Maxar Technologies Inc. (NYSE:MAXR) Q3 2022 Earnings Conference Call November 4, 2022 5:00 PM ET
Company Participants
Jonny Bell – Investor Relations
Daniel Jablonsky – President and Chief Executive Officer
Biggs Porter – Executive Vice President and Chief Financial Officer
Dan Nord – Senior Vice President and General Manager, Enterprise Earth Intelligence, Maxar
Conference Call Participants
Matt Akers – Wells Fargo
Colin Canfield – Barclays
Peter Arment – Baird
Chris Quilty – Quilty Analytics LLC
Robert Spingarn – Melius Research
Tim James – TD Securities
Michael Ciarmoli – Truist Securities
Austin Moeller – Canaccord Genuity
Operator
Good day and welcome to Maxar Technologies’ Third Quarter 2022 Conference Call and Webcast. Today’s call is being recorded.
And I would now like to turn today’s call over to Jonny Bell, Investor Relations. Please go ahead.
Jonny Bell
Good afternoon and thanks operator. Welcome to Maxar’s third quarter 2022 earnings conference call. I am joined today by the company’s Chief Executive Officer, Dan Jablonsky; Senior Vice President and GM of our Entire Business, Dan Nord; and Chief Financial Officer, Biggs Porter. Each 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.
Daniel Jablonsky
Thanks, Jonny. And good afternoon, everyone. It’s been another busy and productive quarter for the Maxar teams. Today I’ll review key highlights for the quarter review progress on our annual priorities, give an update on the WorldView Legion program. Talk about the woodenware acquisition that we announced today and then have Dan Nord gem of our enterprise business give an update on some of the investments we’ve been making in our 3D and platform capabilities. They will then provide a more detailed review of results and an update on guidance.
Starting to slide 3. Total revenues remained relatively steady at approximately $436 million for the quarter compared to the same period in 2021. Adjusted EBITDA was $115 million, excluding a foreign exchange loss of $5 million. And total company book-to-bill this quarter was 1x and 1.8x on a year-to-date basis. And Earth intelligence we continue to gain wider traction with the investments we’ve been making, especially in our 3D and platform capabilities. And we’re looking forward to the enhanced capacity coming online soon from the worldview Legion satellites. Our Space business continues to execute well win key awards and diversify into new product and customer areas. Let’s now turn to slide 4.
We’ve made substantial progress on our 2022 priorities and if checked most of our boxes. I’ll discuss the WorldView Legion program in more detail in a moment. But the headline is that we expect to ship our first two satellites to the launch facility in December for a January launch. The company is in good shape, we have plenty of available capital for the investments we want to make. And we’re seeing great adoption of our highest margin highest growth product SATs.
Revenue and earth intelligence is lighter than we’ve expected, though, as a result of our lower margin services business being behind on award cadence and staffing. We believe we’ve corrected our issues there have been booking awards for better backlog coverage. And I’ve had recent successes in getting personnel onboarding. So expect that to return to growth in future quarters.
On the higher margin products, I’m pleased with the market signals and pipeline opportunities we’re seeing across our 3D and platform capabilities and expect they will continue to drive customer value and revenue and profit growth in the quarters ahead. Those are a validation of the investments we’ve been making.
We’ll show you some of what we’ve been rolling out to customers in a bit. But the key thing to focus on as Maxar’s unique ability to provide a worldwide highly accurate and visually appealing, physics based 3D digital twin of the planet. No one else does that. As we finalize Legion, we’ll get the advantages of the additional capacity and enter into an increasingly strong cash generation period moving forward.
On the space side of our business, we continue to make good progress. We’re doing the hard and important engineering and quality manufacturing work for the world’s cutting edge communications companies and governments. The space infrastructure segment performed well this quarter, generating solid margin performance and program execution and continues to be well positioned for wins across national defense, commercial and civil missions.
As we discussed during our last call, we’ve been investing in differentiated capabilities in our space business, like proliferated low earth orbit, or PLEO satellites for both commercial and defense applications. Large infrastructure like the gateway PPE program for NASA Legion technology for Maxar and our robotics capabilities, and we continue to continue to expand our partnerships with large defense companies as we develop efficient, commercially oriented solutions for national defense, security, and civil missions.
As a reminder during the quarter we announced we were selected by Alfre Harris as our subcontractor on the SDA T1 tracking layer program where we’re providing buses for their 14 satellites. We’ve kicked off this new program has started bending metal and/or making progress towards our first preliminary design review in January. We believe this program will continue to provide upside growth.
As we’ve also previously mentioned, we were down selected on the GeoXO program with NASA to perform paid study phase work for next gen weather satellites. That has the potential to be another huge win in Maxar’s portfolio. We continue to execute on our backlog of other geo communications programs, and the Maxar built Galaxy 31 and Galaxy 32 satellites for Intelsat have arrived at Cape Canaveral and are expected to launch this month. We also shipped another Intelsat satellite via an Antonov for launch on an Ariane rocket out of French Guiana.
We’re in advanced negotiations on a few commercial communications opportunities in Q4 and expect book-to-bill in the space business to exit the year at well over one times. Regarding financial flexibility, we’re positioned well and have opportunities to improve on what we pay an interest as our credit rating improves and we deploy cash to pay down debt. This quarter, we received an upgrade on our credit rating from Standard and Poor’s, which is another indication we’re moving in the right direction.
As we’ve noted several times in our long range guidance, we expect 2023 to be a significant year for free cash flow. That’s being driven by the continued growth in our public sector Earth Intelligence business. The opportunities we see ahead for our enterprise business, especially for 3D capabilities, the continued performance execution and diversification of our space business and the roll off of our large CapEx program as we finalize Legion and transition to operations and bring that capacity online.
