Maxar Technologies Inc. (MAXR) CEO Dan Jablonsky on Q2 2021 Results - Earnings Call Transcript
Maxar Technologies Inc. (NYSE:MAXR) Q2 2021 Earnings Conference Call August 4, 2021 5:00 PM ET
Company Representatives
Dan Jablonsky - President, Chief Executive Officer
Biggs Porter - Executive Vice President, Chief Financial Officer
Jason Gursky - Vice President, Investor Relations and Treasurer
Conference Call Participants
Seth Seifman - JPMorgan
Thanos Moschopoulos - BMO Capital Markets
Michael Ciarmoli - Truist Securities
Ron Epstein - Bank of America
Peter Arment - Baird
Robert Spingarn - Crédit Suisse
Austin Moeller - Canaccord
Chris Quilty - Quilty Analytics
Operator
Good day, and thank you for standing by, and welcome to the Maxar Technologies Second Quarter Conference Call. 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] Please be advised that today's conference is being recorded. [Operator Instructions].
I would now like to hand the conference over to your speaker today, Mr. Jason Gursky. Sir, please go ahead.
Jason Gursky
Yes. Good afternoon. Thanks, operator. Welcome to Maxar second quarter 2021 earnings conference call. I'm joined today by the Company's Chief Executive Officer, Dan Jablonsky; and its 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'd like to refer listeners to the accompanying slides for today's presentation, which can be found on the company's website at maxar.com. Once there, please turn to slide two 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 are referred 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-Q, and in the company’s EDGAR profile at sec.gov or on the company’s website at maxar.com.
And with that, I'll hand the discussion over to Dan. Dan, go ahead.
Dan Jablonsky
Thanks, Jason. Good afternoon, everyone. This afternoon I'm going to cover the key highlights from the quarter and provide an update on the progress we're making on our 2021 priorities, including where we are with the Legion program, our next generation satellite constellation. I'll also spend time providing some context on the company's artificial intelligence and machine learning capabilities as they apply to Earth Intelligence and how we're using them to drive growth.
Please turn to slide three of the accompanying presentation. We generated 16% year-over-year revenue growth in the quarter, excluding the effect of a non-cash EV deferred. Of note, Earth Intelligence grew 14%year-over-year, despite the fact that we're currently capacity constrained ahead of Legion launches. Growth here was driven by sales of 3D products to commercial and government customers, as well as solid performance and services to the U.S. Government.
Importantly, we also saw 150 basis points of adjusted EBITDA margin expansion, excluding EV deferred driven by improved execution of Space Infrastructure. We recently signed our first Legion capacity sale during the quarter with an international government customer, as part of a large multi-year renewal. This follows the four contracts we announced last quarter to upgrade customer ground infrastructure to be Legion ready. We're making steady progress with our business development efforts ahead of the constellation launch.
Next, we also received our 11th renewal of the Enhanced View program with NRO for the period starting September 1 of this year. As a reminder, we've been a trusted partner of the U.S. Government for nearly 20 years, delivering commercial capabilities with superior quality, cost, security and reliability on the current EV program and its predecessor. We're proud to support the U.S. Government mission and look forward to continuing to work with the NOR as they increasingly adopt commercial imagery.
We continue to perform well on this program, a track record we believe sets us up nicely for the upcoming EOCL competition, which is the Electro-Optical Commercial Layer, the successor program to EnhancedView.
As we discussed during our recent investor webcast, the NRO issued a draft RFP in tuning for the upcoming EOCL program, and we understand they expect to make award decisions by the end of the calendar year.
Please turn to slide four for a review of the progress we're making on our 2021 priorities. We remain focused on providing high quality Earth Intelligence, which means driving bookings growth, including for capacity on WorldView Legion, growing 3D capabilities and expanding the Enhanced View program.
We're also continuing to make good progress on our AI, ML and platform capabilities, and I'll discuss those more in a bit. Key recent wins included awards from the U.S. Government to assist with GEOspatial production and persistent change monitoring, and another related to space domain awareness. In the international government vertical, as I mentioned a minute to ago, we signed a large renewal that includes Legion capacity, as well as a contract with the Australian government for both 3D and imagery data.
And finally, I'm excited to announce that we signed a multi-year, multi-multimillion dollar license agreement with a large social media company for imagery based maps, demonstrating our continued traction across all customer verticals.
From an execution perspective, it was a good quarter, with the team generating solid book-to-ship activity and adjusted EBITDA margin performance. Even while we enjoy strong backlog as we perform in multiyear contracts, we continue to find good vectors for growth with existing and new customers. I'm pleased with the ability of the team to drive bookings and revenue in the same period and this quarter was a good example.
Moving to WorldView Legion, we have decided to delay the launch from the fourth quarter of 2021 into next year. This isn't a decision made lightly. There are two key drivers since the last update. First, while Honeywell has delivered the Reaction Wheel Sets for the first two satellites, the hardware from Raytheon is coming to us later than anticipated.
The Maxar team has been an [inaudible] for pre-shipping reviews and the first instrument is in transit to our facilities. The Raytheon teams have been working hard and the second instrument should arrive in September, followed by the other four this fall. However, we had expected both of the first two instruments to reach us in July, and this has had a negative impact on schedule.
Second, the return to work in California post the lifting of COVID restrictions on June 15th while very positive for a variety of reasons, has not led to the achievement of the schedule we anticipated with our integration, testing and software teams, and of course, we're now all watching the Delta variant closely. We appreciate all the teams have accomplished under challenging circumstances. COVID has been a difficult operating environment for both our suppliers and us, and it has clearly had an impact on the program.
Given the hardware delays and remaining work streams, which include software, integration, integrated systems and environmental testing, and launch phase operations, and the importance of this program for both our customers and Maxar’s long term objectives, it's important to get the launch right and this requires a little more time. While we continue to look for ways to reliably accelerate production and test, we now expect the launch time for in-between March and June next year for the first launch.
We are continuing our progress with the other four spacecraft. Remember, this is a six satellite constellation. We’ve historically said that the second launch would be three to six months after the first. We intend to get them up as soon as possible. How quickly they launch after the first, it will depend on how much we can overlap the remaining work, including hardware deliveries, software and testing schedules.
