Maxar Technologies Inc. (NYSE:MAXR) Q2 2022 Earnings Conference Call August 9, 2022 5:00 PM ET
Company Participants
Jonny Bell – Investor Relations
Dan Jablonsky – Chief Executive Officer
Biggs Porter – Chief Financial Officer
Conference Call Participants
Peter Arment – Baird
Colin Canfield – Barclays
Thanos Moschopoulos – BMO Capital Markets
Ken Herbert – RBC Capital Markets
Robert Spingarn – Melius Research
Austin Moeller – Canaccord Genuity
Chris Quilty – Quilty Analytics
Noah Poponak – Goldman Sachs
Michael Ciarmoli – Truist Securities
Operator
Good day. My name is Dana and I will be your conference operator for today. At this time, I would like to welcome everyone to the Maxar Technologies’ Q2 2022 Conference Call and Webcast. Today’s call is being recorded. [Operator Instructions] Thank you. And I would now like to turn the conference over to Jonny Bell. Please go ahead.
Jonny Bell
Good afternoon and thanks operator. Welcome to Maxar’s second quarter 2022 earnings conference call. I am joined today by the company’s Chief Executive Officer, Dan Jablonsky and Chief Financial Officer, Biggs Porter. Both will make some opening remarks, after which, we are going to open up the line for your questions. We are shooting to wrap up the call in about an hour.
Before we get started, I’d like to refer listeners to the accompanying slides for today’s presentation, which can be found on the company’s website at maxar.com. Once there, please turn to Slide 2, where I’d like to remind you that part of today’s discussion, including responses to various questions, may contain forward-looking statements, which represent the company’s estimates, future plans, objectives and expected performance at today’s date. These statements are based on current assumptions that the company believes are reasonable, but are subject to a wide range of uncertainties and risks that could lead actual results to differ materially from the forward-looking information. You can refer to the advisory regarding forward-looking statements contained in our quarterly earnings releases, earnings call slide decks and the company’s most recent MD&A section found in our Form 10-Q on the company’s website at maxar.com.
And with that, I will hand the discussion over to Dan. Dan, go ahead.
Dan Jablonsky
Thanks, Johnny. Good afternoon, everyone. Today, I am going to review the highlights of our performance in the quarter, go through our priorities and talk a bit about recent successes we have had with our strategic plan, provide an update on the Legion program, and provide some information on the environmental work that Maxar has been doing. Please look at a more detailed review of financial results and our recent refinancing activities.
Please turn to Slide 3. We had a solid quarter. In Earth Intelligence, we saw sequential growth in product revenues. While the revenue on the services side was a little light, which is a reminder is the lower margin business, due to challenges hiring cleared personnel and delays and awards. In Space Infrastructure, we posted solid margin performance at roughly 10%. Consolidated performance, as expected, reflected good growth from the first quarter. Total company book-to-bill this quarter was 4x driven in large part by the Electro-Optical Commercial Layer Program award announced in May. As a reminder, this award added $1.5 billion in backlog for the first 5 years of the contract and is a $3.2 billion contract that provides great revenue visibility for Maxar over the next decade.
Importantly, it also provides multiple paths for growth with the NRO, other U.S. government agencies and our diversified customer base moving forward. Beyond EOCL, the Earth Intelligence segment had a diversified set of bookings across the U.S. government, international allies and enterprise customers. Also, Maxar was recently awarded an Option Year 3 contract renewal with the NGA for the global EGD program. The annual contract value is approximately $44 million. This is the third of 3 option years for the contract, which has a total value of up to $176 million.
We continue to see strong support for this program and we expect to negotiate additional option years until the next iteration of this contract has recompeted. We have been providing some version of this capability for about a decade now. And with this award, Maxar will continue to provide more than 400,000 U.S. government users with unclassified, online and offline on-demand access to high resolution commercial imagery from Maxar in addition to geospatial data from other industry providers. I am pleased with the momentum we have in the Earth Intelligence business and expect recent bookings growth to drive continued revenue growth in the quarters ahead.
In Space infrastructure, similar to last quarter, the segment book-to-bill continues to be impacted by the large number of GEO Comsat awards received in 2020 related to the C-band transition, which are nearing completion. As a reminder, orders tend to be a bit variable and it’s hard to predict precise timing. We continue to expect to end the year with a book-to-bill greater than 1 in the Space segment. We have a good set of opportunities in front of us as we continue to perform in our legacy GEO Com business and pursue our strategy of customer and product diversification.
I will go into it a little – into a little more detail later. But two great examples of diversification have been our teaming with L3Harris as their subcontractor on the SDA T1 tracking layer program, where we are providing buses for their 14 satellites and our down-select on the GeoXO program with NASA to perform study phase work for next-gen weather satellites. We are also seeing good traction with our PLEO investments in the commercial sector.
On the balance sheet, our key priority has been to manage through near-term maturities and to provide longer term financial flexibility to pursue growth initiatives. We have done exactly that. As Biggs will address in more detail, we successfully refinanced our 2023 and 2024 maturities out to 2027 and 2029 and transitioned to a new $500 million revolving credit facility with a stronger and more supportive bank group. These transactions provide us ample runway to execute on our long-term plans for the business and along the way significantly reduce debt and leverage driven by growth in free cash flow and profitability.
Moving on to guidance, Biggs will provide more details on the full year in a few minutes, but the quick take is that we are not making any substantive changes to our outlook for revenue and adjusted EBITDA, although we are modifying cash flow guidance to reflect the higher interest rate environment.
Please turn to Slide 4 for a discussion on the Legion program. Last quarter, I described the test configuration anomaly on Legion that led to us delaying the first launch to September. Since then, we continue to make progress and have completed environmental testing on the first 2 Legion satellites and are in final closeouts. That means we are essentially hardware ready for the first launch. We have also completed integration of hardware and initial performance testing on the third of 6 Legion satellites and that spacecraft will be moving on to environmental testing in the next few weeks. The fourth satellite is in its final test phase prior to environmental testing. So we will be hardware-ready for the second launch in short order as well. The fifth and sixth satellites are progressing in logical sequence. So from the hardware side, we are on track.
Moving to software validation, our software is code complete. Unfortunately, it became apparent in July that we had delays in software validation and testing that could impact overall timelines. We have made significant progress against these challenges and now estimate a fourth quarter launch window instead of late third quarter. Once these software validation steps are complete, we will begin launch campaign activities including the shipment of the satellites to the launch facility down at the Cape, and lastly of course, on-orbit testing, commissioning and the beginning of revenue generation.
