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MAXR Maxar

Participants
Dan Jablonsky CEO
Biggs Porter CFO
Jason Gursky President, IR and Corporate Treasurer
Kenneth Herbert Canaccord
Carter Copeland Melius Research
Robert Spingarn Credit Suisse
Thanos Moschopoulos BMO Capital Markets
Chris Quilty Quilty Analytics
Call transcript
Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Maxar Technologies Q4 2020 Conference Call and Webcast. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today Jason Gursky, President of Investor Relations and Corporate Treasurer. Thank you. Please go ahead sir.

Jason Gursky

Great. Good afternoon and thanks operator. Welcome to our fourth quarter earnings call. I'm joined today by the Company's Chief Executive Officer, Dan Jablonsky; and Chief Financial Officer, Biggs Porter. Both will 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'll refer listeners to the accompanying slides for today's presentation, which can be found on the company's website at maxar.com in the Investor, Events & Presentation section of this 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.

You refer to the advisory regarding forward-looking statements contained in our quarterly earnings releases, earnings call slide decks, and the company's most recent MD&A section found in our Form 10-K, 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.

As we get started, I'd like you to now turn to Slide 3 in the deck. And with that I will turn the discussion over to Dan. Dan go ahead.

Dan Jablonsky

Thanks Jason and good afternoon everyone. I appreciate you joining us for review of our fourth quarter and full year results.

Before we get started, I'd like to congratulate NASA and JPL on successful landing of the Perseverance Rover on Mars.

As you know, Maxar has provided robotic arms on six missions to the red planet, and we are extremely proud to be part of this one as well. With a long and storied history of working with NASA and we're very excited about the work we're doing today with Artemis, Perseverance, OSAM-1 and Psyche, and look forward to many decades of future missions with NASA. Please turn to Slide 4 of the accompanying presentation for a discussion of the key highlights from 2020. A big story of the year, of course, was the global pandemic. I've spoken about its impact on the company and our stakeholders quite a bit in the past and we've got a fair amount of disclosure in our filings. What I'd say at this point is that I'm really proud of the way our team is powered through. We remained focused on protecting our workforce while producing the products and solutions our partners need to complete their critical missions. I'm pleased to report consistent with every report we've made so far that all Maxar locations continue to remain operational for 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 driving mission success. These efforts help to drive 6% top line growth and 16% adjusted EBITDA growth in 2020, excluding the effects of the burn-down from EnhancedView deferred revenue, a solid outcome given where we all were back in March of 2020.

One of my top priorities since taking the helm of the company has been to position both Earth Intelligence and Space Infrastructure for sustained growth over the medium to longer term. And this year's performance is a positive proof point that we're making progress. In Space Infrastructure, we continued our re-engineering efforts and reorganization to align authority and accountability across my leadership team.

As part of this effort, we developed a new business capture process under our global field operations organization that leverages robust mission architecture support provided by our technology teams.

We also placed a new talent in leadership roles in particular software - software development, mission architecture, and business development through a combination of new hires and internal moves from Earth Intelligence.

Finally, we also continue to develop financial systems and processes to support cash par compliant, a key enabler in our pursuit to further diversifying the business in the military with intelligence, our operational teams ended the year successfully meeting or exceeding the performance requirements of our service level agreement for the EnhancedView follow on contract for a 22nd consecutive month.

Over the course of the EnhancedView contract, we've met the demanding customer requirements and impressive 119 out of 124 months. This speaks volumes about our reliability, quality and our resilience even during the global pandemic.

As we prepare for the next phases of the EnhancedView program, our ongoing performance is a compelling demonstration of our track record and the consistent value and continuity we deliver.

Importantly, we also saw continued growth in usage on our platforms. Global EGD now has more than 400,000 total users. Noam has grown to over 3,500 users and SecureWatch has passed 200 customers. These statistics demonstrate the growing value add that our data and insights bring to our government and commercial customers around the globe. Overall, I'm pleased with the financial performance of the company this year. Fourth quarter adjusted EBITDA came in a little bit lower than I would have liked that some of our Earth Intelligence orders slipped into early 2021. And we had higher than anticipated stock compensation given the strong performance of our shares through December. Biggs will go into more details in a moment, but hopefully this latter point is something that listeners will appreciate.

We also had a very solid year of bookings with backlog growing 17% year-over-year despite absorbing $80 million of EnhancedView deferred burn-down. In Earth Intelligence, we had key wins and deepened our relationship with the most discriminating and innovative customers in the world, including the National Reconnaissance Office, National Geospatial Intelligence Agency, U.S. Army, U.S. Air Force, U.S. Space Force, Department of Homeland Security, as Azure here, Toyota and key U.S. allies. Of note, we recently expanded our relationship with a large technology company by adding a multi-year contract, including for Maxar's 3D elevation data in addition to our renewal for our on-demand imagery subscription services.

