Press Release

ORBIMAGE Announces Results for First Nine Months of 2005

By SpaceRef Editor
November 14, 2005
Filed under , ,

DULLES, Va. ORBIMAGE Holdings Inc. today announced its financial results for the third quarter of 2005 and for the nine months ended September 30, 2005.

Total revenues for the third quarter of 2005 and 2004 were $11.2 million and $8.9 million, respectively. Total revenues for the nine months ended September 30, 2005 and 2004 were $28.4 million and $20.7 million, respectively. Net loss for the third quarter of 2005 was $9.5 million, or $0.55 per share, compared to $6.1 million, or $0.95 per share, for the third quarter of 2004. Net loss for the nine months ended September 30, 2005 was $20.5 million, or $1.29 per share, compared to $19.0 million, or $2.97 per share, for the nine months ended September 30, 2004.

“While we are pleased that our third quarter 2005 revenues reached a record level, we are disappointed with the pace of our revenue increase this year,” said ORBIMAGE’s President and Chief Executive Officer Matthew O’Connell. “Our revenues increased substantially on a year to year basis, but they have developed much more slowly than we had anticipated for a number of reasons. The principal delay was in the international arena. Many international customers have delayed purchasing decisions for long term contracts pending the outcome of the industry consolidation that is currently underway. At this point, we believe our annual 2005 revenues will be approximately $40 million, a significant improvement over 2004 but below the $50 million to $60 million range we had anticipated in May. We have been very careful about our spending, however, and have largely mitigated the revenue shortfall through rigorous cost containment. As a result, we believe our operating loss for 2005 will be consistent with our prior guidance, and expect it to be in the range of $(12) million to $(8) million, including approximately $24 million of depreciation and amortization expenses. On the positive side, the construction of our OrbView-5 satellite continues to progress on schedule and within budget. Once the acquisition of Space Imaging is completed, we believe our ability to promote the combined capabilities and product portfolios of the two companies will increase our ability to enter into long-term agreements with potential international customers because of our ability to offer multiple sources of imagery currently and a long term solution once OV-5 is operational. We have met with almost all of the international and domestic customers since the announcement of our acquisition of Space Imaging to present the combined capabilities of ORBIMAGE post acquisition, and we are in discussions with a number of them about upgrading their systems for dual capabilities and extended imagery buys. As a result of those meetings, I am more excited than ever about the long-term prospects of our company and our position as the leader in this important segment of the defense and intelligence industry.”

Operating Results

The following table presents ORBIMAGE’s summary reported results (unaudited) for the third quarter and year-to-date periods (in thousands, except share and per share data):

                                  Three Months Ended       Nine Months Ended
                                    September 30,            September 30,
                                   2005       2004          2005       2004

    Revenues                   $   11,197  $   8,891    $   28,357  $  20,650

    Loss from operations           (1,634)    (3,564)       (8,278)   (11,474)

    Net loss                       (9,548)    (6,140)      (20,516)   (18,957)

    Loss per common share
     -- basic and diluted           (0.55)     (0.95)        (1.29)     (2.97)

    Weighted average
     shares outstanding --
     basic and diluted         17,291,587  6,497,292    15,849,818  6,388,335

Revenues for the three months ended September 30, 2005 were approximately $11.2 million as compared to $8.9 million in the same period in 2004. Revenues for the nine months ended September 30, 2005 were approximately $28.4 million, compared to $20.6 million for the same period in 2004. Approximately $1.1 million of the increase in third quarter 2005 revenues resulted from the recognition of revenue associated with infrastructure enhancements under the NGA ClearView program that were completed subsequent to the third quarter and are being recognized over the remaining term of the contract. The remaining increase was principally generated from volume increases in value added production services performed on behalf of NGA along with increased subscription sales of SeaStar imagery generated from the OrbView-2 satellite for commercial customers. The increase in 2005 year-to-date revenues as compared to 2004 was primarily due to commencement of OrbView-3 operations for the U.S. Government effective in March 2004 under the NGA ClearView program for imagery and infrastructure enhancements, and in June 2004 for production services. The timing of the commencement of these activities resulted in a $6.8 million increase in 2005 revenues over 2004. The remaining increase resulted from the commencement of OrbView-3 operations for international customers in the second quarter of 2004. The Company recognized revenues generated from OrbView-3 products and services of $9.3 million and $6.7 million for the three months ended September 30, 2005 and 2004, respectively, and $23.7 million and $14.5 million for the nine months ended September 30, 2005 and 2004, respectively.

Loss from operations for the third quarter of 2005 was $1.6 million as compared to $3.6 million in the same period in 2004, which is mainly attributable to increased sales as noted above. Loss from operations for the nine months ended September 30, 2005 was $8.3 million as compared to $11.5 million in 2004. The decrease in this loss from the prior year is attributable to the generation of revenues from the OrbView-3 satellite for a full nine month period in 2005 versus a seven month period in 2004. Total depreciation expense recorded for the OrbView-3 satellite and related ground system assets was $16.1 million in 2005 and $13.6 million in 2004.

