Maxar Technologies Ltd. (MAXR) Q1 2020 Earnings Call Transcript

Maxar Technologies Ltd. (MAXR)
Q1 2020 Earnings Call
May 11, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Maxar Technologies Q1 2020 conference call and webcast. [Operator instructions] I will now turn it over to our host for today, Mr. Jason Gursky. You begin.

Jason Gursky -- Vice President of Investor Relations

Great. Good afternoon and thanks operator. Welcome to Maxar's first-quarter 2020 earnings conference call. I'm joined today by the company's chief executive officer, Dan Jablonsky; and its chief financial officer, Biggs Porter.

Both are going to make some opening remarks, after which, we're going to open up the line for your questions. We're 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 call which can be found on the company's website, maxar.com, in the Investor Events and Presentations section of the site. 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. If you refer to the advisory regarding forward-looking statements contained in our quarterly earnings release, the earnings call slide deck and the company's most recent MD&A section found in our Form 10-Q which is available online under the company's SEDAR [email protected], under the company's EDGAR [email protected] or on the company's website at maxar.com. Before we get started, I'd like to point out that like the rest of you, Dan, Biggs and I are conducting this call in a work-from-home posture. None of us have ever conducted an earnings call in this matter before.

And as such, while we are confident that our IT systems will stay the course during this presentation we'd like to ask that you remain patient with us if something does indeed go awry, we'll simply reconnect within a minute or two and carry on from where we left off. With that, I'd like to turn the discussion over to Dan. Dan, please go ahead.

Dan Jablonsky -- Chief Executive Officer

Thanks Jason and good afternoon everyone. I appreciate you joining us for a view of our first-quarter results and an update on the outlook for the company. Importantly, I hope this call finds you and your families safe and healthy. I'm going to start off with a few words about the current environment which will be followed by highlights from the recent quarter, the progress we're making on our 2020 priorities and a deeper dive on how we're driving the business forward in the face of the coronavirus pandemic.

Biggs will then walk through the quarterly results and provide an update to our annual guidance. I'll then have some concluding remarks before we open the line for questions. To begin. The global community has been impacted by the dramatic effects of the COVID-19 crisis, and we are saddened by the loss of life and extensive disruption that has resulted from it.

Maxar activated its standing pandemic crisis response plan in the first days of March to protect the health and safety of our team members, families, customers and communities, while continuing to deliver the products and services needed by our partners to complete their critical missions. Our mitigation strategies have covered employee preparation and safety, travel, supply chain, virtual work solutions, facility protocols and communications. I'm pleased to report that all Maxar locations are currently and, in the main, have been operational through a combination of work from home and limited personnel working on site. As defense, aerospace manufacturing and communications are federal, critical infrastructure sectors, Maxar has been exempt from shelter in place orders, allowing us to keep some of our critical workforce on-site to maintain operations.

I am encouraged by the tremendous efforts of the Maxar team members to continue delivering on essential services while minimizing risk to employees in our communities. We will keep moving forward. We will continue to learn and adapt, and we will become more resilient as a company and team. Now, before I move on to the highlights of the quarter, I want to spend a minute upfront discussing the demand environment as we see it today.

It remains resilient. Our earth intelligence customers continue to rely on us for important national security and commercial missions, and we have seen little to no impact on demand for our products and services in this segment. In space infrastructure, demand too, has been a little affected to date. In fact, we had a solid quarter of new orders in Q1, and that has continued into the second quarter as we have made announcements recently and today of new orders.

I'll go into more details on the demand environment as we go through the presentation. Please turn to Slide 3 for some highlights of the company's recent performance. As we disclosed on April 8, we successfully completed the divestiture of MDA and with it, the near-term reshaping of our balance sheet and business portfolio. Proceeds are being used to reduce debt levels, and Biggs will go into more details, but this marks a significant milestone in our journey to improve the company's capital structure and maturity schedule.

And we believe it provides us increased flexibility, range and focus to drive revenue, profit and cash flow growth over the next several years. Moving now to quarterly performance. The earth intelligence business posted solid 7% year-over-year revenue growth as we successfully began offsetting lost Worldview-4 revenue in the second half of last year. This is a great outcome by the team, and we look forward to further success in the quarters and years ahead, particularly as Legion capacity comes online to help meet the solid customer demand we see.

Space infrastructure, we saw solid and diversified bookings in 2019, and we're off to a good start in 2020 with a book-to-bill above 2.5 times in the first quarter. And today, we announced an order for multiple 1,300 class satellites in the range of several hundred million dollars. Combined with Q1 bookings, this order brings the tally to roughly $700 million for the year. And should allow us to string together at least two consecutive years with a book-to-bill greater than one.

That marks good progress on our diversification strategy and business development efforts. Total company -- total company adjusted EBITDA fell $22 million year over year driven by solid performance at earth intelligence, but offset by $32 million in charges related to higher actual and projected COVID-related costs and a charge for a test failure we experienced in late April at space infrastructure. We'll cover these details in a moment, but both charges were anomalous and unexpected. Excluding these two items, adjusted EBITDA would have been $109 million in the quarter.

Free cash consumption tracked in line with expectations of $73 million which is an improvement from the first quarter of 2019 when we consumed $158 million. Total book-to-bill was 1.1 times however that number is dampened by the continued drawdown of backlog related to the EnhancedView contract signed back in 2010. Without this effect, book-to-bill would have been higher. Importantly, EnhancedView-related backlog from the original contract will burn to 0 in the third quarter of this year, and we'll move to booking annual option exercises into backlog when we receive those orders which is typically late in the third calendar quarter each year.

