DigitalGlobe’s NGA Contract Shielded from Sequestration

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PARIS — Satellite imagery provider DigitalGlobe has received word from its principal U.S. government customer that the company’s centerpiece imagery-delivery contract will not suffer from the mandatory budget cuts known as sequestration that are sweeping through U.S. government agencies, DigitalGlobe Chief Executive Jeffrey R. Tarr said.

The notification, from the U.S. National Geospatial-Intelligence Agency (NGA), came in a letter delivered to Longmont, Colo.-based DigitalGlobe “within the last month,” DigitalGlobe said in a May 9 written response to SpaceNews.

In a May 7 conference call with investors, Tarr said NGA specifically said that the company’s Service Level Agreement (SLA), which is the biggest slice of the NGA EnhancedView contract, would be spared the effects of sequestration.

Value-added services, which are also a part of EnhancedView but can vary in size, were not given a guarantee, Tarr said. He cautioned that the NGA is not bound by this notification.

EnhancedView is in principle a 10-year, $3.5 billion commitment from NGA under which DigitalGlobe is guaranteed a monthly revenue stream if it meets performance milestones and concludes investments including remote ground stations and a new satellite, called WorldView-3. The contract is renewable each year.

DigitalGlobe is receiving $250 million per year from NGA in EnhancedView SLA payments, a figure that will rise to $300 million a year in late 2014 once DigitalGlobe’s WorldView-3 satellite is in operation. Under the contract, NGA has rights to about one-half the capacity of WorldView-3, Tarr said.

For the three months ending March 31, the EnhancedView SLA accounted for $56.8 million in revenue for DigitalGlobe. The company’s total revenue for the period was $127.6 million, an increase of 47 percent from a year ago.

DigitalGlobe Chief Financial Officer Yancey L. Spruill said 58 percent of the revenue increase was due to growth in DigitalGlobe’s customer base, with the remaining 42 percent coming from GeoEye’s former business.

DigitalGlobe’s $1.4 billion purchase of rival GeoEye was completed Jan. 31. Tarr said the expected synergies resulting from the merger are now beginning to be felt in the company’s financial statements. He said $60 million in costs associated with operating DigitalGlobe and GeoEye as separate entities have already been removed, with more to come.

The purchase of GeoEye added two satellites to DigitalGlobe’s fleet, which now totals five spacecraft in orbit. Over time, the company will be reducing that to three satellites. The GeoEye-2 satellite nearing completion will be placed in storage this year until it is needed or is sold.

Tarr said the company would be open to selling the satellite if the deal makes business sense and is approved by the U.S. government. DigitalGlobe said in February that it had received an unsolicited offer from the United Arab Emirates inquiring about GeoEye-2’s availability and was studying the offer.

The United Arab Emirates is managing an international bidding competition for its proposed high-resolution optical Earth observation satellite program.

The U.S. government remains DigitalGlobe’s principal customer, but the company has succeeded in reducing the relative weight of the EnhancedView SLA in its business to where it is now less than 50 percent of total revenue. DigitalGlobe’s commercial business, which means revenue generated from customers other than the U.S. government, was $50.1 million for the three months ending March 31, up 50 percent from a year earlier in part because of the GeoEye contribution.

DigitalGlobe has taken over GeoEye’s partnerships with foreign governments and combined them into the DigitalGlobe Direct Access Program, which gives U.S. allies the right to task DigitalGlobe satellites as they overfly predetermined areas of the globe. Tarr said 10 governments are now part of the Direct Access Program, including one that will be activated later this year.

For the three months ending March 31, Direct Access Program revenue was $18 million, up 41 percent from a year ago.

Tarr said the GeoEye-1 satellite has added 15 percent to the image-taking capacity that DigitalGlobe had on its own before the transaction. That figure could increase, he said, if DigitalGlobe elects to raise the GeoEye-1 orbit — a move that would lower the resolution of its images but expand its daily coverage area.

“We’ll certainly get some step up [in image-taking capacity] if and when we raise the orbit, and we’ll get a very significant step up in the back half of next year when we launch WorldView-3,” Tarr said.

DigitalGlobe declined to specify what orbit GeoEye-1 might operate from or when the orbit raise might occur.

“There are required regulatory approvals [from the National Oceanic and Atmospheric Administration] to go through before the raise happens and there are also customer considerations to complete,” the company said in its May 9 statement.