Maxar Technologies Inc.

David Banks - Vice President of Investor Relations Jeffrey R. Tarr - Chief Executive Officer, President and Director Fred Graffam - Chief Financial Officer and Senior Vice President

Peter P. Appert - Piper Jaffray Companies, Research Division Jonathan Raviv Andrea James - Dougherty & Company LLC, Research Division Josephine Lin Millward - The Benchmark Company, LLC, Research Division Howard A.

Rubel - Jefferies LLC, Research Division James Patrick McIlree - Chardan Capital Markets, LLC, Research Division Chris Quilty - Raymond James & Associates, Inc., Research Division Denny Galindo - Morgan Stanley, Research Division

Thank you. Good afternoon, everyone, and thanks for joining our call today.

With me on the call are Jeff Tarr, President and Chief Executive Officer; and Fred Graffam, Interim 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 our 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.

Thanks, David. Good afternoon and thank you all for joining us.

Today, I'll highlight third quarter financial results and then discuss a number of significant achievements that mark our transition from an extended period of investment in building the world's leading Earth observation capability to a new era of strong free cash flow and improving returns. These achievements include: One, the successful launch and commissioning of WorldView-3; Two, the completion of our GeoEye integration program, including the more recent completion of pre-storage construction of WorldView-4; which we acquired with the combination; And three, the renewal of Global-EGD and improved growth in our Diversified Commercial business.

I'll provide more detail on each of these achievements and their implications for the future. But first, a few third quarter financial highlights.

Third quarter financial results met our expectations. Revenue in the quarter was $155 million, consistent with expectations and sufficient to give us confidence in raising revenue guidance to the upper end of our prior range.

Of course, as expected, the comparison to prior year was challenged by the amortization of $9 million of deferred Global-EGD revenue in the third quarter of last year, resulting in an anomalous revenue decline of 6%, masking favorable growth trends in other areas of our business. Diversified Commercial revenue was up 4%, with growth in both Direct Access and other Diversified Commercial.

EBITDA margin was up 440 basis points to 37.5%, and adjusted EBITDA margin was flat at 39.8% despite 600 basis points of margin impact related to that one-time Global-EGD amortized revenue from last year. And I'm pleased that we were able to get a strong start on our initial $75 million repurchase authorization, putting $15 million of cash to work, repurchasing shares in the quarter.

Now turning to the first of the 3 third quarter achievements that position us for strong free cash flow and improved returns. The first is the launch and commissioning of WorldView-3.

On August 13, we executed a flawless launch of the world's most capable Earth observation satellite. Approximately 6 weeks later, in record time, we began delivering imagery to customers.

We achieved this milestone well ahead of schedule and far faster than others in our industry, as the result of our many years of experience in successful satellite operations, the strength of our partners and our culture of continuous improvement. Space and Earth observation are not easy, and this success is an important competitive differentiator in an industry where customers rely on us for the safety and security of their nations.

This brings with it an immediate step-up in revenue from the EnhancedView contract of $27 million, effective October 1, to a new quarterly run rate of $84.3 million. As you know, WorldView-3 is the sixth satellite in our constellation and is, by a wide margin, the world's most capable Earth observation satellite, enabling us to see features on the Earth with 5x the clarity of our nearest competitor and better than 10x the clarity of small sat operators.

The imagery we are producing is truly stunning, enabling us to see features never before visible to our Diversified Commercial customers from space. With our super spectral capabilities, we can now enable our customers to see through smoke and determine the mineral and moisture content of the earth below.

We're now poised to unlock new applications for our customers in Defense & Intelligence, disaster response, oil, gas and mining and agriculture. Combined with our other on-orbit satellites and ground infrastructure, no one comes close to replicating our offering.

WorldView-3 is not the only capital investment program completed in the third quarter; which brings me to our second achievement: The completion of the integration of GeoEye, including the recent completion of the pre-storage construction of WorldView-4. I'm proud of our team for achieving $120 million of annualized operating expense synergies, well in excess of our original $100 million target.

