Maxar Technologies, Inc. (MAXR.CA) Q3 2019 Earnings Call

Corrected Transcript

04-Nov-2019 Maxar Technologies, Inc. (MAXR.CA) Q3 2019 Earnings Call

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

CORPORATE PARTICIPANTS

Jason Gursky Biggs C. Porter Vice President-Investor Relations, Maxar Technologies, Inc. Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc......

OTHER PARTICIPANTS

Benjamin E. Arnstein Richard Tse Analyst, JPMorgan Securities LLC Analyst, National Bank Financial, Inc. Steven Li Jason Hahn Analyst, Raymond James Ltd. Analyst, Principal Global Investors LLC Doug Taylor Michael Francis McCaffery Analyst, Canaccord Genuity Corp. Analyst, Shenkman Capital Management, Inc. Thanos Moschopoulos Analyst, BMO Capital Markets (Canada) ......

MANAGEMENT DISCUSSION SECTION

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Maxar Technologies Q3 2019 Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] 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, Jason Gursky, Vice President of Investor Relations. Thank you. Please go ahead, sir...... Jason Gursky Vice President-Investor Relations, Maxar Technologies, Inc. Great. Good afternoon, and thanks, operator. Welcome to Maxar's third quarter 2019 earnings conference call. I'm joined today by the company's Chief Executive Officer, Dan Jablonsky; and Chief Financial Officer, Biggs Porter. Both will make some opening remarks, after which we're going to open up the line for your questions.

We're shooting to wrap up the call in a little under an hour, and as such, we're going to ask callers to limit themselves to one single-part question and one single-part follow-up during the Q&A session. Before we get started, I'd like to refer listeners to the accompanying slides for today's call, which can be found on the company's website, maxar.com, in the Investor Events & Presentations section of the site.

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

Finally, I would like to remind you that part of today's discussions, 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 release, the earnings call slide deck, and the company's most recent MD&A section found in our Form 10-Q, which is available online under the company's SEDAR profile at sedar.com, under the company's EDGAR profile at SEC.gov, or on the company's website at maxar.com.

With that, I'd like to turn the discussion over to Dan Jablonsky. Dan, go ahead...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. Thanks, Jason, and good afternoon, everyone. I appreciate you joining us for a review of our third quarter results and an update on the outlook for the company. I'm pleased with the results that we were able to deliver this quarter, and with the progress that we've been making throughout the year.

Please turn to slide 3 of the accompanying presentation for the key highlights of the quarter. We generated $479 million in revenue, and $128 million in adjusted EBITDA in Q3, with EBITDA up year-over-year from Q3 of 2018. Biggs will go into further detail during his portion of the call, but I feel this is a good outcome and demonstrates the traction we're seeing in our efforts to position the company for sustained revenue, profit, and cash flow growth.

Importantly, we garnered several key wins during the quarter across our businesses. I'll go into these in more detail a little later, but the headline is that we continue to play a key role for the most demanding government and commercial customers out there. We are proud that they have entrusted their critical missions to Maxar. We also continue to make progress on all our key initiatives for 2019, including a real estate transaction in Palo Alto that will be de-levering in nature. And finally, I note that we are maintaining the key elements of our outlook for 2019.

Please turn to slide 4. As you know, our top priority for the year has been to reduce our debt and leverage levels, and I'm pleased to announce that we have entered into a sale-leaseback agreement on our Palo Alto manufacturing facility, pending closing conditions. We expect the roughly $291 million in gross proceeds from this transaction to reduce debt levels and improve leverage metrics. The de-levering from an economic perspective is expected to be in excess of $200 million. Importantly, the sale-leaseback arrangement will provide us with a stable way to manage current and future programs, even as we continue to reengineer the business.

We plan to exit an office and light manufacturing building over the course of the next two years as part of this transaction, and have entered into a 10-year lease on our primary manufacturing, assembly, integration and test facility. We also announced the launch of a bond offering today to better align our maturity schedule with our expected cash flow streams. In the quarter, our debt levels remained flat from Q2 as cash flow was roughly breakeven. That said, our leverage ratio ticked up from Q2 on lower trailing 12-month bank-adjusted EBITDA. Finally, we also continue to drive on alternatives to reduce overall debt and leverage levels. As I said in the past, we are leaving no rock unturned, and the team and I will continue to work diligently on this initiative.

Please turn to slide 5. Our efforts to reengineer the Space Solutions business continued this quarter, and I'm pleased to announce that we had some success on the order front, with an award from NASA to host the agency's TEMPO payload on a commercial GEO Comsat. We were also awarded several civil, DOD, and

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019 classified study contracts that should help shape future requirements for potential production contracts down the road.

And turning now to performance, adjusted EBITDA improved year-over-year and ended the quarter just under breakeven. We also continued to reshape the organization and our footprint this quarter as we look to drive toward sustained profitability.

I'd like now to offer an update on the GEO Comsat market. Clearly, 2019 has been better, with industry awards year-to-date higher than the entirety of 2018. We garnered an award with Ovzon, who was planning to use our Legion-class architecture in a digital payload in a geosynchronous orbit earlier in the year. And I am pleased to announce that we were recently awarded a GEO Comsat utilizing our 1300-class architecture with an undisclosed customer. We're still working through the contract details, and we'll be sure to provide more information when appropriate. Going forward, I am confident that we will continue to book additional GEO Comsat orders over time as the market recovers.

