DigitalGlobe Management Discusses Q2 2012 Results - Earnings Call Transcript

DigitalGlobe (DGI)

Q2 2012 Earnings Call

July 31, 2012 5:00 pm ET

Executives

David Banks - Vice President of Investor Relations

Jeffrey R. Tarr - Chief Executive Officer, President and Director

Yancey L. Spruill - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Jonathan Raviv

Andrea James - Dougherty & Company LLC, Research Division

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Mark W. Strouse - JP Morgan Chase & Co, Research Division

Elizabeth Grenfell - BofA Merrill Lynch, Research Division

Josephine Lin Millward - The Benchmark Company, LLC, Research Division

Chris Quilty - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good afternoon. Welcome to the DigitalGlobe Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Today's call is being recorded and also being broadcast live over the Internet at www.digitalglobe.com. In addition, there are supplemental materials that will be referenced on today's call available at the company's website. To access those materials, go on the Investor Relations section of the company's website at www.digitalglobe.com.

I will now turn the call over to David Banks, Investor Relations for DigitalGlobe.

David Banks

Thank you, Hope. Good afternoon, everyone, and thanks for joining our call today. With me on the call are Jeff Tarr, President and Chief Executive Officer; and Yancey Spruill, Chief Financial Officer.

Our remarks today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. Any forward-looking statements are based upon our historical performance and our current plans, estimates and expectations. We may make forward-looking statements about, among other matters, revenue and revenue growth, adjusted EBITDA and adjusted EBITDA margin, earnings per share, cash flow, sales pipelines and strategic initiatives. Inclusion of these forward-looking information should not be regarded as representation by us that we will achieve future plans, estimates or expectations. Such forward-looking statements are subject to various risks and uncertainties and assumptions. A number of important factors could cause our actual results or performance to differ materially from those indicated by such forward-looking statements. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which a statement is made or to reflect occurrence of unanticipated events. Please refer to our earnings release, which can be found on our website at www.digitalglobe.com, for a discussion of these risk factors. You should also refer to our earnings release for an explanation of the non-GAAP financial measures discussed during this call and for a reconciliation of those measures to the nearest applicable GAAP measures. These non-GAAP measures are indicators that management uses to provide additional, meaningful comparisons between current results and prior reported results and as a basis for planning and forecasting for future periods. For your convenience, we have posted slides on the Investor Relations section of our website at www.digitalglobe.com to give you an overview of the information we will cover today. [Operator Instructions]

With that, I'll turn the call over to Jeff.

Jeffrey R. Tarr

Thanks, David. Good afternoon, and thanks to everyone for joining us this afternoon. We had a strong second quarter, exceeding expectations. We grew revenue at a double-digit rate for the third straight quarter. We delivered significant EBITDA margin expansion, improvement in free cash flow and EPS growth, demonstrating the operating leverage in our business. And subsequent to quarter close, we announced our business combination with GeoEye.

Taken together, these developments mark a significant step forward in the transformation of DigitalGlobe into a high growth, recurring revenue, geospatial information business that delivers compelling value to customers and solid returns to shareowners.

On today's call, I'll first run through our financial highlights. I'll then discuss a couple of important strategic points about our combination with GeoEye and how it advances our long-term strategy. I'll then turn the call over to Yancey to provide more detail on our results and the financial aspects of our combination. Following Yancey, I'll make some closing comments, and we'll open the call up to your questions.

First, for the financial highlights. Second quarter revenue was a record $101.8 million, up 23% year-over-year with double-digit growth in both our Defense & Intelligence and Commercial segments. Our EBITDA margin in the quarter was 47.1%, up 720 basis points compared with the year ago. We generated positive free cash flow at approximately $4 million, up from negative cash flow of $17 million in Q2 of last year. And earnings per share was $0.21 compared with a net loss of $0.02 per share last year.

Our much improved EBITDA margin, free cash flow and EPS were all achieved despite incurring $2 million in expenses related to our combination with GeoEye.

In addition to our strong top and bottom line growth in the quarter, I'm pleased to report our 12-month backlog was up 32%, positioning us well for continued strong growth in future quarters.

Across the board, our performance has exceeded expectations and positions us well to both the balance of 2012 and 2013. I'll now turn to more detailed results by segment and customer category.

Our Defense & Intelligence segment grew 27% to $81.4 million, with 12-month backlog up 26% compared to prior year. Within the segment, our U.S. government business was strong, up 34% in total, driven by a step-up in revenue from the Service Level Agreement and by a strong contribution from our value-added services business, which generated more than $9 million in the quarter.

The only disappointment in an otherwise stellar quarter was a $208,000 hold back. This was triggered when we missed one metric by 0.4%. We've taken remedial action and are back on track to again exceed the metric going forward.

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