Thank you operator. Good afternoon. Thank you for joining our call today.
We have a lot to discuss and ensure we have ample time to answer your questions.
As some of you maybe aware, trading in our shares was suspended earlier this afternoon on both the Toronto Stock Exchange and the New York Stock Exchange. In the ordinary course, In the ordinary course, we provide the earnings release to the exchanges for pre-clearance in advance of issuing the press release, post-market close and as a technical matter the exchange has elected to halt trading pending the issuance of the release. The primary factor appears to have been the decision to cut the dividend.
We expect trading on both exchanges to commence again tomorrow morning. This happened while I was meeting with NASA Administrator, Jim Bridenstine, when our team was showcasing our robotics and space technology.
As we like to note around here, never a dull moment. At the time we announced our management transition, we committed to moving forward with action plans related to several key challenges Maxar has faced. At that time, I said we would seek to strengthen our operational and financial performance, including delivering sustainable revenue and cash flows, determine a definitive resolution for the geocommunication satellite line of business and clarify longer term growth prospects, required investments and optimal capital structure. We remain committed to these priorities. Please turn to slide three. Today, we are addressing these priorities and our action plans in greater detail. It has been just over 45 days since the transition and we have the high-level elements of our strategy in place. We recognize the work ahead of us, even if we do not yet have all the answers.
We are focused on disciplined capital prioritization, serving our customers and partners and delivering value to our shareholders.
As a leadership team, we know we have a lot of work to do, are well along in resolving the key challenges, have a clear sense of urgency and direction and are committed to strategy that aims to make Maxar an industry leader for the future. On today's call, we plan to discuss the following, 2018 financial results, an update on leverage, liquidity and cash flows, resolution on the go-forward plan for our GEO Comsat business, changes to our operating model to make Maxar a leaner company, better able to serve customers and unlock the value in our combined businesses, expected synergies and cost outs resulting from these changes, an update on WorldView-4 and how we are proceeding to serve customers and finally, a high-level view of our strategy evolution and outlook for the future. Please turn to slide four.
Before we begin, I thought it might be helpful to summarize my perspective on the company after my first 45 days in my new role.
We have clear strengths in our core business of earth intelligence that we will aggressively and strategically pursue. This includes an imagery, solid underlying demand across both government and commercial markets. In services, robust demand, low capital intensity and opportunities for margin expansion. And for MDA Canada solid franchises and continued expanding opportunities for profitable growth. We know we also have opportunity for improvement, including reducing leverage, improving our GEO Comsat business and overall operational execution. My comments today will address the key concerns and opportunities. Please turn to slide five. In the last month, we have moved quickly.
We have commenced a review of alternatives for deleveraging the balance sheet and fixing the capital structure, reduced the dividend to $0.01 to preserve cash, address GEO Comsat uncertainty with a clear focus for the future. This includes a plan for reengineering our Palo Alto space systems business for the 500 and 1300 bus lines, where we uniquely have opportunity and a competitive advantage. Stopped RSGS, which was not a good use of capital in 2019, $50 million in the original budget for the year. Began the process of seeking full recovery against the loss of WorldView-4, while investigating options to replace as much of the lost revenue as possible in the near-term and potentially accelerating the longer term replacement with WorldView Legion. Implemented a significant restructuring of our operating model to make it leaner and more nimble, including a plan to reduce annual costs by almost $60 million in 2019 and evolved our strategy to best leverage our core business and unique assets. Please turn to slide six. Through all of our actions, both implemented and as we move forward, we will follow guiding principles.
We will pursue our purpose, which is to help our customers build a better world.
We are going to drive sustainable growth across our business.
We will seek to pay down our debt over time.
We will aim to expand our returns on invested capital each and every year. And we will work to create a leading edge collaborative work environment that allows our team members to do the best, most challenging and exciting work of their careers. Please turn to slide seven.
We have resolved the near-term outlook for financing, leverage, cash flows and covenants.
We have reduced our quarterly dividend from CAD0.37 to $0.01 per share, providing an additional $60 million in annual cash flow. And as previously announced, we sold a portion of our real estate assets in Palo Alto with proceeds totaling $70 million that we have applied to pay down debt.
