Maxar Technologies Inc.

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

Andrea James - Dougherty & Company LLC, Research Division Howard A. Rubel - Jefferies LLC, Research Division Peter P.

Appert - Piper Jaffray Companies, Research Division Jonathan Raviv Brian W. Ruttenbur - CRT Capital Group LLC, Research Division Paul Coster - JP Morgan Chase & Co, Research Division James Patrick McIlree - Chardan Capital Markets, LLC, Research Division Chris Quilty - Raymond James & Associates, Inc., Research Division Josephine Lin Millward - The Benchmark Company, LLC, Research Division

Thank you, Bonnie. Good afternoon, everyone, or pardon me, good morning/afternoon, and thanks for joining our call today.

With me on the call are Jeff Tarr, President Chief and 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 this 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 the statement is made or to reflect occurrence of unanticipated events.

Please refer to our earnings release, which can be found at 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 Instruction] With that, I'll turn the call over to Jeff.

Thanks, David, and thanks, everyone for joining us today. I'm pleased to report another very good quarter for DigitalGlobe, characterized by accelerating growth, margin expansion and positive free cash flow.

Today, I'd like to talk about a few of the major contributors to our growth, the drivers of margin expansion and why we're enthusiastic about Q4 in 2014. I'll then pass the call over to Yancey, who'll walk through our results in more detail and update guidance.

Now on to our results. First, our growth.

During the quarter, we grew revenue 54% versus prior year to a record $164.8 million, with organic growth of 25% and pro forma growth of more than 9%. Both U.S.

government and Diversified Commercial contributed to this strong and improving performance. The single biggest contributor to our growth this quarter was the U.S.

government and specifically, Global-EGD, which is reported within our value-added revenue stream. This offering is revolutionizing how we process and deliver our imagery to our U.S.

government customers. Now, rather than delivering raw, unprocessed pixels to NGA for processing and dissemination, we at DigitalGlobe are rapidly processing our daily imagery collections on our end in a highly automated fashion.

Further, we're also now hosting and delivering it, along with our archive, directly to end-users across the U.S. government within hours of tasking.

This approach delivers more value at lower cost to the taxpayer and more importantly, gets the imagery in the hands of the people who need it far faster. Looking ahead, this capability is also foundational to the creation of new value-added services for both government and commercial customers alike.

With Global-EGD and the full power of our constellation and archive also in the hands of our own analytics team, we are now seeing new opportunities in this area of our business too. While value-added services will always be somewhat more variable given the ups and downs of government spending than the EnhancedView SLA, the recurring revenue nature of this new service and its strong value proposition to the customer give us more visibility and confidence going into Q4 in 2014.

The second largest contributor to our growth is Location Based Services, where we play an important role, enabling the creation of web-based maps and new consumer-oriented geospatial applications. Growth within LBS is broad-based and was fueled by the addition of a new account and by our investments in innovation and quality.

Looking forward, we expect a new offering for this segment, Advanced Country Coverage to join our Global Basemap as a meaningful driver of growth. Advanced Country Coverage, or ACC, allows customer to purchase imagery at scale that's tailored to meet their particular quality specifications, such as currency, time of year, cloud cover or virtually any other attribute.

While other verticals was down on a pro forma basis due to GE Aviation and the conversion of a customer from a onetime data sale last year to a more promising distribution arrangement, there were several very positive wins in this customer group, including the renewal of an agreement with the Satellite Sentinel Project, a pipeline monitoring project in Africa that leverages our analytics capability and Tomnod, and the renewal with an NGO that monitors infrastructure projects in hostile regions of the world. Other elements of our business contributed to organic and total growth, albeit in some cases less than the usual on a pro forma basis, due to primarily changing contract terms, GE Aviation and other onetime events.

Importantly, we grew our 12-month backlog by 41%, driven by U.S. government value-added backlog that expanded 17-fold to $97 million and Diversified Commercial backlog that grew 46% to $157 million, giving us good visibility into the fourth quarter and most of 2014.

Looking back at the quarter from a revenue perspective, what I'm most proud of is that our investments in product innovation and quality are moving us beyond pure imagery and to value-added recurring revenue information services that are meaningfully contributing to our growth. This is a topic we'll spend more time on next month at Investor Day.

Turning now to margin expansion. We improved our EBITDA margin by 930 basis points sequentially to just under 40%.

