Space and satellite imagery company Maxar Technologies is taking full ownership of a joint venture it has held with Swedish aerospace group Saab, which the U.S. company expects will further its analytics offering.
Maxar announced after the market closed on Tuesday that it intends to acquire full ownership of 3D analytics firm Vricon for about $140 million. The company is funding the transaction by issuing $150 million in new debt via senior secured notes.
Saab and Maxar have worked to build Vricon over the past five years, Maxar CEO Dan Jablonsky told CNBC in an interview on Wednesday. But his company believes it is now time to bring Vricon fully into the company's portfolio ― especially as it plans to begin launching its next generation WorldView Legion imagery satellites with SpaceX next year.
"The Vricon software works on stacks and stacks of Maxar's imagery and the Legion program will supercharge the Vricon machine," Jablonsky said. "We will be able to create photo-realistic, 3D accurate data models overnight essentially, by harnessing the two capabilities together."
Maxar's stock closed up 6.8% in Wednesday trading at $17.57 a share. Maxar is one of the few publicly-traded pure play names in the space industry and is one of three space stocks that are positive year to date, behind Virgin Galactic and ahead of Iridium Communications.
Jablonsky expects the Vricon acquisition will close in less than a month, as the option to acquire it fully from Saab was built in at the beginning of the joint venture. The two firms came to a mutual "conclusion that the technology and the entity belonged inside of Maxar," he said.
"We have been very closely partnered with Saab on the development of the technology and its use in customer applications," Jablonsky said. "Taking the Saab software, if you think of that as the refinery, and the rich source of data, which is Maxar's oil, and pulling those together into one comprehensive business."
Maxar will give its forecast for how much value Vricon adds when the the company updates its financial guidance after the second quarter. Jablonsky noted that Vricon brought in $40 million of third-party revenue in 2019, with about $20 million of EBITDA (earnings before interest, taxes, depreciation, and amortization) last year. Overall, Jablonsky said Maxar has "had strong performance year to date, even in the midst of some writedowns in the first quarter related to COVID-19." The company took a conservative approach to estimating how much the pandemic would cost, Jablonsky said, especially if its supply chain slowed down.
"We're confident in our numbers for the year and, for those charges, we reiterated our guidance for the year," Jablonsky said.
Maxar is nearing the close of a $600 million capital program, which represents the cost of building and launching the first six Legion satellites. Getting those satellites in orbit and operating successfully will be the next big turning point for Maxar, as it pivots the company from what Jablonsky describes as a "big spend" to "reaping the benefits."
"It puts us into a very strong cash flow position and profit position going forward," Jablonsky said.
Another major space project that Maxar has in the works is a $375 million contract it won last year, to build a key part of NASA's lunar astronaut program. Known as the power and propulsion element, Maxar is building the first piece of NASA's lunar gateway station that will orbit the moon. Jablonsky said Maxar is "very confident about" the technology it is developing for NASA, especially because of the company's success building electric propulsion systems for commercial satellites.
"We've taken that technology and we've rolled it into the design for the power propulsion element," Jablonsky said. "That program continues to move forward ... [and] we think that's a lot more of what the future of the company looks like as we go forward and diversify, with NASA as a very important customer."
Vricon has several notable customers, the largest of which is the U.S. Army. Jablonsky explained that the Army uses Vricon's technology to create virtual training environments that are based on real-world data. That allows the Army to train anyone, from helicopters pilots to infantry units, for a scenario multiple times before entering the actual battlefield.
"They all run scenarios digitally across a potential battlefield 25 times before you ever go in," Jablonsky said.
Vricon also has several large telecommunications companies as customers, Jablonsky said, such as T-Mobile's Sprint. The 3D modeling helps with infrastructure projects such as building out 5G networks, he explained.
"It's really time consuming to try and figure out ... where to place all of your towers, your repeaters, and your antennas for building out a 5G network. It's even more complicated than any of the other telecommunications roll-outs because 5G waves have a very high frequency, which means they don't travel a far distance before they can get interrupted," Jablonsky said.
He gave the New York City metropolitan area as an example of how Vricon can help build 5G infrastructure. By taking a stack of 10 to 15 satellite images of New York and running it through an algorithm, Vricon creates an elevation and point-based 3D model. The satellite imagery than "gets draped over" that model, Jablonsky said, so "you get this photorealistic" result.
"We will start building out even more of our vision for what the future looks like [with Vricon], in a world constantly updating," Jablonsky said.
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