To address the remaining work on the program, we've taken a number of actions. One, we've assigned overall program responsibility to Chris Johnson who joined Maxar in May and bring significant program expertise to the company. Two, we assembled a mission assurance and red team to review and assess the program and remaining work streams. They provided important insight, which we've incorporated into the revised schedule discussed today; and three, we've added additional internal and external software engineering resources. We're driving forward diligently with a focus on maximizing the value of this program for both our shareholders and customers.
With respect to our largest cost, the draft RP for the EOCL program I mentioned earlier, contemplates a 10 year program, which aligns with the 10 year plus design life of the Legion constellation, this is a good fit. We continue to expect that our current unaudited assets that provide service to the U.S. Government, now as well as the Legion Constellation are tailored to meet the current and future needs of the U.S.
Turning now to Space Infrastructure, where we're committed to delivering the best possible solutions and systems for our customers and from a business standpoint, have been focused on establishing the foundation for future growth.
On the Power Propulsion Element for NASA, we completed preliminary design reviews and were awarded additional change orders. We were also awarded study contracts from National Security Classified Work as we continue to look to shape new programs and further diversify the business. Importantly, we're beginning to demonstrate our competitive positioning for National Security Work, having recently been down selected from eight competitors to five, on a program. That field will continue to narrow, but it’s a positive sign that we made it through this gate, and now we need to drive for a win on the program.
We've also continued to execute. We launched Sirius XM-8 in the quarter, successfully conducted commissioning ops and turned the keys over to the customer last week. Last week, we also launched Star One D2 for Embratel, and I'm pleased to report that we've been awarded Sirius-XM9, Sirius’s next GEOcommunications satellite.
From an investment standpoint, we continue to work on new satellite and constellation designs, including modular spacecraft and proliferated constellation, as we look to serve commercial, civil and classified programs with highly engineered affordable solutions. Reflected in the financial results, we had a solid quarter as adjusted EBITDA margins continue their improvement, reflecting better performance and healthier program mix.
Finally on financial flexibility, we're continuing to drive strong financial results in the business and see our way to significant cash generation in the quarters and years ahead, both of which should drive debt and leverage levels lower. So overall, pretty good financial performance in the quarter and some good bookings momentum across both segments and across our addressable verticals.
Let me be clear though, I'm not pleased with the additional Legion delays. That said, the methodical work we're doing on the program are the right steps. We're building a generational constellation that is going to drive growth, profits and cash flows for the next ten years and we want to be confident that we've got it right.
Before I hand the call over to Biggs, I'd like to shift the discussion about an exciting - another exciting portion of the business. Over the past two quarters, I've done deeper dives on some of the innovative technology we've been developing and deploying in Earth Intelligence to support the U.S. Government, by reducing sensor to shooter timelines on the battlefield, and in space infrastructure to support both government and commercial missions.
Today I'd like to pivot back to Earth Intelligence, talk a little bit about our AI and ML Capabilities, and now we're increasingly using them to drive growth. And the timing of this is pretty good given the amount of discussion in the marketplace about this technology and the various capabilities that exist out there. We’ve been at this for quite some time and we benefit from having the best commercially available Earth Intelligence data in the market.
Please turn to slide five. Before we get started, I thought it would be used for the level set let and quickly outline what Artificial Intelligence and Machine Learning mean in the context of GEOspatial Intelligence.
As you're aware, our Constellation Assets generate vast amounts for the highest quality commercial data available every day. Over 3.5 million square kilometers of the earth’s land mass from all over the globe. To make that data useful for intelligence and commercial application, it helps to snap it all together to create a GEOReference data set that provides a reliable foundation to conduct analysis. Comparability and compatibility of high quality data sets are pre-conditions for AI/ML Algorithms to run that speed and that scale.
Feature extraction, change detection and object identification are examples. Using Artificial Intelligence and Machine Learning techniques, we're applying algorithms to data to identify objects and detect change, at a small fraction of the time it would take humans to do so. Importantly, we're doing this at scale with high levels of predictability and accuracy. This in turn starts a virtuous cycle where we can proliferate products and analyses to provide Geospatial Intelligence answers, which in turn drives more demand for the underlying high quality data.
Please turn to slide six. Foundational elements of our AI/ML capabilities include Analysis Ready Data or ARD, DeepCore, platform capabilities like global AGD and SecureWatch, and cloud accessibility of industry leading inventory data, which will be further enhanced with the WorldView Legion.
ARD is comprised of pre-process time series stacks of imagery that are aligned, produced at such standard and GEO reference for accuracy using our precision 3D registration software. Aligned image stacks from ARD provide increased usable content, more accurate feature extraction, faster processing, lower storage costs and homogenized inputs for analytic workflows.
Our precision 3D registration software also allows us to take other sources of data, whether or not Geospatial and lock them down in a highly accurate fashion in the same reference chips. This kind of data helps our customers save time and jump ahead to the next stage of their analytic workflow with a more accurate and AI/ML ready baseline.
Organizations and government agencies are enable to use machine learning and artificial intelligence to extract roads, parcels and buildings as well as identified land use and vegetation at scale, or pick out and count objects like military vehicles or commercial automobiles. As you know, we get better results with higher quality datasets. It's also helpful that we can train the algorithms against our vast point plus year archive of the planet.
Please turn to slide seven. DeepCore is a machine learning engine that is a cornerstone technology the company uses to perform its AI/ML projects. It evolved from Maxar direct experience as an industry leader, developing automated computer vision techniques for commercial and national missions.
Importantly, it has deployed more than 100 models to detect 130 plus object types using multiple machine learning models, frameworks and networks against multiple satellite, airborne, drown and terrestrial sources. And it's being using commercial and government clouds as well as bare metal and hybrid environments, scaling from a standalone machine to an infinitely scalable cluster. With DeepCore users can leverage the services and expansion of the Maxar team or mix and match training data, models and visualization capabilities within DeepCore or other repository and tools.
Please turn to slide eight. We maintain a constellation of satellites that generates the most and the highest resolution, most accurate Geospatial data in the market. We're adding to that with the World Legion Constellation, which will play an important role in our AI and ML capabilities.
