DigitalGlobe Management Discusses Q1 2014 Results - Earnings Call Transcript

May. 1.14 | About: DigitalGlobe, Inc. (DGI)

DigitalGlobe (NYSE:DGI)

Q1 2014 Earnings Call

May 01, 2014 5:00 pm ET

Executives

David Banks - Vice President of Investor Relations

Jeffrey R. Tarr - Chief Executive Officer, President and Director

Yancey L. Spruill - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Peter P. Appert - Piper Jaffray Companies, Research Division

Howard A. Rubel - Jefferies LLC, Research Division

Andrea James - Dougherty & Company LLC, Research Division

Chris Quilty - Raymond James & Associates, Inc., Research Division

Jason M. Gursky - Citigroup Inc, Research Division

Josephine Lin Millward - The Benchmark Company, LLC, Research Division

Operator

Good afternoon. Welcome to the DigitalGlobe's First Quarter 2014 Earnings Conference Call. [Operator Instructions] Today's call is being recorded and is also being broadcast live over the Internet at www.digitalglobe.com. In addition, there are supplemental materials that will be referenced on today's call available at the company's website. To access those materials, go to the Investor Relations section of the company's website at www.digitalglobe.com. I will now turn the call over to David Banks, Investor Relations for DigitalGlobe.

David Banks

Thank you, Kate. Good afternoon, everyone, and thanks for joining our call today. With me are Jeff Tarr, President, Chief Executive Officer; and Yancey Spruill, Chief Financial Officer. Our remarks today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. Any forward-looking statements are based upon our historical performance and our current plans, estimates and expectations. We may make forward-looking statements about, among other matters, revenue and revenue growth, adjusted EBITDA and adjusted EBITDA margin, earnings per share, cash flow, sales pipelines and strategic initiatives. Inclusion of this forward-looking information should not be regarded as a representation by us that we will achieve future plans, estimates or expectations. Such forward-looking statements are subject to various risks and uncertainties and assumptions. A number of important factors could cause our actual results or performance to differ materially from those indicated by such forward-looking statements. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, or to reflect occurrence of unanticipated events. Please refer to our earnings release, which can be found at our website at www.digitalglobe.com, for a discussion of these risk factors. You should also refer to our earnings release for an explanation of the non-GAAP financial measures discussed during this call, and for a reconciliation of those measures to the nearest applicable GAAP measures. These non-GAAP measures are indicators that management uses to provide additional, meaningful comparisons between current results and prior reported results and as a basis for planning and forecasting for future periods.

For your convenience, we've posted slides on the IR section of our website at www.digitalglobe.com to give you an overview of the information we will cover today. [Operator Instructions] With that, I'll turn the call over to Jeff.

Jeffrey R. Tarr

Thanks, David. Good afternoon. Thank you, all, for joining us for today's earnings call. Before discussing the quarter, I'd like to call your attention to the press release we issued this afternoon, communicating that Yancey Spruill will be stepping down as CFO after 10 incredible years of service to DigitalGlobe and our shareowners. Yancey joined DigitalGlobe in 2004. He led the company through its IPO in 2009 and played a pivotal role in our 2013 combination with GeoEye. Yancey's been a partner, colleague and friend, and I will miss his insights, enthusiasm and broad contribution to our business. I'm especially grateful that he served us through to the realization of our original synergy commitment, and that he has agreed to continue to serve as our CFO for up to 6 months while we search for a successor.

Now, for the quarter. We are pleased to report a good start to 2014. We grew revenue 14% pro forma to $157 million through double-digit organic growth with our U.S. and International Defense and Intelligence customers. We expanded adjusted EBITDA margins by more than 1,500 basis points to 43%, primarily as a result of our successful integration effort and the operating leverage inherent in our model. And we made meaningful progress on several important initiatives to ensure we continue to win in the marketplace and drive long-term profitable growth.

Today, I'll discuss each of these topics, starting first with revenue growth, then margin expansion, and then most importantly, our long-term growth initiatives. I'll then hand the call over to Yancey, who will provide more detail with regard to our financial performance and guidance.

First, let's discuss this quarter's growth. Our growth in the quarter came primarily from our U.S. Government and International Defense and Intelligence customers, who rely on us as mission partners to ensure the safety and security of their nations. And to a lesser extent, from acquired revenue. U.S. government was up 22% pro forma as a result of growth in Global-EGD and Analytics. As a reminder, Global-EGD if the web-based platform through which we process and deliver our daily imagery collections in near real-time, for intelligence analysts, warfighters, first responders and other government employees across a wide range of agencies around the globe.

