Ladies and gentlemen, thank you for standing by, and welcome to the Maxar Technologies Q2 2020 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s call is being recorded. [Operator Instructions] I would now like to hand the conference over to Mr. Jason Gursky, Vice President of Investor Relations and Treasurer. Thank you. Please go ahead.
Good afternoon, and thanks, operator. Welcome to Maxar’s second quarter 2020 earnings conference call. I’m joined today by the company’s Chief Executive Officer, Dan Jablonsky; and its Chief Financial Officer, Biggs Porter. Both are going to make some opening remarks, after which, we’re going to open up the line for your questions.
We’re shooting to wrap up the call in about an hour.
Before we get started, I’d like to refer listeners to the accompanying slides for today’s call, which can be found on the company’s website, maxar.com, in the Investor Events and Presentations section of the site. Once there, please turn to Slide 2, where I’d like to remind you that part of today’s discussion, including responses to various questions, may contain forward-looking statements, which represent the company’s estimates, future plans, objectives and expected performance at today’s date. These statements are based on current assumptions that the company believes are reasonable, but are subject to a wide range of uncertainties and risks that could lead actual results to differ materially from the forward-looking information.
If you refer to the advisory regarding forward-looking statements contained in our quarterly earnings release, the earnings call slide deck and the company’s most recent MD&A section found in Form 10-Q, which is available online under the company’s SEDAR profile at sedar.com, under the company’s EDGAR profile at sec.gov or on the company’s website at maxar.com. With that, I’d like to turn the discussions over to Dan. Dan, go ahead.
Thanks, Jason, and good afternoon, everyone. We appreciate you joining us for a review of our second quarter results and an update on our outlook.
Importantly, I hope this call finds you and your family safe and healthy.
As you’re all aware, the world continues to combat the coronavirus outbreak, and our objective at Maxar is to ensure the health and welfare of our employees and their families, our customers and our communities. We remain focused on protecting our workforce, while producing the products and solutions needed by our partners to complete their critical missions. I’m pleased to report that all Maxar locations remain operational, through a combination of work from home and limited personnel working on-site. I remain encouraged by the tremendous efforts of Maxar team members to continue delivering on essential services, while minimizing risks to employees and our communities.
As I mentioned last quarter, we identified four primary risk areas related to COVID: supply chain, workforce productivity, longer sales cycles, and constrained capacity to fulfill contracts given social distancing restrictions.
We’re also closely watching trends on infection rates, vaccine development efforts, and anticipating the impact of back-to-school protocols could have on our teammates with children at home.
Our mitigation strategies have been working so far that we are seeing some potential push-outs on commercial awards in the Earth Intelligence business, given an elongating sales cycle.
We’re redoubling our mitigation efforts on commercial sales, and hope to close out as many deals as practicable by the end of the year. Overall, the demand environment for our products and services remains resilient and robust.
Our Earth Intelligence customers continue to rely on us for important national security and commercial missions. And we’ve seen little to no impact on underlying demand for our Earth Intelligence products and services, just modestly longer sales cycles with some of our commercial customers. In Space Infrastructure, demand too has been little affected.
In fact, we had another solid quarter of new orders in Q2, having announced over $700 million in new bookings year-to-date. I’ll go into more details on the demand environment, as we go through the presentation.
Now, please turn to Slide 3 for some highlights of the company’s recent performance. This was another busy quarter, and I’m pleased with the solid performance of the team.
First, we began expanding our debt maturity schedule with $150 million notes offering that will come due in 2027. Proceeds were used to acquire the remaining 50% of 3D technology company, Vricon, that we did not already own. I’m really excited about the combination of these two transactions, as they place a key technology fully in our hands and put our capital structure on firmer footing.
Moving to quarterly performance, the Earth Intelligence business posted solid 6% year-over-year revenue growth. This is a great outcome by the team and we look forward to further success in the quarters and years ahead, particularly as Legion capacity comes online to help meet the solid demand we see.
Importantly, adjusted EBITDA margins expanded more than 500 basis points year-over-year, driven by a mix and lower expenses in light of COVID-related travel restrictions and other savings. In Space Infrastructure, we saw a return to year-over-year top line growth and roughly 200 basis points of margin expansion. This is a market improvement over the first quarter of the year, which absorbed charges related to COVID and a late-stage testing anomaly on a satellite program. I’m happy to report that, that testing anomaly related to charges appear to have been sufficient and we’re looking forward to getting the satellite shipped and launched.
We also had another solid quarter of diversified bookings and finished with a book-to-bill of over 2.5 times for the second quarter in a row. Getting just a little bit of background noise there. Total company adjusted EBITDA increased $30 million year-over-year and margins expanded more than 500 basis points, driven by solid performance at Earth Intelligence, improvements at Space Infrastructure and lower expenses. Free cash generation tracked in line with expectations at $11 million, which is an improvement from the first quarter, when we consume $73 million. Total company book-to-bill was roughly 1.6 times in quarter and now stands at approximately 1.4 times year-to-date. That number, of courses, has dampened by the continued drawdown of backlog related to the EnhancedView Contract signed in 2010. Without this effect, book-to-bill would have been higher.
As you know, EnhancedView-related backlog from the original contract will burn to zero this quarter and we’ll move to booking annual option exercises into backlog when we receive those orders, which is typically late in the third calendar quarter each year. Note a few words on guidance.
We are increasing both revenue and adjusted EBITDA guidance for the year, driven by solid execution in Q2 and the inclusion of Vricon in the forecast. And that’s offset in part by some caution on commercial Earth Intelligence, given the elongating sales cycle I mentioned earlier. Adjusted EBITDA guidance for the year moves up to a range of $415 million to $445 million, which is $40 million higher since last quarter, and is now above the initial guidance we issued on our fourth quarter earnings call in March. Please turn to Slide 4 for an update of our 2020 priorities.
First, we said back in the fourth quarter call that we’d be focused on getting the MDA transaction closed, so that we could reduce debt levels.
We also said, we’d be looking to deploy capital in a disciplined fashion and maintain the financial flexibility we need to fund the growth opportunities we see in front of us. To date, we have performed well. Despite COVID, we closed the MDA deal and reduced our indebtedness.
Our leverage ratio was healthy relative to covenants and we had over $500 million in liquidity at the end of the quarter.
We also began extending our maturities that have no material debt due until the end of 2023. And more importantly, we deployed capital into the Vricon asset, which we believe will extend our leadership in the Earth Intelligence business. These are great steps and provide us with flexibility to execute on our multi-year growth plan.
