Shares of DigitalGlobe (NYSE:DGI) are down modestly since the company reported a wider than expected first-quarter loss last week. But make no mistake: The high-resolution satellite imagery specialist is right where it wants to be.
Quarterly revenue climbed 8.2% year over year to $169.4 million, which translated to a net loss (less preferred stock dividends) of $4.9 million, or $0.08 per share. The latter figure was helped by DigitalGlobe's $31.1 million repurchase of 1,009,700 shares of common stock during the quarter. Analysts, on average, had been slightly more optimistic, expecting a narrower net loss of $0.07 per share on revenue of $171.1 million.
No surprises here
While that might sound bad, DigitalGlobe's results were actually in line with its own models. Adjusted earnings before interest, taxes, depreciation, and amortization was $73.1 million, and free cash flow came in at $25.6 million. According to DigitalGlobe CEO Jeffrey Tarr in the earnings press release, "[S]trong growth in our U.S. Government business was offset by an expected decline in our Diversified Commercial business. We expect our Diversified Commercial growth to improve in the second half as we monetize WorldView-3 and generate results from a number of new products and initiatives."
Specifically, DigitalGlobe only launched WorldView-3 last August, and formally completed calibrations for the cutting-edge satellite on October 1, 2014. As a result, last quarter was the first full three-month period to recognize revenue under DigitalGlobe's EnhancedView Service Level Agreement with the National Geospatial-Intelligence Agency at its new annualized rate of $337.1 million, a $50 million per-year increase from the prior rate. Largely as a result of this agreement, DigitalGlobe grew first-quarter revenue from its U.S. government business by 18% year over year, to $115 million.
Meanwhile, diversified commercial revenue fell 7% to comprise the remainder, mostly due to contract timing and the retirement of the company's IKONOS satellite, which was launched in September 1999. However, DigitalGlobe also announced in late February the long-awaited availability of 30cm imagery from WorldView-3 to all customers, opening up a potential $400 million-per-year addressable market of new commercial clients. Previously, these clients had to rely on expensive, less timely high-resolution imagery from aerial surveyors, which bodes well for DigitalGlobe's impending efforts to ramp up marketing and monetization for this new base.
Regarding new initiatives, Tarr said during the earnings conference call that DigitalGlobe, shortly after the end of the quarter, launched "the world's most accurate, current, complete, and consistent global base map of Africa." What's more, DigitalGlobe's new geospatial Big Data platform has finally started generating revenue from early customers in the insurance and financial services sector. Even more intriguing, DigitalGlobe is actively pursuing acquisitions to expand into other "attractive verticals," similar to last year's purchase of oil and gas imagery specialist Spatial Energy.
Finally, DigitalGlobe reiterated its 2015 guidance for revenue of $725 million to $750 million, along with adjusted EBTIDA of $355 million to $375 million. Wall Street, for its part, was expecting full-year revenue of $736.8 million -- or just below the midpoint of DigitalGlobe's guidance range -- with earnings of $0.26 per share. In the end, then, with the caveat that DigitalGlobe will need to deliver on its promise for a strong finish to 2015, I don't think shareholders should worry about its deceptively slow start to the year.