Our Analytics business also contributed to growth in the quarter. We are increasingly providing new and differentiated solutions to U.S. Military command, by bringing together near real-time access to our imagery, new geospatial data layers derived from our imagery and other sources, crowdsourcing and a growing suite of proprietary software and algorithms and expertise. Two examples of our work in the quarter included our support of NATO in bringing visibility to the Russian troop buildup on the border of Ukraine, and our support of the government of Australia in the search for Malaysia Air Flight 370.

Direct Access, through which we provide imagery in a secure and deeply embedded fashion to 10 nations, grew 23% pro forma in the quarter. We renewed existing customers, delivered additional minutes of use to others and activated a new facility. Longer term, we are seeing demand signals that suggest we should be able to continue to grow this line of business at a healthy rate with the addition of capacity.

Taken together, U.S. Government and Direct Access represents just under 80% of our total revenue. Our offerings are primarily recurring in nature and are deeply integrated and mission critical to our customers. Most importantly, our unique capabilities are positioned to fulfill a growing set of important intelligence needs.

Turning to our Other Commercial business, we closed 2 projects in India in Q1. Near term, we expect emerging markets to continue to pressure growth in our International Civil Government business until late in the year, when easier comparisons and hopefully, some degree of market recovery, reverse recent trend.

Location-based Services revenue was up in the quarter, aided by the expansion of 2 important customer relationships and the signing of a multi-year agreement with Google.

With regard to other industry verticals, we've seen our transactional business stabilize. We still have work to do in this area, and by its very nature have limited visibility into growth in future quarters. However, recent results suggest our improved sales and marketing initiatives are beginning to have an impact.

Importantly, we are making good initial progress in oil and gas, with our Spatial Energy acquisition. Spatial saw a 100% renewal rate in its online subscription contracts, with an average increase of more than 15%. We also signed a number of contracts that include monitoring, mapping and advanced analytics.

We're also making good headway into NGOs, adding another well-known customer in the quarter for whom we are contributing to a major agriculture-related initiative in several underdeveloped areas of the world.

Our revenue growth, combined with our integration success, contributed to our strong margin improvement. Adjusted EBITDA margins were 43% this quarter, compared with 28% in the first quarter of last year.

14 months into our 18-month integration program, we are now beyond our original synergy targets. As of the end of Q1, we have delivered $106 million of annualized run rate operating expense savings, compared with our original target of $100 million, and our upwardly revised $120 million goal. We're now in the final phase of our integration, and are focused on wrapping up a number of initiatives centered on creating a more seamless customer experience and growing revenue.

This brings me to my final topic, which is the progress we are making on growth initiatives to extend our leadership and drive long-term profitable growth. New products, ranging from Advanced Country Coverage and Global-EGD, to new Geospatial Big Data and Analytics offerings, will serve customers, both existing and new. One example is our breakthrough work in bringing together Global-EGD, social media, Geospatial Big Data and preparatory analytics to anticipate events and capture imagery where and when it matters most.

All of our products will be further enabled by our next generation of satellite capacity. WorldView-3 and eventually, GeoEye-2 will extend our market leadership, enabling a 40% improvement in resolution to 30 centimeters, from what is already a commanding leadership position in the industry. This new capacity will also offer an atmospheric sensor and shortwave infrared to enable new customer applications for defense, oil and gas, location-based services and agriculture, among others. When added to our constellation, these satellites will extend our lead in resolution, accuracy, spectral diversity, revisit and other elements of quality, consistent with our A3C quality framework.

Keep in mind, this is not just about better pictures, although the pictures will certainly be better than anything on the market. These capabilities are foundational to extracting Geospatial Big Data and enabling new analytic applications that will let us tap into new growth opportunities.

With the U.S. government, our SLA payments will grow from $250 million to $300 million per year on September 1. We continue to see significant increase in demand for Global-EGD and other related capabilities. Our Analytics Business is growing, and several senior government officials have made recent public statements about pushing more of a national mission to commercial over time.

International Defense & Intelligence is also growing. New capacity, 30-centimeter imagery and short-wave infrared represent important opportunities to drive growth in what has been an area of our business constrained by capacity availability. We're making good progress marketing the new capacity on WorldView-3, and with resolution restriction relief, this customer group in particular, may generate enough incremental demand to justify an early launch of GeoEye-2.

