GeoEye Revenue Up Despite Satellite Antenna Issue

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PARIS — Earth observation imagery provider GeoEye Inc. reported sharply higher revenue and operating income for the first three months of 2010 and told investors that a defect reported in December aboard the company’s most important satellite is having no effect on the business.

Dulles, Va.-based GeoEye said that as of March 31 it had spent $104.2 million on its planned GeoEye-2 satellite, which could be launched in late 2012 or around 2016, depending on the structure of a long-term services contract GeoEye expects to win later this year with the U.S. government.

In a May 10 submission to the U.S. Securities and Exchange Commission, GeoEye estimated that the EnhancedView contract with the U.S. National Geospatial-Intelligence Agency (NGA) could oblige the company to produce a letter of credit for up to $280 million.

NGA would then contribute that amount to the construction of the GeoEye-2 spacecraft. But because the letter of credit would need to be backed by cash, GeoEye in March entered into an agreement with private-equity investor Cerberus Capital Management of New York. Cerberus will purchase preferred stock in GeoEye, and provide debt financing to the company, to enable GeoEye to meet the requirements of the NGA letter of credit.

GeoEye and its principal U.S. competitor, DigitalGlobe of Longmont, Colo., are both waiting for an NGA EnhancedView decision, expected around June.

The companies, both traded on the U.S. Nasdaq stock exchange, have been hesitant to describe EnhancedView, saying they are not certain how NGA will structure the contract. NGA is by far the biggest customer for GeoEye and DigitalGlobe.

EnhancedView will succeed the current NextView contract under which NGA pays GeoEye $12.5 million per month if the company meets the agency’s requirements for imagery quality and quantity.

In a May 10 conference call with investors, GeoEye Chief Executive Matthew M. O’Connell said GeoEye, which recently contracted with Lockheed Martin Space Systems of Sunnyvale, Calif., to build GeoEye-2, would slow or speed up payments to Lockheed depending on the EnhancedView award. ITT Geospatial Systems of Rochester, N.Y., has been working on the satellite’s imaging camera for the past two years under a separate contract. GeoEye’s early investment in the satellite is based on optimism that NGA will purchase more imagery from the company in 2013 if GeoEye-2 is available.

Until then, GeoEye-1, operational since February 2009, is the company’s principal moneymaker. The company operates three satellites and an aerial-imaging service.

GeoEye reported revenue of $80.4 million for the first three months of 2010, up 9.7 percent from the previous quarter and a 78 percent increase from the first three months of 2009. Operating income for the first three months of 2010 was $26.5 million, up 36.6 percent over the previous quarter.

GeoEye forecasts that revenue for 2010 will be around $315 million. The company said it had $292 million in cash and cash equivalents as of March 31.

Two-thirds of GeoEye’s revenue for the first quarter of 2010 came from the U.S. government, with the NGA NextView contract accounting for some $37 million. O’Connell said international sales during the period were 26 percent of the total.

The revenue figure was increased by what GeoEye Chief Financial Officer Joseph F. Greeves said was a one-time, $2.5 million catch-up payment by an international customer that had withheld revenue because of the GeoEye-1 antenna-pointing defect discovered in December.

The defect reduces GeoEye-1’s ability to take images and simultaneously downlink to ground stations other than the four stations operated by GeoEye itself. For the GeoEye-owned facilities, GeoEye-1’s imaging and downlinking functions are not performed simultaneously.

As a result, those international customers of GeoEye that have direct access to GeoEye-1 would be the most seriously affected by the antenna problem. O’Connell said the catch-up payment demonstrates that the problem, which marginally reduced NGA payments to GeoEye in January but not since then, will not have a material effect on the company’s future revenue.