Finally in Earth Intelligence Vricon was awarded phase 2 of the U.S Army's One World Terrain prototype contract worth $39.3 million, which puts our 3D products on firm footing for growth as we move into 2021 with $50 million of recent awards that we expect to convert into revenue this year for 3D capabilities. In Space Infrastructure, we booked six new GEO Comsat awards and several civil programs, including development work for NASA’s Human Landing System, where we're partnered with Dynetics. Also in 2020, we acquired the 50% of 3D software and data provider Vricon that we didn't already own.

As a reminder, we believe Vricon is a global leader in satellite derived 3D data for defense and intelligence markets, which the data's is focused on 3D mapping, earth observation, accelerating 5G infrastructure planning, precision guided munitions, military simulation and training, and increasingly the emerging needs for GPS denied navigation. We initially invested in and then later purchased the company outright because of its strength in the defense and intell markets.

However, I'm also pleased to report today that we have recently acquired licensing rights to the underlying intellectual property at Vricon for the consumer and commercial markets as well. It's early days, but the addition of these addressable markets further enhances our confidence in the long-term growth outlook for Vricon’s capabilities. And finally, we closed on the MDA divestiture back in April. That transaction put our balance sheet on firmer footing as proceeds were used to reduce indebtedness and say the least it was a busy year. And we made solid progress toward achieving our longer term goals. I'd like to thank all Maxar team members for their diligence and resilience in 2020. And I look forward to better things to come in 2021 and beyond. Please turn to Slide 5.

As we shift into the New Year, our priorities will look pretty familiar to most of you.

Our top priority is to win in Earth Intelligence and position the segment for sustained growth moving forward. This means we'll be focused on launching the Legion constellation successfully competing for the next iteration of the EnhancedView program and continuing to make investments in 3D, artificial intelligence and machine learning, our platforms, products, and capabilities that accelerate sensor-to-decision timelines. On Legion, we remain on track for a September launch window for our first launch. And as I mentioned above, we already have $50 million of awards for 3D and Vricon products.

Our second priority this year is to continue to establish a firm foundation for growth at Space Infrastructure. This means we'll be focused on driving diversified booking, so that we achieve our target goal for revenue mix of a third commercial, a third civil and a third military and intelligence. We've made some nice progress over the past two years, especially with NASA, science and exploration missions, but there's still more work to be done. We'll also be focused on solid execution. Producing spacecraft is a challenging task on a good day, but it's been made more difficult with COVID protocols. It's going to take another year of focused effort to drive us toward our 10% plus adjusted EBITDA margin targets, but we're on the right path. And lastly, we plan to continue to make investments in technologies and in systems that will allow us to effectively compete for and win the most demanding commercial and government programs.

Our third big priority this year is to maintain the financial flexibility that we'll need to grow the business over time. We'll be focused on driving cash flow and deploying capital in a disciplined fashion. And of course we'll remain focused on reducing our goal - remain focused on our goal of reducing debt and leverage. I'd like to now ask you to turn to Slide 6.

We have a robust pipeline of diversified opportunities. In Space Infrastructure, demand for space systems and architectures is growing across both commercial and government markets and there are several opportunities in the civil market for exploration and earth science missions. In Earth Intelligence, we see growing demand for data and analytics, particularly with our government customers and the Legion constellation will be a key enabler in meeting our customers' needs. All told we see an excess of $25 billion in pipeline opportunities over the next five years, which compares quite favorably with the $1.9 billion of orders we booked this year. We're confident about the growth trajectory of the company in the years ahead, and Biggs is going to provide an update on our long-term targets in a minute and please turn to Slide 7.

As I've mentioned several times now, Maxar is well aligned with the National Defense Strategy across multiple disciplines, including space and cyber, ISR, Missile Defense, Joint Lethality, Forward Force Resilience and Autonomous Systems. What I'd like to do today is double click a bit more on all of this. We're excited about the difficult technology problems we're helping to solve, and that will help our nation maintain its competitive advantage over near peer threats in the future. Please turn to Slide 8, which demonstrates the multiple domains in which the U.S. military operates and where Maxar is helping to address the complexity of the battlefield. From space assets to ground infrastructure to analytics solutions, we are well positioned. And we're currently supporting multiple customers and programs that are developing new technologies and capabilities for tomorrow's conflicts, including the Army's tightened program and project convergence, USDI's Project Maven, Air Force's Advanced Battle Management System and the Navy's Overmatch program.

All of these programs are at or near the center of the government's efforts to develop systems and capabilities to support joint all-domain operations and joint all-domain command and control across various branches of the military. Please turn to Slide 9.

One of the key goals of these investments by the government is to achieve an advantage on the battlefield by shortening the sensor to shooter timeline from space, which is all about seeing, identifying, targeting, and prosecuting dynamic targets at scale and at distance. Ultimately, DoD is driving to combined broad area surveillance and automatic target recognition to support long range precision fires at speeds required on future battlefields. Today most current sensor to shooter timelines are measured in hours. We believe the breadth of our coverage and the quality and accuracy of our imagery and our software processing capabilities are key enablers for dramatically reducing these timelines, particularly given that our data is AI and machine learning ready.