Location Based Services are increasingly viewing the map as the critical link between search and mobile. Google, Apple, Facebook, Ali Baba, Microsoft, Nokia, Amazon, Twitter, Tencent, Baidu, Yahoo and others are all pursuing a range of geospatial initiatives. And while we recognize we aren't the only source of imagery, we are the only provider of very high resolution, high accuracy imagery at a global scale, and we intend to sustain that leadership position and serve these customers and prospects as they seek to differentiate and grow their offerings.

And of course, there are many other industry verticals. With new direct channels into oil, gas, mining and NGOs, we are seeing opportunities, not just for imagery, but also for geospatial big data and analytics. We intend to continue to develop these market opportunities through organic investments, partnerships and acquisitions. All of these opportunities will be enhanced as we extend our lead in the attributes of quality that matter to customers, launch new solutions leveraging our Geospatial Big Data and Analytics and further develop our sales and marketing capabilities.

I'll add some further comments after Yancey talks through the financials and guidance. Yancey?

Yancey L. Spruill

Thanks, Jeff. Our first quarter was a good start to the year. We delivered better-than-expected revenue and EBITDA results. Our integration is on pace to deliver a 50% or better EBITDA margin in Q4. We expect free cash flow to improve through the year, culminating in free cash flow margins of 20% or better in Q4. Our satellite construction and integration programs remain on track, and while we expect lower growth in the middle 2 quarters of the year, we feel very good about our original outlook for 2014.

Revenue for the quarter was $156.5 million, up 23% year-over-year on a reported basis, and up 14% on a pro forma basis. Q1 represents the last quarter where we will discuss pro forma results, as we have now lapped the GeoEye acquisition.

U.S. Government revenue in the quarter was $97.6 million, up 26% compared with Q1 2013 and 22% pro forma. Included in that revenue is $56.8 million from our EnhancedView service level agreement or SLA, flat compared with Q1 2013. We expect our SLA revenue to increase when we begin delivering higher volumes of imagery under the EnhancedView agreement, which we anticipate will be in mid Q4 when our WorldView-3 becomes operational.

U.S. Government Value-added Services was the primary driver of growth in the quarter, and at $34.4 million, was up more than 140% year-over-year, and 105% pro forma. Growth was driven both by Global-EGD and our Analytics business.

Diversified Commercial revenue was $58.9 million in the quarter, up 18% on a reported basis and up 2% pro forma. Within Diversified Commercial, Direct Access revenue was strong at $26.5 million, up 47% compared with Q1 2013 and 23% pro forma. Growth was driven by increased usage from existing customers and by the year-over-year impact of adding 2 new DAP customers.

Our DAP business is now generating about $26 million to $28 million per quarter. We delivered $32.4 million of other Diversified Commercial revenue, up 1% year-over-year on a reported basis but down 10% pro forma. We were encouraged that the Q4 decline in this business slowed. Importantly, Q1 results among these customers were in line with our expectations. The bulk of the decrease was in our International Civil Government business, which declined 16% year-over-year pro forma. We've been successful at closing a number of the Q4 sales pipeline opportunities in the first and second quarters, and about 2/3 of the deals that were in the Q4 pipeline have either closed or remain in the pipeline. While we were not directly impacted by sanctions in Russia, we did experience weakness in Q1 compared with the prior year, and expect that weakness to continue over the course of 2014.

Our next 12-month revenue backlog increased 3% to $512 million. As we lap the acquisition, we benefit from consolidation of a number of different contracts under one common DigitalGlobe platform. The timing and terms of these contracts renewals impacts the year-over-year backlog comparison for Diversified Commercial customers. I would note that our sequential backlog growth of 9% among these Diversified Commercial customers is indicative of the progress we are making in unifying our contracts.

We generated 69.9 -- $67.9 million of adjusted EBITDA in the quarter, a margin of 43.4%, up 1,530 basis points year-over-year. And once again, reflective of the leverage in our business as we realize the benefits from revenue growth and synergies.

Through the end of Q1, we have achieved $106 million in total annualized expense savings from the integration, continuing progress towards our annual synergy target of $120 million. We realized approximately $26 million of synergy benefits in Q1, and expect to realize the full $120 million annualized run rate in Q4 of this year.

Depreciation and amortization was $57.6 million in the quarter, up $10.3 million year-over-year. 70% of the increase is due to the inclusion of a whole quarter of depreciation from acquired assets. The balance of the increase is due to a full year impact of bringing infrastructure online that ties our operations more securely to the U.S. government.