Please turn to Slide 5. On the Legion program, we’re getting ready to send the first two satellites to the launch base. We expect to ship them in December for a January launch. Flight software validation testing has taken us a bit longer than we’ve expected in September and October. But teams are in the final stages there. As you see in this slide, we’re essentially hardware complete on the first two sets. The next two are heading into environmental testing, and we’re wrapping up manufacturing on the final two. And then those satellites will follow the well-established environmental testing route of the prior four.
On the rest of our constellation, we continually monitor the health of our satellites. And all of our satellites are fully mission capable. In October of each year, we reevaluate based on rigorous engineering simulations that appreciable lies of our satellites for accounting purposes, which are typically shorter than the lives we use internally for planning purposes. Based on this annual accounting update, we’ve extended the depreciable lives of GEO1, WorldView 1, and WorldView 2 by one year to the second half of 2024. Additionally, as we typically do in October, we have extended the insurance coverage for all of our satellites in our current constellation by one year at the same coverage amounts.
Please turn to Slide 6. Moving on to another development for us on Earth intelligence. Today we announced the acquisition of Wovenware, an AI and software development company based in Puerto Rico. This acquisition deepens Maxar’s software engineering and AI Phelan bolsters our AI/ML and 3D production capabilities and enables growth opportunities in our Earth Intelligence segment. It will be immediately accretive in 2023.
The company will become one of Maxar software development in AI machine learning centers of excellence. This acquisition also helps with our services business. And because Wovenware is in U.S. territory, we’ll be able to obtain security clearances and do classified work. Wovenware’s Co-Founder’s will continue to oversee day-to-day operations of the company. We’re excited to welcome Christian, Carlos and the approximately 150 software engineers and developers to the Maxar team.
We’re going to do something a little different on this call and have one of our gems Dan Nord brief new technology for 3D AR and simulations that we’ve been rolling out to customers. Dan joined us 18 months ago and as Senior Vice President and GM of our enterprise business, where he’s responsible for managing our central technology platforms protecting defense customers, and for expanding our business with commercial and enterprise customers. He has a strong background in software engineering, mobile applications, and a video game industry.
Prior to joining Maxar, he worked at Amazon where he led product management for games. Before Amazon he led product management for mobile NVR and Electronic Arts. Dan?
Dan Nord
Thanks, Dan. Please turn to Slide 7. This shows what Maxar is well known for the stunning high resolution 30 centimeters satellite inventory that we collect at global scale on satellites. We operate and we delivered to the U.S. government, our allies and commercial customers for the past two decades. This one is Buckingham Palace during the recent Queen’s Memorial as seen from space.
On Slide 8 Maxar’s other key differentiator is our 125 Plus petabytes archive of high resolution satellite imagery that we’ve added to for every day for decades. This one is Beijing Airport scene on a rare smug free day. This archive is our one of a kind digital time machine of the world. We’ve had it stored and accessible in the cloud. And we use it to create unique products for our customers.
On Slide 9, I’ll talk about one of these unique products Maxar’s Vivid basemaps. These are imagery mosaics of the entire Earth first created in 2015 to support our enterprise customers mapping initiatives. Vivid basemaps are a single cloudless color corrected skin of the earth stitch together for more than 440,000 satellite images into what has become really the default basemap or consumer mapping. In fact, billions of people around the world have been using Maxar 2D imagery regularly in their cars, in their mobile mapping app for years, often without knowing about it. In terms of Slide 10, now with Maxar’s acquisition of Vricon in 2020, we have again leveraged our imagery archive to create a sustainable competitive advantage.
This time it’s in 3D, Maxar runs AI and ML algorithms on our entire archive to create a 3D Globe, a true digital twin of the Earth at an accuracy and resolution specification that would take years of imagery collections to match. The resulting product seen on Slide 11 is Maxar’s precision 3D. This is of Yosemite National Park in California. One of my favorite places where every cliff, Boulder and tree is within just a few feet of reality. And we’re doing this at global scale. Nobody else can.
Slide 12, here’s why we believe 3D is important. We see the world shifting from operating in a 2D paradigm on flat screen devices like the phones, laptops, TVs we use every day, and the 2D video chats that have started since COVID. We see a shift to 3D immersive technologies like augmented reality AR, virtual reality, VR and digital twin simulations that mimic the physical world. These are often referred to as the Metaverse. This 2D to 3D transition has signaled already, VR gaming is already a multibillion dollar industry, transporting customers around the world via virtual tourism, and VR games.
AR glasses are imminent, and will provide our virtual heads up display of relevant information as you go about your day. Even AR contact lenses, that technology is in active development right now. And with modern GPUs powered by near infinite compute on the cloud, we are producing true to life 3D graphics in near real time, we’re on the cusp of another major technology shift.
On Slide 13, this is where we fit in, we see an opportunity for our 3D digital twin of the earth to be the reference globe for this shift in technology from 2D to 3D. Immersive 3D applications need an accurate version of the world to use as a basemap, just as the 2D mapping applications do today with our Vivid basemaps.
Slide 14, we took a big step forward in our 3D strategy two weeks ago at the Unreal Fest Conference hosted by Epic Games in New Orleans. For background Epic Games. They’re the makers of the Unreal Game engine, which powers 1000s of games worldwide, including Epic’s own global hit game Fortnite. If you haven’t heard of Fortnite and you’re on this call, go ask your kids afterwards. At Unreal Fest, we presented our capability to 1000s of developers and released a demo of a photo real digital twin of New Orleans where the conference was being held. And we built it with our partner Blackshark.ai, a company we made a strategic investment in earlier this year and mentioned on our Q1 earnings call. This demo shows all of New Orleans, from Street to the Superdome running in the Unreal game engine, built only some satellite imagery and AI models. If you’d like to see the demo video, you can scan the QR code or click the link on Slide 15. The demo was downloaded by more than 120 companies in industries ranging from automotive and drone delivery and climate protection. All the way to video games and Hollywood film and TV production.