Back on the positive side of the ledger, we have been conducting launch and commissioning rehearsals and teams have been working to reduce the timeframe between launches. We now believe we can reduce the time period between the first and second launches to 2 months versus the 3 months we had previously estimated. Additionally, we have been working on reducing in-orbit commissioning time from our previously disclosed estimate of 60 to 90 days. These steps should allow us to pull forward revenue generation and recoup some of the schedule impacts. Additionally, we have increased our insurance coverage for our WorldView Legion satellite launches from $520 million to $620 million, with a heavier weighting toward the earlier launches. These policies cover the launches, including our additional third launch, plus the first year in-orbit. Following the first year in-orbit, we will seek to obtain in-orbit coverage similar to what we currently have on our existing satellites.
So to recap, hardware is essentially complete for the first launch. We are in a good position for our schedule on the second launch with closer center lines. We are progressing through software validation and are rehearsing to execute multiple launches and commissioning. And we have bumped up our insurance coverage. Along the way, we have also been making solid progress with our Legion pre-sales and DAF ground systems upgrades and remain confident in the long-term success of the program.
Let’s now turn to Slide 5 for a quick review of our 2022 priorities. At the top of the list are EOCL and Legion. As I just discussed, we have accomplished one and are making progress on the other. As far as investments in products and go-to-market strategies are concerned, these continue, particularly investments focused on our higher margin products, where we see a long runway for growth. As a reminder, I did a deep dive on our Earth Intelligence product business back on the third quarter 2021 earnings call. And I would encourage you to revisit the associated slides with that discussion for more details on our focused areas.
As far as other key priorities are concerned, this base infrastructure segment executed well this quarter, generating solid margin performance and the pipeline remains robust as we focus on capturing awards going forward. We have been investing in differentiated capabilities like proliferated low earth orbit, or PLEO satellites and continue to expand our partnerships with large defense companies as we develop efficient, commercially-oriented solutions for National Defense security and civil missions. For the SDA Tranche 1 tracking layer, L3Harris is the prime and Maxar will execute a subcontract for the design and production of 14 spacecraft platforms and associated support for the prototype constellation.
The Space Development Agency commissioned this program as part of the missile warning and tracking warfighting capability of the National Defense Space Architecture. The Tranche 1 tracking layer will provide limited global indications, warnings and tracking of conventional and advanced missile threats, including hypersonic missile systems. This is a big win and a validation of Maxar is expanding national security scope, where we plan to showcase our capabilities more going forward. These modular satellite platforms illustrate the company’s ability to adapt and leverage our deep experience, particularly with proliferated low earth orbit constellations. Also, 2 weeks ago, Maxar was selected by NASA as one of two companies to conduct the Geostationary Extended Observations, or GeoXO spacecraft Phase A study. It’s down to two teams.
Our space team will develop the concept for this next generation of weather monitoring spacecraft. This continues a legacy of work that started decades ago. Our space team built the first and second GOES satellites in the 1970s and 1990s, which operated well beyond their expected lifetimes. GeoXO was the follow-on to the GOES series. The Phase A work will establish the performance requirements for GeoXO and helped to find the spacecraft’s potential performance and development schedule.
Please turn to Slide 6. Couple of other items I’d like to briefly address. We have discussed in prior earnings calls how our News Bureau program is working with media outlets to increase global transparency and help combat the spread of disinformation in relation to the war in Ukraine. This current war more than any other in the past has helped the general public better understand what Maxar and the geospatial community does with satellite imagery and the importance of understanding what is happening where and when. Maxar has been releasing more than just satellite imagery, which is quite impactful itself. We have been showcasing our precision 3D capabilities that are particularly powerful and running change detection algorithms.
You can see a demo of that if you click the link on Slide 7. This is the high precision AI-enabled environment that allows users to make their way through massive amounts of information at scale. And we have also been using our Weather Desk solutions to monitor Ukraine’s agricultural industry. As you know, the country is one of the world’s top grain exporters and supplies many parts of the world that are already facing food insecurity. Weather Desk is our on demand product that transforms regularly changing weather data into actionable insights.
The team has been assessing Ukraine’s 2022 spring crop. Farmers planted less acreage this year as indicated in red on the map on Slide 8 and they will likely harvest up to 50% fewer crops if the conflict continues as its going. The Weather Desk team is also tracking Europe’s ongoing extreme heatwave. For more details on both the assessment and heat impacts, please review Slide 9.
We also published a blog post about the planting assessment and harvest prediction which you can read online. Maxar’s strengths in global high resolution imagery, multispectral capabilities for doing things like methane detection, analytics expertise, and upcoming Legion capacity provide a competitive advantage to be the trusted standard for environmental applications that require geospatial data. In 2021, our environmental-related offerings generated more than $50 million of revenue and we are on track to grow this business by roughly 20% this year. This is becoming a substantial and leveragable growth vector for us and we have to be the geospatial industry leader for future public sector and enterprise environment revenue opportunities.
And finally, this quarter we published our first Environmental, Social and Governance report and are pleased that our ESG scores from ISS have significantly improved in the last 2 years. Importantly, it provides details on our efforts to build upon good governance practices develop a more diverse workforce, invest in the communities, where Maxar and its customers do business, create more sustainable practices, and leverage our data to help customers and partners make a better world. That report is also available online.
So to summarize, we had a solid quarter. We have good wins with EOCL, T1 tracking our global EGD renewal, continued environmental capabilities growth, and we got the refinancing work done. We still have work to go on Legion and we are laser focused on that effort.
And with that, I am going to turn the call over to Biggs for a deeper discussion on our performance. Biggs?
Biggs Porter
Thanks, Dan. Please turn to Slide 10, where we present year-over-year comparisons for the second quarter. Net loss for Q2 is $30 million, inclusive of the $53 million loss on debt extinguishment as a result of the refinance. Net loss per share was $0.41. Revenue was down 7% year-over-year for the quarter revenue. Revenue was flat on Earth intelligence and Space Infrastructure was down 10% for the quarter as commercial and U.S. government backlog continues to mature. Adjusted EBITDA margins for the quarter are down roughly 70 basis points driven by tough comps at the segment level from a combination of mix and strong performance in the prior year Space Infrastructure and the planned increased investments we are making this year to drive future growth.
Our results for the quarter included increased expense related to our R&D and marketing efforts in Space Infrastructure, our product development strategy to Earth Intelligence and our ERP project, which is an important enhancement of the company’s government contracting capability. These aggregate to over $10 million in the quarter. On a year-to-date basis, total company revenues decreased 3% and adjusted EBITDA margins expanded 110 basis points. So, setting aside the comparison to a tough comp last year, this was a strong quarter that met our expectations and demonstrated good sequential growth.
