Don't show againGeoEye Q4/2008 Earnings Preview: Why the Silence? What’s going on?
Aside from the tumult over GeoEye’s (NASDAQ: GEOY) latest satellite GeoEye-1 getting certified, we haven’t really heard much from the company in terms of earnings release dates, guidance, or really, what’s going on as far as investors are concerned.
I had to estimate based on various sources, when GeoEye’s earnings release date might be, and it looks like GeoEye will report earnings sometime this week, with the possibility that they will release those earnings tomorrow.
Why no fanfare? Why no previous announcement like most companies and in fact GeoEye, have done in letting investors plan ahead and know when earnings were going to be released?
Also, why were those earnings seemingly delayed by about 1 month from when they should have been released?
In this post I’ll go over the important aspects that we need to be aware of before GeoEye announces earnings and then break them down into the following parameters:
- What went right in the quarter: What were some of the positive developments that occurred within the company in the last 3 months.
- What went wrong in the quarter: What were some of the negative developments that occurred within the company in the last 3 months.
- What I want to see: All things considered, what I realistically want to see from the company as it relates to their business.
- What we need to see: At the minimum, what we need to see for our investing thesis to still hold and an investment in this company to be prudent.
- What we’ll probably see: After weighing what’s been going on for the last 3 months, what we can realistically expect when they do announce their earnings.
- Bottom Line: What it all means, and what you should do.
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.
GeoEye operates in what in essence is a duopoly with only one other U.S. competitor, DigitalGlobe (NYSE: DGI), and just recently launched and certified their latest satellite, GeoEye-1, which is the most accurate and detailed commercial imagery satellite available today.
Want more?
- Read my latest buy recommendation here.
- OR: listen to my EXCLUSIVE interview with GeoEye’s management team here.
- OR: Read my latest update on the company’s Q3/2008 earnings release and conference call here.
Q4 and Full Year 2008 Earnings Not Going to Be Good
Focus will be on outlook and what management discusses
A lot of things happened with GeoEye in terms of their new satellite certification, as well as formal imagery approval by the NGA, and getting a new Service Level Agreement (SLA) which should smooth out revenues and earnings.
But what alarms me somewhat, has been the recent silence by the company, especially in light of their upcoming earnings release that you had to be a detective just to try and find out when it was going to be held.
Let’s take a look at the quarter that was, and what I expect in the next 3 months.
What Went Right In the Quarter
GeoEye-1 Imagery Approved, SLA signed with NGA
There were a couple of very positive and important developments as far as GeoEye was concerned in the last 4 months. They were:
- GeoEye Secures long term SLA with NGA: On December 10th 2008, GeoEye announced that they had reached a long term agreement with the National Geospatial-Intelligence Agency (NGA), for what the company termed a “Service Level Agreement” (SLA).
Essentially what this agreement stipulates is that GeoEye will receive at least $12.5 million in imagery orders from the NGA over the term of the agreement for GeoEye’s GeoEye-1 satellite.
GeoEye’s revenues and margins used to fluctuate greatly from quarter to quarter because of the previous uneven order volume from the NGA. This agreement is designed to smooth that out, and yield GeoEye a steady stream of revenue.
You can read my analysis of the agreement and its ramifications for GeoEye by clicking here.
- GeoEye Signs Deals with Imagery Resellers: GeoEye also announced this quarter a couple of deals with imagery partners that are more advantageous to GeoEye than previous deals to resell GeoEye-1 imagery in their respective territories.
GeoEye renewed their contract with the Centre for Remote Imaging, Sensing and Processing (CRISP) to resell imagery in the Southeastern Asian marketplace.
In addition, GeoEye signed a new deal with Telespazio in Italy to resell GeoEye-1 imagery in Europe and North Africa.
These two deals will allow GeoEye to better serve their customers, increase profit margins, and resell their imagery to anyone else via their archives, even imagery that was commissioned by someone else because of the new rights agreements that they have instituted with these resellers.
Previously, GeoEye would have to buy back imagery, and then resell it to other partners, which was a colossal waste of resources.
- GeoEye-1 Finally Certified by the NGA: This is the biggest development to come out of GeoEye in the last 4 months, actually, more like the last year.