Our second priority is to continue to position our Earth Intelligence business for long-term growth by focusing on the WorldView Legion build; ramping our sales and marketing efforts, so the capacity of this constellation will add to our existing operations; and continuing to leverage our investments in artificial intelligence, machine learning, analytics, platforms, and products.
Here again, we are making good progress. The segment has grown 6% year-to-date.
In addition to the Janus here and Toyota awards we announced in Q1, we signed five large International Defense renewals this quarter, as well as a $23 million contract with the Department of Homeland Security to develop an analytic system for characterizing and tracking the behavior of vehicles in multiple domains at scale and in near real-time. The Vricon acquisition will be a key part of our growth story going forward, given the unique 3D capabilities, software and technology it brings to our customers. A few words about the Legion program, which remains in line with budget expectations, and we continue to expect launches to begin in the first-half of 2021.
We are in active conversations with both government and commercial customers about Legion. And we expect the constellations capacity will be a driver of growth over the next several years, given the solid demand signals we continue to see. The sales cycle is tracking in line with our expectations, and we will provide further updates as we get closer to launch. I’d like to take a minute to remind investors of our longstanding relationship with our largest customer, the U.S. government. Maxar has been a trusted provider of commercial satellite imagery to the U.S. government for nearly 20 years, delivering innovative solutions with superior quality, cost, speed, security, and reliability, and we continue to innovate. We provide online near real-time access to geospatial data for more than 300,000 U.S. government users through our relationship with the National Geospatial Intelligence Agency.
We’re helping stand up a 3D synthetic training environment with the U.S. Army and our recently completed commercial imagery study contract with the U.S. National Reconnaissance Office, coupled with the EnhancedView Follow-On agreement signed back in 2018, demonstrates that the U.S. government recognizes the value of commercial satellite imagery and highlights the U.S. government’s confidence in Maxar’s current and future capabilities like WorldView Legion.
We’re proud to support the government’s missions and look forward to continuing to work closely with the NGA, the Army and with the NRO, as it increasingly adopts commercial imagery.
As you are aware, the EnhancedView Follow-On Contract now with NRO, like its predecessor, is a multi-year agreement subject to annual renewals on September 1 of every year. This renewal dynamic has been very predictable in the past, and we expect the same outcome later this quarter.
However, our current expectation is that sometime prior to the next renewal cycle in September of 2021, that our customer is likely to put us on a new contract vehicle, as it looks to potentially expand its use of commercial geospatial data sources in future years. From what we understand, this acquisition process is likely to include other companies interested in providing data to the U.S. government. Maxar is the leading commercial provider of geospatial data and analytics, and as long competed successfully with advanced technologies and a track record of solid execution.
We’re also a U.S. company with satellite assets were – that were and are being manufactured here in the U.S., launched with U.S. providers and are operated out of U.S. facilities. We think we have great advantages that position us well in future competitions for commercial and government contracts here and abroad. Earth Intelligence is a growing market and a strong competitive environment is positive for both the industry and its customers. It spurs innovation, lowers costs, and proliferates the use of the industry’s products and services.
We are excited about the opportunity to continue to provide world-class service and are confident in our ability to match our product and service capabilities to the U.S. government’s and other customers’ growing needs.
Turning now to our third set of priorities for the year, which has been the continued reengineering and diversification of Space Infrastructure. Again, we’ve made solid progress year-to-date, with bookings in both the civil and commercial markets. And that combination has led to more than $700 million in new awards year-to-date and a book-to-bill of 2.5 times for our Space segment. On reengineering, we continue to make progress on plans to reduce our footprint and to streamline processes and operations.
On the performance side of things for Space Infrastructure, we saw a nice improvement in the second quarter, both on a year-over-year and a quarter-on-quarter basis. Revenue returned to growth, driven by ramping U.S. government programs and margins ticked up to 6%, better reflecting the underlying profit potential we see over time. Recall, this business is working its way through some programs and forward loss positions, which dampened margin rates until they are delivered in 2021.
We expect normalized adjusted EBITDA margins to be north of 10% in future years, and this quarter’s performance provides a view of the underlying health of our remaining backlog. With regard to demand, we continue to see a pretty full pipeline across the commercial, civil, military and classified domains. In commercial, we’re seeing a mix of GEO and LEO demand.
While in civil, we continue to pursue missions that leverage our 1,300 class architecture and our robotics and solar electric propulsion and power capabilities.
On the military and classified side of things, there are a number of programs related to the U.S. government’s increasing investments in Space, particularly in systems with distributed architectures. We remain very focused on diversification, and believe that successful execution of our strategy will lead to sustained growth over time.
Now before moving on, I want to double-click for a moment on the commercial LEOcomm's area, given the high profile nature of some of the recent headlines.
Over the past few quarters, we’ve seen a bankruptcy, a cessation of operations and even some successful launches.
We are going to remain very disciplined in our approaches across both LEO and GEO offerings and we’ll look to carefully balance risk with reward as the dynamics of customer plans and initiatives evolve.
We have an outstanding range of capabilities across both LEO and GEO and the capability to design, develop and build the wide span of network architectures that our customers are exploring. But we will not likely pursue nor win every available program. And importantly, we have not factored the proposed Telesat LEO program into our current and multi-year outlook. I hope that our investors understand and appreciate that we are laser-focused on profitably growing the company.
We will be steadfast in pursuing our diversification strategy to drive sustained growth over time and believe that being disciplined, both in terms of risk and reward, will create significant shareholder value, which leads me to Slide 5. I’d like to emphasize what we view as the core investment thesis in Maxar.
First, as I discussed at length in the first quarter earnings call, we have solid visibility across the business. Roughly 60% of our revenue streams are derived from the Earth Intelligence business, where we provide data, data analytics and platforms to domestic international governments and commercial customers, largely through recurring multi-year contracts.
The other 40% of our revenues come from the Space Infrastructure side of the business, where we provide communications in Earth observation satellites, space exploration spacecraft, robotics and other space hardware to commercial and government customers through a multi-year construction and on-orbit service contracts. We don’t have perfect visibility, and there are always unknown, unknowns out there. But our current revenue streams are derived from some of the most demanding customers in the world, who rely on our products and services for critical missions and we’ve been performing year in and year out with many of them. That affords us some level of comfort on the outlook for our business over the near, medium and longer-term, even if the world looks a bit less certain today, given the pandemic. This leads me to the second investment point.