Please turn to Slide 11. Earth Intelligence revenue was flat year-over-year in the quarter and adjusted EBITDA margins decreased 90 basis points, also our tough comp from last year. On a year-over-year basis, we experienced increases in product revenues from U.S. government programs. However, this underlying growth is masked by headwinds we are facing in our services business year-to-date due to the push out of awards and cleared workforce challenges. The net effect on margins from the federal mix shift was offset by increased expenses, including those related to our product development efforts. On a year-to-date basis, Earth Intelligence revenues are flat and adjusted EBITDA margins are down 200 basis points as we continue to invest in the build out of product efforts, which includes an uptick in labor-related expenses. Importantly, in the current year, revenues grew 13% sequentially quarter-over-quarter and margins expanded 600 basis points, which may continue this growth for second half of the year, primarily in the fourth quarter.
Please turn to Slide 12. Space Infrastructure revenue decreased 10% year-over-year in the second quarter as commercial and U.S. programs near completion and backlog matures. Adjusted EBITDA margins contracted 290 basis points due to program mix and strong performance compared to the same period of 2021, but remained healthy at 10.2%. On a year-to-date basis, revenues have increased 1% and adjusted EBITDA margins have expanded 630 basis points. Recall the first quarter of 2021 included $28 million negative impact on revenue and adjusted EBITDA and the charge related to Sirius XM-7. Normalizing for this, revenue was down slightly and adjust EBITDA margins are largely consistent. As a reminder, the increases seen in R&D primarily relate to PLEO efforts and were included in guidance for the year. This spend and our future ERP spend to Space Infrastructure will continue to create some pressure on margins in the segment or the rest of the year. But as evidenced by the T1 tracking award, these are already paying off.
Please turn to Slide 13. The company generated $90 million in operating cash flow from continuing operations in the second quarter and invested $87 million in CapEx. Cash flows were negatively impacted by $91 million in unfavorable working capital changes driven by timing and receipts and periodic payments. We expect this to reverse in the second half.
Please turn to Slide 14 for a recap of the refinancing activities completed in the second quarter and announced the 10-year EOCL award in May. As a reminder, we had bonds maturing in 2023. We also had a credit facility under which there was a revolver and a term loan that were approaching their maturities in 2023 and 2024 respectively. Because of the interrelationships of the different obligations and pending maturities, the holistic rather than a piecemeal approach, was optimal. Our main priority with this refinance is to remove all near-term maturities, protect ourselves continuing increases in interest rates, secure a new credit facility with a stronger and more supportive bank group, and remove a significant refinancing risk in an increasingly uncertain credit environment. The EOCL contract award provides a firm foundation for this effort.
Under the new capital structure, our newest maturity is now 2027 versus 2023 in the prior structure and the extension of 4 years. In addition, we have the ability to reprise our term loan B starting in December 2022 and we opted for a 5-year bond with a 2-year note all period to allow us the flexibility to refinance in June of 2024. Once WorldView Legion launches are underway combined with increased free cash flow generation and debt reduction, we expect an upgrade or credit rating will help drive better pricing in future refinancing transactions.
Please turn to Slide 15 for more detailed breakdown of interest changes resulting from the refinance. When we guided for the year, we projected cash interest of $103 million. This included projected interest rate savings of $10 million from our refinancing. Implicitly, absent of refi, our expected interest cost was $113 million in a steady market environment without any refinancing. This $113 million is for interest payments only and excludes any impact to paying the premium to retire in 2023 notes. Markets clearly moved away from us during the course of the year. Increases in base rates upwards of 2.5%, spreads and effective yields increased our cash interest costs from what would have happened in a steady rate environment with no refinancing.
We saved interest cost on the refinancing of the bonds with a coupon of 7.75% versus 9.75% on old bonds, but the term loans became more expensive by a combination of rising base rates and increasing spreads. The bottom line is that instead of a decrease in cash interest costs $10 million we had an increase of $27 million. Break down to $27 million, about $15 million comes from rising interest rates on our existing floating rate debt from increases in the base rate, $6 million is from the timing of final attrition payments on retired debt, and a $11 million is from increased spreads in our term loan B. This was partially offset by $5 million of savings on the new bonds. Following the $27 million increase in cash interest cost with anticipated savings, we ended up with a variance of approximately $40 million relative to our guidance expectation. The comparable variance for our expectations for 2023 is a negative effect of approximately $50 million before any significant mitigation. In recovered market and better credit rating, there is potential to mitigate the impact down to approximately $35 million, with an improved spread in SOFR rates. I say it this way, because our no call period on the $1.5 million term loan B expires at the end of this year. So there maybe an opportunity to bring down – this down with improved market conditions and improved credit.
Our 2023 targets originally contemplated $35 million of interest savings. At a minimum, those savings have been absorbed by the increase in base rates and spreads. I would reduce your expectations for 2023 free cash flow by $35 million to $50 million depending on what you believe about market conditions. I will comment more on this in a moment.
As a side note, industry financing did achieve better pricing on our revolving credit facility. It just doesn’t have a significant impact on the calculations I just went through. Although it’s been a tougher interest environment than we would have preferred, we did execute and are now in a sound capital structure position with opportunity for further improvement to repricing of the term loan B as early as December of this year and through the call the bonds as early as June 2024.
Please turn to Slide 16. We had roughly $340 million – $341 million of liquidity at the end of the quarter. Net debt increased $203 million this quarter driven by $90 million of borrowings and revolver to fund our refinancing as well as $56 million increase in term loan B associated with the refinancing. From this point forward, our bank leverage calculation is going to look different. Our adjusted EBITDA is being used as a denominator for a bank leverage calculation has changed as we move from IFRS to GAAP adjustments and removed the IFRS to GAAP adjustments and reset the covenants to match this as well. Going forward, we still anticipate the covenant calculation to benefit from additional as I expected stock-based compensation. However, the calculation will be closer to what can be derived from our financial statements. This new calculation is more aligned with how we internally viewed our leverage as well. Under this new calculation, our leverage is 4.7x levered compared to a covenant of 5.5x. Our interest coverage ratio is 4.1x versus a covenant of 2.5x.