Net loss for the third quarter of 2005 was $9.5 million versus a net loss of $6.1 million in the same 2004 period. Net loss for the first nine months of 2005 was $20.5 million versus a net loss of $19.0 million a year ago. ORBIMAGE recorded net interest expense of $5.8 million and $2.6 million during the three months ended September 30, 2005 and 2004, respectively, and $9.5 million and $7.5 million during the nine months ended September 30, 2005 and 2004, respectively. The third quarter 2005 amount principally represents interest expense of $7.0 million incurred on the Company’s Senior Floating Rate Notes, offset by interest income of approximately $1.3 million. The 2004 amount represents interest expense incurred on the Company’s Senior Notes and Senior Subordinated Notes, both of which were repaid during 2005. The 2005 year-to-date amount principally represents interest expense of $7.0 million incurred on the Senior Floating Rate Notes and interest expense of $3.7 million incurred on the Senior Notes and Senior Subordinated Notes, offset by interest income of approximately $2.3 million. The 2004 amount represents interest expense incurred on the Company’s Senior Notes and Senior Subordinated Notes. During the third quarter of 2005, the Company recorded a loss of $2.1 million associated with the early extinguishment of its Senior Subordinated Notes. ORBIMAGE also recorded a loss of $0.6 million associated with the early extinguishment of the Senior Notes in the first quarter of 2005.

Cash Flow and Leverage

As of September 30, 2005, ORBIMAGE had $253.3 million of cash and cash equivalents. Net cash provided by operating activities for the nine months ended September 30, 2005 was $92.1 million. During 2005, ORBIMAGE received approximately $75.6 million of milestone payments from the National Geospatial-Intelligence Agency (“NGA”) related to the construction of the OrbView-5 satellite. Net cash used for investing activities were $119.4 million for the first nine months of 2005. Capital expenditures for the first nine months of 2005 were $112.7 million, much of which represents expenditures associated with the OrbView-5 satellite and related systems. ORBIMAGE also used approximately $6.7 million for the initial payment and other acquisition- related costs associated with the purchase of Space Imaging.

Net cash provided by financing activities were $220.0 million for the first nine months of 2005. During the first quarter ORBIMAGE received approximately $74.0 million of proceeds from the exercise of warrants by certain of its investors and from the issuance of shares in conjunction with a subscription rights offering which concluded in March 2005. Approximately $22.2 million of the warrant proceeds were used to redeem the Senior Notes on March 31, 2005 as discussed above. On June 29, 2005, ORBIMAGE Holdings Inc. issued $250 million aggregate principal amount of Senior Secured Floating Rate Notes due 2012 (the “Notes”). The Notes were offered in a private placement to certain qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The purpose of the offering was to contribute the proceeds to the capital of its wholly-owned subsidiary, ORBIMAGE Inc., to be used for construction costs for the OrbView-5 satellite, to mandatorily redeem all of the outstanding Senior Subordinated Notes of ORBIMAGE Inc. that were to mature in 2008 and for general working capital purposes. The Notes bear interest at a rate per annum, reset semi-annually, equal to the greater of nine-month LIBOR or three percent, plus a margin of 9.5 percent. ORBIMAGE Holdings entered into an interest rate swap arrangement pursuant to which it has fixed its effective interest rate under the Notes at 13.75 percent through July 1, 2008.

                            ORBIMAGE HOLDINGS INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
          (Unaudited; in thousands, except share and per share data)

                                   Three Months Ended        Nine Months Ended
                                      September 30,            September 30,
                                     2005      2004           2005       2004

    Revenues                    $  11,197   $  8,891     $  28,357  $  20,650

    Direct expenses                 9,685      9,162        27,843     24,997

    Gross profit (loss)             1,512       (271)          514     (4,347)

    Selling, general and
     administrative expenses        3,146      3,293         8,792      7,127

    Loss from operations           (1,634)    (3,564)       (8,278)   (11,474)

    Interest expense, net           5,795      2,576         9,480      7,483

    Loss from early
     extinguishment of debt         2,119          -         2,758          -

    Loss before benefit for
     income taxes                  (9,548)    (6,140)      (20,516)   (18,957)

    Benefit for income taxes            -          -             -           -

    Net loss                    $  (9,548)  $ (6,140)    $ (20,516) $ (18,957)

    Loss per common share --
     basic and diluted          $   (0.55)  $  (0.95)    $   (1.29) $   (2.97)

    Weighted average shares
     outstanding -- basic
     and diluted               17,291,587  6,497,292    15,849,818  6,388,335



                            ORBIMAGE HOLDINGS INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                 (Unaudited; in thousands, except share data)


                             ASSETS
                                                September 30,   December 31,
                                                    2005           2004
    Current assets:
          Cash and cash equivalents              $  253,318     $   60,565
          Receivables net of allowances of
           $127 and $126, respectively                8,444         12,148
          Other current assets                        3,634          2,612
               Total current assets                 265,396         75,325

