MAXAR TECHNOLOGIES This Quarterly Report on Form 10-Q contains "forward-looking statements" as defined in Section 27A of theU.S. Securities Act of 1933, as amended, and Section 21E of theU.S. Securities Exchange Act of 1934, as amended ("Exchange Act"). Forward-looking statements usually relate to future events and may include statements regarding, among other things, our anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words "believe," "expect," "anticipate," "plan," "intend," "foresee," "should," "would," "could," "may," "estimate," "outlook" and similar expressions, including the negative thereof. These forward-looking statements are based on management's current expectations and assumptions based on information currently known to us and our projections of the future, about which we cannot be certain. Forward-looking statements are subject to various risks and uncertainties which could cause actual results to differ materially from the anticipated results or expectations expressed in this Quarterly Report on Form 10-Q. As a result, although we believe we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, undue reliance should not be placed on the forward-looking statements because we can give no assurance that they will prove to be accurate. Risks and uncertainties that could cause actual results to differ materially from current expectations include those set forth in Part II, Item 1A, "Risk Factors" and elsewhere in this MD&A, as such risks and uncertainties may be updated or superseded from time to time by subsequent reports we file with theSecurities and Exchange Commission . The forward-looking statements contained in this Quarterly Report on Form 10-Q speak only as of the date hereof and are expressly qualified in their entirety by the foregoing risks and uncertainties. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition, results of operations and cash flows. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except to the extent required
by
law.
*****
Unless stated otherwise or the context otherwise requires, references to the
terms "Company," "
OVERVIEW
We are a provider of comprehensive space solutions and secure, precise, geospatial intelligence. We help government and commercial customers monitor, understand and navigate our changing planet; deliver global broadband communications; and explore and advance the use of space. Our approach combines decades of deep mission understanding and a proven commercial and defense foundation to deploy solutions and deliver insights with speed, scale and cost effectiveness. Our businesses are organized and managed in two reportable segments: Earth Intelligence and Space Infrastructure, as described below under "Segment Results". Unless otherwise indicated, our significant accounting policies and estimates, material cash requirements, commitments, contingencies and business risks and uncertainties as described in our MD&A and consolidated financial statements for the year endedDecember 31, 2021 , are substantially unchanged.
RECENT DEVELOPMENTS
COVID-19 operational posture and current impact
We continue to monitor and adapt our pandemic crisis response plan, while maintaining a focus on the protection of the health and safety of our employees, families, customers and communities. Changes in our operations in response to COVID-19 and employee illnesses resulting from the pandemic have resulted in inefficiencies and delays of our projects, impacts to service level contracts, including in sales and product development efforts and additional costs related to business continuity initiatives that cannot be fully mitigated through succession planning or employees working remotely. Additionally, we have and continue to observe stress in our supplier base inside and outside theU.S. We will continue to monitor and assess the actual and potential COVID-19 impacts on employees, customers, suppliers 23
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and the productivity of the work being done, all of which to some extent will affect revenues, estimated costs to complete projects, earnings and cash flow. Our results of operations for the quarter endedMarch 31, 2022 , were not materially impacted by COVID-19.
Refer to Part II Item IA. "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of our risks related to COVID-19.
WorldView Legion satellites update
We experienced a test configuration anomaly that is in the process of being re-executed. In addition, the war inUkraine has limited the use of the Antonov aircraft that typically flies satellites to launch sites, which has put further pressure on the overall schedule as we will likely need to use ground transportation to move the satellites from our manufacturing facility inCalifornia to the launch site inFlorida . Assuming no major issues arise, we now expect the first launch of the WorldView Legion satellites in theSeptember 2022 timeframe. The second and third launches are still expected to be within three and six months, respectively, after the first launch.
Electro-Optical Commercial Layer ("EOCL") contract
In
SEGMENT RESULTS
Our Chief Operating Decision Maker measures performance of our reportable segments based on revenue and Adjusted EBITDA. Our operating and reportable segments are: Earth Intelligence and Space Infrastructure.