Our portfolio of products and services is well aligned with our customers’ mission needs and, in particular, with a National Defense Strategy here in the U.S., which emphasizes investments in space resiliency, C4ISR and autonomous systems. The markets that both Space Infrastructure and Earth Intelligence address are growing and we’re well-positioned to win our fair share of future customer work. We’ll also make investments in critical technologies, such as the 3D software and intellectual property that Vricon brings to the table to assure that we are in an advanced position to help our customers perform their critical missions.
The third point is that, we have an opportunity to expand margins over time, through improved execution in our Space Infrastructure business and via mix, which we believe is likely to favor our data and data analytics businesses. Said another way, there’s some self-help here, as well as some growth-driven margin expansion.
We will achieve that both by streamlining our operations, being disciplined with new bookings, and making investments to drive growth. And lastly, capital intensity. We operate in two relatively capital intensive businesses.
So the incremental capital in our Space Infrastructure business is relatively light at this point, given the long heritage of the company and its operational footprint. With that said, we are very focused on driving higher returns on invested capital across both Space Infrastructure and Earth Intelligence, and believe the Legion constellation will be the biggest driver over the next several years. These six satellites are less expensive and will be more capable than the predecessors that they will be replacing. And when combined with a growing revenue stream, should drive incremental ROIC. These four items when taken together are likely to drive growth and higher returns in Maxar, which we believe will create expanding value for our shareholders over time.
Now with that, I’d like to hand the call over to Biggs for a discussion of this quarter’s financials.
Thanks, Dan. Please turn to Slide 6, where we present quarter-over-quarter and year-over-year comparisons for Q2 results. Total company revenues increased 7% year-over-year in the quarter, driven by growth across the company. The Earth Intelligence growth was driven by new contract awards and expansion of programs within International Defense & Intelligence and U.S. government customers. Space Infrastructure returned to growth, driven by U.S. government programs, in part offset by lower commercial revenues given the cadence of bookings over the past several years.
Importantly, we expect this trend to reverse in the second-half of the year, given recent commercial awards that are beginning to ramp. Adjusted consolidated EBITDA margins increased 520 basis points year-over-year, driven by margin expansion in both our operating segments and lower corporate expenses as the year ago period absorbed retention costs related to 2019 program at Space Infrastructure. Quarter-over-quarter compared to Q1, total company revenues increased 15%, driven by modest growth in Earth Intelligence and a sharp increase in Space Infrastructure, given the charges this segment experienced in the first quarter, most of which affected revenue. Adjusted EBITDA margins expanded 1,120 basis points, driven by quarter-over-quarter margin expansion in both segments, offset by $2 million increase in corporate expenses, primarily due to an increase in stock-based compensation. GAAP EPS from continuing operations was zero in the second quarter of 2020 versus income of $3.33 in the second quarter of 2019. The change in per share results is due primarily to the $118 million of insurance proceeds received in Q2 2019 associated with WorldView-4. Year-to-date, revenues were down 3%, while adjusted EBITDA margins have increased 160 basis points. Please turn to Slide 7. Earth Intelligence revenues increased 6% year-over-year in the quarter, driven by International Defense & Intelligence customers, new contract awards and expansion of existing programs with the U.S. government. Adjusted EBITDA margins increased 540 basis points year-over-year, driven by the timing of International Defense & Intelligence revenues mentioned earlier, lower service costs and an increase in income recognized from the Vricon joint venture, the acquisition of which closed after quarter-end.
As a reminder, we will see a $10 million sequential revenue and adjusted EBITDA decline in the third quarter and an additional $20 million of sequential decline in the fourth quarter, as deferred revenue on the original EnhancedView Contract burns off at the end of August. Earth Intelligence revenues increased 3% quarter-over-quarter due to the timing of customer renewals, while adjusted EBITDA margins expanded 340 basis points, driven by higher International Defense & Intelligence revenue and lower travel costs due in part to our continued work from home posture.
We expect adjusted EBITDA margins in the second-half of the year decline leading to a $40 million reduction in revenue and adjusted EBITDA associated with the burn off of the EnhancedView Contract I mentioned a moment ago. We may see slightly higher expenses in the second-half on changes in mix and from slightly higher discretionary spending. On a year-to-date basis, revenues increased 6% year-over-year and adjusted EBITDA margins are up 260 basis points due in part or to a large part to higher-margin revenue and lower cost stemming from the factors mentioned earlier. Please turn to Slide 8. Space Infrastructure revenues increased 2% year-over-year, primarily as a result of increased volume on U.S. government contracts, offset by reductions in volume on commercial programs. Adjusted EBITDA margins expanded 210 basis points year-over-year, as mix begins to favor the more recent bookings, offset by $6 million in incremental COVID-related EAC growth, as we shifted our assumption of that return to a more normal level operating environment in the second-half of this year to the first-half of 2021.
In addition to $2 million of the COVID impact, we recorded an additional $15 million in estimated loss due primarily to continued supplier performance issues related to the one large satellite program in backlog that we have discussed as our loss position.
However, we also saw solid and, in some cases, outperformance on other programs in the quarter that offset this charge, which reflects positively on the business overall. Also, it is important to note the weekly cost of staying in a social distancing mode in our Space Infrastructure facilities is now running much lower than our initial experience. On a quarter-over-quarter basis compared to Q1, revenues increased 40%. This was driven by the $32 million in charges taken in Q1 on COVID and related EAC growth and identification of a design anomaly in the final stages of testing process.
While we did experience additional COVID-related charges in the current quarter, given our new assumptions about a return to normal operations, we believe we captured the full extent of the design anomaly charges in Q1. Quarter-over-quarter compared to Q1, our adjusted EBITDA margins in Space Infrastructure expanded roughly 3,500 basis points to 6% in the second quarter, driven by the COVID and program-related charges taken in Q1 and improved performance generally in the current quarter, as I described earlier.
For the second-half of the year, we expect revenues to grow sequentially, as we ramp work on recent U.S. government commercial program awards.
We also expect adjusted EBITDA improvements in the second-half of the year to offset the wind down of deferred revenue with a healthier program mix in addition to our expectation, the significant charges taken in the first-half of the year related to COVID, developmental and supplier-driven EAC growth and the designer anomaly identified in Q1 will not recur at that level if they occur at all. Year-to-date, revenues were down 19%, due in large part reduced volumes on commercial programs and year-to-date COVID-19-related EACs. These factors are partially offset by an increase in volume related to U.S. government contracts. Adjusted EBITDA margins were down 1,028 basis points due to the design anomaly identified in Q1, our year-to-date COVID-19-related EAC charges and program losses incurred on development bills. Please turn to Slide 9. The company generated $79 million in operating cash flow this quarter and invested $68 million in CapEx and developed intangibles. Year-to-date, free cash consumption is $62 million.