Please turn to slide 6. I'd like to provide an update on our current strategy for our Space business. As you all know, Space Solutions has historically been largely single-threaded to the commercial GEO Comsat market. This is no longer the case. We are aggressively pursuing opportunities in the civil market, both here in the US and abroad, to expand beyond programs like Restore-L and Psyche, which are already in backlog. And we've had some good success of late with the PPE, Artemis, and TEMPO awards from NASA being good examples. At this point, we continue to pursue other programs across NASA space exploration and earth science, as well as programs with other agencies inside the US and international governments, and we expect the civil market to be a source of growth for us going forward, but we are not stopping there.

In the future, we see ourselves playing an increasingly important role with national programs, as we believe our capabilities are well-aligned with the National Defense Strategy of the Department of Defense here in the United States and with the spending priorities of allied nations. I think it's safe to say we are no longer single-threaded, which we expect will benefit the company by expanding addressable markets, increasing volumes, and reducing cyclicality.

Please turn to slide 7. Our third priority this year is positioning MDA for long-term growth following the recently completed RADARSAT Constellation Mission, which is creating revenue and adjusted EBITDA headwinds in 2019. Importantly, during the quarter, we won a competitive award with Canadian government to design system requirements for robotic interfaces of Canadarm3. We also won a design contract with the Canadian Space Agency for a wildfire monitoring satellite, and Airbus awarded us a contract for advanced navigation antennas.

Turning to performance, as expected, revenue and adjusted EBITDA declined year-over-year given the completion of the RCM satellites. As we move into future periods, we expect year-over-year comparables to become easier and for the business to return to growth.

On the pipeline front, the Canadian Surface Combatant's production phase in the early part of the 2020s is in front of us. So too is the Canadarm3 program, where we feel we are uniquely positioned given our track record with the Canadarms on NASA's Space Shuttle and on the International Space Station. And finally, MDA continues to be active in the GEO and LEO markets through our components and ground stations capabilities, which brings me to an update on the Telesat LEO program.

We announced a partnership roughly 15 months ago to pursue this opportunity. However, we recently dissolved this structure in favor of a standalone pursuit, given an evolving procurement strategy of our customer. We view

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019 this as a positive outcome for Maxar, as it will allow us to bid on the areas where we feel we have competitive advantages across our capability set and manufacturing geographies. Combined, we see a robust pipeline of opportunities ahead for MDA that should allow for our return to growth over the medium term, as the full impact of the recently completed RCM program rolls off.

Please turn to slide 8. Our fourth priority this year has been to position our Earth Intelligence business, in Imagery and Services, for long-term growth, and to make sure that we minimize the impact of the WorldView-4 satellite loss. We continued to make good progress this quarter. The Imagery business was awarded a four-year contract with the NGA for our Global Enhanced Geospatial Delivery service, putting this revenue stream on firm footing well into the future, and assuring the 300,000-plus users inside DOD continue to have access to this important platform. We also brought an additional country into the installed base of our Rapid and Direct Access offering, marking the second win with a new allied nation this year. In Services, we won a GEOINT Cloud Architecture contract with the US Air Force and several classified awards. This marks yet another quarter of backlog growth for this segment, providing increased visibility on our outlook.

And turning to performance, we experienced year-over-year growth in revenue and adjusted EBITDA, driven by the signing of a previously delayed contract with an international government customer, the shift of lost WorldView-4 revenue to other constellation assets, increased US government revenues in the Imagery business, and the continued ramp in Services, as that segment executes on recent growth in backlog.

Please turn to slide 9. I'd like to spend a few minutes diving a bit deeper into the growth outlook for our Earth Intelligence business. As we have discussed in the past, we are the market leader in the geospatial industry, with robust capabilities in imagery, platforms, products, and services. We are facing growing demand across our customer set given the confluence of geopolitics, economic growth, and rapid technology development, which allows our customers to extract increasing levels of insight from the data, products, and services that we offer.

Slides 10 and 11 are here for reference and provide readers a snapshot of the breadth of current programs across our government and commercial customers. And slide 12 provides a visual of legacy, current, and planned constellation assets.

So let's turn to slide 13 for a moment to discuss the WorldView Legion program, since that's going to be a major driver of our growth opportunity going forward. Legion will be a fleet of six high-performance satellites that are expected to dramatically expand Maxar's ability to revisit the most rapidly changing areas on Earth, to better inform our customers' critical and time-sensitive decisions.

In fact, once on orbit, our revisit rates will increase to more than 15 times per day over the highest demand areas, and Legion will more than triple our capacity to collect world-leading 30-centimeter imagery, which is what our customers need to perform their most important missions. From a technical and financial perspective, each Legion satellite will be roughly one-third the mass of previous satellites, and the constellation will collect more than three times as much capacity as WorldView-4. Importantly, this capacity increases better match to demand, so the usable increase in capacity is considerably more than three times. And all this is being done at a much lower construction cost than WorldView-4. This combination of higher capacity and lower cost bodes well for improved capital efficiency for the company, and expanding returns on invested capital over time. At this point, the program is in line with its $600 million budget and is set to be launched starting in early 2021.

Importantly, by having six satellites in the constellation, we believe we are increasing the resiliency of our operations and significantly lowering the cost of replacing any one satellite, including the possibility of having a spare satellite in inventory. For further context, we estimate that the capacity of WorldView-4 could be replaced

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019 with only two Legion satellites. All of this is to suggest that the incremental cost of replacing future satellites and/or growing our capacity can be done in more bite-sized chunks and at an overall cost that is significantly lower than legacy constellation assets. Customer benefits that we expect will drive continued growing demand for our services include regularly refreshed coverage of the Earth, and accurate mapping, monitoring, and analytics at scale. Additionally, it will capture best-in-class image resolution that will allow for the modeling of the Earth in high-resolution 3D, a capability that we believe will have many applications across our customer set in the future.

