Maxar Technologies Inc.
Q1 2018 Earnings Call Transcript

Published: 9 May 2018

[Operator:]

Welcome to Maxar Technologies Ltd’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 as of 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 cause actual results 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 on 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 Q1, 2018 event details. I now would like to turn the discussion over to Mr. Howard Lance. Please go ahead, sir.

[Howard Lance:]

Thank you. Good morning everyone and welcome to our call. We are pleased to have you join us as we review our first quarter results and some key accomplishments from across the Company. I would 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 are proud to deliver mission critical solutions, 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 will 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 is due to expected year-over-year declines and our GEO Communications Satellite and RCM lines of business, but revenues 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 have very strong year-over-year revenues in the quarter. As did revenues in Small Sats, U.S. Government Space Systems and across MD&A in Canada. EBITDA margin 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 form a $1.17 pro forma in the year ago period. Our book-to-bill was just above 1.0 in the quarter and this is off course despite the continued quarterly draw down on the 10 year enhanced new 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 consume $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 the momentum coming off a strong Q1 and we increased our EPS guidance for the year. Please turn to Slide 3. A recent acquisition of DigitalGlobe combines four leading space brands across the value chain into one company and it creates a global leader in the new space economy where our capabilities and 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 the credibility with U.S. government agencies and international government customers. We have added more predictable geospatial data and services revenue streams, while diversifying our products and services offerings. With a larger set of customers and end markets, we are better able to increase share in existing markets and grow an 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 to both focus and scale economics. Each of our operating companies own their customers, their strategies and their P&Ls, but they are 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 $120 million in run rate EBITDA synergies by the end of 2019 as previously stated. Year-to-date in the first quarter we recognize roughly $9 million in cost synergies. So were 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 tailwind. 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. of 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 a 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 on order activity key accomplishments in Q1. In inventory 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 continue 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 EnhancedView contract in future years. So we are actively working with both the NGA and NRO to ensure the continuity of access to our imagery and GEO 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 are excited to see NRO affirming ongoing value of our commercial capabilities as a complement to the national systems. You know that we have 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 funding for that program to $47 million, consistent with the prior year. In the international defense intelligence markets, we received renewal from two important direct 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 the Rapid Access Program. This is a secure cloud-based platform, seamlessly connecting customers for the world's highest resolution and most accurate imagery and actionable intelligence. This program is designed to give customers the 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 design 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 continue 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 conclusion of WorldView-4 imagery and later this year RADARSAT-2 imagery. This is easy to use and 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 will be launching a comparable online offerings for commercial customers later this summer. Also in commercial, we announced during the quarter that we signed an extension and expansion of multiyear agreements with two major commercial technology customers. One of which is now DigitalGlobe's largest commercial contract ever. These new multiyear agreements feature increase annual contract values. DigitalGlobe also signed a multiyear, multimillion dollar contract in Q1 to our extend our partnership with [HERE] (Ph) the open location platform company and one of the leading providers, high definition mass 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 cm 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 Utopia Tech Corporation that will utilize their proprietary, artificial intelligence algorithms and cloud computing capabilities to create building footprints. By using Utopia U.S. building footprints powered by DigitalGlobe, customers will have the most current and informational structures within their areas of interest, enabling them to make business decisions with unprecedented speed and efficiency. We expect this product to be use by a number of our vertical markets overtime. Moving on to Space Systems, we have successfully launched the Advanced Hispasat 30W-6 satellite built to a 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 have built to date using 3D printing products. Our primary focus continues to be to deliver technological advances that improve satellite performance, flexibility and costs. Development and construction work continues on several groundbreaking 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 orbit servicing missions to become a reality. We were very pleased to report in the quarter that we were awarded to 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 within the 2020 Tokyo Olympics. SSL launched similar satellite for B-SAT in November of 2017 ahead of schedule and we believe there is no greater endorsement of our capabilities and repeat orders from satisfied customers. Israeli satellite operator Spacecom 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 hotspot to Europe, Africa and the Middle East. AMOS-8 will including flexible high-power KU band and KA band pay loads with steerable antennas to enable Spacecom 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 two contracts related to unmanned aerial systems during the quarter. MDA will provide turnkey unmanned aircraft system surveillance services and 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 defense and provide maritime miniature unmanned aircraft systems. This contract includes services, support, training, equipment and capabilities development. This new system will offer enhanced capabilities by extending the reach of the communication and centric capabilities over contentious or hospital areas during maritime security operations. We believe both contracts demonstrate NDAs broad capabilities and leadership in servicing and supporting defense missions, helping to solve our customers most complex challenges. Turning to services, I'm proud to announce that Radiant Solutions was named one of the top workplaces 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, socio-cultural analysts, software developers and data scientists and 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 one 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 of systems engineering and software development to enhance the RGT program provide critical information directly to military and humanitarian aid and disaster relief missions by providing timely access to our high resolution commercial imagery. The business environment and services remains robust. This is allowing for a high level of pipeline and bid activity for the company, including a couple programs identified in our long-term opportunity set at the investor days meetings. And with that I would like to hand things over to our CFO, Anil Wirasekara for a further discussion of the quarter.