The long delayed launch of GeoEye-1 as well as the delays in getting the imagery certifiable via the NGA, was finally seen to completion when the NGA gave its final approval to GeoEye for the use of GeoEye-1’s imagery immediately.
The delay in launch, calibration, and check out, pushed the actual time table for making money on this $500 million investment about 1 1/2 years later than it should have.
But, what’s done is done, and now it’s time to look to the future, and how having GeoEye-1 in the fold will affect GeoEye going forward.
You can read all about the NGA certification by clicking here and here.
What Went Wrong in the Quarter
Delays and miscommunication
I don’t think I have to harp on the long delays in not only launching GeoEye-1 (which I’ll chalk up to poor government planning and some bad luck), but also the long delays in actually calibrating the satellite and getting the imagery pushed through to the NGA to be approved.
Let’s let those go for now because they’ve been beaten to death already, and instead focus on something that can be controlled and that is completely within management’s power to fix.
Lack of communication!
While GeoEye’s management team is competent, and even at times very good, this has been a pervasive problem in the past, and it looks like GeoEye is slipping into old behavior patterns by not communicating well with analysts , Wall Street, and simply the investors like us that own shares of the company’s stock and just want to know what the heck is going on from time to time.
We were kept in the dark all quarter about the “calibration issues”, what was taking so long, why there was a delay, and when and why earnings were going to be released and were delayed.
In fact, I am putting out this post today a little blindly, without truly knowing the exact date and time of GeoEye’s earnings release because they have yet to specify this information publicly.
GeoEye was on the path towards rectifying this situation and had done a much better job of managing their profile, and miscommunications with investors, but they’ve taken a large step back here lately.
Now let’s take a look at what I expect out of GeoEye on this earnings call…
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(11) comments to “GeoEye Q4/2008 Earnings Preview: Why the Silence? What’s going on?”
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March 12th, 2009 at 12:36 pm
Not sure if you know, but someone just pointed me to the GEOEYE website (investor relations page) for the date and time of the conf call. 3/17/09 at 11am. Gotta love the way they announce it. By the way, the 10k is due Monday.
http://www.geoeye.com/CorpSite/corporate/investor-relations/
March 15th, 2009 at 4:26 pm
Hey Michael,
I just checked this and there is nothing!
I thought it would be strange that they would put that on their site, but not put out a formal 8-k about it, or a press release letting investors know…
I think it must have been an automated system or something that put the date and time on their site, but was taken down once they realized their error.
They have people reading my pages, so I know they know what I am saying, and are keeping a careful watch on what is being let out to the public and being reported on by me.
Let’s see what the heck is going on over there!
Chris
March 16th, 2009 at 4:03 pm
Silence..They are now late filing their 10k.
March 16th, 2009 at 7:05 pm
Well, add it to the list…something is going on over there, and I don’t think it can be very good.
We’ll know soon enough.
Until then, I would hold off on further purchases of GeoEye’s shares.
Chris
March 16th, 2009 at 7:52 pm
I suspect that they are feverishly trying to figure out the “best” way to let us know that GeoEye-2 is not going to be possible in any sort of foreseeable future. That will mean Digital Globe will regain the upper hand.
Meanwhile the option writers are hammering the stock. I thought they might stop at the 20 strike, but they seemed determined to shoot for 15 by Friday. Not good.
I myself will be buying put protection at the open tomorrow for this very reason.
March 16th, 2009 at 8:38 pm
Alec,
Sure, that could be a good reason, but I think that through the cash flow generation that they will be getting from GeoEye-1 as well as their constellation of satellites they now have, they could delay this for 1-2 years and still pay off their debt through free cash flow.
I honestly believe they are sitting on a cash flow monster right now.
Yea, the stock might deserve to get hammered right now with the lack of intel coming our way…
We’ll see what’s going on very soon, I might even have to put a call into the company tomorrow.