For example, in our recent exercise, we were able to collect, download, and process data at high velocity in theater and then in a matter of seconds register that data using Vricon's P3DR technology and inference it using our machine learning algorithms all in one seamless workflow. We're really excited about being able to provide these valuable capabilities and are driving hard in this area. The recent One World Terrain award I mentioned earlier, and the Remote Ground Terminal Award, I mentioned on our third quarter call, both with the army are solid proof points of our traction with customers. Please turn to Slide 10.

Importantly, Maxar is uniquely positioned to assist in these and broader DoD efforts with capabilities across ISR systems, processing, architectures, 3D modeling and simulation, advanced algorithms, systems engineering, and intelligent product generation. In our view, we're at the right place at the right time to help our customers solve many of the tough problems at the center of the National Defense Strategy. And we are confident that this will in turn drive long-term growth for the company and returns for our investors. We're also confident that our growth and capabilities aren't limited to defense and intell, and we're expanding our market opportunities like with the expanded Vricon intellectual property rights for autonomous navigation, gaming and other commercial applications. I'm tremendously excited about our future here. With that, I'd like to turn the call over to Biggs for a review of the financials, including our outlook for 2021 and beyond.

Biggs Porter

Thanks, Dan. Please turn to Slide 11 where we present year-over-year comparisons for the fourth quarter.

Our net loss from continuing operations for Q4 was $52 million and for the year $46 million driven primarily by the $33 million write-off of the remaining prepaid asset from the prior contract with a commercial provider of ground station services as we executed a new multi-year contract with more favorable terms. Revenue increased 14% for the quarter and 3% for the full year. Without the effects of the EnhancedView contract deferred revenue burn-off, total company revenues increased 23% quarter-over-quarter driven by recent wins in space infrastructure. Without the effects of the deferred revenue adjusted EBITDA grew 36% quarter-over-quarter that came in a little below the middle of our range due to higher than expected stock comp expense given the performance of our shares during the quarter and the slip of the contract in our Earth Intelligence that was signed in early 2021.

You may recall that we raised our guidance after the second quarter. On a full year basis, without the effects of the EV deferred total company revenues increased 6% and adjusted EBITDA grew to 16%. Please turn to Slide 12, where I'd like to provide a little more background on stock comp and other expenses incurred during the year.

For the full year 2020, stock comp increased $43 million from $20 million for 2019. Much of this increase was expected given the cadence of prior awards that caused a full loading of our three-year investing schedule to hit expense this year versus only two years in 2019.

However, our share performance did drive roughly $7 million of additional expense versus our expectations given the strong finish to the year.

Moving forward, we expect our annual stock based compensation to be roughly $36 million subject to share performance.

Additionally, we incurred $27 million in COVID-19 related EAC growth, there were operating posture at Space Infrastructure for the full year, including supplier delays and increased labor hours.

While the COVID posture continues to impact cost and schedules versus a normalized operating environment, it is to a lesser degree at this point, we did not expect to experience incremental cost growth like this again in 2021. Please turn to Slide 13, Earth Intelligence revenue decreased 10% for the quarter and was roughly flat for the year. Earth Intelligence revenue increased 1% year-over-year without the effects the EV deferred in the fourth quarter while adjusted EBITDA margins decline driven largely by the timing of joint venture income in the fourth quarter of 2019, which made for a tough comp. Recall we recorded Vricon net income and our adjusted EBITDA was recognizing revenue until their results were consolidated into our financials after acquisition in the third quarter of 2020. On a full year basis without the effect of EV deferred revenue increased 4% year-over-year driven by growth in services, international customers and the Vricon acquisition, our margins declined modestly driven largely by the JV income dynamic I just described. Please turn to Slide 14. Turnaround of space infrastructure continued into the fourth quarter, driven by a recent commercial and U.S. government awards reflecting progress on our diversification strategy. Revenue increased 46% year-over-year while margins expanded 1,800 basis points given the several charges recorded in the year ago period and higher levels of profitability and recent awards. Of note this marks the third consecutive quarter with adjusted EBITDA margins in the 6% range driven by the execution on our recent wins partially offset by higher SG&A expenses, including stock based compensation. And it is worth noting that despite the $27 million in COVID related charges we took in the first three quarters of 2020, Space Infrastructure finished the year right around breakeven with revenue above guidance while adjusted EBITDA was roughly in line. Please turn to Slide 15. The company generated $62 million in operating cash flow for continuing operations in the fourth quarter and invested $84 million in CapEx and development tangibles. Full-year free cash consumption of $65 million exceeded the mid-point of the upper-level advice guidance we issued in our third quarter call given favorable timing of cash collections and CapEx that came in at the lower end of our guidance. The outperformance in 2020 is going to come in part of the expense of 2021. The details of which I’ll cover in a moment during the discussion on guidance. Please turn to Slide 16.

We have roughly $496 million liquidity at the end of the fiscal year and our bank defined leverage ratio ended the year at approximately 4.3 times, compared to our covenant of 7.5 times.

As a reminder, we have no significant maturities due until 2023. And now please turn to Slide 17 for discussion with 2021 guidance.

