GeoEye Wins Important Contract

| About: GeoEye, Inc. (GEOY)

GeoEye Lands New Deal With NGA

Service level agreement increases and steadies revenue flow

GeoEye announced Wednesday after the market closed that they have finally secured the much talked about Service Level Agreement (SLA) with the National Geospatial-Intelligence Agency (NGA) that would help them smooth out order flow and revenue and allow them to better utilize their latest and greatest satellite, GeoEye-1.

GeoEye will provide satellite imagery products to the NGA under this agreement beginning with the commencement of commercial operations of its GeoEye-1 satellite.

GeoEye-1 is undergoing final calibration and alignments and GeoEye expects to start selling GeoEye-1 products “soon”, but wouldn’t actually specify a target date for that to happen.

The SLA also includes imagery from GeoEye’s IKONOS satellite.

From what I understand, this imagery SLA is a baseline figure and amount, and the NGA is likely to order additional imagery on top of this SLA, in addition to GeoEye garnering revenue from all its other customers including Google (NASDAQ: GOOG), and foreign governments that account for about 35-45% of revenue.

The value of the SLA is $12.5 million per month for a period of one year, which would equal about $150 million over a 12 month period, or greater than all of GeoEye’s sales the entire year of 2008.

Again, this value doesn’t even include additional sales from the NGA, retail customers and foreign governments which would push GeoEye’s revenues much higher (analysts are expecting $255 million in 2009).

The SLA takes affect December 15th, which would mean that GeoEye and/or the NGA expect GeoEye-1’s imagery to be approved sometime around then as well, although they aren’t committing to anything.

So what does this mean?

Essentially what this does is create a smoother and more predictable stream of revenue for GeoEye which has long been a problem for them from quarter to quarter.

This will also increase their margins and profitability as they will be able to assign certain predictable amounts of manpower to the tasks at hand, know when and where certain jobs need to be accomplished and better utilize their infrastructure.

For the NGA, this agreement also provides them with a predictable stream of new imagery that they can count on getting BEFORE GeoEye goes off and sells additional imagery, or takes new imagery for other partners whether commercially or for foreign governments.

This is essentially a win-win for both parties, actually for all parties involved either directly or indirectly, and will go a long way towards securing GeoEye’s promise for increased fundamentals next year.

One more quick note:

It was also announced Wednesday that current CFO Henry Dubois will be resigning from the company effective immediately, but stay on as a consultant at his current salary through early next year.

No reason was given for the departure, and I wouldn’t be surprised if Henry was pushed out as a result of the last few quarter’s worth of financial and accounting mess that GeoEye has had to deal with including various restatements, late filings, etc., that surely would fall at the foot of the CFO in terms of reporting parameters and such.

I will be sad to see Henry go, and wish him the best in his new endeavors.

Bottom Line

GeoEye remains my #1 pick, and Thursday’s news only bolsters that fact.

The stock was trading up in after hours, and I know that this is just the kind of news and validation that Wall Street was looking for before purchasing more GeoEye shares.

All that being said, there is still one more thing that I want to see before I could recommend additional purchase of GeoEye for those like me that already are fully invested: the successful check out of GeoEye-1’s imagery at a satisfactory level for the NGA such that GeoEye can finally begin selling this imagery to the NGA and all its other partners.

There must be some serious delays in calibrating the satellite and some serious bugs that needed to be ironed out.

Let’s hope that final piece of the puzzle gets solved sooner than later, but otherwise, GeoEye is a go.

New to the GeoEye story?

GeoEye LogoGeoEye provides space-based, and aerial imagery and geospatial information through high-resolution and low-resolution imagery, imagery-derived products, and image processing services to customers worldwide.

This capability benefits a broad array of industries including national defense and intelligence, online mapping, state and local governments, environmental monitoring and land use management, oil and gas, utilities, disaster management, insurance and others.

  • Read my initial buy recommendation here.
  • OR: listen to my EXCLUSIVE interview with GeoEye’s management team here.
  • OR: Read my latest update on the company’s Q3/2008 earnings release and conference call here.