This 18-month effort which was on time and on budget, was marked by many important achievements. For example, we consolidated our Remote Ground Terminal Network, mission operation centers and production systems to provide for seamless command and scheduling of our full constellation from our Colorado headquarters.

We reduced our data center footprint from 9 locations to 2. We consolidated 2 domestic and 3 international operating sites, and we created 1 company with 1 organization and 1 brand built around a common purpose, vision and values.

In addition to successfully completing the integration, we also completed the pre-storage construction of WorldView-4. This incredible satellite, which will be our second 30-centimeter capable satellite and the first unencumbered by the U.S.

government, will be placed in storage before the end of the year and launched in the second half of 2016. Although the integration effort is officially complete, there are 2 discrete items that could not have been completed within the original 18-month time frame, including WorldView-4 storage costs and temporary expenses related to consolidating our Colorado real estate footprint.

Fred will quantify these expenses in his remarks. Turning now to our third achievement, the renewal of our Global-EGD contract with NGA and the return of our Diversified Commercial business to growth.

During the quarter, we renewed Global-EGD. Global-EGD is a platform through which we process our daily imagery collections in near real-time and host and deliver that imagery, along with our industry leading archive, to U.S.

government customers around the globe. In this time of significant U.S.

government budget pressures, it is a testament to the value of this offering that we were able to renew it despite the fact that it is not yet a program of record. We also entered into contracts for several other value-added offerings, which will enable us to deliver more capability and value to our largest customer for a roughly comparable total spend, enabling us to sustain revenue of approximately $100 million.

As for our Diversified Commercial business, after several quarters of decline due primarily to emerging markets and geopolitical challenges in Russia, we were able to deliver modest growth. Our Direct Access business was up 6% in the quarter over prior year to $27 million.

This remains one of our best businesses due to its recurring nature and the mission-critical role we play in aiding U.S. allies in volatile regions of the world.

Other Diversified Commercial revenue outside of Direct Access was up 30% in the quarter after several quarters of year-over-year decline, as emerging markets and Russia, in particular, shifted from a tailwind to a headwind. Several vertical markets contribute to what we believe are the beginnings of a turnaround.

We delivered double-digit growth with Location Based Services customers. Oil and Gas continues to perform well and, this quarter, performed above our $1 million to $3 million per quarter expectation.

Two sales of note include a contract with the U.S. energy company to map a project in Brazil and the second to do pipeline monitoring for one of the world's largest gas-producing companies.

We continue to build our customer base among global development organizations or GDOs. We are especially proud of our work in the third quarter with the World Resources Institute for their Global Forest Watch.

We've also recently embarked on a number of mapping initiatives throughout Africa, focused on tracking and eradicating infectious disease. Our work with GDOs represents an emerging part of our growth story and a hallmark of our purpose of seeing a better world.

Growth in Diversified Commercial was offset by continued weakness in Russia, which declined approximately 14% to $4 million. On a year-to-date basis, Russia is down 58%.

The fourth quarter will also be a difficult comp for Russia before it emerges as an easier comparison in 2015. Outside of Russia, we've generated modest growth this year from international civil governments with India, Africa and South America as bright spots.

This return to growth is encouraging. Continued improvement in our execution, along with new capacity and capability from WorldView-3, should return Diversified Commercial to a reasonable growth trajectory.

Fred will discuss our guidance for the balance of this year. I'd like to share a few thoughts that will help shape next year.

U.S. government revenue will grow significantly with the step-up in the EnhancedView SLA.

U.S. government value-added revenue should remain approximately flat sequentially.

We expect to deliver improved growth in Diversified Commercial once resolution restriction relief takes full effect and we bring our first WorldView-3 DAP online. In addition, we're in the midst of evaluating the useful lives of our satellites.

We're pleased that our WorldView-class satellites continue to perform extremely well, and early indications are that we may extend our satellite useful lives. While this would result in some near-term noncash impacts that Fred will detail, any extension in the useful lives of our satellites bodes well for free cash flow and returns over the long term.

