Space Systems Results

Changes in revenues from year to year are influenced by the size, timing and number of satellite contracts awarded in the current and preceding years and the length of the construction period for satellite contracts awarded. Revenues on satellite contracts are recognized on a percentage of completion method over the construction period, which typically range between 20 to 36 months and up to 48 months in special situations. Adjusted EBITDA margins can vary from quarter to quarter due to the mix of our revenues and changes in our estimated costs to complete as our risks are retired and as our estimated costs to complete are increased or decreased based on contract performance.

There has been a step down in total number and dollar value of geostationary communication satellite awards compared to historical averages prior to 2015. Revenues have decreased year-over-year as programs awarded prior to 2015 have been completed and have been replaced by a lower level of award value since 2015. Many satellite operators in the communications industry have continued to defer new satellite construction awards to evaluate geostationary and other competing satellite system architectures and other market factors. The Company expects revenue to decline in the future absent any new awards.

For the three months ended December 31, 2018, revenue decreased $49 million in the Space Systems segment.  Revenue decreased primarily due to programs either nearing completion or launched in the fourth quarter of 2018 as compared to the same period of 2017.

Space Systems segment revenue decreased $141 million, in 2018 compared to 2017. This decline was partially offset by an increase in revenue primarily due to the Legion satellite constellation. Revenue decreased due to an increase in estimated liquidated damages, and a significant increase in estimated costs to complete programs primarily as a result of supplier performance issues and delays experienced during the second half of 2018, as well as unanticipated impacts of lower volume in our Palo Alto factory, which resulted in higher overhead burden on existing programs and reduced labor productivity. An increase in estimated costs to complete directly impacts revenue, as revenue is recognized over time under the cost-to-cost method. Revenue attributable to our Legion satellite imaging constellation is eliminated in consolidation.

In the fourth quarter of 2018, adjusted EBITDA margin percentage from the Space Systems segment decreased from 6.5% to (11.9)%. The decrease is primarily related to an increase in estimated costs to complete programs as a result of supplier performance issues and delays experienced in the last quarter of 2018. In addition, we incurred $18 million of liquidated damages in the fourth quarter of 2018, compared to a recovery of liquidated damages during 2017, which also contributed to the decrease in Adjusted EBITDA.

Adjusted EBITDA margin percentage from the Space Systems segment decreased in 2018 compared to 2017 from 11.9% to 0.4%. The decrease from 2017 to 2018 is primarily related to an increase in estimated costs to complete programs as a result of supplier performance issues and delays experienced during the second half of 2018, as well as unanticipated impacts of lower volume in our Palo Alto factory, which resulted in lower productivity and overhead absorption. In addition, we incurred $28 million of liquidated damages in 2018, compared to a recovery of liquidated damages during 2017, which also contributed to the decrease in Adjusted EBITDA.

Imagery Segment Results