MIAMI — Maxar Technologies, which will lay off more than 200 people as it seeks to return to profitability, says the struggling satellite division it decided to keep will need to bring in roughly $500 million this year to break even.
Executives of Westminster, Colorado-based Maxar said they can keep the doors open at Space Systems Loral in Palo Alto, California, if it can win one to two geostationary satellite orders annually.
“To get to break even or better we need one or two GEO sats a year, and we think that is well within reach,” Dan Jablonsky, Maxar’s new CEO following the January departure of Howard Lance, said Feb. 28 during an earnings call. Jablonsky added that Maxar needs “not a large, but a healthy baseline” of other space projects, such as exploration missions akin to the Psyche asteroid spacecraft SSL is building for NASA, robotics programs and other U.S. government business.
“Something less than $500 million of run rate gets us to break even under the current model,” he said.
Maxar’s 2018 revenues totaled $2.14 billion, a $510 million increase driven by its $2.3 billion acquisition of DigitalGlobe at the end of 2017.
But the continuing poor performance of its space systems sector — which includes Space Systems Loral and Canadian space robotics company MDA — and a sustained decline in Maxar’s stock price were among the reasons cited for taking $1.1 billion in impairment losses.
That included a $162 million impairment for the loss of WorldView-4, which was insured for $183 million. Maxar said it has filed a claim for the loss of the three-year-old Earth-observation satellite and expects to receive the full amount.
Maxar plans to lay off 4 percent of its workforce of 6,100 people, or about 250 jobs. The cuts include a new round of layoffs at Space Systems Loral, where the global decline in geostationary communications satellite orders has undercut Maxar’s overall financial performance. Around 60 jobs are slated for elimination at SSL, which employs roughly 2,000 people. The company-wide cuts are expected to lead to $70 million in annualized savings.
Maxar stock suffered after the earnings came out, falling 20 percent March 1 to close at $5.83 a share — about a tenth of what the stock was trading at last summer. Maxar also announced Feb. 28 that it will slash the dividend it pays shareholders this quarter to $0.01 per share, saving $60 million.
Maxar’s space systems sector, as a whole, brought in $1.1 billion in 2018, down from nearly $1.3 billion in 2017 and $1.4 billion in 2016. SSL — which Maxar intends to rebrand as its space solution group — generated $821 million of 2018’s total revenue. But space system’s adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, fell to $5 million, down from $160 million over the same two-year period.
Maxar said it expected to win three or four satellite contracts in 2018 but ended up with just one. It also lost $8 million on a firm fixed-price contract it did not identify in a U.S. Securities and Exchange Commission filing released March 1.
Maxar executives said the restructuring of SSL makes any forecast of the division’s performance impossible, but that the steps underway could halt SSL’s operating loss.
“We are trying to drive it towards break even,” Biggs Porter, Maxar’s chief financial officer, said during the Feb. 28 earnings call. “We are not saying we are going to get there in 2019, but I think that there is substantial opportunity to make it better.”
Satellite operators remain indecisive about future communications satellite orders, Maxar said, causing SSL’s revenue to slide. Revenues also decreased because of “supplier performance issues,” Maxar said, resulting in delays completing some satellites.
Diversifying SSL’s business away from GEO communications satellites would dampen the impact of market downturns, but could present risks in the long run, Chris Quilty, founder of Quilty Analytics, warned.
“SSL has tremendous latent capabilities, so even on a scaled-down basis they should be able to compete in the near to intermediate term for satellite orders quite well,” he said in an interview. “In the longer term, if they remain scaled to only handle one or two satellites, it’s unlikely they will be able to keep up with the level of investment required to compete in a rapidly changing technology landscape.”
Jablonsky said SSL will seek more customers for its new “Legion-class bus,” a 500-kilogram platform designed for the WorldView Legion remote sensing constellation it is building for DigitalGlobe, another division of Maxar. That platform can support telecom satellites as well as remote sensing.
Porter said Maxar will seek to further reduce SSL’s physical footprint in Palo Alto beyond the $70 million building sale completed in December. Specifically, Porter said Maxar wants to reduce the amount of leased space at the Palo Alto campus as part of continued “right sizing.” Maxar would even consider selling SSL’s core facility if it could arrange a lease that enabled the company to stay there for the long term, he said.
Porter said Maxar’s estimate of $150 million to $200 million it could get from selling SSL real estate remains unchanged, and that the $70 million sale was of the highest value facility.
Maxar’s imagery sector revenue rose $615 million in 2018 compared to 2017, thanks almost entirely to the inclusion of DigitalGlobe’s revenue. But the sector’s EBITDA margin fell a point to 61 percent, earning $518 million on $845 million in sales.
Services revenue also rose substantially, thanks again to DigitalGlobe. But EBITDA margin fell to 9 percent, down from 16 percent the prior year. Overall, the services sector contributed just $25 million toward Maxar’s bottom line.
Maxar ended 2018 with about $35 million in cash, up modestly from 2017 when it spent $2.3 billion to complete the acquisition of DigitalGlobe. Maxar says it has ample liquidity thanks to a $637 million revolving credit line.
Most of the $150 million it invested in 2018 went into its World Legion satellites, which are being built in-house at SSL with imaging payloads provided by Raytheon. Those satellites are scheduled to start launching in late 2020 or early 2021.