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MAXR Maxar

Participants
Jason Gursky VP, IR and Treasurer
Daniel Jablonsky CEO
Biggs Porter CFO
Ben Arnstein JPMorgan
Scott Mikus Credit Suisse
Tim Chang TD Securities
Chris Quilty Quilty Analytics LLC
Austin Moeller Canaccord
Call transcript
Operator

Good afternoon ladies and gentlemen, thank you for standing by, and welcome to the Maxar Technologies Third Quarter 2020 Conference Call and Webcast. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] And I would now like to hand the conference over to your speaker today Jason Gursky.

You may begin.

Jason Gursky

Thank you, Operator. Good afternoon to everybody. Welcome to Maxar's third quarter 2020 earnings conference call. I'm joined today by the Company's Chief Executive Officer, Daniel Jablonsky; and 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 slide decks for today's call, which can be found on the company's website at maxar.com in the Investor, Events & Presentation section of this site. Once again, please turn to Slide 3, 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.

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 our 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 maxr.com. With that, I'd like to hand the discussion over to Dan. Dan go ahead.

Daniel Jablonsky

Thanks Jason. Good afternoon, everyone. We appreciate you joining us for a review of our third quarter results and an update on our outlook.

Importantly, I hope this call finds you and your families safe and healthy. Three quarters in now the world continues to combat the coronavirus outbreak, and our priority Maxar has been 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 continue to remain operational through a combination of work from home and certain key 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 we've discussed the last couple of quarters, we've been working through four primary areas related to COVID, supply chain, workforce productivity, longer sales cycles and constraint capacity to fulfill contracts given social distancing restrictions.

We are also closely watching trends on infection rates, vaccine efforts and dealing with the impact of back-to-school protocols are having on our teammates with children at home.

Our mitigation strategies have been largely working so far, though not surprisingly we are seeing some push-outs of awards in our Earth Intelligence segment and Space Infrastructure in our supply chain continue to adapt to COVID protocols. We've been seeing some inefficiencies and everything seems to be taking a little bit longer on the manufacturing side.

I think we're also starting to see some COVID related fatigue on teams, especially as we head into the fall and winter months. Overall though, 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 long-term demand for Earth Intelligence products and services, just modestly longer sales cycles. In Space Infrastructure demand too has been little affected.

In fact, we had another solid quarter of new orders in Q3, and have announced over $1 billion in new bookings year-to-date. Please turn to Slide 3 for some highlights of the company's recent performance. This was another busy quarter, and I am pleased with the performance of the team. To start, total company revenues increased 6% year-over-year, marking the second quarter in a row of solid mid-single digit growth.

Importantly, adjusted EBITDA margins remain roughly flat from the year ago period. Despite absorbing the end of the deferred revenue burn-off from EnhancedView program that we've spoken up frequently in the past. Normalizing for this effect, margins expanded approximately 150 basis points year-over-year. The Earth Intelligence's business posted 1% growth when normalizing for the burn off of the enhanced fee deferred revenue.

The third quarter had a tough comp given the signing of a renewal with an international government customer in the third quarter of last year. And as a reminder, that signing triggered the booking of three quarters worth of revenue and adjusted EBITDA in Q3 last year, which skews the comparable growth rate this year. Biggs will provide some more details in a moment. In Space Infrastructure, we posted 12% year-over-year top line growth, and roughly 850 basis points of margin expansion this quarter. Performance was driven by the intake of recent wins, which as I have mentioned in the past have less development work associated with them. Free cash generation from continuing operations track better than expected had positive $19 million this quarter. Total company book-to-bill was roughly 1.6 times in the quarter and now stands at approximately 1.5 times year-to-date. We saw strong bookings in both segments, but trend line will be working to keep up. And a few words on guidance. We made some modest changes to our revenue guidance for the year given some of the uncertainties with COVID, but have left the ranges for adjusted EBITDA and CapEx unchanged.

We also tightened the range of outcomes for operating cash flow given year-to-date trends. Biggs will go into details later in the call. Please turn to Slide 4 for an update of our 2020 priorities.

First, on capital structure and deployment, we said back in the fourth quarter call that we'd be focused on getting the MDA transaction closed, so we produced that levels and that we'd be looking to deploy capital in a disciplined fashion while maintaining the financial flexibility needed to fund the growth opportunities, we see in front of us.

As you're all aware, we closed the MDA transaction and extended some of our maturities in the second quarter and then early in the third quarter closed the Vricon acquisition. In our view, these steps provide us flexibility and capabilities to execute on our multi-year growth plan.

Importantly, we ended the quarter with over $500million in liquidity and a leverage ratio well below covenant levels.

Our second priority this year has been 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 have so the capacity this constellation will add 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 3% year-to-date even as we started absorbing the burn off of the enhanced view deferred revenue. Growth has been driven by new contracts and expansion of existing programs with the U.S. government, as well as by growth in the installed base of International Defense and intelligence customers.

During the quarter, we announced that we have continued to see strong momentum with our SecureWatch product, which is a cloud-based geospatial subscription service. Contracted revenue for the product has roughly doubled in the past year.

