Maxar Technologies Inc.

Patrick Elliott - Manager, Finance & IR Jeff Tarr - President & CEO Gary Ferrera - CFO Fred Graffam - SVP, Finance

Denny Galindo - Morgan Stanley Chris Quilty - Raymond James Josephine Millward - The Benchmark Company Howard Rubel - Jefferies Andrea James - Dougherty & Company Jason Gursky - Citigroup Peter Appert - Piper Jaffray

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

With me are Jeff Tarr, President and Chief Executive Officer; Gary Ferrera, Chief Financial Officer and Fred Graffam, Senior Vice President of Finance. 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 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 these 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.

During the question-and-answer session, please limit your questions to one question plus a follow-up, and then please reenter the queue if you have other follow-up questions. With that, I'll turn the call over to Jeff.

Thanks, Patrick, and thank you for joining us. I'll begin today’s call by sharing our Q3 financial results, for which you'll hear that we continue to drive margin expansion, strong free cash flow, and improving return on invested capital.

I'll then discuss the number of modifications to our strategy to which you'll hear how we intend to drive continued operating improvements despite headwinds pressuring our commercial revenue growth. Finally, I'll provide a few comments on our customer verticals, including a discussion of our core U.S.

to international defense and intelligence businesses which have never been stronger, and early success in our geospatial Big Data platform initiative. I'll then turn the call over to Gary to provide more detail on our financial results and guidance.

Turning now to the quarter, overall we delivered strong consolidated financial results in Q3. We grew revenue 12%.

We increased adjusted EBITDA 49%. We expanded adjusted EBITDA margin 1,290 basis points to 53%.

We delivered $52 million of free cash flow. We elevated our trailing 12 months return on invested capital to 10%, and we repurchased $37 million in shares, bringing our total repurchases since initiating the program in July of last year to $176 million.

These results demonstrate our progress in driving margin expansion, strong free cash flow and returns from our industry-leading constellation of earth observation satellites and global ground infrastructure as well as our commitment to returning capital to shareowners. This brings me to our strategy to drive continued operating improvements and create shareowner value.

Our core recurring revenue business serving the needs of our U.S. and international defense and intelligence customers has never been stronger and our efforts to drive efficiency are working.

However our aspiration for unlocking new commercial markets for satellite imagery and geospatial information is taking longer than expected. We are therefore making a few modifications to our strategy in order to continue to deliver margin expansion, strong free cash flow and returns during a period of moderated growth.

Let me spend a few minutes on the factors impacting our expectations for top-line growth, and then discuss the modifications to our strategy to create value for shareowners. Like many global companies, we've been impacted by economic factors including emerging market growth, currency devaluations, and oil and gas commodity prices.

We've been able to offset some of these headwinds with growth from WorldView-3. However capacity constraints in high demand regions have limited our available capacity to generate growth especially in the Middle East and Asia-Pacific where our largest customers are using our unique capabilities in new ways to respond to geopolitical events.

In addition, in lower demand regions, growth has been slower to materialize than our original expectations primarily within location based services for reasons we discussed extensively on our last call. In order to continue to create economic values through strong free cash flow and improved returns, we will continue to drive efficiency across our organization and pursue a more scalable approach unlocking the information embedded in our imagery to enter new commercial markets.

We will also balance capital allocation with a bias towards return of capital to shareowners. We will of course do this in a way that ensures we continue to meet the exacting requirements of our customers and are able to make disciplined investments in our best growth opportunities.

Specifically the modification of our strategy includes five elements. First, we will manage our industry leading imagery business with an orientation towards improvements in efficiency to drive strong free cash flow and returns.

Since the combination with GeoEye in 2013, we've demonstrated our ability to improve the efficiency of our imagery business by removing more than $150 million in annualized cost delivering meaningful improvements in margins, free cash flow and returns. More recently, we have learned that creating customized information products and services for specific industry verticals is costly and taking more time than expected to deliver meaningful growth.

Therefore we are dialing back certain vertically oriented investments in favor of a more scalable horizontal approach. We believe this modification will enable us to deliver our targets for efficiency and returns while capturing what we still believe to be a meaningful incremental growth opportunity over time.