Please turn to Slide 17. I want to take a couple of minutes to address questions related to our tax asset carry-forwards that came up during our refinancing activities. As we move forward to generation taxable income, the value of these tax assets is going to be more apparent. As of December 31 last year, we had thorough NOL carry-forwards of $523 million, interest deduction carry-forwards of $141 million, which are in addition to the NOLs, and federal R&D tax credit carry-forwards of $84 million. On a tax effective basis, these tax assets aggregate to approximately $225 million at today’s federal tax rate. We expect that these tax assets and our tax strategies will shield us from significant cash taxes at least until sometime in 2026. We also expect to continue generating R&D tax credits increasing annually to around $20 million by 2026. This should help everyone model future tax benefits and related cash flow.
Now, please turn to Slide 18 for an update on our 2022 guidance. Total company revenue and adjusted EBITDA guidance remain unchanged. At Earth Intelligence, the total revenue range consistent with the tightened ranges we presented in conjunction with the EOCL award announcement. Top line pressure on our lower margin services business creates some headwind. We have active prospects in our higher margin imagery business that should partially or fully offset this. The high-end of the range is also still within reach as we have been saying much depends on the timing of book-to-ship business.
We continue to expect to see growth in Earth Intelligence, primarily the fourth quarter driven byproduct growth across our government and enterprise businesses. This will be consistent with the fourth quarter trend in the prior year. We have a strong pipeline of opportunities in Earth Intelligence. Similar to what we said last quarter, this growth would come off a variety of sources, including precision 3D, increased government revenues, including from Ukraine and DAF customer upgrades. We have taken Legion revenues out of the guidance for this year. Guidance for Space Infrastructure is unchanged. And we see less risk there as we continue to execute on the work we have in backlog. We also see a robust set of opportunities in this segment.
Turning to adjusted EBITDA, at Earth Intelligence, the softness we are seeing in our services business presents less risk to adjusted EBITDA as this was lower margin work. The product growth we are forecasting is higher margin and will help drive adjusted EBITDA growth for the remainder of the year, primarily in Q4. At Space Infrastructure, we are tracking towards the higher end of our range, but this will not impact consolidated results materially, particularly as the intercompany work related to Legion is eliminated.
Capital expenditures are tracking towards the top-end of our guidance range driven by Legion. And I have already covered the $40 million change in current year operating cash flow expectations driven by the recent refinance. Generally, we don’t update all elements of our long range plans every quarter, so don’t quarterly reconfirm every element of longer term guidance. Having said that, we assumed constant rates from the forecast interest costs on existing debt and have therefore implicitly changed our line item guidance for cash interest savings in 2023 by $50 million. This assumes a fairly unchanged credit market, which hopefully is conservative.
I am sure everyone will ask about the effect on 2023 of delay in Legion launches from September to the fourth quarter. The effect of that delay and whether there are offsets to it or other factors to consider is too early to call. As a reference point, we have historically said the full year adjusted EBITDA run-rate for the first year of Legion was $80 million. We are tightening our timeline between launches and are focused on commissioning cycle time. As a result, there may be no meaningful delay in achieving the full deployment of all 6 satellites.
To summarize otherwise, we executed our refinancing in a tough market which carries increased costs affecting our near-term cash guidance that still de-risks and sets us up well for the future, with good sequential growth in the quarter and operating results. We have strong opportunity sets across both of our businesses and we are maintaining our outlook for revenue and adjusted EBITDA for the year.
With that, I’d like to hand the call back over to the operator to begin the Q&A.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question will come from Peter Arment with Baird. Please go ahead.
Peter Arment
Yes, thanks. Good afternoon, Dan, Biggs. Hey, Dan, maybe just to focus on Legion, I am sure you get a lot of questions on Legion, but maybe just to help level set. How long is the normal kind of software validation period? And then also, if you could just describe how long we should expect on the transportation of the satellites? Thanks.
Dan Jablonsky
Yes, thanks, Peter. Well, we thought we would be done with software validation by now and had some delays that were unexpected. And so that’s causing the shift from late Q3 into Q4. We got to get all the way through that software validation testing. But the fact that we are essentially hardware-ready has bought down a lot of risk in the program. And so, we are with a new program like this in the development program, we continue to knock off items on our list of deliverables before we take the satellites down to the range. We are on track to do that, but more than we wanted to see this particular cycle. Once we finish all of that and send the satellites downrange, in the current schedule, we are planning on ground shipment. We do still have opportunities to potentially send the Legion’s downrange by air. So, it’s anywhere from 10 to 14 days we go by ground to same day service with a day turnaround, loading and unloading if we do it by air otherwise, so got a little bit of slack in the schedule there depending on which route we take. And then, as we also mentioned on the call, we have been using the time wisely, I think while we have had this unfortunate delay to be able to reduce cycle times, focus on that focusing on commission and rehearsal activities and also we believe be able to shrink the time towards commissioning of the satellites. So, limiting the impact of any – for investors the impact of revenue generation and for our customers, the impact of not having the satellites on-orbit yet for their important mission needs.
Peter Arment
Appreciate that. I will leave it there. Thanks.
Dan Jablonsky
Thanks Peter.
Operator
And our next question will come from Colin Canfield with Barclays. Please go ahead.
Colin Canfield
Hi, good evening. Talking a little bit about Space Infrastructure, can you just discuss or maybe update us on kind of how you view the geostationary market? And kind of within that context, if you can give a flat modestly of market, how do you think about the moving pieces between legacy Satcom and kind of incremental new tech demand or big tech demand?
Dan Jablonsky
Yes, thanks, Colin. So I am really pleased that we were able to announce the one down-select and also the T1TL award here. It’s been our announced strategy for quite some time to continue to service the market we are in, which is the GEO-KOMPSAT market. And we continue to expect off a lower base of than what that used to be, but pretty solid numbers of expected awards there that we will continue to maintain our market share. And those have been longstanding and really important customers for us. So we are excited to see continue serving them. And that’s a good base in our business, but we did realize that for more resiliency in the business as well as additional growth vectors that we would have to work on diversifying both our product set and our customer sets. And so we have been spending, as Biggs mentioned, good R&D money and capabilities in – new capabilities technologies like PLEO. And we have also been really working our capability efforts for national defense and security programs as well as NASA programs, which are huge market opportunities. If you look at the dollars being spent there as well as the strategic importance of space to not just for exploration and science like NASA, but National Defense Infrastructure and Intelligence as well. T1TL is a perfect example of that being down-selected on the GeoXO program, with NASA for eventual GEO-KOMPSAT weather satellites is another element of that. And so we are pushing forward on those fronts. We think we are building a much more resilient business, one that has better growth potential and one that will be able to better protect its margins and increasing cash flow going forward.