We have no net interest expense in the quarter, reflecting capitalization of nearly all of the $13 million in quarterly interest on our debt. We expect to capitalize interest at this level in the first half of this year. In the second half of this year, interest expense will ramp up as GeoEye-2 is completed and placed into storage, and we launch and commission WorldView-3. By the end of 2014, we expect to expense most of our interest.

Income tax expense in the quarter was $3.8 million, due primarily to nondeductible items. Net income in the quarter was $400,000 with a net loss of $600,000 available to our common shareholders. Restructuring and integration related spending totaled $14.9 million, of which $4.9 million was expense, and $10 million was capitalized.

Free cash flow in the quarter was negative $22.1 million, largely driven by the timing of certain working capital items. Our free cash flow expectation for the first half of the year remains consistent with our original projections, as most of the Q1 timing items benefit Q2. Free cash flow excludes the cash used to acquire Spatial Energy in the quarter. CapEx was $64 million in Q1, including roughly $21 million of cash payments for interest on our debt.

Our outlook for 2014 remains unchanged. We expect revenue in the range of $630 million to $660 million. Unlike our typical yearly progression, we expect revenue in both Q2 and Q3 be closer to Q1 revenue, due to our cautious expectation for recovery from International Civil Governments and due to the step down and amortization in the second half from the Global-EGD service. Our Q2 and Q3 year-over-year growth comparisons will also be challenged due to onetime items in Q2 2013 from DAP and 2 other Diversified Commercial customers that aided our prior year results by approximately $7 million. Additionally, in Q3 2013, we saw a nonrecurring $9 million revenue item for Global-EGD as we ramped the system to scale in Q3 last year. We do expect to see the normal seasonality pattern where Q4 is our largest quarter for revenue for this year. We're maintaining our 2014 outlook for adjusted EBITDA margin at approximately 43%, and we expect Q4 adjusted EBITDA margins of at least 50%. We expect margins in Q2 and Q3 to be modestly below the full year target, depending upon the timing of certain growth-oriented investments. We expect to achieve free cash flow as a percentage of revenue, or free cash flow margin for the year of approximately 5%, and at least 20% in Q4. We expect our CapEx for the year to be approximately $170 million, with the vast majority to be spent by the end of the third quarter, when we complete and launch WorldView-3, complete and place GeoEye-2 into storage and ramp down the spending on integration.

Before I hand it back to Jeff, let me just say that the last 10 years at DigitalGlobe have been an incredible journey. This is my 39th quarter and 20th public earnings call as CFO. During my first reported quarter in Q3 2004, revenue was $14 million, with negative EBITDA and a $400 million balance sheet. On my first earnings call after we went public, our Q2 2009 revenue was $70 million. EBITDA was $42 million and we had a $1 billion balance sheet. Obviously, our metrics today are orders of magnitude larger on every front, and the achievements during these 10 years to build our current financial footprint are too many to mention. I'm proud of the team we have built, and confident that when I leave DigitalGlobe this fall, it is a better place than when I first joined the company, and is positioned for even greater success after I'm gone. With that, I'll turn it back to Jeff.

Jeffrey R. Tarr

Thank you, Yancey, and thank you for all you've done and continue to do for our company.

As I think back on the quarter, I'm grateful for our team's efforts to deliver improved financial results and advance critical initiatives, including our integration effort, preparation of WorldView-3 for launch, our Geospatial Big Data platform and other new offering. I'm also proud of the role we played behind the scenes in several events of global significance. One of those events has been the ongoing search for Malaysia Air Flight 370. Almost immediately upon notification of the tragedy, we began capturing imagery of likely search zones. We revisited imagery of the ill-fated Air France flight and other similar incidents to understand likely signatures. And we activated Tomnod, our state of the art crowdsourcing platform. Over the course of a few weeks, more than 8 million volunteers collectively analyzed more than 1 billion page views of satellite imagery, pixel by pixel, tagging more than 15 million features and objects of interest. We are proud of the fact that imagery released by the government of Australia was from our constellation, and that our community of 8 million volunteer imagery analysts has been able to play a meaningful role. This, and other events, which seem to have become almost daily occurrences, ranging from conflict in Ukraine to storms across the southern U.S, demonstrate the critical importance of what we do. By bringing together the best imagery, the largest and most temporally deep archive, crowdsourcing, Geospatial Big Data, analytics and our powerful delivery platforms, we are making our vision of creating a living digital inventory of the surface of the earth a reality today.