[Anil Wirasekara:]

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 of the income statement. We have provided at supplemental table in the earnings release that restate these figures on a quarterly basis for the years 2016 and 2017. We have made this 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 insights 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 one actual results to 2018 quarter one pro forma results as if the merger with completed in Q1 201. 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 7, where we present year-over-year compares ions for the first quarter. Please turn to Slide 7, as Howard suggested earlier the total company revenue declined in the quarter, but is in line with our expectations. The imagery and services segment recorded strong revenue growth; however, this was more than offset by declines in the Space Systems segment where the step downing award value and continued weakness in the Geo concept market since 2015 continue to flow through as low revenues in the current quarter. We also experience as expected a lowered level of planned activity of the RCM project for the Canadian government. Overall, our adjusted consolidated EBITDA margins increased over 330 points driven by strong performance in our imaginary business and the timing and recognition of this quarter of certain tax credit and program reserve 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 it is a subject to quarterly volatility. Please turn to Slide 8. Imaginary segment revenues were up strong 9% year-over-year increase 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 expander 310 basis points year-over-year to 65.3% driven by higher revenues, contract mix and synergies. As Howard mention earlier, we had several key waves 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 two key product announcements at the GEOINT Conference last month. We expect both the Rapid Access program and the SecureWatch product to be the key drivers of growth for the imaginary going forward. Please turn to Slide 9. Space Systems experience a 14% year-over-year revenue decline in Q1 2018 as the 92% increase in our U.S government and Small Sat businesses will more than offset by the decline in the GEO Communications 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 Geo Com Sat market stabilizes this segment this segment should return to growth. Adjusted EBITDA margins expanded by 40 business point’s 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 NDA and the U.S. 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 opening 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 discontinue to have quarterly fluctuations and cash flows and going forward, we will report a role in three and four part of 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 target for the year. Please turn the Slide 12. We finish the quarter with our consolidated net debt at 3.0457 billion up modestly from the fourth quarter of 2007 driven primarily on program milestones and two quarters of cash interest payment made in the first quarter of 2018. Our leverage ratio is however declined sequentially and ended the quarter at 3.9 times 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 occur the near-term as we continue to work on Legion Constellation belt. However, once done we expect the Company to generate free cash flows streams to allows 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 Holly.

[Howard Lance:]

Thank you, Anil. Please turn the Slide 13, and our updated guidance. We believe we are 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 a much lower expectation 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 the Anil indicated, please note that we 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 would 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 increase shareholder value. With that, I’m going to ask the operator to open the line and we will be glad to take your questions.

[Operator:]

Thank you sir. [Operator Instructions] And your first question will be Rob at Credit Suisse. Please go ahead.

[Robert Spingarn:]

Good morning. A couple of things. Howard just going back to 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 that lease statement of the 2017 revenue line.