You can turn to Slide 15. Hollywood is using game engines to this is a picture of the Mandalorian on Disney Plus. But also the Matrix awakens and others have gone public about how they use game engines to make their content. So instead of finding a cast and crew to film on location or using green screens that are replaced later with background graphics like you see here, they now show around actors with a 360 degree screen rendering game engine produced scenery. So with Maxar’s 3D Globe in a game engine next year, film producers could theoretically film anywhere.
Slide 16, little more on our Blackshark.ai partnership. We met Blackshark when they used our data on the Microsoft Flight Simulator game pictured here. This is a digital London with digital planes. And it looks great.
On Slide 17, talk a little bit more about Blackshark and our own precision 3D. So as mentioned on the Q1 earnings call, we joined Microsoft as an investor and Blackshark using our imagery as a form of currency in exchange for equity in the company and a meaningful royalty on products using our data. We said Blackshark would help us enter the gaming market and now it has. Blackshark can create a lightweight 3D version of the world that prioritizes rich graphics over high accuracy and they do it fast. Maxar’s own precision 3D processes our entire archive and prioritizes accuracy over visual appeal. Precision 3D is also already in the market today and in use cases that require high accuracy like the U.S. Army’s One World Terrain program, which uses Maxar’s 3D globe to train our troops in true to life environments.
Slide 18, 3D demand is also accelerating the enterprise market. Precision 3D is used by current customers and autonomous navigation, drone delivery and telecommunication. We’re also seeing interest from companies in risk management, climate protection, and as mentioned before media production. Also our largest 3D deals also now include royalties that Maxar participates in the upside of successful products that use our data, something we haven’t always had in 2D.
Slide 19, the last slide, we believe that the largest long-term growth driver for the 3D Globe is large scale simulations that can improve decision making across governments or enterprises. A few examples, if you take the Queen’s Memorial from the first slide, an accurate 3D scale simulation of London populated by the millions of AI bots to represent people. This was helped authorities optimize the experience in advance lease placement signage walking routes, the city could insert new situations that weather or car accident to aid in contingency planning in advance.
In a commercial example, a product scale, a global scale could help a new product launch by monitoring, inventory distribution, global supply chain throughput, and even billboards placement to optimize customer contact, this kind of capability rapidly testing decision scenarios in a scaled simulation with both real and staged input that can be a key differentiator for anything. And that’s where we’re headed. So to wrap up, Maxar has an established high margin enterprise business with proven capabilities and high profile customers. And as we add in row view, weekend capacity, our strategic investments in three leads that were mentioned and our transition towards a more scalable data as a service model. We see upside in our enterprise business going forward. And I’ll hand it over to Biggs Porter.
Biggs Porter
Thanks, Dan. Please turn to Slide 20, where we present year-over-year comparisons for the third quarter. Net loss for Q3 was $4 million inclusive of a $12 million expense recorded related to the satisfaction of an offset obligation. net loss per share was $0.05. Revenue was flat year-over-year for the quarter on a consolidated basis. Adjusted EBITDA margin for the quarter are down roughly 70 basis points, inclusive of $5 million and unfavorable foreign exchange charges, and increased investments we’re making this year to drive future growth,
Excluding foreign exchange losses of $5 million tied to the strong dollar, our adjusted EBITDA was $115 million. Our year-to-date basis total company revenues decreased 2% and adjusted EBITDA margin has expanded 50 basis points, including $7 million of foreign exchange charges.
Please turn to slide 21. Earth Intelligence revenues increased 1% year-over-year in the quarter driven by a $15 million increase in U.S. government revenue, including $11 million in crisis support services, and a three main increase in revenues from international events and Intelligence customers. These increases were partially offset by a $14 million decrease in revenues from enterprise programs due primarily to a significant enterprise contract in the third quarter of last year. We expect enterprise growth in the fourth quarter. Adjusted EBITDA margin has decreased four basis points driven by increased spend particularly on product development efforts.
On year-to-date basis, we continue to experience increases in product revenues from U.S. government programs. However, this online growth continues to be masked by headwinds we’re facing and our services business driven by contract work delays in prior quarters and slow ramp up roared and work declared workforce challenges.
On year-to-date basis, our services business is down roughly 30 million. However, our backlog continues to grow. And we expect our services business to recover as we catch up on staffing challenges, including some benefit from [indiscernible]. I should note that we had one large precision 3D transaction that we expected in the third quarter that is slipped into the fourth quarter. I will discuss that more in a moment.
Please turn to Slide 22. Space infrastructure revenue increased 3% year-over-year in the third quarter, due to increases in U.S. government and commercial programs. Adjusted EBITDA margin has expanded 990 basis points, driven by reduced risks of certain programs nearing completion. On year-to-date basis revenues have increased 1% and adjusted EBITDA margins have expanded somewhere in 50 basis points. Normalizing for one significant charge in 2021 adjusted EBITDA margins have expanded 290 basis points.
Please turn to Slide 23. The company generated $124 million in operating cash flow from continuing operations in the third quarter and invested $75 million in CapEx.
Please turn to Slide 24. We have roughly $379 million liquidity at the end of the quarter. Net debt decreased $44 million this quarter driven by free cash flow generation. We’re well within our covenant ratios and continue to look forward to free cash flow generation continuing in the fourth quarter and strengthening next year.
As Dan mentioned in October S&P upgraded our credit ratings to a B plus from a B rating on improved credit metrics supported by recent contract awards. We expect improved credit ratings will help drive further drive better pricing and future refinancing transactions. Particularly once WorldView Legion launches are underway combined with free cash flow generation and debt reduction.
As we highlighted in last quarter, our credit agreement allows us to reprice our term loan B without a premium as early as December 2022. Depending on market conditions and loan valuations and our bonds become callable beginning in June 2024.