We expect earth intelligence revenue to be in a range at $1.05 billion to $1.095 billion with translation of 5% to 9% growth without the effect of EV deferred driven primarily by product growth in the inclusion of our icon.

We expect revenue as space infrastructure to be in a range of $800 million to $835 million.

Our growth of 11% to 16% driven by the solid booking growth we experienced at 2020. Intersectional eliminations is expect to be roughly $45 million.

We expect earth intelligence adjusted EBITDA to be in a range of $440 million to $470 million, which translates the growth of 5% of the mid-point without the effects of EV deferred. Driven by the revenue growth I mentioned earlier, offset by cost growth related to Legion constellation.

As we continue investments on our ground and secure operations architectures.

We expect adjusted EBITDA space infrastructure to be in a range of $75 million to $95 million up from roughly breakeven in 2020, as we execute in our backlog. Please note the space infrastructure adjusted EBITDA guidance excludes any potential impact from recent events related to SiriusXM’s, SiriusXM-7 satellite. Intersegment eliminations are expected to decrease to roughly $16 million in 2021 as a Legion constellation work completes. Corporate and other expenses are expected to increase to $80 million reflecting an increased investment in corporate level system engineering and marketing expense.

Additionally, we’ve reallocated approximately $4 million in marketing spend from earth intelligence to corporate additional expenses related to investments in our mission architecture capabilities.

We expect our adjusted EBITDA results to grow in the second half over the first half in 2021, but the first quarter being the lowest. The mid-point of our operating cash flow reflects growth year-over-year, while CapEx expected to decline in 2020.

As I mentioned earlier, we have performed on our expectations for free cash flow in 2020.

So some of that has come at the expense of this year as the beat was driven largely by timing. But even after considering that the mid-point of our guidance has this free cash flow positive in 2021. Equally important as I will discuss in a couple of slides where I’m more positive on our long-term cash flow outlook. Please turn to Slide 18 for our refresh of our 2023 targets. We see a path towards up to $580 million of adjusted EBITDA by 2023. An increase of $40 million previously described in our 2022, 2023 target without the inclusion of the EV deferred revenue we ended 2020 with roughly $340 million in adjusted EBITDA. Space infrastructure adjusted EBITDA is expected to grow by $95 million includes a $25 million - in an intersegment eliminations of space infrastructure at places intercompany work WorldView Legion with third-party billings.

We expect this growth to be driven by solid execution on new awards and the roll off non-recurring COVID-19 related EAC growth and losses on the large developed bill that we spoken out in the past.

Additionally, we also expect the business to grow organically as we continue our diversification strategy across commercial, national and civil customers. Earth intelligence, we expect growth to be driven by Legion capacity and our product and service offerings, particularly in the area of 3D. Corporate expenses are expected to increase $20 million from 2020 levels, but at roughly $80 million in total in line with what I just gave as guidance for 2021. We made significant progress in 2020, and we’re well positioned for the future as we continue to drive our business towards significant adjusted EBITDA growth. Please turn to Slide 19.

For our 2023 free cash flow targets.

We expect to see total free cash flow growth of up to $390 million. The majority of this will come from earnings growth and a reduction in CapEx spend, as we complete the Legion constellation and move towards a normalized CapEx spend of roughly a $100 million by 2023.

We also expect interest savings $70 million as we reduced our leverage. With that, I would like to hand the call back over to Dan, before we go to Q&A.

Dan Jablonsky

Thanks Biggs. Please turn to Slide 20.

You’ve heard me present this slide over the past two years, so I won’t belabor it, but I do think it's an important reminder that we've been on a journey here at Maxar. In 2019 and 2020, we were focused on cleaning up the balance sheet re-engineering space infrastructure and recovering from the on-orbit failure of the WorldView-4 satellite.

As 2021 begins, we remain focused on revenue, profit and cash flow growth. We’ll also be looking to accelerate financial performance and further optimize our capital structure. In my view, this narrative and playbook remains as intact today.

As the day we introduced it to our investors a couple of years ago. With that I would like to hand the call over to the operator for your questions. Operator please open the lines.

Operator

[Operator Instructions] Your first question comes from the line of Kenneth Herbert from Canaccord.

Your line is open.

Kenneth Herbert

I just wanted to first ask if you could - can you talk about the sort of your bid pipeline and what we should expect on the infrastructure side in ‘21 in terms of order activity off of obviously the really strong backlog growth you saw in ‘20?

Dan Jablonsky

Yes, I think the first thing I’d say is, we are continuing to diversify, so it’s not just looking at the GEO Comsat market anymore, but we’re looking at a range of different programs across both civil and defense and intelligence as well. Are we do currently expect the GEO Comsat market to be about flattish, but we’ll be looking to get our fair share of those awards. There are some legal opportunities out there and we’re watching those and engage closely in advance with engineering studies and that sort of thing. And we continue to work with civil agencies like NASA that would, I guess I’d pointed to the HLS is a good example of a down select when that occurs, where we’re partner with Dynetics and other work like Artemis that we’re doing with NASA out there.

So timelines and budgets are always something to be watched with a larger programs.

