Sure, GeoEye filed its 10-Q and held its analyst conference call. Kudos to management for being Johnny-on-the-spot with those two items. But the individual investor who rung in on the call and gave GeoEye an earful on its failure to communicate with Wall Street got it absolutely right: GeoEye doesn't have a clue how to tell its story so that investors can actually hear it -- and that's the real reason its stock is down 15%.
Don't get me wrong. There was objective bad news aplenty in the company's report. GeoEye "missed estimates" by a light year, earning just $0.02 per share when Wall Street had expected 12 times that sum. GeoEye also reported massively negative free cash flow. More than $25 million in capital expenditures "helped" to burn off $23.4 million in free cash flow in the first quarter. And there's the looming issue of a potential $27 million cash payment for taxes this year, as the NOL carryforward issue continues to drag out. Finally, backlog dropped 14% from this time last year, to $272 million.
But there was good news as well. First and foremost, GeoEye has finalized its launch date with United Launch Alliance, the Boeing
Once that bird takes flight, things should start looking up for GeoEye. As CEO Matthew O'Connell pointed out, GeoEye has high fixed costs; once revenue covers those costs, additional revenue tends to fall quickly to the bottom line. Assuming O'Connell is right that the government needs as much new satellite capacity as it can get, that revenue could flow pretty freely once the company's new eye gets up in the sky.
More bad news
Which brings us to the mystery of the day: What happened to revenue last quarter? After listening to the entire conference call, and reading through the 10-Q, to learn the answer, I think I've found the answer: "In November 2007, [GeoEye] entered into a new $60 million task order with [the National Geospatial-Intelligence Agency] for the continued delivery of products from November 2007 to the launch of GeoEye-1, which at that time was anticipated to occur in April 2008."
Sales under this contract amounted to $14 million in Q4 2007, then another $5.9 million in Q1 2008.
Where's the other $40 million?
Granted, GeoEye made up some of the difference with an extra $1.5 million in "commercial sales," and another $1.7 million in revenue from its M.J. Harden purchase. But still, with just one more month remaining before the anticipated April end of NGA's requirement, you'll notice that we're still about $40 million short of the expected $60 million. What happened to that supposedly bottomless supply of government demand for satellite data, guys?
I see two possible answers to this question, neither of which should comfort investors much. First, rival DigitalGlobe may be outhustling GeoEye for government business. We already know that DG counts Google
The second possibility could be more worrisome: Perhaps there just isn't as much demand for satellite imaging as GeoEye management believes. Logically, this makes no sense -- the need for imagery to monitor global warming, investigate ominous activity in North Korea, Syria, and Iran, and of course, to spy on the neighbors via Google Earth, all tell me that demand here should be insatiable and growing. But still, that two-thirds shortfall in NGA orders continues to nag.
Much of this uncertainty should be dispelled when dash-1 goes up in August. Then we'll quickly see whether NGA was just holding onto its wallet, waiting for prettier pictures from GeoEye's snazzy new satellite. Monitoring dash-1's revenue stream should also give us insight into what to expect when its twin, GeoEye-2 (currently under construction) goes up. With management providing little guidance, we're basically on our own in figuring this out.
Further geosynchronous Foolishness: