies by the end of 2019. That's been very consistent dating back to our announcement of the merger. At the lower end of that range, we've said, as expected, to be contributed by cost actions and the scale economics, and then the upper end of the range would be the contribution in addition from top line revenue synergies. We have indicated last quarter that we're targeting for about $25 million of that number in FY '18, and we're still on track for that, delivering $9 million in the first quarter, and it cuts across a number of the different segments -- all the different segments as well as corporate expense. We did have a little higher corporate expense in the first quarter, attributed primarily to legal expense on a number of different activities. We expect that to be reduced throughout the rest of the year, consistent with the guidance that we provided for corporate expense of $31 million to $35 million. We ran a little over $10 million in Q1 so that suggest -- that's going to step down Q2 through Q4.

And final one, just on a slightly different topic, just wondering and have been asked, how the CFO search is progressing? Any sense of profile of the candidates you're looking for, and any sense of timing?

We are very actively in the search, I can say that we have a number of very qualified and interested candidates. I won't try and predict the exact time when we'll make an announcement any more than I can't predict the next GEO order, but I can tell you that -- that just reiterate that we are only looking at either current or recently retired CFOs of public companies. So we expect to be appointing a very qualified, well-experienced CFO in the near future, and it remains a top priority for me.

I want to make one clarification to Rob's question, I just looked through my notes, and I think what you were referring to was the imputed interest we have on the EnhancedView contract. That's just an accounting entry that we have imputed interest expense. We had it in Q4, but we didn't have it in Q1. So when you compare actuals to actuals, you wouldn't have that, but if you compare it sequentially, you do have it. And that's where I got a little confused, I thought you said we didn't have it in 2014 -- in Q4, 2017, but it was Q4, 2017 but it was not there in Q1, 2017. So I think that's what you're referring to. So I just wanted to clarify that.

Your next question will now be coming from Paul at Scotia Capital.

Howard, could you talk a little bit about what the guidance implies for additional wins in the Comp SAT market for the year in terms of making that number? And then how we should maybe be thinking about bookings this year?

Our previous estimate on overall industry awards was 8 to 12. We don't see anything at this point here to suggest that would change, and we've run typically in or around 30% plus or minus. So that would suggest, I'll say, roughly, 3 to 4 total awards, of which 2 have been made thus far.

The second one would just be, where are we now at, guys, in terms of some of the efficiency efforts that you were going to do at Palo Alto, in terms of adjusting volumes, obviously, you've got Legion coming in there, are we at the tail end of that? What's sort of left to be done there?

No. We continue to -- every quarter, trying to align our direct labor with the work to be done in the factory. A part of the decline in the GEO market has been picked up by a small SAT work either for commercial customers, including DigitalGlobe or for -- work for the U.S. government. We also, though, continue to have a number of satellites in the factory that are finishing up and that remain to be launched. And so there is opportunity for further rationalization of those resources. Again, we look at it every quarter, and we also continue to look at, as I said, at Investor Day, other ways that we can better align our costs longer-term with what we believe will be a sustained, lower level of GEO market orders. So lots of continued work going on. Nothing further to announce today, but we continue to do that work, and you should expect to see continued adjustments as the year progresses to try and keep our costs and -- in line with new orders and with work in the factory, and as we've said before, to continue to be profitable and successful at the bottom of the cycle.

Great. Last one, I guess from my side would be, if we think about the U.S. government satellites business or trying to pursue awards there. Where are we at? You've had -- made more staff changes. Again, where's the situation sort of looking in terms of that pipeline?

The pipeline is growing. We announced a couple of wins in the quarter. We have not yet won what you might call a big award, a single award with hundreds of millions of dollars, but those are absolutely in the pipeline. We talked about the opportunities for that, and we think that we are well positioned to compete. We believe the government's desire to work more closely with commercial technology companies is very clear. Speech after speech talks about it, and we believe that puts Maxar and our capabilities in Space Systems at a very good position. But ultimately, the proof will be in future announcements. We remain optimistic but won't try and call which quarter or something like that announcement is going to occur with it.

