Things were as expected today, which is to say rather lackluster, as GeoEye, Inc. (NASDAQ: GEOY), a provider of space-based and aerial imagery and geospatial information, reported its fiscal 3rd quarter 2008 earnings on Tuesday, and updated the status of GeoEye-1.

While I wrote previously that I did not expect the Q3 earnings to be anything special (they weren’t), GeoEye did update the status of GeoEye-1 on the call, and why it has taken longer than expected  for the full checkout and imagery certification so that GeoEye can begin selling imagery to its customers.

What follows is a summary of GeoEye’s earnings announcement and conference call, and what you need to know if you own, or are thinking of owning the stock.

New to the GeoEye story?

GeoEye provides space-based, and aerial imagery and geospatial information through high-resolution and low-resolution imagery, imagery-derived products, and image processing services to customers worldwide.

This capability benefits a broad array of industries including national defense and intelligence, online mapping, state and local governments, environmental monitoring and land use management, oil and gas, utilities, disaster management, insurance and others.

Want more?

• Read my initial buy recommendation here.
• or listen to my EXCLUSIVE interview with GeoEye’s management team here.

I’ll break down this report into 4 parts:

• Hit Me With The Numbers: Sales, Earnings: All Down, I’ll Explain
• Other Business Highlights: Solid cash reserves, honing in on Service Level Agreement (SLA) with NGA
• Conference Call Highlights: GeoEye-1 close to being fully certified and operational
• Bottom Line: GeoEye is Still a Go

Hit Me With Some Numbers

Sales, Profit Down as Expected

Here are some of GeoEye’s earnings highlights (growth from previous year’s Q3/analyst’s estimates where applicable):

• Quarterly sales of $35.9 million (down 33%, from $53.8 million in the prior year/vs. $34.87 million projected by analysts)
• Quarterly operating income of $8.3 million (down 65%, from $23.8 million in the prior year)
• Quarterly net income of $6.0 million, or $0.27 per diluted share (down 79.3%, from $22.0 million, or $1.21 per diluted share in prior year/vs. $.12 per share projected by analysts)
• Gross margin of 49.9% (down from 64.4% from prior year, but up from 43.5% in Q2/2008)
• Operating margin of 23.1% (down from 47.9% from prior year, but up from 15.4% in Q2/2008)
• Net margin of 16.8% (down from 40.9% from prior year, but up from 7.0% in Q2/2008)

My Take: GeoEye’s quarterly sales actually weren’t that bad, especially when put into context and losing orders from the National Geospatial-Intelligence Agency (NGA) that were given to GeoEye’s only competitor, DigitalGlobe (NYSE: DGI), as a result of the delayed launch and checkout of GeoEye-1.

At any rate, GeoEye’s margins were higher as a result of a better mix of products, namely selling more imagery as opposed to their “Production and Other” segment which manipulates the imagery and has higher expenses associated with it.

Like I said before, I don’t really care about what GeoEye has done in the past, and in about 1 more month, we can look solidly to the future and into 2009, as GeoEye begins selling imagery from GeoEye-1, which I’ll have more details on below.

Other Business Highlights

Solid Cash Reserves for Construction of GeoEye-2

• GeoEye is currently finishing the calibration and checkout phase of GeoEye-1 and expects to start commercial operations with GeoEye-1 next month. (More below.)
• GeoEye is currently in negotiations with the National Geospatial-Intelligence Agency (NGA) regarding the establishment of a Service Level Agreement (SLA) that the they believe will streamline the order flow from NGA. The Company expects to sign this agreement shortly.
• GeoEye’s cash and short term investments balance was $149.9 million at Sept. 30, 2008, as compared to $234.3 million at Dec. 31, 2007.
• This balance, coupled with the remaining milestone payments from NGA of $11.6 million, provides more than sufficient cash to fund the amounts due to complete the GeoEye-1 program.
• As of September 30, 2008, GeoEye has expended approximately $471 million of the $502 million for the launch, build-out and insurance on GeoEye-1.
• The remaining $31 million represents final amounts to contractors not yet incurred, interest to be capitalized during the commissioning phase and contingencies.
• GeoEye does not provide forward guidance, which I like.
  

My Take: There was nothing shocking or untoward in GeoEye’s earnings release other than the fact that they again had to delay their 10-Q filing as a result of some accounting errors, which would not materially affect their revenue or profits.

They assured investors that they have taken steps to correct this problem (more below), and from now on, all accounting should be streamlined and free from further restatements and adjustments.

I’ll talk more about it in a minute, but GeoEye ended the quarter with a nice cash hoard, which they will be using to start the construction and build out of their NEXT satellite, GeoEye-2.

Yep, you always have to be looking ahead since it takes 3-4 years to build out and launch one of these birds.

Finally, as I’ll also discuss below, GeoEye will be entering into a Service Level Agreement (SLA) with the NGA which will vastly improve their order flow and streamline their revenues and profits from quarter to quarter.

Now let’s take a look at some conference call highlights…

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