DigitalGlobe Inc. Q4 2012 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Peter Appert - Piper Jaffray - Analyst : Thanks. Congrats on a great quarter. Jeff I just wanted to be 100% clear that -- 100% sure I'm clear on this. The 36% margin for 2013 is before the impact of the $90 million of incremental integration expense, correct? companies.

Question: Peter Appert - Piper Jaffray - Analyst : Okay. So it strikes me that that might be a little bit more margin dilution that I would've anticipated. What is driving the margin reduction from

Question: Peter Appert - Piper Jaffray - Analyst : Okay. And then just a follow-up is, the 50% margin or the 50% plus margin target, is that a number you would be comfortable thinking you could get to within the six quarter timeframe you've talked about?

Question: Peter Appert - Piper Jaffray - Analyst : Okay. Thanks very much.

Question: Andrea James - Dougherty & Company - Analyst : Hi, thanks so much for taking my questions. Just, and I'm still getting questions here about the guidance and the adjustments, just to make sure everyone's on the same page. So it's basically an EBITDA margin of about 20% to 21%, but then if you back out the $90 million in one-time costs it's 36%. Is that about right?

Question: Andrea James - Dougherty & Company - Analyst : Okay.

Question: Andrea James - Dougherty & Company - Analyst : And so then by 2015 the COGS and SG&A compared to 2013 on a GAAP basis would be about $190 million less than it is now or $170 million less than it is now because you take out the one-time and then you realize a bunch of synergies on top of that?

Question: Andrea James - Dougherty & Company - Analyst : Sure, so basically you have a bunch of one-time expenses in 2013 related to the combination, but then you are going to have synergies on top of that because your expense base is $400 million.

Question: Andrea James - Dougherty & Company - Analyst : And it will go down to about $300 million or $315 million. Your expense base. The COGS plus SG&A.

Question: Andrea James - Dougherty & Company - Analyst : Got it. No, that's clear. Thank you. And then finally can you talk a little bit about selling the excess capacity off of GeoEye-1 and how that is going and where you see the opportunity there?

Question: Andrea James - Dougherty & Company - Analyst : Thanks so much. Appreciate it. I'll hop back in the queue.

Question: Greg Konrad - Jefferies & Co. - Analyst : Thanks for taking my question. Can you talk a little bit about the level of cash post close and after refinancing and maybe the level of cash you could have by the end of 2013?

Question: Greg Konrad - Jefferies & Co. - Analyst : Okay, then I know you remain cautious on value added services but it was another good quarter and it seems to keep going up throughout the year. Was some of that extra sales from capacity loss through the cancellation of GeoEye SLA and do you see other opportunities out there to grow the government business?

Question: Greg Konrad - Jefferies & Co. - Analyst : And then actually just a quick follow-up, in terms of the analytics you talked about in terms of government, but I'm assuming that business doesn't have much traction in the commercial world so that's probably one of the bigger opportunities? Any progress there or steps to grow that business outside of government?

Question: Greg Konrad - Jefferies & Co. - Analyst : Thank you.

Question: Mark Strouse - JPMorgan - Analyst : Yes hi, it's Mark Strouse, on for Paul. Echo my congratulations for the 4Q results. If we can dig down into the 2013 guidance, are you able to share what the outlook is on the commercial side. If I annualize 4Q revenue of $35 million and add in $30 million or $40 million from GeoEye, just having trouble getting to the guidance range without taking down the expectations elsewhere.

Question: Mark Strouse - JPMorgan - Analyst : Okay perfect. And then just following up on the last line of questioning. Understand it's still early days for the value-added services within commercial, but are you able to maybe give a number as far as percentage of revenue 10%, 20%, 30% and even qualitatively how that's trended over the last couple of years?

Question: Mark Strouse - JPMorgan - Analyst : Got it. Okay. Thank you very much.

Question: Brian Ruttenbur - CRT Capital Group - Analyst : Thank you very much, great quarter. I have a couple questions I'm going to try and wrap into one so that I can get the biggest bang for my back. It's about Q1. Trying to understand if the revenue, the cost breakdown, can you give us the D&A in Q1 and where it's going to be normalized? Can you give us a revenue range for Q1 and an EPS on an actual basis GAAP and pro forma? And then finally just to try and put everything into one question, can you talk about if you are going to see any impact from sequestration? companies.