Slide 14 graphically shows a comparison of the cost of the Legion constellation compared to our legacy assets, demonstrating its capital efficiency. And finally, slide 15 provides a snapshot of the company's capability set across resolution, geolocation accuracy, revisit, and capacity. Clearly, Maxar is well-positioned in the market.

As a reminder, we have been a trusted partner of the US government for nearly 20 years, delivering commercial capabilities with superior quality, cost, security, and reliability. Our recent study contract with the NRO, coupled with our EnhancedView Follow-On contract, demonstrates that the US government recognizes the value of procuring commercial satellite imagery, both now and into the future, and it demonstrates the government's confidence in Maxar's current and future capabilities. We are proud to support the US government mission, and look forward to continuing to work with the NRO, as they increasingly adopt commercial Imagery and Services. We continue to see strong signals from our customers, suggesting that if anything, demand likely goes beyond the capacity of our Legion constellation, and that there is a significant opportunity set for us in the future with our government and commercial customers, both domestically and internationally.

Please turn to slide 16 to wrap up the discussion of our near-term priorities. We continue to make progress in our efforts to reshape and restructure the business, and we're seeing good traction with the deployment of the new operating model. Our product teams continue to work across the company, and our Global Field Operations team is building and executing on a robust pipeline. We're also seeing good market reaction as we roll out our positioning of the one Maxar brand, and our finance and operations staffs are continuing their consolidation and streamlining efforts.

As a reminder, we expect this initiative to save money, improve our time to market with new products and services, and improve collaboration across the organization, all of which are beginning to unlock growth synergies and improve team member engagement.

Please turn to slide 17. Before I hand the call over to Biggs, I'd like to provide a quick framework to help investors understand how we're thinking about the outlook in the near, medium, and longer term for the company. 2019 has been about resetting and re-stabilizing our business, after the order decline experienced in the GEO Comsat market over the past several years, the wind-down of the RCM program for the Canadian government this year, and the announced loss of WorldView-4 at the beginning of 2019.

Clearly, we have experienced the confluence of tough events. But we have been laser-focused on reengineering, execution, and business development to position the company for a return to growth in the medium term. And while I can't declare victory on that yet, I do believe we have made tremendous progress this year. Longer term, we expect to accelerate growth by deploying our new constellation assets in the Imagery segment, executing on our growing backlog in Services, reaping the rewards of our diversification efforts at Space Systems, and enjoying the results of some potential key wins at MDA.

With that, I'd like to hand the call over to Biggs for a review of the financials. Biggs? ......

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. Thanks, Dan. Please turn to slide 18, where we present year-over-year comparisons for Q3 and year-to-date. Total company revenue has declined 6% year-over-year in the quarter, due to lower GEO Comsat volumes and the RCM program wind-down in Space Systems. These declines were partially offset by growth in Services and Imagery, the details of which I will go into momentarily.

Adjusted consolidated EBITDA margin increased 610 basis points year-over-year, driven by Space Systems and Imagery, offset in part by Services. Corporate and other expenses were higher year-over-year, driven primarily by the retention costs at Space Solutions that I've discussed before, and that we are recognizing in corporate and other expense to provide a better sense of the underlying profit trends at the segment level.

These retention costs are being incurred to stabilize the workforce after the strategic shifts over the last year. We believe it is having its desired effect. New wins in Space Solutions are likewise having a very positive effect on the workforce. These increases were partially offset by a decrease in SG&A and a decline in expenses related to a business dispute in 2018, which did not recur in 2019.

GAAP EPS was a loss of $0.44 versus a loss of $4.88 in the third quarter of 2018, driven largely by the impairment taken in Q3 2018 related to the decline in the overall GEO Comsat business environment.

Year-to-date, revenues have declined 10%, driven by lower volumes in Imagery and Space Systems, in part offset by growth in Services. Adjusted EBITDA margins have increased 180 basis points, driven by Space Systems and Services, partially offset by Imagery. Year-to-date, EPS is a positive $1.02 versus a loss of $5.45 last year, driven by the WorldView-4 insurance recovery booked in Q2 of this year, while the loss last year was driven largely by the impairment described earlier.

Please turn to slide 19. As expected, Imagery revenues increased 5% year-over-year in the quarter, as we successfully signed the delayed contract renewal with an international customer, and continued the transition of lost WorldView-4 revenue streams to other constellation assets. We also saw a year-over-year growth in our US government business, as we continue to upgrade work on our infrastructure to better interoperate with our customer in the years to come. Adjusted EBITDA margins expanded 220 basis points year-over-year on the higher revenue and positive mix in the quarter.

On a year-to-date basis, revenues are down 2%, given the WorldView-4 loss, but are tracking to roughly flat for the full year. Adjusted EBITDA margins are down roughly 80 basis points on lower revenue and a slightly less favorable mix.

Please turn to slide 20. Space Systems revenues were down 16% year-over-year in Q3, driven primarily by the expected wind-down of work on the multiyear RCM project and the decline in GEO Comsat activity. Adjusted EBITDA margins increased 770 basis points, as a result of lower development spend and lower head count as a result of restructuring efforts. The third quarter of last year was also impacted by supplier issues and delays. Year-to-date, Space Systems revenues have declined 15% driven largely by the factors mentioned earlier, partially offset by an increase in revenues from Neptec, which was acquired in July of 2018. Adjusted EBITDA margins have increased 270 basis points primarily as a result of the factors mentioned earlier, partially offset by an increase in estimated cost to complete on certain projects.