Finally, and importantly, free cash flow should be in line with our long-term targets, contributing to a meaningful improvement in return on invested capital. Before turning the call over to Fred for his first earnings call as interim CFO, let me just say the search for a CFO continues.

But with Fred in the chair, we have the luxury of keeping the bar high as we seek someone who has been the CFO of a larger company, in line with our aspiration for growth. In the meantime, I want to thank Fred for his efforts.

I appreciate all the positive feedback we have received from you as he's stepped in during this transition. Fred?

Thanks, Jeff. I'm pleased to join the call this quarter.

Our third quarter results were in line with our expectations and keep us on pace to deliver against our full year projections. Revenue for the quarter was $154.6 million, down 6% year-over-year as expected, due almost entirely to a difficult comparison against one-time revenue related to Global-EGD and last year's third quarter.

U.S. government revenue in the quarter was $87.8 million, down 13% year-over-year, driven primarily by previously disclosed one-time revenue related to our Global-EGD service, which I will discuss further in a moment.

We generated $56.9 million from our EnhancedView service level agreement or SLA, flat compared with Q3 2013. As Jeff mentioned, since the commissioning of WorldView-3 enabled us to make additional capacity available to the NGA, beginning October 1, our SLA revenue has increased to a new annualized run rate of $337 million or $84.25 million per quarter.

This revenue will drive significant growth in our U.S. government business beginning in Q4 and continuing into the third quarter of 2015.

As a reminder, the cash flow from the SLA increased by $50 million annually to $300 million beginning September 1. U.S.

government value-added services revenue was $24.6 million in the quarter, down 35% compared with $37.6 million in Q3 of last year. The $13 million year-over-year decline related to $9 million of noncash revenue we recognized in Q3 of last year, and the balance is related to some project-based revenue that came in at the end of the government's fiscal 2013.

Going forward, we expect to report quarterly value-added services revenue of approximately the same $25 million level we achieved this quarter, and more closely aligned with cash received. Diversified Commercial revenue was $66.8 million in the quarter, up 4%.

Direct Access revenue of $27.2 million was up 6% year-over-year. We continue to expect our DAP business to generate about $26 million to $28 million per quarter.

Our other Diversified Commercial revenue return to growth in the quarter, up 3% to $39.6 million. While we expect continued improvement over time, this quarter's growth rate is consistent with our expectations at the beginning of the year.

Specific growth drivers this quarter include a double-digit growth in our LBS business and Spatial Energy which added revenue above the top end of our $1 million to $3 million expected quarterly range, tempering growth were ongoing declines in -- among emerging market customers, most notably in Russia, offset somewhat by growth in Africa and South America. Our ability to grow other Diversified Commercial revenue in Q4 will be impacted by expected Russia weakness.

Q4 '13 was our strongest quarter for Russia revenue at over $8 million. While we do have some pipeline for Russia in Q4, we do not expect to achieve revenue at prior-year levels.

Our next 12-month revenue backlog increased 11% to $574 million. With growth driven by the step-up in the SLA, this growth was partially offset by lower backlog in U.S.

government value-added revenue to more closely reflect cash received during the quarter. The decline in DAP backlog reflects the move from long-term DAP contracts to annual renewals.

We also continue to see certain DAP customers consume minutes faster than their minimums which reduces backlog, but is reflected in ongoing growth in the business. While other Diversified Commercial is down, we expect it to improve as we take orders on WorldView-3.

We generated $61.5 million of adjusted EBITDA in the quarter, a margin of 39.8%, flat year-over-year and consistent with our expectations. Margins were down slightly in the quarter from Q1 and Q2 levels due to investments to drive growth, combined with the sequential decline in high-margin amortized revenue from Global-EGD.

As we exit the period of significant combination-related spending, we will begin reporting EBITDA on an unadjusted basis and putting to unusual or one-time items. Our Q3 EBITDA was $58 million, driving a 37.5% margin, up 440 basis points year-over-year.

As Jeff mentioned, this quarter was also highlighted by the completion of our GeoEye integration. Completion of this project, through which we drove $120 million of annualized operating expense savings, will help strengthen EBITDA margins going forward.