This was driven by a combination of revenue growth and continued strong execution against our 18-month integration plan. After merely 8 months since closing the combination on January 31, we've removed more than $100 million of annualized expense, including more than $80 million of operating expense and $20 million of financing cost.

During these first 8 months, our efforts have focused primarily on cost reduction in a number of key foundational milestones, such as consolidating regional ground terminals, office and production facilities and the flight operations infrastructure that controls our satellites. The work we'll complete over the subsequent 10 months will produce the balance of the cost savings, but more importantly, will focus on creating a seamless customer experience, optimizing our constellation and scaling our business.

In other words, this next phase will be primarily about growth. Finally, I'm pleased that our growth in revenue and our margin expansion enabled us to generate positive free cash flow despite our continued substantial investment in onetime integration expenses and satellite construction.

I know you all join me in looking forward to this time next year when integration investments and satellite construction are behind us. At which time, we expect to demonstrate the strong free cash flow generation potential inherent in our business model.

With that, let me turn it over to Yancey for a discussion of our financials.

Thanks, Jeff. Third quarter was very strong with accelerating revenue growth, significant margin expansion and positive free cash flow.

Our success is driven by our continued ability to serve customers, while over-delivering on our integration plan. You will find additional detail on the quarter in our earnings supplement on the Investor Relations section of our website to help with your review of Q3.

Revenue for the quarter was $164.8 million, up 54% year-over-year, driven by organic growth of 25% plus $31 million of acquired revenue. Pro forma revenue growth was 9.3% based on last year's Q3 pro forma revenue of $150.8 million.

This represents an acceleration of 600 basis points from Q2 pro forma growth. While not perfect as a proxy for the revenue trajectory of the business, we have introduced a pro forma metric to help guide you in your understanding of our historical performance.

U.S. government revenue in the quarter was $100.8 million, up 53% compared with Q3 2012 and 23% pro forma.

Included in that revenue was $56.9 million from our EnhancedView Service Level Agreement, up 10.7% and $37.6 million from value-added services, up 4.5x the revenue we generated last year and up 56% pro forma. Much of the value-added services growth was driven by Global-EGD.

This service is expanded from a limited single-country offering just a few years ago, to a full web hosted application of our complete daily imagery collections from around the globe. This growth reflects the impact of completion of a multi-year period of investment in a platform that has scaled dramatically to meet expanding customer requirements.

As a reflection of this, our U.S. government value-added services 12-month backlog now stands at $96.8 million, about 2.5x the $38.4 million we reported last quarter.

This backlog reflects not only growth in Global-EGD, but also our Analytics business and other services outside the SLA. Diversified Commercial revenue was $64 million in the quarter, up 55% on a reported basis, and down 7.2% pro forma.

Diversified Commercial revenue represented 38.8% of total revenue in the quarter, up 40 basis points year-over-year. Through 3 quarters, Diversified Commercial revenue was 41% of total revenue, up 330 basis points compared with the first 9 months of 2012.

On a pro forma basis, 3 nonrecurring discrete deals worth $11 million in Q3 2012, across International Civil Governments and other verticals, impacted year-over-year organic and pro forma results. First, is an International Civil Government customer, who received significant deliveries from both DigitalGlobe and GeoEye last year, who had lower deliveries this year, but remains a significant customer in a key civil government market.

The second related to the previously disclosed exited GE Aviation contract, and the third related to a customer that has converted from a large, discrete project delivery in Q3 last year to a growing distribution partnership with significant growth opportunity. Our next 12-month revenue backlog increased 40.9% to $515.8 million, reflecting continued momentum across our business.

Key drivers of growth were Global-EGD, as I mentioned earlier, and Diversified Commercial where backlog was up 46% year-over-year. In Q3, we generated $65.6 million of adjusted EBITDA, which excludes $11.1 million of combination-related expenses.

This resulted in a margin of 39.8%, up 930 basis points sequentially, which is reflective of the powerful leverage our business demonstrates driven by organic revenue growth, coupled with the realization of synergies. We expect further margin expansion in the fourth quarter as we see the benefits from sequential revenue growth and synergy realization.

Through the end of Q3, we have achieved approximately 83% of the initially projected $100 million in total annualized operating expense savings from the combination. Synergies are driven by labor savings, facility closures and the consolidation of IT systems in certain contracts.

We realized approximately $18 million of benefit from synergies in Q3. Depreciation and amortization was $59.4 million in the quarter, up $30.5 million year-over-year.