[Howard Lance:]

Well we have presented a pro forma 2016, 2017, and our guidance for 2018, and of course, the first quarter actual on the same basis. 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 are reporting the gross activity which we think better represents Rob the work being done in the factories across Canada and Silicon Valley.

[Robert Spingarn:]

Okay, I think I noticed and I don’t recall which version of the revenues was that the Space Systems revenue for last year 2017 went up by about 25 million, 30 million and I just figured somehow or another that might factor into these growth rate changes.

[Howard Lance:]

That is correct. So remember, toward the fourth quarter, we began construction of WorldView Legion, and that's an intercompany illumination. So it would be represented in the gross revenue and at SSL within Spaces System segment and eliminated the corporate level.

[Robert Spingarn:]

Okay, and I wanted to also see and I don’t know if this is for you or for Anil. A couple questions. One was the contribution of the tax credits to the margins at Space Systems in the quarter were obviously very strong and sequentially up significantly from December. But if we could just do an apples-to-apples sort of ex-out those credits to understand how the underlying business is performing, I don't know if we compare Q1 to Q4 or Q1 the last year's Q1 and I’m talk about Space Systems EBITDA.

[Howard Lance:]

Got it, so let me first remind you that these tax credits are direct offset to R&D spending so they are operational in nature. Last year and our expectations for this year is approximately $30 million in EBITDA contributing to that segment for the total year, so that 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 of those credits therefore become recognizable, but overall for the year, were expecting about the same this year as last year. So if you think that round number of 30 million and divide it by four you might have said normalized flat would have been 7.5 or 8 million in the first quarter and we had around 20 million. So I'm thinking of it in terms of around 12 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 well have lower in future quarters since about 20 million and the 30 million came in the first quarter. I hope all of that makes sense.

[Robert Spingarn:]

Yes, so that's why your guidance for the full-year margin is static.

[Howard Lance:]

Yes, so we have not increase our view of the underlying performance in space segments nor the contribution from this ITC element, you know we remain optimistic that this business is going to flatten out year-over-year throughout the quarters as we have talked about at Investor Day, as we start to see hopefully the bottoming of the impact of the GEO business, and as we ramp 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 it gives me some reason to feel optimistic, but the year is getting started and we felt that changing guidance materially was not warranted at this time.

[Robert Spingarn:]

Okay and then just a couple of quick ones for Anil. In the filings today in the net finance expense you have aligned for interest expense on advance payments from customers. Then this disappears 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 I guess it's capitalized cost and CapEx. I understand some of that is Legion, but is there any change in what you are capitalizing relative to the past.

[Anil Wirasekara:]

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

[Robert Spingarn:]

Okay. Alright, thank you both.

[Operator:]

Thank you. Next question will be from Steve at RBC. Please go ahead.

[Steve Arthur:]

Great, thanks very much. Just a couple of questions. First, at the Investor Day, you talked about a large long-term series of pipeline opportunities, just want to follow-up on that a little bit just to see how that list was developing has anything made either or removed and generally what kind of expectation should investors have in mind, and the timeline for some of the things being decided.

[Howard Lance:]

Yes. Thanks for the question Steve. The list really hasn't changed over the last couple of months, nothing has been checked off in terms of the major announcement. We went through program-by-program at Investor Day in 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 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 remain 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.

[Steve Arthur:]

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 and that deleveraging chart that you had in the Investor Day, more strong repayments in 2021 and targeting something on the order of three times by 2020.

[Howard Lance:]

Anil.

[Anil Wirasekara:]

No, Steve we are totally committed to delevering that. As I mentioned in my presentation, we don't expect to delever in the short-term. Our priority is to continue the bid on the Legion Constellation. But once that is done our top priority is to delever as fast as we can. Having said that, I think on Invested Day committed to ensuring that we delever some amount in 2018 and we are 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 blow four times and that certainly reduce our interest expense and we will continue to aggressively manage our cash and our working capital.