With that, operator, let's please open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Peter Appert with Piper Jaffray.

Peter P. Appert - Piper Jaffray Companies, Research Division

And Yancey, we're missing you already, congratulations on your new adventure. But you're not off the hook yet. Need to know, please, I'd like to understand better, why the seasonal variance in margin, why the second and third quarter margins would look a little bit lower?

Yancey L. Spruill

Well -- thanks, Peter. A couple of reasons: One, we typically see a progression during the year in revenue from normal seasonal factors. We're not saying that this year we expect revenue, for reasons discussed, to be relatively flat; and as we progress through the year, we will make selective -- as we've historically done, make selective investments to drive the business over the longer term. And so what we're outlining today is that depending upon the timing of those investments, we could see margins be modestly lower than the full year target during the year, and wanted to make sure that we outlined that for you today.

Jeffrey R. Tarr

Obviously still a significant step up from prior year.

Yancey L. Spruill

Right. And the margin expansion year-over-year, and I think you can count on us to make sure that we're judicious, as we've been demonstrating on driving margin in the business in alignment with our revenue outlook.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay. And then as my follow-up unrelated to that, in terms of the very strong momentum you're seeing in the other revenue value-added service line, you sounded a little bit cautious, I guess, in terms of sustainability of that. What drives that, given it appears the usage of your material continues to increase in your government client channel?

Jeffrey R. Tarr

Why don't I start, and I'll pass it over to Yancey, but we feel good about that revenue stream over the long-term. And obviously, as we approach the end of the year, we are lapping the big step up that we saw last year. With that said, we see significant opportunity, we see a step up in usage. We see opportunity to add more value to this product offering that speeds timelines and reduces cost for U.S. government customer in a way that is really very compelling. We do have some accounting matter in the third quarter in the year-over-year comparison. Yancey, why don't you just talk about that for a second?

Yancey L. Spruill

So to outline, we're investing in EGD over a multiyear period, to ramp up capacity to deliver the value that's powerfully being demonstrated across the government today. What the service is doing for the government. But in that ramping of investment, we were receiving flat cash payments, and so we were deferring a lot of revenue. We took a big catch up of $9 million on that in Q3 of last year, and we've been amortizing revenues throughout this year. The amortization will step down on this -- later part of Q3, and then all of Q4. And that's what we're addressing, it's really a noncash at this point. I'll refer you to the -- to our 10-Q filing where we highlight our deferred revenue, and how we're taking in cash relative to deferring revenues away to show that. But that's that we're referring to, not to the economics going forward. We feel very good about where we are with the U.S. government in relation to that.

Jeffrey R. Tarr

And the growth opportunity.

Operator

Our next question comes from the line of Howard Rubel with Jeffrey.

Howard A. Rubel - Jefferies LLC, Research Division

I echo Peter's comments, Yancey. It's been a lot of fun working with you. But I have a feeling you'll probably do something that will be equally interesting. Just to go to the questions though, for a moment. Jeff, might you talk a little bit about sales product -- sales force productivity, and what you're doing to make up for challenging markets? And...

Jeffrey R. Tarr

Certainly. We've got a terrific sales leader in Bert Turner, and a great team reporting to him. We have been taking a number of significant steps. First of all, we are -- we're doing what you always do with the sales force, which is train people, hire talent, make sure that talent is in the right places where we're seeing growth, such as for example, in Africa. We are also working to drive sales force productivity. The team did a time and motion study, so to speak, productivity study at the end of the year, found that about 37% of our sales force's time was spent actually selling. Now you can never get that number to 100%, because there are things that salespeople do besides sit in front of customers and sell, to prepare for the call and after a call is done. But we do believe that 37% can be driven to 50% or better. And that shift in productivity, 37% to 50%, is meaningful in terms of sales force productivity and the revenue opportunity. We're also making it easier for our sales people to sell through the integration of -- the integration investments. We now have one order entry system, which makes it easier for our sales people, and our resellers, so there's things that were doing, I feel really good about the steps that are being taken, and that will help us grow our business.

Howard A. Rubel - Jefferies LLC, Research Division

And then, I want to ask sort of the larger picture question. Actually, pardon the pun, but it's really more about higher-resolution, and it also relates to some other comments in the market about other people that would like to use or employ imagery, so it's really 2 parts to the question. First is, could you provide us some indication of the 30-centimeter market? And then, whether it's Google or other people that want to use imagery more aggressively, could you talk about how that's either stimulated sales or encouraged the regulators to move forward with 30-centimeter?