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

Space Solutions, the legacy SSL business, generated $167 million in revenue during the quarter and a small adjusted EBITDA loss, a marked improvement from the $31.5 million loss posted in the third quarter 2018, a quarter that was negatively impacted by EAC growth given supply chain issues and delays.

Performance in Space Solutions continued to be negatively impacted by EAC growth related to first time work, which we are working diligently to complete. At this point, we continue to expect roughly breakeven adjusted EBITDA for the full year excluding their retention payments being recognized in corporate expenses.

Please turn to slide 21. Our Services business posted an 18% increase in revenue this quarter versus the third quarter of 2018 driven by growth for new contract awards and program expansion on existing contracts across the Intelligence Community and DoD.

Adjusted EBITDA margins declined, however, by roughly 220 basis points year-over-year, given the change in lease expense which decreased adjusted EBITDA by roughly $1 million in the quarter versus the prior year period. Please note this change will result in additional $1 million of this expense year-over-year in the fourth quarter of this year.

Additionally, third quarter 2018 margins were higher versus third quarter 2019 given a lower level of subcontractor passive work performed last year. This business experienced another strong booking quarter with total book-to- bill for the segment exceeding 1. Year-to-date, revenues are up 9% year-over-year on the recent wins while margins have remained relatively consistent.

Please turn to slide 22. The company generated $83 million in operating cash flow this quarter and invested $79 million in CapEx and developed intangibles. On the year-to-date basis, we've generated a $142 million in operating cash flow and spent $206 million on CapEx and intangibles. Space Solutions/SSL consumed $2 million in consolidated operating cash flow in the quarter and $84 million year-to-date as recent new award activity had a positive effect.

As a reminder, back cash activity in the fourth quarter, Q1 of 2019 included the doubling up of interest that added $42 million of cash outflow in that quarter relative to the norm. We paid additional cash interest in Q2 and Q3, but will not be doing so in Q4 as we have already paid a full year's worth. Also, the fourth quarter is typically seasonally positive quarter for the company when it comes to operating cash flow generation. And this quarter looks even more so, given the expected milestone payments on major programs, almost all of which are already in backlog. This assumes, of course, that we don't have a government shutdown that affects us this year like it did last year. As I will detail later, our operating cash flow outlook for the full year remains unchanged.

Please turn to slide 23. We finished the quarter with consolidated net debt of roughly $3.1 billion, up slightly quarter-over-quarter. Our bank defined leverage ratio ended the quarter at approximately 4.9 times, up roughly 0.2 of a turn from Q2 as trailing 12 months bank adjusted EBITDA declined due to the roll off of add backs allowed for under the credit agreement in prior quarters. Importantly, we remain well below our covenants. We had roughly $588 million liquidity at the end of the quarter via a combination of cash on hand and availability on our credit facility.

As Dan mentioned earlier, we recently engaged in a sale leaseback transaction on our Palo Alto manufacturing facility. Irrespective of refinancing activities, the gross proceeds of roughly $291 million are sufficient to retire our 2020 maturities. We will leaseback one or two of our primary buildings, which contains office space and light manufacturing for two years. The leaseback term on our primary manufacturing integration and test space is for 10 years, which gives us plenty of runway to address our long-term manufacturing footprint in California, the lease

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019 amounts are in our 10-Q. Importantly, we expect the net effect of this transaction to reduce leverage by roughly 0.3 turns.

Going forward, we remain focused on delevering and debt reduction efforts and on better aligning our maturity schedule with our cash flow streams, including the bond offering announced earlier today. We continue to expect to increase cash generation in future years from expansion in adjusted EBITDA; a lower CapEx as our investment in the WorldView Legion constellation will continue for two more years, after which we will be positioned to have much greater free cash flow to delever.

Please turn to slide 24, turning to guidance. We continue to expect Imagery to be roughly flat year-over-year from a revenue and adjusted EBITDA perspective. In Services, we are now expecting solid mid-to- high-single-digit revenue growth up from the low-single-digit growth we were previously forecasting driven by the new awards we've won throughout the year. We continue to expect full year adjusted EBITDA margins [ph] up (00:26:26) roughly 10%.

At MDA, we're now expecting a low-teen decline in revenue versus a low-single-digit decline we previously expected given delays in forecasted starts on new projects. We continue to expect a decline of several hundred basis points of margin compression. It is important to note that we expect the delays this year to be pushed into 2020 and that this business has recently booked some new wins, including the initial development work on Canadarm3. Taken together, no change to adjusted EBITDA for the Imagery, Services and MDA businesses.

Moving on now to Space Solutions/SSL. We expect this segment to contribute roughly breakeven adjusted EBITDA to the Space Systems segment, pre-retention payments and eliminations. Retention payments are now expected to be close to $25 million for the year. Offsetting this below the adjusted EBITDA line will be lower severance costs of 2019. Finally, we now expect roughly $30 million of intersegment adjusted EBTIDA eliminations, which is about $10 million higher than the previous expectation given the cadence and profit levels of intercompany activities now forecast.