Please note that with the satellite award announced today, we have roughly 90% of our expected 2020 revenue now in backlog, with plenty of renewal activity and other pursuits in the pipeline. Now to a few words on guidance. While our business is not immune from the effects of the coronavirus pandemic as we are seeing some stress in our supply chain and an elongating sales cycle in some markets, we do have quite a bit of visibility on our programs with the U.S. government, international allies and commercial companies.

As I mentioned upfront, we continue to see solid demand as customers look to continue to fulfill critical intelligence, defense and commercial missions. We've seen solid bookings and continue to see strong sales pipeline across both earth intelligence and space infrastructure. With that said, we have decided to lower our EBITDA guidance for the year by $30 million to a range of $370 million to $410 million. We're doing this to absorb the $32 million in charges at space infrastructure which were driven by projected cost increases that we expect as a result of the COVID pandemic.

And rework to resolve an anomaly discovered during a test in late April on a commercial satellite program. I think it's important to note that without these unusual charges, we are tracking in line with our initial adjusted EBITDA outlook for the year. While I'm disappointed that we're having to book these charges, it's important to keep them in context. We're known for building great satellites and delivering critical mission performance.

These are late-stage programs that were won in 2016 and 2017. We're committed to getting these programs ready for launch and delivering on customer expectations. Now this updated guidance assumes no changes in the funding status of our programs that the current social distancing restrictions seen across the world continue through the end of the second quarter and that we begin to slowly return to more normalized movements in activities in the second half of the year. Please turn to Slide 4 for an update on our 2020 priorities.

First, we said back on the fourth-quarter call that we'd be focused on getting the MDA transaction closed so that we could reduce debt levels. We also said we'd be looking to deploy capital in a disciplined fashion and maintain the financial flexibility we need to fund the growth opportunities we see in front of us. Well, so far, so good. Despite COVID, MDA is closed.

Our leverage ratio is healthy relative to covenants, and we had roughly $500 million in liquidity at the end of the quarter. Importantly, we have no maturities until the end of 2023. In our view, this should provide us the flexibility we need to execute on our multiyear growth plan. Our second priority is to continue to position our earth intelligence business for long-term growth by focusing on the WorldView Legion build.

Ramping our sales and marketing efforts of the capacity this constellation will add to our existing operations and continuing to leverage our investments in artificial intelligence, machine learning, analytics, platforms and products. We are making good progress. The segment grew 7% this quarter, and we signed contracts with the U.S. government on the Janus IDIQ vehicle with here to support mapping applications and with Toyota to support autonomous driving solutions.

We've also been working in a creative manner with our U.S. government customers to continue delivering, enhancing earth intelligence platform and product capabilities to support their missions as they too adjust to working in a covet impacted environment. I'm also pleased to report that the Legion program remains in line with budget expectations and that we continue to expect launches to begin in the first half of 2021. We are in active conversations with both our government and commercial customers about Legion, and we expect the constellation's incremental capacity will be a driver of growth over the next several years given the solid demand signals we continue to see.

The sales cycle is tracking in line with our expectations, and we will provide further updates as we get closer to launch. Our third priority has been the continued reengineering and diversification of space infrastructure. Again, we made solid progress this quarter with bookings from both NASA and Intelsat that generated a book-to-bill of 2.5 times for the segment. On reengineering, we continue to make progress on plans to implement our recent footprint reduction efforts and to streamline processes and operations.

On the performance side of things, EBITDA was negatively impacted by the two buckets of projected cost increases I discussed earlier which we didn't see as risks going into the quarter. First, the COVID bucket at $18 million relates to supplier and productivity issues caused by our efforts and the efforts of our suppliers to dampen the spread of the coronavirus. These include the forward-looking effects of continued social distancing through June and the impacts of scheduled delays of two suppliers on one program. The second bucket of roughly $14 million is related to rework we are going to need to do on a commercial customer program after discovering an undetected issue with a design that goes back over two years, but is just now surfacing and final testing.

We both pride and differentiate ourselves on product quality which entails a tremendous amount of testing before we ever launch a satellite. This has led to our 92 and 0 track record on orbit and was one of the reasons our customers continue to come back to us time and again to build their satellites. We do these tests to find things that would have been a problem on orbit when it's too late to do rework. We are diligently coordinating with our customer to design a solution and believe we have adequately reserved for the cost of fixing the anomaly.

There are other puts and takes in the quarters. In the quarter, but they were within what we saw as possible variances when we gave guidance. While I wish we would not have experienced these issues, I am encouraged by the recent bookings in the business, and I'm confident that we have the right strategy in place to drive revenue and profit growth over time. I'd like now to turn to Slide 5 for a discussion of the things we are doing to move our business forward during the COVID-19 pandemic.

As I mentioned earlier, we activated our standing pandemic crisis response plan early on to protect the health and safety of our team members, families, customers and communities. This has included a work from home posture for many of our employees and comprehensive worker safety measures where our colleagues continue to work from a company facility given our designation as an essential business. We've also sent force majeure notices to several customers to protect our legal rights in the event that pandemic leads to program delays. From a financial perspective, we postponed Merit pay increases, restricted travel and events and provided stipends for technology that will enable greater productivity while we are in the work from home posture.

