Gloom or Growth?

November 25, 2008 By: Mary Jo Wagner

If you believe what the mainstream television, radio, print, and even Internet-based media have been reporting about the global economic downturn, then it seems that "doom and gloom" are headlining the majority of businesses' budget forecasts and balance sheets. Indeed, with government preferring record-high bailouts to bankruptcy in dizzying numbers, it seems that there must be palpable panic among small-to-medium enterprises as well.

I had a chance to investigate that theory at Leica Geosystems' HDS (laser scanning) User Conference last month. Fully expecting to hear anxiety-ridden stories of business slowdowns, I was surprised to hear the exact opposite: business is good! It may not be booming, but operations are stable, with a clear sense of future growth. I began to wonder how some of the other players in the geospatial industry are faring, so I asked a sample of satellite and aerial data providers. Their answers may surprise you.

MJW: How has the economic downturn affected your business?

John Hornsby, general manager, MDA Geospatial Services International: So far, we have not experienced any direct impact. There is some potential in certain sectors of our business, but to date there has been no impact.

Mark Brender, VP of communications and marketing, GeoEye: The key things that have impacted our earnings have been the reduced orders from the National Geospatial-Intelligence Agency (NGA). Revenues for the third quarter of 2008 are down by 33 percent over the third quarter of 2007, mainly due to reduced orders from the NGA. Since some 55 percent of total revenues (in 2007) are from NGA, that organization is the key driver of overall revenues. We expect to sign a Service Level Agreement with the NGA soon, and that should even out the peaks and valleys of the NGA imagery ordering process. Once that is signed, we will have a predictable revenue stream and the United States government can prepare for a predictable supply of imagery.

Dante Pennacchia, spokesman for Pictometry: We really haven't been affected that much. That's predominantly because with oblique imagery, a few of our primary business markets are with public safety and assessment. For the latter, Pictometry increases their productivity anywhere from six to ten times what they can ordinarily do with "feet on the street." As a result, we've been very fortunate to have a product that people need even more in a downturn. In public safety, our technology is not about productivity, it's about saving lives. The other aspects of our business have a lot to do with the expansion of our product use in a number of other areas that are growing rapidly, like navigation and search engines. So we're still growing quite well.

Brian Bullock, president and CEO, Intermap: One issue impacting our business is that the capital markets have been absolutely closed hard, and will likely remain closed for this year. Although our sales are up year over year, we're now seeing some orders postponed. And at least one business partner that was planning on introducing a new product late this year has postponed that indefinitely. So there have been postponements and certainly there is no access to new capital.

MJW: If you have not seen much change to your bottom line, to what do you attribute your ability to fare so well at present?

Hornsby: Many of our clients are long-term, and we provide an on-going service that meets critical information needs. What we provide is often fully integrated into the clients' operational needs and therefore is considered essential.

Pennacchia: We have not seen much change to our bottom line. We continue to grow. Unlike in the consumer market, the government, which is a significant customer for a lot of spatial companies, isn't really cutting back. We are in a position to offer a productivity tool so we're not seeing negative affects.

Bullock: We anticipated that 2008 would be a tough year. We had a budget approved in the fall of 2007 for 2008, but when we saw what was happening in January we revised that budget and we cut 15 percent of our spending for '08. And now we are very glad that we did that and we're even ahead of that saving plan — we're saving from three to five percent more than that original 15 percent cut. We also plan to reduce again in '09, in part by postponing some expansion plans and certain investments.

Having said that, we've had a pretty good year this year. We're ahead on the top line and we're spending less than our budget, so we're ahead overall. But we can attribute that to some very good planning at the start of the year and just being very cautious through the whole year.

MJW: Have you had to initiate new business strategies to weather this?

Hornsby: We are always looking to develop new business initiatives to better meet market and user needs and also to maintain our competitive edge.

Brender: Once the GeoEye-1 starts commercial operations, we expect any revenue shortfalls to be resolved. We will have a Service Level Agreement in place with NGA, and have an agreement with Google for the provisioning of high-resolution satellite imagery to Google Earth. Similar to most of our other customers, Google will buy imagery by the square kilometer.

Pennacchia: Not so much to weather this, but we have expanded our marketing campaigns to make more people aware of this productivity usage. That's important. We have something that makes their jobs easier and we have something that makes their return on investment better. We just need to make more and more people aware of it. That's the key for us.

Bullock: As we went into this fall's planning session, we're reviewing every expenditure. It's a zero-based budget approach and the goal is to make sure that any items we don't absolutely need in '09 we will postpone. We will focus on very near-term revenue growth opportunities and postpone those that are longer term. We've cut back next year in some specific areas such as reducing the use of outside consultants by one-third, and we've put some very strict rules on travel. We'll try to capitalize on Web communication technology and conduct more teleconferences.

MJW: With reports indicating that it may take a significant amount of time for the economy to rebound, what is your overall outlook for the future?

Hornsby: Overall, we are optimistic. We have a new satellite in orbit with new and exciting capabilities that we are only now starting to exploit in the marketplace.

Brender: Our business is keenly centered on business-to-business and business-to-government customers. We are not consumer-oriented, and large customers such as NGA have huge appetites for map-accurate high-resolution satellite imagery.

Pennacchia: We're going to continue to grow as a productivity tool and as a public safety live-saving tool for applications such as 911, police, and fire. We're going to expand into new markets such as search and navigation, and other markets where Pictometry can be used.

Bullock: I'm confident that similar to past crises, such as the oil crisis 30 years ago, today's situation actually creates opportunities for new ideas to come forward that will help us work ourselves out of this.

I believe that the entire industry is going thorough a disruptive change. Through the first 30 years of my career, government was the single biggest market for remote sensing, mapping, and GIS worldwide. That's no longer the case. That escapes most mapping companies. Now commercial and consumer markets exceed that. The biggest markets in the world are commercial markets. Our NextMap program was intended entirely to facilitate our company moving through that transformation and being able to enable a whole variety of new applications that are commercial and consumer-based. You see that already in some of the products we've just announced this year, such as AccuTerra, the recreational maps that go into handheld GPS units. We're already integrated into Magellan units, and by next year we'll be out on the Apple iPhone. In our projections going into the future, commercial markets actually end up dwarfing government markets.

I believe that governments will be under stress because tax revenues will go down next year, particularly for local governments, and there is no question that there will be fewer federal dollars spent on geospatial. All of us have to be very careful in our spending plans and our investment plans for '09 and probably 2010. It's a much more comfortable feeling to have a broad-based and diversified market.

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