About 80% of the increase reflects depreciation from acquired assets, and the balance from infrastructure replaced in the service earlier this year to more closely integrate our operations with NGA. Net interest expense was $700,000 in the quarter.

This reflects capitalization of approximately 95% of the $13 million in quarterly interest on our debt and $2 million of amortization of our debt discount and deferred financing fees. We expect to capitalize interest at these levels until we complete GeoEye-2 and launch and commission WorldView-3, after which time, we expect to expense most of our interest.

The tax benefit in the quarter was $3.8 million with an effective tax rate of 67.9%. This higher than normal tax rate was principally due to onetime discrete items, representing a large percentage of our pretax loss.

We expect our tax rates to normalize to approximately 40% as we generate pretax income in Q4 and into 2014. We expect our effective tax rate for the full year 2013 to be approximately 36% before discrete items.

Net income and EPS in the quarter were impacted as expected by restructuring and other integration-related expenses of $11.1 million. Restructuring and integration-related spending now totals $73.2 million for the year, of which approximately $60.1 million has been expensed and $13.1 million has been capitalized.

To summarize, items related to the combination accounted for $0.05 of after-tax impact to the quarter's reported loss of $0.04 per share. We were pleased to generate free cash flow of $8.7 million in the quarter.

This return to positive free cash flow is earlier than expected, and we continue to expect cash to turn persistently and significantly to positive free cash flow as we ramp down spending associated with completing the satellites and integration next year. The $51.5 million sequential improvement resulted principally from revenue growth and synergies driving margin expansion and the timing of certain contract payments.

Q3 CapEx was $67.6 million, of which $31.5 million was related to construction on the WorldView-3 and GeoEye-2 satellites, $6.8 million related to the combination and the balance for capitalized interest and other infrastructure maintenance. Finally, we are revising our 2013 outlook.

We are updating our expectations for adjusted EBITDA margins, which exclude combination-related expenses, to at least 36% and at least $228 million for the year, with strong sequential margin improvement in the fourth quarter. We are targeting the bottom of our original $635 million to $660 million revenue range.

Reaching our target is dependent on 3 primary factors. First, no material impact on our U.S.

government Analytics business as a result of the government's fiscal situation. Second, we're able to close and deliver on the current opportunities in our fourth quarter pipeline.

And third, we are able to bring our next DAP customer online in the quarter. The timing of activating the customer is based upon their readiness, and so is not entirely in our control.

And last, we expect approximately $240 million in capital expenditures. The $10 million increase from our prior outlook is related entirely to modest enhancements we are making to GeoEye-2.

And with that, I will now turn the call back to Jeff.

Thanks, Yancey. When I look back at the first 3 quarters of this year, I'm proud of the progress our teams made about halfway into our 18-month integration effort.

With pro forma revenue growth now again in excess of 9%, a healthy backlog and our successful cost takeout beginning to be reflected in strong margin expansion, we believe we are well positioned for an even better Q4 in 2014. And with our progress in integrating our industry-leading capabilities, we are better positioned than ever to achieve our vision of becoming the indispensable source of information about our changing planet.

Before opening the call up for questions, let me add that our results this quarter were delivered despite the fact that many of our Colorado-based team members endured significant personal hardship, as they dealt with the historic flooding that impacted much of our state. We're fortunate that as always, our team kept our purpose, vision and values front and center, and continued to serve our customers without interruption despite, in many cases, being displaced from their homes.

While we're experienced in supporting first responders aiding those impacted by natural disasters around the world, it was a humbling experience to serve the community in which so many of our team members live and work. I'm grateful to each of our team members for their steadfast commitment to our customers, our shareowners and each other.

With that, operator, let's please open the call up for questions.

Congrats on the margin performance. Can you dive more into your commercial revenue performance in the quarter and also your expectations for Q4?

It looks like you did do a year-over-year comparison, but I was wondering if you could do a sequential comparison over Q2, because it was down sequentially, and what some of the differences are? And then maybe talk a little bit about what you expect it will look like in Q4?

So why don't I start, Andrea, and then Yancey will fill in the balance of your question, especially on the sequential change. In terms of Commercial, as Yancey pointed out, there are 3 discrete items that accounted for $11 million.

One is GE Aviation, last year, this was a big quarter for GE Aviation. The second was the transition of one customer from an occasional purchase of data actually from both companies over time, to what is now a more interesting and, long-term, more compelling distribution arrangement that gives us access to their customers and the ability to sell our products directly.