As a reminder, cash interest payments for 23 notes are due in Q2 and Q4. This relates to higher cash interest payments in those quarters compared to Q1 and Q3. Please turn to Slide 10. We finished the quarter with consolidated net debt of roughly $2.4 billion and $680 million from Q1 of this year.
Our bank defined leverage ratio ended the quarter at approximately 4.4, down roughly 0.3 of a turn from Q1, driven by the repayment of debt during the quarter. This compares to our covenant of 7.5 times. Beginning this quarter, the covenant calculations only include our continuing operations and the repayment of debt more than offset the loss of earnings from the MDA sale. Of note, the current leverage ratio includes $150 million and 2027 notes used to pay for the Vricon asset does not yet fully capture the adjusted EBITDA uplift we expect in future periods.
We have roughly $530 million liquidity at the end of the quarter, excluding the $140 million of cash used to complete the purchase of Vricon after quarter close. Please turn to Slide 11 for a quick update on our projected debt structure going forward.
As you know, we generated roughly $1 billion over the past 12 months through asset sales and divestitures, refinanced our near-term debt last fall and moved maturity schedules out.
As a result, we do not have any material debt coming due until December of 2023. Proceeds from those recent sale transactions were used to reduce indebtedness, including the repurchase of a portion of our term loan B and our 2023 bonds. The financial Vricon transaction, we issued a new $150 million seven-year note with a lower coupon at 7.5% and with lighter covenants and the four-year note we issued back in December last year. Overall, the good trade that puts our capital structure on even firmer footing as maturity dates align better with future cash flow streams. We remain focused on delevering and expect to use forecasted cash flow streams over the next several years to reduce indebtedness. At the same time, we expect investments we’re making now, in particular, the Legion constellation of Vricon to drive future revenue and profit growth.
Our medium-term target for leverage remains 4x. And over the longer-term, we would like to drive it towards 3x. At this point, we have no major maturities due until the end of 2023. Please turn to Slide 12 for a discussion on 2020 guidance. Dan mentioned, we’re increasing our adjusted EBITDA guidance to a range of $415 million to $445 million. This brings the midpoint of our guidance up $40 million from the first quarter earnings call and up $10 million from the midpoint of guidance for 2020, we spoke to on our fourth quarter earnings call. I’d like to remind investors who initially lowered our guidance in the first quarter due to the $32 million in charges we took in the Space Infrastructure business. In Earth Intelligence, we’ve increased the revenue outlook modestly to incorporate the benefit of having 100% of Vricon’s operations flowing through our financial statements.
As Dan mentioned earlier, we’re still seeking – still seeing some risk in Earth Intelligence business due to longer commercial sales cycle stemming from COVID, which acts to offset this benefit somewhat.
However, as a reminder, we will experience $40 million in decreased revenue and adjusted EBITDA in the second-half of the year as original EnhancedView deferral burns off.
For Space Infrastructure, revenue guidance moves higher due to scope growth on existing programs and recent bookings. EBITDA moves higher, given the improved revenue outlook, a more optimistic view of COVID impacts, the successful closeout of the test nominally disclosed last quarter, as well as solid performance on other programs and backlog. With respect to cash, we have not changed our guidance from what was originally issued in the 2019 fourth quarter earnings call. In general, the ultimate impact of the COVID-19 pandemic remains uncertain.
So we’ve made reasonable assumptions based on our assessment of the information available to us at this time.
So to summarize my comments, we are progressing while positioning the company for medium and longer-term revenue, profit and cash flow growth. This is demonstrated by our continued growth in Earth Intelligence, solid bookings for the second consecutive quarter in Space Infrastructure and acquisition of the remaining interest in the Vricon joint venture.
We have successfully deleveraged from year-end, our liquidity is strong, and we have continued to appropriately manage the effects of COVID-19.
We continue to successfully operate in our current posture and we’ll continue to deliver on mission-critical solutions to our customers. With that, I’d like to turn the call back over to the operator for Q&A. Operator?
[Operator Instructions] And our first question comes from Ben Arnstein with JPMorgan.
Thanks, and good afternoon, everyone.
I was hoping that you might be able to give us some more insight on how you see the walk to cash flow in 2021? And specifically, if you could kind of touch on how much spending still have in front of you for for Worldview Legion?
Do you want to take that one, Biggs?
I’ll take that one if you like. Yes, that one to answer.
So we’re – it’s still too early to guide on 2021 explicitly. We do expect, certainly, Legion spending to wind up, obviously, next year as we get to launch. But the exact timing of expanding this year versus next year can always vary a little bit and we have other discretionary CapEx that we’ll have to watch as we go this year versus next year. All we said, in general, was that we do expect next year’s free cash flow to certainly be much better because of the completion of Legion program and the wind down of it coming out of this year and the next year, and that we do expect good operating cash flow. Otherwise, we’ve said that we’re not guiding. We said next year could be free cash flow positive. But it’s – at this point in time, there’s too many timing variables to truly be predictive at this point in the year that we feel certainly good about what we accomplished. The Legion program is still progressing, as we expected from an overall budgetary standpoint and still expect to launch in the first-half of next year.
So everything is positive directionally towards what I said and having significant better free cash flow next year and possibly being positive.
Okay, thanks. And can you just kind of quickly break down, I mean, at the midpoint, the EBITDA guidance is up $40 million. How much of that is coming from Vricon Space Infrastructure or other Earth Intelligence?
So looking at the guidance increase, I would say, a lot of it is reflecting what we captured in Q2 a strong performance. And then with respect to Vricon, we would expect the results for the year to be $15 million to $20 million of EBITDA. Vricon is lumpy in terms of its sales and its earnings maybe for that from fourth quarter performance last year.
So there can be some timing fluctuation with respect to Vricon that we’re thinking between $15 million and $20 million. The – if you aggregate you’d say, gee, there’s some conservatism left and the conservatism that’s left is really what we see is the potential softness and commercial sales on Earth Intelligence and also for some variation in expense second-half versus first-half. But you add all those things together and you’re right at the middle of the range with reasonable upside off of that if Vricon outperforms or we capture the commercial E&I sales, or we under-run on expenses in the second-half more like we did here in the second quarter.
Great. Thank you.
And our next question comes from Steve Arthur with RBC.
Great. Thank you.
