GeoEye-1 launched successfully today, September 6, 2008 from Vandenberg Air Force Base (VAFB), at about 11:51 A.M. Pacific time.

GeoEye’s ground station in Norway relayed the downlink signal it received from GeoEye-1 confirming that the satellite successfully separated from the second stage of the launch vehicle and began automatically initializing its onboard systems.

The launch of GeoEye-1 marks the 83rd consecutive successful launch of the Delta II rocket.

I must admit that watching the launch was one of the coolest things I’ve ever seen because of the vested interest that I had in the launch, and actually wanting it to succeed.

GeoEye-1 on Delta II Rocket Booster

It was a little nerve-racking watching the Delta II rocket jettison different parts after they were used up, and thinking to myself: “was that supposed to happen?”

You can see a full replay of the launch here:

http://launch.geoeye.com/LaunchSite/

There is only video for the first 5 min. or so, and then it crosses over to a real-time simulation that shows what’s going on with the satellite and 2nd stage booster that we can’t see, to give us an idea of what’s going on.

GeoEye, Inc. (NASDAQ: GEOY) 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.

New to the GeoEye story?

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

GeoEye-1 Launch a Success!

So now what?

GeoEye-1

Well, now we wait.

GeoEye will begin the process of activating and testing the satellite to make sure it’s intact, nothing was damaged, and that it is working as it should.

This process can take anywhere from 45-60 days as GeoEye has to put GeoEye-1 through its paces and make sure that it works for every single applicable stress test and imagery test.

The reason that it takes so long is because not only does GeoEye have to verify that the satellite is working properly on multiple fronts over many test cycles, but more so because the National Geospatial-Intelligence Agency (NGA) has to then certify the imagery.

This means making sure that the imagery is usable, consistent, and meets the criteria set forth by the NGA for official government usage.

GeoEye then expects to be able to offer imagery and products to customers in the mid- to late-October timeframe, and that includes Google (NASDAQ: GOOG).

Bottom Line

Step 1 complete, now on to Step 2

For the next month and a half or so, we’ll have to hope that the GeoEye-1 satellite is functioning as it should, has no problems, and checks out fine with the NGA.

To be honest though, the hard part is now over with, and we can breath a slight sigh of relief that GeoEye-1 is now hurtling around the Earth at four-and-a-half miles (seven kilometers) per second, and will be making 15 earth orbits per day.

Remember also that GeoEye-1 will have the highest resolution of any commercial imaging system, 0.41-meters or 16 inches for panchromatic (black and white) imagery and multispectral (color) imagery at 1.65-meter resolution.

The highest resolution is the equivalent of being able to see home plate on a baseball field from space.

Together, GeoEye’s IKONOS and GeoEye-1 satellites can collect almost one million square kilometers of imagery per day and provide GeoEye with a “constellation” of multiple satellites that are of a high resolution variety which further enhances GeoEye’s imagery capacity.

Now we just have to wait for the final verification that GeoEye-1 will be a success, and our investing thesis on GeoEye the stock, will play out just as we thought with huge increases in revenue, profit, and cash flow towards the end of 2008, and for the full year of 2009.

With this launch GeoEye is now the leader in the field over rival DigitalGlobe (NYSE: DGI), and has already secured an exclusive contract with Google for the use of GeoEye-1’s imagery.

The hard part’s over, now we just have to wait for GeoEye to continue to execute, and make sure nothing goes wrong with GeoEye-1.

• If you are interested in learning more about the launch and seeing a replay of the launch of GeoEye-1, you can do so here:

http://launch.geoeye.com

New to the GeoEye story?

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

*As of 9-5-08. Except share price, all values in millions.

View original at: PeakStocks.com

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(NGA) GeoEye-1 Launch Successful!

That’s right, after the market closed tonight, GeoEye, Inc. (NASDAQ: GEOY), a provider of space-based and aerial imagery and geospatial information, announced that because Hurricane Hanna has changed course, they were able to meet their needs for additional personnel from the east coast, and as a result, will be launching this Saturday, September 6th from Vandenberg Air Force Base (VAFB).

This all comes after GeoEye confirmed on Friday August 29, 2008 that the final checks have been made and that all systems were a go for the previous September 4th, 2008 launch of GeoEye-1, which was delayed from August 22nd.

New to the GeoEye story?

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

GeoEye-1 Launch: Are We There Yet?

