Imagery collected by DigitalGlobe's various satellites. Image source: DigitalGlobe.
Shares of DigitalGlobe (DGI +0.00%) rose a modest 2.5% on Wednesday after the satellite imagery company released better-than-expected third-quarter 2016 results, marking its third straight quarterly beat and extending the stock's year-to-date gains to nearly 70% as of this writing.
Let's take a closer look at how DigitalGlobe launched the second half of the year.
DigitalGlobe results: The raw numbers
| Metric |
Q3 2016 Actuals |
Q3 2015 Actuals |
Growth (YOY) |
|---|---|---|---|
|
Revenue |
$181.8 million |
$173.3 million |
4.9% |
|
Net income (available to common shareholders) |
$15.0 million |
$9.6 million |
56.3% |
|
Earnings per share |
$0.21 |
$0.12 |
75% |
Data source: DigitalGlobe. YOY = year over year.
What happened with DigitalGlobe this quarter?
- U.S. government revenue increased 3.2% year over year to $114.5 million, driven by demand for analytic value-added products and services, including new programs signed with the National Geospatial-Intelligence Agency (NGA), Defense Intelligence Agency, and a new Pentagon program.
- Diversified commercial revenue climbed 8% year over year to $67.3 million, driven by imagery delivery to both new and recently resigned commercial customers and continued strong Direct Access Program (DAP) performance across a majority of customers.
- DAP revenue grew 4.8% year over year to $30.3 million, driven by higher total access minutes across the majority of DAP customers.
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 6.2% year over year to $97.6 million.
- Adjusted EBITDA margin expanded 70 basis points year over year to 53.7%.
- Delayed the planned Sept. 16, 2016, launch of WorldView-4 because of wildfires at Vandenberg Air Force Base.
- Cash flow from operations dropped 22.8% to $66.1 million, primarily because of timing of collections.
- Free cash flow $0.1 million, again because of collections timing and launch payments for the WorldView-4 satellite.
- In early October, entered into an agreement to acquire U.S. intelligence geospatial solutions provider The Radiant Group.
- Awarded the fifth year of the Global Enhanced GEOINT Delivery platform (Global-EGD) by the NGA.
- Repurchased 364,226 shares of common stock for $9.6 million, equating to an average price of $26.30 per share. That left roughly $29 million remaining under DigitalGlobe's original $335 million repurchase authorization.
What management had to say
DigitalGlobe CEO Jeffrey Tarr stated: "We are pleased to report that solid execution of our strategy is delivering better-than-expected results. With the upcoming launch of WorldView-4 and our acquisition of Radiant Group, we will be even better positioned to support our customers as the leading commercial source of earth imagery and geospatial analytics."
Looking forward
DigitalGlobe also increased its full-year guidance once again, and now expects 2016 revenue of $700 million to $710 million (up from $680 million to $705 million previously), and adjusted EBITDA of $365 million to $375 million (up from $345 million to $365 million previously).
During the subsequent conference call, CFO Gary Ferrera explained that guidance was raised considering the combination of DigitalGlobe's strong performance through the first three quarters of the year and in particular revenue strength and lower-than-expected costs in the third quarter.
Ferrara also tempered expectations, saying:
It should be noted that the lower-than-anticipated WorldView-4 costs in Q3 and Q4 is expected to be a headwind in 2017 as we'll have a full year of WorldView-4 costs throughout 2017 versus a small amount in late 2016. As a reminder, we do anticipate marginally higher costs in Q4 due to disciplined investments in our platform business and some additional costs related to launching and operating WorldView-4. While we do not provide quarterly guidance, we reiterate that we will face a tough comp in Q4 versus last year due to prior-year outperformance in our DAP business, which we do not anticipate repeating.
That's fair enough, as DigitalGloble's business can be inherently lumpy, given both the variance in timing of orders and variable investments in satellite hardware and launches. In the end, though, this was undoubtedly a solid quarter from DigitalGlobe. Assuming all goes well with the launch of WorldView-4, which is currently sitting atop its Atlas V launch vehicle -- and has been rescheduled for launch on Nov. 6, 2016 -- it will be no surprise to see DigitalGlobe stock continue to ascend from here.