Just a couple of quick follow-ups. I’m wondering if it’s possible to elaborate anymore on your perspectives on the ongoing NRO valuation? I did understand your comments earlier, and I’m sure you’re somewhat limited what you can say. But any color on their decision process and timeline? Has it been impacted like some of your commercial programs you mentioned, as well as the scope of the program and the work that’s been discussed that you’re competing for kind of relative to the current EnhancedView program?
Yes, sure. Thanks, Steve, and great to have you back.
As I mentioned, the NRO program has continued to pace in accordance and sort of along the lines of what we’ve expected so far. They awarded us a one-year study contract back in June of 2019, and we completed that earlier this year. We do expect the renewal on the EnhancedView Contract. But like I said, we do expect also that sometime prior to September of 2021 that we’ll enter into a new contract with the government, a different type of contracting vehicle. And probably not more a lot to say about it at this point other than we’re confident in those types of services and capabilities we provide. I believe they’re directly in line with the customers’ expectations and needs. And believe we’re very well-positioned, both with the architecture we have on orbit now, the ground systems and infrastructure that we use to satisfy the national needs on a time-dominant basis, and also then with Legion architecture coming online and moving seamlessly into that environment.
So, we continue overall, I guess, to believe that our relationship with the U.S. government will grow in the future. And we’re – we feel good about where we’re positioned for this next phase of our ability to serve the national leads in that very important customer.
Okay. Well, I continue to watch that. I guess, final one, just following up on Vricon, I guess, it’s only been a month now since you’ve closed the purchase of the rest of that business. I guess, just what are you seeing there in terms of expanded revenue opportunities? And has your sales approach or your development efforts changed materially with this new ownership structure?
Yes, thanks. I mean, we’re really excited, it has only been about a month now, a little over a month since we’ve been operating as one company. But I’d say, it’s going really well. The – we’ve worked with the Vricon team very closely over the years.
So we know them well. They know us. The teams are – I really excited about bringing the technology closer to the source data in the constellation planning. And also, the product teams are working very closely together to be able to figure out ways to accelerate product development that we believe are essential for current and future customer missions.
So I think, if anything, we’re just as excited, if not, more excited than when we completed the final aspects of the acquisition here, seeing how the teams are aligned and seeing how they’re working together. We see some really great technology in software and other capabilities coming out of the combination of the products and services that we have together.
Okay, thanks. I’ll leave it there for now. Thank you.
Great. Thanks, Steve.
And our next question comes from Thanos Moschopoulos with BMO Capital Markets.
Hey, good afternoon. Hey, Dan.
Just to clarify on Telesat, you said you haven’t factored into your outlook. But just to be clear, is that still a piece of business that you’re actively pursuing at this point?
Well, I think what I’d say right now is, we’re – it’s kind of every quarter, it’s been the next quarter. In its current form, we’re not expecting active participation.
We’re very happy to help the customer if it – their expectations or timing change here. We just didn’t want people thinking we were deep in the throes of this and getting ready to announce something in the near-term. Telesat has been a longtime customer of ours. We built a lot of GEO satellites for them. If and when they need us, either for that or for the Telesat LEO program as it may morph in the future, we’re very happy to provide services.
So it’s potential upside in the future, but I wouldn’t say something we’ve modeled into the guidance we’ve given long-term.
Okay. And can you expand a bit on the supply chain and how that’s looking right now? I mean, obviously, it seems like it’s improving. At this point, where would you still see risks to what extent? Are there still risks, or is it just a heck of a lot better than it was couple of months ago?
Yes, thanks. What – I think what we’re very actively monitoring the supply chain on a sort of a daily basis in key counterparties, we’ve always done that. But we’ve really laser-focused on it now. By and large, the supply chain, most areas across the world, particularly in the U.S., but other jurisdictions as well have been designated as essential industries.
So they’ve continued to operate and continue to work. But as we’re watching really closely, as COVID resurges in different parts of the U.S., different parts internationally, it could impact. I don’t think the overall health and supply chain in general, but it could impact the timing of some things.
And so we’re not – it’s a lot better than our outlook was in Q1, but we’re continuing to keep a close eye on it and sort of monitor the situation. But overall, we feel okay. But I don’t want to declare any kind of victory, given the some of the step backs the COVID has – what’s happened across the world and across the U.S. in some states right now.
Great. And then just finally, it might be too early to talk about next year. But you mentioned you’d expect normalized Space Infrastructure margins of north of 10% in future years.
And so given the current strengths of the Space Infrastructure backlog and the timing of programs that you have in hand, could you see that potential for 2021?
Well, as Biggs would remind me, we haven’t given guidance yet for 2021.
So I think a little nervous by getting out of my – head of my skis there. We still do have some large programs we’re rolling off in the factory. Those do roll out in 2021.
So until they’re all the way past the phases and everything, we’re going to be a little cautious about going all the way to where we expect the future of the business to be. But I think probably, what you see are some green shoots or some indicative performance of what the business can do going forward in this quarter. And we’re really excited about that, and hopefully seeing that trend continue and accelerate.
Great. Thanks, Dan.
And our next question comes from Robert Spingarn with Credit Suisse.
Hi, good afternoon. A couple…
Hey, Rob, how’s it going?
How are you? Really just some clarifications. I’ll start with Telesat. Dan, should I interpret what you were saying as it just may not materialize into an opportunity or the business case may not work for you?
Well, I don’t want to get out ahead of anything this particular customer may or may not do.
For us, I think the answer there is some combination of what you just said.
We’re not in an active hunt right now. And it may or may not materialize eventually, back in our business, I’m not sure. But we don’t want to give anybody the impression, because it’s talked about quite a bit. It’s been in the press that we’re having an announcement around the corner or anything along those lines.
The second part of that, though, is we’re – as we roll off some of the lost four programs we had, we’re very cognizant of this, particularly in very, very large programs, making sure the risk reward profile matches what we expect the business to do.
And so if there’s a lot of development work, if there’s a lot of potential for increased costs or anything like that, as you take on some of these firm fixed price programs, we’ve got to be very thoughtful about the risk-reward profile in the equation. And – but we do take risk, make sure it’s manageable risk and we can mitigate it as we believe we can going forward. And also that there’s a commensurate reward for that, which is very different than the cost plus type programs that we’re able to pursue in the future, particularly on the US government side here.
Okay. On speaking of U.S. government, if we think about your objectives to penetrate that customer more, how do we think about the current relative size of the government business domestic between the various segments and where you could be down the road in terms of what your goals are? Can you refresh us on how big it is right now? And what you’re asking for?