Slide nine shows the power of ARD, DeepCore and High Resolution data working together with the car counting use case. As noted, this type of work can be completed in seconds versus the hour long time frames needed using traditional methods. This is a huge breakthrough in use of Geospatial Intelligence and is a key reason why we see robust demand signals from customers and continued growth.
Slide 10 provides some details on our G-EGD and SecureWatch platforms. Slide 11 through 17 provides additional examples, including the use of algorithms to more effectively monitor real estate development to build 3D models and base maps at scale to automatically detect shifts in the ocean, and crowd source and maps built on multiple mission sets. We've been working these kinds of customer needs for years and believe the continued investments we're making in our data generation capacity and AI and ML technologies will allow us to continue to drive revenue growth in the future.
I'd like to end with slide 18, which is one I shared earlier this year. As I mentioned then, one of the key goals with the investments the U.S. Government has been making in its AI/ML and Joint All-Domain Command and Control efforts is to achieve an advantage on the battlefield by shortening the sensor to decision timeline from space, which is all about seen, identifying, targeting and precutting dynamic targets at scale in a distance. Ultimately, DOD is driving to combine broad areas surveillance and automatic target recognition to support long range precision fires at speeds required on future battlefield.
We believe the breadth of our coverage and the quality and accuracy of our imagery, as well as our software processing capabilities are key enablers. Hopefully all this gives a better sense of how AI and ML fit into the overall Maxar story, and the continued investments we're making. We believe our efforts position us well in the market versus competitors, and it will drive sustained growth for the company with customers to increasingly unlock value out of Geospatial data and intelligence.
And with that, I'm going to turn the call over to Biggs for a deeper dive on quarterly performance. Biggs.
Biggs Porter
Thanks Dan. Please turn to slide 19 where we present year-over-year comparisons to the second quarter. Our net income for Q2 was $45 million, driven primarily by strong performance in both Earth Intelligence and Space Infrastructure. Revenue increased 8% for the quarter and 5% for the year-to-date period.
Excluding the effects of the EnhancedView contract deferred revenue burn-off, total company revenues increased 16% year-over-year driven by recent wins in Space Infrastructure and the new programs at Earth Intelligence. On a year-to-date basis company revenues increased 14%, excluding the effects of the EV deferred revenue burn off, and adjusted EBITDA margins increased 260 basis points.
Please turn to Slide 20. Earth Intelligence revenue, without the effects of EV deferred increased 14% year-over-year in the second quarter driven primarily by increases from International Defense and Intelligence Customers, as well as additional growth seen with Commercial and U.S. Government customers.
The increases experienced this quarter, particularly from International Defense and Intelligence and Commercial Customers were driven a large part from book-to-ship orders from archive and 3D imagery, which had a positive uplift on adjusted EBITDA margins. Adjusted EBITDA margin in the second quarter of 2020 were also typically high, due to the timing of international defense and intelligence revenues. On a full year basis, without the effects of EV deferred, revenue increased 9% year-over-year driven by increases across our three customer verticals and adjusted EBITDA margins were consistent.
Please turn to slide 21. Space Infrastructure revenue increased 12%year-over-year, while margins expanded 710 basis points, driven by the profitability of recent awards, as well as our reduction in negative EAC impacts, including those related to COVID-19 taken last year, as we adjust their operating posture to the pandemic.
On a full year basis, revenue increased 14%, primarily driven by an increase in revenue from commercial programs, as well as lower EAC growth due to the COVID-19 impacts we experienced at 2020. Adjusted EBITDA margins expanded 1,310 basis points driven by the profitability of recent program awards, partially offset, primarily by reductions in revenue from the Sirius XM7charges taken in the first quarter and modest increases in indirect and SG&A costs.
Without the $28 million Sirius XM7 charge taken in Q1, year-to-date adjusted EBITDA margins will be roughly 11%. We have spoken over the last several quarters about the potential we see in this segment for sustained adjusted EBITDA margins of 10% or better. There will always be quarter-to-quarter, year-over-year fluctuations based on the EACA [ph] accounting and program mix, but we are pleased with our progress.
Please turn to slide 22. The company generated $23 million of operating cash flow for continuing operations in the first quarter, and invested $55 million in CapEx – I apologies wrong quarter. Operating cash flow for the quarter was negatively in impact by the timing of cash receipts, including $26 million from international customers are collected in Q3.
We have a $13 million tax benefit we recorded that quarter for recovery of B-tax paid last year. This is enabled by our equity issuance, but that cash is not in our cash from Op shift and will likely come in later this year or next year.
Please turn to slide 23. We had roughly $429 million liquidity at the end of the quarter and our bank defined leverage ratio entered the quarter at approximately four times. Net debt increased modestly quarter-over-quarter due to the timing of a few large cash receipts slipping to Q3. Bank defined leverage increased slightly, primarily due to the roll-off of EV deferred revenue on a trailing 12 month reported basis.
And now please turn to slide 24. Guidance remains unchanged from what we issued in the previous quarter, and this slide is inclusive of the charge we took in the first quarter related to Sirius XM7 satellite. We are leaving ranges wider than we typically would at this point in the year as the second half of the year could be impacted by the timing of product and data deliveries just as we experienced in the current quarter.
Revenue guidance for Earth Intelligence remains unchanged from what we issued at year end, with a targeted range of $1.05 billion to $0.095 billion. At the midpoint of our guidance, we expect revenues in the third and fourth quarters to fall slightly below our Q2 run rate, which has the uplift to the book-ship dynamic I spoke to earlier. Revenue expectations for Space Infrastructure remain in the range of $735 million to $770 million and we expect revenues to remain roughly consistent with Q2, as we continue to execute on commercial awards.
Turning to adjusted EBITDA, no change to the outlook range for Earth Intelligence. Margins this quarter were positively impacted by the Q2 book-ship dynamic, and we expect to see modest margin contracting in the second half of the year. Additionally, as we pointed to in the last quarter's call, we expect some incremental costs in the second half of the year related to Legion Constellation, as we continue investments on our ground and secure operations architecture.
No changes to adjust EBITDA for space infrastructure, and we have left the same guidance range as presented last quarter. We continue to expect margins in space infrastructure to be 10% or better as we continue to execute on our backlog. At consolidated level, our guidance for adjusted EBITDA also is unchanged.