And finally, we have been supporting our customers, NGOs and the media with our geospatial data as these constituents seek to better understand and track both the pandemic and its effects. From a risk perspective, we have identified four primary areas of concern and corresponding mitigation strategies. In space infrastructure, we are closely watching the supply chain for delays in nonperformance, while also continuing to look for additional sources of materials and assessing that there are opportunities to make the parts we need versus buying them. We are also focused on the utilization and productivity of our facilities and workforce, and we have deployed comprehensive worker safety protocols including social distancing, temperature checks, deep cleaning and isolation strategies for essential personnel working at our sites.

For those working from home, as I mentioned earlier, we have provided siphons to procure productivity-enhancing technology. At this point, I am pleased to say that while we are not running at 100% utilization and productivity, we are operating at levels that are efficiently supporting our customers and that should support our financial objectives for the year. Obviously, it's possible the environment will evolve over time, but that's the way we see things today. Turning now to earth intelligence.

Longer sales cycle possible in the current environment as is an inability of some customers to work from facilities that enable the use of our products and services. To help offset this we are focused on addressing the most critical needs of our customers and are providing them with product flexibility where appropriate. For example, in one case, we have a customer that is having a difficult time consistently getting to its operation center to use a direct access facility. As such, we are offering a shift to our Rapid Access program which utilizes a virtual construct to task our satellite constellation.

We are also thoroughly assessing our pipeline for opportunities to bring sales forward where there is an immediate customer need as well as for risks of revenue getting pushed to the right. Additionally, we have identified workforce productivity and our ability to fulfill U.S. government contracts as risks given that access to needed facilities has become strained with current social distancing restrictions. To mitigate these potential impacts, we have implemented comprehensive worker safety measures are increasingly relying on work-from-home postures and are having employees shift to work locations to company-owned secured environments when appropriate.

Finally, we are closely monitoring the Cares Act and customer directives. In some cases, the government may be positioned to help offset the underutilization of our workforce to assure future capabilities. Please turn to Slide 6. Now before I hand the call over to Biggs for a discussion of our first-quarter financials and more details on our outlook, I'd like to remind investors of our revenue sources in order to facilitate a better understanding of the visibility in our business.

To start, we derive revenue for data, data analytics and space infrastructure which includes both hardware and services. Our data business represents roughly 41% of total revenues and serves both domestic and international governments as well as commercial customers. The data is geospatial in nature and is generated from our industry-leading constellation. Importantly, customers engage with us largely through recurring multiyear contracts which affords quite a bit of visibility.

Our data analytics and platform business represents roughly 29% of revenues, and it too serves both domestic and international governments as well as commercial customers. Here we are extracting insight from large geospatial data sets using machine learning and AI tools, and we are preparing those data sets for easy manipulation on various platforms that can be accessed remotely by hundreds of thousands of users worldwide. Like the data generation business, our customers engage with us largely through recurring multiyear contracts. In recent years, our data and data analytics revenue streams have driven most, if not all, of the company's adjusted EBITDA.

And finally, space infrastructure, where we provide communications and earth observation satellites, space exploration spacecraft, robotics and other space hardware across both commercial and government customers. This represents roughly 40% of our revenues which are typically derived for multiyear contracts for the construction of space hardware and follow-on servicing and support once on orbit. To be certain, we do not have perfect visibility, and there are always unknown unknowns out there, but our current set of revenue streams are derived from some of the most demanding customers in the world who rely on our product, that affords us some level of comfort on the outlook for our business over the year. Medium and longer term, even if the world looks a bit less certain given today's pandemic.

With that, I'd like to hand the call over to Biggs for a discussion of this quarter's financials.

Biggs Porter -- Chief Financial Officer

Thanks Dan. Before we begin to discuss the results for the quarter, I want to expand on the MDA sale with COVID-19 impacts and the resolution of the Ukraine customer arbitration we disclosed back in April. First, as Dan mentioned, we closed the MDA transaction on April 8, 2020, for roughly CAD1 billion which generated $729 million after purchase price adjustments. We expect net proceeds available for debt reduction to be $680 million after the payment of closing costs and reserves associated with the transaction.

We've already begun to redeem debt starting with the revolver and Term Loan B. Prior to the close, we entered into a deal contingent foreign currency hedge from 50% of the Canadian dollar-denominated sales price to protect ourselves against foreign currency fluctuation risks which did have a favorable impact to net proceeds received in the transaction. In part, last six months have allowed us to reduce our net debt by roughly $1 billion and improve our leverage ratio. These actions will also help us increase our flexibility and allow us to focus on our operations and growth over the next several years.

Our nearest significant maturity isn't until late 2023 and we currently have roughly $500 million in available liquidity at the end of the quarter. The touch front on COVID-19, there was approximately $1 million of cost incurred in March associated with momentary shutdown and transition back to work with critical personnel. We project continuing cost influence due to COVID resulting from social distancing and multiple shifts through June. Greatest amount of the projected cost increase is from our assessment of the likely future cost increases associated with suppliers with a focus on two that we believe are most at risk of having a significant impact on us.

These costs go out through the remainder of the year. This resulted in projected estimated complete profit reductions of $21 million. Because we have one big loss contract and many late-stage contracts under percent complete accounting, almost all of this, $18 million was recognized as a reduction in earnings in the first quarter. While touching on the effects of prescolite accounting when unforeseen events occur in late stages with contract, I should note that the test failure we experienced recently in April was a project that was in the final stage of testing before shipment.