And the third was, as Yancey pointed out, a very large civil government project that both companies had a piece of a year ago last time. And that's still in the pipeline for a refresh of that project.

But there wasn't a meaningful refresh element in the third quarter of this year. I'd say absent these items, our Commercial business would have grown double -- Diversified Commercial would have grown double digits this quarter.

So for that, combined with the strong growth in our commercial backlog, gives us ample reason to see this as a temporary anomaly.

In terms of addition to that, we had sequential decline in DAP. Some of that was related to some catch up we had in Q2 from prior quarters.

Some of that is minute usage, and we had some difficult weather conditions in some of the DAP areas. So that explains that, nothing unexpected there.

The other items mentioned by Jeff and other verticals really impacted the sequential issue there. And again, when we look at backlog, we're introducing pro forma to help with transparency on a historical basis, not the best proxy.

And I think when you look at our backlog growth and how we're positioned going into Q4 and into 2014, we're pretty comfortable that the sequential issues are transitory.

And on that the commercial part of the backlog is down sequentially, is that a timing thing? I think you guys had said you signed a bunch of new customers in Q1 and I was just wondering how do you reconcile the pipeline being strong with the sequential backlog being down on commercial.

A couple of points of there, Andrea. First, as we talked about at last quarter, we're a -- as a part of the acquisition, we have a lot of DAP customers that are on single-year contracts, so very high renewal rates.

But there's a timing issue related to, as you progress during the year, the backlog erodes. And same with a lot of our commercial customers.

Unlike governments -- U.S. government, we have long-term contracts, a lot of our commercial contracts tend to be single-year and so as you progress during the year, there is a timing element.

So as you point out, there is a sequential decline. But when we look at the totality of the customer base and the expected renewals, which again a very high renewal rate, that would add another $117 million or so to that number.

So we sequentially would be up. And I think that just reinforces the fact that when you look at backlog is up and when you look at the notion of these expected renewals, we have a very strong business and well positioned as we get exiting this year and into next.

Andrea did such a nice job on the revenue side, I might want to go with the cost for a moment and the synergies. Jeff, if we look -- I guess, 2 points, one is, it appears as if you're clearly ahead of schedule and it also appears as if the costs to get there are a little bit better than you've thought.

So if we look into Q4, and even into next year, we might see synergies on the order of $25 million possibly in the final period of the year and maybe you can elaborate beyond that.

Sure. We're about, as we indicated, we've removed about 80% of the target, the $100 million of OpEx synergy.

So that's been removed. The timing of that varies throughout the quarter.

So it typically takes a quarter to see that fully in the EBITDA margin, which you really saw in a significant way this quarter and should see that continue into next quarter. In terms of the synergy investment itself, we said when we brought the 2 companies together that we expected the onetime investment to be somewhere between 125% and 150% of the savings.

So our savings estimate remains at about $100 million. And -- very strong.

We feel very, very good about that. And that 125% to 150% is still a reasonable estimate.

It's important to note that the synergies in the investment are not just about cost, but they're also about revenue. So we've taken a lot of the expenses out, 80%, 20% more to go, but we are -- as I indicated, we also have work to be done on the customer experience and on the scalability of the elements of this that drive the revenue.

They're both elements of the program. And both are proceeding very well and should be completed on schedule within 18 months of that January 31 close date.

But I can't get you to say you're declaring victory yet?

Halfway is through, too soon to declare victory, but certainly going very, very well.

So I think what Howard was kind of getting to was if you're 83% of the way towards getting the synergies, it might suggest that you could get to the 50% margin target a little bit sooner than the second half of next year. What do you think of that theory, Jeff?

Well, I think the way to think about that, Peter, is we have a lot of seasonality in our business through the course of the year. So the first half is typically seasonally not as strong as the second half in revenue.

And it's the confluence of both revenue growth and cost takeout that gets us to that 50% EBITDA margin. That's how I'd think about it.

Okay. That's a fair enough.

And then you cite a 25% organic revenue growth number, and I'm not just sure how you get to that number. Can you take us through the arithmetic?

Yancey, can you do that please?

Well, I mean, when you look at it on a reported basis, what our business generated last year in total versus what our legacy DigitalGlobe revenue this year, and the systems are separate enough that we are up 25%. The principal driver of that is we've got some growth in the SLA, we've got significant growth in EGD and we had sort of modest growth on the commercial side through DAP and other areas.

