Thanks, Dan. Please turn to Slide 18 where we present year-over-year comparisons for Q3 and year-to-date. Total company revenues declined 6% year-over-year in the quarter due to lower GEO Comsat volumes and the RCM program wind down in Space Systems. These declines were partially offset by growth in Services and Imagery, the details of which I’ll go into momentarily.
Adjusted consolidated EBITDA margin increased 610 basis points year-over-year driven by Space Systems and Imagery offset in part by Services. Corporate and other expenses were higher year-over-year driven primarily by the retention costs at Space Solutions that I’ve discussed before. And that we are recognizing corporate and other expense to provide a better sense of the underlying profit trends at the segment level. These retention costs are being incurred to stabilize the workforce after the strategic shifts of the last year. We believe it is having its desired effect.
New wins in Space Solutions are likewise having a very positive effect on the workforce. These increases were partially offset by a decrease in SG&A and a decline in expenses related to a business dispute in 2018, which did not recur in 2019. GAAP EPS was a loss of $0.44 versus a loss of $4.88 in the third quarter of 2018, driven largely by the impairment taken in Q3 2018 related to the decline in the overall GEO Comsat business environment.
Year-to-date, revenues have declined 10% driven by lower volumes in Imagery and Space Systems in part offset by growth in Services. Adjusted EBITDA margins have increased 180 basis points driven by Space Systems and Services partially offset by Imagery. Year-to-date, EPS is a positive $2.02 versus a loss of $5.45 last year, driven by the WorldView-4 insurance recovery booked in Q2 of this year.
While the loss, last year was driven largely by the impairment described earlier.
Please turn to Slide 19.
As expected, Imagery revenues increased 5% year-over-year in the quarter, as we successfully signed delayed contract renewal with an international customer and continue to transition of lost WorldView-4 revenue streams to other constellation assets.
We also saw year-over-year growth in our U.S. government business as we continue to upgrade work on our infrastructure to better inner operate with our customer in the years to come.
Adjusted EBITDA margins expanded 220 basis points year-over-year on the higher revenue and positive mix in the quarter. On a year-to-date basis, revenues were down 2% given the WorldView-4 loss, but are tracking to roughly flat for the full year. Adjusted EBITDA margins are down roughly 80 basis points lower revenue and a slightly less favorable mix.
Please turn to Slide 20. Space Systems revenues were down 16% year-over-year in Q3, driven primarily by the expected wind down of work on the multi-year RCM project and the decline in GEO Comsat activity. Excuse me. Adjusted EBITDA margins increased 770 basis points as a result of lower development spend and lower headcount as a result of restructuring efforts.
The third quarter of last year was also impacted by supplier issues and delays.
Year-to-date Space Systems revenues are declined 15%, driven largely by the factors mentioned earlier, partially offset by an increase in revenues from Neptec, which was acquired in July of 2018. Adjusted EBITDA margins have increased 270 basis points, primarily as result of the factors mentioned earlier, partially offset by an increase in estimated cost to complete on certain projects.
Space solutions, the legacy SSL business generated $167 million in revenue during the quarter and a small adjusted EBITDA loss. The market improvement from the $31.5 million loss posted in the third quarter of 2018, a quarter that was negatively impacted by EAC growth due to supply chain issues and delays.
Performance in space solutions continue to be negatively impacted by EAC growth layer to first time work, which we are working diligently to complete. At this point, we continue to expect roughly breakeven adjusted EBITDA for the full year excluding the retention payments being recognized in corporate expenses.
Please turn to Slide 21.
Our Services business posted an 18% increase in revenue this quarter versus third quarter of 2018 driven by gross from new contract awards and program expansion on existing contracts across the intelligence community and DoD. Adjusted EBITDA margin declined however by roughly 220 basis points year-over-year, given a change in lease expense, which decreased adjusted EBITDA by roughly $1 million in the quarter versus the prior year period. Please note this change will result in additional $1 million of this expense year-over-year in the fourth quarter of this year.
Additionally, third quarter 2018 margins were higher versus third quarter 2019 given a lower level of subcontractor pass through work performed last year. This business experienced another solid looking quarter with total book-to-bill for the segment exceeding one. Year-to-date, revenues were up 9% year-over-year on the recent wins, while margins have remained relatively consistent.