As such, the percent complete the change fell through the bottom line in the first quarter resulting in a reduction of adjusted EBITDA of $14 million. As Dan said, we don't like to charge, but we do this -- excuse me, this allergy is you getting to. I'm sorry. It is rare to have this kind of issue at this stage.

The last time we had significant test issue at this stage was in 2015. But both we and our customers benefit from the quality controls we put in place. As Dan mentioned excluding the unforeseen items, we had a solid quarter and believe that our adjusted EBITDA results excluding these items which would have been $109 million are a better indicator of the underlying strength of the business. We didn't assume that now I can't say you will never have another significant test failure.

Sure. Our best estimate of effects as we see them book that in the first quarter. Even though we did our best read, we're in territory, the company and the economy have not experienced and therefore, cannot fully predict what will happen and how that will affect us. In addition to the impacts from suppliers, there could be significant consequences should we have an absence of critical employees for a period of time.

We obviously watch these risks carefully going forward and we'll adjust accordingly. Our operating posture has been largely positioned around having our employees who are not on which represents most of our workforce. For those that work on site, we distributed them physically and are running multiple shifts, while this is effective in a slightly less efficient. As I said, we currently forecast continuation of this environment at least through the end of the second quarter.

These factors, among others, may lead to longer sales and production cycles as employees and customers manage work intermodally and are caring for family members. On a totally separate front, on March 31, a Harvard tribunal issued a final decision to favor company related to claims asserted against it by Ukrainian customer, missing the claims in their entirety as well as awarding its costs and attorney fees. The recorded reserve of $60 million related to this case in our financial statements previously filed with the SEC. As a result of the positive outcome and arbitration, we recorded a gain in legal settlement of $39 million during the quarter as we released certain liabilities lay in the case.

This impact flows through income from discontinued operations, net of tax in our financial statements. The amount of the $60 million we did not release is associated primarily with trade payables. Please turn to Slide 7, where we present year-over-year comparisons for Q1 results. Total company revenues declined 12% year over year in the quarter due to a decline in the space infrastructure segment partially offset by growth in earth intelligence.

While space infrastructure continues to feel the effects of lower geo comsat orders in preceding years and the revenue affect EAC growth given the charges in this quarter, we did see solid diversified bookings in Q1. EBITDA margins decreased 280 basis points year over year driven by lower margins in the space infrastructure segment, in part offset by growth in the earth intelligence segment and lower corporate and other expenses. Corporate and other expenses were lower year over year driven by a foreign currency exchange gain of $2 million in the quarter compared to a loss of $5 million in Q1 2019, lower SG&A costs and lower retention expenses in the space infrastructure segment. GAAP EPS continuing operations is a loss of $1.30 in the first quarter of 2020 versus a loss of $1.14 in the first quarter of 2019.

The higher loss per share in the current quarter was primarily a result of lower overall product margins due to the lower volume, the $32 million in charges we experienced in space infrastructure and impairment of our orbital receivables balance related to increased customer credit risk. This was partially offset by a decline in SG&A costs due to the restructuring and cost-cutting efforts in Q1 2019, lower depreciation and amortization expense due to the sale of our Palo Alto property in Q4 '19 and revenue growth in the earth intelligence segment. Please turn to Slide 8. earth intelligence revenue increased 7% year over year in the quarter driven by new contract awards and program expansion on existing contracts.

Please note that Q1, 2019 was natively impacted by delay in the signing of the contract renewal with international customer as well as loss of Worldview-4. As Dan mentioned, we were able to begin recovering some of the lost review revenue in the second half of 2019 which is helping to drive positive year-over-year growth as we begin 2020. We as a reminder, we will see $40 million half-on-half revenue and EBITDA decline in the second half of the year on the enhance contract. The remaining deferred revenue and backlog associated with the original 2010 contract will burn off during the third quarter of this year.

In that quarter, we expect another $300 million option exercise by the U.S. government which is amount that will be added to backlog at that point and then recognize as revenue in the four or 12 months starting in September. Adjusted EBITDA margins remained relatively consistent year over year. Quarter over quarter, revenue declined 5% primarily due to timing of customer renewals and seasonality, while adjusted EBITDA declined 470 basis points driven by lower JV income and lower overall revenue.

Please turn to Slide 9. Space infrastructure revenues declined 37% year over year driven by a reduction in commercial program volume and the revenue effect of the charges this quarter which reduced our percent complete on certain programs. Adjusted EBITDA margins decreased 2,850 basis points primarily as a result of these charges. It is important to note that space infrastructure's results include higher rent expense, given the sale-leaseback transaction, we entered into the palal facility in the fourth quarter of last year.

Quarter over quarter, revenues decreased 14%, and adjusted EBITDA margins decreased 1,710 basis points driven by the factors previously mentioned. Importantly, space infrastructure experienced solid orders this quarter and a book-to-bill of two and a half times. And as Dan mentioned, we also recently booked an order for multiple GEO concepts that we combined with Q1 orders should drive another year of backlog growth. Importantly, these GEOs we utilize fight proven technologies that we have deployed in the past, thus keeping execution risk to a minimum.