Two upcoming discrete expense items that will impact next year are the storage costs related to WorldView-4 and our Colorado real estate consolidation. WorldView-4 is now substantially complete and, as such, we expect to put it in storage in early November.

We expect to expense storage costs beginning in Q4 2014 at a rate of about $12 million per year to early 2016 until the satellite is ready to be shipped for launch. In mid-2015, we are consolidating our real estate footprint in Colorado and will incur some one-time in [ph] duplicate cost during the transition period that may also total as much as $6 million per year.

Depreciation and amortization was $57.7 million in the quarter, down slightly year-over-year. As a result of WorldView-3 starting operations on October 1, we expect depreciation will increase to approximately $75 million in Q4.

Note that this amount could drop if we lengthen the useful lives of our satellites going forward. Currently, we are depreciating WorldView-1 at 10.5 years and WorldView-2 at 11 years.

We are undergoing an evaluation of our useful lives of both WorldView-1 and WorldView-2. We expect to complete that evaluation in the fourth quarter, and the result could lead to a lengthening of the satellite lives.

As it's been our prior practice, once this evaluation is complete, any changes we make will be retroactive to October 1. Note that any useful life changes we make will impact not only depreciation schedules, but also 2 existing revenue streams.

The first is our WorldView-1 amortized revenue of $6.4 million per quarter, which we expect would drop by up to $12 million per year with a decline of up to $3.5 million in Q4 '14. The second results from a number of our Direct Access facility amortization schedules that are tied chiefly to WorldView-2.

This would reduce revenue by a little less than $500,000 per quarter, also beginning in Q4. These amortized revenue streams fully accrete to EBITDA margins so could negatively impact margins going forward by about 100 basis points.

Extending the useful lives of our most important assets does not affect free cash flow, but reduces our capital intensity and, thus, is accretive to free cash flow margin and the long-term DCF-based valuation of the business. We will provide more details as they become available.

We, again, had no interest expense in the quarter, reflecting capitalization of nearly all of the $13 million in quarterly interest on our debt. We expect interest expense to increase approximately to $11 million in Q4, reflecting the impact of WorldView-3 becoming operational in October and WorldView-4 going into storage in November.

We generated $600,000 tax benefit in Q3, principally driven by our very low net income and also the impact of discrete period items. The net loss in the quarter was de minimis.

Integration-related spending totaled $8.7 million, of which $3.5 million were expensed and $5.2 million were capitalized. Year-to-date, we have expensed $14 million and capitalized $30.7 million related to completing the integration.

Free cash flow in the quarter was negative $40.4 million. The primary use of cash in the quarter related to significant CapEx spending of $89 million, principally to launch and insure WorldView-3.

This CapEx spending included $21 million of capitalized interest payments. In addition, Q3 '14 cash reflected $15 million of spending to repurchase shares under our $75 million share repurchase program.

We have updated our outlook for 2014. We are updating our revenue guidance to a range of $640 million to $660 million.

This contemplates a wide range of outcomes related to Russia and satellite lives and includes the step-up in our SLA revenue effective October 1. We are maintaining our 2014 outlook for adjusted EBITDA margin at approximately 43%.

We expect to deliver Q4 margins of approximately 50% at the midpoint of our annual revenue guidance. We expect to achieve free cash flow as a percentage of revenue, or free cash flow margin, in Q4 of at least 20% at the midpoint of our revenue guidance.

Our annual free cash flow number will be lower than previously anticipated. This is principally due to the timing of U.S.

government payments. We are updating our CapEx guidance for the year.

While we expect our in-year capital spend to be consistent with our previously communicated amount of $170 million, we expect the cash payments for CapEx will be approximately $15 million higher as we are paying down our accrued capital balances faster than originally expected. With that, I will now turn the call back to Jeff.

Thanks, Fred. To sum things up, I'm proud of our team's progress.

We successfully launched and commissioned the world's leading Earth observation satellite. We completed our integration efforts, and we returned our Diversified Commercial business to modest growth.

