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Maxar Technologies Reports First Quarter 2018 Results, Declares Quarterly Dividend

9 May 2018

Maxar Technologies Ltd.  today reported financial results for the first quarter ended March 31, 2018. All dollar amounts in this press release are expressed in U.S. dollars unless otherwise noted.

“We delivered results above our expectations in the quarter driven by strong growth in our Imagery and Services segments, where demand remains robust given a dynamic global geopolitical environment and the continued expansion of commercial use cases for geospatial data and insights,” stated Howard L. Lance, President & Chief Executive Officer. “We are reaffirming our full year 2018 guidance for revenue, EBITDA and cash flow from operations and increasing our full-year EPS outlook. We remain focused on delivering solid financial results throughout the year,” he added. “Maxar is unique, at the nexus of the new space economy, with four leading commercial business brands. Our diversification strategy is working, we are delivering on the cost synergies from the DigitalGlobe acquisition, and we are making progress on the long-term strategic and financial objectives for growth laid out at the Company’s inaugural investor days hosted in March 2018.”

Consolidated revenues for the first quarter of 2018 were $557.7 million compared to $373.5 million for the same period of last year. Revenue increased primarily due to the inclusion of DigitalGlobe’s Imagery and Services businesses as a result of the DigitalGlobe acquisition that closed in October 5, 2017. The increase was partially offset by lower revenues from the geostationary communications satellite line of business compared to the first quarter of 2017. Excluding the effects of intersegment eliminations, the Space Systems segment contributed revenues of $293.4 million (2017 - $341.5 million), the Imagery segment contributed revenues of $211.4 million (2017 - $7.7 million), and the Services segment contributed revenues of $70.0 million (2017 - $25.4 million).

For the first quarter of 2018, adjusted EBITDA was $187.4 million and adjusted EBITDA as a percentage of consolidated revenues (“adjusted EBITDA margin percentage”) was 33.6%. This is compared to adjusted EBITDA of $63.1 million and adjusted EBITDA margin percentage of 16.9% for the first quarter of 2017. These increases are primarily due to the DigitalGlobe acquisition, which contributed $133.5 million of adjusted EBITDA and adjusted EBITDA margin of approximately 66%, increasing the Company’s overall adjusted EBITDA margin percentage in the first quarter.

Adjusted earnings, or net earnings excluding the impact of specified items affecting comparability, were $83.2 million ($1.47 per share) for the first quarter of 2018 compared to $33.7 million ($0.92 per share) for the same period of 2017. The increase in adjusted earnings per share reflect higher adjusted EBITDA from the DigitalGlobe acquisition, partially offset by higher amortization, depreciation, and interest expense.

The comparison of financial results under IFRS between periods is impacted by the inclusion and variability of specified items that may not be indicative of the financial performance of the Company’s ongoing business. After including the specified items affecting comparability, net earnings for the first quarter of 2018 were $31.0 million compared to $4.3 million for the same period of 2017.

The Company had total funded order backlog of $3.3 billion as at March 31, 2018 compared to $3.3 billion as at December 31, 2017.

The Company has declared a quarterly dividend of C$0.37 per common share payable on June 29, 2018 to shareholders of record at the close of business on June 15, 2018.

Financial Highlights

 

 

 

 

Three months ended

March 31,

2018

 

2017

 

($ millions, except per share amounts)

Consolidated revenues

$

557.7

$

373.5

Adjusted EBITDA1

187.4

63.1

Adjusted EBITDA as a percentage of revenues

33.6

%

 

16.9

%

Net finance expense2

(43.4

)

(10.6

)

Depreciation and amortization3

(47.2

)

(11.0

)

Income tax expense on adjusted earnings4

(13.6

)

(7.8

)

Adjusted earnings1

$

83.2

 

$

33.7

 

Adjusted earnings per share1

$

1.47

$

0.92

Items affecting comparability:

Share-based compensation recovery (expense)

1.3

(4.8

)

Amortization of acquisition related intangible assets

(65.2

)

(8.0

)

Acquisition and integration related expense

(4.7

)

(8.0

)

Interest expense on dissenting shareholder liability

(2.1

)

Restructuring and enterprise improvement costs

(0.4

)

(10.7

)

Foreign exchange differences

1.1

0.1

Loss on sale of subsidiary

(2.2

)