Please turn to Slide 22. The company generated $83 million in operating cash flow this quarter and invested $79 million in CapEx and developed intangibles. On year-to-date basis, we have generated $142 million in operating cash flow and spent $206 million on CapEx and intangibles. Space Solutions/SSL consumed $2 million of consolidated operating cash flow in the quarter and $84 million year-to-date, as recent new award activity had a positive effect
As a reminder about cash activity in the fourth quarter, Q1 of 2019 included the doubling up of interest that added $42 million of cash outflow in that quarter relative to the norm. We paid additional cash interest in Q2 and Q3, but we’ll not be doing so in Q4 as we have already paid a full year’s worth.
Also the fourth quarter is typically seasonally positive quarter for the company, when it comes to operating cash flow generation. And this quarter looks even more so given the expected milestone payments, our major programs, almost all of which are already in backlog. This assumes of course that we don’t have a government shutdown that affects us this year, like it did last year.
As I’ll detail later, our operating cash flow outlook for the full year remains unchanged.
Please turn to Slide 23. We finished the quarter with consolidated net debt of roughly $3.1 billion, up slightly quarter-over-quarter.
Our bank defined leverage ratio ended the quarter at approximately 4.9, up roughly two-tenths of a turn from Q2 as trailing 12-month bank adjusted EBITDA declined due to the roll off of add backs allowed for under the credit agreement in prior quarters.
Importantly, we remain well below our covenants. We had roughly $588 million liquidity at the end of the quarter via combination of cash on hand and availability on our credit facility.
As Dan mentioned earlier, we recently engaged in a sale leaseback transaction on our Palo Alto manufacturing facility.
Irrespective of refinancing activities, the gross proceeds of roughly $291 million are sufficient to retire our 2020 maturities.
We will leaseback one or two of our primary buildings, which contains office space and light manufacturing for two years. The leaseback term on our primary manufacturing integration and test space is for 10 years, which gives us plenty of runway to address our long term manufacturing footprint in California. The lease amounts are in our 10-Q.
Importantly, we expect the net effect of this transaction to reduce leverage by roughly 0.3 times.
Going forward, we remain focused on delevering and debt reduction efforts in on better aligning our maturity schedule with our cash flow streams. Including the bond offering announced earlier today.
We continue to expect to increase cash generation in future years from expansion in adjusted EBITDA. The lower CapEx is our investment in the WorldView Legion constellation will continue for two more years, after which we will be positioned to have much greater free cash flow to delever.
Please turn to Slide 24.
Turning into guidance.
We continue to expect Imagery to be roughly flat year-over-year from our revenue and adjusted EBITDA perspective. And Services, we are now expecting solid mid to high single-digit revenue growth up from the low single-digit growth, we were previously forecasting, driven by the new awards we’ve won throughout the year.
We continue to expect full year adjusted EBITDA margins of roughly 10%.
At MDA, we are now expecting a low teen decline in revenue versus low single-digit decline, we previously expected, given delays and forecast to starts on new projects.
We continue to expect a decline of several hundred basis points of margin compression. It is important to note that we expect the delays this year to be pushed into 2020 and that this business has recently the books some new ones including the initial development work on Canadarm3. Taking together, no change to adjusted EBITDA for the Imagery, Services, MDA businesses.
Moving on now to space solutions/SSL.
We expect to this segment to contribute roughly breakeven adjusted EBITDA to the Space System segment, pre-retention payments and eliminations. Retention payments are now expected to be close to $25 million for the year. offsetting this below the adjusted EBITDA line will be lower severance costs of 2019.
Finally, we now expect roughly $30 billion of inner segment adjusted EBITDA eliminations, which is about $10 million higher than the previous expectation given the cadence and profit levels inner company activities now forecast.
So to summarize all the pieces of adjusted EBITDA guidance, we continue to expect greater than $550 million in adjusted EBITDA from Imagery, Services, and MDA net of corporate costs, but not included in the $25 million in Space Solutions retention.
We’ll expect Space Solutions to be breakeven before eliminations are roughly $30 million and retention payments of $25 million.
So we expect enough upside on the adjusted EBITDA from Imagery, Services and MDA plus a breakeven Space Solutions to offset the slightly higher elimination to $30 million and the retention payments of $25 million to keep us equal to or north of the $510 million for the overall company.
On operating cash flow, we continue to expect the range of $350 million to $450 million excluding the $80 million to a $100 million consumption of Space Solutions and the $20 plus million in retention payments.