As a reminder, SecureWatch allows end users to access and exploit a variety of data sources, including Maxar's 110 petabyte library of high-resolution satellite imagery, daily WorldView image collections, low resolution Sentinel-1 and Sentinel-2 satellite imagery, and commercial synthetic aperture radar or SAR data from RADARSAT-2. Most SecureWatch customers leverage the platform and its capabilities from monitoring and mapping applications, including high definition mapping at scale around the world, detecting change and observing assets over time, and planning, humanitarian assistance and disaster response. Maxar's engineering and product teams are constantly improving SecureWatch to better serve our customers and mission partners. Recently, Maxar added persistent change monitoring or PCM an automated image-based change detection data layer as a standard capability on all SecureWatch Premium accounts, allowing end users to identify areas of human activity and save time when analyzing the latest imagery collections. Also this quarter, we announced general availability of 15-centimeter HD imagery, which features a greater level of visual clarity. This technology was developed by our R&D teams to make our data more interpretable for artificial intelligence of machine learning algorithms in order to produce more accurate results. It's generated by applying our proprietary HD technology to our native 30-centimeter imagery to deliver more precise edges and sharper details that reduce visual clutter and pixelation that can distract or obstruct interpretation by human analysts as well as machines and makes it possible to extract more fully the information contained in the images native resolution. And finally, we are making investments in our 3D product capabilities, including ramping the production of 3D datasets at scale and to position us to take advantage of growing opportunities. The improvements in SecureWatch, the general availability of 15-centimeter HD imagery, and the investments in 3D are good examples of how Maxar continues to invest and innovate to both drive growth for the company and to better help our customers achieve their mission objectives.

On the order front, we had over $500 million in bookings this quarter driven by the $300 million EnhancedView option your renewal and upsized renewal with commercial customer Esri and over $100 million, and other government programs spread across multiple agencies. The U.S. government wins included a sole source award with the Army to deliver multiple highly portable, direct-downlink tactical ground systems that provide critical geospatial intelligence to users in remote locations. The system, called the U.S. Army remote ground terminal, or RGT is easily transported by two people and can be set up in about an hour. The RGT enables troops in remote locations to rapidly downlink, analyze and disseminate data from commercial Earth observation satellites to support military humanitarian and disaster relief missions. The RGT system is based on Maxar's tactical architecture for near real-time Global Operations or Tango platform, the most portable ground system of its kind. The RGT downlink data from a variety of commercial sources, including Maxar's high resolution WorldView constellation and is designed to be continuously upgraded with additional commercial electro-optical and synthetic aperture radar sources. The RGT comes with robust training for unit operators to enable self-sustained operations and 24/7 field service available from Maxar. The U.S. Army plans to continue developing the RGT system, ultimately transitioning it to become the commercial imagery received node for the U.S. Army's future Tactical Intelligence Targeting Access Node or TITAN. TITAN is a scalable intelligence ground station that will leverage sensors from across multiple domains to provide rapid and accurate targeting data directly to U.S. Army fire networks. This award demonstrates Maxar's dedication to delivering innovative solutions for our customers most complex challenges. In this case, revolutionizing the way users and remote sites obtain the critical Earth Intelligence, their missions demand, when and where they need it most. After the quarter ended, we also announced that Maxar has been selected by the U.S. Space Force to develop prototype mission data processing applications for the future operationally resilient ground evolution mission data processing or FORGE MDP program. Located within the Cross Mission Ground and Communications Enterprise at the Space and Missile System Center. Maxar's prototype applications will provide rapid mission data processing and dissemination services for Overhead Persistent Infrared or OPIR data from the Space-Based Infrared System or SBIRS satellites. The US Space Force is responsible for processing and managing increasingly large amounts of data from its satellite constellations. FORGE MDP will modernize and streamline the existing ground system into an architecture that is open, scalable, modular and resilient to meet next-generation mission requirements and exploit data from future satellite constellations.

As an essential component of FORGE MDP, Maxar's applications rapidly process satellite data to provide missile warning and other mission-critical notifications.

Turning to Legion, our business development teams continue to have good dialogue with both government and commercial customers and demand signals remain robust.

As I mentioned on prior earnings calls, we expect to make announcements related to capacity commitments.

As we get closer to launch and the satellites come online.

On the satellite program itself, we continue to make progress on the integration assembly and test of all six spacecraft and instruments and we expect to go into environmental testing early next year. This is a complex program and many elements need to come together to ensure the level of quality and mission success we expect.

We continue to coordinate closely with key suppliers continue to build and integrate hardware and structural components, work on the development and integration of flight and ground software elements and prepare for environmental and ground testing. We're also working closely with our launch provider SpaceX, which is indicated a busy manifest in 2021, including a NASA mission that needs to launch in a tight window to reach its destination.

Given launch range limitations related to the NASA mission. We formally requested the next available launch window starting the first week of September for the first two legions out of Vandenberg Air Force Base. We're absolutely committed to launching a constellation of industry leading satellites that will provide mission critical data to our customers over the next decade. And we'll look to provide an update for the launch on our fourth quarter earnings call so that you can save the date to watch this exciting milestone in the history of our company.

Now turning to our third set of priorities for the year, which has been the continued ranging and diversification of space infrastructure. We've made solid progress year-to-date with $1 billion in bookings across the civil and commercial areas.

Importantly, we booked a six GEO Comsat order in the third quarter making 2020 a nice recovery year in commercial. In the book-to-bill for the segment is now over two times year-to-date. On reengineering, we continue to make progress on plans to reduce our footprint and to streamline processes and operations. And we've been making investments sustained at the front and back office systems and personnel needed to perform more complex U.S. government work in the future.

On the performance side of things, we saw a nice improvement in the third quarter with 12% growth and adjusted EBITDA margins approaching 7% which would have been above 8% without COVID related charges. Better reflecting the underlying profit potential we see over time. Recall this business is working its way through one large program and afford loss position, which dampened margin rates until it's fully delivered.

We expect normalized adjusted EBITDA margins to be north of 10% in future years and this quarter's performance continued to provide a view of the underlying health of our remaining backlog.