[Howard Lance:]

Steve we continue to drive both of the levers that create deleveraging. One is higher EBITDA denominator and the other is that driving higher free cash flow. We talked at Investor Day and reiterate it 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 were working all of those and our goal as Anil said is very clear is to achieve 3.8 times leverage by the end of 2018.

[Steve Arthur:]

Okay, great and one other follow-up. Just in terms of integrations of the businesses and synergy targets and so on, it 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 years 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 and normal growth in the business and how we should think about that?

[Howard Lance:]

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 as the lower end of that range we have said is expected to be contributed by cost action 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 are targeting for that $25 million of that number in FY 2018 and we are still on track for that delivery 9 million in the first quarter and it cuts across a number of the different segments, all of the different segments as well as our 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 and 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.

[Steve Arthur:]

And final one just on so a slightly different topic, just wondering and have been asked how the CFO search is progressing. Any sense of profile of the candidate you are looking forward and any sense of timing, just likely to impact to know the entire golf season or are targeting something before that.

[Howard Lance:]

Yes, I'm very aware of that impact on an handicap. 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 will make an announcement, anymore than I can predict in the next year order, but I can tell you that just reiterate that we are only looking at either current or a recently retired CFOs of the 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.

[Steve Arthur:]

I appreciate that. Thanks very much.

[Anil Wirasekara:]

Thank you Steve for your concern about my handicap, I do appreciate that. I just 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 Q4 2017, but it was Q4 2017 but it was not there in Q1 2017. So I think that's what you were referring to. So I just wanted o clarify that.

[Operator:]

Your next question will now be coming from Paul Steep of Scotia Capital. Please go ahead.

[Paul Steep:]

Good morning. Howard, could you talk a little bit about what the guidance implies for additional wins in the Com Sat markets for the year in terms of making that number and then how we should maybe thinking about bookings this year.

[Howard Lance:]

Our previous estimate on overall industry awards was eight to 12, we don't see anything at this point here to suggest that would change and we have run typically around 30% plus or minus. So that would suggest I will say roughly three to four total awards of which two have been made thus far.

[Paul Steep:]

Thank you. 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 have got Legion coming in there, are we at the tail end of that, what is left to be done there.

[Howard Lance:]

No. We continue to every quarter try and align our direct labor with the work to be done in the factory, part of a decline in the GEO market has been picked up by Small Sat work either for commercial customers, including DigitalGlobe, or for work for the U.S. government. We also will 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 in investor day on the other ways that we can better align our cost 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 in line with new orders and with work in the factory and as we have said before, to continue to be profitable and successful at the bottom of the cycle.

[Paul Steep:]

Great. Last one I guess from my side would if you think about the U.S. government satellite business are trying to pursue awards there, where are we at you know you have made more staff changes. Again, where is the situation sort of looking in terms of that pipeline.

[Howard Lance:]

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 in 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 within.

[Paul Steep:]

Fair enough. Thanks guys.

[Operator:]

Thank you. Next question will be from Tim at TD. Please go ahead.

[Timothy Andrews:]

Good morning. Howard, I’m wondering if you can speak to the signs that you are seeing regarding the bottom in the GEO market. Maybe specifically what you are hearing from customers in terms of their considerations for moving forward with contracting for a new a GEO Sat.

[Howard Lance:]

Well every customer and their situations are 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 are calling a hybrid satellite, such as the one that we booked for Amber Telstar, one in Brazil which have 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 complexities so slightly higher prices. So again, we would point to dollar awards as probably being more useful going forward then 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 concept of applications. Jupiter 3 is a good example of where you can go large to accomplish that it's offering a lowest cost per gigabit of any satellite that we have ever filled. 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 and our customers are being very thoughtful of the before just 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 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 are probably about 50% of where this market would be let's say at its nominal level at around 20 awards.

[Timothy Andrews:]

Okay. Thank you very much, 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?