Chris
March 16th, 2009 at 9:28 pm
Please do, they haven’t been returning my calls or e-mails the past few days…In all fairness, the 4Q 2007 conference call was held on March 13th of last year. But they did file a notice of late filing (NT 10-K) on March 17th of 2008 and March 16th of 2006, but this could have been due to their accounting problems. With all that cash flow, you would think that they would be able to hire a competent CFO and accountant who could file their financials on time. That being said, the non-communication by management is par for the course and I think that it is a definite factor that is depressing the stock price. I seriously doubt that anything they say on the conference call will boost the stock price, I don’t think they have any credibility given their past missteps. I believe that it will only be a full quarter of revenue and earnings that pushes the price up, which will probably the August Q2 2009 call. At the rate the stock is falling right now, the non-communication by the company and the macro economic environment, it’ll probably be a penny stock by then…It’s been an extremely frustrating year, here’s hoping to a buyout or change in management
March 16th, 2009 at 10:08 pm
KP,
Yea, more than likely they are in a quiet period right now.
Henry Dubois might have not been the best CFO in terms of filing stuff incorrectly, but he at least had their stuff ready and on time more often than not.
At any rate, let’s step back and take stock of the situation in an unemotional way: GeoEye’s share price sits about where my average cost basis is for it, and for you out there that bought when I told you to as well, so we are essentially flat right now.
In the mean time, the market has suffered 45-50% drop, depending on the day of the week.
That is serious outperformance!
If you feel that GeoEye is about to announce some really dirty and nasty stuff, if you got out now, you preserved your capital in a market where 100% of people cannot say the same.
Either way you slice it, that’s a winning strategy, and for that I am grateful because Wall Street always saw an intrinsic value in shares of GeoEye and they’ve remained steady even in the fact of some adversity, delays, and management snafus.
Let’s just hope this announcement is nothing more than financials and end of year risk factors, and accounting issues that took way longer to get certified by independent analysis than GeoEye ever thought.
Chris
March 17th, 2009 at 8:52 pm
Chris,
As always, thanks for the insight. It would appear that the issues are minor and that we should be hearing from them sometime in the next two weeks…
GeoEye, Inc. (the “Company”) needs additional time to complete the preparation of its Annual Report on Form 10-K for the year ended December 31, 2008 because the Company is restating its financial statements as of and for the years ended December 31, 2006 and 2007 and the interim quarterly periods for 2007 to correct errors in accounting as described in our Current Report on Form 8-K filed on March 17, 2009. As a result of these restatements, the Company needs additional time to complete its 2008 annual financial statements. The Company also requires additional time to evaluate whether the impact of the 2006 and 2007 adjustments on its previously filed financial statements for the quarterly periods in 2008 is material. The preparation of the restated financial statements requires an extension to our normal regulatory reporting deadline of March 16, 2009. The Company intends to file its Form 10-K with the Securities and Exchange Commission as promptly as practicable and is presently unaware of any circumstances that would prevent it from filing its Form 10-K on or before the fifteenth calendar day following the prescribed due date in compliance with Rule 12b-25.
March 17th, 2009 at 9:01 pm
KP,
Thanks for the update! I didn’t see this filed at all on GeoEye’s home page on Yahoo Finance, which I usually parooze for recent stuff as they usually file things in a timely fashion…funny how this slipped under the radar somehow, I guess because its a NT 10-K filing, so perhaps their filters don’t check for these.
It’s nice to know that nothing strange is going on, and yea, as we all expected, it’s as simply as GeoEye still not having a qualified and decent numbers guy on hand to get this stuff in order in a timely manner…I mean what, they didn’t know for 6 months or more that this due date would be upcoming?
Anyway, also looks like all the company execs also got some nice additional restricted stock and options as well…
Thanks for helping me out on this one guys, I totally missed this.
Chris
March 18th, 2009 at 10:51 am
Wow, I really misread this one. I was certain that the option sellers were going to pound the stock down to 15 by Friday so I sold my 15 strike calls for $3.00 at open yesterday when the stock was at 18. I also bought some way out of the money puts as a hedge against my remaining GeoEye position in case there was something terrible going on inside the company causing this earnings release delay. Those were really cheap though, so its not such a big deal.
I’m glad I held on to about half my position because things look like they might really turn around for good now in light of the announcement of new reseller contracts.