Seeking Alpha
What is your profession? ×
Profile| Send Message|
( followers)

GeoEye LogoAside from the tumult over GeoEye’s (NASDAQ: GEOY) latest satellite GeoEye-1 getting certified, we haven’t really heard much from the company in terms of earnings release dates, guidance, or really, what’s going on as far as investors are concerned.

I had to estimate based on various sources, when GeoEye’s earnings release date might be, and it looks like GeoEye will report earnings sometime this week, with the possibility that they will release those earnings Monday.

Why no fanfare? Why no previous announcement like most companies have done in letting investors plan ahead and know when earnings were going to be released?

Also, why were those earnings seemingly delayed by about 1 month from when they should have been released?

In this post I’ll go over the important aspects that we need to be aware of before GeoEye announces earnings and then break them down into the following parameters:

  • What went right in the quarter: What were some of the positive developments that occurred within the company in the last 3 months.
  • What went wrong in the quarter: What were some of the negative developments that occurred within the company in the last 3 months.
  • What I want to see: All things considered, what I realistically want to see from the company as it relates to their business.
  • What we need to see: At the minimum, what we need to see for our investing thesis to still hold and an investment in this company to be prudent.
  • What we’ll probably see: After weighing what’s been going on for the last 3 months, what we can realistically expect when they do announce their earnings.
  • Bottom Line: What it all means, and what you should do.

New to the GeoEye story?

GeoEye 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.

GeoEye operates in what in essence is a duopoly with only one other U.S. competitor, DigitalGlobe (NYSE: DGI), and just recently launched and certified their latest satellite, GeoEye-1, which is the most accurate and detailed commercial imagery satellite available today.

Want more?

  • Read my latest 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.

Q4 and Full Year 2008 Earnings Not Going to Be Good

Focus will be on outlook and what management discusses

A lot of things happened with GeoEye in terms of their new satellite certification, as well as formal imagery approval by the NGA, and getting a new Service Level Agreement (SLA) which should smooth out revenues and earnings.

What alarms me somewhat, however, is the recent silence by the company, especially in light of their upcoming earnings release that required one to be a detective just to try and find out when it was going to be held.

Let’s take a look at the quarter that was, and what I expect in the next 3 months.

What Went Right In the Quarter

GeoEye-1 Imagery Approved, SLA signed with NGA

There were a couple of very positive and important developments as far as GeoEye was concerned in the last 4 months. They were:

  • GeoEye Secures long term SLA with NGA: On December 10th 2008, GeoEye announced that they had reached a long term agreement with the National Geospatial-Intelligence Agency (NGA), for what the company termed a “Service Level Agreement” (SLA).

Essentially what this agreement stipulates is that GeoEye will receive at least $12.5 million in imagery orders from the NGA over the term of the agreement from GeoEye’s GeoEye-1 satellite.

GeoEye’s revenues and margins used to fluctuate greatly from quarter to quarter because of the previous uneven order volume from the NGA. This agreement is designed to smooth that out, and yield GeoEye a steady stream of revenue.

  • GeoEye Signs Deals with Imagery Resellers: GeoEye also announced this quarter a couple of deals with imagery partners that are more advantageous to GeoEye than previous deals to resell GeoEye-1 imagery in their respective territories.

GeoEye renewed their contract with the Centre for Remote Imaging, Sensing and Processing (CRISP) to resell imagery in the Southeastern Asian marketplace.

In addition, GeoEye signed a new deal with Telespazio in Italy to resell GeoEye-1 imagery in Europe and North Africa.

These two deals will allow GeoEye to better serve their customers, increase profit margins, and resell their imagery to anyone else via their archives, even imagery that was commissioned by someone else because of the new rights agreements that they have instituted with these resellers.

Previously, GeoEye would have to buy back imagery, and then resell it to other partners, which was a colossal waste of resources.

  • GeoEye-1 Finally Certified by the NGA: This is the biggest development to come out of GeoEye in the last 4 months, actually, more like the last year.