So to summarize all the pieces of adjusted EBITDA guidance. We continue to expect greater than $550 million in adjusted EBITDA from Imagery, Services and MDA, net of corporate costs, but not included in the $25 million in Space Solutions retention. We expect Space Solutions to be breakeven before eliminations of roughly $30 million and the retention payments of $25 million. So, we expect enough upside on adjusted EBITDA from Imagery, Services and MDA plus a breakeven Space Solutions to offset the slightly higher eliminations of $30 million and their retention payments of another $25 million to keep us equal to or north of the $510 million for the overall company.

On operating cash flow, we continue to expect the range of $350 million to $450 million, excluding the $80 million to $100 million consumption of Space Solutions and the $20 plus million in retention payments. Taken together, this provides for operating cash flow on a consolidated basis in a range of $230 million to $330 million. Please note that this includes significant restructuring cash outflows due to reductions in force and final integration cost from the 2017 merger. These costs aggregate up to $40 million and are exceeded by the in-year savings we expect. None of those costs to normalized operating cash flow would be higher.

For Space Solutions, as I have mentioned on prior calls, cash flow is a headwind in 2019 given the timing of milestone payments, retention and cash restructuring charges, but this has significantly turned around in the second half as evidenced by a third quarter cash use of Space Solutions of only a negative $2 million.

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

We expect CapEx through the year to be roughly $340 million, excluding capitalized interest of roughly $20 million. This was down about $35 million from our prior forecast given the cadence of work being completed this year on WorldView Legion, recent reshaping efforts of Space Solutions and other fine tuning. We'll continue to evaluate how much of this rolls over in the next year as opposed to a permanent reduction.

If you're thinking about the future beyond 2019, in addition to normalizing for the insurance proceeds, keep in mind that our 2019 guidance includes up to a $100 million use of Space Solutions, $20-plus million in retention and up to $40 million of restructuring-related costs. Once Legion is complete, we expect CapEx to fall to a more normalized range of a $100 million to $150 million.

We also expect to recoup the approximately $70 million in loss WorldView-4 revenue and to grow the company in other areas such that over time, all-in, we could see upwards of $200 million of adjusted EBITDA growth. So, sometimes following when we put WorldView Legion into operation, when you wrap all these things together that is solving for the cash burn and Space Solutions, lower retention and restructuring costs, lower CapEx and adjusted EBITDA growth, we see a path to up to a $500 million or more swing and free cash compared to 2019 guidance after normalizing for the insurance proceeds.

Now back to 2019 guidance. We expect depreciation and amortization of roughly $405 million this year. Interest expenses is expected to be approximately $195 million down slightly due to interest rate swaps, debt levels or interest rates, and interest expenditures are expected to come in at roughly $185 million this year, with approximately $20 million of that capitalized.

We continue to forecast to roughly 0% effective tax rate due to the benefits of our interval carry forwards on ITC. We also continue to expect the diluted share count to come in at roughly $61 million. And as I discussed in the past, our credit agreement allows us effectively to convert our GAAP financials back to IFRS for the purposes of compliance with our covenant, which will generally lead to a higher level of adjusted EBITDA. Most notably, these are R&D expense and investment tax credit. We also have the ability to add back several other items to leverage calculations, including stock compensation, which we now deduct from adjusted EBITDA and the expected benefits of restructuring efforts and cost saving. It is, as already noted, complicated and will vary based on the expenses of better than our US GAAP numbers. So, when roll all the factors embedded in our guidance with these items, we expect our leverage ratio for purposes of debt covenant in the year well below 6 times.

Now, I would like to close up my comments by giving you a few thoughts on the debt refinancing activity we launched earlier today. The objective of the refinancing is to pay down the borrowings on our existing revolving credit line and retire our term loan A indebtedness, while excluding the maturity of our credit line and reducing it to $500 million.

While we were in marketing, I cannot give more specifics on the bonds, but I can talk to the bank credit amendment that we've entered into in support of that offering. The amendment would extend the maturity of our credit agreement by two years to 2023 conditional upon the success of the bond offering and the use of proceeds to pay down the current borrowings outstanding on the term loan A and revolver. You will see in our disclosures of the amendment in our third quarter 10-Q that conditional on the success of the bond offering, covenants had been significantly expanded. These new covenants were set high by the banks well above our current levels and expectations in order to give us and their prospective bondholders plenty of room, far more than we would have anticipate otherwise.

As I said earlier, our current bank leverage is at 4.9 relative to a covenant of 6. The new covenant goes as high as almost 8 times, 160% the current metric. Another element of amendment, which is not conditional on the bond

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019 offering, provides clarity that the proceeds in the Palo Alto land sale can be used to retire our term loan A debt as opposed to a pro rata pay down of our term loan debt. So, with or without a bond transaction, we have a clear path taking care of the first term loan A maturity.

So to summarize my comment, we continue to be encouraged by the growth in Imagery and Services. We've had success and continue to work diligently to win new projects and return to profitability in Space Systems and we are focused on delevering and aligning our maturity schedule with our cash flow streams.

With that, I'd like to ask the operator to remind listeners how to queue up for question and open the line......