During the quarter, we announced that the BSAT-4b satellite successfully launched and is performing according to plan. Once full and service BSAT-4b will function as a backup geostationary satellite to its sibling BSAT-4a also built by Maxar.

We also recently announced that the powerful Maxar built SiriusXM-7 satellite arrived at Cape Canaveral for launch on a SpaceX Falcon 9. Once on orbit, the satellite will be used to ensure continuous and reliable delivery of entertainment and data services to 10s of millions of subscribers across North America. This satellite has a mass of almost 7,000 kilograms will deliver the highest power density 8,000 watts of any commercial satellite once on orbit. It was built on Maxar's 1300-class bus and is designed to provide service for 15 years or longer. We're also currently manufacturing SiriusXM-8, which is expected to launch in 2021.

On the overall demand environment, we continue to see an active pipeline across multiple customer sets. In commercial, we're seeing a mix of GEO and LEO demand across all geographies.

We are seeing that the GEO segment continues to favor digital payloads and we are making investments into our strategy which is focused on partnering with companies that have made solid advances in technical capabilities.

As you know, we are manufacturing and communication satellite using a digital payload on Legion-class bus for Ovzon, but we have yet to achieve a win for a digital payload using the larger 1300-class plus. In civil, we continue to pursue missions that leverage our 1300-class architecture, and our robotics and solar electric propulsion and power capabilities.

On the military and classified side of things, the U.S. government is increasing investments in space. We've been pursuing several opportunities and look forward to the day when we'll be able to announce something substantial.

For now we're mostly involved in study contracts and design work. We remain very focused on diversification, and believe that successful execution of our strategy will lead to sustained growth over time. Which leads me to Slide 5 and 6, I'd like to wrap up my comments this afternoon and some thoughts on the election outcomes in the overall demand environment. Spending on our nation's security has historically been driven much more by the strategic and threat environment then by which political party is in office. It's the geopolitical threat environment that matters most. And on that front, the challenges today are no less significant than during the days leading up to the election earlier this week.

Our country's security strategy is focused on myriad threats, including near peers such as Russia and China. Maxar is aligned well with the strategic postures we possess capability sets across many of the key areas in which our country is investing. From spacecraft and space robotics to geospatial data, machine learning algorithms and 3D models.

We are well positioned to help our customers achieve their mission objectives across space and cyber, C4ISR Missile Defense Joint Lethality Forward Force projection and autonomous systems.

We are also aligned well in the civil area across both space exploration in earth science missions, with capabilities in robotics, solar electric propulsion, spacecraft, geospatial data and products, machine learning and analytics. Maxar and its legacy companies have been a trusted provider of products and services to the U.S. government for over five decades, delivering innovative solutions with superior quality, cost, speed, security and reliability.

As the industry leader in Earth Intelligence, we currently 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 for the US Army. And we continue to execute well on the NRO's EnhancedView Follow-On program.

Importantly, Maxar is a U.S. headquartered company with satellite assets that were manufactured here launched by U.S. providers and that are operated on U.S. secure facilities. We think we have great advantages that position as well into the future. And we're proud to support the U.S. government's missions with the NGA, the Army, the NRO, and the numerous other agencies for whom we honorably serve. In space infrastructure, our legacy with U.S. government dates to the Apollo missions that include several missions to Mars, which have included our innovative robotics capabilities. Currently, we are working to support NASA's Artemis program as a prime contractor of the power propulsion element and as a subcontractor on one of the teams that have won awards and are competing for the human landing system.

We are also working on spacecraft to support on-orbit refueling through the OSAM program. In the science area, we are supporting the agency with the TEMPO and Psyche missions and we continue our long heritage with Mars rovers.

We are extremely excited about all of these programs and look forward to supporting both science and exploration missions at NASA well into the future.

While some spending may shift around over multiyear periods as priorities evolve, we believe we're well positioned with key priorities and future spend in intelligence of space requirements, and are pleased that our commercial business model positions us well for the type of procurement programs our government customers are looking to deploy in the years ahead, rapid development of new technologies and capabilities at affordable prices. That's what's needed in this environment. And this is something we're focused on continuing to successfully provide. There are always changes in review of priorities following elections. What I can say is that I am confident that our leaders will recognize the geopolitical environment for what it is, what future requirements are needed, and that they will plan accordingly. And I'm confident that our country's investment in space-based activities is not likely to waver including agencies like NASA, and our own space force. And finally, and continuing the capabilities Maxar brings to the table and in our ability to operate a commercial business model that brings affordability and value to customers as they look to execute their difficult missions over the next four to eight years. With that, I'd like to hand the call over to Biggs for discussion of this quarters financials.

Biggs Porter

Thanks Dan.

Before moving on to discuss the results, I want to refresh everyone on the deferred revenue burn off related to the EnhancedView Contract signed back in 2010. The accounting [indiscernible] [original contract resulting in recognition and the position of] $120 million from the amortization of deferred revenue and adjusted EBITDA in 2019 and $80 million additional revenue and adjusted EBITDA in 2020. The amortization deferred revenue was complete effective August 2020. And there will be no further deferred revenue recognized on the original contract. In my comments I'll be giving a lot of statistics to clearly separate the effects of the program, the burn off from the economic parameters of business. Please turn to Slide 7 present year-over-year comparison through a better quarter. Total company revenues increased 6% year-over-year in the quarter driven by our space infrastructure business which we grew 12% year-over-year driven by higher volumes with U.S. government programs.