This brings me to the second element which entails making disciplined investments in our multisource platform initiative. While still small, our geospatial Big Data platform is attracting marquee customers and developers and delivering strong growth albeit on a small base.

While not currently a large contributor, we believe that over time these investments will enable us to reach new customers and achieve our vision of being the indispensable source of information about our changing planet. Third, we will leverage DGIS, our U.S.

government analytics services business to support our imagery and platform goals. While this part of our business is low margin and non-recurring and it's not currently as growing as fast as we anticipated, it plays an important role by delivering innovative capabilities to our U.S.

defense and intelligence customers. By working closely with end users across the U.S.

government, DGIS is enabling us to further integrate our imagery, platform, and tools, into our customer workflows driving increased productivity and value. Fourth, we will significantly reduce our capital intensity over time.

For well over a year, we've been developing the architecture for our next-generation constellation. Our expectation is that the cost to replace our current constellation will be substantially less than the cost of the original build.

We will begin investments to replace the combined capacity of WorldView-1 and WorldView-2 in either 2017 or 2018, depending on capacity utilization, the projected lives of our in-orbit satellites at that time and the need for the U.S. government which consumes 85% of WorldView-1.

Importantly, this capital decision will be viewed through the lens of a targeted ROIC in the low-teens. While for competitive reasons we will not provide more specifics at this time, we are confident that our planned architecture will ensure that we continue to sustain a commanding technological lead over both current and aspiring competitors.

Fifth, we will continue to return capital to shareowners. In this environment we believe that share repurchase is a better use of capital than current M&A opportunities.

To that end, our Board has approved an increase in our share repurchase authorization from $205 million to $335 million. We're also considering ways to further increase our flexibility with regards return of capital to shareowners.

Now, let me spend a few minutes on each of our customer verticals including U.S. government, international defense and intelligence, and other diversified commercial.

As I indicated earlier our partnership with the U.S. National Geospatial-Intelligence Agency has never been stronger.

During the quarter, NGA exercised the sixth option year of the EnhancedView SLA and renewed Global EGD. As a reminder, the EnhancedView SLA is a firm fixed price contract with annual renewals through August of 2020.

Our business with the U.S. government has been renewed for 14 consecutive years under various contract vehicles each of which has delivered substantial growth to the company.

This is a testament to the value DigitalGlobe provides with our best-in-class constellation and ground infrastructure and our team members effectiveness in delivering a mission-critical service to the NGA and end-users across the U.S. government.

Our U.S. government customer has made it clear that they rely on us for critical missions that can be fulfilled by capabilities even contemplated by other potential providers.

A few weeks ago, NGA Director, Robert Cardillo, publicly stated and I quote, "We've been in the commercial imagery business for a long time. I have a mission partner called DigitalGlobe.

Essentially I can't give my job today without them. And they're not a start-up.

This is a major company providing significant effort to both my mapping, charting, and geography and my intelligences mission" end quote. I'd add that we've come a long way from the days that industry observers doubted commercial imagery would ever become an essential component of the nation's overhead architecture.

As indicated in NGA's commercial imagery strategy, commercial imagery sources are critical to NGAs mission success and they're important for all the increase in the future. As the industry leader, operating a constellation and ground infrastructure, build to the exacting requirements of the U.S.

government, and integrate it into a growing number of its workflows, we are in a class by ourselves uniquely positioned for the future. We are proud to build on more than a decade of service to this our largest customer and are unwavering in our commitment to meet their ever expanding mission.

One of our best opportunities for top-line growth is our international defense and intelligence business. During the quarter we grew our GAAP business by 6% as customers begin to increasingly the leverage unique capabilities of WorldView-3.

During the quarter, demand for capacity was in this customer group exceeded supply due to multiple crises in high demand regions. We believe WorldView-4 will enable us to better serve this important customer segment and unlock new growth with additional 30 centimeter capacity in priority assets.

We have secured to launch data in September of 2016, and expect to make capacity available to our customers in early 2017. Let me now turn to our other diversified customer group.

Well this part of our business has not performed as expected we are not standing still. We continue to optimize pricing and pursue new customer opportunities.

One example is our partnership with Mapbox. Late in Q3, we decided to make 30 centimeter imagery available to web developers through this relationship and we've already begun to generate revenue through the initiative.

