PARIS — GeoEye Inc. officials said they have sufficient funds to complete construction and carry out the launch of the GeoEye-2 high-resolution imaging satellite in 2013 and continue normal operations into 2014 even if the company’s showcase contract with the U.S. government drops to zero next year.
In a June 25 conference call with investors, GeoEye Chief Executive Matthew O’Connell and Chief Financial Officer Joseph F. Greeves sought to put the best possible face on a development that, by the end of the day, would send the company’s stock into a tailspin. GeoEye stock fell nearly 23 percent June 25 before making a modest recovery later in the week.
“We’re quite confident we can fund operations all the way into 2014,” Greeves said, even if the U.S. National Geospatial-Intelligence Agency (NGA) stops funding GeoEye’s share of the EnhancedView contract starting in January.
This is the scenario NGA evoked in a June 22 letter to GeoEye. The company disclosed the letter after the stock market closed June 22, making June 25 the first day investors could react to it.
O’Connell said Herndon, Va.-based GeoEye is optimistic that the NGA’s threatened action will be stopped by the U.S. Congress as it works through the proposed fiscal-year 2013 federal budget.
O’Connell also speculated that 2013 may bring a temporary dip in GeoEye’s NGA contract revenue and that funding could return to previous levels in 2014. A government agency that has agreed to pay $181 million to co-finance GeoEye-2, he said, is likely to want to use the satellite.
“I’m not sure that what’s happening in 2013 is indicative of what could happen in 2014,” O’Connell said.
GeoEye said it had cash amounting to $181.1 million as of March 31. On June 28 it received an expected $111 million in NGA cost-share payments for GeoEye-2.
Greeves said tax refunds of about $18 million were received in recent weeks.
Against this cash position were GeoEye-2 contract obligations that as of April 1 totaled $300 million.
O’Connell was at a loss to explain why NGA elected to cut GeoEye’s EnhancedView payments while leaving untouched the payments to competitor DigitalGlobe of Longmont, Calif.
“You ought to ask” NGA, O’Connell said. “DigitalGlobe says they provide more [image] quantity at lower cost. We have higher-end imagery. I guess in a budget environment like this, NGA is more focused on quantity.”
Plan B for GeoEye consists of focusing on prospective government customers outside the United States that could at least partially replace NGA revenue.
O’Connell said one or more governments have indicated they would like to step in with large orders for GeoEye imagery if the company has lots of capacity suddenly available with NGA’s exit.
GeoEye-1, currently in orbit, has a ground sampling distance of 41 centimeters, meaning it can distinguish objects of that diameter and larger. GeoEye-2, set for launch in mid-2013, is capable of detecting objects 34 centimeters in diameter.
For both satellites, GeoEye must, in O’Connell’s phrasing, “fuzz up” the images — in other words, degrade them — to 50-centimeter resolution for sale to non-U.S. government customers.
But GeoEye has been successful in getting U.S. government waivers to permit allied governments to get the highest-resolution imagery. The company will redouble these efforts and maintain pressure to loosen the 50-centimeter threshold, O’Connell said.
“We have a market around the world,” O’Connell said. “It obviously would take us time to remarket the capacity we have with NGA.”
Outside the United States, GeoEye faces stiffening competition in the high-resolution end of the commercial Earth imaging market from Astrium Geo-Information Services, whose predecessor company, Spot Image, pioneered the commercial market in the 1980s.
The first of two 70-centimeter-resolution Pleiades optical Earth observation satellites recently entered service, and the second is scheduled for launch in 2013. Astrium Geo-Information Services markets that data commercially.
O’Connell declined to discuss whether the NGA’s letter changes the math of GeoEye’s offer, disclosed May 4, to purchase DigitalGlobe. “I’m not going to discuss that today,” he said.
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