Jeffrey R. Tarr

Well first of all, 30-centimeter resolution restriction relief. We were very pleased that senior government officials, including the Director of National Intelligence, recently made public statements that the intelligence community supports our application for resolution restriction relief. The decision is now with the deputies committee, overseen by the national security staff, and from there, it -- assuming a favorable outcome, it will go to the Secretary of Commerce, who has the ultimate authority to decide the matter. We're encouraged by what we see. At the same time, it's not done until it's done. I can't speculate on the timing or the outcome. What I will say is that resolution restriction relief, we believe, will create new opportunities, especially with our International Defense and Intelligence Customers and our Location Based Services customers, once we get WorldView-3 on orbit, and then with another uplift opportunity with GeoEye-2. Your question on competition. What I can say is that, our customers, and we've been at this business for quite a long time, our customers are demanding high-resolution. They're excited about the 30-centimeter opportunity. They demand very high accuracy and they use our broads -- our spectral diversity and are excited about short-wave infrared and the atmospheric sensor. We intend to extend our lead in these critical attributes of quality, and we intend to stay in the lead. And I have to say it's curious to see new players launching low resolution, low accuracy satellites. Regardless, our strategy continues to be the quality leader and we're going to stick to that.

Operator

Our next question comes from the line of Andrea James with Dougherty & Company.

Andrea James - Dougherty & Company LLC, Research Division

Yancey, you might have fun working somewhere where half the revenue is not classified.

Yancey L. Spruill

Exactly.

Andrea James - Dougherty & Company LLC, Research Division

Thank you for your update and your comments too, they're really thorough on what's going on in the civil business. Some I just kind of, instead of going to that drilling on, down on Google? So yes, they want to look more heavily at the imagery market, right? Maybe using drones, maybe using microsatellites. So I was wondering if you could talk about your relationship with Google, and then whether or not this important customer might one day morph into a competitor?

Jeffrey R. Tarr

Let me just say Google's been a terrific customer for a decade now. We recently signed a multiyear contract, and we're proud of the strategic relationship we have with them. Beyond that, I'm not going to speculate what plans they may or may not have. We see this as a big opportunity. And Location Based Services is a big opportunity. And Google, while a very important customer to us, is not the only customer who is pursuing geospatial initiatives out there, that are interesting and exciting, and we are the only player, with very high resolution imagery at a global scale. We are the only player that has the spectral diversity that we have to offer, and no one approaches us in accuracy. So we think that collectively represents a significant opportunity whatever happens with regard to emerging competition.

Andrea James - Dougherty & Company LLC, Research Division

And then this one is also more high-level, guys. You own the Earth observation market, it seems like. But if someone does new sensor technology, proves to have a good ROI, do you think you're prepared to expand into those markets, maybe with a lower quality? And just to piggy back on that, can you talk about how you can maybe downsample or how that -- the downsampling is working to capture, to compete with maybe some of the lower quantity offerings that are out there.

Jeffrey R. Tarr

So you've asked a couple of different questions. First of all, in terms of downsampling, you can -- and actually, we do version down our products. So if a customer wants a 70-centimeter or 1-meter or 2-meter, we can offer that. You just can't go the other direction, you can't create information that wasn't originally captured by the satellites. So we're in a unique position that we can play in high-resolution, we can play in mid-resolution and we can play in low-resolution and we intend to be very competitive at each level of resolution. And that will only be enhanced with the new satellites. You asked about new technology, and I will tell you that our focus is to sustain that leadership position and attributes of quality that matter to our customers. We have GeoEye-2, which is a satellite, already complete, built and paid for, that we can put on orbit to increase our high-resolution capacity and revisit further from what we will already be doing with WorldView-3. And then as we look, over time, to refresh our constellation, we would obviously take advantage of the very best technology out there, continuing to focus on delivering the highest quality offerings to our customers, while doing so with a capital cost footprint that is as competitive as the most current technology allows.

Operator

[Operator Instructions] Our next question comes from the line of Chris Quilty with Raymond James.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Wanted to follow up on GeoEye-2. I think you mentioned that the increased demand from, was it DAP customers, might justify putting the satellite on orbit earlier than expected. And so my question for you is, would you contemplate launching that satellite without some minimum level of commitment from customers?

Jeffrey R. Tarr

We would only launch that satellite early as incremental capacity, if we see sufficient demand to justify that. So I can be clear with that. I will tell you that we are getting early signs, and seeing early signs that such incremental demand does exist, both with International Defense and with Location Based Services customers, especially if there is resolution restriction relief.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Got you. And that satellite, I think, was originally designed as a 25-centimeter?