If you exclude the difference in deferred revenue, our growth continues stronger 9%. [indiscernible] earlier in addition to the deferred revenue effects, we had tougher comps this quarter Earth Intelligence [indiscernible] contract signing with third quarter 2019 blended the booking of three quarters worth of revenue right income with one of our international customers. Consolidated adjusted EBITDA margin were flat year-over-year despite observing the industry deferred revenue burn off and network from the delayed contract signing into last year that I just mentioned.

Importantly, if you exclude the effect the deferred revenue going off adjusted EBITDA margin expanded approximately 150 basis points year-over-year. This is driven by solid year-over-year performance with space infrastructure given the intake and recent order in the factory.

As compared to Q2, 2020 total company revenue were roughly flat and adjusted EBITDA margins contracted by 570 basis points. This is clearly the effects of deferred revenue burn off margin contracted by 430 basis points largely due to more normal margin Earth Intelligence this quarter compared to a tough comp in the second quarter as I will talk about later and by an increase in corporate expenses. GAAP EPS from continuing operations with income with $1.42 in the third quarter of 2020 versus a loss of $0.69 in the third quarter 2019. The change in per share results is due primarily to the joint venture acquisition of Vricon which is resulted in [indiscernible] $85 million on remeasurement of equity interest. Year-to-date revenue were consisted with last year adjusted EBITDA margin have increased by 80 basis points. This lean effect deferred revenue burns off adjusted EBITDA margins have increased 160 basis points due to the improvement at Earth Intelligence and lower corporate and lower expenses.

During the burn off of deferred we have seen those revenue income and adjusted deferred [indiscernible] as is illustrated in the company's slide [indiscernible] continuing operations with positive influence [indiscernible] $85 million gain of remeasurement of our previous investment with Vricon. Please turn to Slide 9, Earth Intelligence revenues decreased 3% year-over-year in the quarter, driven by a $10 million reduction in deferred revenue recognition which I just spoke.

As for the deferred revenue effect, revenues would have increased by 1%.

As I said a moment ago in the third quarter of last year, there was a $9 million of revenue recognition from international customers in light signing contract. In 2019 consultancy [indiscernible] adjusted EBITDA for Q3 last year should not repeat this year. This was offset by $9 million in current quarter revenue growth and [indiscernible] an expansion the existing programs of the U.S. government as well as growth in the installed base of international sales and intelligence customers.

So as of the deferred revenue roll out and the timing awards last year was real underlying growth in the quarter. Adjusted EBITDA margins decreased 470 basis points year-over-year.

If you see the effects of deferred revenue burn off margins decreased by 310 basis points, driven primarily by the late contract signing in 2019 previously mentioned. Q3 revenues declined modestly compared to Q2 of this year as a $10 million decrease in deferred revenue recognition on EnhancedView contract was in part offset by revenue growth in our services business. Adjusted EBITDA margins contracted 580 basis points, quarter-over-quarter.

If you exclude the deferred revenue burn off margins declined 430 basis points to more normal levels in tough comp in Q3 due to variety of factors including a more normal mix of business and to a lesser extent on the timing of expenses versus revenue or [indiscernible] products following acquisition of Vricon. Please to remember the 3D revenues are expected to be kick-in in the fourth quarter, like they did last year from the timing standpoint. Revenues increased 3% year-to-date and adjusted EBITDA margins increased 20 basis points on a year-to-date basis.

Excluding the effects of the deferred revenue loss on a year-to-date basis, revenues increased 5% year-over-year. [indiscernible] deferred revenue burn off and adjusted EBITDA margins have increased 110 basis points as compared to the prior year. It is expected adjusted EBITDA margins [indiscernible] year declined slightly on a year-to-date basis [indiscernible] burn off of deferred revenue from the EnhancedView contract.

We will be comparing 12 months of deferred recognition in 2019 to only eight months for the current year. There was a lot of stats but underneath them was continued solid performance for Earth Intelligence. Please turn to Slide 10. Space infrastructure revenue increased 12% year-over-year [indiscernible] increased volumes in this government contracts offset by reductions in volume on commercial programs. Adjusted EBITDA margins expanded 850 basis points year-over-year, as our revenue mix starts to favor more recent bookings. Also as a reminder in Q3, 2019, the result losses on the commercial satellite development program. We put pressure on last year's profitability. On quarter-over-quarter basis compared to Q2 of this year, revenues were flat while adjusted EBITDA margins expanded 60 basis points due to a decrease in losses on development builds. Company adjusted EBITDA margins are more reflective of the health of our recent wins and we continue to look to drive our margins closer to 10% or higher over the long-term. Year-to-date revenues are down 10% due in large part to this volume on commercial programs and the COVID-19 [indiscernible] adjustments. These factors have partially offset by an increase in volume over the U.S. government contracts adjusted EBITDA margins down 360 basis points due to our year-to-date COVID-19 related EAC growth of $27 million. The design anomaly insight EAC loan and program losses incurred on development builds partially offset by increased margins on commercial programs. But importantly, the consecutive quarter of growth and profitability of space infrastructure. Please turn to Slide 11. Company generated $115 million in operating cash flow between the operations this quarter and invested $96 million in CapEx and development tangibles. Year-to-date free cash consumption is $43 million.

As a reminder, cash interest payments on our 23 green notes are due in Q2 and Q4. This leads to higher cash interest payments in those quarters compared to Q1 and Q3. Please turn to Slide 12. We finished the quarter with debt of $2.5 billion and cash of $60 million. Net debt was roughly last quarter due the acquisition of Vricon and otherwise would have been relatively flat.

Our bank defined leverage ratio ended the quarter approximately 4.2 times down roughly two-tenths of a turn from Q2 driven by the pro forma inclusion and the Vricon acquisition and a stronger trailing month adjusted EBITDA. This compares to our covenants of 7.5 times.