Spatial on demand, our multisource platform serving oil and gas majors has continued to grow despite the downturn in that end market. Although project work in this vertical has been down.

In addition, we've made exciting early progress on our geospatial Big Data platform initiative. This recurring revenue multisource platform enables our customers to utilize the cloud to analyze our current imagery and our unique archive of very high resolution geospatial information dating back more than 15 years.

Our platform is attracting application developers and customers who have historically not been users of our imagery, including several large information companies and innovative start-ups who are using us for a wide range of new applications including economic forecasting, demography, logistics, rooftop material identification, forestry, and even enabling the safe navigation of UAVs. We believe our platform will attract and grow new customers over time by enabling a powerful ecosystem of partners who are joining with us to unlock the information embedded in our imagery with a radical new architecture and economic model.

This is a high growth business but from a small base and therefore it will not be a large contributor to the company's total growth in the near-term. The investments we've made to establish our position as the world's leading provider of satellite imagery put us in a strong competitive position.

We have the only constellation of very high resolution satellites, a global network of ground stations, highly automated image processing, powerful delivery in analytic platforms, and a secured infrastructure, it enables us to provide mission critical information in near-real time that uniquely delivers on the requirements of the largest buyers of imagery and geospatial information in the world. Let me now turn the call over to Gary to discuss our results and our guidance in more detail.

Thanks, Jeff, and welcome everyone. During the quarter, my second full quarter with the company, we demonstrated the benefits of strong expense management and driving continued margin expansion and free cash flow.

In addition, our trailing 12 months returns are now in excess of our cost of capital. We are well positioned to sustain this momentum and will continue to prioritize free cash flow and return on invested capital to deliver shareholder value.

Revenue for the quarter showed strong year-over-year growth, up 12.1% to $173.3 million. Our lower than anticipated revenue for the quarter was primarily due to obtaining fewer end of fiscal year contracts than we had anticipated in our USG value-added business.

This excludes our global EGD business which renewed in the quarter at a slightly higher level than last year. Conversely, even with the revenue being lower than in plan, our adjusted EBITDA was higher than anticipated with year-over-year growth of 48.6% to $91.4 million.

As we continue to face revenue headwinds, we also remain focused on efficiently operating the business. I am very proud of the team's ability to deliver on the bottom line as the company has historically shown significant financial discipline and the ability to drive improved EBITDA margins, free cash flow, and returns over time.

U.S. government revenue in the quarter was $111 million, up 26% year-over-year, driven by a $27.4 million increase in revenue from our enhanced fees service level agreement or SLA.

U.S. government value-added services revenue was $23 million in the quarter.

This was slightly below the year ago level of $24.6 million, primarily due to a decrease in deferred revenue earn out on prior global EGD awards. In the short-term we anticipate that USG value-added revenue will be impacted by the shedding of certain nonstrategic low-margin contracts.

We have experienced and anticipate some continued timing impact, as we attempt to move both new and current opportunities to new contract vehicles. In addition, approximately $6 million of the most recent global EGD award is being deferred and will be recognized over the life of the enhanced new contract.

Diversified commercial revenue was $62.3 million in the quarter, down 7% year-over-year. Direct access or DAP revenue was $28.9 million, up 6% primarily from additional image deliveries and access minutes to meet customer demands.

Other diversified commercial revenue was $33.4 million, down $6.2 million or 16% year-over-year. This decrease resulted primarily from softness in our LBS vertical.

As we discussed in late July, we anticipated LBS to decline in Q3, due to our strong prior year performance and our decision to protect 30 centimeter pricing. In addition, we saw a decline in some of our project based revenue streams due to currency devaluations and lower commodity prices impacting some of our emerging market customers.

Our next 12 months revenue backlog decreased slightly year-over-year to $533.8 million. Growth in DAP backlog was offset by declines in the backlog and location based services in a decision to reduce minimum annual commitments with certain of our resellers.

Our strong adjusted EBITDA growth this quarter up $29.9 million generated a significant increase in margin to 52.7% versus 39.8% in the prior year. This margin increase resulted from a combination of the incremental margin on $18.7 million of increased revenue.