As we announced previously in our December 21, 2018 release, we received approval from our lenders to amend our credit agreement that provides additional flexibility with regard to our consolidated debt leverage ratio. We believe that our banking relationships are solid. Biggs will provide more detail about our liquidity and capital structure in his remarks. But at this point, I am confident that we have sufficient liquidity and capital resources to fund our near-term capital needs and we are pulling together plans to better optimize our capital structure over the long-term.
As part of our plans, we are focused on all levers to drive cash flows and pay down debt, including cost reductions from a new operating model that I will describe in a moment. Please turn to slide eight.
We have reached resolution on the GEO Comsat business.
As mentioned in our earnings release this afternoon, we are going to continue to operate the GEO Comsat production line on a much smaller scale with a facility that provides a robust design, engineering and manufacturing platform.
Our goal is to create a business model that will aim to be nimble and efficient, able to react to market upturns and downturns, deliver commitments to our customers and return to sustainable profitability.
As we went through the process of evaluating strategic alternatives, we found that the value of the business was worth more to us than the indications of interest we received from potential buyers. And the more we looked at it, it became clear that keeping the business and optimizing the cost structure was the best choice. Quite simply, we believe SSL has more value to us than to anyone else as we can leverage engineering talent, capabilities, shared infrastructure and a long-standing heritage. But we have to execute our strategy with less risk and greater upside.
We will operate the business in a more scalable fashion and work on cost structure, which will allow us to more quickly react to market upturns and downturns.
Our plan focuses on the following key points, preserving value from our industry-leading workforce and heritage in the GEO Comsat business.
We will continue executing on our backlog with the highest level of performance that our customers expect. The continuing business has a backlog of roughly $525 million and we are committed to delivering the highest quality technology solutions for our customers while continuing to pursue and execute new orders.
Just last week, SSL launched an innovative geocommunications satellite for Indonesian operator PSN that includes a high-throughput satellite payload and is one of the first to feature our next-generation electric propulsion system which provides increased power and flexibility compared to prior systems. Accelerating growth in new markets, particularly the U.S. government.
We are focusing on the 1300 kilogram class bus as well as on our disruptive 500 kilogram class bus product line called Legion which addresses a range of demanding government and commercial missions. Legion continues to gain traction.
We have received positive customer acknowledgement that our Legion class bus will be very competitive in a broad spectrum of U.S. government missions and we expect it would be a growth engine alongside a highly promising portfolio of smaller satellite, robotics and space infrastructure capabilities. We know there are clear benefits to integrating production of these two key product lines. Reengineering SSL, including resizing, restructuring and reinventing our Palo Alto facility, as I just described. We plan to further reduce debt by continuing to optimize our industrial footprint for this business, maintaining the right footprint and infrastructure to execute on both backlog and new orders while repositioning to compete fiercely for the next wave of state-of-the-art satellites and constellations.
Taken together, we expect these actions will drive improved profitability and cash flow over time. Biggs will review in more depth. I am excited about the plan we have put in place as it preserves the franchise in the space industry with a lot of heritage and it puts Maxar on a path to more fully realize the benefits of the vertically integrated company that we have assembled.
With the process for SSL concluded, the business can focus on serving customers with a leaner, more agile business model. We look forward to building upon the heritage and expertise of our team members in Palo Alto and deliver on our commitments to the customers and mission partners, who count on us every day. Please turn to slide nine.
We are restructuring our operating model to create a leaner organization that moves faster to achieve customers' objectives and deliver the solutions they need, one Maxar, through centralization and restructuring of our businesses, brands, management, support, product development and go-to market functions. To align with this model, we have also restructured the business leadership team to drive these changes as follows. Instead of four business units in a corporate structure, we have transitioned to one operating company with a separate Canadian business. Reporting to me are the key operating roles, global field operations, product development, space systems manufacturing and engineering in Canada as well as the corporate functions, finance, HR, legal and marketing and communications. We believe this structure will allow us to better serve our customers with one Maxar and enhance customer service and responsiveness, better unlock growth opportunities, collaboration and synergies across the business, increase speed of execution, improve employee engagement and retention and reduce our costs. These changes are already in effect and our new teams are ready to move forward to implement our plans. Please turn to slide 10.