Yes. Well, we’re – so the kind of just on the Space Infrastructure side of this would probably be the best place to think about it. That’s where we’re really striving for diversification. We’ve got great penetration on the Earth Intelligence side already and are continuing to grow there.
On the Space side of the business, about – we’re about 60% commercial, almost 40% U.S. civil programs now, primarily NASA, some other stuff tossed in there as well. Over time, I think, what we’d like to see is a third, a third and a third.
So about a third be commercial, a third be NASA-type civil programs and a third be defense and Intel-related programs.
We’re pretty – we started winning some study contracts on the National Defense Intelligence side, but we’re pretty nice in terms of getting to the point where we can win the big – bigger chunks of programs there, although, we’re in the hunt on stuff, which is encouraging.
We’re getting good positive feedback signs from the customers as we continue to develop our capabilities and explain the story, what we do have and how we can develop, particularly things that where they need things to go fast on cycle times in a cost-effective manner. We think we’re particularly good for distributed architectures, for example.
So yes, that’s sort of the long-term, I would think there. The – as we do our market analysis of this, the biggest customer set in the world is the U.S. government. And the two biggest customers in the world are the Defense Intelligence side of that and NASA.
And so we’re very excited with the traction we’ve gotten with NASA at this point.
We’re looking forward to a day when we can confidently look back and talk about how much traction we’ve got on the Defense Intelligence side.
We’re just not there yet.
Okay. Great answer. Thank you.
Just one last one.
I think that you mentioned the possibility to outperform the guide on commercial imagery demand and Earth Intelligence. And I wondered if you could just elaborate on that a little bit. I imagine you don’t want to say too much, but how we should think about that comment?
I think Biggs made that. I’ll let him elaborate a bit here.
I think I was indicating that our guidance in the middle of the range presumed that we had softness in the second-half on commercial Earth Intelligence sales, which Dan commented on in his remarks as being the one area, where the sales cycle is extending in the current COVID environment. I said that if you look at what could take us to the upper-end of our range, what I was trying to say was, if you take – if you look what might take us to the upper-end of the range, one of the things that might do that would be is if we, in fact, succeed in meeting our – what we would like to have is our internal objectives with respect to commercial Earth Intelligence sales and overcome, if you will, over the sales cycle spread that we’ve – or stretch that we’ve been observing.
Okay, that helps. I’d actually ask on the back of this, because we’ve just seen this with some of the other companies that we follow. Has the sales cycle improved in any areas? We’ve just noticed with some of the services companies we’ve talked to, that customer focus is a little bit more keen or acute, since people aren’t running around traveling and getting distracted with those sorts of things.
So have you seen some positive behavior in the sales process in other areas?
Yes, we have. The C-band that moving through has obviously been helpful on the Space side.
On the Earth Intelligence side, we’ve really seen some interesting and I think dynamic positive long-term trends for us, whether the use of commercial non-classified imagery; the ability to hit our platforms from any place in the world, including a work from home environment; some of the products and analytics tools we’re increasingly putting into that; online platform environment are getting a lot of uptake; and it’s easier for people to access them and they can drill down and do more training on them now as well.
So we’re excited by that trend and the world hasn’t gotten any quieter in the past six months at all.
And so the need for our analytics tools and our intelligence aspects of the Earth Intelligence side of the business have been – we’ve seen good uptake.
So the commercial side is a little longer, but the Defense Intelligence and the U.S. government side seem to be clicking right along. And in some cases, we’re doing things more intimately with customers than we might have been in a normal type of environment.
Okay, excellent. Thank you very much for all the help.
Yes. Thanks a lot, Rob.
And your next question comes from Tim James with TD Securities.
Good afternoon, Tim.
Good afternoon. Hi. I’m just wondering if you could talk about your kind of longer-term adjusted EBITDA and free cash flow thinking and I’m kind of going back to some of the targets that were put out at the the Investor Day last year, obviously, some things have changed like the the purchase of the the interest in Vricon, et cetera. Is there any reason that we shouldn’t sort of take these positive developments with the business since that time and accordingly, think about higher adjusted EBITDA and free cash flow potential relative to some of those targets that you had originally identified?
I’ll let Biggs answer that question. But I’ll just note at the start of it, that the Investor Day was actually this year. I know it feels like it was over a year ago, given all the events we’ve had in the world. But it was March of this year, just a couple of quarters ago.
Now you do want to give some more color on the question?
Sure. Yes. It was just early March that we gave the outlook or at least laid it out most recently. We had given it a less detailed level part of that going back last year. But in March, we would like to have a level of detail for everybody to follow.
I think that we said with respect to Vricon, it was additive to this year. It’s logically additive to the business overall. That’s why we did it. Having said that, we’re not at this point in time going to discretely go and change long-term guidance for that one item, because there are so many things to monitor over time. And I’m not trying to say there’s anything negative going on. I don’t think there is. But we’re not going to update the long-term guidance every quarter for changes, we’ll do that judiciously as we go through time.
Okay. That’s helpful. And I guess, and maybe, Biggs, I think you sort of answered my question there. In that, there’s nothing sort of notable that has gone against planned relative to the original indications, I guess?
We’re still marching ahead and executing our strategies. And I think, as Dan has reflected in his comments, we feel good about what we’ve accomplished and what we have in front of us. Nobody knows what COVID does over the next year, but that’s – the guidance is out longer period beyond that. And I don’t see how, at this point in time, the current circumstances around COVID affect the longer-term.
As I said, we’re not formally going to confirm or update the guidance every quarter. But we feel good about where we are.
Okay, that’s helpful. Thank you. And then just one last question. The $17 million in developmental, I guess, the losses in SI in the second quarter, is there anyway to think about how that number should progress or trend going forward? Is it sort of gradually decline with the future quarters?
So we made the assumption on COVID, I guess, what your question is with respect to that. We stay in the current operating posture out through the end of this year. And if that is something holds up and there aren’t any other unforeseen impacts, then we wouldn’t really expect future charges, because we account for it on a forecasted estimated a complete basis. Also, some of our newer business we’ve been knowing the environment we’re operating in already and with some contractual protection on top of that, should there be deviation.
So I certainly can’t tell you there will be future charges. But if our assumptions hold together, I would hope that there’s not. The – and so like everybody else, we just have to watch as it goes and hope that things don’t get worse that we, in fact, are able to operate more normally, starting early next year. If it extends beyond, that we have to operate in this environment, then there could be increased costs and charges. But if you think about it, we went out six months and only took an additional $6 million of EAC growth.
So that gives you an idea of the impact as we see it now and that being much less than what we were looking at when we were doing your first read on this at the end of the first quarter when it was also new.