It sure looks that way!

GeoEye-1

Although GeoEye didn’t update this in their latest press release, the original launch time was scheduled for 11:50:57 a.m. PDT (2:50:57 p.m. EDT), and it looks like this launch will occur around the same time.

You’ll recall that the initial delay from August 22nd to September 4th was because of problems with equipment related to the launch and GeoEye’s launch partner United Launch Alliance (”ULA”, a joint venture between Boeing (NYSE:BA) and Lockheed Martin (NYSE: LMT).

You can read more about this delay and why it occurred here.

Then, earlier this week, the launch was further delayed as a result of Hurricane Hanna breathing down Florida’s neck where ULA personnel are stationed that are responsible for the launch of GeoEye-1.

You can read all about that fiasco here.

The bottom line for us?

All of that doesn’t matter anymore.

The launch has been confirmed for Saturday, and unless Hurricane Ike picks up speed and reaches the Florida coast much quicker than it is expected to, which is sometime early next week, we’ll be able to get this bird up in the air once and for all.

When GeoEye-1 does launch, you can follow the launch in real-time on GeoEye’s website here:

http://launch.geoeye.com

Don’t Count Them Chickens…

Been there, done that

We all know that this date, even less than 48 hours away, can be changed, so I won’t start holding my breath until we are in the final countdown for launch, but I believe that the smart folks with the Air Force and ULA understand the possible paths and strengths of the oncoming Hurricanes and would not have scheduled this launch so close to another possible Hurricane landfall if they did not believe that the launch could get completed successfully while still allowing the launch crew to get back to the East coast before the next possible storm arrives.

Then again…

More info about GeoEye-1, Launch

Delta II Stage 1 Rocket Booster

GeoEye-1 will be lifted into a near-polar orbit by a 12-story-tall United Launch Alliance Delta II 7420-10 configuration launch vehicle, pictured at right.

The Delta II rocket is expected to deploy the GeoEye-1 satellite approximately 58 minutes after liftoff and will reach its proper orbit about 90 minutes after launch.

Speaking of tight timing, in order to achieve the proper orbit, the launch window will only be open for 84 seconds.

The success of these types of launches is over 98.5%.

Needless to say, everything will have to be performed to perfection, but that’s one of the reasons why launches are handled by so few companies and why it takes so long to secure a launch date.

Once in orbit, GeoEye-1 will undergo system calibration and testing designed to ensure that the equipment is working as it should be, and can produce usable imagery.

This process usually takes about 45-60 days, and before GeoEye can begin selling its imagery to the US government via the National Geospatial-Intelligence Agency (NGA), they will need to get approval from the NGA that the images meet their strict criteria and guidelines for usable imagery.

GeoEye then expects to be able to offer imagery and products to customers in the mid- to late-October timeframe, and that includes Google (NASDAQ: GOOG).

You can read all about GeoEye’s exclusive deal to sell GeoEye-1 imagery to Google here.

GeoEye-1 is designed to take color images of the Earth from 423 miles (681 kilometers) in space and will be moving at a speed of about four-and-a-half miles (seven kilometers) per second, and make 15 earth orbits per day.

With the ability to revisit any location on the globe every three days, and at lesser resolution more frequently, GeoEye-1 will enable customers to receive imagery updates on a regular basis and will be ideal for large-scale mapping projects.

This capability will benefit 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.

Once launched, GeoEye-1 will have the highest resolution of any commercial imaging system, 0.41-meters or 16 inches for panchromatic (black and white) imagery and multispectral (color) imagery at 1.65-meter resolution.

GeoEye-1 on Delta II Rocket Booster

The highest resolution is the equivalent of being able to see home plate on a baseball field from space.

In addition, GeoEye-1 will be able to map the location of an object that size to within about nine feet (three meters) of its true location on the surface of the Earth without need for ground control points.

However, due to U.S. Government licensing restrictions, commercial customers will have access to imagery at half-meter ground resolution.

Together, GeoEye’s IKONOS and GeoEye-1 satellites can collect almost one million square kilometers of imagery per day and provide GeoEye with a “constellation” of multiple satellites that are of a high resolution variety which further enhances GeoEye’s imagery capacity.

Finally, you can listen to an interview with GeoEye’s VP of Marketing and Communications, Mark Brender speaking about the launch on NPR here. It’s definitely worth a listen:

http://www.npr.org/templates/story/story.php?storyId=94110470

Bottom Line

The manner with which this launch date was provided leads me to believe that all parties involved understand what is at stake.

