DigitalGlobe (DGI) released second-quarter 2017 results Thursday after market closed, posting strong revenue growth and a surprise profit as its merger with MacDonald, Dettwiler & Associates (MAXR) remains on track to close in the coming months.
Of course, the price of DigitalGlobe stock is tied primarily to the terms of its merger agreement. But in the meantime, let's take a closer look at how DigitalGlobe ended the first half of the year, as well as what investors can expect from the company going forward.
IMAGE SOURCE: DIGITALGLOBE.
DigitalGlobe results: The raw numbers
| Metric |
Q2 2017 |
Q2 2016 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$225.7 million |
$175.5 million |
28.6% |
|
Net income (loss) available to common shareholders |
$2.7 million |
$12.2 million |
(77.9%) |
|
Earnings (loss) per share |
$0.03 |
$0.17 |
(82.4%) |
Data source: DigitalGlobe.
What happened with DigitalGlobe this quarter?
- Investors were expecting a net loss of $0.04 per share. Net income declines were primarily driven by incremental depreciation after placing WorldView-4 in service in the first quarter, as well as lower capitalized interest and merger costs.
- U.S. government revenue grew 33.6% to $37.6 million, driven primarily by contracts obtained through DigitalGlobe's $140 million acquisition of The Radiant Group last year.
- Diversified commercial revenue increased 19.8% to $12.6 million, comprised of a 29.1% increase in direct access program (DAP) revenue on strong demand for WorldView-4 capacity and 12.3% growth from increased civil government deliveries and demand for the Global Basemap product suite.
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 9.2% to $104.1 million.
- Cash flow from operations dropped 48.8% to $46.7 million, due to a combination of timing of payments received from certain DAP and services customers, higher WorldView-4 expenses, and merger costs.
- Free cash flow slipped 27.7% to $31.8 million.
- DigitalGlobe anticipates its merger with MDA to close shortly after the third quarter of 2017.
What management had to say
"We are pleased to have delivered another strong quarter with double digit organic growth in DAP, commercial, platform and services," added DigitalGlobe CEO Jeffrey Tarr. "I am grateful to our teams around the world who continue to serve our customers and execute our strategy as we prepare for a successful combination with MDA."
Looking forward
DigitalGlobe also increased its full-year guidance, calling for 2017 revenue of $850 million to $875 million (up from $840 million to $865 million previously) and adjusted EBITDA of $385 million to $400 million (up from $380 million to $395 million previously). The company continues to expect capital expenditures this year to total roughly $100 million.
For perspective, recall that DigitalGlobe's merger agreement dictates that investors will receive $17.50 per share in cash plus 0.3132 MDA common shares for every common DGI share owned. Shares of MDA closed Friday at 65.29 Canadian dollars, or approximately 51.92 U.S. dollars per share based on current exchange rates. That translates to an acquisition price for DigitalGlobe of $33.76 per share as of this writing, or a roughly 1% premium to Friday's closing price.
In the end, while this quarter was a solid one for DigitalGlobe, as long as the merger remains on track, DigitalGlobe shares will remain tied to a combination of Canadian-U.S. foreign exchange rates and the price of MDA common shares.