We have roughly $528 million liquidity at the end of the third quarter. Please turn to Slide 13 for discussion of 2020 guidance.

As Dan indicated earlier, we have modest changes to revenue guidance at the segment level and keeping ranges a little wider than you might expect for third quarter. Commercial sales and Earth Intelligence are facing modestly longer sales cycles and the timing awards to Vricon can be lumpy, especially so in the COVID environment. With a combination of these factors in Earth Intelligence, there is a chance that awards can toggle between Q4 and Q1 of next year, creating both upside and downside. The guide of space infrastructure implies we are unable to see growth in the fourth quarter and making up for the light revenue performance in the first half of the year. With COVID cases spiking across the country, space infrastructure [indiscernible] on suppliers and healthy workforce have imposed some level of risk that we will continue to monitor. Because these factors we are leaving the range for adjusted EBITDA intact at this point, which again is a bit wider than one might expect at this point in the year.

For cash flow, we're tracking better than expected on a year-to-date basis, as we've been closely managing both CapEx and working capital. That said CapEx could step up in the first quarter and working capital variation due to experience due to timing. I said we are maintaining the outlook for CapEx and increasing our midpoint for operating cash flow, while narrowing the range.

We will speak more thoroughly on 2021 guidance in Q4 earnings call but I wanted to give you all an initial indication as how we are thinking about the year ahead. In space infrastructure was strong year-to-date, book-to-bill in 2020 suggests we should see solid growth next year. We should also see continued market expansion potential next year, as mix continues to shift towards regional awards.

As I mentioned earlier, we posted adjusted EBITDA margins approaching 7% this quarter, despite revenues being hampered by a zero-market commercial program involving a lot of development work. If that program begins to wind down in the second half of next year, we should see margin uplift and significant progress toward reaching our 10% plus adversity with our margin target for this segment. In Earth Intelligence, we have an $80 million year-over-year revenue and adjusted EBITDA headwind from the burn down of EV deferred revenue. We should see some acquired growth from Vricon and some growth from our IBR and commercial customers to help offset this. We recall, the EV deferred payment at 100% adjusted EBITDA margin rate and we'll be replacing that with revenue generating less than 100% in incremental margins.

We also have some cost growth next year related to Legion constellation as we continue investments in our ground and secure operations architectures, we won't see much contribution from Legion on revenues.

So there's some moving parts of consolidated basis. Having said that, we believe we have a path to offset the headwind on deferred revenue. We're going to wait and see how things progress though for the rest of the year before getting definitive. With respect to 2021 cash flows stood with par and a lot will depend on the timing laid off between years. By example, some regions spent [indiscernible] next year along with Cadillac deferrals.

I think the combination of the two years 2020 and 2021 will come in around where they expected but the timing of these cash flows could shift around.

Now finally, here a few quick words about the 2022 to 2023 targets we shared at Investor Day back in March.

As you recall, the precise timing and achieving the adjusted EBITDA and cash flow targets was in part dependent on the timing of Legion launch and revenue ramp of its capacity, which is broadly characterize with its 2022/2023 targets. We still see solid path to achieving our goals. Once the Legion constellation comes online, and we further diversify our space infrastructure business. [indiscernible] about the late summer fall 2021 launches with Legion launch our launch of Legion 1, revenues will be ramping over the course of 2022.

So it may not hit our 2022/2023 run rate until later in 2022. [indiscernible] quarters should expect to provide some offset to this.

So until your basis, we still expect growth in 2022 and 2021 will remain I guess all the way to or above the run rate target levels until 2023. And with that I like to turn the call back over to the operator for Q&A.

Operator

[Operator Instructions] Our first question comes from the line of Ben Arnstein from JPMorgan.

Ben Arnstein

I guess the kind of wanted to hone in on the Legion and the kind of the delay there for the launch. Has there been anything on your manufacturing side that is taking longer than expected or is this primarily due to your customer being able to put the satellites in orbit and what should we kind of think about for the timing of the second batch of Legion satellites?

Daniel Jablonsky

Ben good to speak with you this afternoon. Thanks for the question.

So on Legion, what I would say is I think everything's taking just a little bit longer than we expected in the COVID related environment.

And so because of that some of the vendor hardware is showing up just a little later on schedule than we had originally planned and that has a knock-on effect right. Gets the full integration done a little bit slower, gets into environmental a little bit later and then you start to run into launch windows.

As the primary drivers, we do continue to also work on ground software, ground station and flight software integration in relation to that. And that also partially depends on getting all the hardware in place to be able to test things out in the manner in which we expect to before we launch.

So I wouldn't really read too much into it other than then we are operating COVID environment, it's very complex program and things are coming in, maybe just a little slower than we expected them to in that way. And I would say, last quarter we said it'd be a key to launch, we're just shoving out a little bit past that to the first available window after the NASA launches, which is that first week in September.

On the second batch of launches, we're watching the supply chain really closely there as well. We hope to update you on that on the Q4 call, but expected to be in sort of three to six months after that first batch of launches.

Ben Arnstein

And I think you kind of mentioned in your prepared remarks, but can you maybe give us your latest thinking and some color on the human landing system competition? And, is there a good way for us to think about how meaningful that might be if your team is on the down select?

Daniel Jablonsky

Yes, sure. And we've been working very, very hard with our prime on that Leidos and Dynetics. And with the team that's been built around that, we think we've got a very good design, we were the number one rated design the first time through the competition, but the competition is formidable.

In terms of meaningfulness to Maxar, it's a very substantial program. And there is quite a bit of work that Maxar is doing on the thermal aspects as well as some of the planning and design phase work.