GeoEye has been trying to launch this sucker for about 1 year, while ULA has repeatedly bumped the launch for one reason or another, good or bad.

There was probably some strong arm wrestling going on here, and if I had my guess, it’s that ULA was sick and tired of GeoEye bugging them about delayed launches, and are doing everything in their power to make sure they get GeoEye-1 up and running as quickly as possible.

The countdown has officially started now.

When Saturday afternoon comes around, pop open your Internet browser, sit back and watch the launch.

Then we can start focusing our attention on what really matters where GeoEye is concerned: namely, the increased revenue and profit that a best-in-breed GeoEye-1 satellite will provide GeoEye, and the whole reason for owning GeoEye’s stock in the first place, and quit worrying about the stinkin’ launch.

• If you are interested in learning more about the launch and tracking the launch of GeoEye-1, GeoEye provided a web page dedicated to constant updates and real-time streaming video of the launch.

You can visit that here:

http://launch.geoeye.com

New to the GeoEye story?

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

*As of 9-4-08. Except share price, all values in millions.

View original at: PeakStocks.com

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(NGA) GeoEye-1 Launch Unexpectedly Moved Up to This Saturday, September 6th

GeoEye, Inc. (NASDAQ: GEOY), a provider of space-based and aerial imagery and geospatial information, announced today after the market closed, that the launch of GeoEye-1 has been further delayed due to Hurricane Hanna, and could quite possibly be delayed further depending on the outlook for the other storms that are now churning in the Atlantic Ocean.

This all comes after GeoEye confirmed on Friday August 29, 2008 that the final checks have been made and that all systems were a go for the September 4th, 2008 launch of GeoEye-1, which will now be delayed to no EARLIER than September 7th.

However, I wouldn’t hold my breath for that launch date yet, especially with the uncertainty in the upcoming named storms that are on a general path for the east coast of the US.

There was one bit of good news in all of this however.

GeoEye announced a deal with Google (NASDAQ: GOOG) to provide images from GeoEye-1 exclusively to Google for Google Earth and Google Maps.

New to the GeoEye story?

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

GeoEye-1 Launch Locked and Loaded

Now we’re waiting on the weather

GeoEye-1

As you’ll recall a few weeks ago, before their earnings release, GeoEye stated that the launch of GeoEye-1 would further be delayed as a result of a problem with one of the pieces of equipment that is necessary to track and help deliver the satellite to space.

This delay and problems with equipment was not related in any way to GeoEye, or GeoEye-1, but rather to United Launch Alliance (”ULA”, a joint venture between Boeing (NYSE:BA) and Lockheed Martin (NYSE:), which is handling the launch.

You can read more about this delay and why it occurred here.

Today’s announced delay was also due to ULA and was out of GeoEye’s control.

According to GeoEye, ULA advised GeoEye that Hurricane Hanna’s projected path off the east coast of Florida has impacted the availability of certified Delta II launch specialists available to travel to Vandenberg Air Force Base (VAFB) to support the GeoEye-1 launch.

According to the press release, ULA frequently shifts personnel from coast to coast to support launches.

Now, why the crew and personnel responsible for a $500 million piece of equipment that has been in the making for 5 years be stationed on the other side of the U.S. from where it was going to be launched is totally beyond me, but that’s where things stand as of now.

It appears the problem lies in the military declaring what is called a HURCON 4 (Hurricane Condition 4), meaning that there is a storm with sustained winds of greater than 50 knots anticipated to hit within 72 hours at the Cape Canaveral Air Force Station (CCAFS).

Under this condition, personnel may elect to remain with their families for the duration of the storm instead of travelling to California for the GeoEye-1 launch.

If this weren’t bad enough, there are a total of 3 named storms (Hanna, Ike and Josephine) now plowing their way towards the U.S. so we might not be out of the woods yet.

The good news is that a Flight Readiness Review was conducted on Aug. 28 and the launch vehicle, launch range, the GeoEye-1 satellite, and all other program elements are ready for launch, according to GeoEye.

When GeoEye-1 does launch, you can follow the launch in real-time on GeoEye’s website here:

http://launch.geoeye.com

ULA is currently planning the launch for no earlier than September 7 and is taking all of the steps necessary to support this date, and GeoEye will announce a new date as soon as it is confirmed by ULA.