The long delayed launch of GeoEye-1 as well as the delays in getting the imagery certifiable via the NGA, was finally seen to completion when the NGA gave its final approval to GeoEye for the use of GeoEye-1’s imagery immediately.

The delay in launch, calibration, and check out, pushed the actual timetable for making money on this $500 million investment about 1 1/2 years later than it should have.

But, what’s done is done, and now it’s time to look to the future, and how having GeoEye-1 in the fold will affect GeoEye going forward.

What Went Wrong in the Quarter

Delays and miscommunication

I don’t think I have to harp on the long delays in not only launching GeoEye-1 (which I’ll chalk up to poor government planning and some bad luck), but also the long delays in actually calibrating the satellite and getting the imagery pushed through to the NGA to be approved.

Let’s let those go for now because they’ve been beaten to death already, and instead focus on something that can be controlled and that is completely within management’s power to fix.

Lack of communication!

While GeoEye’s management team is competent, and even at times very good, this has been a pervasive problem in the past, and it looks like GeoEye is slipping into old behavior patterns by not communicating well with analysts , Wall Street, and simply the investors like us that own shares of the company’s stock and just want to know what the heck is going on from time to time.

We were kept in the dark all quarter about the “calibration issues”, what was taking so long, why there was a delay, and when and why earnings were going to be released and were delayed.

In fact, I am putting out this post a little blindly, without truly knowing the exact date and time of GeoEye’s earnings release because they have yet to specify this information publicly.

GeoEye was on the path towards rectifying this situation and had done a much better job of managing their profile, and miscommunications with investors, but they’ve taken a large step back here lately.

What I want to see

What’s going on, what they expect

Of course GeoEye does not provide guidance, which is fine and preferred by me, but what I do want is a great and detailed update on business trends, and the direction the company is headed.

We know that revenues and earnings are going to be bad for the Q4 and full year 2008 period, and I don’t think that anyone will really care one way or another what these numbers are.

All that really matters is that GeoEye’s management sooth investors, and explain, in as great a detail as they feel they can with NGA considerations to adhere to, what’s going on within the company, their outlook for GeoEye-2, the debt needed to finance the build out of this satellite, their liquidity, cash generation, and their forecast for future shareholder dilution.

What We Need To See

Probably the same

I would say that GeoEye most likely will need to explain themselves.

It will be a very interesting conference call to be sure.

Again, I have no doubt about the competency of management, just the ability to confer with the shareholders, and relay to us what is going on.

If GeoEye wanted to lay low and be under the radar, then they should never have come public.

But if it’s our money they are using to run their business, then you bet they owe us information in a timely manner as to what’s going on within GeoEye’s walls.

What We’ll Probably See

Cryptic Confidence?

I hate to say it, but we’ll probably hear some form of cryptic messages about the NGA, GeoEye’s “other partners” and how things are looking really good right now, but that they really cannot say much more than that.

We know that Q4/2008 and full year 2008 earnings aren’t going to be great, but that’s not what anyone cares about anyway.

With GeoEye-1 fully operational and earning the company money as we speak, we will want to know now that GeoEye has a constellation of satellites in orbit (GeoEye-1, IKONOS, and OrbView-2), will we see a return on investment, increased cash flows, and improvement on the bottom line?

Also, what’s going on with GeoEye’s liquidity position, and their debt maturities for the funding they received for the build out of GeoEye-1?

Bottom Line

I still believe, but want a little more

GeoEye is still, especially at these levels, a screaming bargain, assuming of course that all is well, and up to this point, in spite of all the delays, we’ve had nothing much to worry about in terms of underlying problems with the company.

Now that we have reached what I would like to term a “steady state” with shares of GeoEye, and the company’s outlook in terms of revenue and order flow, I want to see more consistency with management’s reporting and updates to investors, as well as less cryptic messages and information flow.

GeoEye the stock is dirt cheap, especially in light of the profit and cash flow generating abilities now that GeoEye-1 is fully operational, the question now becomes, is our continued investment in GeoEye prudent?

As of this writing, the answer to that is a resounding yes.

Let’s see if management agrees.