As a result of these changes, we expect to deliver approximately $60 million in cost reductions in 2019 which leads to an annualized savings of more than $70 million. This is in addition to a previously announced post-merger synergy target of $60 million to $120 million in run rate EBITDA by the end of the fourth quarter of 2019.
We have announced a reduction in force across the business that represents approximately 4% of our workforce.
While these decisions are always difficult, we recognize that we need to make Maxar a leaner, more efficient, more effective organization.
We are also announcing that we are migrating fully to the Maxar brand across our businesses to demonstrate and exemplify our more centralized approach as well as to generate cost efficiencies and unify around a single promise, positioning and set of values. Please turn to slide 11.
As previously announced, Maxar's WorldView-4 satellite, built by and procured from Lockheed Martin, experienced a failure in its control moment gyros preventing the satellite from collecting imagery due to the loss of an axis of stability. The WorldView-4 satellite is insured for $183 million. Last week, we filed our insurance claim and are seeking full recovery for the loss. We plan to apply these proceeds towards improving liquidity and reducing debt.
We have identified action to replace the imagery collected by WorldView-4 and meet as much of the existing customer commitments and obligations as possible until we have our new WorldView Legion assets in place.
Looking ahead, our investment in the next generation of WorldView Legion constellation has been underway for over two years and we continue to expect to begin launch as early in 2021 or possibly late 2020. Capital for the Worldview Legion program continues to be estimated at approximately $600 million. This next-generation constellation will not only replace the capacities of Worldviews 1 and 2, which are expected to go end-of-life in the early part of the next decade, but it will also provide next-generation technology, capabilities and a configuration that can be used to address current and expected demand from our government and commercial customers.
Now to slide 12.
While our purpose and goals remain unchanged, we are evolving our strategy to meet our goals.
We are intensifying our focus on improving capital allocation and capital structure, stabilizing the business to drive profitable growth and changing our operating model to better unlock capabilities and technologies across our business.
We will leverage our unique capabilities, including deep customer intimacy with the U.S. and Canadian governments as well as our global international defense and intelligence customers, our world-class talent, our commercial mindset, our unrivaled product quality and AI capabilities to unlock the value in our content, our industry-leading satellite manufacturing capabilities and track record and finally our worldwide sales teams.
We will reengineer to win satellite business focused on 1300 and 500 buses and programs across commercial and U.S. government while leveraging our industry leading heritage in robotics to innovate and deliver the best solutions.
We will expand our core earth intelligence business with a growing focus on analytics and insights. This will allow us to double down on driving growth of geospatial products and solutions that our customers are seeking and we will continue to invest in MDA's unique capabilities and identity as a trusted defense partner to win opportunities in Canada and abroad to align with the approaching large program investment cycle.
Now before turning to outlook in 2019, I want to quickly recap some of our key accomplishments and wins in 2018. We posted significant accomplishments which include extension of our $300 million per year EnhancedView contract through 2023, renewal of Maxar's imagery segment's Global EGD contract and work to integrate our imagery infrastructure with the U.S. government systems through a secured cloud-based system.
Our services business Janus win and the award of an NGA Small Business Innovation & Research Phase III contract, successful deployments of Maxar satellites for Telesat, Azerspace-2, Intelsat and Planet. space systems built robotic arm on the InSight Lander commencing operations to explore Mars. Maxar's MDA built laser altimeter aboard OSIRIS-REx spacecraft beginning to examine the Asteroid Bennu and completion of U.S. domestication that positions us to win a broader range of U.S. government programs. I would like to now turn to our outlook for this year, starting on slide 13.
We expect our imagery segment to experience a relatively flat year versus 2018 as any remaining lost revenue and EBITDA from WorldView-4 is offset by our growth in our U.S. government business and cost reductions.