Earth Intelligence
In the Earth Intelligence segment, we are a global leader in high resolution space-based Earth observation imagery products and analytics. We launched the world's first high resolution commercial imaging satellite in 1999 and currently operate a four-satellite imaging constellation, providing us with over two decades and approximately 137 petabytes of imagery over our history (referred to as our "Image Library ") of the highest-resolution, commercially available imagery. Our imagery solutions provide customers with timely, accurate and mission-critical information about our changing planet and support a wide variety of government and commercial applications, including mission planning, mapping and analysis, environmental monitoring, disaster management, crop management, oil and gas exploration and infrastructure management. We continue to innovate as demands for new satellite technology and advanced analytic tools increase. We are a leader in commercial satellite imagery, and our commitment to accuracy, clarity and recency of foundational mapping enables us to provide the highest quality imagery basemaps for our customers. The high-quality satellite imagery also enables us to provide advanced 3D modeling for augmented reality, virtual reality and interactive engagement through our Precision3D Suite of tools. TheU.S. government is the largest customer of our Earth Intelligence segment through the EnhancedView Contract, Global Enhanced GEOINT Delivery and One World Terrain programs and various classified and unclassified contract vehicles. In the commercial satellite Earth observation industry, we are a leader acrossU.S. government agencies, international government agencies and commercial customer verticals. We also provide geospatial services that combine imagery, analytic expertise and innovative technology to deliver intelligence solutions to customers. Our cleared personnel support analytic solutions that accurately document change and enable geospatial modeling and analysis that help predict where events will occur. Our primary customer of geospatial services is theU.S. government, but we also support intelligence requirements for otherU.S. allied governments, global development organizations and commercial customers. 24 Table of Contents Space Infrastructure In the Space Infrastructure segment, we provide solutions for communications, Earth observation, remote sensing, on-orbit servicing, robotic assembly and space exploration. We address a broad spectrum of needs for our customers, including mission systems engineering, product design, spacecraft manufacturing, assembly, integration and testing. Our principal customers in the Space Infrastructure segment are commercial satellite operators and government agencies worldwide. Our approach combines proven success gained over six decades in the industry with the nimbleness and agility of a smaller space company. RESULTS OF OPERATIONS Three Months Ended March 31, $ % 2022 2021 Change Change ($ millions) Revenues: Product$ 154 $ 142$ 12 8 % Service 251 250 1 0 Total revenues 405 392 13 3 Costs and expenses: Product costs, excluding depreciation and amortization 127 148 (21) (14) Service costs, excluding depreciation and amortization 93 93 - - Selling, general and administrative 104 84 20 24 Depreciation and amortization 68 74 (6) (8) Operating income (loss) $ 13 $
(7)$ 20 * % Interest expense, net 23 78 (55) (71) Other income, net (3) (1) (2) 200 Loss before taxes$ (7) $ (84)$ 77 (92) %
Income tax (benefit) expense -
- - *
Net loss $ (7) $ (84) $ 77 (92) %
* Not meaningful.
Product and service revenues
Three Months Ended March 31, $ %
2022 2021 Change Change
($ millions)
Product revenues $ 154 $ 142 $ 12 8 %
Service revenues 251 250 1 0
Total revenues $ 405 $ 392 $ 13 3 %
Total revenues increased to $405 million from $392 million , or by $13 million ,
for the three months ended March 31, 2022 , compared to the same period of 2021.
The increase in revenues was driven by an increase in product revenues within
our Space Infrastructure segment.
Further discussion of the drivers behind changes in revenues is included within the "Results by Segment" section below.
See Note 10, "Revenue" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1, "Financial Information" for product and service revenue by segment.
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Product and service costs
Three Months Ended March 31, $ %
2022 2021 Change Change
($ millions)Product costs, excluding depreciation and amortization $ 127 $ 148$ (21) (14) % Service costs, excluding depreciation and amortization 93
93 - -
Total costs $ 220 $ 241 $ (21) (9) %
Total costs of product and services decreased to $220 million from $241 million ,
or by $21 million , for the three months ended March 31, 2022 , compared to the
same period of 2021. The decrease in costs was driven by a decrease in product
costs within our Space Infrastructure segment.