So we’re pretty confident about the way things are looking. With defense and intel we’re still kind of early innings there. And it’s a multi-year journey that we’re on. We do expect to gain programs over time and we’ve been upgrading our talent to be able to tackle those.

So overall pretty good.

I think in terms of backlog numbers this year, we’ve got already 90% of backlog for our space infrastructure programs. That’s a pretty good number to be heading into the year as we get awards and get wins that will help cash flow throughout the year there too.

Kenneth Herbert

Okay, great. And if I just could on enhanced view and the recompete. What does the guidance assume or imply in terms of contribution this year, obviously I know most of it's baked in, but how do we think about that as the recompete and how are you viewing that, that probability now in that contract?

Dan Jablonsky

Well, I’ll talk about the contract first. And then I’ll hand it over to Biggs to talk about the - how it matches into our guidance particularly longer-term range, plans and stuff.

As you know, when we discussed before NRO gave us a one year study contract in June of 2019 that we completed in 2020. The government renewed as they have done on schedule on every other year, the enhanced view contract in September. At this point we do expect, as they’ve told us that prior to September ‘21, we'll be entering into a new government, but that’s part of a larger process for expanding the use of geospatial data.

And so we’ll be watching that really closely. If that doesn't happen, then the default is that this year we would - as we’ve done every other year would expect to renew the contract in September with the current terms and conditions. We believe we’re really well positioned, particularly given our performance over the past two decades and the investment we’re making in Legion and that architecture coming online and the way we’ve been partnering with U.S. government.

So we’re really excited about where the trend lines are there, what the customer needs are and what we’re able to provide.

Biggs Porter

Yes.

In terms of what that means in terms of guidance.

I think that with all they said, we expect the customer’s commitment to commercial energy to grow not to decline and we’re in a position in that overall [crawling pie] to be very strong.

We haven’t got more definitive that, and I don't think it makes sense to start to put straight numbers around that for 21 or out all the way up to 23, except to say that we still very good and still feel very good about our position.

Operator

Your next question comes from the line of Carter Copeland from Melius Research.

Your line is open.

Carter Copeland

Thanks a lot for the time.

Just a couple of quick questions on. One on the Vricon acquisition. I must admit, I didn’t realize didn’t own that IP, but the consumer poising of the IP purchase there, and I wondered if you could just give us some color on what you see from an opportunity standpoint as a part of that, and if there’s anything else to acquire there, if now you’ve got all those interest at this point.

Dan Jablonsky

Yes. Well, first off, we’re really excited about it. We built the business case up on the defense and intel products and recently obtained the license rights to both the consumer and commercial markets as well.

So we’re really excited about that. We think it does open up just a whole another set of market opportunities for us. I’m not going to be too specific yet.

We’re still a little newer and working through all of our go-to-market strategy for products in those areas, but things like gaming, virtual reality and autonomous vehicles are on the table now. And we’re really - we think there’s some nice confluence between the work we’ve been doing with the department of defense and the USDI in those areas and where we might take commercial and consumer applications as well. Yeah, we’re really excited about it.

We’re really exciting about the traction we’re seeing in initial discussions we’re having with people.

Carter Copeland

And just with respect Biggs to the longer-term cash flow guidance. It looks like there’s a lower CapEx assumption in there. And then obviously the comment was around finishing Legion and getting to a normal run rate. But what - is there something in there that moves that we should be aware of?

Biggs Porter

No, I think that the story is pretty consistent as we told it previously. We did present things a little different fashion and make it clear where interest savings were and where our CapEx savings were and try to make it clear between capitalize interest versus just pure cash interest.

So I don't know if that's creating any confusion and - to this point. But the $180 million is very much made up of Legion and Legion related CapEx. In my say it’s Legion related, it’s because in 2020 we were spending on ground infrastructure also spending on interoperability with the customer. And it looks like there was more spin in just the 600 lovely million Legion CapEx program, but driving down over the next few years.

Carter Copeland

Okay. And with respect to that that builds in the existing constellation. Should you expand obviously we’d revisit that number?

Biggs Porter

Yeah.

So it’s doesn’t, assume we’re building any additional agents in this time period.

Carter Copeland

Okay.

Biggs Porter

If the customer wanted that then we obviously have to consider that, but this assumes just the constellation.

Operator

Your next question comes from the line of Robert Spingarn from Credit Suisse.

Your line is open.

Robert Spingarn

Biggs just on the 2023 cash flow number. I want to make sure I follow, because I guess it’s a $135 million above the old guy. And you said that some of that is CapEx, some of that’s interest expense. How do we think about the rest of it? Some of it’s for icon I imagine. What else is in there?

Biggs Porter

Well, I think some of those just conservatives than we had before.

Robert Spingarn

Okay.

Biggs Porter

Like we did, probably did better than what we put out there. When we first gave the guidance out, what was three years out for the future before. The right time is a part of this having a little bit of better visibility into each elements of the business and saying what is a reasonable cash flow expectation off of that? So I don’t think, I wouldn’t say we’re being aggressive in this.

I think we maybe were, what we held some back before, rather than with - the first time or going forward.