As a reminder, this business has $1.2 billion in funded backlog and another $900 million in unfunded from the EnhancedView follow-on contract we signed last fall with the NRO. The revenue streams here are highly recurring and come from the legacy EnhancedView program, the annual Global EGD contract, which supports over 250,000 users inside the U.S. government, roughly a dozen international customers using Direct Access Facilities and over 400 commercial customers. From a growth outlook perspective, we are pursuing Legion X opportunities as well as additional Direct Access Facilities, a number of strategic defense programs and dozens of commercial customers, including those in the Global 2000.
Importantly, our growth outlook is not entirely dependent on capacity as we also go-to-market with analytics, information products and subscriptions.
Now to slide 14. In services, we expect low to mid single digit topline growth and stable margins.
We have $246 million in funded backlog and $100 million in unfunded that we expect to convert in future budget years as the appropriators do their work.
As you know, much of the activity in this business is classified and difficult to describe in detail. That said, we have listed a few of our few existing major contracts here, including SBIR Phase III and Janus Geography, two program wins we announced in 2018. The pipeline remains robust in services, including several classified programs related to artificial intelligence and analytics as well as the Army's Remote Ground Terminal program and GEOINT production contract with DHS and international governments. From a capabilities perspective, we continue to focus on sensor and ground modernization, analytics, production and intelligence, all with an eye toward the GEOINT market across the U.S. government and increasingly the international government market.
We continue our efforts to productize our capability set here, which we think will help us drive both revenue growth and higher margins over time. Please turn to slide 15. At MDA, we expect a mid single digit decline in the topline and several hundred basis point move lower in margins as the RCM program continuous to be a headwind this year. That program originally scheduled for late 2018 should launch in the first half of this year, which will allow for easier comps in the coming years, demonstrating some of the underlined growth opportunities that exist for that business in addition to our growing pipeline. This will be a transition year for SSL.
We will be pursuing our strategy of taking out costs and restructuring the business to set it on a path to both operate profitability at lower volumes and to grow again by better aligning products and go-to-market strategy with the opportunity pipeline across both government and commercial end markets and focus on delivering on our commitments to our customers.
Importantly, our space system segment has $935 million in backlog, roughly $525 million of which comes from the eight GEO Comsats in production.
Beyond the GEO business, we continue to work on the Restore L, Psyche, OneWeb and Space Station programs.
On the pursuit side, we have a long list of items on the 12 to 18 month horizon, including the Canadian Surface Combatant program, which our partner Lockheed Martin has been awarded. The power propulsion element for Deep Space Gateway and the Canadarm III robotics, Lunar Gateway program, which the Canadian Space Agency announced today it plans to pursue.
Of course, there continue to be GEO pursuits, the Telesat LEO program and the Legion X programs that I mentioned earlier. And finally, as I mentioned earlier, we are pursing several opportunities with the U.S. and other governments that will utilize our unique 500 bus. From a capabilities perspective, we are convinced there are few companies in the world that can tackle what we can, from communications, remote sensing satellites and radar satellites to ground stations, space robotics, components and payloads, all the way to fully integrated defense systems for a broad set of missions.
As we rightsize and restructure the business, we will continue to execute on the opportunities in our backlog.
While profits are likely to improve in 2019, we recognize the work ahead of us is to get this business back to breakeven levels and we are moving forward with urgency.
As I mentioned earlier, we have taken a hard look at SSL in connection with the strategic alternatives review process and we are confident that restructuring and optimizing the business is the best path forward. Please turn to slide 16. In closing, with clarification of our new operating model and associated restructuring, our domestication and move to U.S. GAAP reporting, resolution of the GEO Comsat business and WorldView-4 asset and clarity on our business strategy, we intend to move forward in returning to sustainable growth in revenue and cash flows. We see solid underlying demand for commercial and government services in imagery, robust demand, low capital intensity and margin expansion opportunities for services. And at space systems, solid franchises and continued opportunities for profitable growth in Maxar's MDA Canada business.
We are focused on our action plans in delivering commitments to all stakeholders and we will provide regular updates as we have more information and report progress. Medium-term, we have revised our financial projections to reflect our outlook for growth in all of our business segments. And longer term, we believe our financial outlook for sustainable growth is both realistic and promising.
Now, I would like to turn the call over to Biggs to provide a review of our financial results.