The next question will be from Tim at TD.

Howard, I'm wondering if you can speak to the signs that you're seeing regarding a bottom in the GEO markets. Maybe specifically, what you're hearing from customers in terms of their considerations for moving forward with contracting for a new GEO sat?

Well, every customer and their situation's a little different, Tim. Those customers that are big providers of direct-to-home video are going to continue to order replacement satellites as their current satellites reach end-of-life. We see an increased focus on what we're calling hybrid satellites such as the one that we booked for Embratel Star One in Brazil, which has the capability to provide both direct-to-home video and broadband capabilities for data. So we think more customers rather than less are looking at those kinds of satellites. Those have a little more complexity so slightly higher prices. So again, we would point to dollar awards as probably being more useful going forward than just the absolute number of satellites. At the same time, I think all of our customers continue to try and figure out what is the most profitable way going forward to deliver high-speed data from satellites for various applications, be it mobile or remote kinds of applications. JUPITER 3 is a good example of where you can go large to accomplish that. It's offering the lowest cost per gigabit of any satellite that we've ever built. Obviously, interest continues in the LEO constellations and the potential for those kinds of satellites to provide lower cost. So I think that, on the data side, demand continues to go up, but as with terrestrial data, pricing continues to go down, and CEOs and CFOs that are customers are being very thoughtful of a (inaudible) to replacing kind of randomly the next satellite. So hopefully, that provides a little bit of color, we believe that satellite technologies will continue to play an important role going forward in the communications ecosystem, and as cost per gigabit can be reduced, they can even play a more important role. But we remain in this view in 2018 that we're probably about 50% where this market would be, let's say, at its nominal level of around 20 awards.

Okay. That's very helpful. My second question, I'm wondering if you have any visibility or thoughts at this point on revenue opportunities that could come once RCM is operating on orbit.

So we do not have data rights to the RCM constellation. The Canada Department of National Defence will be using all of that capacity. So we continue to grow our RADARSAT-2 Imagery business, and we're really optimistic this year about that because now we're utilizing the DigitalGlobe sales channels for both international defense and commercial customers. We also continue to review what our follow-on commercial satellite -- radar satellite strategy, maybe in future years as we go forward. And finally, we continue in discussions with government of Canada on what they call the RCM radar continuity program, which would be additional satellites to provide additional capacity, some of which could be available for commercial use by Maxar.

Okay. And then just my final question is a bit of a housekeeping question. I'm wondering what caused the increase in -- excuse me, the decrease in expected DNA for 2018.

It has to do with, I think, what's fairly typical in a major merger, which is purchase price adjustments and valuations as to fair value and life, in our case, of satellites on orbit. So that work continued on into the quarter past the point where we provided our previous guidance and the expected life of assets on orbit was increased modestly, which reduced the annual depreciation associated with those assets.

Next question will be from Thanos at BMO.

How should we think about seasonality through the course of the year, given the timing of the tax credits and the strong Q1 performance? I think on the last call, Howard, you said that earnings would be second half weighted? Is that still the case? Or is that different now?

Well, I think, given posting $1.47 in Q1 and just looking at our range for guidance, it's not looking like the second half will in fact be bigger than the first half. Although, we're always hopeful, but our guidance wouldn't reflect that currently. So we have 3 more quarters to go. Generally speaking, I think we still think that the trend line of the 3 quarters is tilting a little upward. So we would expect Q2 to be lower than Q1. Again, in the absence of another major realization of tax credits or some other factor related to earnings in the business, that's not reflected in our guidance. So that's probably about as much color quarterly as we can give because there are -- when you're in a programs business, you have percent completion accounting changes, you have risk reserves and liquidated damages that move positive or negative in any given quarter and the incentive tax credits we've talked about, predicting quarterly guidance within a very tight range, is just not really practical for us. It's a little easier than it used to be because of the contribution of the DigitalGlobe revenue and more consistent earnings, but hopefully, those comments give you a sense of how we're thinking about the rest of the year.