QUESTION AND ANSWER SECTION

Operator: Certainly. [Operator Instructions] Your first question comes from the line of Ben Arnstein with JPMorgan. Please go ahead. Your line is open...... Benjamin E. Arnstein Analyst, JPMorgan Securities LLC Q Hey. Good afternoon, everyone...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Hey. Good afternoon, Ben...... Benjamin E. Arnstein Analyst, JPMorgan Securities LLC Q Hey. So, I guess I kind of wanted to ask a little bit about the debt and the leverage situation. I appreciate that you can't talk too much about the offering right now. But if it is successful, you will create a couple of years of breathing room here with your maturities now lining up in 2023 and 2024. In addition to the kind of CapEx holiday, we're going to see – preceding that, how should we think about your capacity to delever from here, including the Palo Alto sale? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Well, I'll ask Biggs to take the thrust of that. But it's critical of the Palo Alto sale is a delevering event in and of itself, so that's good news for us. And as you noted, the CapEx cycle for the Legion program right now is not ideally timed with our current maturity schedule, so moving that maturity out past when that program is done and the other things that Biggs talked about in terms of cash flow generation are pretty critical to us moving to that timeframe. But Biggs, do you want to give some more? ...... Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. A Yes. So, I think Dan covered it, but Legion program complete in 2021, the first launch is targeted for the earlier part of the year. So, the reduction in CapEx starts then. All those factors I described is creating a $500 million swing aren't fully captured in 2021, but they certainly head in that direction. And by you get 2022 and 2023, they

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019 are pretty fully captured or not fully captured by the time you get to 2023. So that's a lot of cash generation to go pay down debt before we get to those maturities...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A I think the other thing I'd note, Ben, is that as I said in my remarks, we are still continuing to work alternatives to delever faster than that as well. We'll do the smart thing for share owners, but when we've got some other things in front of us possibly...... Benjamin E. Arnstein Analyst, JPMorgan Securities LLC Q Got it. Thanks. And are there any contingencies I guess around that $500 million swing in the cash for 2022, 2023 in terms of programs that you want to win or what kind of the follow-on for EnhancedView might look like? ...... Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. A Well, at this point in time, there's nothing that we forecast. It is possible that we could add customer interest in more capability, but we think that would bring customer funding. So that's an upside, not a contingency. And from the standpoint of other items, I think the $500 million, if you do the math on everything I said, you actually get to number bigger than $500 million, so that leaves room for something unforeseen. But at this point in time, there's nothing I'd point to as a contingency...... Benjamin E. Arnstein Analyst, JPMorgan Securities LLC Q Okay. Thanks......

Operator: Your next question comes from the line of Steven Li with Raymond James. Please go ahead. Your line is open...... Steven Li Analyst, Raymond James Ltd. Q Yeah. Hi. Can you hear me? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Perfectly...... Steven Li Analyst, Raymond James Ltd. Q Okay. Hey, guys. Just a clarification on the Palo Alto sales leaseback, so that $290 million versus $200 million delevering, what's the difference between the two numbers? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

Between $291 million and $200 million? The $200 million is really the economic delevering if you compare the total value of the proceeds to the economic value of the leaseback. And that economic value of leaseback is a matter of perception as to what kind of discount rate you want to apply. We'll give you the lease numbers, so you can go and determine what you think the fair value of that lease is. But, it's – if you will, the economic delevering is more than $200 million. But, from a absolute cash inflow standpoint, the cash proceeds are closer to that $291 million net of all the expenses...... Steven Li Analyst, Raymond James Ltd. Q Okay. That helps, Dan. And Dan, you mentioned there will be six satellites for Legion. I think I heard you say one could be a spare, what's the reason for the spare? Is that for a potential Legion X customer? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A So, actually, the first part of the constellation that we'll launch will be six. We have had some interest in others funding additional capacity, something that Biggs has spoke to, whether we call that Legion X or some other government programs. We have had interest in those would come with customer funding as well. So, six is the initial launches that we're planning on, and then there could be some additionals in the mix...... Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. A I just would also point out, we haven't made a decision this point in time in fact to build a spare, we're saying that that's a possibility and what makes it a possibility is if you consider the fact we had a $600 million program for six satellites, there's a big non-recurring element in there, then the incremental cost of one is low enough to where that possibility is out there and we felt like that that was the best way to create resilience in the future as a trade against – also insurance costs. So, the real point here is that is a significantly lower cost point than probably what anybody anticipated, and we had the opportunity then to go to approach of taking spare or over time smoothing out the cost of replenishing or growing the Legion for the fleet...... Steven Li Analyst, Raymond James Ltd. Q Okay, that makes sense. And then my last one is on the [ph] dissolve (00:42:12) structure on the Telesat bid, do you have to start from scratch for bidding on parts of the contract and what is the new expected timing for any award? Thank you...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A No, we don't have to start from scratch. An awful lot of non-recurring engineering work, customer funded has been done at this point, a lot of studies, work and proof points. Well along in the process continue to be very closely involved in discussions with the customer. I can't get out in front of their timeline, but I think they've said they expect movement still in this calendar year...... Steven Li Analyst, Raymond James Ltd. Q All right. Thanks......

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

Operator: Your next question comes from the line of Doug Taylor with Canaccord. Please go ahead. Your line is open...... Doug Taylor Analyst, Canaccord Genuity Corp. Q Yeah. Thank you. You've mentioned the lower cost per satellite asset for the WorldView Legion are sure to drive some economic benefits to your model through the cycle as you mentioned, it does also speak to the potential for barriers to entry for new entrants. What can you tell us or remind us how you think about the other barriers to entry besides CapEx that Maxar and its model brings that helps keep the economic moat between you and competitors? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Thanks, Doug. And I guess just to kind of be clear, I mean the way we think about it is constant innovation and delivering better results both for our customers and returns on our business. And as long as we continue to do that, we think that as a market leader, we'll continue to extend our lead. This is – the Legion-class satellites are a very innovative design. We are looking forward to getting that constellation on orbit and delivering that level of enhanced quality and revisit than all the other things that we have for our customers. And we've got lots of experience doing this, almost 20 years history in this business, and we continue to I think advance our lead.