And so when you add all those up, that's how you get to the 25%.

Okay. So you're saying DigitalGlobe, on a stand-alone basis was up 25% and then there was some degradation of overall revenue performance because of the declines at GeoEye?

Correct. And we have a slide in our supplement that shows the sort of organic from the 2 elements on standalone basis.

I think it's the first or second slide in the appendix. It shows that there was a pretty meaningful decline in the legacy GeoEye, and again it's easier for us to report this now because the systems are separate.

In this quarter we would anticipate consolidating. So it gets a little bit more difficult as we complete the integration but that -- those numbers for this quarter, we have those on our site.

Okay. And just one last thing.

Can you talk all about or will you talk it all perhaps at the Investor Day about some of the things you got in terms of new applications, backlog, et cetera that could speak to your confidence and your ability to accelerate the commercial revenue growth?

Yes, we sure will. We'll be sharing some new product offerings, we'll be sharing some work we're doing with customers today, that I think will help understand we're long-term.

You can see our innovation as a growth generator. And in terms of the near term commercial opportunity, that is evident in the backlog, and we feel good about it.

It's actually Jon Raviv on for Jason. I was wondering, Jeff, if you could just touch upon sales mix going forward.

This quarter you were about 61% U.S. government.

You've talked about it before, but EGD has really stepped up here and then you have the EV step up on the horizon as well. What should we think about kind of organic mix going forward?

And then on a related basis, once we get into that CapEx holiday, how do you think about cash deployment, whether M&A could move that sales mix in one direction or another?

Okay, super. Jon, first of all, on diversification, this is probably a good moment on the heels of the big success we're seeing with our government value-added business to point out that our job is to maximize opportunity in each segment.

And the strength of our government business is great news for the company and for shareowners, even if it represents a short-term, I wouldn't call it a setback, but a short-term shift in the mix of revenue. We feel great about our government business, and it's growing, it's strong, it's largely recurring -- increasingly recurring and really built on a foundation of innovation and deep integration into the customer's workflow.

Over the longer term, we also see a very strong and even near term a strong growing Diversified Commercial business too. Some quarters Diversified Commercial will be stronger and some quarters government will be stronger.

We're seeing double-digit growth over any meaningful period of time in both, seeing double-digit growth in the backlog. So we once said, we said not long ago about 50-50.

That's not an unreasonable midterm, near-term expectation. And I think the more important thing to look at if you're focused on customer concentration, recognize the U.S.

government is not a monolith. U.S.

government is an accumulation of many customers and contracts, and the largest contract we have, the EnhancedView SLA, year-over-year has shifted from around 50% of revenue to a little less than 35% of revenue despite the fact that that's growing too. So diversification is a good news story as we see it.

On uses of cash, and asking about M&A, we feel really good about our M&A pipeline. We see opportunity.

And I'm really proud of the capability our team has built here to do integration. I see the muscles that we've exercised and the people and processes that we've put in place with the GeoEye combination, will allow us to integrate future combinations and acquisitions extremely well.

So we're working that pipeline, we're going to remain massively disciplined with regard to valuation and fit with our business model, and we'll update you as time progresses. In terms of uses of cash, that is absolutely our top priority for uses of cash.

Again, with the caveat that acquisitions will only be done if they create shareowner value. Organic growth, where there are opportunities, also a use of cash.

And then beyond that, our next focus is going to be to rightsize the balance sheet with the size of the business with an initial focus on delevering. And that's how we see it.

How much restructuring do you have left for the fourth quarter? Is it going to be what you had thought or less?

Well, you're seeing sequential declines in the spending to get at the synergies, but as we've talked about and as Jeff just mentioned, the next phase, there's been a lot of people exiting the business in the first phase, this next phase is about consolidation of IT, and making these systems work in a way that can scale to the revenue growth targets that we have over our intermediate and long-term. And so we'll still have a pacing of spend in this quarter.

It should be a little bit lighter, maybe a little bit higher on the capital side. And we'll see that continuing to trend down.

But there will be a level of spend through the 18 months to get us to a place where we can continue to grow at the rates we want to grow and serve our customers in the best way possible.

So it will be down from the third quarter? Fourth quarter will be less than the third quarter, is that correct?

It will come down a little bit, but it will...

And then it will go on through kind of first and second quarter '14?

Yes.

At a kind of slope or downward sloping...