That's helpful. And Howard, could you expand on your prior commentary regarding the potential transfer of the EnhancedView contract from the NGA to the NRO? Is that just an administrative change? Or could that have any ramifications for the nature and structure of the contract? Or is it too early to tell?

Yes. I don't have any other comments at this point, Thanos. The NRO and NGA have always worked very closely together as it relates to both requirements for Imagery, which are serving all of the U.S. government and ally customers. We continue to believe that we are the only company that can meet the varying missions for the U.S. government going forward, and we believe that the NRO's involvement is only a positive because it would provide even more close coordination between their planning for national assets and the use of our commercial imagery capabilities. We're continuing to invest WorldView Legion as a reminder, will double our high-resolution capacity over those areas of the world that are most interest to our customers, it will significantly increase the revisit times, meaning the time between ability to image many of those highly important locations, and we already have unmatched accuracy and speed with our over 30 global ground stations. And so we're be able to process the image to delivering much more quickly than anyone else. So we remain very confident in our long-term relationship with the U.S. government, regardless of who is the contracting agency.

Great. And then finally, just to clarify your comments on the RCM data rights since that would appear to be in development. Is that a done deal at this point as far as you not having the rights? Or is there still some discussions and possibility there?

Well, first of all to be clear, we have never said we have the data rights. So it's been something -- it's been negotiated and discussed, but the contract to build that constellation did not include data rights access. Remember, the original constellation was supposed to be 6 satellites. They only funded 3 and so initially, the government believes that their demands for radar imagery will basically encompass all of the capabilities. We continue to work with government. We've made several proposals, they're ongoing discussions, but most of those today revolve around how we could play a role going forward in enabling the RCM radar continuity beyond these 3 satellites.

Next question is from Steven at Raymond James.

Howard, you highlighted the strengths in DigitalGlobe, which part of that business surprise you?

Well, I think we've seen a strong growth now for several quarters in both International Defense and Intelligence customers and commercial. And both of those had very, very strong quarters, both year-over-year and sequentially. What I really am impressed with, with our strategy, is how we are evolving from simply selling imagery, selling pixels if you will into developing products that sit on top of that data, and that's where, increasingly, we see more and more demand. And then when you put our Services business along with that, you put the artificial intelligence capabilities for analytics and insights. We really are providing a much more fulsome, end-to-end capability for our customers, and that's really what's driving the demand. That, along with increased capability and used cases, especially in commercial. We're very excited about the future relationships with autonomous vehicles, with using 3D imagery capabilities to help build out the global 5G network and other applications where the combination of our high-resolution imagery, our future higher revisit rates, and all of these products and analytics create a lot more value for customers. And so they're willing to give us additional orders and spend additional dollars with us. So really kudos to both our international and commercial imagery teams. And again, good growth coming in RADARSAT imagery utilizing the DigitalGlobe channel as well.

Great. And so Howard, if I look at last year, Q1 was the lowest EBITDA quarter for DG. Should we expect the same this year with -- so this Q1 as the base, and it grows from here?

We provided a range season of Imagery revenue and EBITDA margins. I wouldn't want to comment more specifically about the quarterly distribution, but it's fair to say, we're off to a good start. But if you look back through the history of DigitalGlobe premerger, there are revenue changes quarter-on-quarter based on consumption of minutes and based on the signing of new contracts and we certainly did have a good plus up this quarter with the new contract with HERE that I talked about.

Okay. That's helpful. And Howard, one last one, at your Investor Day, you talked about 85% visibility for fiscal 2018. Since then, you had announced a couple of Comsat wins, and today, you said EGD funding is in place. Is that visibility level well above 90% now?

I'll just say it's higher than 85%, and again, I think we had a good first quarter, but we have a long way to go for the year. The pipeline across the company is very encouraging, and we're hopeful we'll be able to not only print the numbers that we're providing guidance for but announce some important wins as the quarter’s progress.

Okay. Again, thank you all for joining us on the call today. And we look forward to talking to you next quarter.

Thank you, sir. Ladies and gentlemen, this does conclude the conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines. Have yourself a great day.