Colin Canfield
Got it. And just within that construct, could you just talk a little bit about what the LHX deal implies for the cash and margin trajectory of the business. I think the understanding that kind of going into transform that has been pretty competitive bid environment and obviously, you don’t want to disclose terms, because they are competitive. But as we think about how that flows through the business, is there a good way to frame it?
Dan Jablonsky
Yes. And I am glad to you said that, so I didn’t have to. Thanks, Colin. What I’d say is, the one really good thing about this program is we are picking an architectural design that is it’s not 100% across every different program we are looking at, but a PLEO architecture that is usable, not just for national defense missions or intel missions, but also for commercial missions. So with this award, we are buying down a lot of design and engineering and technology work upfront. So, even this is a little lower margin business to start with as it grows and as it ramps and if this becomes a much larger constellation, again, this is a 14-satellite infrastructure is sort of a prototype constellation. So if that grows, we will have already spent a lot of money on the front end here to build those capabilities. And then as we bring this type of capability for other defense and security missions as well as commercial missions, we should expect to see higher margin rates on the other side of that. And as we have said, we always wanted to run this business better than 10%, will be a little lumpy here and there depending on awards and investments we make, but we think we are well on the way to do that.
Colin Canfield
Got it. Thanks for the color.
Dan Jablonsky
You bet.
Operator
Our next question will come from Thanos Moschopoulos with BMO Capital Markets. Please go ahead.
Thanos Moschopoulos
Hi, good afternoon.
Dan Jablonsky
Hi, Thanos.
Thanos Moschopoulos
Just expanding – hey, guys. Just expanding on the services business with MBI and the weakness there, so I guess two issues part of the staffing part of the program delays, at this point, any visibility in terms of when some of those programs delays the results?
Dan Jablonsky
Yes, we – it’s been – we get more visibility throughout the course of the year. And that’s why we are as Biggs addressed, we are able to hold our revenue and EBITDA guidance even though some weakness there. And also as we backfill some of that with higher margin product business, but they seem to be resolving, it’s just taking a little bit longer than we originally thought it would go in into this at the beginning of the year. We continue to have a very robust. We kind of lump it together as the services business. But there is a lot of classified work in there, a lot of work related to cutting-edge technologies like artificial intelligence, machine learning, space situational awareness and other things that we are doing that matches really well into the rest of our Earth Intelligence product business. And so it’s very valuable business for us. Some of it is just moving a little bit slower than we would like right now. I think across the industry, the hiring challenges have been pretty well explained by lots of other companies as well. We continue to pour a lot of effort into that and we think we are turning the corner on it, but we just got to – we are always hiring on that side of the business, particularly for people with the right tech expertise, as well as the right security clearances.
Thanos Moschopoulos
Okay. And then just jump to the international [indiscernible] since that was down year-over-year, so again, really just a tough comp and I look forward to alluded to more DAF program upgrades and seeing ongoing growth in [indiscernible]?
Dan Jablonsky
Yes, I think probably the two things to call out. One, you mentioned the DAF upgrades. We have got several of those done, but we do have continued upgrades to get done throughout the course of the year. We are seeing several under contract now, but continued strong demand for Legion. So with the DAF upgrades and with the Legion capabilities, we have got built-in growth just with the existing customer base. And then we do have opportunities to add to our DAF number and location of customers throughout the world. And that’s going to help us more efficiently monetize the overall constellation, but especially in the high demand regions of the world as well as Legion comes online. The other thing I’d say is we are seeing better product adoption with our international customers as well. The tough comp we mentioned last year with some book shift business with a very large international defense customer. So we could see some of that going forward. And we are seeing strong adoption of the 3D technology as well. So that’s exciting for us, because the investments we have been making in that and that’s a high margin piece of the business really seem to be bearing some fruits with the diversified customer base, particularly the international defense intelligence customers.
Thanos Moschopoulos
Great. Excellent. Thank you.
Dan Jablonsky
Thanks, Thanos.
Operator
Our next question will come from Ken Herbert with RBC Capital Markets. Please go ahead.
Ken Herbert
Hey, good afternoon, Dan and Biggs.
Dan Jablonsky
Hey, Ken.
Ken Herbert
The fiscal ‘22 guide for Earth Intelligence implies a pretty significant ramp in the second half of the year on the top line. It sounds like this is more fourth quarter weighted. Can you just comment on maybe a little bit more specifics on the cadence you expect in that business as we go through the fourth quarter – I am sorry, the third to fourth quarter, but then also some of the key programs or other items that you have confidence in that will really get to the – get up into the guidance range for the segment?
Biggs Porter
So, it really is, if you recall last year and maybe before that fourth quarter had good step up and we expect to have that kind of good step up this year. The last year, you might recall, we increased our product revenues of Earth Intelligence by $100 million, there is a chance to do that again this year and much of that’s in front of us. The DAF upgrades that Dan spoke to, the adoption of 3D and the general interest that we see out there internationally and domestically, some of that driven by world events, all positions us well to have a good growth through the third and fourth quarter. I would say third quarter flattish to up some and then a sharper increase in the fourth is the pace we would expect.
Dan Jablonsky
Probably just a little bit of an overlay to add on that too, Ken is that, I think we have have had the opportunity to move a few of these deals quicker if we would have wanted to, but we are really holding pricing on the 3D product line. It’s a unique capability. It’s really valuable. And while the deals are taking a little bit longer, we do believe they are going to get done and that will build a more solid base for the business on pricing and revenue accretion and bottom line accretion going forward.
Ken Herbert
Okay, very helpful. And if I could just pivot over to the Legions, you have called out starting to do some development work on I think satellites 7 and 8, maybe some initial work, can you just remind us on the schedule for those satellites relative to the first six?
Dan Jablonsky
Yes. So just kind of to level set, we do believe we are getting better at the center lines on the current constellation, particularly between the first and the second launch. And as we have hardware in hand and finished the software program, so fourth quarter launches assume 60-day center line on the second launch and then we will keep working on the third launch there as well. 7 and 8, what we did was we bought long lead time parts and started the procurement process for that partially because we see continued demand out there, but even more so to build a little bit of resiliency just in case we had issues with any of the current launches are on over commissioning plans for the Legion constellation. So those are at least minimum 24 to 30 months out from today if we were to start thinking about ramping up an effort to put effort into getting those built in on-orbit. And we would want to see a strong customer demand for that kind of on back on the – we mentioned on the call, but it’s in the Q as well. We did enhance our insurance buy to also provide some more resiliency into the launch profile of the constellation. So just – we are just kind of building a better set of barrier around the business as we move forward, but that refinancing was part of that. And we are just in a much more solid position where we are today.
