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In an industry where perseverance pays, ORBIMAGE has overcome a launch failure and restructured its debt to become the third U.S. company to operate a high-resolution commercial imaging satellite.

After losing its OrbView-4 satellite in September 2001 and filing for Chapter 11 seven months later, ORBIMAGE faced a risky future—then it got worse. Down to its last asset, OrbView-3, the company encountered numerous project delays, including months of legal wrangling with its founder, Orbital Sciences Corp. The companies finally came to terms, and Orbview-3 launched successfully on June 26, 2003.

Led by CEO Matt O’Connell, a much leaner ORBIMAGE has completed bankruptcy reorganization, trimming its debt by some $250 million. The company also is preparing to fill an anticipated $250 million sales backlog with the help of OrbView-3. Earth Imaging Journal’s Jeff Specht and John Hughes recently spoke with O’Connell to learn more about the company’s recent turnaround and where it’s headed.

EIJ: Even before the loss of OrbView-4, ORBIMAGE was working to restructure its debt. What put the company in that position?

O’Connell: The biggest problem was that the delay by its vendor and former parent company, Orbital Sciences, in delivering the satellite made it impossible for the company to pay its debt obligations at the time. The company wanted to reorganize its capital structure and get a little more breathing room under those debt obligations. So work began on a restructuring around February 2001. I worked at the time for a private equity fund in New York that had invested in the preferred stock, and my partners asked me to take a look at ORBIMAGE. I joined the company’s board during the summer of 2001. In fact, we completed a term sheet on a restructuring just before OrbView-4’s launch. Unfortunately, the satellite’s failure made that restructuring impossible, and we had to go back to the drawing boards. But the root cause of the original restructuring effort was the delay in receiving the satellites Orbital Sciences was building.

EIJ: Were those logistical delays that couldn’t be helped? Or, as you indicated in your July 2002 lawsuit against Orbital Sciences, do you feel like ORBIMAGE was being put on the back burner while Orbital Sciences fulfilled other contracts?

O’Connell: All I can say is that we’ve settled our litigation against Orbital Sciences, and we believe it was settled favorably toward ORBIMAGE. As Robert Frost said, “Good fences make good neighbors.” We have a very firm agreement between us now as to what gets done and when it gets done. Now things are running on a much more even keel.

EIJ: There was some speculation that ORBIMAGE couldn’t survive an OrbView-4 failure. Could you describe what that time was like for the company?

O’Connell: Oh it was tough. You had a company full of dedicated people who had worked for years on an incredibly advanced project. OrbView-4 would have been one of the most advanced remote imaging satellites of its era. It had hyperspectral on it, so it would have been the first hyperspectral satellite.

By the time we got to launch, ORBIMAGE had already gone through two rounds of layoffs. With the launch delays and the resulting delay in revenues, the company just couldn’t carry all the personnel it had. Then when OrbView-4 went into the Indian Ocean, or at least that’s where we suspect it went, we had to go through a third round of layoffs. That’s when I was sent down by Wall Street to help clean up the company.

All of that occurred right after 9/11, and all of us—and by “all of us” I mean all Americans—felt a pressing need for more information about our world. I think the people at ORBIMAGE felt they had been in a position to help satisfy that need, and then the loss of the satellite deprived them of the opportunity. We were able to help to some extent in that the St. Louis division, which does a lot of processing for the National Technical Means satellites, was working three shifts a day seven days a week.

But I’d say that most of the company’s employees were pretty scared. They thought they were going to lose their jobs. And one of the first things I did was to go to St. Louis and say, “You guys aren’t only going to keep your jobs, but you’re going to get huge bonuses because you’re working seven days a week, three shifts a day.” So there were some mitigating factors. Thank goodness we had the St. Louis division, because our employees there were working hard and kept revenue coming in the door. We also have another satellite, OrbView-2, that was still up there selling data to NASA and producing good revenues. We also have the SeaStar division, which sells marine information to commercial fishing fleets. Although it’s not big, it produces good revenues and good margins.

So with OrbView-2’s NASA work, the SeaStar work and the St. Louis division, we kept the place together. We kept everybody on staff who had gone through the last round of layoffs, and we kept them in place for a year because we wanted to make sure we kept our most talented people.

It was a little grim, but we also got to know each other well—there’s nothing like trial by fire to build a solid team. As a result, I think the people who were here during that period are very close. We didn’t have a lot of money for big corporate outings, so we ate a lot of pizza together, we went for bike rides together, we shot pool together, we went bowling together, and we worked hard to launch OrbView-3. When the satellite went up there was a great sense of relief and a terrific sense of camaraderie.

EIJ: If it wasn’t for the pressure to get OrbView-3 operational, do you think ORBIMAGE could have patched things up with Orbital Sciences out of court?

O’Connell: Unfortunately, during a restructuring, litigation is often the most effective way to reach a prompt conclusion to disputes. And I think that we probably would have had to resort to litigation.

EIJ: After such a long struggle, what eventually led to the settlement in early 2003?

O’Connell: We wanted to launch. And, in fact, there were a lot of people at Orbital Sciences who wanted us to launch. I think it was a question of Orbital Sciences not wanting to share the pain of our restructuring. But at the end of the day we reached an appropriate settlement that reflected the delay and made it possible for everybody to put the past behind us. Then the operating guys with Orbital Sciences were able to get to work with a vengeance and finish OrbView-3.