Okay. Thank you very much.
And our next question comes from Chris Quilty with Quilty Analytics.
Thanks, guys. Dan, I wanted to start first with the EnhancedView Follow-On. It sounds like that continues on with a re up. But the CSPOB Phase B program, that I assume you’re indicating is incremental.
So does that mean we should see incremental revenues assuming you’re one of the winners of the three companies bidding on it?
I’m not sure I’d necessarily go right there yet, Chris.
I think, there’s a number of different potential outcomes. I’m very reluctant to speak for the customer until they issue their final RFPs and their final awards here. And there, they’ll go through that phase on their timeline. But – so I think there’s – look, I think that the two things I would keep in mind here are that the National Reconnaissance Office leadership has said, they expect to increasingly use commercial. And that they expect that to go up over time, and that they see it as part of the importance of the mission architecture for the nation’s needs. I – so I think probably that’s about as much as I’d say right now.
I think, we’re well-positioned. But I certainly don’t want to speculate on where the customers can end up.
Okay. And a clarification. It was my understanding that was awarded in the government’s fiscal fourth quarter of this year.
I think, you said 2021 for the program award? Is it…
I want to – I guess, I want to make sure we’re sort of talking about the same stuff. Right now, we’re performing and continue to perform under the EnhancedView Follow-On program, the program that we’re currently operating under.
We expect that the option gets picked up sometime this quarter in Q3 as it normally does every year. But that sometime between when this gets picked up in its current form and before it gets renewed in September of 2021, that they – there’s a chance or likelihood or we’re getting indications that things get moved to a new contract vehicle.
Okay. Switching over to the Space Infrastructure and specifically on the Defense Intelligence, given the fact that the DoD, at least, isn’t buying many GEO buses, is it fair to assume that most of your proposals are on the LEO side with the Legion bus or the constellation – LEO constellation bus?
Well, I think on the DoD and the IC side, what we’re seeing is an awful lot of interest on proliferated constellations, mostly that’s showing up in the LEO area right now. But there’s a range of things that could end up in communications or C4 type, ISR type architectures going forward, and those could be a LEO, MEO or GEO and they each have their advantages and disadvantages.
And so we’re in the hunt across all those chains. We believe we bring capabilities into all those environments as well.
Understand. And specific to the LEO constellation bus that you were developing for Telesat, do you see other applications that was a relatively a purpose-built bus design? Obviously, you weren’t offending metal, but are there other ways you can take that effort and leverage into other programs?
Absolutely, yes. Yes, a lot of the work and a lot of the technology we have in the engineering, I mean, expertise and technological work has gone on to this point, it’s still within the walls of the IP of the company and we’re looking at a number of different opportunities. And I think we have very strong LEO capabilities, both for the Defense and for – Defense Intelligence Infrastructure, as well as for commercial applications.
And sort of as a reminder, the WorldView Legion buses is LEO as well.
Understand. And on the C-band orders now that we’ve realized what they were or confirmed what they were, pretty compressed time schedule on delivery there. Does that create any unusual timing patterns, either in revenue or profit recognition? And how well do you expect that to ramp, given the current COVID environment? Are you good on long lead inventory for that program?
Well, I’m very pleased to say that these slide in very well into our current manufacturing capabilities. And we are confident in the timelines on which we need to deliver, including the long-term lead time inventory aspects of this. We – we’ve been engaged with the customer for a significant amount of time on these. And I believe we are positioned very well to deliver on the customers’ timelines.
And so you’ll see the cash flow and the revenue sort of ramp and model accordingly on the build and delivery schedules we played out. We don’t talk a lot about our exact customer schedules or anything contract-by-contract, but there’s a lot more information about these. And there’s a lot of public information from the FCC side and the C-band awards and what – or what needs to happen on certain timelines and we’re confident being able to meet the the customers’ objectives there.
I would just add. These are satellites that are very similar to ones we’ve built before.
So in that case, much more predictable in terms of cost and schedule. And as Dan said, we did work with the customer to protect the supply chain on these and put ourselves in a good position.
Great. And final question on Earth Intelligence and the softness in the commercial order cycle. If I remember years ago, you took a lot of those customers that were doing sort of bulk end-of-year buys and converted them into longer-term contract vehicles. And if that so, where would the softness come from, if you’re working off of multiple year contracts with, I believe, a significant portion of your customers there?
So I think the way to think about this, Chris, is that we do have a very healthy set of longer-term contracts, particularly in the U.S. technology space and we’re comfortable about that piece of it. The softness we’re seeing is some more of the transactional type stuff or some of the new business we’d expect it to win.
If you think about it regionally, it’s more Asia than anywhere else right now that we’re watching it very closely. It’s harder to throw people on airplanes and spend as much time in close proximity to the customers and the time zones are pretty whacky as well. And we’re just seeing – where we’re seeing the elongation of the sales cycle, it’s more there than anywhere else.
So it sounds like you would attribute that almost entirely to COVID-related effects?
Yes, absolutely. And I think probably the way – one word you said just triggered a little bit.
We’re not seeing a softening of the market or the demand signals. What we’re seeing is an elongation of the sales cycle. The demand is still there. We still believe there’s strong interest in needs for the products and services we provide. But it’s taking longer to get all the way through the different procurement aspects of those spaces, whether they’d be commercial or government customers, particularly as we try and knock down some new business in that region.
Great. Thanks for the responses.
Yes. Thanks, Chris.
And our next question comes from Austin Moeller with Canaccord Genuity
Hi, guys. This is Austin on for Ken.
So just my first question.
Just given the effects of the COVID slowdown sort of on operations at SSL and the importance of the Legion constellation in getting 30 centimeter imagery and higher revisit rate up on-orbit for you guys. Has the effect of the pandemic on operations at SSL has put any pressure on the schedule margin for the critical path in terms of getting those launched? Has – have you seen anything like that yet?
That’s a great question. I – what I’d say is, we’ve adapted, I think, on our side very, very well to the protective measures, the social protocols, protective gear, those kinds of things. And a lot of what happens for these types of satellites is in 10,000-plus clean room.
So it’s a pretty safe environment to start with for people.
So – but I think what we’re watching even more closely is whether there are any impacts on the supply chain.
We haven’t seen specific COVID-related aspects to that.
You call out, “Oh, hey, that’s COVID, that’s something else.” But we do have vendors that are making parts and things that will go on into the final assembly and then the – which we’ll do before we go into environmental on these and we’re watching that as effectively closely. It’s just – everything feels just a little bit slower test, retest, how fast things go through their own environments for testing.