Dan Jablonsky
Yes, I would revamp the baseline assumption our Legions 7 and 8 is they really wouldn’t need to start spending and earnest on those until the latter part of ‘24. And to go back to an answer I gave to your first question on the ramp up in Earth Intelligence, I just say there is long prospect list, which supports our revenue assumptions and EBITDA assumptions for the remainder of the year. So we feel once again really good about the opportunity set in front of us largely just comes down to the exact timing and particularly as much as driven by book-ship type business.
Ken Herbert
Great. Appreciate all the details. Thank you.
Operator
[Operator Instructions] Our next question comes from the line of Robert Spingarn with Melius Research. Please go ahead.
Robert Spingarn
Hi, good afternoon.
Biggs Porter
Hey, there.
Dan Jablonsky
Hey, Rob.
Robert Spingarn
Dan, could you review where you are on the hardware for WVL beyond 1 and 2? Do you – did you receive the electro-optical instrument for number 4 and when should you get the hardware for 5 and 6?
Dan Jablonsky
Yes, thanks, Rob. So we do have all of the instruments for the first four satellites. As I said, satellite 1 and 2 are essentially hardware complete doing final closeouts. Satellites 3 and 4 have the hardware they need, particularly the instruments. One is going into environmental test in a couple of weeks and then the other will go into environmental reference testing shortly after that. So we will be essentially launch-ready from a hardware perspective with four satellites in pretty short order here. We do not have the instruments yet for 6, or 5 and 6. But we have been doing final closeouts on our checklist of items down with Raytheon on those and expect them and do order this fall to support the launch schedule – well within the launch schedule, we have got planned up for 5 and 6 right now.
Robert Spingarn
Okay. And could you give a little more detail on the software issue you talked about? And then on the delay from September to Q4, is that a 1-month delay to October? Is it 3 months to December, how should we think about that?
Dan Jablonsky
Yes, we are not pinning it down. We are just saying Q4. So we went from late Q3, Q4. And the software delays were really were in the software validation and verification testing. And what happened was, we just had a lot more challenges getting through the final validation phase of lots and lots of different tests we run on the satellites in the software to be able to ensure that we will be able to conduct full mission operations and all of the anomaly events that we might expect during the life of the satellites are fully ticked and tied out. And it just kind of hit a roadblock and took a lot longer than we thought. We think we are past that now and things feel much better in hand. But we have got to complete that validation before we put the satellites up on-orbit.
Robert Spingarn
Okay. And just the last question on Legion but should we still expect 5 and 6 to launch 60 to 90 days after 3 and 4?
Dan Jablonsky
Yes, yes.
Robert Spingarn
Okay, excellent. Thank you.
Dan Jablonsky
You bet.
Operator
Our next question will come from Austin Moeller with Canaccord Genuity. Please go ahead.
Austin Moeller
Hi, good afternoon, Dan and Biggs.
Dan Jablonsky
Hey, Austin.
Biggs Porter
Good afternoon.
Austin Moeller
So just my first question here, as you continue to win more work using this 150 kilogram modulated LEO bus, like you did with tracking layer? Should we expect less lumpy revenue generation in Space Infrastructure and should we expect significantly faster assembly times relative to the GEO-KOMPSATs or NASA program spacecraft to try and compete with more of these small sat manufacturers?
Dan Jablonsky
Yes, I think on the – I will take them in reverse order and then Biggs can add color commentary, if he would like. We will definitely have to go a lot faster per unit satellite. So sometimes the overall course of a program, like 14 buses might take similar to what 1 Geo bus might take, but we are getting more, I don’t want to quite call it assembly line yet, but a lot more wrote in how we are doing these programs and how we are going to pump out satellites. And we are building the infrastructure to be able to do these on a very high cadence, particularly as we look at maybe larger expanded scope defense projects like this or else commercial satellite applications as well. So the investments we have been making upfront and Biggs brought up a good point, usually you make investments in a business you don’t see them pay off this quickly. We are really excited to see those investments translating this quickly into wins. So, that’s good for the business. On the lumpiness side depending on the size of these awards, and if we can layer them in and feather them in, hopefully, we don’t quite see something like the big slug you might see with one Geosat program coming in, but it’s a little too early to tell on that side of the business for us to probably predict that with full certainty at this point, but as we build out a more I think robust and diversified business, we should see, I don’t want to call it quite smoothness, because it’s still is a large spacecraft manufacturing endeavor, but a much more predictable sort of quarter to quarter first half second half year-to-year base of the business. Biggs, your thoughts?
Biggs Porter
I would just add, I mean the team has worked very hard to make the business more predictable. As Dan says, expanding the business base is a positive. All I caution it is still percent complete accounting. And so you are always going to have some degree of variability from quarter to quarter basis as a result of that, but presumably as the backlog grows, the business base diversifies. You should see more steadiness quarter to quarter on a top line basis absent any significant variations from EAC accounting.
Austin Moeller
Okay. That’s helpful. And then just a follow-up. Do you anticipate that the delays in the software testing and validation on the ground could potentially increase the schedule margin needed for the software or for the spacecraft validation and testing once it gets on orbit, in that 60-day to 90-day midpoint?
Dan Jablonsky
No, we are not expecting that. In fact, I think a lot of the work we have been able to do is driving that number towards the left for commissioning operations. So, we are seeing good results on the rehearsals that we have been doing there. And the additional – the ground teams – the commissioning teams have been taking the additional time to get more fluid and efficient on that part of the process. So, we are not expecting the delays in software validation on this end of the launch to impact commissioning. In fact, we are trying to drive it the other way.
Austin Moeller
Okay, Great. Thank you for all the details.
Dan Jablonsky
You bet. Thanks Austin.
Operator
Our next question will come from Chris Quilty with Quilty Analytics. Please go ahead.
Chris Quilty
Thank you. So, congrats on the tranche 1 award, I guess that knocks two things off your list of PLEO contract and a defense contract. But I got three follow-ups. First one is, is this a fixed price contract? Second part, when should we expect revenues on this to hit and given that SDA is doing 2-year spirals, presumably in the next quarter or two quarters? And then the third question, the [indiscernible] awards, all the busses for the tracking layer were 1,000 kilograms or north. So, can you scale up the Legion bus, scale down to 1,300 bus or something new?