On a consolidated basis, revenue is expected to increase in the second half of the year. This is driven primarily by the non-recurring $28 million charge related in Q1 on Sirius XM7, as well as the continued backlog execution we expect to see in the second half of the year. Revenue and adjusted EBITDA expected to be more heavily weighted in Q4 than Q3.
We've not changed our operating cash flow guidance and we expect to be free cash flow positive in the second half of the year and the full year. Recall, we typically faced quite a bit of uncertainty given the timing of working capital changes.
For the first half of the year operating cash was in line with our expectations, but was negatively impacted by $161 million in unfavorable working capital changes. Of the unfavorable $161 million working capital, $72 million is from accounts receivable and includes the $26 million from international customers which we already collected in Q3, as well as an additional $46 million that we expect to collect this quarter from customers, including on recently announced awards.
Accounts payable and our liabilities account for another $60 million and we expect that to flip in our favor, driven in large part by the timing of incentive interest payments that fell in the second quarter and in the first half.
Expanded at a high level, these working capital changes were driven by the normal outflow in the first half for interest and their time of year end liabilities, the timing of programs and progress of Space Infrastructure and a few large cash receipts that slipped from Q2 to Q3. Operating cash flow will ramp up in the second half of the year as that dynamic flips in our favor and we realize the interest savings in the second half of the year, with the first quarter equity raise and debt paid down.
The regulatory cap mix remained the same and we expect to see a ramp in the second half of the year driven by the Legion program. Total CapEx in the legion program is grown as a result of the delays we've experienced and will primarily affect next year by roughly $30 million. This year's spend includes approximately $25 million of launch and insurance payments associated with the first launch.
Even though the first launch March to June would likely put those payments in the February to May 22 timeframe, we did not want to take those payments out of this year's guidance until we're certain that it will slide into next year. We still expect to be free cash flow positive in the current year, even with the insurance and launch payments.
We've not given guidance for ’22, 2022 beyond what I just covered up around employees CapEx addition. There will be puts and takes, but we still expect growth in earnings next year even with the recent delay. We also expect to be increasingly free cash flow positive, regardless to where the first launch payments land from a timing standpoint.
As you know, our 2023 outlook contemplated $165 million of adjusted growth in Earth Intelligence 2020 and 2023 with half of that about $80 million attributable to Legion capacity. The delay in the program could have an impact on our ability to our ramp capacity driven growth, but it’s too early for us to say deliver defiantly. We look up update you further as the schedule for launches becomes clearer.
To wrap up, we had a solid quarter with growth across both, Earth Intelligence and Space Infrastructure and we are tracking to our 2021 guidance targets. Looking forward, we are focused on the EOCL program with the NRO, driving non-capacity related growth through our investments and Earth Intelligence products and diversifying the Space Infrastructure segment across commercial, civil and national security programs. The demand backdrop and interest in space based capabilities is robust and we believe we are well positioned to take advantage of the growth opportunities and process.
Operator, let's now begin the Q&A.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. We have the first question come from the line of Seth Seifman of JPMorgan. You line is now open. You may ask your question.
Seth Seifman
Hey! Thanks very much and good afternoon. I guess Dan, along the – maybe if you could lay out in some more detail, sort of the schedule for launch from, where we are today into kind of the spring of next year, and what the various boxes are that the company needs to check and what are those boxes kind of has emerged more recently?
Dan Jablonsky
Yes, sure thanks Seth. So, we do have a slight delay to the vision program of few months. As we knocked down the large pieces of the program, I get more and more and more confidence in schedule as we go out. So to kind of reiterate the hardware, deliveries have knocked us off schedule some, as well as some of our expectations about the loosening of COVID restrictions and what have meant to be getting back from the office and how fast we can accelerate some of the remaining work that has to happen.
The other thing we had done is, we've done a red team and a Mission Insurance Analysis and that's factored into our schedule assumptions going forward. As we go forward, the first thing we got to do, is we got to make sure we got all the hardware there for the launches, so we do have the two sets of Reaction Wheel Assembly from Honeywell, so that's good. The others still have to come to other six legions, but we believe we're on a schedule to do that.
And we've got to have instruments. The first instrument has completed its pre-ship for review and it’s on route to our facilities in the Bay Area right now. So that's good, we got one of six. We expect the second one to show up sometime in the September timeframe and then the other four to show up throughout the fall.
Once we get those instruments in place, then we can complete our final integration of that hardware into the space vehicles and begin our thermal Vac and vibration testing on the entire spacecraft. So there has been testing done at the component level with our suppliers, and that's why we had originally at some of the employees to get through that, with Raytheon, but now we need to get the fully integrated space craft into our environmental testing protocol.
We also need to run hardware and software simulations on them, system by system, and some of those will do in the thermal vac chamber and some of those will do in our Metal app facility in San Jose and Palo Alto.
Once we complete those and load on fully integrated and finalized software and we'll be running software simulations on our - in our virtual environments as well, to run lots and lots of different simulations across different sets of GUPs. We’ll then complete the pre-shiper view on the fully integrated software tested spacecraft. Send those down to launch range, than we've got x number weeks down at the facilities with SpaceX at the Cape Canaveral Location. We'll complete our final pre-launch protocols and then we'll go into launch phase operations.
After we finish launch phase operations, then there are somewhere on the order of 30 to 90 days of IoT that we go through with the satellite to put it through. It’s a shakeout phases, make sure they're both working. This is just a little more complicated because the first one will be committing two satellites at once, we haven't done that before. And then we'll go into imagery and revenue operations and we've definitely got pent-up demand for them.
I guess the other thing I just stress is, this is - we've got six coming through the process too. So the first two are definitely important, but once you get that first barrier breakthrough, then the rest kind of follow more smoothly and we've seen – now with the instruments we have seen what the direction is, we’ve seen that with every piece of the program along the way.
Seth Seifman
Okay, okay. Thanks very much, that's helpful. And then maybe as a follow-up, can you talk about the opportunity set in Space Infrastructure for new orders in the second half and how you think about where the back log to that segment might appear?
Dan Jablonsky
Yes, sure. So, you know we said before and we kind of expect this at the same time today as that we expect the GEO comp set market to be about flattish, but we'll be looking to get our fair share of those awards going forward. I think it's a great sign, we get the Sirius XM9 award and there’s definitely words out there for us to win.