Now please turn to Slide 25 for an update on our ’22 guidance. At earth intelligence, we lowered our total revenue guidance range by $50 million driven by a combination of factors. As I spoke to earlier, our service business is down roughly $30 million year-to-date. And we do not think we’re going to be able to recover this year. To a lesser extent, we have seen some imagery transactions slide right. And this has hindered our ability to hit the top end of our previous range. Where we ultimately end up depends in large part on two large high margin multi-year arrangements that we expect to contribute significantly in the fourth quarter, one in public and one in enterprise.
Notably on the larger as of two were well long and all the customer approvals. Most of these are large multi-year deals with a significant portion expected to be livable out of inventory here in. This would subject to found [indiscernible] of the contract and the customers desire delivery schedule.
The second deal is with a large commercial customers looking to expand their relationship with us, including access to our 3D product. At the midpoint, this still represents 5% growth in revenue in Earth intelligence from last year. Despite capacity constraints and a $30 million of top-line headwinds we’re seeing in our services business.
We continue to see a strong pipeliners intelligence and expect to continue to grow from this base. Revenue guidance for space infrastructure and intersect eliminations have both increased 5 million on the WorldView Legion program. But this has no impact consolidated results.
Turning now to adjusted EBITDA guidance. We are reducing our consolidated adjusted EBITDA guidance by roughly $10 million reflecting the effect of the Forex charges we’ve experienced year-to-date. And Earth intelligence are updated expected range for just EBITDA is $500 million to $530 million, which in the middle of the range reflects the 45% adjusted EBITDA margin.
Guidance for space infrastructure adjusted EBITDA is now at $80 million to $95 million. This is driven primarily on the overperformance in the third quarter. In terms of trends, we expect our R&D expenditures for the year to be more heavily weighted towards the fourth quarter.
Our expectations for corporate and other expenses increased $10 million to $95 million for the year. This increase is driven by the $7 million of year-to-date foreign exchange losses on a strengthening dollar.
All in our existing EBITDA for the company in the middle of the range reflects 11% year-over-year growth. We’ve tightened the range of our expectations, our operating cash flow around the same midpoint of $340 million. I said last quarter, the capital expenditures we’re tracking towards the top end of our guidance range. And we’ve increased that slightly to $330 million for the year based primarily on the timing a WorldView Legion expenditures.
Please turn to Slide 26. We don’t confirm long range of guidance each quarter. And we’re currently in our planning cycle. But even though we’re still in process on next year’s plan and laying out the specific build up to our targets, we’re far enough along to confirm that we’re holding the targets that we’ve guided to for next year. To avoiding confusion, those targets are for $570 million of adjusted EBITDA and $290 million of free cash flow.
Although we will not lay out all the line items comparing next year to this year at this point. The drivers of your over year improvement remain legion related revenue growth, increased imagery product revenues, growth and space infrastructures third-party revenues replacing Legion or company revenues and lower CapEx.
I should note that CapEx on Legion has clearly shifted into 2023. We anticipate being able to offset this through adjusting the timing of other expenditures, and by improving operating cash flow.
Dan talked earlier about Legion Precision 3D and the diversification of our space infrastructure business. And we have some — for some time talked about our ability to drive free cash flow significantly higher than 2023 and each year after that in sequence. I want to lay out what all that means and a few closing thoughts.
Maxar is at the front end of high margin, high growth with significantly increasing free cash flow. This is driven by: one, increased capacity and revisit frequency from Legion; two, accuracy of imagery and products, including proprietary precision 3D capability; three, long-term customer relationships and contracts, e.g. five years firm on EOCL having never lost the depth customer and solid relationships with large tech players; four, with Precision 3D the development of the 3D globe, the ability capture on a broad scale, new use cases such as simulation, training, planning, targeting, GPS denied navigation, Metaverse, gaming and autonomous vehicles; five, capture of increased customer base and smoother revenue growth through our investments in platform capabilities and customer access through a data-as-a-service model; six, a lower cost more capital efficient cost base with low variable costs to support revenue and margin growth; and seven, a proven low cost manufacturing capability that has now penetrated civil, defense, and intel business with a diverse product offering.
We expect to hold that Investor Day following the release of our fourth quarter earnings, where we will drill into all of these. In the meantime, we’ll be doing some video presentations by our leadership will put on our website to help with everyone’s understanding of these drivers.
With that I’d like to hand the call back over to the operator to begin Q&A.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. We’ll take our first question from Matt Akers with Wells Fargo.
Matthew Akers
Hi, yes. Good afternoon, everybody. Thanks for the question. I was wondering if you could go into a little bit more detail on the software delays on Legion. What exactly are you seeing there that led to the delay?
Daniel Jablonsky
Thanks, Matt. So what we talked about and we talked about this back in September, but we were seeing some software delays on the verification and validation portions of it. That’s before we do all the hardware software interface work. We’ve now completed essentially most of that work. The ground teams the AI&T teams, and the others in the program have gotten software drops. So we’re progressing now through the other phases of our testing and expect to start shipping satellites in December for launches in January. So, I mean, the essential nature of the burndown curve wasn’t as fast as we thought it was going to be. But we made our way through that, that part of the program.
Matthew Akers
Okay, great. Thanks. And then I guess, thanks for the presentation on the 3D kind of Virtual Earth stuff is pretty, pretty interesting. I guess could you talk a little bit about, I think you’ve mentioned a lot of different potential customers there, sort of the timing of when that ramps up? What does that business look like in terms of like size and profitability? And just sort of how you would sort of model that coming at it from our perspective? Yeah, why don’t I kind of take that and then I’ll turn it over to Dan Nord for some of his perspective as well.
One of the things I stress right off the bat is the growth you have seen in the company, even as we’ve been capacity constrained, has been driven by our products, and in particular, our 3D capabilities. So the Army One World Terrain program is one area where we’re functioning very well at this point. And that’s on the order of above a $50 million, your program at this point, for building simulation and virtual training environments for the U.S. Army. We’re seeing strong uptake with our international defense and intelligence customers as well, particularly as more functionality as we build up more of the globe first, I guess. And then second is more functionality is being realized from that, particularly with some of the hotspots going on in the world right now.