Equity in loss from joint ventures, net of tax

(0.2

)

Income tax expense adjustment

20.2

 

2.0

 

Net earnings

$

31.0

 

$

4.3

 

 

Net earnings per share, basic

0.55

0.12

Net earnings per share, diluted

0.55

0.11

 

Weighted average number of common shares outstanding (millions):

Basic

56.4

36.5

Diluted

56.7

36.5

 

1 This is a non-IFRS financial measure. Refer to section “Non-IFRS Financial Measures” in this earnings release.
2 Excludes interest expense from dissenting shareholder liability.
3 Excludes amortization of acquisition related intangible assets.
4 Excludes income tax expense adjustment related to adjusted earnings.

2018 Financial Outlook

  • Revenue decline of 2% to 4%

  • Adjusted EBITDA margins of ~32.5%

  • Adjusted EPS of $4.65 to $4.85

  • Cash flow from operations of $300M to $400M

Change in Presentation of Reportable Segments

On October 5, 2017, the Company completed the acquisition of DigitalGlobe (“DigitalGlobe Transaction”). Subsequent to closing the DigitalGlobe Transaction, in the fourth quarter of 2017, the Company changed its financial reporting segments to better align with its combined product and services offerings. Beginning with first quarter of 2018, the company changed its reporting of revenue and EBITDA to include both items on a gross basis at the segment level and net of eliminations basis for the corporation. These changes provide investors with increased transparency and allow for easier comparisons with the Company’s industry peer group. The Company reports revenue and adjusted EBITDA based on three reportable segments: Space Systems, Imagery and Services. Comparative data for the first quarter 2017 is provided for completeness and is based on actual financial results for standalone MacDonald Dettwiler and Associates.

Segment Results

The Company analyzes financial performance by segment, which combine related activities within the Company.

           
Reported
Three months ended
March 31,
2018 2017
($ millions)
Revenue
Space Systems $ 293.4 $ 341.5
Imagery 211.4 7.7
Services 70.0 25.4
Intersegment eliminations   (17.1 )   (1.1 )
Total Revenue 557.7 373.5
Adjusted EBITDA1
Space Systems 54.6 62.2
Imagery 138.1 3.0
Services 7.1 4.0
Intersegment eliminations   (2.0 )    
Total Segment Adjusted EBITDA 197.8 69.2
Unallocated corporate expenses   (10.4 )   (6.1 )
Total Adjusted EBITDA $ 187.4   $ 63.1  
 

1 This is a non-IFRS financial measure. Refer to section “Non-IFRS Financial Measures” in this earnings release.

Space Systems Results

           
Reported
Three months ended
March 31,
2018 2017
($ millions)
Revenue $ 293.4 $ 341.5
Adjusted EBITDA1 $ 54.6 $ 62.2
Adjusted EBITDA Margin1 18.6

%

 

18.2 %
 

1 This is a non-IFRS financial measure. Refer to section “Non-IFRS Financial Measures” in this earnings release.

Total revenues from the Space Systems segment were $293.4 million in the first quarter of 2018 compared to $341.5 million in the same period of 2017. The decrease primarily related to lower revenue from the geostationary communications satellite line of business in the first quarter of 2018 compared to the first quarter of 2017, partially offset by higher revenue from contracts with the U.S. Government.

Although the total dollar value of geostationary communication satellite awards to the Company has remained relatively stable since 2015, there has been a step down in total number and dollar value of awards compared to historical averages prior to 2015. Revenues have decreased year-over-year as programs awarded prior to 2015 have been completed and have been replaced by this lower level of award value since 2015. Many satellite operators in the communications industry have continued to defer new satellite construction awards to evaluate geostationary and other competing satellite system architectures and other market factors. The Company believes that geostationary communications markets are at or near the bottom of this current decline. The Company is confident in its ability to adapt to changes in customer demand and maintain its leading market share position in the face of evolving technology trends.

Changes in revenues from year to year are influenced by the size, timing and number of satellite contracts awarded in the current and preceding years and the length of the construction period for satellite contracts awarded. Revenues on satellite contracts are recognized on a percentage of completion method over the construction period, which typically range between 20 to 36 months and up to 48 months in special situations. EBITDA margins can vary from quarter to quarter due to the mix of our revenues and changes in our estimated costs to complete as our risks are retired and as our estimated costs to complete are increased or decreased based on contract performance.