The benefit of previously implemented efficiency initiatives and our continued to focus on expense management throughout the quarter, our year-to-date adjusted EBITDA margin for the nine months, well through September, was 48.4%. We will continue to focus on increasing efficiency across our business to drive margins to 50% or greater.

Net interest expense was $5.6 million, reflecting capitalization of $9.2 million in quarterly interest on our debt, which was impacted by our decisions to remove WorldView-4 from storage late in the first quarter in order to make necessary enhancements. Total interest expense for the quarter, inclusive of capitalized interest, was $14.9 million and for the last nine months it was $44.6 million.

CapEx spending, excluding capitalized interest and tenant reimbursement, was $51.9 million through the first nine months, and we are currently on track for our projected $110 million in CapEx plan for the year. Free cash flow for the quarter was $51.5 million, up year-over-year by $92 million, resulting in a solid 29.7% free cash flow margin.

We have generated 25.2% free cash flow margin through the first nine months of the year. Q4 is typically our largest quarter for CapEx spend.

Therefore we expect to achieve approximately 20% free cash flow margin for the year. We generated a return on invested capital on a trailing 12 month basis of 10.3%, an improvement of more than 400 basis points from the last quarter.

And that's more than 1,100 basis points from year ago, and consistent with our objective to drive return on invested capital to the low-teens. During the quarter we repurchased 1.5 million shares for $36.7 million.

And as of September 30, we had approximately $30 million remaining of our $205 million share repurchase authorization. Due to our continued free cash flow generation and the fact that we are nearing the end of availability in our current repurchase plan, our Board of Directors have approved an increase in our total share repurchase authorization by $130 million to $335 million.

Under our current debt baskets we anticipate completing the approximately $130 million in additional share repurchase authorization, as well as the $30 million remaining from the previous authorization between now and the end of the 2016. However, we plan to immediately reach out to our current lenders to increase our flexibility concerning return of capital to shareholders.

After considerable analysis and discussion, we've decided to lower our full year guidance. We now expect revenue to be in the range of $685 million to $700 million which represents a year-over-year increase of approximately 6% at the midpoint of the range.

The bottom end to the revenue guidance range is comprised of actual book to revenue to-date and backlog which is expected to be recognized through the end of the year. The upper end of the guidance range is based on closing and delivering a reasonable amount of current pipeline during the remainder of the quarter.

We expect adjusted EBITDA to be in the range of $330 million to $345 million, a year-over-year increase of approximately 18% at the midpoint of the range. Contemplated in our range are potential one-time non-cash items, the bulk of which is due to a constellation DAP expected to be signed near the end of year.

Should this signing slip into early 2016, this would accelerate the recognition of approximately $6 million of non-cash expenses into December. Excluding these one-time non-cash items and including the full year impact of our expense management initiatives, margins would exceed 50% for the full year, even at the low-end of the range.

As discussed previously, our original guidance range contemplated growth in our LBS vertical, stability in our Russia business, growth in other U.S. government value-added services, as well as growth in other areas of our business driven from additional WorldView-3 capacity and the adoption of 30 centimeter imagery.

LBS in Russia resulted in a communicating in Q2 a bias vertical lower end of the guidance range with some assumed uplift in other areas of our other diversified commercial and USG value-added service businesses. To-date, this uplift in other diversified commercial has largely not materialized as we continue to see currency devaluations and declines in commodity prices impact some of our customers.

The actual and anticipated year-over-year declines in revenue primarily emanate from LBS and are more project-based business line, while our recurring revenue streams such as DAP, global EGD, and spatial on demand continue to grow. While we have recently seen significant growth in the SLA due to the launch of WorldView-3, we're now in a phase under the existing contract where there are no planned increases, and we will rely on the balance of our revenue to drive near-term top-line growth.

Given the pace of growth, we've been seeing in these areas throughout 2015, ongoing headwinds and the modifications to the strategy, currently we anticipate the company as a whole to generate flattish top-line growth in the near-term. We plan to come back to you with guidance for 2016 in our fourth quarter earnings call.