However, as we’ve seen before, I wouldn’t go out and buy any lottery tickets or base any credible assesment on an exact launch date until GeoEye-1 is actually launched.

Until that happens, I won’t even speculate on the actual launch date, even if/when GeoEye confirms the date.

More info about GeoEye-1

Delta II Stage 1 Rocket Booster

GeoEye-1 will be lifted into a near-polar orbit by a 12-story-tall United Launch Alliance Delta II 7420-10 configuration launch vehicle, pictured at right.

The Delta II rocket is expected to deploy the GeoEye-1 satellite approximately 58 minutes after liftoff and will reach its proper orbit about 90 minutes after launch.

Speaking of tight timing, in order to achieve the proper orbit, the launch window will only be open for 84 seconds.

The success of these types of launches is over 98.5%.

Needless to say, everything will have to be performed to perfection, but that’s one of the reasons why launches are handled by so few companies and why it takes so long to secure a launch date.

Once in orbit, GeoEye-1 will undergo system calibration and testing designed to ensure that the equipment is working as it should be, and can produce usable imagery.

This process usually takes about 45-60 days, and before GeoEye can begin selling its imagery to the US government via the National Geospatial-Intelligence Agency (NGA), they will need to get approval from the NGA that the images meet their strict criteria and guidelines for usable imagery.

GeoEye then expects to be able to offer imagery and products to customers in the mid- to late-October timeframe, and that includes Google.

GeoEye-1 is designed to take color images of the Earth from 423 miles (681 kilometers) in space and will be moving at a speed of about four-and-a-half miles (seven kilometers) per second, and make 15 earth orbits per day.

With the ability to revisit any location on the globe every three days, and at lesser resolution more frequently, GeoEye-1 will enable customers to receive imagery updates on a regular basis and will be ideal for large-scale mapping projects.

This capability will benefit 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.

Once launched, GeoEye-1 will have the highest resolution of any commercial imaging system, 0.41-meters or 16 inches for panchromatic (black and white) imagery and multispectral (color) imagery at 1.65-meter resolution.

GeoEye-1 on Delta II Rocket Booster

The highest resolution is the equivalent of being able to see home plate on a baseball field from space.

In addition, GeoEye-1 will be able to map the location of an object that size to within about nine feet (three meters) of its true location on the surface of the Earth without need for ground control points.

However, due to U.S. Government licensing restrictions, commercial customers will have access to imagery at half-meter ground resolution.

Together, GeoEye’s IKONOS and GeoEye-1 satellites can collect almost one million square kilometers of imagery per day and provide GeoEye with a “constellation” of multiple satellites that are of a high resolution variety which further enhances GeoEye’s imagery capacity.

Finally, you can listen to an interview with GeoEye’s VP of Marketing and Communications, Mark Brender speaking about the launch on NPR here. It’s definitely worth a listen:

http://www.npr.org/templates/story/story.php?storyId=94110470

Bottom Line: Another delay, ho hum…At this point things are out of GeoEye’s control, so we have no choice but to wait and see what happens.

I can tell you personally that if we are upset as investors at the continued delays, GeoEye’s management team is absolutely livid, and is doing everything in their power to see the launch take place sooner than later.

The launch of GeoEye-1 represents a seminal occasion in GeoEye’s history, whether positive or negative, and will go a long way towards fulfilling the initial promise of GeoEye’s revenue and profit potential.

No one wants to see this sucker launch more than GeoEye, and you can rest assured that they are doing everything within their power to make sure that happens successfully, and as quickly as possible.

GeoEye Teams Up With Google on Exclusive Deal

GeoEye recently also announced a deal with Google to provide imagery to Google Maps and Google Earth utilizing the company’s GeoEye-1 satellite imagery.

Under the terms of the deal, GeoEye through the GeoEye-1 satellite, will provide imagery to Google exclusively and will not sell its imagery to any other online mapping websites, although Google will continue to use imagery from other providers such as GeoEye’s only U.S. competitor, DigitalGlobe (NYSE: DGI).

Google logo on GeoEye’s Delta II stage 1 rocket boster

In addition, as a show of good faith, GeoEye put Google’s logo on their launch vehicle in preparation for the launch.

While this deal isn’t expected to be significant to GeoEye’s revenues and earnings, it does provide GeoEye with valuable industry caché, and shows further penetration of GeoEye’s imagery capabilities.