Adjusted EBITDA margin percentage from the Space Systems segment for the three months ended March 31, 2018 was 18.6% compared to 18.2% for the same period in the prior year. The increase was primarily due to higher investment tax credits recognized during the three months ended March 31, 2018. The increase relates primarily to timing differences in the recognition of previously earned, but unrecognized investment tax credits on the basis that there is now reasonable assurance the benefit of the credits will be sustained.

Notable bookings in the Space Systems segment announced in the first quarter of 2018 included:

  • A contract with NASA’s Jet Propulsion Laboratory to design and build critical equipment for a spacecraft that will explore Europa, one of Jupiter’s moons.
  • A contract to provide a broadcast satellite for Broadcasting Satellite System Corporation (B-SAT). As the leading broadcasting satellite operator in Japan, B-SAT will use the Direct-to-Home (DTH) television satellite to ensure exceptional ultra-high definition video distribution for the 2020 Tokyo Olympics.
  • Spacecom, operator of the AMOS satellite fleet, announced it has chosen Space Systems/Loral, LLC, a wholly owned subsidiary of Maxar, to build its AMOS-8 advanced communications satellite. The satellite will deliver state-of-the-art broadcast, broadband and data services from Spacecom's 4°degrees West 'hot spot' to Europe, Africa and the Middle East.
  • A contract with an unnamed international customer where MDA will provide turnkey, unmanned aircraft system surveillance services. The contract includes options for additional years.

Imagery Segment Results

           
Reported
Three months ended
March 31,
2018 2017
($ millions)
Revenue $ 211.4 $ 7.7
Adjusted EBITDA1 $ 138.1 $ 3.0
Adjusted EBITDA Margin1 65.3

%

 

39.0 %
 

1 This is a non-IFRS financial measure. Refer to section “Non-IFRS Financial Measures” in this earnings release.

Total revenues from the Imagery segment were $211.4 million in the first quarter of 2018 compared to $7.7 million in the same period of 2017. The increase is primarily due to the inclusion of the financial results of the acquired DigitalGlobe imagery business that contributed $201.9 million of revenue and $133.5 million of adjusted EBITDA in the first quarter of 2018.

Adjusted EBITDA margin percentage from the Imagery segment for the three months ended March 31, 2018 was 65.3% compared to 39.0% for the same period of 2017. The increase in margin percentage reflects the blend of margins from the acquired DigitalGlobe imagery business.

Notable bookings in the Imagery segment in the first quarter of 2018 included:

  • A contract extension and expansion of a multi-year agreement with a major commercial technology customer.
  • The renewal of two contracts with existing International Defense & Intelligence customers to provide imagery through the Direct Access Program.

Services Results

           
Reported
Three months ended
March 31,
2018 2017
($ millions)
Revenue $ 70.0 $ 25.4
Adjusted EBITDA1 $ 7.1 $ 4.0
Adjusted EBITDA Margin1 10.1

%

 

15.7 %
 

1 This is a non-IFRS financial measure. Refer to section “Non-IFRS Financial Measures” in this earnings release.

Total revenues from the Services segment were $70.0 million in the first quarter of 2018 compared to $25.4 million in the same period of 2017. The increase is primarily due to the inclusion of the financial results from the DigitalGlobe services business that contributed $42.9 million of revenue and $3.8 million of adjusted EBITDA in the first quarter of 2018.

Adjusted EBITDA margin percentage from the Services segment for the three months ended March 31, 2018 was 10.1% compared to 15.7% for the same period of 2017. The decrease in margin reflects the blend of margins from the DigitalGlobe services business, as well as the impact from a lower percentage of fixed-price services contracts as compared to cost-plus services contracts with the U.S. Government.

Notable bookings in the Services segment in the first quarter of 2018 included:

  • A contract with a U.S. Intelligence Agency to support multiple missions across the U.S. Government. This contract provides funding for several major projects including machine learning, cloud computing, and a scheduling tool for understanding satellite tasking viability.
  • A new task order on an existing prime contract vehicle to provide Multi-Intelligence analysis and software development support for a global military intelligence mission.
  • A contract with a U.S. Intelligence Agency to enrich the quality of radar imagery to support advanced geospatial analysis.