[Howard Lance:]

So we do not have data rights to the RCM Constellation, the Canada Department of National Defense will be using all of that capacity. So we continue to grow our RADARSAT-2 to imagery business and we really are optimistic this year about that, because now we are 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.

[Timothy Andrews:]

Okay, thank you and just my final question. It’s a bit of a housekeeping question, I'm wondering what caused the decrease in expected DNA for 2018.

[Howard Lance:]

It has to do with. I think what fairly typical in a major merger, which is purchase price adjustments and valuations as the fair value and life in our case of satellites on orbit. So that work continued on into the quarter pass 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.

[Timothy Andrews:]

Great. Thank you very much Howard.

[Howard Lance:]

Thank you.

[Operator:]

Thank you. Next question will be from Thanos at BMO. Please go ahead.

[Thanos Moschopoulos:]

Hi good morning. How should we think about the 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 probably the case or is the different now?

[Howard Lance:]

Well, I think given posting a $47 in Q1 and just now 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 are always hopeful, but our guidance wouldn’t reflect that currently. So we have three more quarters to go. You know, generally speaking, I think we still think that the trend line of this three quarter 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 you know when you are in a programs business, you have percent completion accounting changes, you have risk reserves, liquidated damages that move positive or negative in any given and incentive tax credits we talked about predicting quarterly guidance within very tight ranges 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 are thinking about the rest of the year.

[Thanos Moschopoulos:]

Thanks helpful thank you. 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 administrative change or could that have any ramifications for the nature and structure of the contract [indiscernible].

[Howard Lance:]

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 allied 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 will provide even more close coordination between their planning for national assets and the use of our commercial imagery capabilities. We are continuing to invest WorldView Legion, as a reminder we 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. So were able to process the image to deliver 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.

[Thanos Moschopoulos:]

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

[Howard Lance:]

Well first of all to be clear, we have never said we have the data rights. So it's been something that’s been negotiated and discussed, but the contract to build that constellation did not include data rights access. Remember there no constellation was supposed to be six satellites, they only funded three and so initially the government believes that their demands for radar imagery will basically encompass all of the capabilities. We continue to work with governments, we have made several proposals, there are 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 three satellites.

[Thanos Moschopoulos:]

Okay. Fair enough.

[Operator:]

Thank you. Next question is from Steven at Raymond James. Please go ahead.

[Steven Li:]

Thank you. Howard, you highlighted the strength in DigitalGlobe which part of that business surprise you?

[Howard Lance:]

Well, I think we have seen a strong growth now for several quarters in both international defense intelligence customers and commercial and both of those had very, very strong quarters both year-over-year and sequentially. What I really I'm impressed 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 capability for analytics and insights, we really are providing a much more fulsome end -to-end capability for our customers and that's really what is driving the demand that along with increased capability and use case is. Especially in commercial and were very excited about the future relationship 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 our future higher revisit rates and all of these products and analytics create a lot more value for customers. And so they are willing to give us additional orders and spend additional dollars with us. Really kudos to both our international and commercial imagery teams and again good growth coming in and RADARSAT imagery utilizing the DigitalGlobe channel as well.

[Steven Li:]

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

[Howard Lance:]

We provided a range Steven of the imagery revenue and EBITDA margins. I wouldn’t want to comment more specifically about the quarterly distribution, but fair to say were off to a good start. But if you look back through the history of DigitalGlobe premerger you know, 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.

[Steven Li:]

Okay that’s help and Howard one last one. At the investor day you talk about 85% visibility for fiscal 2018, since then you have had announced a couple Com Sat wins you today you said EGD funding is in place. Is that visibility level, what are those 90% now?

[Howard Lance:]

I will just say its higher than 85%. Again, I think we had a good first quarter, but we have long way to go for the year. The pipeline across the Company is very encouraging and we are hopeful will be able to not only print the numbers that we are providing guidance for, but announce some important wins as the quarters progress.

[Steven Li:]

Alright. Thank you.

[Howard Lance:]

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

[Operator:]

Thank you, sir. Ladies and gentleman 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.