We remain focused on and committed to driving ongoing efficiency in the business while making disciplined investments to drive EBITDA growth, margin expansion, free cash flow, and ultimately improve return, the level of future capital intensity is a question we are often asked. At this point, we anticipate replacing WorldView-1 and WorldView-2 capacity for total cost of no more than $600 million which includes all cost other than capitalized interest.

For comparison, WorldView-1 and WorldView-2 combined totaled approximately $900 million which also excludes capitalized interest, while WorldView-3 alone costs $600 million. The timing of replacement capacity would be based on the level of demand for our current assets including WorldView-4.

The investment could begin as soon as 2017 or 2018 and we would anticipate an approximate four year build cycle. While we considered the specifics of any future builds to be competitive information, we look forward to sharing more details when appropriate.

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

Thanks, Gary. DigitalGlobe has established a unique position delivering on the mission critical needs of the largest buyers of geospatial information in the world.

Space and earth observation are hard, and while others are pursuing adjacent market opportunities with varying degrees of success, DigitalGlobe occupies a unique place as the only commercial source of highly accurate, very high resolution imagery suitable for many critical mapping and intelligence missions, serving those charged with keeping nations safe in our increasingly volatile world. Looking forward, we see an opportunity to unlock the value of our information for new customer segments.

We've made progress but have also come to realize this opportunity will take longer than expected. Therefore we will further increase efficiency and more tightly focus our investments in order to continue to drive margin expansion and strong free cash flow and return capital to shareowners, while making disciplined investments in our emerging growth platform.

Longer-term, WorldView-4 will enable us to drive further growth in defense and intelligence and our investment in our emerging geospatial Big Data platform will unlock the value of our imagery for new customers. Operator, will you please open the call for questions.

Hi, there. Good afternoon, everyone.

I want to delve in first on the new NGA commercial GON strategy document that's floating around. I think in there they mentioned more frequent revisits would allow them to kind of economize on the high-end resolution imagery collection.

And maybe you could talk a little bit more specifically about how DigitalGlobe would fit into that sort of strategy, about that document more broadly. Is -- would your new satellite footprint potentially increase your revisit capability, or are you mainly focused on just making it cheaper to provide the similar type services to what you're currently providing?

Thanks, Denny. Let me answer your question as completely as I can.

First of all we've read the document. As you can imagine, we have a very large number of people engaged with NGA every day at all levels of the organization.

And what I can tell you is first of all NGA has made it very clear that they have no intention to reopen the SLA. Secondly, they've made it clear that funding for small sat imagery would need to incremental.

DigitalGlobe is unique, we provide a mission critical service. We are deeply integrated into NGA workflows and systems and frankly small sats are an adjacency but not a substitute for what we do.

As we -- the second part of your question related to our future constellation and what I can tell you is that we have taken advantage of the fact that we are the industry leader, we've been in this business for 15 years. We serve the largest buyers of imagery and geospatial information in the world and we also had a deep understanding of the technological possibilities.

We provide some details in our prepared remarks and beyond that for competitive reasons I'm not going to provide more details, but suffice it to say we are looking towards the future.

Okay. And then one on the shift I guess, looking at these new relationships you've mentioned lately with Mapbox and some of the things you're working on, could you discuss the revenue agreement?

How the revenue in these contracts is set up. Is there a share of the revenue they generate, is it kind of a one-time revenue for you guys or how do these partnerships kind of translate to revenue for DigitalGlobe?

Well all partnerships are different and obviously I'm not go into details on any individual partnership. Some of our partnerships are one-time data deliveries, but I will tell you we've been working to try to migrate that to those type of deals to subscription where possible.

Hi, Jeff, I don't think you're going to answer this question, but I'm going to ask it anyways regarding the WorldView-1, 2 replacement. It was unclear whether those would be a satellite for satellite replacement or something different in terms of the assets you had put on orbit?

And Chris, you're right I'm not going to answer that question for competitive reasons. But suffice to say it's focused on replacing the capacity that we have on orbit, doing it in a way that is very competitive and actually extends our lead in the aspects of quality that matter to our customers.

Okay. And with that last statement, it's fair to assume that your niche remains high resolution and you're not necessarily trying to emulate what's happening with large constellations and small sats?