On the LET opportunities, those are a bit more nascent, but we're in the hunt fund some of those and we've been paid to do engineering study contracts on some of those recently and so we're working on that front as well.
And then on the other two pillars of the strategy that we continue to work with NASA, time lines and budgets are always a little more subject to the U.S. Government, but we think that's going to be a strong hunting ground for us, particularly as we perform well on NASA programs like OSAM and SPIDER and the PPE that just completed its preliminary design reviews.
And on International Security front, but we're still the early innings, but it's a good sign that we're getting paid for study contracts, but we made it through our first set of down selection, which they got more to go to win that program. But with the national priorities the way they are, we think Maxar provides a lot great capability for the U.S. Government to work with us on future programs.
Seth Seifman
Okay. Great, thanks very much Dan.
Dan Jablonsky
Thanks Seth.
Operator
Thank you. We have the next question comes from the line of Thanos Moschopoulos of BMO Capital Markets. Your line is now open, you may ask a question.
Thanos Moschopoulos
Hi, good afternoon. Dan just regarding the prior comment and the traction there for the 3D imagery, just remind us, [inaudible] tend to be one time in nature or do you have a subscription offering there the way that you did want to the imagery.
Dan Jablonsky
Yes, sorry Thanos. Good to speak with you. So there are certain aspects of the programs, for example, One World Terrain is one of the biggest programs we are running that is much more of a subscription based nature to it. So larger contract awards services on top of the imagery and then creating the full-on, simulated and virtual environments that we'll be doing, that encompass the 3D imagery.
We do have some recent awards though, and we’ll continue to do these two, where it's operated more like our traditional, Earth Imagery side of the business, where we do a data delivery, get paid for that and recognizing in the same quarter. So, we saw some of that happened in Q2 here, and that had a nice trend to the positive results we were able to report.
Thanos Moschopoulos
Okay. And just on the 3D side, any undated in terms of your subscription offerings there, like SecureWatch and others how that's progressing?
Dan Jablonsky
Yes. We're really excited about the continued performance that they have. Global EGD is the largest program we have with the U.S. Government, and we've got over 400,000 users on that program and continues to use very strong demand signals as we continue to fund that out to the future.
SecureWatch is the commercial version of that, that we've been working with International Defense and Intelligence customers on, as well as commercial customers, and it's been a really good sign for those and our online base maps and other product offerings that – that's with in a capacity constraint environment, those are the things that led to the growth in this quarter for us.
Thanos Moschopoulos
Okay. And then finally just in terms of the clarity, I mean obviously strong biggest quarter, but you’re not raising guidance. So as part of that dynamic, because the upside versus what you are expecting internally, it has a lot of that can from certain non-recurring revenue?
Dan Jablonsky
Yes, I'll let Biggs take that one in a second. I think what you were asking about was the strong beat in the quarter, why didn’t we take guidance up. But part of the has to do with, yeah, part of that has to do with some of these large type awards that we get factored in the Q3 and Q4 and we depending on what side of the line they slip on, we don't want to get ahead of our skis. But Biggs would you like to add any more color on that.
Biggs Porter
I think that's fair. The - we simply were expecting a substantial increase this year, a $100 million on product sales, including 3D sales, other products and the timing of those obviously can vary and one quarter to the next create some lumpiness. And it just felt like we had roughly an acceleration of those into the first half, through some of this great second quarter and we we're going to not present that it's a net positive for the year at this point in time.
Obviously, we left the range of our guidance fairly high to accommodate the possibility that there could be some built in the second half above our baseline assumption, but that’s more earlier in this year and that would be great.
Thanos Moschopoulos
Great! Thanks a lot.
Operator
Thank you. Your next question comes from the line of Michael Ciarmoli of Truist Securities. Your line is now open. You may ask your question.
Michael Ciarmoli
Hey you guys. Good evening. Thanks for taking the question. Just on the WorldView Legion here in the delays. I mean, can we parse out how much of these delays are sort of on you guys, and how much on the suppliers? I mean, I kind of – there's always supplier challenges, but at the end of the day, it's your satellite, it’s your program. It seems like the slips are encompassing a little bit more than just kind of hardware issues.
Dan Jablonsky
Yes, thanks Michael. So, I think – look the hardware delays have definitely contributed to it. You can't get into integration and testing and you can’t launch without things like reactions and instruments. Some of them are also on us though. Some of that was expectations we came from operating out of a COVID environment and some of the acceleration for a variety factors we thought we’d see in the program coming into as things snap together and you get to run integrated testing on hardware and software and the procedures we're doing.
And so part of what we've done to address that is to do the mission assurance analysis that we've done, and that’s helped us run up our understanding of the schedules and the remaining work items that we have. We've been adding additional resources to the program, in the software and the engineering side. And we've got very strong program management people, including Chris Johnson now that’s on board here.
So it's a combination of everything, but we are where we are and we are taking decisive action to get the program launched in the right format for it's very important missions that they asked to do.
Michael Ciarmoli
So what, I guess the other – you know talking about the pressure of the slide, we are looking at worst case of June or maybe other delays. Why not just pull the ‘23 targets that you guys have out there right now? Are they actually achievable and realistic?
Dan Jablonsky
So I think, it’s premature to go pull them, we don’t literally, you know, update them for every line item, every quarter. That's just not practical when you talk about long term guidance. But clearly there is some risk here, so that's why I in my prepared comments mentioned the $80 million that we assumed that we would have as a ramp-up associated with the latened capacity coming online, but there's a lot that we're doing to mitigate that as well.
Really it’s not just a matter of the timing of the launch. It's also the slope of the ramp up in the revenues and we've been in discussion with customers on being Legion already. We've signed, fore signed four customers to-date for ground infrastructure improvements, so that they can be ready for Legion and they are spending their resources to do that.
We've announced our first Legion capacity sales, so our sales teams are out there working with the customer to ensure the best we can that the ramp up will be as steep as we can make it. So we're giving an idea of what the risk range is. It’s just little too early to say definitively exactly, you know verbally and how much of that might be realized, but how much might be offset by other things that we would do. It's just a little too early to be definitive and just literally revise the guidance.