We’re also seeing great traction with route planning and navigation planning for example, drone companies, autonomous navigation, and any other thing by which you might want to use a digital twin or a 3D reference point for the planet. So I think that, we’ve got good business, we’re growing the business strongly, we’ve seen good adoption, and the margins are very much aligned with what we’re doing in the rest of the Earth Intelligence business.
At this point, I think Dan, you want to add some perspective on how you’re seeing that in the enterprise?
Daniel Nord
Sure and I think it’s a key point is that this 3D Globe works for our government and allies, as well as it works for enterprises, there’s going to be one 3D globe as reference. I think the bigger change when we work on these 3D deals is and how we structure the deals and how we deliver the content, the 3D deals are going to be better. We’re going to take this impressive, one of a kind asset, and we’re going to make sure that we participate in the ups not through royalties, like you see with our Blackshark deal, as well as equity.
And we’re always going to deliver in more of a data as a service model. That’s continuous delivery, delivery instead of a big lump, once a quarter or once a year. I think those are the two larger differences for us.
Matthew Akers
Okay, that’s great. Thank you.
Operator
We’ll take a question from Colin Canfield with Barclays.
Colin Canfield
Hey, good afternoon, guys. Can we just focus first on the adjusted EBITDA bridge from 2022 Guide to 2023. Appreciating obviously, you’re not going to get into segment details, but maybe you can just kind of talk us through the high level of operating earnings interest expense. We’ll give region CapEx and then also the [indiscernible] acquisition. I think the employee headcount suggests something like $25 million to $50 million of adjusted EBITDA but telling you the math is crazy.
Daniel Jablonsky
On the final point, I think you’re high in terms of the effects of the acquisition, we’re not going to fight them out separately. Don’t think that there are of a value are we expect to discreetly change our guidance for ’23 associated with that. It is an important value creating acquisition. But part of that is just in ensuring that we have the workforce to continue the efforts that were already engaged in as well as covering the services business from its present path. But the total value I’d say is lower than your number, but we’re not going to discreetly communicate it, in terms of the bridge otherwise to ’23
I guess I think cash first because I think it’s only got a couple of moving parts to really point out, our Legion CapEx is growing. So CapEx will be higher than $146 million that we’ve previously guided too for 23. But we’re offsetting that through other reductions in CapEx, overall probably about a $30 million increase in CapEx, the big payments with respect to next year on Legion are really driven by insurance a lot. Because we’re so far away are so far along otherwise, with respect to the program.
On EBITDA, kind of starting out with Legion, we’ve always said that the first full year Legion is $18 million, roughly, that’s the first full year of operation of all six satellites once are all in service. In February, when we gave the guidance for ’23, we didn’t expect that $480 million in 23, because we were launching late into the year in terms of the last launch even at that point in time. So we weren’t at the start with. But what we’re now expecting is full operability would be in the July, August kind of time period based upon the guidance with respect to launches that we’ve given. So that sort of gives you an idea of what we might expect with respect to the Legion contribution in 23, without putting a fine point number on it.
Having said that, we always had some contingency in our plan, going back to February for 2023. And we’re getting left from Ukraine knock on effects and increased demand and also what we see as the opportunities on 3D, including some of the big award multiyear awards I’ve already spoken to.
Colin Canfield
Got it and then with respect to it’s not like the technological or the kind of the update that you guys made to software allowing you to extend the year life of your legacy assets. Is there an incremental profit to consider from that? Or is that more just kind of like downside protection in case of Legion delays?
Daniel Jablonsky
So just to kind of clarify there. We do an engineering assessment once a year in the third quarter to determine for accounting purposes, the life of the satellites, our internal models generally show them significantly longer than that. But we extended them based on that modeling this year. Those assets will continue we believe to produce revenue as long as they continue to be in space even as we bring the Legion capacity online. So the Legion capacity, especially while those assets are operating will be high incremental capacity at relatively high margins.
Colin Canfield
Okay, got it. I appreciate that clarification. Thanks for the question.
Daniel Jablonsky
Thanks, Colin.
Operator
We’ll take our next question from Peter Arment with Baird.
Peter Arment
Good afternoon, Dan. Hey thanks for all the details. And I appreciate the Dan’s contribution there that was really interesting on the 3D. Dan, could you update us on like kind of expectations now with the cadence of the other launches now that you’ve kind of got the official date now kind of moving to January, how we expect the others to be launched? Thanks.
Daniel Jablonsky
Yes, we still expect that after the first launch, we’re about two months for the second launch. And then the third launch will be in due course, we’ll see how the first two go. But it’s probably that two to three months after that, depending on how the teams are and how the commissioning process goes. So we would expect significant amount of revenue and EBITDA from the assets in 2023. And we’re looking forward to getting them down ranging and getting them up in space.
I just would know, I just would know because we’re always cautious in how we do the language. And this is a space program. And so we will continue to rigorously test all aspects of each of the satellites right up until the point when we’re in final launch phase. And we’re known for our quality. One of the reasons we’re known for that is the extensive testing we do all the way throughout and right up until the end of the programs.
Peter Arment
Appreciate that. And you had previously said that kind of a 60 day checkout once in orbit, is that still accurate?
Daniel Jablonsky
Yes, we are right around, we are right around that within a few days either way.
Peter Arment
Appreciate it. I’ll leave it there. Thanks guys.
Daniel Jablonsky
Okay. Thanks, Peter.
Operator
We’ll take our next question from Chris Quilty with Quilty Analytics LLC.
Chris Quilty
Thanks. I wanted to follow-up on one of the guidance items. I think I heard you say 45% EBITDA margins for the EI business for the year, which if I heard that correctly would imply, like close to 50% in Q4, is that correct? Am I do my math, correct?
