Item 7.01. Regulation FD Disclosure.
On November 9, 2022, Maxar Technologies Inc., through its subsidiary Maxar Space
LLC (collectively, the "Company"), notified EchoStar XXIV L.L.C., a subsidiary
of EchoStar Corporation (collectively, "EchoStar"), that the expected shipment
of the JUPITER 3 satellite ("JUPITER 3") had moved to April 27, 2023. Prior to
the November 9, 2022 notification of the schedule change, the prior schedule
communicated to EchoStar was an expected shipment date of March 26, 2023.
JUPITER 3 was originally scheduled for shipment to EchoStar on January 19, 2021,
under the terms of a $445 million contract between Maxar Space LLC and EchoStar,
dated April 19, 2017 and amended October 1, 2018 (the "Contract"). JUPITER 3 is
an Ultra High-Density Satellite expected to be the world's largest commercial
communications satellite when it launches, which contains significant technical
innovations.
As a result of the additional delay of approximately one month, EchoStar stated
its intent to immediately terminate the Contract for default and claim a return
of all monies paid to Maxar. To avoid this outcome, the two companies entered
into an amendment to the Contract on November 16, 2022. Under the terms of the
amendment, Maxar has agreed to payment of fixed damages in the form of (i) the
forgiveness of all remaining milestone amounts owed by EchoStar to the Company
related to JUPITER 3, the aggregate total of which equal approximately $14
million, and (ii) the forgiveness of all orbital incentive payments, with a
current carrying value of $43 million, which were payable by EchoStar with 6%
interest over 15 years following launch and in-orbit service of JUPITER 3. The
orbital incentive payments were conditioned on the in-orbit performance of the
satellite.
The net present value of the foregone amounts owed to the Company, which include
both the pre-launch payments and the orbital incentive payments, is
approximately $50 to $55 million at discount rates of 10% to 8%, respectively.
The Company has also agreed to the payment of contingent additional liquidated
damages if the delivery of JUPITER 3 extends beyond June 2023. The contingent
additional liquidated damages are $8 million per month beginning in July 2023
and grow to $10 million per month beginning in October 2023 and thereafter. In
return, EchoStar has agreed to eliminate its right to terminate the Contract for
default for late delivery until January 1, 2024.
In addition, the Company has agreed to enter into a commercial agreement (the
"Commercial Agreement") whereby the Company will purchase certain goods and/or
services from EchoStar in 2023 with the scope of such goods and/or services to
be determined, but with a minimum value of $30 million. The Company expects that
the total value of the goods and services purchased to be between $30 and $40
million in 2023.
The Company believes that the risk of delivery after June 2023 and the
incurrence of additional liquidated damages is low. Prior delays in the JUPITER
3 program have been primarily caused by key subcontractor delays, challenging
developmental work well beyond that of other geostationary commercial satellites
manufactured by the Company, and the effects of the COVID-19 pandemic on the
Company's workforce and supply chain. The JUPITER 3 satellite has been assembled
and successfully completed Thermal Vacuum Environmental testing. All major feed
assemblies have been integrated and the satellite is in final mechanical
alignments and integration of waveguide and reflectors. Remaining work consists
of launch dynamics test (vibration test), final spacecraft performance tests and
shipment to the launch base. Using cost as the basis of measurement, the program
is 96% complete.
In connection with the amendment to the Contract, the Company expects to record
a non-cash charge reflected as a reduction in revenue in the fourth quarter of
2022 in an amount estimated to be approximately $65 million, substantially
representing the carrying value of the remaining payments foregone by the
Company and other costs to be incurred prior to the expected delivery of JUPITER
3 in the second quarter of 2023. This non-cash charge and purchases under the
Commercial Agreement were not reflected in the Company's previously reported
financial outlook for 2022 or 2023. The Company expects that prior guidance will
be impacted as follows: (i) there will be no change to 2022 free cash flow
guidance; (ii) there will be a $65 million reduction in revenue and Adjusted
EBITDA in 2022; (iii) there will be an approximately $20 million reduction in
free cash flow in 2023 related primarily to the foregone payments from EchoStar;
and (iv) there will be up to an estimated $30 to $40 million reduction in free
cash flow in 2023 attributable to the purchase of goods and/or services under
the Commercial Agreement. The accounting and financial impact of purchases under
the Commercial Agreement will depend on the final terms of the agreement and the
goods and/or services to be purchased by the Company. The Company currently
expects that purchases under the Commercial Agreement will be classified as
either capital expenditures or operating expenses in 2023. If the Company does
not find adequate value in the goods and/or services that are available from
EchoStar, then the Company would allocate the charge to the fourth quarter of
2022, increasing the impact to 2022 Adjusted EBITDA by up to $30 million.
Non-cash charges, and extraordinary, non-recurring and unusual items, as
defined, are excluded from the Company's results in the calculations of leverage
under the Company's credit facility. This non-cash charge and the Commercial
Agreement do not materially affect the Company's liquidity, covenant
calculations or resulting cushion in its Credit Facility. The Company continues
to maintain more than adequate liquidity, which equaled $379 million as of
September 30, 2022 and is expected to grow through positive free cash flow in
the fourth quarter of this year and in 2023. The Company continues to expect
free cash flow to be used to retire debt consistent with its expressed financial
strategy.
The Company has built and delivered over 300 spacecraft, including the
successful delivery of 20 spacecraft over the last five years with a value of
$2.9 billion. The Company currently has 95 geostationary communications customer
spacecraft in service. The Company looks forward to the successful delivery of
JUPITER 3 in the second quarter of 2023.
The information contained in this Item 7.01 shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or incorporated by reference in any filing under the Exchange
Act or the Securities Act of 1933, as amended, except as shall be expressly set
forth by specific reference in such filing.
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