In fact just recently, GeoEye’s imagery was used in a video game by UbiSoft, Tom Clancy’s H.A.W.X, an air combat game, to provide the realistic terrain models and graphics that were used by the game’s design engine.

You can read more about that here.

Bottom Line

The potential and excitement surrounding a successful launch of GeoEye-1 is palpable.

To say that the company’s prospects depend on this launch is an understatement.

GeoEye IS GeoEye-1.

Without it, they will not succeed with an aging satellite fleet and lost income and revenues that will be stolen from them by their closest rival DigitalGlobe.

We’re approaching the home stretch now with GeoEye and are at the culmination of over 4 year’s worth of work.

All we can do now is hold on to our hats and watch a successful launch and subsequent check-out of GeoEye-1’s imagery, and then sit back on our investment thesis as GeoEye starts cleaning up in the satellite imagery arena.

• If you are interested in learning more about the launch and tracking the launch of GeoEye-1, GeoEye provided a web page dedicated to constant updates and real-time streaming video of the launch.

You can visit that here:

http://launch.geoeye.com

New to the GeoEye story?

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

*As of 9-2-08. Except share price, all values in millions.

View original at: PeakStocks.com

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(NGA) GeoEye-1 Launch Delayed By Hurricane(s), Teams Up for Exclusive Deal With Google

While I wrote previously that I did not expect the Q2 earnings to be anything special (they weren’t), GeoEye surprised me with a further delay in the launch of GeoEye-1, albeit only slightly, and also had some accounting problems that I will detail in full.

What follows is a summary of GeoEye’s earnings announcement and conference call, a discussion about the delayed launch of GeoEye-1, along with my explanation of the numbers and outlook, and what you need to know to fully understand the GeoEye story.

New to the GeoEye story?

• 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, Margins: All Down, I’ll Explain
• Other Business Highlights: GeoEye-1 Launch Delayed, Accounting Errors Explained
• Conference Call Highlights: Slight Bump In the Road, Otherwise, Everything Still on Track
• 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 Q2/analyst’s estimates where applicable. There are now 4 analysts that cover GeoEye.):

• Quarterly sales of $34.2 million (down 29%, from $48.3 million in the prior year/vs. $35.10 million projected by analysts)
• Quarterly operating income of $5.3 million (down 79.4%, from $25.7 million in the prior year)
• Quarterly net income of $2.4 million, or $0.12 per diluted share (down 79.3%, from $11.2 million, or $.58 per diluted share, (this was restated from $23.4 million due to a tax restatement, as explained below)/vs. $.14 per share projected by analysts)
• Gross margin of 43.5% (down from 68.6% from prior year)
• Operating margin of 15.4% (down from 53.3% from prior year)
• Net margin of 7.0% (down from 23.1% from prior year, which was restated due to a tax restatement, as explained below)

My Take: These numbers look pretty bad don’t they? Aside from coming in right around Wall Street’s estimates, everything else fell off quite a bit.

But what you need to understand first and foremost, is that these numbers are MEANINGLESS both to me and Wall Street.

You see these lowered numbers are as a direct result of the delayed launch of GeoEye-1, which was originally supposed to launch earlier this year, and the fact that the National Geospatial-Intelligence Agency (NGA) has given some of their commercial satellite imagery contracts to GeoEye’s only competitor, DigitalGlobe (NYSE: DGI).

We all knew this would happen, and as the government looks for better imagery to fulfill their needs, because GeoEye-1 has not been launched yet, that business is being given to DigitalGlobe.

Most of the NGA’s current backlog of imagery orders for GeoEye centers on that imagery coming from GeoEye-1, and as such we’ll see a huge uptick in revenue and profits once GeoEye-1 is launched and the order flow starts to trickle its way through.

The investing thesis in GeoEye revolves around the future launch of GeoEye-1, and not the past results from the satellites that the company currently has in operation.

So take this quarter and most likely next quarter’s results with a grain of salt, as they don’t tell us what’s really going on here and why an investment in shares of GeoEye is prudent.

In addition, as I’ll discuss later in my report, GeoEye had some one-time tax and internal control issues that they were dealing with this quarter, and therefore had to restate their earnings for prior years, which changed some of the comparisons dating back to last year.

This seems to be a temporary and one-time event that I’ll explain in more detail below.