Biggs Porter
Yes, 45% for the year the fourth quarter would be 50%. Keep in mind that that’s a step up and revenue and margin in the fourth quarter driven by product revenues, not service revenues, and the product revenues are a higher margin than that 50%. And, in fact, to the extent that we’re delivering on inventory, the time we deliver the margin is closer to 100%.
Chris Quilty
Got you. And so that’s just mix related, and how should we think about the margins for the space infrastructure business, it sounds like, you took out some of the management reserves in the third quarter, real big margin being — should we be aiming more for the low double-digits on a go-forward for the next couple of quarters?
Biggs Porter
Well, the — implied in the middle of our range the full-year margin for space infrastructure would be around just under 12%. The fourth quarter, I think, would be around 9%, 9-ish%. Well its continue to see quarter-to-quarter variations tribute to EAC accounting, and the variability that that creates going forward. We continue to target the 10% kind of range, like it to be better than that, but we will see variability period-to-period.
Daniel Jablonsky
I think kind of on that point, Chris. We are seeing better performance out of the space segment. At this point in the journey, some of that’s due to program mix, some of that’s due to just better performance in the programs. And then some of it’s due to the roll off of some of the larger programs that had been impacting us on the downside, as we move into programs that were more probably more appropriately been managed out through the future here.
But I think we’re really excited about the mix of programs we’ve got, there will be some that are cost plus. We’ve got the accounting systems in place to do that there will be some that are firm fixed price. And we’ll expect higher margins on those types of programs where we’re taking a little more risk on them as well.
Chris Quilty
Got you. One other accounting related question, can you give us either the orders or the general book-to-bills for both of the segments?
Daniel Jablonsky
Sure. I can — you wanted for the quarter or year-to-date trailing 12.
Chris Quilty
For the quarter?
Daniel Jablonsky
I’ll give you trailing 12. Because we think — we like looking over the longer period I’ve given. I’ve already given some I think on year-to-date. But trailing 12 EI has 2.5 book-to-bill space infrastructure, trailing 12.6. But I will emphasize that the quarter was hired 1.5. We expect to be over one times for the year. Consolidated basis were at 1.5. So all of these things have been trending in the right direction. And we look for sizable orders here in the fourth quarter on space infrastructure in particular.
Chris Quilty
Got you. And presumably, the guidance includes any contribution from the acquisition, which is probably not hugely material?
Daniel Jablonsky
I said it is not expected to move the needle against the guidance we’ve already given. So yes, we are not changing it for that.
Chris Quilty
Got you. And final question, just on the earth intelligence, commercial side of the business. It looks like there’s been some international weakness recently, again, is that attributed to the same delayed order issues we’ve been talking about previously? Is there something else going on there?
Daniel Jablonsky
I wouldn’t say we’ve got any weakness on the international side. I think we’ve seen strong growth throughout the year. We see some fairly large deals to close out the year as Bigg mentioned in Q4 here, but just seeing very strong particularly with the situation and use cases that are being shown in some of the crisis and conflict areas around the world. We’re seeing pretty good adoption of the product sets. We have been limited by satellite capacity with those traditional international customers and as we bring Legion online expect to see a lot of tailwinds coming from that.
Chris Quilty
Very good. Can’t wait to January.
Daniel Jablonsky
Thanks Chris.
Biggs Porter
And I think I just want to add in on the WorldLevel acquisition, when I say it doesn’t move the needle in terms of the bottom line expectation for next year, and then we’re not adjusting our guidance for it is that’s important because we’re going to use those resources to fuel our long-term growth. We’re using them to further rock development of the 3D product. And yes, we will – we expect to get some support other areas as well like services. But it’s really about being a very efficient resource that we can enter over time that will drive the business forward and enable that long-term growth.
Chris Quilty
Very good. Thank you.
Operator
We’ll take our next question from Robert Spingarn with Melius Research.
Robert Spingarn
Hey, good afternoon. Dan. I think that Matt just asked you about WVL software. And Peter talked about the launch schedule. But I’m not sure I — we talked about the hardware status for WVL three through six. Can you update on that?
Daniel Jablonsky
Yes, sure. And it just kind of go back to the one slide we referenced in the deck. But the first two are essentially hardware ready, ready to ship downrange, waiting for their final software packages for the launch and the commissioning phase of the program. We’ll want to make sure we validate that software all the way through the hardware interface and the AI&T sections and with the ground teams. But they’ve got the software will continue to do any patches to along the way here as we get ready for launch. And so that’s looking good. On the next two satellites, they are going into AI&T, so they’re going into the environmental testing that we do up in Palo Alto.
Rob, I think you’ve seen some of those facilities, but the thermal back chambers, tables, all that kind of stuff. They’re in that process right now. And we’re running, we’ll be right closed loop software all the way through those testing phases. And then five of the six…
Robert Spingarn
Hardware is done Dan at that point?
Daniel Jablonsky
Yes, they’re — as they come out of AI&T, they’re essentially hardware ready to go downrange to. We’ll continue to do performance reference testing all the way until we send them down to the base, but they’re in very good shape. The last few satellites, we’ve got the instrument for five, we’re still waiting for the instrument for six from Raytheon. But when we bring that one in, and then one or two other minor hardware components will be hardware ready on those as well. So at this point, those are further out, that’s not unexpected to have them at that phase. But you with the exception of that, that last instrument for the sixth satellite, where we’re tracking right along to where we want to be with the three coordinated launches.
Robert Spingarn
Okay. And then — and just the high level question, things offered up a really nice list of the numerous growth drivers earlier. And if I heard correctly, all but one are in the EI business, and you’ve got a ton of momentum, you’ve talked about it throughout the call the other Dan had a really nice description of the innovation you’ve got in that business. So it’s a little bit of a loaded question. And we have some history with this, but does SI fit in the long-term. As you move pass WVL. With all the strength you have in EI, and just give them how the market is changing on the hardware side, with all of the competition and so forth?