With several major capital investment programs behind us, we are poised to enter a new era of strong free cash flow and improving returns. This will enable us to continue to pursue our $1 billion revenue growth aspiration while simultaneously returning capital to shareowners.

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

Jeff, can you give us any report on what you're seeing back on WorldView-3 in terms of take-up of 30-centimeter capability? Any early reports in terms of the pricing dynamic you're seeing from the DAP customers or even early sales in the commercial market?

Thanks, Peter. WorldView-3 is an incredible satellite.

In fact, you'll see that we released our first 30-centimeter image today that was put out -- that we were allowed to release for marketing-related purposes. And we're very encouraged by what we're seeing from customers.

Early indications are that the price lift on 30-centimeter will be anywhere from order of magnitude 125% to 150% or more of what we've been charging for 50-centimeter. And we're seeing good early orders.

The additional capability also with short wave infrared and CAVIS, we also see as unlocking some new applications. So we're very encouraged by what we see, and we believe this will enable us to return Diversified Commercial to order of magnitude double-digit growth or better by the middle of next year.

And then as my follow up, on the DAP business, I think you or Fred mentioned $26 million to $28 million, sort of, run rate quarterly; which seems conservative relative to what you guys have done in the last year or so. What's the thought process behind that?

Well, it's performing. It's been growing nicely.

It's in line with what we've been seeing. And we expect to bring our next DAP online in the first quarter of next year.

Fred, anything to add to that?

No. Just keep in mind that there's typically a pretty lengthy time frame between putting an asset on orbit and actually signing and, ultimately, generating revenue on a DAP customer.

So what you may be thinking is that we would have a quicker step-up in revenue, Peter, than what we ultimately would realize at least for 2015. It would be later in the year, we would see the revenue.

The first DAP should come online by the middle of the year.

It's actually Jon Raviv on for Jason, sorry about that. Could you just go back to that comment about commercial [indiscernible] you said something about double-digit growth by mid-next year, could you expand on that please?

Jon, it was a little garbled so I didn't pick everything up. But I believe you were asking about the strengthening growth in our Diversified Commercial business.

First of all, we're pleased that we were able to deliver modest growth in the quarter. We're also delighted with the performance of WorldView-3.

And so with the additional capacity of WorldView-3 and then the price lift that we expect to get from -- and we are getting from 30-centimeter imagery, and additional products that are enabled by both the 30-centimeter and the short wave infrared and CAVIS sensors on the satellite, we expect that by the middle of next year, we should see a return to double-digit growth. Keep in mind there's some milestones that are ahead of us.

The next big one is late February when we will be permitted, for the first time, to fully commercialize that 30-centimeter capability, and we're looking forward to that.

Great. And then just a quick follow-up.

What sort of investments are required to generate the new business and the new end markets?

Great question in terms of investments, we've been making a number of investments. First, there's some basic expenses that are linked to bringing a new satellite with all of the capacity and capability of WorldView-3 online.

It starts with just more telecommunications cost because we're moving a lot of data. As we look forward, in terms of product and sales and marketing, we've been transitioning our business from one that's been a bit of "one size fits all" organized primarily regionally, to a business that's making selective investments in new products and in verticals.

Spatial Energy is a perfect example. With our acquisition of Spatial Energy, we're bringing on board deep expertise in Oil and Gas, so we can better serve that customer set, both from a sales perspective and a product perspective.

And we believe that this will contribute to improved growth in Diversified Commercial into next year and, ultimately, accrete to shareowner value.

Congratulations on the WorldView-3 success. I guess hopping over to WorldView-4, can you give us a sense of enthusiasm for WorldView-4.

And I guess, how do investors get comfortable that your level of dialogue is, I guess, above just 1 letter of intent that you've announced so far, and I guess it's not a speculative launch?

Yes. Thanks so much, Andrea.

First of all, every indication that we're seeing is that demand for 30-centimeter imagery will outstrip the capacity on WorldView-3, first and foremost. Secondly, with regard to the demand that we have seen, I'll point out that, that step-up of $15 million that we're seeing from one of our DAPs has taken that contract to $45 million per year over 4 years.