We expect this program to be nicely profitable and cash flow positive over the life of the builds. This order also has built in protection against unexpected growth in COVID effects. Fortunately, our diversification efforts in this business are beginning to bear fruit. We are running book-to-bill well above one, and we continue to see revenue, profit and cash flow growth in the years ahead.

Please turn to Slide 10. The company used $13 million in operating cash flow this quarter and invested $60 million in capex and developed intangibles. Under the Cares Act, all single employee funding obligations due during calendar year 2020 can be delayed until January 1, 2021, the crude interest added to the delayed payments. We have contributed $3 million to our pension plan in the first quarter, and we have the ability to further $50 million in payments until January 1, 2021.

We also can defer $18 million of employer FICA out 2021 and 2022. As a note on cash interest, we have interest payments due on our 2023 notes in Q2 and Q4. This will lead to higher cash interest payments in those quarters compared to Q1 and Q3. Please turn to Slide 11.

We finished the quarter with consolidated net debt of roughly $3 billion, up $83 million from Q4 '19. Our bank defined leverage ratio ended the quarter at approximately 4.7 times, down roughly 0.03 of a turn from Q4 driven by improvements in trailing 12-month net income and allowable EBITDA add backs under the credit agreement. This compares to our covenant of 7.5 times. At the MDA sale closed on 3/31, our pro forma leverage ratio would have been 4.2, an improvement of eight/tenths of a turn Q4.

With the MDA sale complete and considering our guidance for the remaining three quarters effectively unchanged from prior expectations, we expect to stay below 5.7 times and even using the bottom end of our guidance which I'll get to in a minute. We had roughly $500 million of liquidity at the end of the quarter via a combination of cash on hand and availability on our credit facility. Please turn to Slide 12 for a quick update on our projected debt structure going forward. As mentioned earlier, we closed the NDA transaction on April 8.

This completes the largest piece of our strategy to reduce debt levels and better align our maturity schedule and future cash flow streams. As a reminder, we completed the sale-leaseback of our pilot of facilities and refinanced our near-term maturities during the fourth quarter of last year. At this point, we have no major maturities due until the end of 2023. Please turn to Slide 13 for a discussion on 2020 guidance.

As Dan mentioned, we are lowering our adjusted EBITDA of $30 million to a range of $370 million to $410 million, to reflect the projected impacts from our COVID-19 operating posture and charges related to the recent test of a commercial satellite and space infrastructure. The $30 million is roughly Coleman to the Motif charges we took in Q1 and for these projected costs. We're also lowering projected interest expense to account for the earlier than expected closing of the MDA transaction. All other elements guidance remains substantially unchanged.

And on cash, we benefit from improved interest expense or the deferrals available to us under the Cares Act, but we'll see some negative pressure associated with $32 million of charges we recorded in the first quarter and the timing of customer receipts given the scheduled delays that underlie the charges we took. We're not changing our cash guidance range, but I would say we are trending toward the middle to lower half of the range. We have made reasonable assumptions based on our assessment of suppliers and our pandemic procedures. But it's important to note that this outlook assumes that funding for our current programs and contracts remains unchanged and for the current social distancing restrictions we have implemented to continue through the end of the second quarter and that we don't experience a plant line shutdown or have unforeseen significant supplier issues other than the two significant supplier issues we adjusted for.

Please note that the midpoint of our adjusted EBITDA guidance at $390 million works out to $313 million to go this year. Orbit over the $104 million per quarter range on average. This is not quarterly guidance, and our mine listeners of the $40 million half on revenue and EBITDA headwind we'll see in the second half of the year as digital EnhancedView deferred backlog burdens off. But I bring it up to better demonstrate the current quarterly earnings power we see in the business, given the visibility that Dan and I have discussed today.

And again, Q1 would have been $109 million of EBITDA, but for the two charges related to COVID in the late-stage test. So to summarize my comments, first, the closing of the MDA transaction completes our immediate strategy to improve our company's balance sheet and maturity schedule. Second, we continue to position the company for revenue, profit and cash flow growth over the medium and longer term, as evidenced by recent bookings, reengineering efforts and investments in programs like world Legion. Third, while we are not immune to the devastating effects of COVID-19, we've identified risks and appropriate mitigation strategies, and we believe and we benefit from having multiyear contracts with customers to provide mission-critical solutions.

With that, I'd like to now turn the conversation back to Dan, who will offer some concluding comments before we do Q&A. Dan?

Dan Jablonsky -- Chief Executive Officer

Thanks Biggs. If you please turn to Slide 14. You've heard me present this slide in the past when I won't belabor it, but I do think it's an important reminder that we are on a journey here at Maxar. In the near term, we have been focused on cleaning up the balance sheet, reengineering space infrastructure and recovering from the on orbit failure of the Worldview-4 satellite.

As we near the midway point of 2020, I think it's fair to say that we are beginning to transition into the medium-term portion of our journey. Which focuses on positioning the business for revenue, profit and cash flow growth. And of course, over the longer term which, in our mind, takes us out to the 2022, 2023 time frame, we'll be looking to accelerate financial performance and to further optimize our capital structure. In my view, this narrative and playbook remains as intact today as the day we introduced it to our investors last year.

This leads me to a few comments on the long-term guidance we introduced for EBITDA and free cash flow on our fourth-quarter earnings call back in March. While there is some level of uncertainty in the world, given the near-term impacts of the COVID pandemic, for which we believe we've appropriately reserved with the update to our 2020 guidance, we continue to see it to our long-term financial goals. Demand and earth intelligence remains robust. Legion will lag growth capacity to our constellation.