So we’ve been watching that very closely. We think that’s appropriately built into all the safety factors and the risk margin we’ve gotten in the schedule right now, which is why we said we’re still confident in the first-half launch. But we’re watching it very closely. And if things develop differently, we’ll let people know as soon as we can about that.
Just – and kind of we’ll think about that through the entire phase in process as well.
We’re watching the launch providers. These satellites are going to be launched in the U.S. with SpaceX and SpaceX can seems to be keeping pretty well on schedule with launch ops. We’ve got teams down in French Guiana with Arianespace right now, and we’re watching events that are closely as well and whether there are any impacts or timelines or how people operate on those facilities.
And so switching gears here, just to sort of talk about, you guys have obviously had a lot stronger GEO satellite orders this year, particularly with Intelsat and also the contract with NASA for the Gateway, et cetera.
So do you guys see importance in investing more R&D in sort of small GEO, just given the inherent advantages of GEO? You guys had had that recent order with Ovzon for the SSL 100.
So do you see it being more important in expanding the product offerings there in the small GEO space?
I think what we’re seeing is that there are a lot more of a proliferation of business cases and use cases than there might have been three years ago, and it was either really novel, LEO ideas or traditional GEO. And we’re seeing a range of customer ideas and needs across that spectrum. The Ovzon award, as you note, is a particularly good example of that where we reconfigured a smaller class bus to a GEO type mission.
I think what it means for us is, we’re going to have to be more nimble in the future, less volumetrically driven and a lot more nimble in terms of the technology and the mission architecture needs of particular customer requirements will look like.
We’re very, very good and particularly good in bus design and bus manufacturing and architecture.
We’re really good with the power and proposing elements of what those mean in the communication side.
And so we’ll try and play where we can to our strengths in those areas.
Okay. And then just the last question here.
So the acquisition of Vricon, do you see that as strategically, especially with the advantages of the IP just on 3D satellite imagery for either ISR or precision-guided munitions, particularly on the government side, as sort of a key differentiator between you and competitors, as the contracting vehicle may change as we move past EnhancedView?
I wouldn’t tie it necessarily directly to the contracting vehicle past EnhancedView.
I think that what you’re seeing more is that, the – in – I guess, sort of as the broad concept here, we see it as very strategic, the Vricon acquisition and very important to our future business ideas and plans.
With the 3D technology, and remember, we’re taking Maxar’s regular satellite data here and using the software and the artificial intelligence and the algorithms and whatnot to create a photorealistic, highly accurate 3D data set from that F speed at scale, at country-level scale. And nobody else in the world can do that.
And so what you’re taking is now satellite imagery becomes way more interesting in a 3D environment. The artificial intelligence algorithms for analytics work way better in 3D than they do in just 2D. We get better accuracy on the 2D data using the 3D models back on it.
So instead of being a 10 or five, we’re driving towards three and two, and in some cases, one meter at spherical accuracy in our models and able to offer that to customers. And suddenly, that starts opening up new use cases for them like, targeting, like autonomous vehicle navigation in ways that the satellite data wasn’t as good at or wasn’t useful at in the prior manifestation.
So we’re – I mean, we’re really excited about this.
As that creates more and more pull-through, the people that are functional managers for the National Geospatial Intelligence Agency, NGA, the U.S. Army, One World Terrain, Air Force, the Special Operations Command and others will drive the requirements back to NRO and say, “Hey, we need more of this or we want more of this.” So over time, it will dry more demand for our particular class of assets and services with the NRO, I believe. But I think it’s probably too early to drive that direct correlation from one to the other right now.
Okay. Yes, thank you, guys, so much for all the color. I appreciate it.
Sure. Thank you.
And our next question comes from Steven Li with Raymond James.
Hey, guys, thanks. Got one for Biggs. Should the cash flow guide, should it not have improved with – given the differs from the CARES Act and the higher EBITDA guide, was there an offset? Thanks.
I think the easiest way for me to answer that just say, it was a very broad range to begin with and cash is, as you know, to be very driven by timing of receipts right at year-end.
You may remember a year ago, two years ago, we had one payment from the government that slipped from – right the end of December into January.
So there can be a lot of variables to go forecast. And we didn’t feel like at this point in time, even though there were obvious positives – obviously positives overall, that it made sense to go and adjust against what’s a pretty broad range to begin with.
Okay, got it.
So it’s mostly timing, Biggs?
Yes. The range is broad because of timing.
So – and then when you start to tweak one variable within that, you don’t necessarily produce a different overall result.
Okay. Thanks, guys.
We’ll see how it goes through the third quarter and then maybe type of range, move it, if appropriate.
And our next question comes from Richard Tse with National Bank Finance.
Yes. Thank you.
Just one quick one on the NRO and the potential for sort of multi-sourcing here. Are there technologies that are sort of missing from your portfolio that would cause that? And could you sort of buy into that or build that capability, if that’s the case?
Let me think just about that for a second.
I think what I’d say is, if it’s electro optical imagery, we believe we are – well, the world leader here and we’re going to take another leap forward with Legion constellation, so we’re very good there. The way NRO thinks about commercial imagery, it may include other things as well, it may include radar, it may include RF capabilities or other things that commercial providers can now deliver.
And so it’s always possible that those are things that we may or may not choose to invest in the future.
Some others have chosen to invest there. We’ve got to see the business case close before we make sort of large investments in one of those areas or not. We believe on the electro optical, the earth imagery part of what we’re providing at large scale on a minute-by-minute basis here, we’re very well-positioned in that piece of the environment.
Okay. I was asking, because I think in your comments, you said that they’re increasingly looking at commercial. And I was just sort of wondering if there’s any commercial capabilities that are out there that cause them to lean that way. I guess, we’ll figure that out down the road here?
I think there’s a lot of phenomenologies that they’re interested in. A lot of it boils down to what’s the best use case for solving somebody’s mission set on the other end of this.
So a monitoring or mapping or an analytics mission for the war fighters or others in the U.S. government to see that kind of data.
Okay, great. Thank you.
Sure. Thank you, Richard.
I think, we’ve reached the end of our queue here, as well as the time we’ve got allotted for this call.
So I just want to thank you for helping us out today and for those that both dialed in to listen as well as those that called in to ask some questions. I appreciate your interest is Maxar and look forward to catching up all – with all of you next quarter on our third quarter call. Thanks, and have a great evening, everyone.
And that does conclude today’s conference call. Thank you for your participation.
You may now disconnect.