Robert Spingarn

Sure.

Okay Dan on that just timing on Legion tranche 2, we just want to get a good idea where we were on tranche 1 and then tranche 2. And then Biggs, how much Legion sell through was in your 2023 EBITDA and cash flow numbers. Is that selling all six satellites fully? Or how do we think about that?

Dan Jablonsky

You want to take that one first Biggs, then I’ll get in.

Biggs Porter

Sure. I know you’ve asked the question before inclusively how much excess capacity is there out there, and we’ve declined. The answer as fully as you would like. And I just say you, one of the problems of answering the question is not all capacity is created equal.

And so shortly you can always have some capacity in areas that aren’t in the higher demand, irrespective of what’s happening elsewhere, but we are going to have significant passionate Legion, but you always have to think of it too in terms of, it's not just about the imagery, it’s everything else that that imagery drives.

And so, capacity to generate relative from Legion isn’t solid determined just by the - we could sell off of it, but also let it enables and everything else in terms of the products more traditionally we deliver and also all the 3-D products and all the analysis associated, with imagery.

So it’s more open-ended than you might think based upon just the number of passes and revisits around the world from those six satellite constellation.

So that’s recently, we’re not being specific, but we don’t expect to start growing in ‘23, on any kind of assumption that we’re tapped out in terms of our ability. I can treat it grow revenue off of the assets that we would have in place.

Robert Spingarn

Okay.

Dan Jablonsky

So Rob, on speaking to those assets, I was - you remember we told that [MetaLab] area last year about this time at the Investor Day, and I was just out there with our team two weeks ago. They’re beautiful. They’re looking good.

You too bad. We can’t get you out there right now with COVID protocols and everything to take a look, but satellites are really coming along.

We’re still on track for the first two in the September launch window.

So we’re excited about that and the company’s all geared up and moving towards that that timeframe.

On the next four, which will be the second launch. Those will be the ones that go into mid-inclination orbit.

We’re just now starting to work with SpaceX on what the launch windows look like. And I think on the last call, I said we expecting to launch those on the order of three to six months after the first to go up.

So we’re probably looking very early part of ‘20, ‘22 right now it would be my guess. But conflicts program we’ll continue to work with SpaceX on the launch windows and everything else to get those lined up for that.

Robert Spingarn

Okay. And then just as a last question, this has to do with EI, and I just wanted to revisit that business and get the latest on the breakdown between the imagery business and the analytics business. How those are both trending. And then a follow-up question to that is that there are some other players, smaller competitors, perhaps that are starting to accelerate their growth trajectory and trying to compete.

I think with Maxar or maybe some others on imagery and analytics through lower cost offerings and maybe higher revisit rates whether they may claim higher revisit rates. Do you see that? How do you see this competition that starting to show up out there?

Dan Jablonsky

Yes, I guess what I’d say is we’ve got great trend lines. We’ve got great traction with our customers. And I think the wins we had and the performance we did this year, even during a COVID environment, when we were capacity constrained and limited waiting for Legion constellation. It’s a pretty good testament to that. And we've made great gains on each of the analytics as well as the imagery fronts. And they’re becoming more seamlessly intertwined as we keep moving forward. And the reason I said part of that is because the data that’s coming off the birds is now. We’ve got some blogs out today on this topic as well, but its analyst ready, it’s EI, its machine learning ready.

And so that kind of seamlessly transitions into the type of software you run on this, the type of algorithms, if you’re doing an artificial intelligence environment whether that goes right into a Convolutional Neural Network or something else.

So, yes, go ahead.

Robert Spingarn

They're the two - are the two areas growing in parallel? Or would you say analytics is outgrowing imagery or the other way around?

Dan Jablonsky

Right now, analytics and software outgrowing imagery and most of that's due to the fact that we lost world before and we're capacity constraint.

I think that probably changes when Legion becomes operable towards the end of the year here and that kind of flips into a lot of capacity that we can then because if we're doubling our nears 500 - nears 5.5 capacity there, so that we’ll like kind of the back and forth there.

On the others - kind of I don't like to make a specific comments about anybody in particular, I guess maybe a couple of points I'd make though are that it's exactly new entrance had been around for almost a decade now to some of them.

So we're aware of them. We're aware of their capabilities. We've had good traction with our customer sets. And look - companies out there that are continuing to - it's a growing market.

I think that's a testament to this. Maxar' data and analytics, we competed successfully with the advanced technologies we have and we think it's good for the industry - and welcome those who are here, those who might get in and otherwise.

Operator

Your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets.

Your line is open.

Thanos Moschopoulos

Dan, can you talk about the pipeline for Legion and how you're seeing that evolve, and realized that most of the selling happens once they're in space, but just in terms of the pipeline or some of the pre-selling activity. The pandemic or on the flip sides is it being held by the current geopolitical dynamic or demand environment and we will be seeing in that front?

Dan Jablonsky

Hi, Thanos. Thanks for the question. Yes, so I think it's kind of a mixed bag on whether we've been helped or hurt by the pandemic. I was doing a signing ceremony with the New Zealanders on some cooperation agreements this week and that would have taken me multiple days of travel both ways to try and do something like that.