We believe that's indicative of the demand for 30-centimeter and the value our DAP customers will place on assured access. In terms of milestones, we are delighted that this customer was willing to sign a contract fully 2 years before launch and allow us to announce it publicly.

Keep in mind, this is an industry where most customers will only sign contracts and announce them once the satellite is on orbit. But with that said, we feel great about the revenue we've already got secure and the demand we're seeing for 30-centimeter and so pulling it forward by a year makes all the sense in the world.

And then, if I think about the DAP program and the opportunities there, I guess, I can't help but wonder like why is it that some of America's closest English-speaking allies aren't DAPs, and can you ever turn them into DAPs?

Well, first of all, I would say that we have 10 close allies of the United States that are primarily in very, let's say, challenged parts of the world, where there's significant geopolitical conflict. That's where we play.

We play, first and foremost, where we can make a meaningful difference in the safety and security of nations. We do see an opportunity to grow beyond the 10 DAPs over time.

We have a number of conversations ongoing. We've said in the past we think we can grow that to 15 DAPs.

And we also see opportunity in Defense & Intelligence beyond those 15 countries that are logical targets for a DAP relationship.

I wanted to clarify your guidance. Are you expecting the high end of your revenue guidance now around $660 million?

It seems like that's achievable with the incremental $50 [ph] million you're expecting from the SLA.

We have, indeed, raised our guidance range to a new range of $640 million to $660 million. And that's what we [indiscernible] possibly.

Right, but as you said in the past -- sorry, in the past, you talked about hitting more the lower range of your revenue guidance. So are you just taking up the low end of your revenue guidance, or do you think you're more likely to achieve the high end now?

First, I would say -- Josephine, we've -- this year, we have not placed any color beyond the original range. So the original range was $630 million to $660 million.

We never pointed to the low end of that range. We've been -- we were managing the business towards the middle of that range.

And now we see an opportunity that's announced of $630 million to $660 million, is $640 million to $660 million, and we feel good about that range. It's our best view of the future.

Jeff, first, if I look at that picture, it looks like business jets when you move the screen. Am I thinking about that correctly?

On the blog, Howard?

Yes, absolutely.

Look, anyhow, I'll save that for later.

I know what you're talking about. Absolutely, yes.

It may help you with one of your other clients.

Yes, exactly. I thought so.

That is quite neat. And then could you talk a little bit more and put some parameters around some of the cash flow?

I mean, there was a lot of moving parts you and Fred delivered, and I'm trying to understand a little bit maybe how you end the year on your target. And then how, again, you're thinking about next year in terms of -- to the degree that you'd like to put a little bit of framework on that for what you'd expect for cash flow.

Sure, Howard. Let me talk about this through a strategic lens, and then I'll pass it to Fred to give a few more specifics on free cash flow.

We have just completed an extended period of heavy investment and building out what's the world's leading Earth observation constellation. And we are now transitioning with the fourth quarter into a new era where we're focused on monetizing that capability and driving free cash flow and improving returns.

So that's our orientation this year going into next year and beyond, with a real focus on that 20% free cash flow target that we've indicated. And with a focus on return on invested capital with the first milestone getting at above our weighted average cost of capital in a sustainable fashion and then driving it up into the mid-teens, say, 14% based on free cash flow to the firm, which we believe is the appropriate return on invested capital target for a company like ours.

Fred, in terms of specifics, in terms of the gives and takes nearer-term on free cash flow.

Yes. Actually, Howard, there's 2 primary items that impact free cash for this year.

The first is I talked about a $15 million increase in our cash capital spend this year; which I discussed in my script; which basically is the reduction in our accrued capital balances as we paid them down. The second is, the timing of our payments from the U.S.

government. In the fourth quarter of last year, our payment terms with the U.S.

government were extended due to some procedural changes. Our 2014 guidance contemplated that we would go back to the original payment cycles, but that's not going to happen this year.