Jeffrey R. Tarr

It's effectively at the altitude that we would likely operate at. You should think of it as a 30-centimeter satellite, plus or minus. Like WorldView-3.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Okay. Also, Yancey, I know you gave us -- there was a $9 million catch up in 3Q of last year, but can you give us the actual 3-quarter run rate of what the contribution from amortization catch-up has been?

Yancey L. Spruill

Well, outside of the onetime, the $9 million in Q3 of last year, it's a little bit over $7 million per quarter. So that's what will come out of the system fully in Q4, partially in Q3, because that's just the 1 year anniversary of when we activated the large capacity was right in the middle of last year. So, Q3.

Again, that's a non-cash amortization, relative to advertising prior deferred revenue. Doesn't change the economics going forward, in terms of the cash we receive for the service on an ongoing basis.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Great. And can you talk to the breakdown of value added services. How much of that is related to Global-EGD, what other contract vehicles and fundings do customers have that could support a higher level of revenue?

Yancey L. Spruill

So Global-EGD is the lion's -- a big percentage. The second-largest percentage would be our Analytics business, which is performing very nicely. There's a couple of other value-added services in the Imagery Production and other services in there, but the lion's share is EGD and our Analytic services.

Jeffrey R. Tarr

And in terms of future opportunity, we do see significant future opportunity in our value-added services. First of all, Global-EGD, we're focused on adding more value to that offering. Secondly, if we look at our analytics business, we had good growth in the quarter in analytics. We have -- just as our offering with imagery, is disruptive to the traditional players. So is our analytics offering. There's reporting people inside of our customer organizations, inside the various military commands, and we're empowering those people, not only with direct access to our imagery, but also with a powerful and increasingly powerful set of proprietary tools, software, algorithms, Geospatial Big Data, which allow them to be vastly more, both productive and insightful than the traditional players in that space. So we intend to continue to grow that.

Operator

Our next question comes from the line of Jason Gursky with Citi.

Jason M. Gursky - Citigroup Inc, Research Division

Yancey, congrats and best of luck. Hey Jeff, I wanted to ask 2 questions. First, there's been some speculation in the market that getting the launch vehicles out of anywhere near or in Russia might be a little difficult, going forward. So I just wanted to confirm that the slot that you have later this year for WorldView-3 is absolutely firm, and there's no way anybody can jump in front of you and push you out? And just a kind of a follow-on to that is -- related to this question is, do you think that will have an impact on pricing for launches going forward? And then my second question is, you mentioned capacity and DAP and more DAP customers, and more DAP revenue out there, potentially. Can you remind us on, you know, you get WorldView-3 up. How quickly could you start bringing in some more DAP revenue? I think you called it a significant opportunity, so maybe you could size that for us?

Jeffrey R. Tarr

Okay, certainly. So you've asked several questions. First of all, our launch window is August 13 and 14. We are proud to be launching out of Vandenberg Air Force Base in the United States on United Launch Alliances, a U.S.-built launch vehicle that has an incredible track record. And we're looking forward to that. And we don't see any reason why events in Russia would have any impact at all on our launch timing. With regard to pricing for launch, there -- it is a competitive, increasingly competitive industry, and our focus has always been just -- as with our satellites, that it's -- that is reliability. And so we are launching WorldView-3 and GeoEye-2 on the most reliable launch vehicles in the world. And over time, I have no doubt that others will come along with -- reliability will increase, with regard to alternatives, and that's good, for those who buy launch services, such as us. With regard to timing of DAP, you should assume that our first priority, once we launch WorldView-3, is to get the U.S. government up and running on the satellite, and to begin to recognize that revenue. Historically, in our business, DAPs have not signed hard contracts until launch. And there's a reason for that. There's an upfront investment in ground systems in order to receive that imagery. And as you think about it, from a foreign government's perspective, they traditionally have waited until they know the satellite is on orbit and operational before they begin building those ground systems. And as you've seen with us in the past, it's typically a 9- to 12-month period of time in signing that contract, until that ground system is operational. So you should think about, second half of 2015 before you start to see DAP revenue on WorldView-3. Obviously, U.S. government revenue will come sooner, and commercial, other commercial revenue sources will come earlier in 2015.

Jason M. Gursky - Citigroup Inc, Research Division

And Jeff, what's left out there, as far as the size of the opportunity on DAP?