So on the one hand that - it's a little bit easier to do some stuff like that.

On the other hand, it is more difficult to get in especially with the classified customers overseas into their Defense Intelligence establishment at the same level of conversation we might have without the ability to travel to some of those locations.

I think as you said there will be some countries and there will be some customers that will purchase once the assets - once they can see the data and once it's on orbit, but we're having good early traction with the conversations we're having. People were really excited and watching the timelines and the progress and the pictures we send them on the constellation build-out really closely. And we're seeing really, really good demand signals and customer updates, some of those, because they're allied nations and they've got pretty discrete programs, we won't be able to announce them. We'll just be able to kind of talk about what kind of awards we're getting. And we're seeing really strong uptake on the commercial side as well.

With the large technology customers, they're very excited about the type and quantity and accuracy and revisit rates we're going to provide with constellation.

Thanos Moschopoulos

Great. And in terms of the margin for intelligence now - year, just help us to understand, I mean, once the launch happens, is there may be a temporary margin get because of some incremental OpEx step that comes on or how the markets evolve throughout the year for that segment?

Dan Jablonsky

Take that one Biggs. I'll take it. I lost…

Jason Gursky

Biggs, we can't hear you what you’re talking.

Operator

My apologies, the line of Biggs has disconnected.

Jason Gursky

Yes, what I would say Thanos on the margins, you've got to keep in mind that the satellites, we're having those - aiming to have those launched in September. We've talked about one or - roughly a quarter - producing revenue generating kind of data.

So there's not much baked into 2021 with regard to margins from a linear perspective. Biggs did mentioned during his prepared remarks that we do have some incremental costs this year associated with build-out of the infrastructure on the ground for the Legion constellation.

So we do have some extra costs this year, and as the Legion capacity comes online and we begin generating revenue, and that’s - see incremental margins kind of accelerate as we move into that ‘22, ‘23 time frame.

As you can imagine, the margin we can do expect, the margin expansion in the ‘22 ‘23 time frame as the Legion constellation comes online and helps offset those increased costs and absorbing this year.

Thanos Moschopoulos

Okay, great. And finally Biggs mentioned that the space infrastructure guidance doesn't contemplate, I forget the exact wording, but potential costs or potential implications of the SiriusXM-7 failure.

So just a couple of understand that I mean are there any protentional costs. I presume you still on the course of identifying the cause that might be now your focused point, but what would the defense solider be if any?

Dan Jablonsky

Yeah and we don’t have anything to report on the continued troubleshooting work we’re doing with the satellite and with the customer. We did and I know you guys probably haven’t had a chance to go through. We’ve got some pretty extensive disclosure in our 10-K honest.

As of December 31, 2020 we had $50 million an unbilled receivables and $14 million in collectible, in orbit payments or receivables that are over the life of 15 years.

So that $29 million there. And then we’ve also got, we’re exposed to some liquidated damages that haven’t previously been accrued of up to $9 million.

So, yeah, I think what I’d like to remind everyone is satellites are it’s a hard business.

We’re continuing to work on this one and we’re going to do our best to get it to be as performance or back to specifications as we can. We do have 90 Maxar billed satellites on orbit and they’re operating to their expected lives. And we really pride ourselves on the quality of our products.

So we’ll be looking for any learnings we can get from this and focus that on producing the next 90 spacecraft with the same type of reliability, we’re known and our customers know us for.

Thanos Moschopoulos

Great. Thanks Dan and its helpful on.

Dan Jablonsky

Thanks Dennis.

Biggs Porter

Dan this is Biggs. My line was dropped, but I’m back.

Dan Jablonsky

Biggs is in Texas, we’re not sure how the storms are still going, but I think…

Biggs Porter

It’s pretty warm here and now.

Operator

Your next question comes from the line of Chris Quilty from Quilty Analytics.

Your line is open.

Chris Quilty

Dan just a follow-up on XM-7 satellite, since number 8 is a twin orbit satellite and still on the production line. Is there a possibility that we could get some other EAC charges if you determined that there was some kind of any intrinsic fault was 7, that's going to need to be corrected with 8?

Dan Jablonsky

We’re working with the customer to get 8 up as quickly as possible. It’s part of the resiliency of their network. And we do expect to launch that as soon as we’re able to here.

In terms of additional charges Biggs do you want to handle that piece of it.

Biggs Porter

Yes. At this point in time, we don’t expect anything or obviously focused on 7 and all the analysis there and doing what we can for making it optimized and operational.

So I think that things will always unfold, but don’t expect anything significant to have on their respect to a cost standpoint.

Chris Quilty

Okay. And a follow-up on the question about Vricon and the commercial consumer rights. Was that something that had done anything with, do they have any pre-existing business? Where was that that rice and those activities simply sitting on the shelf for them on use?

Dan Jablonsky

I got to go into too much detail on, just because there’s a large body of some third-party work here, but some of those rights were with a large technology company. And we’ve been able to work with that large technology company to acquire full access to the intellectual property rights there.