Maybe, on top of that I’d note that beyond the Legion growth, there was also product growth coming from 3D and our other products as well, and those are doing well. So we're going to look at all of the line items and the puts and takes to them and the things that are in our control, and the things that aren't and give our best guide, you know give it when we had that.
Michael Ciarmoli
Got it. Last one on the EOCL contract, I mean this is seemingly becoming in a pretty crowded space. I think we talked about it prior with all these upstarts, but I mean how important is it that you have an operating satellite in orbit by the time this is awarded? I mean, is this going to have any impact on that contract award, maybe how the award gets parsed up among certain participants?
Dan Jablonsky
Yes, well I think the first thing I'd note is, we have the world's best constellation on orbit right now. The four satellites that we operate provide not just amazing high quality, but high accuracy and large scale coverage of the planet and we're designed to meet the government's mission made.
The Legion Constellation comes in beyond – behind that and beyond and on top of it. So as we worked our way through that EOCL, draft RP and all of the other work associated with it.
Then we think Permission Continuity Purposes and otherwise, we're in a good spot. We still got to go out and win. Nothing's ever given of course, but where we are today and with the assets we have and with the assets we will be bringing on, you know a few months later with the Legion Constellation we feel like we are in a pretty good sport. This isn’t the first space program that’s a little bit to the right, and that customer is understanding of it at well.
Michael Ciarmoli
Got it. Thanks a lot guys.
Dan Jablonsky
Thanks Michael.
Operator
Thank you. Next question we have the line of Ron Epstein of Bank of America. Your line is now open. You may ask question.
Ron Epstein
Hey, good afternoon guys. So the re-up of the enhanced view contract, have terms change? I mean how are the terms in the re-up compared to what just ran out?
Dan Jablonsky
Well, so nothing's run out, just to kind of clarify by that. The September announcement was the option exercise of the 11th year of the EnhancedView and the EnhancedView following program, which we've been performing on, then meeting all of our mission criteria dozens and dozens of months in a row now. So I want to kind of clarify that piece of it.
That, and we're under contract through 2023 on that. If nothing happened on the enhanced view commercial follow-on later than this you know we'd stand to that contract. We think we're very well positioned with the EOCL as it comes forward, because they are very important components for mission continuity, past performance, operating in the type of environment the U.S. Government like us to operate as well with the quality and consistency and coverage of the data that Maxar provides. So definitely they are one of three companies that wanted to study contracts, but we continue to perform very well.
We think the share of the amount that the NRO will spend in the future on commercial satellite programs is growing, based on funding decisions we've seen, as well as statements made by NRO, as well as what we see at the direction of the theme in the U.S. Government here. So, we think we're a pretty good spot, but we got to keep driving hard, never take anything for granted and we got a good win.
Ron Epstein
So, I mean wasn't it just awarded and then you have an announcement?
Dan Jablonsky
Yeah, we announced the exercise of the option year for the 11th year of the EnhancedView follow on program.
Ron Epstein
Alright, and that option is similar economics to the previous option?
Dan Jablonsky
It's the exact same as what we've been performing on for the past several years in a row here.
Ron Epstein
Okay, alright, I just wanted to confirm that. And then can you – I mean just maybe it's semantics, but what’s red teaming even mean? I mean, I got the defense companies maybe mess up and they red teaming and then they continue to mess up. I have no clue what red teaming means.
Dan Jablonsky
No, that's good. We – man, wait I'll tell you. We do a lot of jargon around here. We do a lot of acronyms and you got to get a code book almost when you join the company, but the – what we mean by that is we had an – people completely independent from the program, coming into a deep dive review of the program and the schedules and the remaining work streams and the mission assurance that we've got related to it, which have informed the next steps we’re taking as well, the scheduled decisions we’re making here. So it was – experts independent from the legion program that went in and did a deep review here.
Ron Epstein
Now okay, so help me understand. Why was that necessary if a core business of what you guys do is this? Aren’t you the experts?
Dan Jablonsky
Yes, but just like when you have internal audit come in and look at the books on the audit. It's nice to people come in independently, particularly people that aren't associated with the program and the level of expertise we've got across the company and some external resources as well to double check us. I mean these are ten year assets. We're spending a lot of money on them; they're critical for national defense priorities and it's good to have somebody test the theories that we've got, even though you know we're very good of what we do. It's not at all unusual in aerospace.
Ron Epstein
Yeah, I guess. You know it seems to come up when programs go off the rails, right? Bye guys. Thank you.
Dan Jablonsky
Thanks Mike – well, Ron, sorry.
Operator
We have the next question come from the line of Peter Arment of Baird. Your line is now open. You may ask your question.
Peter Arment
Yeah, good afternoon, Dan. Thanks. Dan maybe just, the solid margin performance we saw in Space Infrastructure, maybe if you could – I know there was less EAC’s and it seems like you had some growth on some commercial programs, but maybe you could just talk a little bit about how sustainable our – you know this margin level is, because it certainly seems like a pretty high level.
Dan Jablonsky
Yes. I'll turn it over to Biggs for forecasting sustainability, right. I just want to give a shout out to our teams that are performing on the space side of the business. I mean they've been working and grinding really hard to keep programs on track and on record and mix has certainly helped us in that dynamic, but a lot of great work has gone on to set the pre-conditions for those kind of results. Biggs?
Biggs Porter
So, it's a great question. It's not a real simple one to answer. I can say certainly that as we said before, our targets were to be 10% or better. We're running hotter than that right now. So while this is very good, it's not something we're going to say, ‘hey, it will always be that way.’ There will always be differences in program mix both the standpoint of cost type versus fixed prices as they go forward, assuming we execute our strategies on diversifying the business base and you're also going to have differences and more contract to another just in terms of its form of characteristics.
Any given quarter also can have positive uplift for margin changes or EAC change is a negative one. So you're going to have fluctuation in time, that's kind of pretty certain. We feel good about our ability to enter into contracts, perform at the kind of levels of 10% or better, but a lot of those would depend upon you know quarter-to-quarter and year-to-year, total volume and the mix of contracts.
Peter Arment
Okay, I appreciate the color Biggs. And then just Dan, if I could just circle back on Legion just, you've talked a little bit about, or I guess prepping for signing up your customers, but this does look like a pretty steep ramp. I mean, maybe you could just – how do you de-risk, some of that or give a little color around the steepness of the ramp of signing in customers?