So, I will first say we are not trying to emulate. We are leading but within that we've looked at all the aspects of quality that matter to our customers and that includes revisit and includes image quality, it includes accuracy, it includes spectral diversity, it includes everything that matters to the customers and understanding of both their current and future needs.

Jeff and Gary, so I think you said global EGD was renewed at a higher level. Can you tell us what it was and why was value-added services weaker during the quarter?

And what do you think is a normalized quarterly run rate going forward?

So, I guess what I can tell you Josephine and I'll hand it over to Gary to provide any additional detail. When you look at our U.S.

government value-added business, it’s approximately half global EGD and half project base. The half that is global EGD is strong, it was renewed with growth, and it’s serving a large and growing number of users across the U.S.

government. The project base part of our business is low margin, it’s non-recurring, and it’s more subject to U.S.

government budget pressures and availability of contract vehicles. We're in that business because the benefits in driving usage of our imagery, usage of global EGD and more deeply embedding us and our customers workflows and creating value for them and for us.

Gary, anything that you want to add?

Yes, we don’t give any specifics out on the size but I mean did mention in their how much we would be deferring over the next few years but we haven’t given any specifics as to how much it's increased.

And we did say it has gone up. And you can apply from the statement that the revenue has gone down a bit in terms of revenue recognition because we're deferring a chunk over multiple years.

Thank you. Two.

One simple. Are you at a point where you can discuss CapEx for next year, Jeff?

Gary, what can we share on CapEx for next year?

We haven’t given any specifics yet. We’re trying to give specifics so people can understand the build over a few years on what that might generate but we’re not expecting any major changes in CapEx in the near future.

And then second, this pressure you continue to have sort of on the commercial market and it sounds like, Jeff, you've gone through a lot of soul searching as to why it hasn't played out the way you, the way we expected. Is there anything that you can point to other than some of these verticals didn't materialize because they didn't pay off?

Yes, I could point to a number of factors. First of all like what you’re seeing in the guidance is primarily two factors the global economy which we simply do not anticipate strong dollar, oil and gas commodity prices, emerging markets.

Our commercial business has a heavy orientation to those sorts of customers and LBS. And for the most part, the impacts we’ve seen had been on the non-recurring project based part of our business.

With regard to go-forward, we’ve done a deep dive into our product portfolio what’s working, what’s not working, and we’ve concluded that the approach we had been taking with heavy vertical investments, developing vertically oriented products, vertically oriented R&D in sales and marketing, wasn’t driving enough growth fast enough with sufficient economics. And then parallel for that, we were seeing our horizontal geospatial Big Data initiative attract some very interesting customers and drive very strong sequential growth and for that reason, we've decided to make a shift.

Thank you for taking my question. Apologies, I'm feeling quite under the weather and I'm losing my voice.

I'm sorry. You sound voice.

Yes, I'll try to speak slowly. So if I look at the current valuation of your stock, and I compare that with the free cash flow coming down the pike, and now you're telling us today there's going to be a pretty significant reduction in constellation costs going forward, I just have to ask, are you seeing indications of interest from potential acquirers?

Obviously, Andrea, that's not the sort to think that I’m ever going to be able to comment on. I’ll use this as an opportunity to state that we are very focused on creating shareowner value that’s what this management team is all about.

We’re going to drive strong free cash flow. We’re going to focus on our return on invested capital.

And we’re going to return capital to shareowners in a way that we hope, expect, and believe will create value for share owners over time and that’s what we’re all about.

And then, Jeff, could you just speak a little bit for the Board just a bit or may be give us a sense of the tone of the recent Board meetings? Just regarding their tolerance for the shareholder losses and kind of is that sort of what spurred this five-pronged strategy or just give us some color there, please.

Look, I'm a member of the Board. The entire Board of Directors is very focused, single mindedly focused on creating value for shareowners.

That’s what we're about every day. The way we've been managing the cost structure and the modifications that we shared today with regard to our strategy are all about creating value and we’re all aligned in that.

Hey, Jeff, I just want to have a couple of quick clarification questions for you. And then a bigger picture one.

Your comment about WorldView-1 and WorldView-2, I just want to make sure that the intention here is to replace existing capacity, not to actually grow the capacity.