Dan Jablonsky
Let me – just to make sure I got all those Chris. So, first off, yes, we are under a fixed price model here. And we are kind of excited about that. We have been used to living in that sort of model. So, with our long commercial heritage, and L3 Harris has been just a great partner working with us on definitzing contracts and getting, not just the capture phase, but also we are very excited about being able to work with them, and for them on this endeavor. On the – on when revenues hit, the starting gun has gone off. And so we are already working really hard, you should start to see revenue ramp, but it will start showing up in third quarter and fourth quarter as we start the very quick design and build cycle we have got here. In terms of sizes of buses, and capabilities of buses, a lot of those investments and where we have seen just a little bit of margin pressure on the space side of the business have been in those technology related investments that allow us to transition between different bus sizes. So, we have got the traditional 1,300. We spend a lot of money on the development of Allegiant 5319 capability. We have been developing other modular capabilities as well. And we have been developing what I am going to call sort of a workhorse PLEO capability along the way, here also. And so, depending on, we go through a prototype phase like this, what happens on orbit, what the capabilities look like, how you model it out, will be able to go up or down the stack with SDA, Space Force, NRO, other classified or unclassified programs and commercial programs as well, I think pretty, pretty adeptly. Not seamlessly, but I think pretty adeptly with the investments we have been making in the teams and the engineering focus there.
Chris Quilty
So, is that PLEO capability referring back to the Telesat Lightspeed work you did?
Dan Jablonsky
Yes. We did some there. But we have gone a long way past that. We brought in a lot of great talent. Our Chief Engineer down on that side of the business came out of the One Web. Not Chief Engineer, Chief Technology guy for the small set programs came out of One Web. We have been hiring really strong talent across the defense and industrial base, including engineering capabilities. And we have had some really good existing folks here as well. So, little bit tied back to Telesat, but not – we have gone way past that, I think. And I guess also, we have had other customers paying us for studies, as well as we continue to work on our technology. So, it hasn’t been 100% Maxar funded. We have had customers paying us to develop forward-looking technology there.
Chris Quilty
Fortunately, I don’t Telesat has gone way past. But that’s a different issue. A follow-up just on the earth intelligence, you mentioned that the margins down because of products up. When you were saying products, were you referring to actual hardware like RGT, and DAP, or were you development of products like, EarthWatch and SecureWatch and whatnot?
Dan Jablonsky
Yes. When we refer to products there, we are talking more about the products like SecureWatch, development work going into things like global EGD, our 3D capabilities, our vivid base maps as well. And we have been seeing strong adoption. And really customers coming into that and say, this is great, let’s now – let’s take that to the next level. So, we have been working on not just those products, but also the environment that we host them in to make it more easily for our customers to consume, the data and the services we have got there.
Chris Quilty
Got it. And speaking of one of those products Vricon, I think you came up short in Q1, it doesn’t sound like there was much movement this quarter, and Q3 sort of flattish. So, it’s got to be a real big Q4 to hit, I think previously you had talked about getting a range of sort of 80 to 110. Is that still an achievable goal with a real big Q4?
Dan Jablonsky
Oh, yes, absolutely. We are seeing good adoption there. I think what you saw maybe a little slower ramp in Q1 was maybe some bleed over from Q4 into Q1. But then very strong performance, obviously in Q2 now, so the adoption rate, or the close rates have been picking back up. On the public sector side for the earth intelligence business, that’s dependent on how fast we close out programs and purchases, like with the One World Terrain program, the army program is a big source of that. On the commercial or enterprise side of our business, we are seeing good adoption rates there as well. And a long runway for growth out into the future with enterprise customers as we do. I think a lot more diversified enterprise like business with insurance companies, energy companies, gaming companies, metaverse companies, as well as much more than just our traditional geolocation services business there.
Chris Quilty
Got it. And speaking of insurance, have you secured the insurance for the launches, because the market has been hardening quite a bit recently?
Biggs Porter
Now, we have secured the insurance, and we actually did it at a lower cost than our existing insurance program was at. So, we are very pleased with that outcome. I think Dan mentioned it, not only that we cover the third launch costs, but we increase insurance otherwise, and that increase is weighted towards the first launch, which makes sense from the standpoint of, where risk and insurance should be distributed.
Chris Quilty
Good. I am not sure if GEICO is a good option for that, though. So, we will have to see. Final question Biggs, because I am lazy, can you give us the book-to-bill on both segments?
Biggs Porter
It’s in the 10-Q, you can get certainly the underlying data. Just a second here and I will…
Chris Quilty
I have been lazy.
Biggs Porter
That’s fine. It’s very high because of the EOCL award, the firm portion of that, the $1.5 billion flows in for the quarter. We would like to look at this on a trailing 12-month basis, in which case, AI is 2.3 and SI is 0.9, so overall 1.8. If you look at it on a quarter only basis, it’s very exaggerated by EOCL. It’s 5.8 for earth intelligence, and 0.9 for space infrastructure, for 4.0 overall.
Chris Quilty
Great. Thank you.
Dan Jablonsky
Thanks Chris.
Operator
Our next question will come from Noah Poponak with Goldman Sachs. Please go ahead.
Noah Poponak
Hello everyone. Hey everyone.
Dan Jablonsky
Hey Noah.
Noah Poponak
Dan, can you can you just get more specific on what in this Legion software validation process has surprised you? I know you have said there have been roadblocks, but can you tell us what the roadblocks are, where on the process, what you have to do to get to the finish line, how close you are? It’s been pretty, pretty vague so far relative to something that is pretty important.
Dan Jablonsky
Yes. Hard to bring immense clarity to on an earnings call like this. I think what I would say is, as we run the software validation both in the various environments that we have, like our simulators, the hard environment on the satellite, as well as integrating into the hardware environment, there are certain ways, when your complete with the integrated software that you expect it to propagate to the system and then not hit trigger or hard stop points. And we just hit a lot more of those that precluded us from doing all of the other range of software validation tests that we want to do. So, there is some basic all encompassing ones upfront that we thought we had wired that we turned out not to have quite as wired as we thought we did. And they held up the rest of the validation and testing program. We believe we are substantially through that phase. And so as you look at a burn down curve now, and I am sure you are seen this before nowhere, you expect it to hit at a certain rate, and you get a certain number of resolutions per day and your defect rate what’s going up and starts going down. And you have got a good handle on it. Ours just sort of hit a flat line there, even though the teams are working on it very hard, and we weren’t seeing the burn-down rate we expected. We are seeing that now on the path that are much more level of – high-level of predictability. It’s not without risk as we continue to go through this. But as we look at a burn-down chart like that, as we look at full on system validation, and then things like a fault detection, telemetry triggers, and those kinds of things, we will be expecting to see much higher validation rates going through. So, we are about – it delayed us, yes. And so it delayed us several weeks and it just kind of wasn’t what we expected. But we learned a lot, and we worked our way through it, and we are better understanding the program at this point, programmatics.
