Maxar Technologies Reports Second Quarter 2020 Results

Changes in revenues from year to year are influenced by the size, timing and number of satellite contracts awarded in the current and preceding years and the length of the construction period for satellite contracts awarded. Revenues on satellite contracts are recognized using the cost-to-cost method of accounting to determine the percentage of completion over the construction period, which typically ranges between 20 to 36 months and up to 48 months in certain situations. Adjusted EBITDA margins can vary from quarter to quarter due to the mix of our revenues and changes in our estimated costs to complete as our risks are retired and as our estimated costs to complete are increased or decreased based on contract performance.

Revenues from the Space Infrastructure segment increased to $184 million from $181 million, or by $3 million, for the three months ended June 30, 2020, compared to the same period of 2019. Revenues increased primarily as a result of the impact of an increase in volume related to U.S. government contracts of $42 million during the three months ended June 30, 2020 compared to the same period in 2019 which was partially offset by reduced volumes on commercial programs of $40 million. There was COVID-19 related EAC growth of $6 million which negatively impacted revenue for the three months ended June 30, 2020. The increases in the EACs are due to increases in estimated program costs associated with the COVID-19 operating posture and the estimated impact of certain items such as supplier delays and increased labor hours.

Adjusted EBITDA increased to $11 million from $7 million, or by $4 million, for the three months ended June 30, 2020, compared to the same period of 2019. The increase in the Space Infrastructure segment is primarily related to increased revenues and higher margins on certain programs. The increase was partially offset by $10 million due to a change in the compensation structure from retention payments to bonuses which were not included in segment Adjusted EBITDA in 2019, a recovery of a previously reserved amount of $7 million in 2019 which did not reoccur in 2020, $17 million of losses incurred on developmental builds and a $6 million negative impact related to our COVID-19 operating posture, a portion of which is included in the losses incurred on developmental builds.

Corporate and other expenses

Corporate and other expenses include items such as corporate office costs, regulatory costs, executive and director compensation, foreign exchange gains and losses, retention costs, and fees for legal and consulting services.

Corporate and other expenses for the three months ended June 30, 2020 decreased to $12 million from $19 million, or by $7 million, compared to the same period in 2019. The decrease was primarily driven by a $6 million decrease in retention costs related to a 2019 program within the Space Infrastructure segment. The decrease was partially offset by a decrease in the foreign exchange gain recognized and an increase in selling, general and administrative expenses for the three months ended June 30, 2020, compared to the same period in 2019.

Intersegment eliminations

Intersegment eliminations are related to projects between our segments, including WorldView Legion. Intersegment eliminations have increased to $7 million from $4 million, or by $3 million, for the three months ended June 30, 2020 compared to the same period in 2019 primarily related to an increase in intersegment satellite construction activity.

MAXAR TECHNOLOGIES INC. Unaudited Condensed Consolidated Statements of Operations (In millions, except per share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Revenues:
Product	$	157		$	144		$	264		$	310
Service		282			268			556			533
Total revenues		439			412			820			843
Costs and expenses:
Product costs, excluding depreciation and amortization		144			141			289			312
Service costs, excluding depreciation and amortization		87			103			180			195
Selling, general and administrative		79			66			147			151
Depreciation and amortization		89			96			179			191
Impairment loss		—			—			14			—
Satellite insurance recovery		—			(183	)		—			(183	)
Operating income		40			189			11			177
Interest expense, net		48			49			97			98
Other (income) expense, net		(4	)		(2	)		(7	)		3
(Loss) income before taxes		(4	)		142			(79	)		76
Income tax (benefit) expense		(2	)		1			—			2
Equity in (income) loss from joint ventures, net of tax		(2	)		2			(1	)		3
Income (loss) from continuing operations		—			139			(78	)		71
Discontinued operations
Income from operations of discontinued operations, net of tax		2			9			32			20
Gain on disposal of discontinued operations, net of tax		304			—			304			—
Income from discontinued operations, net of tax		306			9			336			20
Net income	$	306		$	148		$	258		$	91

Basic income per common share:
Income (loss) from continuing operations	$	—		$	2.33		$	(1.29	)	$	1.19
Income from discontinued operations, net of tax		5.05			0.15			5.56			0.34
Basic income per common share	$	5.05		$	2.48		$	4.27		$	1.53