Finally, the primary reason for the decline in margins, and operating and net income, was due to the lower NGA imagery orders as described above.

As explained before, the reason for the sharp decline in margins lies in the fact that GeoEye, in order to fulfill some of their requirements to the NGA, their largest customer accounting for about 55% of total revenue, has to purchase imagery from other vendors and their own subsidiaries and then sell that back to the NGA from time to time.

In addition, the NGA sometimes asks GeoEye to scan and “scrub” certain imagery that proves more time-intensive and costly for GeoEye because it comes in bits and spurts, rather than all at once.

All of this affects margins heavily.

Going forward, once GeoEye-1 is launched and orders get more smoothed out and GeoEye starts to fulfill their NGA backlog, margins will jump back up and more revenue will drop to the bottom line since less resources will be spent doing spot work and more will be spent on a bevy of projects at the same time, thus reducing operating costs.

This is where the beauty lies in GeoEye’s business model.

The more revenue they generate on the top line, the higher their margins increase because they have fixed costs.

Bottom Line: Pretty simply if you ask me.

No GeoEye-1? Lower revenue, margins and profits.

GeoEye-1 launched and fully operational? Huge surge in order volume, higher revenue, higher margins, higher profits.

Let’s look at some other aspects of GeoEye’s latest quarter.

Back to Top

Other Business Highlights

GeoEye-1 Launch Delayed Slightly

• Through no fault of GeoEye’s, the launch of GeoEye-1 has been delayed for a couple of weeks and is now tentatively set for September 4th, 2008 instead of August 22nd. I’ll explain why below.
• GeoEye’s cash balance as of June 30th, 2008 was $221.5 million as compared to $234.3 million on December 31, 2007
• As of June 30, 2008, GeoEye has expended approximately $421 million of the $502 million for the launch, build-out and insurance on GeoEye-1.
• The remaining $81 million includes insurance premium payments (which were made in July and August, 2008), final amounts due to contractors and contingencies.
• Total cash needed to complete the program, including contingencies, are $124 million.
• GeoEye was able to secure an additional $50 million in total-loss insurance, for $6.1 million in premiums. This gives them $320 million in total coverage on GeoEye-1 including launch, on-orbit, and first year on-orbit insurance.
• No cash flow provided because GeoEye was still working on their 10-Q as a result of the aforementioned tax restatements.
• GeoEye does not provide forward guidance, which I like.
  

My Take: I’ll discuss this in more detail below, but the highlight of this conference call was the delayed launch of GeoEye-1 and the reasons behind it.

GeoEye did not provide other details like cash flow because they were not able to release their 10-Q on time, which in turn would have provided cash flow figures and other pertinent information.

This information should be out before the weekend.

Once GeoEye-1 gets closer to actual launch, the remaining contingencies and insurance payments will be due, and GeoEye will most likely see a huge drop in cash flow and free cash flow in the 3rd quarter as it relates to these activities, which are already fully funded.

Everything else was business as usual, with no real surprises in terms of GeoEye’s business operations aside from the tax restatements, which will have almost no material impact on GeoEye’s financial condition, and the slightly delayed launch.

Back to Top

Conference Call Highlights

Further Details on Delayed Launch, Tax Restatements

The following are the highlights from GeoEye’s analyst conference call:

• GeoEye-1 Launch Delay: GeoEye announced on Tuesday before they released their earnings, that the launch of GeoEye-1 has been delayed through no fault of the company’s.

GeoEye-1

The launch has been tentatively rescheduled for September 4th, which the company feels will be confirmed within the next few days.

As has been the case with the repeated launch delays for GeoEye-1, the reasons for this launch were completely out of GeoEye’s control and leave one to wonder how anything ever gets launched.

United Launch Alliance (”ULA”, a joint venture between Boeing (NYSE:BA) and Lockheed Martin (NYSE:), which is handling the launch, reported a problem with one of the pieces of equipment that is necessary to track and help deliver the satellite to space.

The problem has to do with what is known as a telemetry-relay aircraft that is unavailable to support the launch.

You see, when a rocket is launched, it initially talks to the ground station where it was launched from for directions and instructions.

The problem is that once the rocket passes a certain point in the atmosphere and passes below the Earth’s horizon, communication with the rocket is no longer possible via the ground station, and must be performed by an airborne aircraft, or in this case, what is known as the “Big Crow” telemetry-relay aircraft.

It seems that there was some problem with the aircraft, and it was undergoing repairs.