The other parts of that are not just the satellite constellation but what happens around it, the data handling, the platformization of it, the moving in into things like 3D models, and the analytics that go with it. So from an end-to- end standpoint all the way from building the satellites to flying the satellites, moving that data around the world at light speed and making analytics judgments off it in a useful way, that's how we think about our lead in the business.

Just kind of beyond the USG relationship that we've had for this long period of time, we've got over 12 installed International Defense & Intelligence customers where that satellite data is going in directly into their ground stations, and we're up over 40 customers on the SecureWatch program on the International Defense & Intelligence front, as well as the commercial customers that we've got...... Doug Taylor Analyst, Canaccord Genuity Corp. Q That's great color. Thank you. Just for my follow-up quickly, I just wanted to clarify the answer to a previous question, I believe it was Steven's, regarding the sale-leaseback transaction. So the $291 million is net of taxes or whatever the projected tax implications are from that transaction, is that correct? ...... Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. A The $291 million is a gross proceeds. There'll be some amount of other expenses, taxes, brokerage fees, et cetera, deducted from it. But you're still likely north of $280 million after backing those out...... Doug Taylor Analyst, Canaccord Genuity Corp. Q That's helpful. I'll pass the line. Thanks......

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

Operator: Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. Please go ahead. Your line is open...... Thanos Moschopoulos Analyst, BMO Capital Markets (Canada) Q Hi, good afternoon. Dan, as far as the GEO award that you announced, is that contingent on the customer getting financing or is financing in place, and would you expect to be able to finalize the agreement in the current quarter? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A We do expect to finalize it this quarter. Teams are working very hard on finalizing the contract. We're not aware of contingencies to it, but we have to get the contract done. But we'll be moving forward, we understand the customer has, as they all do, when they finally give you an award, tight timelines to get to delivery, otherwise they wouldn't have made that capital investment decision...... Thanos Moschopoulos Analyst, BMO Capital Markets (Canada) Q And sorry, [indiscernible] (00:46:39)...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A We're very excited about that award as well. Thanks for mentioning that, Thanos...... Thanos Moschopoulos Analyst, BMO Capital Markets (Canada) Q Any other color can you provide on it or not at this stage? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Not at this stage. We're holding that back until we get the final contract...... Thanos Moschopoulos Analyst, BMO Capital Markets (Canada) Q Okay. And on the debt, you're repaying the revolver as part of the financing. Will you still have the full room of revolver available post the financing? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Biggs can give more color here. But we're – as part of this, we'll pay off the current revolver and then have a new $500 million revolver with a $0 balance on it would be the expectation...... Thanos Moschopoulos Analyst, BMO Capital Markets (Canada) Q

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

Okay. And then finally in terms of the year-to-date [ph] you (00:47:19) award activity that we're seeing out there, to what extent is that translating into potential work for MDA? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A It definitely translates into intercompany work for us with MDA. They have been – the partnership between the legacy MDA and SSL units is well and long established between antenna work, arc converters, other subcomponents, as they are for the rest of the industry as a merchant supplier for them. So they continue to roll full steam ahead and are an important part from – as part of Maxar in these bids...... Thanos Moschopoulos Analyst, BMO Capital Markets (Canada) Q Sorry, I meant in terms of the awards have gone to others is that – some of that translating into work for MDA? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Oh, I got you. Yeah. Yeah. Absolutely, yes, some of it has continue to come to MDA and they continue to pick up work even when we don't win the full headline award on it...... Thanos Moschopoulos Analyst, BMO Capital Markets (Canada) Q Great. Thanks and best of luck...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Thanks, Thanos......

Operator: Your next question comes from the line of Richard Tse with National Bank Financial. Please go ahead. Your line is open...... Richard Tse Analyst, National Bank Financial, Inc. Q Yeah. One of your slides, I think it was 6, you talked about opportunities beyond sort of the single-thread GEO side. So what would you think is the biggest opportunity from that perspective? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A I think [indiscernible] (00:48:33) is the one where we've already been winning quite a bit of business which is the civil space side. So, we already have in backlog the TEMPO award with NASA, the Psyche and Restore-L missions both for robotics and on-orbit servicing and further asteroid space exploration. And now the recent PPE Artemis win built on legacy 1,300 class capabilities but repurposed for NASA civil mission, so we're very bullish on that. We continue to look forward to the Canadian government's Canadarm3. Timelines, as I think everybody on this call knows, NASA has moved the schedule up for the Artemis program from the 2028 to the 2024 timeline, which means we've got to be launching the PPE in 2022, early 2022. And the – for Canadarm to keep up with that, everybody is sort of in an accelerated format right now on what will become the Gateway program.