We continue to invest in AI and machine learning. And in space infrastructure, our diversification efforts continue to gain traction as evidenced by recent NASA wins. Bookings to date including the multi satellite order announced today, give us runway to string together at least two consecutive years of backlog growth. And we continue our reengineering initiatives, albeit on a measured basis as many of us currently work from home.

All this should drive revenue, profit and cash flow growth over the next several years and has us confidently reaffirming our longer-term financial objectives at this time. I'd like to wrap things up by saying that our thoughts are with all those who have been personally impacted by the tragic loss of life caused by the coronavirus. And that we recognize that everyone on this call is both adapting to and struggling with our current reality. Our thoughts are with you too.

I'd like to say a special and most sincere thank you to my fellow team members here at Maxar. You resolve and commitment to your colleagues, customers and communities during this pandemic have been a source of inspiration to me. And I am absolutely convinced that we will be a better team and company in the coming years as a result of your efforts during this sensitive time. With that, I'd like to turn the call back over to Jason for Q&A.

Jason Gursky -- Vice President of Investor Relations

Great. Thanks Dan. Operator, I'm going to ask you to let the audience know how to queue up for questions. And I just want to ask those that are on the line in planning to ask a question, that you limit yourself to one question and a follow-up.

And if you've got more, we're happy to have you get back in the queue so that we leave enough time for everybody else. Operator, can you remind callers how to queue up and begin the process?

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Robert Spingarn with Crédit Suisse.

Robert Spingarn -- Credit Suisse -- Analyst

Good afternoon. 

Biggs Porter -- Chief Financial Officer

Hey Rob. 

Robert Spingarn -- Credit Suisse -- Analyst

I wanted to ask -- hey Dan and Biggs, I want to just ask about the cadence of revenues and space infrastructure as we go forward this year between the charge. But the fact that I think you said you'd be roughly flat this year. You've got these new bookings. So do those contribute this year or do they essentially, I know you wouldn't want to use the word guarantee, but do they drive growth next year? How do we think about the rest of this year and into next year from a revenue cadence on space infrastructure with your new bookings?

Biggs Porter -- Chief Financial Officer

Sure. It's is Biggs. Dan, go ahead if you want?

Dan Jablonsky -- Chief Executive Officer

No. I was just going to say, they definitely contribute this year, and we're excited about bookings, but I think it would be better for Biggs to explain exactly how that revenue flows through.

Biggs Porter -- Chief Financial Officer

Yeah. Sorry. Yes, we will have -- we do expect growing revenues over the course of the year, even if you -- of course, first quarter was light on revenues because of the charges we took an effect on revenues. But even if you normalize for that, we'd expect the revenues to be growing gradually over the course of the year reflecting the strength of the new business we brought in and putting us on a good trajectory going into next year.

So it's early to guide for a 2021, but we should have ourselves well positioned coming out of this quarter and out of this year.

Robert Spingarn -- Credit Suisse -- Analyst

And Biggs, just given all the puts and takes with COVID and the timing on various programs, when -- I know you've given longer-term guidance, but can we get some sense of when free cash flow in flex positive?

Biggs Porter -- Chief Financial Officer

Sure. Obviously, we have given the long-term guidance. And I think that's the most important number out there because '22 and '23, once the Legion program is complete. And we get the benefits from it and have the full effect of everything we've done on space infrastructure.

That is going to be the period of time where we expect significant positive free cash flow. Next year, once again, it's early to give guidance. I would say that it is certainly going to be a better year in terms of free cash flow. Is it free cash flow positive or not? I think it's a little early to say given all the moving parts coming out of this year.

And to put a pin on that I would say there's of course some deferral of spend out this year, but we also have some deferral of receipts out of this year because of the scheduled delays driven by COVID. We have a new business at play. We sell some more new business opportunities to come in. So it's a little early to say exactly what we expect in '21 other than the fact that we expect it to be better and whether or not it will be positive or slightly negative.

But we certainly will be driving toward making it positive as we can.

Robert Spingarn -- Credit Suisse -- Analyst

OK. Thank you very much.

Operator

Your next question comes from the line of Ben Arnstein with J.P. Morgan.

Ben Arnstein -- J.P. Morgan -- Analyst

Hey. Good afternoon everyone.

Dan Jablonsky -- Chief Executive Officer

Good afternoon.

Ben Arnstein -- J.P. Morgan -- Analyst

So just a couple of questions on the COVID-19. I mean how should we think about your bracketing of that risk with the charges in the quarter? I mean are those two suppliers operating better now versus where they were in March and April? And has there been any impact on the World Legion time line? And how should we kind of think about risk to that kind of schedule for launches next year?

Dan Jablonsky -- Chief Executive Officer

Yeah. Why don't I take the sort of the business aspects of it and then if Biggs would like to follow-up with any financial implications or otherwise would be great. On the suppliers, just like everybody else, it's been in any type of manufacturing. They have had some impacts, both from a productivity level and getting as many people into the facilities as they need to.

So that's caused some scheduled delays which has caused the cost increases for us. They are migrating back toward work. Some of them -- one of them only had a temporary delay in how long they were in the facility, but they're both migrating back toward work and are giving more assurances about what the schedule looks like going forward. So that it helps us sort of think about the outer bounds of this.

