DigitalGlobe Doubles Down on Government Business

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PARIS — Earth imagery and services provider DigitalGlobe on Aug. 2 said it is refocusing its sales efforts to concentrate on growing its government customer base, which is already more than 80 percent of its business, and will spend correspondingly less time on the commercial sector.

The Longmont, Colo.-based company also said it is revising upward earlier limits on the amount of capacity available to major customers with direct access to its satellites so as to boost revenue from what DigitalGlobe calls its Direct Access Program.

In a conference call with investors and a filing with the U.S. Securities and Exchange Commission, DigitalGlobe said its biggest customer, the U.S. National Geospatial-Intelligence Agency (NGA) on July 25 triggered the second year of a 10-year program that is expected to provide DigitalGlobe with some $3.55 billion assuming all options are exercised.

The NGA’s decision to start year two of the EnhancedView program was expected and will not result in an immediate increase in the monthly revenue DigitalGlobe receives from NGA. But the decision will help reassure investors that despite the recent and likely future government-budget fights in Washington, NGA’s image-buying authority remains intact.

DigitalGlobe competitor GeoEye of Dulles, Va., has a similar 10-year contract with NGA under the EnhancedView program.

DigitalGlobe operates three satellites. A fourth, called WorldView-3, is under construction and scheduled for launch in the second half of 2014. This satellite’s entry into service is one of eight conditions DigitalGlobe must meet to reap the full benefits of the EnhancedView contract.

The other seven milestones are seven ground stations that DigitalGlobe will add to its global infrastructure. Two of these were in place as of early July. Combined with an upgrade of an existing facility in the Antarctic, the two new image-receiving stations will permit the company to increase its image-download capacity by 34 percent and to reduce image reception time by 25 percent, to about 20 minutes, company Chief Executive Jeffrey R. Tarr said during the conference call.

Two other ground stations will be in place by the end of 2011, with the last three expected to be in service in 2012.

As part of its obligation under EnhancedView, DigitalGlobe is spending about $650 million on the WorldView-3 satellite, its launch, plus the seven new ground stations and other infrastructure investments to enable the company to better serve its NGA customer.

One of DigitalGlobe’s three operational satellites, QuickBird, in March was raised to a higher orbit to extend its service life by some 17 months, to late 2013. Operating in a higher orbit allows QuickBird to use less fuel to remain in position because of reduced drag from residual atmosphere. But it also makes its imagery about 7 percent less precise, DigitalGlobe has said.

Tarr assumed his post following the April resignation of Jill D. Smith. Since then, he said, he has been evaluating where the company’s strengths are. One early conclusion is that DigitalGlobe should focus on increasing revenue from its government customers, which account for 80 percent or more of the company’s annual revenue, rather than focusing on growing the 15 percent of nongovernment revenue.

A second conclusion is that DigitalGlobe should scrap its previous policy of limiting its Direct Access Partners’ access to the company’s satellites. These customers, Tarr said, usually sign long-term contracts in return for having direct access to the company’s satellites to send imagery commands in the partners’ assigned territories.

DigitalGlobe had thought that adding more Direct Access Partners would undermine the company’s goal of selling the same image to multiple customers. “We no longer see that as a constraint, or a reason to limit the sale” of contracts to new Direct Access Partners, Tarr said.

DigitalGlobe said Direct Access Partner revenue for the first six months of 2011 was $22 million, up from $14 million in the same period a year ago. The company has four Direct Access Partners, with a fifth expected to arrive in early 2012. In addition to adding new partners, DigitalGlobe will try to increase sales to the existing four, Tarr said.

DigitalGlobe reported flat revenue for the six months ending June 30 at $158.8 million but reiterated its earlier forecast that full-year 2011 revenue would be around $342.5 million, up 6.3 percent from 2010. EBITDA, or earnings before interest, taxes, depreciation and amortization, will be equivalent to at least 55 percent of revenue, Chief Financial Officer Yancey Spruill said.