Selling, general and administrative
Three Months Ended March 31, $ %
2022 2021 Change Change
($ millions)Selling, general and administrative $ 104 $
84
Selling, general and administrative costs increased to$104 million from$84 million , or by$20 million , for the three months endedMarch 31, 2022 , compared to the same period of 2021. The increase was primarily due to a$7 million increase in labor related expenses driven by annual merit increases, increases in fringe benefits and an increase in efforts related to internal business projects, including our enterprise resource planning ("ERP") project for the three months endedMarch 31, 2022 compared to the same period of 2021. There was also an increase in stock-based compensation expense of$4 million for the three months endedMarch 31, 2022 . The increase in stock-based compensation was primarily due to incremental expense related to liability classified awards driven by an increase in stock price. There was also an increase of$3 million in sales and marketing expenses primarily within our Space Infrastructure segment, a$3 million increase in professional service expenses primarily driven by our ERP project and a$2 million increase in research and development expenses within our Space Infrastructure segment for the three months endedMarch 31, 2022 , compared to the same period of 2021.
Depreciation and amortization
Three Months Ended March 31, $ %
2022 2021 Change Change
($ millions)Property, plant and equipment $ 19 $ 23$ (4) (17) % Intangible assets 49 51 (2) (4) Depreciation and amortization expense $ 68 $ 74
Depreciation and amortization expense decreased to$68 million from$74 million , or by$6 million , for the three months endedMarch 31, 2022 , compared to the same period of 2021. The decrease was primarily driven by a decrease in depreciation expense related to the extension of the useful lives of three satellites in the fourth quarter of 2021. 26 Table of Contents Interest expense, net Three Months Ended March 31, $ % 2022 2021 Change Change ($ millions) Interest expense:
Interest on long-term debt $ 33 $ 44$ (11) (25) % Interest on orbital securitization liability 1 1 - - Loss on debt extinguishment - 41 (41) (100) Imputed interest and other -
1 (1) (100)
Capitalized interest (11) (9) (2) 22
Interest expense, net $ 23 $ 78 $ (55) (71) %
Interest expense, net decreased to$23 million from$78 million , or by$55 million , for the three months endedMarch 31, 2022 , compared to the same period in 2021. The decrease was primarily driven by a$41 million loss on debt extinguishment during the three months endedMarch 31, 2021 from the partial redemption of our 9.75% Senior Secured Notes due 2023 ("2023 Notes") using proceeds from aMarch 2021 underwritten public offering of our common stock ("Offering"), compared to no loss on debt extinguishment for the same period of 2022. The decrease is also driven by an$11 million decrease in interest on long-term debt primarily due to a lower principal balance on the 2023 Notes due to the partial redemption of the 2023 Notes in the first quarter of 2021.
RESULTS BY SEGMENT
We analyze financial performance by segments, which group related activities
within our business. We report our financial performance based on two reportable
segments: Earth Intelligence and Space Infrastructure. Intrasegment transactions
have been eliminated from the segmented financial information discussed below.
Three Months Ended March 31, $ %
2022 2021 Change Change
($ millions)
Revenues:
Earth Intelligence $ 251 $ 250 $ 1 0 %
Space Infrastructure 177 155 22 14
Intersegment eliminations (23) (13) (10) 77
Total revenues $ 405 $ 392 $ 13 3 %
Adjusted EBITDA:
Earth Intelligence $ 99 $ 107 $ (8) (7) %
Space Infrastructure 19 (12) 31 *
Intersegment eliminations (9) (5) (4) 80Corporate and other expenses (25) (23)
(2) 9 Total Adjusted EBITDA $ 84 $ 67$ 17 25 % * Not meaningful. Adjusted EBITDA disclosures throughout this section "Management's Discussion and Analysis of Financial Condition and Results of Operations" are non-GAAP measures. See "Non-GAAP Financial Measures" below for further discussion of Adjusted EBITDA disclosures. See also Note 11, "Segment Information" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1, "Financial Information" in this Quarterly Report on Form 10-Q for additional information about how we use Adjusted EBITDA to measure the performance of
each
of our segments.
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Earth Intelligence
The following table provides selected financial information for the Earth
Intelligence segment.