Noah Poponak
Okay. That’s helpful. I appreciate that. Is it possible to make an estimate of what percentage out of 100%, you are now complete on the total software validation for Legion?
Dan Jablonsky
It’s a little hard to ascribe that exact percentage to it, just because some of these are very large, all systems ones. And then some are, like, did a particular check, heat light, kind of come on or not as we kind of total numbers. So, percentages are really hard, but we past a lot of the big integration ones now, and are now in the more discrete validation aspects of the program.
Noah Poponak
Okay. And then what remains after software validation?
Dan Jablonsky
After software validation, then it’s final close outs and moving the satellites downrange and doing launch based preparations.
Noah Poponak
Okay. So, we are…
Dan Jablonsky
Yes. It’s unfortunate as it has been, what I would say is, we did make a lot of progress. In last quarter, what we were most focused on was the hardware testing anomaly issue that we had. And we ran that to ground. We got the first satellites through all of their environmentals and are in final close-outs. And so we made a lot of great progress. This one, just kind of slowed down the overall aspects of the program. But we have continued to burn-down the risk and not knock off our checklist as we go along here.
Noah Poponak
Okay. Thank you.
Dan Jablonsky
Thanks Noah.
Operator
Our next question will come from Elizabeth Grunfeld [ph] with Bank of America. Please go ahead.
Unidentified Analyst
Hi, good evening. I had a couple questions. The first one is your EOCL contract dependent on Legion being operational?
Dan Jablonsky
It is not. Under the EOCL contract, Legion is backup capacity. If anything were to happen, any of our on orbit assets right now for the first several years, and then as we ramp out into the full tenure award, Legion does start picking up additional potential capacity for those moving from this step ups from $300 million to $340 million a year. But as we sit right now, yes, Legion is reserved capacity, which is also great because as Legion comes online, we will be able to monetize that above and beyond what the current EOCL awards are.
Unidentified Analyst
Okay. And then I mean I know you can extend the life of the satellites, you have in orbit. But many of those are approaching the end of their existing life, how much more life is in them, I mean how much no longer can they be extended to compensate for the delays? And then within that as well, within your new timeline, how much contingency is in when you say fourth quarter? Is that assuming a December launch? Is that early fourth quarter? How should we think about that?
Dan Jablonsky
Well, I am hesitant to say how much exact contingency is there, because well, I just don’t know until we are all the way through this. Our checklist is getting smaller and smaller. We are getting more and more predictive on the final on this. But we have had several delays. And I can’t, until we ship these downrange, I won’t say the satellites and the environment for them are fully buttoned up. On the question of constellation health, every year we go through a process. So, we have two different things we run internal simulations and make predictions about how long things last. But then we also do an engineering, useful life publication that we put in our 10-K. And we have extended the life of those based on those engineering simulations that are just used for accounting purposes. Several times now, we pushed out Geo1, WorldView 1 and Worldview 2, sometimes multiple times. We will be doing that analysis again in October, to determine whether we will be adding to the useful lives on the satellites. We continually monitor the health of all of our satellites. The current constellation is fully mission capable. And as we have said in the past, the longer satellites tend to last in space, the longer they will tend to last in space. And we are looking forward to starting that work again in October here.
Unidentified Analyst
Okay. And then just one more questions I get, what is the total cost of Legion one through six now, with this additional delay, what are you looking at for the total cost?
Biggs Porter
Yes. So, we reported last quarter, I think it was over $700 million is still in that territory. Additional time spent in the factory doesn’t draw, so additional cost. But it’s not changing our guidance for this year. And we will certainly, in the fourth quarter make our plans for next year and update if necessary the guidance for next year, but I would not deem this additional delay to be all that significant.
Unidentified Analyst
Okay. Great. Thank you very much.
Dan Jablonsky
Thanks Elizabeth
Operator
And our final question will come from Michael Ciarmoli with Truist Securities. Please go ahead.
Michael Ciarmoli
Hi. Good evening guys. Thanks for taking the questions. I guess just on guidance, both this year and next year, specifically, cash flow. I mean you have got a pretty big second half ramp for cash this year. And then just I mean how should we think about ‘23? I mean you just said you will make those decisions later. You have got that free cash flow target out there. It sounds like we should handicap that by $35 million to $50 million. Is there going to be any potential change? I know you just mentioned the cost of the satellites. But is there any change to CapEx next year, as things are sliding out? Just how should we think about cash, maybe, I guess?
Biggs Porter
Yes. I wasn’t trying to lead you to believe that there is a change coming. Just that we will look at every line item and the guidance later this year, when we do our plan and then obviously be more up-to-date with each line item and not to say anything will change other than interests that we know right now. So, that kind of leads you in one direction or another. Interest, yes, for next year, it would be $30 million to $50 million. From the standpoint of your analysis that you would take out of the $340 million that we guided to, I would say if you – we plan things on a constant market basis, and that would lead to taking up $50 million. But hopefully we can go and do some mitigation based upon the no-call expiring on the term loan the and bring some of that impact back down. Markets have improved. For this year, the change to our guidance was $40 million associated with interest. In terms of the full year cash flow and how you walk forward, I would think of it this way that second half EBITDA and cash generation from it before any working capital change will be $277 million. The interest payments for the second half, which are negative obviously is $79 million based upon the cash interest guidance that we gave. And then our working capital, we would expect to have $76 million in cash from working capital, which is roughly a reversal of the negative that we had here in the first half, which is the normal trend for us. There is a big burn-off in the front end and then improvement in the second half. But in this case, that improvement is exacerbated some by the fact that in the data, the second quarter here, we had a built up in receivables, billings to domestic and international customers that we know quickly converted to cash to bring that back down.
Michael Ciarmoli
Perfect. Alright. Great. Thanks guys. Appreciate it.
Dan Jablonsky
I think just as a general comment, too. We do have many paths still to achieving our 2023 targets. And we are very committed to getting the debt paid down to enhancing our credit ratings and to the CapEx holiday that you see in those cash flow numbers. So, interest rates moved against us, spreads moved against us. But we have got lots of other levers in the business to keep driving performance and are very, very committed to doing that. That’s healthy company performance now. Thanks. And operator, I think that’s it for us. We really appreciate it. Thanks, everybody for joining the call.
Operator
And now we will conclude today’s conference. Thank you for your participation and you may now disconnect.
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