Diluted income per common share:
Income (loss) from continuing operations	$	—		$	2.32		$	(1.29	)	$	1.19
Income from discontinued operations, net of tax		4.94			0.15			5.56			0.33
Diluted income per common share	$	4.94		$	2.47		$	4.27		$	1.52

MAXAR TECHNOLOGIES INC. Unaudited Condensed Consolidated Balance Sheets (In millions, except per share amounts)

	June 30,			December 31,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	177		$	59
Trade and other receivables, net		312			357
Inventory		21			20
Advances to suppliers		51			42
Prepaid and other current assets		41			32
Current assets held for sale		—			751
Total current assets		602			1,261
Non-current assets:
Orbital receivables, net		354			382
Property, plant and equipment, net		823			758
Intangible assets, net		901			991
Non-current operating lease assets		170			176
Goodwill		1,455			1,455
Other non-current assets		124			134
Total assets	$	4,429		$	5,157
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	155		$	153
Accrued liabilities		57			130
Accrued compensation and benefits		60			93
Contract liabilities		234			271
Current portion of long-term debt		9			30
Current operating lease liabilities		41			40
Other current liabilities		85			49
Current liabilities held for sale		—			230
Total current liabilities		641			996
Non-current liabilities:
Pension and other postretirement benefits		193			197
Contract liabilities		3			4
Operating lease liabilities		165			173
Long-term debt		2,407			2,915
Other non-current liabilities		118			110
Total liabilities		3,527			4,395
Commitments and contingencies
Stockholders’ equity:
Common stock ($0.0001 par value, 240 million common shares authorized; 60.7 million and 59.9 million outstanding at June 30, 2020 and December 31, 2019, respectively)		—			—
Additional paid-in capital		1,794			1,784
Accumulated deficit		(825	)		(1,082	)
Accumulated other comprehensive (loss) income		(68	)		59
Total Maxar stockholders' equity		901			761
Noncontrolling interest		1			1
Total stockholders' equity		902			762
Total liabilities and stockholders' equity	$	4,429		$	5,157

MAXAR TECHNOLOGIES INC. Unaudited Condensed Consolidated Statements of Cash Flows (In millions)

	Six Months Ended
	June 30,
	2020			2019
Cash flows (used in) provided by:
Operating activities:
Net income	$	258		$	91
Income from operations of discontinued operations, net of tax		32			20
Gain on disposal of discontinued operations, net of tax		304			—
(Loss) income from continuing operations		(78	)		71
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Impairment losses including inventory		14			3
Depreciation and amortization		179			191
Loss from extinguishment of debt		7			—
Amortization of debt issuance costs and other non-cash interest expense		8			4
Stock-based compensation expense		13			4
Other		2			—
Changes in operating assets and liabilities:
Trade and other receivables		40			(20	)
Advances to suppliers		(9	)		32
Accounts payables and accrued liabilities		(76	)		(92	)
Contract liabilities		(38	)		(124	)
Other		4			7
Cash provided by operating activities - continuing operations		66			76
Cash used in operating activities - discontinued operations		(30	)		(15	)
Cash provided by operating activities		36			61
Investing activities:
Purchase of property, plant and equipment and development or purchase of software		(128	)		(124	)
Return of capital from discontinued operations		20			—
Cash used in investing activities - continuing operations		(108	)		(124	)
Cash provided by (used in) investing activities - discontinued operations		723			(3	)
Cash provided by (used in) investing activities		615			(127	)
Financing activities:
Net proceeds of revolving credit facility		—			97
Net proceeds from issuance of 2027 Notes		147			—
Repurchase of 2023 Notes, including premium		(169	)		—
Repayments of long-term debt		(516	)		(11	)
Settlement of securitization liability		(7	)		(8	)
Payment of dividends		(1	)		(1	)
Other		(3	)		—
Cash (used in) provided by financing activities - continuing operations		(549	)		77
Cash (used in) provided by financing activities - discontinued operations		(24	)		14
Cash (used in) provided by financing activities		(573	)		91
Increase in cash, cash equivalents, and restricted cash		78			25
Effect of foreign exchange on cash, cash equivalents, and restricted cash		(5	)		1
Cash, cash equivalents, and restricted cash, beginning of year		110			43
Cash, cash equivalents, and restricted cash, end of period	$	183		$	69

Reconciliation of cash flow information:
Cash and cash equivalents	$	179		$	63
Restricted cash included in prepaid and other current assets		1			5
Restricted cash included in other non-current assets		3			1
Total cash, cash equivalents, and restricted cash	$	183		$	69

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