Three Months Ended March 31, $ %
2022 2021 Change Change
($ millions)
Total revenues $ 251 $ 250 $ 1 0 %
Adjusted EBITDA $ 99 $ 107 $ (8) (7) %
Adjusted EBITDA margin (as a % of total
revenues) 39.4 % 42.8 %
Revenues from the Earth Intelligence segment increased to$251 million from$250 million , or by$1 million , for the three months endedMarch 31, 2022 , compared to the same period in 2021. The increase was primarily driven by a$2 million increase in revenues from international defense and intelligence customers and a$1 million increase in revenues from commercial programs. These increases were partially offset by a$2 million decrease in revenues from theU.S. government. Adjusted EBITDA decreased to$99 million from$107 million , or by$8 million , for the three months endedMarch 31, 2022 , compared to the same period of 2021. The decrease was primarily related to an increase in selling, general and administrative costs, compared to the same period of 2021. The increase in selling, general and administrative costs was primarily due to an increase in labor related expenses driven by employee compensation and fringe benefits.
Space Infrastructure
The following table provides selected financial information for the Space
Infrastructure segment.
Three Months Ended March 31, $ %
2022 2021 Change Change
($ millions)
Total revenues $ 177 $ 155 $ 22 14 %
Adjusted EBITDA $ 19 $ (12) $ 31 *
Adjusted EBITDA margin (as a % of total
revenues) 10.7 % (7.7) %
* Not meaningful.
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 using the cost-to-cost method to determine
the percentage of completion over the construction period, which typically
ranges between 20 to 36 months, and up to 48 months in certain situations.
Adjusted EBITDA margins can vary from quarter to quarter due to the mix of our
revenues and changes in our estimated total costs at completion ("EAC") as our
risks are retired and as our EACs are increased or decreased based on contract
performance. Adjusted EBITDA margins are also impacted by estimated contractual
consideration.
Revenues from the Space Infrastructure segment increased to $177 million from
$155 million , or by $22 million , for the three months ended March 31, 2022 ,
compared to the same period in 2021. Revenues increased primarily as a result of
a $28 million aggregate impact due to the non-performance of the SXM-7 satellite
during the three months ended March 31, 2021 , which did not reoccur in the same
period in 2022. This increase was partially offset by a $3 million decrease in
revenues from U.S. government contracts and a $2 million decrease in revenues
from recurring commercial programs during the three months ended March 31, 2022 .
Adjusted EBITDA in the Space Infrastructure segment increased to $19 million
from a loss of $12 million , or by $31 million , for the three months ended March
31, 2022 , compared to the same period of 2021. The increase was primarily
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related to the above-mentioned SXM-7 satellite impacts which did not reoccur in the same period in 2022. The increase was also driven by an$11 million decrease in indirect costs primarily due to reduced overhead costs during the three months endedMarch 31, 2022 . These increases were partially offset by a$9 million increase in selling, general and administrative costs primarily due to an increase in labor related expenses driven by employee compensation, fringe benefits and an increase in efforts related to internal business projects. There was also an increase in sales and marketing expenses and research and development expenses.
Corporate and other expenses
Corporate and other expenses include items such as corporate office costs, regulatory costs, executive and director compensation, foreign exchange gains and losses, retention costs and fees for legal and consulting services.
Corporate and other expenses increased to$25 million from$23 million , or by$2 million , for the three months endedMarch 31, 2022 , compared to the same period in 2021. The increase was primarily driven by an increase in stock-based compensation expense of$3 million for the three months endedMarch 31, 2022 , which was primarily due to incremental expense related to liability classified awards. Intersegment eliminations
Intersegment eliminations are related to projects between our segments,
including the construction of our WorldView Legion satellites. Intersegment
eliminations increased to
BACKLOG
Our backlog by segment is as follows:
March 31, December 31,
2022 2021
($ millions)
Earth Intelligence $ 876 $ 1,028
Space Infrastructure 745 865
Total backlog 1,621 1,893
Unfunded contract options 763 650
Total $ 2,384 $ 2,543
Order backlog, representing the estimated dollar value of firm contracts for
which work has not yet been performed (also known as the remaining performance
obligations on a contract), was $1,621 million as of March 31, 2022 compared to
$1,893 million as of December 31, 2021 . Order backlog generally does not include
unexercised contract options and potential orders under indefinite
delivery/indefinite quantity contracts.
