World View 3 satellite. Credit: DigitalGlobe

PARIS — Geospatial imagery and services provider DigitalGlobe, having digested rival GeoEye, on Feb. 26 said it is hungry for more purchases and that acquisitions will be its primary midterm focus for its increasing cash flow.

Once Longmont, Colo.-based DigitalGlobe works through the one-time costs of the GeoEye deal, and completes payments on its WorldView-3 satellite, scheduled for launch in mid-2014, it will generate cash that will be used for external growth, Chief Executive Jeffrey R. Tarr said in a conference call with investors.

“As we look at deploying that cash, we believe the highest and best use, from where we sit today, is further acquisitions,” Tarr said. “We do see opportunities out there.”

DigitalGlobe said that the now-merged companies reported pro forma revenue of some $600 million in 2012, a figure that does not include GeoEye’s share of revenue from a key U.S. government contract because GeoEye’s piece of that contract was canceled in December.

In 2013, the new DigitalGlobe expects to increase its revenue by 7.9 percent, to around $648 million, the company said during the conference call. The merger will result in $100 million in annual operating-cost savings starting in mid-2014.

Total savings derived from combining the two companies are expected to be $1.8 billion in the coming years. Of that figure, $1 billion comes from reducing the number of satellites from the five currently in orbit to three.

These savings will start almost immediately as DigitalGlobe scraps a planned 2013 launch of the GeoEye-2 high-resolution optical satellite and instead puts the satellite into storage. DigitalGlobe’s own WorldView-3 satellite will remain on schedule.

DigitalGlobe said the GeoEye merger helps reduce the company’s reliance on the U.S. government, which with GeoEye will now account for just 50 percent of its revenue.

Tarr said the most immediate consequence of the new balance between U.S. government and other customers is that DigitalGlobe is not overly concerned about the effects of sequestration — a series of immediate, mandatory cuts to the U.S. federal budget.

“We are vastly more diversified than traditional defense industry players to whom we are sometimes compared,” Tarr said, adding that the core component of DigitalGlobe’s EnhancedView contract with the U.S. National Geospatial-Intelligence Agency (NGA) “is firmly embedded” in the government’s budget. “It is mission critical. It is a firm, fixed-price contract. It was right-sized in 2012 with significant cuts to the program.”

The right-sizing Tarr referred to was the cut to the EnhancedView contract imposed on GeoEye, which had nearly half the 10-year, $7.3 billion program signed in mid-2010. The biggest piece of EnhancedView, called the Service Level Agreement, accounted for 35 percent of DigitalGlobe’s revenue in 2012. GeoEye’s separate Service Level Agreement contract was canceled in December.

The NGA and U.S. government decision to reduce EnhancedView drove the two rivals to merger talks, with DigitalGlobe, whose EnhancedView contract was relatively untouched, coming out on top.

DigitalGlobe also reports what it calls “Value Added Services” revenue from the U.S. government that is not part of the Enhanced View Service Level Agreement. This revenue line has been growing as individual U.S. government agencies enter into shorter-term contracts. Tarr said it remains unclear whether the U.S. government budget quagmire will mean lower revenue for these services in 2013.

For 2012, DigitalGlobe reported revenue of $421.4 million, up 24 percent from 2011. While only one-third the size of its Defense and Intelligence revenue from the U.S. and other governments, DigitalGlobe’s commercial revenue, at 100.2 million in 2012, grew by 28 percent.

Assuming DigitalGlobe meets its NGA-mandated service targets, the company’s annual revenue from the EnhancedView Service Level Agreement should rise from $250 million per year to $300 million per year in 2014, after WorldView-3 is in orbit. DigitalGlobe in 2012 completed the installation of the last three of seven new remote ground terminals, also required by EnhancedView, in mid-2012 to increase imagery-collection volume and speed delivery.

The company said it has signed an agreement to add a sixth Direct Access Partner, and that this new contract will become effective in mid-2013. Direct Access Partners are U.S. government-approved allied governments or institutions that are allowed to order imagery directly from the DigitalGlobe satellites in a given geographic area.

Direct Access Partner revenue in 2012 totaled $54.1 million.



DigitalGlobe Expects GeoEye Merger To Add $400M in Sales

Astrium Services Girds for Competition with DigitalGlobe-GeoEye Combo

Imagery Firms Warned of Slower-growing U.S. Government Sales

Peter B. de Selding was the Paris Bureau Chief for SpaceNews.