Question: Brian Ruttenbur - CRT Capital Group - Analyst : But you can give D&A guidance right?

Question: Brian Ruttenbur - CRT Capital Group - Analyst : Okay thank you.

Question: Jim McIlree - Dominick & Dominick - Analyst : Thank you and good afternoon. Yancey I hate to be a pain on these OpEx numbers but I just want to make sure I understand. $100 million of combination costs is the total or the amount you'll expect to spend in 2013? And then secondly, does that include the $25 million of transaction costs that you will incur this year or have incurred this year?

Question: Jim McIlree - Dominick & Dominick - Analyst : I think you answered it. It was the $25 million of transaction costs is not part of the $100 million of combination costs.

Question: Jim McIlree - Dominick & Dominick - Analyst : Great.

Question: Jim McIlree - Dominick & Dominick - Analyst : And then just one thing, it's a quickly. So GeoEye-2 gets completed, and you put it in storage. You don't depreciate that correct? It only gets depreciated when you launch it and put it in service?

Question: Jim McIlree - Dominick & Dominick - Analyst : Great, thanks a lot. companies.

Question: Chris Quilty - Raymond James & Associates - Analyst : Thanks. I wanted to follow up on the GeoEye-1 question, if I recall 50% to 60% of the capacity on that satellite was reserved for the NGA and that was freed up obviously in December. So I know you didn't give specific capacity available there but can you give us a sense of how successful you've been in reselling that. Do you expect that it will be on the timeline that you have experienced in the past with DAP customers or do you think there's a lot more incremental upside in there? And is any of that in your forecast, the implied forecast you've given us for this year?

Question: Chris Quilty - Raymond James & Associates - Analyst : Got you. And regarding sequestration, the SLA it seems is safe but value added services would appear to be the part of the government business that might be at risk. You've done exceptionally well in the last several quarters here whereas a lot of defense-related companies have already felt effects in the past quarter or two of we will call it sequestration planning. Does the fact that your business, value-added services been doing well give you a strong feeling that you won't be impacted?

Question: Chris Quilty - Raymond James & Associates - Analyst : Okay and then a final for Yancey and David just on the results here on the quarter. I know we've gone through an evolution in the past two years from adjusted EBITDA to EBITDA but clearly I look at a quarter like this where in my view $67.8 million is kind of an EBITDA number less acquisition expenses is kind of the operable number we should be focusing on? How do you plan on positioning your earnings here in terms of what you want to see reported? companies.

Question: Chris Quilty - Raymond James & Associates - Analyst : Got you and I known Yancey, you didn't provide any sort of segment level pro forma, but as we all get busy about building our models from the bottoms up again, do you plan on classifying GeoEye's segment reporting into the classic DigitalGlobe or might there be something different that you come up with?

Question: Jon Raviv - Citigroup - Analyst : Jon Raviv, on for Jason, thanks for taking the question. I wonder if Jeff and Yancey you could talk about cash deployment a little bit going forward both in the medium term where I assume a lot of your focus is going to be on integration. But thereafter where do you see, expect to see some pretty good cash levels thereafter and where you see that cash going in terms of M&A or perhaps some shareholder returns? Thanks.

Question: Jon Raviv - Citigroup - Analyst : Okay, thank you.

Question: Andrea James - Dougherty & Company - Analyst : I'm here. Can you hear me?

Question: Andrea James - Dougherty & Company - Analyst : Okay, great. Sorry I have two follow-ups. If I get you're sticking to talking about EBITDA because you don't have a good D&A yet and I know your interest is going to be capitalized according to the satellite spend, but I just thinking we do have to publish tomorrow and it's going to get accumulated to a consensus GAAP figure, so I was just wondering, could we assume D&A of about $200 million and then maybe a GAAP EPS loss of like $0.90 to $1? Is that thinking along the right terms there?

Question: Andrea James - Dougherty & Company - Analyst : Okay and just another kind of fun one. I know Facebook has been talking about getting into mapping, Amazon.com, there's a lot of brand names out there kind of talking about that, and maybe you could talk about how DigitalGlobe would play a role in sort of this migration towards more mapping and LBS especially with these guys? companies.

Question: Andrea James - Dougherty & Company - Analyst : Thank you so much.