Well, I don't want to talk about the spend profile in 2014. I think the key is it will be down a little bit in this quarter, but there will be spend, and there's going to be spend for a few more quarters, we're only halfway through.

And again, this is about revenue growth in this next phase versus just absolute cost takeout, which has been the principal focus the first 3 quarters of the combination.

Okay. The other question I had was on government, that's great, the levels that you're achieving.

Is that sustainable at these levels going forward? From the sound of it, this $100 million run rate is very much sustainable and can grow or is it going to be a flat line?

We absolutely believe it's sustainable. As I indicated, it's a recurring revenue business.

You can see the strengths in the 12-month backlog. And we're deeply and increasingly embedded in the customer's workflow and delivering an incredible value to taxpayers that makes a real difference in keeping the nation safe.

So we feel really good about where it is, and we feel good about the opportunity ahead.

The first one, I just want to drill down a little bit on the value-added products and services a bit more, if you don't mind. Can you just give us some sense of, when evaluating that $7 million of backlog, how -- to what extent is it a function of the number of users, volumes, other variables that go into that?

And in passing, Jeff, perhaps you could you just give us an example of how the analytics team is engaged and what the revenue model to sustain [ph] that engagement is? And then I have got one quick follow-up.

Okay. So it's a contract.

The contract runs through the government's fiscal year. And it's a firm -- fixed price that's recognized largely ratably, not entirely, but largely ratably.

And we see it as a -- and it's serving a growing base of customers across the government. In terms of usage, we see dramatically growing usage on this service.

Usage doesn't drive revenue, but usage does drive customer retention and as it would in the Commercial business. So we feel great about it.

And as I also pointed out, the innovation in this area, we believe, overtime, will enable new product offerings both for the U.S. government and for our commercial customers.

So your second question was...

Analytics.

Analytics. So our Analytics business has a lot of potential to it.

It's not growing as fast as we believe it has the potential to grow, and that is largely due to -- government pressures are probably most acute there. But it's not declining.

We do have a little bit of growth. We feel really good about the business.

We are delivering a strong value proposition. The customers with which we are embedded, and we're deeply embedded with the customers here, have used words like describing us as their secret weapon.

Our team is very talented, has tremendous tools and access to the DigitalGlobe constellation. We're doing some really interesting work in human geography.

We'll talk about that at our Investor Day next week (sic) [next month]. We're doing a lot in predictive analytics fueled by our software and our data.

We'll share some on that as well. And we believe -- and also I'll say we're making progress on contract vehicles.

So there are places where we've been a subcontractor, where we're making progress and moving -- and actually have moved to a prime contracting relationship, and that also bodes well for the future. So long-term analytics, we think has significant potential still -- in the U.S.

government and potential outside the U.S. government with our Diversified Commercial customers.

And you also in your prepared remarks talked of a 46% increase year-on-year in diversified backlog, which obviously is important because it gives us some confidence that the Commercial business can grow from here sequentially or year-on-year. When you cite that number, is that purely organic or are we comparing the total backlog for GeoEye and DigitalGlobe from this time last year or is it -- just, what's the basis for the 46%?

That's a reported basis. GeoEye did not track that metric as a standalone company and didn't report it.

And so that's last year's number versus this year's number. And we think it's a very good -- and it's been a very strong indicator of year-over-year growth, and we're very comfortable with where we're positioned going into Q4 and 2014.

Can you help me understand the size of EGD? Is it a simple estimate to say that increase in the value-added services is -- 75% of that increase is due to EGD?

A substantial portion, a majority of the growth came from EGD. And it came because we have a stepped up contract modestly in terms of dollars, but we've been investing in infrastructure that's ramping volumetrics.

We reached a threshold of volumetrics in Q3 that has allowed us to recognize a substantial portion of the cash we've received, plus there's some catch up from prior cash received in terms of deferred revenue that we're now amortizing. But the significant portion of the EGD drove growth in value-added services.

Analytics was relatively flat on a year-over-year basis. The other thing I would point out is the backlog is about $100 million for the next 12 months.

The reported revenue in Q3 was slightly ahead of that. There was a little bit of a catch up as we reached that threshold capacity in Q3.

And I think that $100 million number on this relatively straight-line basis reflects what the quarterly run rates will be going forward.

The $100 million backlog, you're sort of implying more of a $25 million run rate?

Yes, versus the $27 million plus that we reported in the quarter. We ramp volumes to the contractual limit where we're sitting now, and that will allow us to have a cleaner revenue profile going forward.