That is correct. What we -- without getting into specific metrics the way you should think about that is all replenishment strategy, we are not having a conversation today about growth capacity this is replenishment capacity.

Okay. And then the other clarification question can you just remind us all on when the enhanced view SLA will be up for renegotiation, the kind of the next 10 years, so to speak.

So, yes, first of all let me just preface this by, I know I miss the opportunity to say the relationship with NGA has never been stronger. To enhance few contracts is a firm fix priced contract that runs through August of 2020.

It is a compelling value and through this contract we deliver a mission critical service that is not available or even contemplated by others. I believe the Director of the NGAs comments do speak for themselves.

Beyond to 2020 I will tell you that I'm confident that our uniqueness and the importance of what we deliver will continue. We're very focused on extending our lead and we're very closely engaged with our customer on the long-term need.

So in short, I'm not going to speculate but I will express confidence in the long-term future of our business.

Thanks. So, Jeff, just expanding on what Howard was asking about on the commercial side.

How do you get comfort that the weakness, lack of growth you're seeing there isn't a function of some of the competitive issues that have been much discussed as opposed to just the issue of market development?

Well, thanks, Peter. We track our competitive win rates.

Our competitive win rates are very high, they’re well north of 70% and that’s included in both satellite alternatives and aerial. And secondly, with regard to the emerging competitors, frankly, they aren’t commercial offerings out there and they are fundamentally and profoundly different from what we saw, it’s very much an adjacency.

Okay. And then just on the numbers, two things.

One is can you quantify the revenue opportunity associated with the DAP channel from adding WorldView-4. I'm trying to understand how constrained you've been from a revenue standpoint this year.

And then when you talk about flat revenues near-term, I think it was Gary that said this. How do I interpret that?

Does that mean going into '16 you are thinking that revenues are going to be flat?

So first of all with international defense and intelligence, when your capacity constrained it's always hard to know by how much because at some point your sales force stops selling your customers stop ordering. What I can tell you is that we have not been able to fulfill and in some cases don't expect to be able to fulfill, all of the sales that we have been able to generate within the year, because we simply don’t have enough coverage within those regions to meet these particular customer order.

So we really believe that WorldView-4 will unlock that growth. In addition, WorldView-4 is unencumbered and therefore will be able to offer our DAP customers for the first time the capacity which cannot be withdrawn or actually trumped by the U.S.

government. So it’s a traffic opportunity.

With regard to -- the revenue growth you referenced to the flattish revenue growth, Gary can you cover a little more.

Yes, Peter, as you know, as Jeff just stated, I said flattish versus flat and you can see the way that I built up the guidance for the rest of year, which kind of implies certain numbers for Q4. I think at this point in time it would be very difficult for me to look that far forward and give you any other kind of a number and by the time we get to February we will have a lot more time to delve into it.

Hi, there. Just two follow-up questions.

First you mentioned that the recurring revenue has been very strong. Obviously we can see that with the SLA.

But also could you discuss what percent of your total revenue is recurring right now and what percent is project-based?

Well let me start and then give Gary a chance to share some more. If you look at our U.S.

government business, the SLA is obviously recurring. If you look at our U.S.

government value-added business, it’s about half recurring that's the global EGD. If you look at our DAP business, we view that as a recurring business even though there is some it's driven by availability of minutes, these are technically longer-term contracts.

And then within our commercial business, it is still mostly project based. Gary, do you have anything more to share?

Yes. I would say just add onto that.

We’re talking sort of in the mid-60s when you add that up 60% range. Obviously, when we said most, LBS would be continued recurring but obviously we’ve got issues, we’re dealing with it there with 30 centimeter pricing et cetera.

Other than that that would be a growing sort of business that we’re focused on. But all other segments we're growing.

And then on the costs, you did -- your gross margins were very good this quarter. You also took some costs out of SG&A.

Are we kind of -- are we still thinking that this kind of 80% gross margin range is the right range or could it go higher with this focused on cost. And same question on SG&A.

Is that something where you kind of move away from the vertical, the vertical approach, more to the horizontal approach? Is that kind of help with the selling cost and may potentially -- give you a little bit more operating leverage on the SG&A side?

Go ahead, Gary.