Dan Jablonsky
Yeah. So, I mean the first way to de-risk is actually get the customer signed up, which we've been doing well here, before international defense and intelligence customers that we announced, they are up doing the ground work and construction work with Legion, as well as the one we announced this quarter, that’s actually signed up for Legion capacity as part of their program. We believe that commercial customers will be pretty soon to the table as well, so we’ll forward to announcing them in future business here, future calls.
The other things we're doing are, remember, this is a six satellite constellation, not just the first two. So we have leverage in a six satellite program to not just get through the first launch, but to then look at how we model the work after that to follow-on, the space based work, as well as the lessons we get and the lessons we learned from the first set of commissioning, as well as the fact that this isn't the first set – this is the first satellite of this class we've commissioned, but we've commissioned satellites before and gone into revenue operations pretty expeditiously.
The other thing I'd say is, like look, I don't like the delays, we'd prefer to be talking about being time on the program here. But it does give us some additional prep time on the ground, to work on the commissioning protocols and other things that can ramp faster into the production and revenue operations for the satellite.
So we do expect to take full advantage of that, use all the levers we've got and meet the customer cactus. And for us, it’s as a business case and for investors it's about getting to that revenue as fast as we can for the customers. It's about delivering world class capacity and services for their defense and intelligence and technology and commercial needs so. We are hearing from them, at the same time we are hearing it from everybody else.
Peter Arment
I appreciate all the details. Thanks Dan.
Dan Jablonsky
You bet.
Operator
Thank you. We have the next question comes from the line of Robert Spingarn of Crédit Suisse. Your line is now open. You may ask a question.
Robert Spingarn
Hi, good afternoon. So, Dan and/or Biggs I'm going to go back to the same question that’s already been asked. I think Mike asked the question, but if the satellites take 90 days to
Reach proper orbit after launch, and we may not see launch till June of ’22 and you know we might not have the first tranche up there until the end of the third, fourth quarter in ’22 and unless you overlap the second tranche then, those won't deliver or at least be ready to the middle of ’23. So why not pull the guide?
Dan Jablonsky
Yeah, I just want to create a couple – clear a couple of misconception there, Rob. These are not like GEO assets where they take, you have an orbit raising events or anything like that? These are digital LEO assets, they will be in the correct, they will be at orbit within handful of minutes after going to launch operations.
Robert Spingarn
There is no, because I recall in the past, you were going to have them up and that was going to take some time before they were generating revenue?
Dan Jablonsky
Yes, it does take some time before the generated revenue, that's the commissioning phase. But we don't have an additional order rate, ranging phase on a likelihood would with the GEO Constellation. So from the time when the satellite starts, we go through launch, intentional ignition, X number of minutes later starts to reach its altitude and we start to get signals and check into with the satellite. We've been going to health and safety protocols and the commissioning operations, that's typically been between 30 and 90 days. 30 is on the very low side, 90 days would be on the upper bound of that, but that’s – we'll learn a lot in the first set of launches that we'll incorporate into the second set.
So, if you took the worst case scenario and the worst case scenario and worst case scenario, yeah, I'm sure you can get to point where it makes it really challenging for ’23, but we're not in any way, shape or form in that position right now.
Robert Spingarn
Okay. Biggs can the first two satellites deliver the $80 million in EBITDA?
Biggs Porter
No, the first two wouldn't do that. It does take them all on operation, but there's a question as to, as you point out what is the period of time between the first two and the second four being launched, and how quickly, not just operations, but you get customers lined up to generate revenue off of them, you know trusting we've done modeling and there's a number of scenarios here, which I think weren't fully – are not pulling the guidance at this point in time.
Robert Spingarn
Okay. Just one other thing on this Dan, and I'm not suggesting this is connected at all, but just given the amount of space action that there is out in the market, now a lot of new companies and some of them not so new, but we're starting to see them grow and developed their presence. Is there a lot of talent moving around, both to and from all of these companies including Maxar and is that disruptive in any way?
Dan Jablonsky
I think the way I'd answer that Rob is that we've always got a certain amount of turnover in our business with talent. And we certainly know a lot of the talent that other companies that both on the Earth Intelligence side, as well as other companies – space companies with a lot of other non-Earth Intelligence space companies are being launched, and Maxar is know for its quality and talent, and we’ll certainly have people moving around.
But we've done a really good job of backfilling and being aggressive in our talent acquisition profile, we hired over 600 people during COVID. Some of them are coming to Maxar facilities for the first time now, and there's some amazing talent that's entering the building.
So we're always sad when we lose great talent, we're always really excited with we bring new talent into the organization as well. It hasn't really impacted our operations to-date. I think if I point to like one area that the work for talent is really extreme on, its software engineering
talent. The Earth Intelligence side, that's just software engineering talent across all the bay area and every place else that people are – people are working with the – you can’t find software engineers these days.
Robert Spingarn
Okay. Thanks for help.
Dan Jablonsky
You bet.
Operator
Thank you. We’ll have the next question comes to the line of Austin Moeller at Canaccord. Your line is now open, you may ask a question.
Austin Moeller
Hi, Dan and Biggs. So just to start, I think if I heard correctly, the first telescope from Raytheon is in transit and should arrive in September. Is it the current plan?
Dan Jablonsky
No, no, no. We glad it doesn't take that long get from El Segundo to Palo Alto. The first telescope is in transit and it left this morning, I'm just looking at my watch right now, but it should be at our facilities or be there in the next 30 minutes. So I'm very much looking forward to getting out to Palo Alto in San Jose and seeing the long waited instrument, the first one.
The second one, we're expecting right now to arrive in September. So for the two vehicle launch, that second instrument becomes part of the mitigating item in the delays we look at we put the overall schedule together.
Austin Moeller
Okay. And then the additional telescope will show up later in the fall essentially.
Dan Jablonsky
Yeah. You know, some of the Raytheon teams are working seven days a week and double shifts right now or two shifts a day. So – I mean they are pouring tremendous effort into this to clear that backlog and to keep us on the best schedules they can. You know normally those are coming in at three to six months center lines – I'm sorry, three to six weeks center liens, I misspoke there. So we should have all six instruments in Maxar facilities being integrated and then tested and going through their protocols throughout the fall.