And so there was a little bit of catch up in Q3. And that $100 million, if you straight line that, will be more reflective of revenue versus the reported revenue in the quarter.

Got you. And just for context, the original EnhancedView contract had a 10-year $750 million value-added service bucket, which kind of implied on a straight-line basis, $75 million a year, and you're now running closer to $100 million.

So can you help us understand, I mean, has the size of that bucket been increased? Is there a different pool of money you're drawing from on those services, or is it an entirely different classification of what we're dealing with?

Well, there's a couple of elements in that $750 million bucket over 10 years. But about $250 million were related to discrete items like raising the orbit or some other things in the out years.

About $500 million was the value-added services bucket that we report against. And so I think from an EGD perspective, that's reflective and in there.

And the other thing that's in there, that we didn't have prior to the acquisition is Analytics, which is running about $30 million, $35 million run rate. That's in that, and is in a completely separate bucket of money that comes with specific agencies and military commands.

So EGD is in that traditional value-added bucket for the EnhancedView contract. The other piece of the Analytics is outside that vehicle.

Okay. So, actually value-added services would be more of a $50 million run rate under the original EnhancedView contract, not the $75 million I had said, which again begs the question, where's the extra money coming from?

Or do you run at risk of running out of money at some point down the future or can get that upsized in the contract value because we're clearly using more than the original run rate.

Well, IDIQ is always available dollars and need. And so I think there's clearly a need, and we've always said there's more demand in value-added services than available budget.

And one of the things that's really important around EGD is it's a productivity enabler for the government. They're able to get imagery disseminated to their core customers outside of NGA across the government at a value that they can't -- couldn't have replicated by the other contract vehicles they previously used, and so we think that's why there's some growth there and why there's some staying power there.

And, yes, we have multiple contract vehicles.

Yes.

On that same thought pattern, I think during the government shutdown, I saw some articles indicating that about 70% of IC community was put on furlough. And Klapper has talked about making some reductions, specifically within the NRO.

Can you give us a sense of where you think you stack up in a coming budget onslaught of how the government might look at this versus insourcing, outsourcing and what kind of value you bring relative to the government doing some of these activities themselves?

Well, the Intel budget itself is classified. What I would say is, as we've always said, the EnhancedView SLA we feel is critical, deeply embedded.

We've -- it's been intact and solid for now, through multiple renewals, really for now pushing 15 years, predating the EnhancedView SLA. And we feel very good about it.

And we feel very good that it's -- that the DigitalGlobe EnhancedView SLA has been solid and renewed and budgeted and all of things that you'd expect and want to see through what's now been 2 years of U.S. government budget pressure.

So we think that's the best indicator of the future. We're more deeply embedded and integrated than ever before.

And now, Global-EGD, on top of that, creates an even stronger linkage with our customer's workflow. So we feel really good about it.

Okay. There's also been some articles in some of trade press recently about potentially lowering the resolution limit for satellite imagery.

Something closer to what you can achieve with aerial. Can you talk about the prospects for that, how it might benefit you, what you think the odds are and potential timing?

I'll use this is an opportunity to say as strongly as I can that we believe resolution restrictions are outdated and unreasonably constrain the ability of U.S. industry to compete with foreign competitors.

We believe that by relaxing those restrictions that we'll be an even stronger competitor in the global market, and that will create more opportunities for innovation and value delivery for both our government customers and for our commercial customers. In terms of status, we've submitted an application for regulatory relief to NOAA.

We believe our arguments are very compelling, but it would be unwise for us to speculate in any form or fashion on the outcome of the process, either the ultimate decision or the timing of that decision.

So just want to follow-up on value-added. If we assume roughly $25 million, $30 million in Q4, this implies that you need a significant ramp in your Diversified Commercial business in Q4 to meet the low end of your revenue guidance.

Can you talk about, give us some color on what if you're expecting specific projects to ramp in Commercial to drive that?

Sure. And there's 2 parts to that question.

First of all, Q4 is historically a very strong quarter. The one-time blip that you see in the Commercial business in Q3, as we indicated, is due largely to some one-time events.

We didn't have those -- 2 of those contracts, but while there was some GE Aviation in the fourth quarter of last year in the pro forma business, the 2 other contracts that Yancey cited, that wasn't in the fourth quarter. So that's why we see it as a onetime blip combined with the strength in the backlog.