This will result in higher receivables from the U.S. government and lower cash to the tune of about $30 million.

Those 2 items are the primary changes in our free cash -- free cash flow for this year.

The guidance that you've issued, I'm assuming is before any potential changes you have in the useful life evaluation that's underway.

Actually, the guidance contemplates changes in the useful life of our satellites, both at the high end and the low end that would impact -- that's within the range.

Okay and -- okay, great. And then why wouldn't the storage cost for WorldView-4 be capitalized?

Because -- I'll take that one, Jeff. The asset is substantially completed at this point.

And so we're essentially awaiting the remaining work to be done with respect to the launch vehicle. So there's a period where we're not adding value for about 12 months to the satellite and, therefore, the cost to maintain the satellite and storage are actually expenses not capital.

I'll just add to that, that the good news part of that is the free cash flow really doesn't -- isn't impacted by this. This is a -- really an OpEx versus a CapEx question.

And thus, our focus on free cash flow is not at all negatively impacted.

I want to start with some clarifications. Jeff, when you said returning to double-digit growth by middle of next year, was that Diversified Commercial or Other Diversified Commercial?

That was Diversified Commercial. But you can assume that that's going to require the same for Other Diversified Commercial.

And certainly, returning -- the total business, the stronger growth will come sooner with the SLA step-up.

Got you. And another clarification, you said a new DAP coming online in first quarter of '15.

Is that the 11th DAP or is that one of your 10 DAPs now stepping up for WorldView-3 price increase?

So first of all, will be in the first half. I wouldn't say the first quarter, more focusing on the first half for that first DAP to come online.

And yes, it's an expansion of an existing country with which we do business. So when we gave that number of 10, we're referring to the number of nations that we're doing business with.

Within those individual nations, there are often multiple DAPs and multiple relationships inside those countries. So this is an expansion of an existing one.

I just wanted to delve into this insurance and financial service agreement and also the pipeline monitoring agreement that you signed this quarter. What exactly are you doing on these 2 agreements and how big can these potential markets be?

All right. Well super name.

First of all, we're delighted to have you all covering us now, so welcome to the call. In terms of what you're seeing with the insurance business opportunity, we've launched this year, an early version of our Geospatial Big Data platform.

This is a platform in which we're putting a large amount of our imagery in the cloud, along with some analytic tools and then opening that up to a select number of customers to come in and run analytics against our imagery and the data that's embedded within those image -- that imagery that we're unlocking. And so we're seeing application -- early applications in the insurance industry in terms of understanding risk, understanding trends, understanding ground cover, for example.

And then the pipeline monitoring effort, that's more of a traditional imaging effort where we're using our satellites to monitor pipelines. Now with regard to that pipeline monitoring, there are certain things that you look at that are unlocking data that's in the imagery.

So for example, if it's an underground pipeline, we can look at the health of the plant life. And based on the health of the plant life, identify whether there's a potential leak in that pipeline.

We also look for indicators of oil theft, and we do that in a number of parts of the world.

Okay. And then moving on to pricing.

Now that you started to market the 30-centimeter, and I think you've also kind of talked about just adjusting your pricing strategy, in general, over the last several months. Can you tell us anything more about what you'd like to do here and where you see pricing going?

Where you're maybe surprised that it's holding up better than you thought or where maybe you're disappointed you haven't been able to push this far?

Well, I would say that -- great question on pricing because pricing is one of the major levers we have for growth. And when we talk about pricing, I'm talking about optimizing pricing.

And we've made significant investments in our revenue management function so that we can price in a more dynamic fashion. And that applies to everything that we do.

With regard to our 30-centimeter imagery, we are seeing very early orders. Keep in mind these are orders that are being placed months before we can actually deliver the imagery to them.

We're seeing very significant cost take-up in that -- in the pricing for that type of imagery because of the additional information that's embedded in it and the additional details that are being revealed, creating new applications. So we're very encouraged.

Jeff, can you comment on Harris' $770 million win with the NGA for mapping and geospatial products? Do you see opportunities here for DigitalGlobe to be a sub?