Taken together, this provides for operating cash flow on a consolidated basis in a range of $230 million to $330 million.
Please note that this includes significant restructuring cash outflows due to reduction in force and final integration cost on the 2017 merger. These costs aggregate up to $40 million and are exceeded by the in-year savings we expect. Net of those costs, the normalized operating cash flow would be higher.
For space solutions, as I’ve mentioned on prior calls, cash flow is a headwind in 2019 given the timing of milestone payments, retention and cash restructuring charges, but this has significantly turned around in the second half.
As evidenced by third quarter cash use at space solutions of only a negative $2 million.
We expect CapEx for the year to be roughly $340 million, excluding capitalized interest of roughly $20 million. This is down about $35 million from our prior forecast, given the cadence of work being completed this year on WorldView Legion, recent reshaping efforts of space solutions and other fine tuning. We’ll continue to evaluate how much of this rose over in the next year as opposed to permanent reduction.
If you’re thinking about the future beyond 2019, in addition to normalizing for the insurance proceeds, keep in mind that our 2019 guidance includes up to $100 million use at space solution, $20 plus million in retention and up to $40 million of restructuring related costs. Once Legion is complete, we expect CapEx to fall to a more normalized range of $100 million to $150 million.
We also expect to recoup the approximately $70 million loss WorldView-4 revenue and to grow the company in other areas.
So I said over time all-in we could see upwards of $200 million of adjusted EBITDA growth.
So sometime following when we put WorldView Legion into operation, when you wrap all these things together, that is solving for the cash burn in space solutions, lower retention and restructuring costs, lower CapEx and adjusted EBITDA growth, we see at past up to $500 million or more swing at free cash compared to 2019 guidance after normalizing for the insurance proceeds.
Now back to 2019 guidance, we expect depreciation and amortization of roughly $405 million this year. Interest expense is expected to be approximately $195 million down slightly due to interest rate swaps that levels the interest rates and interest expenditures are expected to come in at roughly $185 million this year, with approximately $20 million of that capitalized.
We continue to forecast or roughly 0% effective tax rate due to the benefits of NOL carryforwards and ITCs.
We also continue to expect the diluted share count to come in at roughly 61 million. And as I discussed in the past, our credit agreement allows us effectively to convert our GAAP financials back to IFRS for the purposes of compliance with our covenant, which will generally lead to a higher level adjusted EBITDA. Most notably, these are R&D expense and investment tax credits.
We also have the ability to add back several other items to the leverage calculations, including stock compensation, which we now deduct from adjusted EBITDA and the expected benefits of restructuring efforts and cost savings. It is, as already noted, complicated and will vary based on the expenses embedded in our U.S. GAAP numbers.
So when we roll all the factors embedded in our guidance with these items, we expect our leverage ratio for the purposes of our debt covenants in the year well below six times.
Now I’d like to close out my comments by giving you few thoughts on the debt refinancing activity we launched earlier today. The objective of the refinancing is to pay down the borrowings on our existing revolving credit line and retire our Term Loan A indebtedness, while extending the maturity of our credit line and reducing it to $500 million.
While we were in marketing, I cannot give more specifics on the bonds, but I can talk to the bank credit amendment that we’ve entered into in support of that offering. The amendment would extend the maturity of our credit agreement by two years to 2023 conditional upon the success of the bond offering and the use of proceeds to pay down the current borrowings outstanding on the Term Loan A and revolver.
You will see in our disclosures of the amendment in our third quarter 10-Q to that conditional on the success of the bond offering, covenants had been significantly expanded. These new covenants were set high by the banks well above our current levels and expectations in order to give us and the prospect of bond holders plenty of room. Far more, either they would have anticipated otherwise.
As I said earlier, our current bank leverage is at 4.9 relative to a covenant of six. The new covenant goes as high as almost eight times, 160% the current metric.
Another element of the amendment which is not conditional on the bond offering provides clarity that the proceeds from the Palo Alto land sale can be used to retire our Term Loan A debt as opposed to a pro rata pay down of our term loan debt.
So with or without a bond transaction that we have a clear path taken care of the first Term Loan A maturity.
So to summarize my comments, we continue to be encouraged by the growth in Imagery and Services. We had success continue to work diligently to win new projects and return to profitability is Space Systems and we are focused on delevering and aligning our maturity schedule with our cash flow streams.
With that I’d, like to ask the operator to remind listeners how to queue up for question and open the line.