I think when it comes to costs; obviously we’ll continue to focus there also. I can't say that it will drive dramatically higher.

SG&A for us is a bit strange, I think as people think it. There are certain things in our SG&A that are more directly attributable to what‘s going out there when it comes into the technology sector than IT et cetera.

So those areas we have to obviously maintain where they are. But to your point sales costs for various verticals, things like that -- we’re looking at everything and we will drive efficiencies wherever we can.

Thank you. Can you give us a sense of what you're seeing in terms of WorldView-3 pricing, either at the DAP or commercial level, where you are getting contracts and where you're at in terms of uptick on the satellite for the portion of the satellite that isn't reserved by the government?

Yes. So, Chris, within the high-demand regions, where we have DAP customers, we're seeing very strong price uplift.

WorldView-3 is commanding a premium price because it is -- it’s unique and it's delivering a very powerful value proposition. In the lower demand regions, we’re also seeing price uplift but obviously not as much volume.

In the lower demand regions LBS has historically been a big part of that -- part of our business, big consumer of that capacity and archive and we aren’t seeing the growth there as we've talked about in the past. So we’re seeing sales, big price uplift but that is the general sentiment.

Got you. And clarification, one more on the WorldView-1/WorldView-2.

Both of those contracts were -- those satellites were built with the NGA as an anchor customer. Do you anticipate that your new construction initiative will also have an anchor customer or is this being done prospectively, based upon where you think the market is going?

Well, let's be clear. WorldView-1 is 85% dedicated to the U.S.

government. So any decision that we make to replace the WorldView-1 capacity will be based on the NGA’s future needs.

And that’s the way we see it. That’s our approach.

WorldView-2 is about 50:50, 50% U.S. government, 50% commercial so obviously we’ll take a different lens to that decision.

Hey, Jeff. With regard to the capacity adds that you're talking about doing, you mentioned that you have an eye towards low-teens ROIC.

I see you've got here an ROIC chart in your presentation slides, suggesting that you're on a trailing 12-month basis in the teens today. Can you talk a little bit about the discussion internally with management or with the Board on what this new strategy is all about?

Is it to push returns higher? Or are you preparing for a different competitive environment as we move into the next decade that suggests you need less expensive assets to provide this same types of returns that you're earning today?

So your focus sounds like it’s specifically on the replacement strategy and that replacement strategy is intended to extend our lead from quality perspective across all of the attributes of quality that we talked about frequently. And to do so with the lower capital cost, lower capital footprint and that should overtime drive returns because basically the replacement cost of our assets we expect to be meaningfully less than the cost of the original bill and that should create shareholder value over time.

So the goal here is to push returns higher, is that the idea?

The goal here is to extend our industry lead and push returns higher.

Thank you very much. Two, how are you thinking about your balance sheet in this process, Gary?

Or your leverage? I mean, it is nice to buy back stock, but you also have to think about everything from CapEx to the next -- just liquidity.

No, I think Howard at this point, we’re very comfortable with our leverage levels I mean I don’t have any issue at all. I mean we look at it in the big picture with the board about what’s the right capital allocation strategy.

And we will review that every quarter; I don’t have issues right now with the amount of debt we have, with the cash flow that we have and the future that we’re looking at.

I mean, you don't have any specific metrics that you're thinking about, either debt-to-EBITDA?

Oh, yes. No.

That's what I'm saying. I mean, we're very comfortable with the three to four times range.

I mean I have no issues with that.

I mean, just --

I think you're asking me would I be willing to go higher or something like that but.

Well, sometimes, I mean, as Peter knows that I'm an old lady sometimes when it comes to debt and a point at which it's nice to have less debt, which gives you flexibility for lots of things down the road as well.

No. That's true.

But we also have a lot of cash on our balance sheet. So I’m very comfortable with where we are.

Thank you for joining us today everyone. As exemplified by our results, we delivered on our commitments to margin free cash flow, ROIC and return of capital to shareowners.

And we’re committed to continuing to do so in the future. We’re modifying our commercial strategy from a vertical focused to be more scalable platform based approach and our U.S.

government and international defense and intelligence businesses have never been stronger as we build on our trusted position as mission partner in the defense of our nation and its allies and coalition partners in our increasingly volatile world.