And we're -- I'm not sure about resurgence or anything like that on COVID. But we've seen much better productivity levels as we've gone forward as well and hope for better after the end of the second quarter. We are not forecasting any substantial types of delays to the Legion program. We're still confidently predicting a first half launch to start that satellite program off.

We've been monitoring that supply chain very closely. One of our critical vendors there, as everyone on this call knows is Raytheon, and they are continuing to work at pace as well. We're all getting our heads around more social distancing, different types of ships, temperature checks as we go into facilities and those kinds of things. But in the main, work has continued to progress, and we're still looking forward to a first half launch on the Legion program.

Biggs, did you have anything to follow-up on that?

Biggs Porter -- Chief Financial Officer

Sure. I can add in a little bit in terms of the financial impacts. As we already commented on, the greatest amount of impact that we've forecasted was associated with what happens from a schedule standpoint which drives cost out into the future. But we did our best job of estimating that.

If you want to think of it in terms of what does -- what's the inefficiency driven by COVID otherwise, we were initially a little more disrupted. We've actually closed the facility in Palo Alto for a couple of days before we have people come back in and then we transition to multiple shifts in order to be able to have the social distance and we needed to protect people and our programs overall. And that runs basically the inefficiency associated with that has run at about $1 million a week to give you an idea of what we included projected out in the future as we stated in our assumptions for how those costs might affect us in the future from a labor standpoint, aside from the supplier cost. It's really hard to predict fire costs, but we've already know more or less what's affecting us from a labor standpoint.

Just to do the social distancing. We'll probably get better than that as we go along, but that's really the experience to this point. 

Ben Arnstein -- J.P. Morgan -- Analyst

Great. Thanks. I'll just keep with that.

Operator

Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. 

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Dan, regarding the multiple satellite awards, I presume there are CVAN replacements. Can you comment on whether there might be other CVAN replacements that are still in the pipeline?

Dan Jablonsky -- Chief Executive Officer

Well, hi Thanos, good to hear from you. We're not commenting on who the customer is or what the nature of the satellites, sorry, other than that they are Geo communications satellites, the 1,300 class and of a type we've built before. We're very comfortable with the type of order we got. We're really excited about it, and we're looking forward to working on them and delivering them soon.

But that's -- would love to give you more at this time when we will -- as soon as we're able.

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Could you comment on whether the cash flow profile of those contracts might differ from what we normally see with the commercial GEO contract or should it look pretty similar?

Dan Jablonsky -- Chief Executive Officer

No. That's a great question, particularly as we think about all the other things we have to think about these days including COVID. This particular award should allow it to maintain cash flow positive through the life of the program. So that's a good way that is structured.

It also has some built-in protections related to COVID-type impacts, if we see those escalating throughout the life of the build.

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

OK. Just a quick one. Regarding the anomaly, is there any risk of transpiring on other satellite from that three or is that very unique to that specific satellite?

Dan Jablonsky -- Chief Executive Officer

That's a great question. It is unique to this particular satellite program and design. We don't see or expect or have any belief that it would cause any impact to any of the programs.

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Great. I'll pass it along. Thanks.

Biggs Porter -- Chief Financial Officer

If I commented too, the last time we had a late-stage test failure like this was 2015. So it's rare from that perspective as well.

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Great.

Operator

Your next question comes from the line of Stephanie Price with CIBC.

Stephanie Price -- CIBC -- Analyst

Good afternoon. 

Dan Jablonsky -- Chief Executive Officer

Hey.

Stephanie Price -- CIBC -- Analyst

Dan, I believe you mentioned that 90% of your 2020 revenue guidance is in backlog at this point. Can you talk about whether you think all of that is going to convert in 2020? And what the puts and takes there? How we should think about that conversion?

Dan Jablonsky -- Chief Executive Officer

Sure. Well, we wouldn't have kept the guidance there if we didn't think -- what we needed to is going to convert this year. So we're pretty confident in that aspect of it. I don't know, big, do you want to give any more on the conversion ratio of that? I guess before big does ATH, I just would say that the backlog number is very strong.

We also continue to have good pipeline prospects as well. Demand signals continue to be very good on both sides of the business, the earth intelligence side and the space infrastructure side. Biggs, do you want to anything about the conversion rate or anything?

Biggs Porter -- Chief Financial Officer

I mean, the book-to-bill is running greater than one. So we feel really good about the fact that we're building backlog. The commentary was it gives us 90% visibility to this year. It also gives us visibility at a higher level than normal going into next year because as we look at these new awards in space infrastructure, there'll be some revenue impact this year, but it carries over more into next year in terms of when the real burn starts, not putting percentages on next year relative to this year, but we feel really good about where we are this year and what is positioning us for going forward with the high book-to-bill that we have.

Stephanie Price -- CIBC -- Analyst

Great. Thank you. And then Biggs maybe this one is for you as well. I was just hoping you could talk a little bit more about your reengineering initiatives and maybe more broadly about the fixed versus variable costs and how you're thinking about them in this environment?

Biggs Porter -- Chief Financial Officer

That's an interesting question. I do think that we're still fully committed to everything that we've been doing, by example, to transform a space infrastructure business to have it take be positioned for more government work, having a more diverse business base. And we see the evidence of that in the words that we have been receiving. We want to continue to do that.

There's some level of investment that's going to require but we are pacing ourselves in terms of those investments in this environment, not so much to defer the spend as much as it is, how much can you accomplish when you work from home as opposed to everybody on site. In terms of the other things we've done to reduce costs. I think we're very happy we've done those. We benefit from those.