With that said, let me use this as an opportunity to talk about guidance in general, and as I think Yancey talked about, and you can see it in our press release too, we're targeting the bottom of our original range. And while there are opportunities, there are also risks.

In other words, another way to think about it, Josephine, is that we're holding our organization accountable to deliver $635 million of revenue and are very focused on that, but the reality is we may fall short. On EBITDA, the point here is that even if we do fall short on revenue, we are very confident that we'll be able to deliver the EBITDA guidance that Yancey articulated or better.

And so I think that's the best way to think about it, and we'll have more to share when we wrap up the quarter and get through the next couple of months.

Sounds good. A quick follow-up.

Can you give us an update on GEOINT data services, the solicitation? And if you anticipate potential awards to drive potential upside in value-added next year?

That's not an area that I feel comfortable speculating. It's an active procurement and we're participating on multiple teams and I'll leave it at that.

It's Jon Raviv again. Jeff, just on that question about some regulatory relief.

Can you characterize or talk about any international opportunity that you see rising out there that you have a better chance at if you got this regulatory relief or can you just characterize what the international competition is looking like and what it's shaping up to be over the next few years?

Sure. First, I'd be remiss in not pointing out that we have the highest resolution satellites on orbit today.

But we do have competitors with 70 centimeter resolution imagery. There's some government satellites out there operated by foreign governments with higher levels of resolution.

And there's an aerial market. There's an $800 million annual spend on aerial imagery and approximately 200 players operating in 90 countries.

And we think and believe that with resolution relief, we can compete with those foreign competitors. We can maintain a very strong U.S.

industrial base and deliver compelling value to all of our customers and to our shareowners, and we're pursuing this opportunity vigorously. But it's not within our control.

We can try to influence the process and bring facts to bear, but ultimately, the administration will make a decision as to whether or not relief makes sense and is in the international interest. We sure believe it is.

Yancey, you might have hinted at this that it's still to come, but I just want to make sure, have you guys fully merged your 3 satellite operation centers into 1 or is that something still to be looked forward to?

Let me touch on that one. We -- all of our satellites, all 5, are now operated out of our Longmont facility.

This is a big deal. This is something that's really hard to do.

In fact -- and this is by no means critical of GeoEye, but just so you understand the magnitude of the challenge. GeoEye satellites, IKONOS was operated on a different system and out of a different location than GeoEye-1.

So we've successfully brought all of them together and are operating them with the same team, on the same systems, out of the same location. That saves money, but it also is the first step in building a foundation for integrated constellation planning.

And why this integrated constellation planning matters? It matters because today, so much of our business is sensor-specific.

And as we can bring constellation planning together, we're going to be able to do a much better job of optimizing how we use our satellites, and we'll also deliver a much better service to our customers. Right now, our customers have to place orders separately for GeoEye-1 versus WorldView-2.

And when we have integrated constellation planning, we can make that a seamless experience for our customers that will drive customer delight and growth, and we're really excited about it.

And I know that Josephine asked about GEOINT data services. Just when that does get awarded, would that show up for you guys in your U.S.

government backlog and in the value-added products and services line or would it be another bucket, hypothetically?

It would be in value-added services in the backlog in the revenue reported line.

Just a quickie. Yancey, the recurring revenue number, is that something that's an internally generated number or can I add some pieces together of what you report to get there?

That's internally generated. It reflects customer relationships that extend over multiple periods as opposed to individual revenue opportunities in a quarter that are one-off, nonrecurring.

And so that's information that we compile with criteria that we have for recurring. That's been consistent since we've been a public company and we report on that.

So recurring would be at least full-year contract or a multi-year contract?

Multi-period contract, typically, it is full-year or multi-year.

Thanks so much for joining us today. I just want to emphasize that we've made a lot of progress.

We're proud of our progress in accelerating revenue growth, executing our integration plan, expanding margins. And really grateful to our team and looking forward to delivering even stronger Q4.

We're going to share a whole lot more with you next month at our November 20th Investor Conference in Denver. We'll be discussing strategy, demonstrating new capabilities, introducing the members of our management team, many of whom you haven't met, we'll conduct tours of our facility, we'll give you also an opportunity to see WorldView-3, which is an incredible satellite with unique capabilities.

And if you haven't yet registered, would encourage you to reach out to our Investor Relations team as soon as possible. Space is limited, especially for some of these touring opportunities, and we look forward to seeing you then.

Thanks so much.