So it's very sizeable if we're able to win it. And I can't really give all the numbers for competitive sensitive reasons, as we're going into the bid process here. But I think about it as one additional really good step in our diversification strategy across our space business.

Operator

Our next question comes from line of Robert Spingarn from Credit Suisse.

Scott Mikus

Hi, this is actually Scott Mikus on for Rob Spingarn. Dan, my question for you is, Maxar won a lot of awards recently for C-band replacement satellites. When those get delivered in the next few years, how should we think about the growth trajectory for space infrastructure going forward after those satellites are out of backlog?

Daniel Jablonsky

Hi, Scott, thanks for being with us today.

So I think the way to think about that is, we're going to get and continue to chase the best business we can where it's available. Obviously, the C-band had been a nice award for us this year. And we've got a very tight timeframe in which to deliver those.

And so they're really good business, and they're really good programs for us. And we're pleased to be providing those for Intelsat.

As those wind up, what we're working on really hard is to refresh our pipeline, not just on the commercial side. And we think the geo concept markets probably sort of continuing to be flat across how we're looking at and thinking about it, continuing to diversify with the NASA work, like the human landing system that Ben mentioned in his question and then also really getting some traction on the defense and intelligence side. We always thought of that as sort of a three to five-year ramp up there. But, you know, we're chasing some good work in all three areas. And we believe that that diversified portfolio should provide us with not just a steady base, but growth trajectory across from where we are now.

Scott Mikus

Thank you. And then on the Earth Intelligence side with Legion, is there a way to kind of quantify the revenue contribution meaning growth versus replacement as those first two satellites come online?

Daniel Jablonsky

Yes, there is. It's fairly complex. And we won't see a tonne of that showing up in 2021. We'll see some of it. But with a - even if we launch - right at the front half that window, September 1, we've got about a 60 to 90 days, you always think about it as sort of one quarter of a check in period on the satellite.

So you won't see a lot of it there. The real shelf will be in 2022 from that. But look, it's meaningful capacity. Those two legions exceed the capacity we lost with the world before failure. And that had at the time over $85 million of growing revenue on it.

So we do expect a significant step up once Legions start coming online.

Operator

Next question comes on the line of Tim Chang from TD Securities.

Tim Chang

I'm just wondering if you can talk to you - you mentioned kind of his Space Infrastructure being a business that you are moving towards kind of a 10% plus EBITDA margin. I'm just thinking even longer term, are there some structural or competitive reasons why margins couldn't even move beyond that like into the mid-teens again over a much longer timeframe, or is that kind of 100, 200 basis points above 10%, a good long-term assumption for that type of business?

Daniel Jablonsky

Tim, I will let Biggs add some more color. But remember, as we diversify the business, we're getting to - now another mix of not just commercial programs, which have historically been for a fixed price. But also NASA and other U.S. government missions, which are oftentimes on a cost plus basis, but also then entail less risk of a downside.

And so as we think about the blended nature of those on the firm fixed price, we'd be shooting for more of those mid-teens margins, on the cost plus, we'll have to be competitive with the other people bidding on those programs. And oftentimes, those are more sort of in that 10 to 12 range. And Biggs do you want to add any color to that?

Biggs Porter

I think you got it, right. Like, a lot will depend upon mix, and margin rates should vary based upon the nature of the contract and the risk profile and cost type, certainly different risk profiles and fixed price, so should have a lower market rate on it.

So it's just too early to say exactly where it will be - figures out. But to remind you, what we said was 10% or higher, so we haven't put a ceiling on with a 10%.

Tim Chang

My next question just looking at the U.S. Intelligence segment revenue effectively flat year-over-year when you exclude the EV burn-off. It sounds like there is some contract delays there. I'm just thinking with flat revenues or contract delays, revenue delays, does this mean that we could see a period of some unusual strong growth at some point here, as some of these work opportunities, some of these revenue sources kind of get flushed out or moves forward?

Daniel Jablonsky

I guess what I'd say is we're very bullish on the Earth Intelligence side of the business. We had a tough comp this quarter for two reasons. One, the last burn off of the EnhancedView deferred revenue, so $10 million gap there from the comparable period last year, and then also that signing of the large Middle East customer that accelerated three quarters of revenue, and almost all an awful lot of EBITDA into all into one quarter.

So, I think, you know, it masks some really good underlying trends, even as we've been going here. I would say that with COVID, it's a little tough to predict timing of some of those awards. But we're continuously very strong demand in the business. And maybe as COVID gets put to rest or the contract start to snap in, and we get rid of some of the lumpiness with Vricon, you should see some pretty strong growth patterns in that side of the business. That's our expectation anyway.

Biggs Porter

The approach really is much better when you consider that $9 million to catch up revenue that was booked in Q3 the last year.

So it's really not five, when you look at what really happened from an economic standpoint.

Daniel Jablonsky

If you think about some of those, those some of the drivers there, first off really strong backlog in that side of the business. The addition of Vricon which didn't show up in a great degree in Q3, kind of like with last year's Vricon numbers but a very strong trend line going forward. And then the sometime next year, the Legion capacity coming online.

Tim Chang

Okay, thank you. And just like my final question, kind of a big picture question, I guess, Daniel, you touched on and been asked about a number of different opportunities that kind of lie ahead for Maxar.

If you could kind of walk through the more important ones. And in order of significance, I'm sure you don't want to get into quantifying them but if you could kind of rank you know, the top three to five opportunities at this point for Maxar and the potential contribution as you look out over the next couple of years.