    Property, plant and equipment, at cost,
     less accumulated depreciation of $6,635
     and $3,751, respectively                        27,455         18,263
    Satellites and related rights, at cost,
     less accumulated depreciation and
     amortization of $32,687 and $18,142,
     respectively                                   221,483        116,640
    Goodwill                                         28,490         28,490
    Other assets                                     26,092         10,428
      Total assets                               $  568,916     $  249,146


          LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
          Accounts payable and accrued expenses  $   13,484     $    3,970
          Amounts payable to subcontractors          62,984         47,545
          Deferred revenue                            1,113          2,234
          Other current liabilities                   1,561              -
               Total current liabilities             79,142         53,749

    Long-term debt                                  245,182         85,018
    Deferred revenue, net of current portion        100,791         24,491
    Other noncurrent liabilities                      3,811              -

          Total liabilities                         428,926        163,258


    Stockholders' equity:
          Common stock, par value $0.01;
           25,000,000 shares authorized;
           17,434,889 shares and 9,917,078 shares
           issued and outstanding as of September
           30, 2005 and December 31, 2004,
           respectively                                 174             99
          Additional paid-in-capital                186,043        112,373
          Unearned compensation                        (765)        (1,845)
          Accumulated deficit                       (45,255)       (24,739)
          Accumulated other comprehensive loss         (207)             -

          Total stockholders' equity                139,990         85,888

          Total liabilities and stockholders'
           equity                                $  568,916     $  249,146



                            ORBIMAGE HOLDINGS INC.
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (Unaudited; in thousands)

                                               Nine Months Ended September 30,
                                                     2005           2004

    Cash flows from operating activities:
         Net loss                                $  (20,516)     $ (18,957)
         Adjustments to reconcile net loss to
          net cash provided by (used in)
          operating activities:
             Depreciation and amortization           18,665         16,090
             Interest paid in kind                        -          7,559
             Stock compensation                       1,080          2,027
             Loss on early extinguishment of debt     2,758            -
         Changes in assets and liabilities:
             Decrease (increase) in receivables
              and other current assets                3,992         (7,277)
             Decrease in other assets                   992              -
             Increase (decrease) in accounts
              payable and accrued expenses            9,512         (1,331)
             Increase in deferred revenue            75,627          1,295
         Net cash provided by (used in) operating
          activities                                 92,110           (594)

    Cash flows from investing activities:
         Capital expenditures                      (112,693)        (1,060)
         Acquisition of Space Imaging                (6,688)             -
         Net cash used in investing activities     (119,381)        (1,060)

    Cash flows from financing activities:
         Issuance of long-term debt                 245,000              -
         Extinguishment of long-term debt           (85,016)             -
         Long-term debt repayment and
          issuance costs                            (13,706)             -
         Issuance of common stock                    73,746              -
         Net cash provided by financing
          activities                                220,024              -

    Net increase (decrease) in cash and             192,753         (1,654)
     cash equivalents

    Cash and cash equivalents, beginning
     of period                                       60,565         14,405
    Cash and cash equivalents, end of period     $  253,318      $  12,751

    Supplemental cash flow information:
         Interest paid                           $    4,295      $       -
         Payments made in conjunction
          with Chapter 11 reorganization         $        -      $   1,040

    Non-cash items:
         Capital expenditures                    $  (67,625)     $       -
         Amounts payable to subcontractors           62,984              -

About ORBIMAGE:

ORBIMAGE is a leading global provider of earth imagery products and services, with digital remote sensing satellites and an integrated worldwide image receiving, processing and distribution network. On September 16, 2005, ORBIMAGE announced an agreement in principle to acquire Space Imaging. When the Space Imaging acquisition is completed, the combined company will be the largest commercial remote sensing company in the world.

ORBIMAGE currently operates the high resolution OrbView-3 satellite, which is capable of measuring, mapping and monitoring objects smaller than automobiles and spectrally differentiating thousands of land use/land cover types. In addition to OrbView-3, ORBIMAGE also operates the OrbView-2 ocean and land multispectral imaging satellite and the SeaStar Fisheries Information Service, which provides maps derived from essential oceanographic information to aid in commercial fishing. The company is currently building a next- generation satellite, OrbView-5, to support the National Geospatial Intelligence Agency’s NextView image acquisition program.

ORBIMAGE also produces value-added imagery products and provides advanced photogrammetric engineering services at its St. Louis facility. The company distributes its products directly to the U.S. government for national security and related mapping applications. Commercial sales are handled primarily through a worldwide network of value-added resellers, regional distributors, sales agents and select strategic partners.

For more information about ORBIMAGE, please see our web site at http://www.orbimage.com.

This release contains forward-looking statements within the meaning of section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve known and unknown risks and uncertainties. ORBIMAGE’s actual financial results could differ materially from those anticipated due to the company’s dependence on conditions in the remote sensing industry, the level of new commercial imagery orders, production rates for advanced image processing, the level of defense spending, competitive pricing pressures, start-up costs and possible overruns on new contracts, and technology and product development risks and uncertainties. Please refer to our press release dated May 4, 2005 for additional detail regarding these risks and uncertainties.

SpaceRef staff editor.