We're not necessarily -- we'll always look to reduce costs wherever we can. But keep in mind, our business base, as we said, is very strong. And customer interest in our products and our services is very strong. So we don't need to react to a declining business base and take corrective action associated with that.

We'll just look to where we could be more efficient like we always like we always would.

Stephanie Price -- CIBC -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Tim James with TD Securities.

Tim James -- TD Securities -- Analyst

Thanks. Good afternoon everyone. Just wondering, Dan, if you could talk a little bit about what you're monitoring in terms of implications from the potential economic fallout from the pandemic, what revenue sources, if any, in your view could be impacted as we look a little bit further down the road in the coming kind of quarters into 2021?

Dan Jablonsky -- Chief Executive Officer

Yeah sure. I think -- thanks, Tim. Given the long-term nature of some of our contracts and the business cycle, we have a lot more visibility than I think other industries do. So that's been good at this stage.

We are continuing to watch all things very closely. On the one hand, we're seeing very strong demand and unique applications for earth intelligence in this environment that I think are upsides to how we're thinking about demand structure on it. On the other side, look, there are definitely risks out there are things that we don't know about how this propagates or what happens yet. Two in particular, we're watching very closely our oil prices and how that might impact either downstream customers of communication satellite companies in the energy markets or otherwise as well as how it might impact some of our customers overseas.

Historically, we've always been very resilient in those types of markets because of the types of defense and intelligence applications we provide, but we watch it very closely. We're also watching budget impacts and what may come down the pike at some point in time. With regard to national budgets. And so we're -- again, we've always been a lot of it is very necessary in providing a very good product at a very good value.

And so that's been a good thing through ups and downs of economic cycles and different budget cycles, but we're definitely watching those. And as we said in the remarks, we continue to watch the supply chain and those types of things very closely because of any knock-on derivative impact might have on our business.

Tim James -- TD Securities -- Analyst

OK. Thank you. And then just a quick follow-up question for Biggs. I guess maybe it's a bit more of a clarification, thinking about cash flow for 2020 and the unchanged guidance, right? I think you indicated you're kind of moving more toward the mid- to lower end of guidance.

Am I thinking about this correctly in terms of sort of nonrecurring impacts. We've got the cash impacts of the $32 million in costs called out here in Q1. And then the -- it's roughly $31 million, $30 million in potential deferrals of -- related to the Cares Act and the social security deferrals. Are those sort of offsetting influences or the offsetting sort of nonrecurring influences on cash flow here that we should be thinking about or is there anything else?

Biggs Porter -- Chief Financial Officer

The other thing is the -- some receipts have been shifted from 2021 I think I commented on briefly earlier. So there's some movement of cash from -- out of this year -- inflows out of this year associated with that. So then there's -- there'll be some timing changes on suppliers too. So there's a lot of things moving around.

At the end of the day, we left our guidance alone which I think indicates, as you say, that things pretty much offset. There's also -- we also benefited from the lower interest that comes from closing the MDA transaction as early as we did. So that's another positive influence.

Tim James -- TD Securities -- Analyst

OK. Great. Thank you very much Biggs.

Dan Jablonsky -- Chief Executive Officer

Tim, maybe just to follow-up on the first part of that question as well. Just as we think about the environment we're working in now, it's been really interesting to see how telecommunications infrastructure has become even more important for people working in work-from-home posture, creating resiliency for lots of different things. So I think that's helped our demand posture on the space side. The world hasn't gotten any quieter because of this on a national defense and intelligence infrastructure as well, both for the space capabilities we provide, but also for the earth intelligence side, we haven't skipped a beat so far.

We're continuing to deliver on critical mission for the warfighter and for the intelligence agencies. And that's been I think really positive for how we're thought of in the business. And I think it's showing itself is even more important that we're able to do that and to be able to deliver on an unclassified medium for them as well as large portions of their workforces haven't been able to get to all the classified environments they might want to.

Tim James -- TD Securities -- Analyst

Yeah. And that's why I was trying to -- or going a little bit with this. I was just trying to understand some of the puts and takes because I think we obviously jumped to conclusions and think about the risk related to the credit profile, maybe as some commercial customers and what have you. But there are obviously some potential benefits as well as you've highlighted that maybe offset a portion of that when we're thinking about the potential economic fallout from a recession year.

Dan Jablonsky -- Chief Executive Officer

Thanks Tim.

Jason Gursky -- Vice President of Investor Relations

Operator, I think we've exhausted the people in the queue, and we're also turned to pedicle right here at the top of the hour, and we were trying to get this done in an hour. So I think at this point, we're going to thank everyone for dialing in for your support. And ask that if you've got any follow-up questions, feel free to reach out to me, Jason, and I'll try to get them answered and get you connected with Dan and Biggs over the next few days is appropriate. Again, thanks for dialing in everyone, and we look forward to catching up with you next quarter.

Thanks, operator.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Jason Gursky -- Vice President of Investor Relations

Dan Jablonsky -- Chief Executive Officer

Biggs Porter -- Chief Financial Officer

Robert Spingarn -- Credit Suisse -- Analyst

Ben Arnstein -- J.P. Morgan -- Analyst

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Stephanie Price -- CIBC -- Analyst

Tim James -- TD Securities -- Analyst

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