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

So that's very exciting. We're a little more nascent on the Defense program side in the US. I would say, we continue to enjoy strong support with the Canadian defense and space agencies. The RCM program in fact was a Canadian defense program. But on the US front, we just became US incorporated in January this year. And so we're moving our way into the program phase on different aspects. And then as typical, it starts out with studies, and then as you win studies and improve your work, you start to win other types of business. We hope that that – hope and expect, I guess, that that moves into contracting and production phase at some point...... Richard Tse Analyst, National Bank Financial, Inc. Q Okay. That's helpful. Thanks. And I just had a question on [ph] certain (00:50:31) WorldView-4. Can you maybe give us a sense of how much revenue has not been able to reconstitute to other satellites? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Yeah. So when we lost the satellite, we announced that it had about $85 million, so pretty high-margin revenue on it. And that we expected to be able to move around $15 million of that revenue to other constellation assets, and we've, by and large, been substantially able to do that. We're continuing to look for other opportunities to go past that, but we've been able to do that during this year, and I think that's some of what you see from the improving results in Q3 and our holding on the guidance for the year...... Richard Tse Analyst, National Bank Financial, Inc. Q Okay. And just one last one for me, with respect to the financing you're doing today, I'm not sure you can give any color around it but can you give us a sense what the interest rate on that debt would be? ...... Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. A While we're in the marketing process, really can't, I mean, obviously this is ultimately driven by the market. So we just have to wait on that one...... Richard Tse Analyst, National Bank Financial, Inc. Q Okay. Appreciate it. Thank you......

Operator: [Operator Instructions] Your next question comes from the line of Jason Hahn with Principal Global Investments (sic) [Investors] (00:51:48). Please go ahead. Your line is open...... Jason Hahn Analyst, Principal Global Investors LLC Q Thank you. I just wanted to maybe get a little bit more clarity on the debt financing and the Palo Alto proceeds. So, if I understand it correctly, you've got essentially just short of $1.2 billion of debt outstanding on the term loan A1, A2 and the revolver. You've got – it sounds like 280 million-ish dollars of proceeds coming in on the Palo Alto facilities, so that gets you down to sort of a net funded debt on the front end of about $916 million. But you've announced the deal size for $1.25 billion. Will the incremental proceeds there be used to repay term loan B borrowings, or is there some other use of proceeds to reduce debt here that I'm missing?

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Yeah...... Jason Hahn Analyst, Principal Global Investors LLC Q Thank you...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A Sure thing, Jason, and thanks for the question. You bring up a good point. If, on the assumption that we get to closing this year on the Palo Alto real estate sale, we would apply that to the debt offering that we have underway. So there'd be, we take out the first, call it $250 million of that, and be closer to about $1 billion of debt rolling over [indiscernible] (00:53:15)...... Jason Hahn Analyst, Principal Global Investors LLC Q Okay. Yeah, I guess I was confused. So I thought that that deal was at least initially structured as non-call too? ...... Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. A So the new offering, because of the timing of cash inflows [ph] from it (00:53:29) relative to the timing of cash flows of the land sale, the new offering gives us the ability to redeem $250 million of that after its initial issuance...... Jason Hahn Analyst, Principal Global Investors LLC Q Okay. Great. Now that's very helpful. Thank you, guys. Good quarter...... Jason Gursky Vice President-Investor Relations, Maxar Technologies, Inc. A Hey, operator, we've got time for one more question......

Operator: Certainly. Your last question comes from the line of Michael McCaffery with Shenkman Capital. Please go ahead. Your line is open...... Michael Francis McCaffery Analyst, Shenkman Capital Management, Inc. Q Thanks. What's the timeframe that we should expect for the Palo Alto transaction to close? ...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A It's still subject to closing conditions. We do expect it to close in this calendar year, with proceeds being applied in this calendar year......

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

Michael Francis McCaffery Analyst, Shenkman Capital Management, Inc. Q And am I reading the language in the Q correctly that the amendment on the credit facility is [audio gap] (00:54:20) getting the secured bond deal done? ...... Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. A Yes. The majority of the amendment on the credit facility is conditioned upon the bond at $1,250,000,000. There are exceptions to that as I noted; one exception is where the language was clarified that the proceeds of the land sale can be used against term loan A or term loan A1, as opposed to needing to be pro-rata spread over both term loan A and B. So that part of the amendment, that clarifying language, is independent of the bond transaction...... Michael Francis McCaffery Analyst, Shenkman Capital Management, Inc. Q Okay. So that piece alone will – that amendment – so is that a separate amendment? Are there more amendments then that [indiscernible] (00:55:25)? ...... Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. A I mean, it's structured such that within the amendment, there are some elements of it which are not contingent and some elements that are...... Daniel L. Jablonsky President, Chief Executive Officer & Director, Maxar Technologies, Inc. A But I guess for clarity, Michael, the part that's not contingent on the bond offering is that we can apply the proceeds from the land sale to the term loan As that are due next year...... Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. A Yeah. [indiscernible] (00:55:50) with or without a bond, we have a clear path to be able to pay down term loan A1...... Michael Francis McCaffery Analyst, Shenkman Capital Management, Inc. Q Right. So assuming the bond deal gets done, is there a reason then, once the real estate proceeds came in, that that would be targeted at the bond versus some type of pro-rata with the [ph] pari (00:56:12) term loan B? ...... Biggs C. Porter Executive Vice President & Chief Financial Officer, Maxar Technologies, Inc. A No. As I said earlier, it would go. We issued a bond at $1.25 billion, that when the land proceeds come in, $250 million of that would be used to redeem $250 million of the bond issuance at par......

Operator: And I will now turn the call back over to the presenters......

Maxar Technologies, Inc. (MAXR.CA) Corrected Transcript Q3 2019 Earnings Call 04-Nov-2019

Jason Gursky Vice President-Investor Relations, Maxar Technologies, Inc. Okay, great. Thanks, everyone, for dialing in today. Appreciate the interests and the support. We'll probably see some of you out here on the road in the next couple of weeks. And otherwise, I look forward to catching up with you in the coming weeks and months as we make our way towards the end of the year. Thanks, everyone......

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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