Chris Quilty

And so was there something I’ll find in the 10-K in terms of the acquisition cost of those assets?

Dan Jablonsky

Biggs do you want to take that?

Biggs Porter

I’m sorry. The question is, is there are cost associated with the commercial rights?

Chris Quilty

Are there any disclosures in the 10-K, which I haven’t gotten to about the acquisition cost of the commercial rights?

Biggs Porter

There really is not a discrete acquisition cost associated with those.

We are not capitalizing any additional tangibles, as a result of acquiring those as a part of a broader arrangement, no discrete cost associated with the IP.

Chris Quilty

Understand.

So excluding the Vricon revenue pickup. I guess the earth intelligence business was down a couple of percent this year. What were the primary factors in the revenue decrease in 2020?

Biggs Porter

I’m not sure I get to the same numbers on decrease. Are you looking just at the last quarter? Sorry.

Chris Quilty

No, I’m saying on a full-year basis, if you exclude the $8 million contribution for Vricon. We can circle back to back.

Biggs Porter

I’m not sure I get.

Chris Quilty

We can circle back to back.

Biggs Porter

Yes, we can back. I’m not sure I get to the same data. Why don’t you, maybe you do a follow-up with Jason on that using what will be disclosed, but that’s what I talked about or Dan is talked about the businesses is otherwise growing. There is good strength and what we’re doing from an analytic standpoint, we are a little constrained on the capacity side for imagery, but we don’t see any real weakness there. There are some timing at the end of the year saying slipping into ‘21, but other than that the business is performing well particularly in COVID environment.

Dan Jablonsky

I think this was the last quarter Chris, we had the burn off of that EV deferred revenue.

So on a year-over-year basis from last year, $40 million of non-cash deferred revenue which was a 100% margin in the business. This is finally gone and off the books.

Chris Quilty

All right.

Jason Gursky

Yes. Chris on the full-year basis, if you look at the bottom of page 13, you’ll see revenue streams without the effect of EV deferred. And I think that’ll help you get to help answer your question.

Chris Quilty

Okay.

Biggs Porter

Yes, I apologize. I was thinking you were asking answer on target and I’m sorry for that, but yeah, the data is there.

Chris Quilty

No problem.

So a question, I know you guys don’t report revenues in this way, but can you talk about where what you used to call your that business is both in terms of revenues and number of customers and pipeline as we prepare for Legion.

Dan Jablonsky

So I think on the last time we did make disclosure, I don’t know we said it does in the 14 countries that had those types of facilities.

We continue to see strong traction in the marketplace with both the direct access facilities themselves, the hardware and the software component tree, as well as the virtual rapid access program.

So there are some countries now that have virtual solutions for direct access. And increasingly we’re seeing those countries plus other countries coming in on the secure watch contracts and we’re seeing sort of a blend of the software and the platform and the virtual and the hardware componentry there. That’s a great business for us. It continues to be a great business. It provides us the top organizations in those countries to demonstrate not just our capacity for this, the satellites and on-orbit capabilities and the direct tasking features, but also increasingly our software and our 3-D type solution.

So that’s good. It’s been very, very solid, which is, I think it’s help to underpin our performance.

Sometimes it runs a little up and down, ran a little down in COVID, and a lot of people had to leave their buildings and couldn’t task. And then depending on world situations and the threat environment, it runs back up in some areas of the world again faster than others, but were every one of those customers is really looking forward to the Legion constellation, and we’re making upgrades to our software and ground infrastructure to make sure that as the Legion constellation comes online, we can start the money by pulling on that right away.

Chris Quilty

Great. And final question and this is, I guess specific to the risk intelligence is this one of your competitor slacks guy filed this back, and it’s obviously a presentation deck out there. They have between now and 2023, I think $200 million ounce of incremental revenue growth over that timeframe in the last two years.

So I guess it’s backs our spend capacity constraint.

You haven’t seen I think $30 million of growth. Do you see the marketplace in the next two years growing at, I guess in excess of $200 million there is growth in there for Maxar and other competitors also?

Dan Jablonsky

Yes, I think what I’d say is - we keep very good tabs on everything that’s happening on our industry of course seen the decks and read them. I won’t comment on them other than to say, as we think about the marketplace, as we think about our track record, our competitive positioning, the work we do day in and day out with customers. We think the market is growing, and we think that our piece of it is factored in very, very well into the numbers that Biggs gave you for our 2021 and longer-term 2023 type guidance.

So if you think about it in way, we’ve kind of factored in some things including our capacity into those numbers, but we’re very confident in what we’re proposing for our numbers. I’m not going to speak to anybody else’s.

Jason Gursky

Okay. Operator we're about out of time here. I’m going to thank everybody for joining us today. We’ve got a busy calendar with some sell side conferences in the coming weeks. And we look forward to seeing many of the listeners on the call at those conferences. And certainly look forward to returning this time next quarter for discussion on our first quarter earnings. And we’ll look forward to speaking with you all then. Thanks and have a great day.

Operator

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

You may now disconnect.