Daniel Jablonsky

Well, you know, I think we've been pretty upfront about that they haven't changed dramatically since when we talked to about on our Investor Day back in March.

On the Earth Intelligence side, the Legion capacity will be a strong driver of growth. And that's why we're not only working very hard to get that program launched as soon as we can in 2021, but launch successfully with the high quality we expect over a decade plus of operations for the first system launches. The enhance we follow on next program seeing very strong demand signals across the intelligence community as well as the defense community for the type of capabilities that will provide. And if you think about the one of the awards I talked about, on the call earlier, the remote ground terminal, the Titan Tango systems with the U.S. Army that allows us now in a different way to directly impact Department of Defense missions.

And so that along with SecureWatch and Global [indiscernible] are getting the information in the data much further into the field much more quickly. Vricon we expect to be a very strong driver as well on the Earth Intelligence side, a little bit of a slower ramp up here, which was exactly what we expected. But long-term demand signals including the army, one world terrain program and other integration opportunities are very, very promising at this stage. And then on the on the space side of the business, as we've gone through a hard period of restructuring here and getting that on the right footprint. We really are building a solid and diversified business there, which we think will take advantage of long-term trends, especially on space exploration, defense and intelligence missions, as the U.S. continues to think about those strategic opportunities. And on the commercial side as well, whether it would be GEO or LEO or other types of services and space, commercialization space is increasing at a rapid clip, and we're building it our business anyway to be able to take advantage of those trends.

Tim Chang

Just a quick - sorry, one follow on ties into a question asked earlier about C-band and - once you kind of work through that part of your backlog, I think you indicated that you expected a traditional GEO Comsat, where you're not anticipating a particular change in that market. Does that mean that what we've seen say over the last 12 months, two years in terms of GEO Comsat revenue would be a reasonable way to think about coming out the other side of working through the C-band backlog or is there - because we're talking about a market now, that's, a fraction of what it was for many, many years. Is there an opportunity that sort of a normalized GEO Comsat market could be a little bit higher than it was entering this bump that you're getting from C-band?

Daniel Jablonsky

Oh, yes, no, I think the nadir we saw before the sort of the C-band really was that I think it was a nadir will be expecting maybe not like the boom years of several years ago. But sort of a normalized probably mid-teens, mid to upper teens, number of awards, and we expect to get our fair share of those. And those will be a mix of commercial government and other opportunities that we see.

Operator

Our next question comes from our line of Chris Quilty from Quilty Analytics LLC.

Chris Quilty

I just want to follow-up on the Space Infrastructure side and specifically on the defense opportunity, I think you said you've won some study contracts and other activity. But have you yet made any bids on perhaps the recent rewards that happened with DARPA for Blackjack or SDA for the Crunchyroll award?

Daniel Jablonsky

Yes, we were involved in bidding for those. We didn't win, didn't have a chance to announce anything substantial. Unfortunately, I think a few things sped into that. And we're learning a lot as we go along. We're also I think a lot healthier than we were as a company. And as the space team is before when we first started on the bidding side of those and look forward to - as you know, those are sort of at the trial stage yet.

So I think there are opportunities for us to come back in, there are opportunities for us to partner with other primes in places. And those are, I think, among a couple of the initial awards that would have been in our wheelhouse, but certainly not the only ones we're chasing.

Chris Quilty

And do you have the proper bus size and other technologies for what they're looking for?

Daniel Jablonsky

Well, yes, we do in different phases.

So the Legion bus is proving to be very, very interesting to a number of people. And it's too big for some applications.

You know, it's closer to 750 kilograms, not 100, and it's also a very robust architecture. Obviously, what the 1300 class size we've got an awful lot of opportunities, we can do it the upper orbits with something like that.

We have been spending some time and attention on slow not slower but smaller bus size architecture, where we think that that would be accretive to our business model. And will continue to make I think smart investments in that area.

Some of those will be led by commercial customer, some will be led by some government opportunities we'll probably see a mix of spreading some of that in across both sets of customers.

Chris Quilty

So presumably something more than 100 to 200 kilograms bus size?

Daniel Jablonsky

I think there is a trend line that is of interest to customers both.

You don't need 15-year missions on something of that size, especially low Earth orbit. And it's also being used in some areas for more trial architectures right now, before someone went to, more massive type constellation or resilient type of assets.

So we'll be making some smart investments there.

Chris Quilty

And just following up on a digital payload, I think in the past, you talked about adopting a merchant approach to just buying digital payloads in the market, depending upon the particular program. It almost sounded like you were equivocating a little bit on that, is there a thought that there is a need to build and own your own digital payload?

Daniel Jablonsky

No, I think what I was trying to get across is that probably something in the middle of those two there. There isn't yet and probably won't be for a while a true commercial off the shelf digital payload system.

So we will - but there is some really encouraging technology out there some of it, which we're adopting, for example, on the [Arizona Awards] what I'd say is will probably be a mix of some of our own development work, but with a partnering strategy for what is available from some of the technology leaders there.

Chris Quilty

Earlier today EchoStar announced that their JUPITER 3 was getting pushed out a bit. Do you feel that program is properly reserved if it's going to be on the floor for another three to six months?

Daniel Jablonsky

I'll let Biggs talk about whether it's properly reserved or not. But we are working very, very hard and in close daily and weekly discussions and meetings with the customers to get that out and out as fast as we can. But it has suffered from some of the delays. And we took some write downs on it in Q1, related in part to COVID charges as well.

Biggs Porter

Yes, generically, our programs are properly [indiscernible] look at the ACS every corner and do our best estimates of the [indiscernible] has taken consideration the schedule, as well.

