BERLIN — Satellite imagery and services provider DigitalGlobe on May 1 said it has received formal word from its biggest customer, the U.S. government, that the company will receive its previously scheduled monthly payments for the fiscal year ending in September but that there is still no indication of what next year looks like.
In a conference call with investors, DigitalGlobe officials also said that despite indications that the U.S. National Geospatial-Intelligence Agency (NGA) will be forced to make a sharp reduction to its payments for fiscal year 2013, the company is currently generating more revenue, not less, from the NGA than it had previously forecast.
The increased U.S. government revenue and rising sales to other government and commercial customers enabled DigitalGlobe to raise its 2012 revenue forecast to a 14 percent increase over 2011 rather than the 10 percent increase previously projected.
DigitalGlobe reported $339.5 million in revenue in 2011, a figure that does not include some $93 million in NGA revenue that the company deferred pending final adjustments. DigitalGlobe, along with rival GeoEye, provides imagery and related services to the NGA under a program called EnhancedView.
Longmont, Colo.-based DigitalGlobe this year renegotiated its 2010 EnhancedView Service Level Agreement with NGA in a way that provides more imagery to the U.S. government and an increase in NGA’s monthly payments.
As has been the case for several months, DigitalGlobe officials in the conference call were unable to say what, if anything, the NGA will do about EnhancedView for the fiscal year beginning in October.
DigitalGlobe and GeoEye of Herndon, Va., which are dividing about evenly the 10-year, $7.3 billion EnhancedView contract, have watched their stock prices gyrate with the latest word, credible or not, of how much EnhancedView will be cut starting in the U.S. government’s fiscal year 2013 budget. The Pentagon said early this year that its commercial imagery purchasing program was in for significant reductions beginning in 2013 as part of a broader initiative to reduce spending.
Government and industry officials had said the NGA’s fiscal year 2012 budget reduced EnhancedView funding by $50 million. But DigitalGlobe Chief Executive Jeffrey R. Tarr said that NGA on April 30 sent a formal notification that DigitalGlobe’s fiscal year 2012 Service Level Agreement will not be subject to any budget cuts.
While conceding that he had no information about fiscal year 2013, Tarr sought to portray the NGA decision for the current fiscal year as “a validation that commercial imagery is critically important to the mission of defending our nation, and that performance and value to taxpayers does matter.”
“We will share our view on 2013 when we have the information,” Tarr said.
DigitalGlobe stock rose by about 8 percent following the conference call.
GeoEye officials were not immediately available for comment on whether their company, too, has heard from NGA about fiscal year 2012 funding.
Tarr said the revision to the Service Level Agreement that was concluded with NGA this year is unrelated to the broader EnhancedView funding issue. He declined to describe exactly what the revision was, saying the contract is classified.
DigitalGlobe Chief Financial Officer Yancey L. Spruill said the revision would give more data to NGA in part by keeping the company’s WorldView-2 satellite in its current orbit rather than lowering it, as had been envisioned under the EnhancedView contract.
Lowering WorldView-2’s orbit would have sharpened its ground sampling distance, allowing it to detect objects of 41 centimeters in diameter, compared with the current 46 centimeters.
But the sharper resolution would come at the cost of a lower daily harvest of imagery given the lower orbit. Leaving the satellite where it is, Spruill said, will allow DigitalGlobe to deliver more imagery both to NGA and to the company’s growing customer base outside the U.S. government.
DigitalGlobe operates three satellites in orbit. To meet the EnhancedView program’s milestones, it is building a WorldView-3 satellite, scheduled for launch in mid-2013, along with seven additional remote ground stations to speed delivery of imagery. DigitalGlobe recently disclosed that WorldView-3 will include a shortwave infrared imager, a sensor added following consultation with NGA.
Tarr said access to the shortwave infrared data likely will be subject to restrictions beyond sales to the U.S. and allied governments.
The turmoil over future EnhancedView funding stands in contrast to the double-digit growth in most of DigitalGlobe’s other businesses. The company recently added a fifth Direct Access Partner to its list of institutions that get direct access to DigitalGlobe satellites and agree to make predetermined payments.
Direct Access Partner revenue for the three months ending March 31 was $12.8 million, up nearly 31 percent from a year ago. Revenue from commercial customers was up nearly 22 percent for the period, to $18.6 million, as location-based services providers and other companies made use of DigitalGlobe’s library of images.
Despite a drop in so-called Value-Added Services revenue from the U.S. government, total company revenue from defense and intelligence agencies was up 10 percent in the first three months of 2012 compared with the same period a year ago.
For the 12 months ending next Sept. 30, DigitalGlobe expects to receive $250 million in Service Level Agreement revenue from NGA. This is in keeping with the original terms of the EnhancedView contract, which set annual Service Level Agreement revenue at $250 million per year for the first four years, rising to $300 million per year for the final six years of the 10-year arrangement.
EnhancedView was structured as a one-year base contract with options for nine one-year renewals.
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