So, in its place, ULA has instead contracted the services of an instrumented ship known as an Ocean-going Transportable Test and evaluation Resource, or OTTR.

GeoEye-1 on Delta II Rocket Booster

The vessel will be positioned in the Pacific Ocean well downrange from the launch base to cover the initial firing of the second stage that puts the rocket into a preliminary parking orbit around the planet.

There is one more small detail that needs to be worked out and that deals with the re-test of a Range Safety antenna on the rocket booster.

This re-test is scheduled for completion on August 16 and from what I gathered from the conference call, was on track and looking good.

In addition, the Delta II’s rocket boosters are set up and ready to go and GeoEye-1 has completed all it’s check-outs and tests and is awaiting only ULA’s final tests with the telemetry antennae.

My Take: So, through no fault of GeoEye’s, they are once again delayed in their launch by about 2 weeks.

Unfortunately, we as investors and GeoEye as a company, have no choice in the matter, and have to just go with this delay and hope there are no more additional delays.

Regardless, this shouldn’t affect GeoEye’s prospects that much since a two week delay won’t affect the imagery that will be gathered in the back half of 2008, and more importantly, 2009.

As the CEO stated on the conference call: “Changes in schedule for launches are a regrettable but a routine part of launching.”

• More Launch Details: Management reiterated that the last 82 Delta II rocket launches have been successful, with a 98.5% success rate overall, and General Dynamic (NYSE: GD) and ITT Corp. (NYSE: ITT) each have a 100% mission success rate for their satellites and cameras.
• Tax Restatements: With their earnings release GeoEye reported today that they are also restating their financial statements for the years ended December 31, 2005, 2006 and 2007 and quarterly information within those years, as well as for each of the quarters ended September 30, 2007 and March 31, 2008.

Without going into too much detail that would not only bore you to tears, but also require a financial accounting degree to understand, it seems that GeoEye misstated some of their earnings and ways in which they accounted for revenue from the NGA, among other issues that have lead to this restatement.

Some of the problems were:

1) GeoEye discovered that it had not correctly included cost-share payments received from the U.S. Government under the NextView program in its taxable income.

2) GeoEye lost the use of net operating losses although they lost fewer net operating losses than reported in their 10-K for the year ended December 31, 2007. This resulted in a decrease in income tax expense and related tax liabilities from the amounts reported.

3) In connection with an internal review, GeoEye identified a decrease of $3.0 million in direct expenses in 2007 due to an overstatement of imagery purchased from third parties associated with imagery sales in 2007.

Whew…follow all that?

There’s a lot more to it, and I purposefully oversimplified things for my brain and yours, but suffice it to say, GeoEye had a few accounting issues within the last 6-12 months that are just coming to light now.

The tax restatements on the change in ownership, and the Net Operating Loss (NOL) carryforwards should not have any affect on GeoEye’s tax liabilities, financial condition, revenues or earnings, and the CEO stated that they are glad to clean things up and move forward.

GeoEye also secured a new accounting firm as a result of this fiasco.

My Take: After all was said and done with the restatement of this, and the restatement of that, it all boiled down to just shifting around how things are accounted for on their balance sheet and income statements.

There will be a $33.1 million restatement this quarter that will impact the bottom line that will be added back next quarter.

This will in essence cancel each other out as a result of GeoEye’s restatements and leniency by the IRS in not assessing GeoEye any tax penalties for their missteps.

Basically, this was a lot of hullabaloo over not much impact to GeoEye’s finances.

• Discussion of the Imagery Market, Online Portals, BASIC Program, etc.: The CEO briefly touched on GeoEye’s growing sales to the online marketplace and how they expect sales in this segment to grow further after they launch GeoEye-1 and have more imagery on portals like Google (Nasdaq: GOOG), Yahoo (Nasdaq: YHOO), and Microsoft (Nasdaq: MSFT), among others.

In addition, on May 29th, GeoEye’s imagery that was embedded in a video-game debuted in Paris to great reviews as to the realism that GeoEye’s imagery added to the game.

The game was developed by UbiSoft and will be launched early next year.

I just thought this was something cool to look out for and another way in which GeoEye’s applications are being used in new markets.

GeoEye also stated that as a result of larger orders for their imagery products and services, GeoEye is expanding their St. Louis facilities by 50%, and will increase headcount accordingly to service the increase in business for this segment of their offerings.

