Joe Francica (JF): There has been an anticipated shakeout in the industry for sometime since ORBIMAGE won the NextView contract from NGA. Can you give me more details on the merger between ORBIMAGE and Space Imaging to form GeoEye?
Matthew O'Connell (MO): Sure but if you don't mind I'd like to rewind the tape a bit further and tell you that I was sent down by Merrill Lynch and JP Morgan to work on straightening out ORBIMAGE right after 9-11. It was going to be a two-month assignment and the reason I stuck around is that one of the smart money guys said that you ought to stick around and consolidate this industry I looked at this and said this is an industry with a lot of potential but you've got three companies losing money and that doesn't make a lot of sense. So we started dreaming this dream almost four years ago. And we were lucky enough to win NextView and lucky enough to win the auction.
In terms of integration, we have a holding company that has the support of a lot of strong investors that provided a lot of capital for NextView and the capital to buy Space Imaging. We're proud of the fact that we raised the money to buy Space Imaging from our existing shareholders. We did it in the form of debt at the subsidiary level so that it does not dilute the shareholders of the public company. Anyway, you've got a holding company on top, then you've got two parallel operating companies; one's called ORBIMAGE Opco and one's called Space Imaging Opco. But the people are all blending. Mark [Brender] is coming over as our head of marketing and communications; the head of IT is somebody who is, still is, Thornton-based.
So, we're really taking, we think, the best of both organizations and putting the people together. We'll continue to operate the satellites from their respective operation centers because, as you know, it costs a lot of money to build one of these satellite operation centers [SOC] and there is no point in moving a million or multimillion dollar SOC ... What we are going to do is, and it's already started, we're building in a coordination process so that every morning, the east coast gets up earlier, those folks will look at their available passes and they will look at what the customers wants. Thornton will show up a little bit later and Thornton will do its own planning meeting. Then they will talk to each other about who can collect what the customer wants fastest and what's the best picture.
Right now, the Olympics are going on in Turin, Italy, as you know. Suppose, IKONOS is headed there but there's cloud cover that people expect to clear in a number of hours. The folks in Thornton may say, 'So, Dulles, have you got a better shot this afternoon of Turin or of Sharon's (Israeli Prime Minister Arial) ranch in Israel', that sort of thing.
There are a lot of large orders that the U. S. Government has placed. The folks in Thornton have won a $24 million order under the ClearView program. We received a $12 Million order under that program and if fact our folks are meeting down the hall with the National Geospatial-Intelligence Agency (NGA) to talk about how to optimize collections.
In terms of processing the imagery, it will happen wherever it can happen best. Thornton does a good job of processing the IKONOS; Virginia does a good job of processing the OB-3 (OrbView-3). We have a value-add production shop in St. Louis that, literally they developed the standards for the industry; they spun out of the government years ago; and they already process imagery for both OB-3 and IKONOS. We will probably grow that capability, but not in St. Louis. We're out of space in St. Louis; we're out of space in Northern Virginia; and we have a great building in Thornton. We'll be adding some talent in Thornton to expand the value-added processing. I think there will be more and more demand for advanced imagery products and I think we'll be doing more of that when we get more pixels available.
Right now we have two high resolution satellites that can downlink directly to here (northern Virginia facilities) and overseas at one-meter. Under NextView, we have OrbView-5 launching in the first quarter of '07. We'll probably change the name of that, by the way, to GeoEye-1. When that gets up, that thing's a monster. That will collect 700,000 square kilometers a day. That's roughly the size of Texas or Poland or Turkey.
JF: Let me ask you a couple things about the business aspects. The situation in the satellite imagery business has been, as you said, losing money for several years, which is kind of strange since a lot of the contracts have been issued through the government, like NGA, and other such operations. I want to know how you are going to make money at this going forward and whether there is complacency in the business because you have such large government contracts.
MO: I wouldn't say there is complacency. Remember that there has been a sea-change since 9-11. One of the reasons I stuck around down here is that post 9-11 there has been a sea-change in this little sector. Under the leadership of General Clapper (NGA Director), NGA has invested $1.5 billion in this industry in a couple of years. It took a while to percolate through congress but in '03 you started seeing the ClearView programs, and they awarded the first NextView program; in the spring of '03 the president put out this new directive which said that the federal agencies should, to the extent that they could, use commercial satellite imagery to satisfy their imagery needs.
So, remember, I was referring to the earlier phase of the industry. The industry was created, let's face it, by hardware manufacturers, and in part what they wanted to do was create demand for their manufacturing capability. You had Lockheed and Raytheon setting up Space Imaging; you had Boeing, Ball and ITT to set up DigitalGlobe; and ORBIMAGE was set up by Orbital Sciences. So, I don't think, at the outset, the companies were interested in making a profit at the subsidiary level. We have a goal divorced from Orbital Sciences, and we are solely focused on creating value for our investors by giving good service to our customers. We're not beholden to any hardware manufacturers and completely independent of any manufacturers.
I would submit that even though DigitalGlobe still has hardware ties, you do have a new CEO in there, Jill Smith there is a new generation of management in place now that is really experienced business management rather than people who came from the Aerospace and Defense industry.
JF: What is your position with respect to offering data at more accurate ground resolution, now down to about 15 inches according to what you will be launching with OrbView-5 (GeoEye-1)? Are there concerns about offering information about areas where national security is an issue?
MO: We have a license to operate; we comply with the license.
Then above that we are monitoring the public pulse, if you will. We
don't want to be supplying people pictures of our camps in Iraq, right
now. We have to be careful because we are not restricted from doing
that and people have a right to ask for it. So, we're looking at the
situation. We're engaged in some high level talks on that score
a lot of good will in the intelligence community and we're sensitive to
the issues that we're all facing.
JF: Mr. O'Connell, thanks very much for your time.