Jeffrey R. Tarr

We are currently engaged with -- we have 10 countries who are customers. Some who have multiple DAP facilities, i.e. they're connecting with multiple satellites, some of which have are multiple agencies which are customers. So we see growth opportunity in those 10, it takes multiple forms. It takes the form of selling incremental minutes, that opportunity is somewhat limited because we just don't have a lot of capacity in many parts of the world where they operate. WorldView-3 will create an increased opportunity to sell more, and it's an opportunity to sell 30-centimeter for the first time and short-wave infrared. So that is meaningful. And then GeoEye-2 could represent more opportunity over time beyond that, and it would be premature to speculate and put an actual number on it. We've, in the past, said that we saw no reason why this couldn't be a $150 million business with the current constellation and WorldView-3, and we are seeing signs that maybe it could be larger. I just don't want to put a number on it today, it would be premature.

Operator

[Operator Instructions] Our next question comes from the line of Josephine Millward with Benchmark Capital.

Josephine Lin Millward - The Benchmark Company, LLC, Research Division

Can you tell us what contribution -- what was the contribution you had from Spatial Energy?

Jeffrey R. Tarr

When we signed the Spatial Energy, and now it's a Spatial Energy acquisition, we indicated that in the first year we would expect $1 million to $3 million of revenue per quarter. And based on our first partial quarter with Spatial, we're absolutely in that range.

Josephine Lin Millward - The Benchmark Company, LLC, Research Division

Okay, and also, when you see that Spatial has renewed 100% of its subscription, does that change your outlook at all for the year, or does that mean you can recognize revenue on that renewal next year? Because I think it's about $5 million to $6 million for the year, right?

Jeffrey R. Tarr

We've said $1 million to $3 million per year, we've said about 1/3 of the business is on the recurring revenue subscription platform. We are seeing growth, it's obviously complicated in Year 1 by the deferred revenue write-off that happens when you acquire any subscription-based business. As we look to next year, we would think that this would start to become a meaningful growth driver.

Josephine Lin Millward - The Benchmark Company, LLC, Research Division

Okay Jeff, I understand Airbus Defence and Space or Astrium has this strategic agreement with Spatial Energy to grow their oil and gas business. Can you tell us how that's going to work now that you have acquired Spatial?

Jeffrey R. Tarr

Look, I'm not going to talk about any specific contracts that we may have. It wouldn't be appropriate. We feel very good about the oil and gas opportunity. We acquired this business so that we could have a direct channel into oil and gas. And the results based on the first brief period of ownership have been very encouraging.

Operator

Our next question is a follow-up question from the line of Chris Quilty with Raymond James.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Hey, Jeff, you talked about some new products coming online in the back half of the year, are these products or services that you previously discussed at the Analyst Day, for example, or are these new efforts that are in the pipeline?

Jeffrey R. Tarr

Most of -- obviously, the nearer-term opportunities are ones we've been working on for a while. We are making investments in a Geospatial Big Data platform, which is going very well. We are winning more business that is bringing together our Geospatial Big Data capabilities, which are still early in their development, but are real. Our Analytics and our Expert Services. And -- give you an example of 1, I shared 1 in the script, another 1 which is exciting is some work that we're doing with an NGO that is focused on food supply. And what we're doing is we're monitoring infrastructure and monitoring agriculture, and the health of farms in a war-torn part of the world. And we're using that to create estimates on food supply that are of value both to NGOs and to governments. We're seeing all sorts of exciting opportunities like this. But they are all built on the offerings that we talked about at our Investor Day.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Great. And when you talk about the, some of the analytics capability, which I believe was almost entirely government defense a couple of years ago, can you give us a sense of where you think the revenue mix for that might look by the end of the year, or 2 years out? I mean, how successful have you been at porting that over to the commercial sector?

Jeffrey R. Tarr

We are still early with the commercial sector, but we are seeing new business. It requires not only a product, investment in product, but investment in sales channels, to sell these new offerings. Early results are very encouraging, but it is still early. So I don't want to get ahead on our skis on this. Long-term, it is a big opportunity for us.

Operator

And I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Tarr for closing remarks.

Jeffrey R. Tarr

Thanks very much. And thanks, everyone, for joining us on this call. I just want to take a moment to thank you for your belief in our future, and I want to especially thank our team members for their efforts to deliver better growth, margin improvement and solid progress on some very exciting initiatives and innovations that are going to extend our lead and deliver profitable growth over the long term. See you all soon.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!