Daniel Jablonsky
We’re very pleased with the performance of the space infrastructure side of the business. I think they’re doing a great job. We’re really like the way in which the Legion program will support both sides of the business as well as I think as we’ve moved our way, or started moving our way into defense and Intel, there’s a lot of customer coordination and overlap, which is particularly nice, for example, National Reconnaissance Office Space Force I think the Air Force does as well.
So will continue to push that business forward. Chris and team are doing a great job. And like what we see there.
Robert Spingarn
Okay. Thanks very much.
Daniel Jablonsky
You bet.
Operator
[Operator Instructions] Our next question comes from Tim James with TD Securities.
Tim James
Thank you. Thanks for your time. My first question housekeeping actually I just wanted to go back Dan, you mentioned upfront about the change in the depreciation. The lives for GEO1 will be one and two. I’m sorry, when did the lives for accounting purposes get extended to on each of those satellites?
Daniel Jablonsky
We do that in the third quarter, or I’m sorry, in the fourth quarter. We did that in the fourth quarter review. So it’s an October workstream for us, and we do a rigorous engineering assessment simulation. We do that for accounting purposes, because we have to every year. We’ve got internal models that generally have those running longer than the accounting simulations for our long range planning and forecasting.
And I think what the takeaway there is, just like we have in many years in the past, we’ve extended those three satellites by a year. And also the key point is that we renewed insurance on the entire constellation for the next year as we normally do at the same rates, that we’ve previously been procuring the insurance.
Tim James
Okay, so it was in so it’s one year that you’ve extended the lives from on those is that right, and I believe they were all due to the lives were finishing up in either Q3 or Q4, and they’ve each been extended by one year. Is that correct?
Daniel Jablonsky
Yes. Each by one year, second half of ’24 for all them?
Tim James
Okay.
Dan Nord
And I think, hopefully you get it, but is on the insurance is not just a matter of us. Increasing the coverage by one year. That’s the insurers taking all the data on the performance of the satellites, and assessing that they’re comfortable with renewing the insurance for another year as well. So there’s a lot of analysis that goes into this, not just for depreciation purposes, but also given the nature, which supports everybody’s decision making.
Tim James
Okay. My next question on the services business and you talk things about the kind of shortfall or how service businesses has been lagging, I guess your expectations. Can you just walk through, again, the reasons for that and quantify that I think you mentioned $30 million. I just wanted to understand is that a kind of difference on a year-over-year basis? Or is that relative to your expectations, maybe just some additional color that would be helpful.
Daniel Jablonsky
It’s really both. In terms of being against our expectations, and also against last year, for some quarters, there was a very high level of proposals that were outstanding with the customers that just weren’t being freed up for us to execute against, that has corrected itself, such that the book to bill actually the year-to-date for services, although it’s not in what I gave earlier, it’s 1.4 times. So backlog is growing, and we’re catching up on those awards. But we do still have challenges associated with getting cleared personnel available to work on some of these programs. And that is, if you know tempering the growth we hoped for and that we expect to get going forward. And what will be one of the ways in which we would expect we’re going to be able to support growth in the services business as well as what we talked about in terms of driving product development, otherwise.
Tim James
It is primarily services work for U.S. government entities?
Daniel Jablonsky
Absolutely. Yeah, the very substantial bulk of all the services work is Defense Intelligence customers throughout the government.
Tim James
And where the delays are, or the differences is there obviously. Okay. And then just my last question, if I could and against maybe is going back to the presentation that was very informative. How big is it possible to give us a sense for how and I realize this is more about an opportunity for the future. But if we look at the business today, how much revenue approximately how much comes from customers that are using data or services, 3D or otherwise, for entertainment purposes, whether it’s gaming, or there’s a slide on Hollywood uses in there? Is it possible to kind of give us a bit of a significant interest today?
Daniel Jablonsky
I’m going to turn over to Dan Nord to second, we haven’t broken it out by industry, other than to say inside of the enterprise business, we’ve got gaming entertainment, of course, the traditional large tech companies that we work with mapping applications, geolocation services, risk management, vehicle navigation, those sorts of things. We’ve seen good growth on the public sector side, we see an opportunity for really substantial growth on the enterprise side as well. So Dan, do you have any thoughts on that?
Daniel Nord
Yes, some of this is new technology entering Hollywood and so actually the Unreal Fest presentation we gave a few weeks ago. That was when some of these customers just learned about it. So we’re right on the front end of some of the growth with the Blackshark.ai product. But there’s plenty of other applications to use our 3D data.
So, yes, I think it’s opportunity and upside on the gaming and entertainment side. And it’s clear opportunity in mapping drone delivery, and some of the more expected areas for 3D Globe.
Tim James
Okay, thank you very much.
Daniel Nord
Thanks for all the questions.
Operator
We will take our next question from Michael Ciarmoli with Truist Securities.
Michael Ciarmoli
Hey, guys, good evening. Thanks for taking the questions. Maybe, Dan, I guess if you could speak a little bit, I’m thinking about the overall pipeline and the competitive environment, I guess, if we were to, go back 12 to 15 months ago, there was certainly a lot more buzz about, all these upstart satellite competitors. But what are you seeing out there now, I mean certainly, you’ve done a lot here on the 3D side and scaling that up. But can you maybe just characterize what you know, as it relates to the pipeline of opportunities in the competition, what you’re seeing out there?
Daniel Jablonsky
I think we’re seeing continued very, very strong adoption and growth of our product sets particularly on the intelligence side, I think that as things walk through what our expectations are for the 2023 numbers that have been out there for quite some period of time, some of the crisis spots in the world have revealed that sort of an insatiable demand for the types of satellite data and derivative products like the 3D products that Maxar provides, especially as we show more global scale accurate applications for those things like 3D Point Clouds and precision 3D applications.