So continuing effort, it's always been a little more challenging on JUPITER 3, because of some of the supplier content that's been delayed, and some which has developmental efforts associated with it. And all I can say is, we've done our best read on that. We think we got it right based upon everything we know at this point in time. And the program continues to progress. A lot of the top challenges in the program have been COVID driven, that the amount of the COVID, instantly took this quarter was bought down from what it was another quarter in the year.

So I think that's a good sign at least to the extent that we can manage our current operations effectively what we're doing better over time in terms of mitigating those costs or being more efficient in COVID environment. But we have to watch supply chain and see if something happens to coverage standpoint, but basically [indiscernible] at this point in time.

Chris Quilty

And two questions on the Earth Intelligence business. Last quarter, you had mentioned that a lot of the commercial delay was primarily International. Are you seeing any improvement in that area?

Daniel Jablonsky

Yes, I'd say we are. It pushed things probably out one to two quarters from what we were hoping or seeing generally from what our original expectations were. But we're not seeing a lot of further slippage.

I think what we're seeing is, people are learning how to operate in the environment. And everything takes a little bit longer, but aren't seeing, if you were thinking about the rate of change on it, we're not seeing continued delays, it's more steadying out but it's shifted to the right at that steadier pace is how I think about it.

Chris Quilty

Actually a follow-on, for some of your international customers that are DAP customers, Are there going to be any requirements for new ground station hardware to support Legion or would existing customers already be good to go once that comes online?

Daniel Jablonsky

I said two pieces to an answer to that.

We continue to invest in our direct access program ground architecture.

And so we've been making investments and we'll be rolling out upgrades, kind of like we do every x number of quarters for those customers, so that all of their ground systems are Legion ready. That's a little bit related to the some of the ground systems cost Biggs talked about next year. We'll also be dealing with much higher data rates.

And so we'll be paying a little bit more to move that much data around the world when Legion comes online. But not necessarily new and additional ground infrastructure for the international customers.

We will be adding some ground systems on our own though, to be able to handle the increased capacity, as well as the different Orbitology the Legion will bring online.

Chris Quilty

Understand. And final question, SecureWatch has been a really successful product or platform for you. EarthWatch also, is there a thought that you should build out other platforms that are application or customer specific, say for the energy market or some other application? Or does that step too close to competing with some of your customers?

Daniel Jablonsky

Yes, I think that what the way we see it going forward in - is that we're going to try as much platform convergence as we can, and then operate more in an app fashion if there are certain things about the platform that excites you maybe from an energy versus a Defense Intelligence versus a human emergency response and disaster relief type application.

And so SecureWatch is closely aligned with the investments we make in Global EGD. The architecture type software investments are more closely aligned so that we don't create lots of threads of different code bases out there.

In terms of something like agriculture, or energy, where we haven't had as much end customer proximity, we do work that more through our resellers and our channel. We say us providing the not the very last mile of everything that the customer might need or not the full customer intimacy there. But the platform like SecureWatch that our partner channel can then take that more fully into the use cases required by the customers. We know where we're really good and Defense Intelligence is our real sweet spot. We've got a few other ones that are further closely aligned and derivative that like emergency response, but we can't serve everybody's application at this point, and we definitely rely on our partner channel for that.

Chris Quilty

Right, by the way is that first Legion launch, are you going out of Vandenberg? Are you going to do that out of gate?

Daniel Jablonsky

We expect to go to Vandenberg for this one.

Although with the first two, there's plenty of horsepower on a Falcon 9. But if we had to go out of gate, we could do it there as well.

Chris Quilty

[indiscernible].

Daniel Jablonsky

Yes. But we do expect the next quarter to go out of the gate.

Jason Gursky

Operator, we're at the top of the hour, I think we've got time for one more question.

Operator

Our last question comes from a line of Austin Moeller from Canaccord.

Austin Moeller

This is Austin on for Ken.

So just one question from me.

So you guys are currently bending metal on the power and propulsion element for the gateway, which was a $375 million contract. I'm just thinking about the moving pieces here with the election and the potential change of administration. Right now, we've got a NASA Administrator that's quite entrepreneurial for the human landing system in his selection of multiple landers.

Just looking at the Senate accused to be saying the same and so the leadership on the Senate Appropriations Committee is going to stay the same. Does that change the calculus for you on whether or not there will be multiple landers procured by NASA or whether that might be down selected to one lander or do you think that just given the number of Artemis missions that NASA's already committed to with the number of SLS they've committed to buy on there will still be possibly multiple landers needed over the next 10 years.

Daniel Jablonsky

That's a great question. I wish I had a great answer for you.

I think we definitely - just even in our capture strategy thought about the fact that elections are coming up and oftentimes in elections, there's sometimes shifts in priorities, the different, you know, the administrator level or the congressional or presidential level, I think it's too early to tell right now on what the impact will or won't be there. I do think we're - been investing in or making some great strides in some really forward moving technologies. And what it does become Lunar Lander missions, or Mars Lander missions or other things, I think they're the kind of things that NASA is very interested in seeing development of so. At this point, I think it's too early to predict. But we're very encouraged by some of the things that NASA offices have been doing and our ability to work with them.

And some of the priorities that have been setting down and we'll just have to watch closely and work with the customer to see where we can best support what their priorities are here going forward.

Austin Moeller

Okay, thank you guys.

Daniel Jablonsky

Yes, perfect. I was going to say thank you for everyone that joined us for the call this quarter. Certainly look forward to catching up with many of you between now and the end of the quarter, the end of the year. And catching up with all of you again, on fourth quarter call in the late February next year. Thanks. Good night, everybody.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.

You may now disconnect.