Austin Moeller
Okay great. And then just following the trail of red coms here, so if you're launching in March, and you put the first two satellites up, then there's going to be, I guess on average 60 days of checkout out times for those satellites to enter them into service. So best case scenario, at least for starting to generate revenues, I guess May of next year is the best way to think about it.
Dan Jablonsky
Yes. I think that's a fair way to think about it. Yes, you've done the math correctly. In the best case scenario with the guidance we’ve given you, that's what we think.
Austin Moeller
Okay. Great! And then of course, the next launch will be somewhere between three and six months after that?
Dan Jablonsky
Right. And we're doing everything under our control to keep that to the – we’ll continue to find that along the way, but to the very shorter end of that, the methodology there.
Austin Moeller
Okay. And then just to finalize here, if you've got $8 million in incremental EBITDA from all six satellites essentially firing on all cylinders, should we be thinking about $20 million for each batch of satellites?
Dan Jablonsky
It's probably a little more complicated in that, because it's not, it's not just a straight capacity. It will depend on how much of that's used with different government customers, what their model is and then how much of that's going into products like Raytheon and other things that flow through faster. So yeah, I mean you can kind of average it out that way, but there's a lot of different access agreements and a lot different products that fits into to get those revenue numbers generated from the capacity on a satellite. You know and just I guess for example, the current revenue basis is existing on the four satellites we have in operation right now.
Austin Moeller
Okay, yeah, that makes sense. Thanks for the additional color.
Dan Jablonsky
Yeah, sure thing Austin.
Operator
Thank you. Next question comes from the line of Chris Quilty of Quilty Analytics. Your line is now open. You may ask your question.
Chris Quilty
Thanks. I wanted to do a follow-up on the large booking ship that you booked in the quarter. I mean, I've been following the company for about ten years and I don't recall any single big order hitting like that. Was there something particular either in the lifting of COVID
restrictions or new product that you offered or budget cycle that you’d attribute that to or is that maybe just the early wave of what could be the follow on business at the same level.
Dan Jablonsky
Yes. I think the way I'd talked about that Chris is I know you've been following the company for a long time, but I think probably one thing you've noticed is how much better some of our products have gotten, you know like our base map, our subscription products, our integrated full-on world level systems and then beyond that now the 3D products.
And so what we saw in this quarter, we really saw some traction with the 3D capabilities, tied to the other things that we offer in the data set. So – and probably the best way to explain that is as people see some of the work we're doing, with project Mayvin and with One World Terrain simulations and sensor to shoot and sensor to decision timelines. They're realizing the value of the 3D point cloud data registration, how effective that data can be for training and simulation environments and that's what drove a lot of the upside in the second quarter here.
Chris Quilty
Got you. And I know you don’t break out Raytheon separately, but can you talk about the rate of growth within that business, relative to when you fully acquired it, and whether you're just seeing a continuation of programs, take One World Terrain out. Are there any specific actions you've been able to take to land new customers or expand the product portfolio?
Dan Jablonsky
Yes, there are two very definitive things we've done. One is, as we’ve shown this, you know not just shown it, but then the sales process and the full on testing with International Defense and Intelligence customers and as they cycle back through with their U.S. ally here, they are understanding the value of the data and the technology and that's contributing to the sales cycle and some of the wins we've seen.
The second thing we've done and we announced this I think last quarter or the quarter before, but we secured all of the commercial rights to the 3D sales as well. So we're seeing really good pipeline opportunities on the commercial side, as we've not got full license ability of the 3D datasets, the 3D technology and the data point card registration 3D datasets that we've got there. So those are the two things that are really contributing to where we are performing now, as well as to what we see as the good growth prospects driving forward.
Chris Quilty
Great! And final question on the launch. You are still going with a dedicated Falcon 9, right?
Dan Jablonsky
Yes, dedicated Falcon 9. We procured two launches from SpaceX. We'll do – a little unusual compared to what we've done in the past. We’ve typically launched that at Vandenberg for the [inaudible] mission, but we're going to do both these out of the Cape, it’s easier. We don’t have to get teams back and forth and we can do all the testing and integration at the One Launch facility. SpaceX has two launch pads there and there's plenty, plenty of horsepower on a Falcon 9 to the get the satellites to the right spots.
Chris Quilty
My question I guess is going to be, the March the June timeframe. Is that an assumption that what we think we're going to deliver in March, but we don't know whether we'll get a launch availability until June or do you feel like given the DX rating on this program that SpaceX is going to move things around to get you launched as soon as possible.
Dan Jablonsky
I’m glad you point it out that we do have a DX rating, that’s been very helpful along the way here and I think proof point positive about the importance of some of these assets. We've been in discussions as SpaceX. We've talked to them about the parameters we're working with what our schedule looks like and they without even having to talk about the DX rating they have been very amenable to working with us on the launch schedule for this.
Chris Quilty
Great! Looking forward it.
Dan Jablonsky
Thanks, Chris. We’ll look forward to seeing you down there.
Jason Gursky
Yes, absolutely! And thank you, operator. We've gone over the sixty minutes that we said to try to complete the call. I want to thank everybody for joining us today. We look forward to seeing all of you virtually at some of the upcoming conferences and reconnecting on our third quarter call later in the year.
That's it for now operator. We can conclude the call.
Operator
Thank you so much for presenters. That concludes today's conference call. Thank you all for participating. You may now disconnect.
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Comments (1)
I know many people who invest won't completely frasp what they just discussed, but this means MAXR is moving into the Deep Data business. And especially from the support of the DoD and even the civilian market.
I'm not going into details, because that would take an hour at least. But they could not have possibly made the Legion schedule. It would have HAD to be pushed back. And they are doing the right thing.So what we have here is that rare add oppo. With the drop in price, the recovery time is not likely fast. But for investors, it's a home run barring any swans. For traders, it is likely different, it will be more of a smoldering burn up and that will take out some volatility. (All IMO)I'm way more positive about MAXR than I was last week. I learned way too much new stuff. And I'm not sure that's a good thing. I would have expected some of this to leak. Either that or I didn't stay on the DD. But it's all good expect for equipment deliveries.Buy....