So I think, we’re doing really well there, the broad area components plus the hyper sort of accuracy at 30 centimeter quality is really the what’s driving the engines for the AI and machine learning applications that we’re seeing. And that’s where we’re seeing the growth of that into the future. And Legion will do nothing, but contribute pretty dramatically to the amount of capacity that we have, especially in the areas of the world where we have the highest product sets for that. So I kind of not to comment too much on what we’re seeing in the marketplace with everybody else. But even as others have come in and are doing some of this, it hasn’t really impacted too much. Or if at all the trend lines we’ve been on, that we’ve been expecting. On the space side of the business, we’ve been doing really good diversification work, we continue to love and serve the customers in the geo communications market.
But being able to diversify products and customers, and we’ve got a lot more products in that part of the business now. It’s allowing us to penetrate and drive real cash flow and real profits in the business. They’re also and we’re excited about those trends.
Michael Ciarmoli
Got it, got it. And then just one more an update on the world region, do you still just have one contract signed one customer or what are the expectations there?
Daniel Jablonsky
No, we’ve got much more than that. We’ve got two customers that have signed up for the additional capacity all the way through, we’ve upgraded, it is seven, seven now of our ground stations. And that’s in anticipation of them picking up the Legion capacity as well. There’s some built in for growth with government customer, U.S. government customers. And with that additional capacity also it meets all the specifications for the commercial customers, the enterprise customers that we got, and we’ve got strong backlog for them as well. There’s some contracts, but we have not been able to deliver close to the requirements for 100% of the contract. And so as we start delivering more with the Legion constellation, we’ll snap right into some revenue growth there as well.
Michael Ciarmoli
Got it helpful. All right, great. Thanks, guys.
Daniel Jablonsky
Thank you.
Operator
We’ll take our next question from Austin Moeller with Canaccord Genuity.
Austin Moeller
Hi, Dan, good afternoon.
Daniel Jablonsky
Hey, Austin.
Austin Moeller
So just my main question is on space infrastructure. You’ve had the win with all three [indiscernible] 14 PLEO boxes for the tracking there, what kind of production quantities do you sort of have in your vision for the next few years for PLEO boxes, do you think we could get to like 50, 100 satellites a year that would enable you to be highly competitive with the Terran Orbital’s rocket labs of the world?
Daniel Jablonsky
Yes, we’re certainly building that type of capability. We haven’t just been winning awards, but we’ve been reengineering our manufacturing footprint, our design and our space architecture, engineering architecture groups out there as well. And so we will be set up. Again, the first 14 satellites are really a prototype phase, if that program gets legs and grow significantly, or there are other programs in the defense and intelligence side, that Maxar certainly bidding on. And there are programs on the commercial side that were required numbers in the dozens to hundreds, as you’re talking about there, we’ll be in a position to scale up to capture that market opportunity. So we’re, yes, we’re bullish on it.
And we’re getting lots of good market signals. Because the one kind of the calling card the Maxar has is the quality. So as we ramp up those types of production levels, we’ll expect to keep the same quality our customers are used to and have very efficient delivery points. It’s good, good signals for us right there.
Austin Moeller
Excellent. Thanks for giving me some insights there on that.
Daniel Jablonsky
Thanks, Austin.
Operator
We will take our next question from Stephen [indiscernible] with BMO Capital Markets.
Unidentified Analyst
Hey, guys, just a couple quick questions on the acquisition. So it sounds like that EBITDA is already baked into the guidance where it’s going to be neutral, is that a fair way of looking at it?
Daniel Jablonsky
At this point, as I said, it’s not something we’re going to revise the guidance for this point in time, and don’t expect to do that in the future. From the standpoint of, just great third-party revenues, it’s not something to move it and otherwise, we’re going to take those resources and use them to drive our business forward. So you need to think of it that way.
Unidentified Analyst
Okay, and just on the third party, is out of business, so you’re going to continue to carry on once the acquisition closes, or whether it just be an internal part of Maxar?
Daniel Jablonsky
We’re planning to certainly carry on with some of the customers, this is a great company. And they built a really successful long-term business. Carlos, who the founders, and it’s a great young team of software engineers and developers, many of them from University in Puerto Rico. And they’ve certainly done a lot of business with us in the past that they’ve developed some great third party work as well. Where that’s accretive to the model in our business, and where those are good customers to keep going forward.
I totally expect we’ll be able to do it, the nice thing is, as we grow that business, we expect to grow significantly down there. We’ll be able to moderate between how much we do for outside and third parties and how much we do for Maxar internal development, and it’ll give us some flexibility on both fronts.
Unidentified Analyst
Okay, good to hear. And final quick question. Is the acquisition to be funded out of cash on hand? Or will you have to draw down on your credit facility?
Daniel Jablonsky
Well, we’re presently drawn on the credit facility. So effectively, it really doesn’t matter what you think of it as cash on hand or using credit facility. So, because we like to take any excess cash we have and pay down the credit facility as it’s available. Having said that, is not a big cash upfront outlay, it’s over five years. So there actually is the entire outlay is pretty pro rata over the entire five years. So it’s not a big cash use upfront.
Unidentified Analyst
All right, great. Thanks for clarifying those points. Sorry for that.
Daniel Jablonsky
I think that was it. We do expect it to be immediately accretive in 2023.
Unidentified Analyst
Great, thanks.
Operator
And that does conclude the question-and-answer session, I’d like to turn the call back over to Daniel Jablonsky for any closing remarks.
Daniel Jablonsky
I just like to say thanks the entire Maxar team for the great work this quarter and work we’re doing to finish out the year. I’m very much looking forward as I know our investors are to get into Legions downrange and launched and successfully operating in space and it’s a primary focus for us and look forward to seeing many of you at the launch site. Thank you.
Operator
And that does conclude today’s presentation. Thank you for your participation and you may now disconnect.
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