It should be completed by year end.

The CEO also talked about the Broad Area Surveillance Intelligence Capability (BASIC) program that has been talked about extensively in the press and that I touched on, whereby the U.S. government might build and launch their own commercial imagery satellites that might compete with GeoEye.

According to the CEO, GeoEye has not been notified about which way things are going, and the government is still considering many different scenarios.

The CEO reiterated that from their perspective, the commercial sector can always build and run things cheaper than the government usually does, so from a cost savings standpoint, it makes more sense for the government to support GeoEye than it does for them to try and build things and start from the ground floor.

Also, if the government where to choose to run their own commercial branch within a satellite imagery segment, it would run counter to two presidential directives according to GeoEye.

Finally, it looks like GeoEye is getting more and more interest from customers in China, Russia and India, and look to secure more business with these countries as things move forward and with a successful launch of GeoEye-1 and with the added capabilities that GeoEye will have utilizing both their IKONOS and GeoEye-1 satellites.

In addition, GeoEye has signed a third ground station upgrade contract to receive images directly from GeoEye-1, and other customers and affiliates have also shown interest in signing up for GeoEye-1 imagery, but are of course, waiting until a successful launch to commit.

My Take: All good stuff here.

Even in light of the possible government spending to produce their own satellite imagery for the commercial space, it seems like that is less likely to go through than continued utilization of the two commercial providers, GeoEye and DigitalGlobe, especially with the coming change in presidents and because GeoEye makes a very good point that no government agency would ever service the commercial sector (IRS anyone?) better than a private company that is for profit.

• Investor relations: The CEO commented on how GeoEye has worked hard to improve their communications with investors by giving more interviews and speaking at more conferences, and noted that the stock is now being followed by 4 analysts instead of just one previously.

I can personally attest to this with my recent interview with the CEO and CFO, as well as the fact that GeoEye put out a press release with their earnings for the first time ever, and are putting out more and more press releases explaining things in more detail about their business such as the tax issues as well as the delay in launch of GeoEye-1.

You may also recall on the last conference call how an investor chastised management for their lackluster reporting and communication with Wall Street.

In fact, things were so tame and informative by comparison this time around, that one of the analysts on the call even gave props to management for running such a smooth conference call and being so informative and forthcoming.

My Take: You’ll notice that the stock barely budged today even with “poor” earnings, a delayed satellite launch, and some earnings restatements, things that would usually slaughter a stock.

This is as a direct result of GeoEye’s improved communication with Wall Street and investor’s understanding of what it all means.

Now, while I do agree that things have gotten better, GeoEye probably should take a look at who writes their press releases and please ask them to write things in English rather than analyst speak, as some of the press releases, the earnings release being the foremost on my mind with all the tax jargon, are sometimes extremely difficult to follow even for me, let alone someone who is unfamiliar with the GeoEye story.

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Bottom Line

Investing Thesis Remains the Same

While not the deep value that it once was, GeoEye is still an undervalued stock that should be added to your portfolio immediately.

With the upcoming launch of GeoEye-1, yes it will eventually happen, and the improved fundamentals and revenue that will come with it, GeoEye is firmly positioned to capitalize on the recent market downturn, and the misinformation about their stock.

The fact that 4 analysts now cover GeoEye (all with BUY recommendations) when only 1 analyst covered the company just 2 months ago, should tell you something about the added exposure and trust that GeoEye is garnering among the analyst community and Wall Street at large.

It won’t be long before more and more investors and funds move into GeoEye especially before and right after a successful launch of GeoEye-1.

This has also largely been reflected in GeoEye’s stock price recently which has risen from the $16-17 level that I re-recommended you purchase shares at, to the current $24 level, which still leaves plenty of room for upside potential.

The slight problems in this quarter aside, remember that you are paying for the future of this company, not the past.

Anything that GeoEye earns from now until after GeoEye-1 is launched is not material to my investment thesis, and GeoEye’s continued execution and huge spike in imagery orders that will follow the launch of GeoEye-1.

When that happens, today’s valuation in retrospect, will look like an absolute bargain.

September 4th is now our new target date for that to happen.

Which means you still have time.

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New to the GeoEye story?

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

*As of 8-13-08. Except share price, all values in millions.

View original at: PeakStocks.com

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(NGA) GeoEye Q2/2008 Earnings: Slight Problems but Otherwise Looking Good