EIJ: Were you concerned about how the launch delays were affecting your company’s ability to capitalize on the growing U.S. government demand for commercial imagery?

O’Connell: We were obviously a little bit concerned. The ClearView contract was something we would have liked to have shared in from the start. And clearly NextView was an incredible opportunity (see Publisher’s Note*). But I’ve spent 25 years on Wall Street. As they say in venture capital, you know pioneers because they’re the ones face down with the arrows in their back. At the end of 2002, the market thought Space Imaging was the market leader. And shortly thereafter Space Imaging won the largest contract this industry had ever seen—the initial ClearView award. Shortly after that a new CEO was appointed at Space Imaging. My experience tells me you can never tell who’s up and who’s down. Sometimes missing an opportunity can be beneficial. We still have to prove that the industry can be run profitably. I think the National Geospatial-Intelligence Agency (NGA) has done a great job of providing funding at meaningful levels that will make it easier for the industry to survive. So while we would have liked to have shared in those opportunities earlier, it’s probably too soon to tell who’s going to be the winner in the long run.

EIJ: In September 2003, ORBIMAGE reached a settlement with MacDonald, Dettwiler and Associates concerning its marketing rights to the RADARSAT-2 satellite program. How did that agreement play into your overall reorganization plan?

O’Connell: We wanted to rationalize that relationship. MacDonald Dettwiler was a subsidiary of Orbital Sciences when ORBIMAGE was spun out of Orbital Sciences, and there were elements of the contract we felt were more advantageous to the other parties than to ORBIMAGE. What the settlement allows us to do is to avoid paying MacDonald Dettwiler about $10 million, and in fact the company paid us a significant amount of money. Plus we were also able to end our dispute and move forward to a prompt emergence from bankruptcy. There are times in business, especially in bankruptcy, when speed is an advantage. The longer a company is in bankruptcy, usually the harder it is to maintain its customer base. So rather than wait for the RADARSAT-2 satellite to come on-stream after considerable delay, and pay MacDonald Dettwiler more money, we were able to accelerate ORBIMAGE’s restructuring. Instead of paying cash we got some cash, so we were happy with the outcome.

EIJ: Now with the reorganization complete and OrbView-3 operational how do you plan to capitalize on ORBIMAGE’s fresh start?

O’Connell: We’re already running like crazy just to keep up with demand. We do have a backlog of customers, so we’re working hard to take care of the people who have waited so patiently for the last couple of years. We’re also pursuing new contracts, but the problem we face is that we kept the head count pretty low while we were restructuring, so we have to be careful not to grow too fast. I think finishing work on the satellite and getting all the ground systems running for our headquarters and our foreign customers is going to keep us busy for the immediate to near term. It’s a great kind of busy. It’s a lot better than it was a year ago when we were working like crazy just to get through the bankruptcy. Now we’re working like crazy to make money.

EIJ: What changes do you foresee for the commercial satellite imagery industry during the next few years?

O’Connell: Cleary 9/11 was a tragedy for our country. However, the events leading up to and after 9/11 have caused a significant global demand for increased intelligence, especially as it relates to security. We also have a government that places a high premium on outsourcing. And it’s not just this administration, and it’s not just in response to 9/11. So I believe there will be increased demand for information related to intelligence in various forms. Now our primary business relates to collecting and processing imagery. But as more imagery becomes available, I think you’ll see greater emphasis on adding value and intelligence to the imagery. I’m happy we have the St. Louis division doing what it’s doing. We look at it as a profit center as well as a lab where we perform research and development to develop value-added products

EIJ: How confident are you that you’ll be able to satisfy Wall Street’s expectations?

O’Connell: I think Wall Street is encouraged by the industry in general. I think it is encouraged by the moves the Bush administration has made and, more specifically, the moves NGA has made. The big contracts, ClearView and NextView, have helped create the reliable demand that Wall Street wanted from the government. What remains to be seen is how companies will grow and where they will grow. That will determine the long-term creation of equity value, which is what the stock market cares about. In effect this industry is still in a start-up phase, and I expect it to be a dynamic market.

EIJ: What are your long-term goals for ORBIMAGE?

O’Connell: I guess the first thing we want to do is to execute on our business plan—roll out products to meet our customers’ demands, set up contracts with our regional distributors and finalize contracts with NGA. That will keep us busy for the short term. In the future, we want to build a profit center. That may sound simple minded, but I don’t think it is. I think a lot of aerospace companies have been focused more on revenues and less on profits. We want to continue to focus—like a laser—on profits. We’re kind of lucky in that we came out of our restructuring at a terrific time in our industry. NGA has been given more funding, and I think NGA is appropriating that funding in prudent ways. I feel there’s a lot of opportunity for all the companies in our industry.

*Publisher’s Note: NGA’s ClearView contracts committed the agency to purchase up to $500 million of high-resolution satellite imagery from DigitalGlobe and Space Imaging during the next five years. NGA’s follow-up contract, NextView, was awarded to DigitalGlobe and is worth another $500 million through 2008. The NextView contract allows NGA early participation in the development cycle for the next generation of U.S. commercial satellite imaging capabilities while providing DigitalGlobe with long-term commitments and capital for satellite development. In March 2004, the agency awarded ORBIMAGE a 22-month ClearView contract worth at least $27.6 million. Two additional years may be added if funds are available in future budgets.

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