I believe you are referring to the GDS contract award, and I'm really not in a position to talk about contract awards to other companies. What I can tell you is that, that is a part of the value chain that we play a role in as a sub to a number of different players.

And also through global EGD, indirectly, we're providing services that are, in fact, the more economical and higher value alternative to some of the more traditional services that have been procured by NGA. And we look forward to doing more of that in the future.

We think we can continue to make a big difference.

Great. A follow-up to that.

Do you think there's potential to upsize your U.S. government value-added products and services with short wave infrared?

So with regard to U.S. government value-added, that is -- we've signed a number of contracts for value-added.

So we have a baseline going into next year. That baseline does include some elements of our new capability, at least, enabling that new capability.

And we feel good about that baseline, and we'll continue to try to find ways to add more value to the U.S. government mission as the year progresses.

Just a follow-up on the WorldView-3 pricing step-up. You had previously indicated that you thought the LBS customers were the most likely to step up to the table first.

Is that still the trend that you're seeing? And can you just give us a more general update on opportunities in LBS?

So thanks for the question, Chris. As we look at 30-centimeter, we're seeing a very broad-based growth opportunity.

We're seeing opportunities in Defense & Intelligence because we're able to help our customers see things that, frankly, they couldn't see before. With regard to LBS, we're seeing an opportunity to displace some of the more expensive aerial spend and also provide 30-centimeter imagery in parts of the world where they haven't been able to fly aerial in the past, so that's an opportunity there.

And we're seeing very significant opportunities -- what we believe to be significant opportunities over time -- in oil, gas and mining, primarily with the short wave infrared that is enabling exploration and production in some new and unique ways, and that's a very exciting new offering. So we feel good about this as a broad-based growth opportunity.

Got you. And in analytics business, any new developments to report there, either on the government or commercial side?

I'm glad you asked about that. We are seeing opportunities in analytics.

We talked about some of them. We've continued to do work with the U.S.

government. We've expanded from some of our more traditional work that's highly geospatial map-based to move into an area commonly referred to as human geography.

And also bringing new data sets forward and integrating those into our solutions. So that's been encouraging.

With regard to commercial, we talked about some of the new -- the recent wins we've had within our GDO [ph] business. What we used to call our non-profit or NGO business.

But GDO [ph] is actually broader because it includes UN, World Bank and other players like that. So we're very encouraged there by the analytic -- the potential of analytics.

Now we can hear you, Peter.

So you gave us a lot of puts and takes on the margin impacts in '15 from different factors. And I'm wondering if you're sufficiently comfortable in the outlook that you can give us some assurance that you can sustain the margin at a 50% or higher level going into '15.

Peter, you're correct that there a number of gives and takes. The big gives and takes come from the cost takeout, the $120 million of synergy that we've realized and the operating leverage in our business.

Right now, we are in the midst of our budgeting process, so I wish I could give you 2015 guidance. I can't give you 2015 guidance just yet.

What I can tell you is with some of these gives and takes, some of them are between CapEx and OpEx, and some of them are noncash. And as we look through those gives and takes, we feel very good about the 20% free cash -- or better free cash flow margin, and our ability to drive returns, measured as ROIC, above our cost of capital and then, overtime, into the mid- teens, say 14%.

We'll provide more detailed guidance including revenue and EBITDA on our next call.

Fair enough. And then one other thing.

The -- any evidence that you're -- or are you seeing any evidence that customers are embracing some of these mini-satellite offerings? You're seeing any evidence of customers migrating from you to these competitors?

Actually, we have not seen any meaningful migration to small sat players. The fact is our customers value resolution, accuracy and the other capabilities that we have to offer, and we feel very good about our competitive position, and we believe that we're extending that competitive position with the launch of WorldView-3.

Thanks very much. I appreciate all of you joining on -- us on this call.

With the world's leading Earth observation constellation now largely paid for and operational, we are focused on rewarding your commitment to funding that investment with appropriate free cash flow and return on invested capital. And we look forward to updating you on our progress against those metrics in the coming quarters.

Thanks very much.