Backlog in the Space Infrastructure segment is primarily comprised of multi-year
awards, such as satellite builds. Fluctuations in backlog are driven primarily
by the timing of large program wins. Backlog in the Earth Intelligence segment
consists of both multi-year and annual contracts, which renew at various times
throughout the year. As a result, the timing of when contracts are awarded and
when option years are exercised may cause backlog to fluctuate significantly
from period to period.
Although backlog reflects business that is considered to be firm, terminations,
amendments or cancellations may occur, which could result in a reduction in our
total backlog.
Our unfunded contract options totaled
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contract options as ofMarch 31, 2022 , were primarily comprised of the option year in the EnhancedView Contract (September 1, 2022 throughJuly 12, 2023 ) and otherU.S. government contracts. InNovember 2021 , the NRO announced the release of the EOCL RFP which is expected to replace the existing EnhancedView Contract. InDecember 2021 , we submitted our response to the EOCL RFP and anticipate the NRO to award EOCL contracts prior to the expiration of the EnhancedView Contract, including remaining option years.
LIQUIDITY & CAPITAL RESOURCES
Our sources of liquidity include cash provided by operations, access to existing credit facilities, collection or securitization of orbital receivables and, when available and efficient, access to the capital markets. We generally maintain limited cash on hand and use available cash to pay down borrowings on our Syndicated Credit Facility (as defined below). Our primary short-term cash requirements are to fund working capital, including requirements on long-term construction contracts (including our geostationary satellite contracts), fixed overhead costs, and to fund increased capital expenditures, including the construction of our WorldView Legion satellites. Working capital requirements can vary significantly from period to period, particularly as a result of the timing of receipts and disbursements related to long-term construction contracts. Our medium-term to long-term cash requirements are to service and repay debt and make investments, including in facilities, equipment, technologies, and research and development for growth initiatives. These capital investments include investments to replace the capability or capacity of satellites which have or will go out of service in the future. Over the near-term to medium-term, it is also possible that our customers may fully or partially fund the construction of additional Legion satellites. Cash is also used to pay dividends and finance other long-term strategic business initiatives. Our first maturity of long-term debt is in the fourth quarter of 2023 and relates to the 2023 Notes and Revolving Credit Facility (as defined below). OnMarch 26, 2021 , we redeemed$350 million aggregate principal amount of our 2023 Notes using a portion of the net proceeds from the Offering. We have significant purchase obligations in the normal course of business for goods and services, under agreements with defined terms as to quantity, price and timing of delivery. Purchase obligations represent open purchase orders and other commitments for the purchase or construction of property, plant and equipment or intangible assets, operational commitments related to remote ground terminals, or with subcontractors on long-term construction contracts that we have with customers in the normal course of business. We also have short and long-term requirements to fund our pension plans within the Space Infrastructure segment. Funding requirements under applicable laws and regulations are a major consideration in making contributions to our pension plans. Failure to satisfy the minimum funding thresholds with respect to appropriate laws and regulations could result in restrictions on our ability to amend the plans or make benefit payments. With respect to our qualified pension plan, we intend to contribute annually not less than the required minimum funding thresholds. In 2021, we elected to take advantage of certain provisions of the American Rescue Plan Act of 2021 and due to our election, there are no required contributions for the qualified pension plan for the year endingDecember 31, 2022 . Our ability to fund our cash needs will depend, in part, on our ability to generate cash in the future, which depends on our future financial results. Our future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our control. Our future access to, and the availability of credit on acceptable terms and conditions is impacted by many factors, including capital market liquidity and overall economic conditions. We believe that our cash from operating activities generated from continuing operations, together with available borrowings under our Revolving Credit Facility, will be adequate for the next twelve months and the foreseeable future to meet our anticipated uses of cash flow, including working capital, capital expenditure, debt service costs, dividend and other commitments. While we intend to reduce debt over time using cash provided by operations, we may also seek to meet long-term debt obligations, if necessary, and fund future capital investments by obtaining capital from a variety of 30
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additional sources or by refinancing existing obligations. These sources include public or private capital markets, bank financings, proceeds from dispositions or other third-party sources.
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