Estimated reading time 7 minutes, 11 seconds.
COM DEV International Ltd. announced first quarter results for the three-month period ended Jan. 31, 2014. All amounts are stated in Canadian dollars unless otherwise noted.
First Quarter Highlights
- Revenue was $51.8 million, in line with the $52.3 million realized in the first quarter of 2013.
- New orders received in the quarter totaled $36.6 million, following a near record level of orders received in the prior quarter.
- Backlog was $149.3 million, in line with $148 million in Q1 2013.
- COM DEV’s exactEarth subsidiary had revenue of $3.5 million, up 40 per cent from $2.5 million in Q1 2013.
- exactEarth had EBITDA of $0.4 million in Q1 2014, compared to negative $0.1 million in Q1 2013.
“Both our equipment and data service businesses performed well in the first quarter, but as expected, our U.S. operations were negatively impacted as we adjusted our capacity in line with reduced U.S. government demand”, stated Michael Pley, CEO. “Our new commercial business pipeline remains strong and this is bolstered by the continued strong growth of exactEarth.”
Financial Review
COM DEV’s first quarter 2014 revenues were $51.8 million, a 1.0 per cent decline compared to $52.3 million in the previous year. The revenue split between the three market segments was 64 percent commercial, 24 percent civil and 12 percent military, compared to a 44 per cent/34 per cent/22 per cent split in 2013. It is important to note that communication satellite programs are increasingly in the civil segment as emerging country national governments use satellites as efficient means to provide communications infrastructure. These civil satcom satellite programs draw on the Company’s same core equipment as the more traditional commercial market segments. Bidding and order activity remains robust.
COM DEV received new orders totaling $36.6 million during the quarter, of which 69 per cent were commercial, 28 per cent were civil, and three per cent were military. In Q1 2013 the Company booked $61.8 million of new orders, with a commercial/civil/military split of 58 per cent/41 per cent/1 per cent. Included in the $36.6 million of new orders received in the first quarter of 2014 are orders received under Authorities to Proceed (ATPs). As delivery schedules have become more critical, customers are increasingly using ATPs as a way to start a subcontractor working, under contract, on a program while the full contract negotiations are concluded. At the end of Q1 2014, the amount of potential order value in excess of ATP, which management expects to realize, stood at $38.1 million. This compares to $20.7 million at the end of Q1 2013. The expected full contract amounts are based on bid values, with a historically high percentage of ATPs being ultimately turned into full contract values.
Order backlog at Jan. 31, 2014 was $149.3 million, compared to $148 million for the same period in 2013. Backlog was split between the Company’s commercial, civil and military sectors at a ratio of 58 per cent, 35 per cent and seven per cent respectively, compared to 43 per cent/39 per cent/18 per cent at Jan. 31, 2013. The Company expects to convert approximately 70 per cent of the total backlog into revenue during fiscal 2014.
Consolidated gross margin was $13.5 million in Q1 2014, representing 26 per cent of total revenues, the same as Q1 2013 with gross margin of $13.5 million representing 25.9 per cent or total revenues. The increase in revenue generated from exactEarth, offset by a decline in the equipment segment, contributed to the increase in gross margin.
COM DEV recorded a net research and development expense of $0.4 million in Q1 2014, compared to a recovery of $0.5 million in Q1 2013. Gross R&D spending declined to $1.8 million from $2.6 million while R&D funding from external sources decreased to $0.1 million from $0.5 million. The Company also recognized $1.3 million of Investment Tax Credits (ITCs) in Q1 2013, compared to $1.6 million in Q1 2013. The reduction in R&D spending is a result of the Company’s efforts to focus on strategic R&D activities.
Selling and general expenses increased in Q1 2014 compared to Q1 2013. In general, selling expenses fluctuate from quarter to quarter and year to year depending on the volume of bids and proposal work that is underway. General expenses are managed against the budgets set for the general and administrative functions, with a view to minimizing these costs, while not hindering the achievement of the Company’s business objectives.
The strengthening of the U.S. dollar relative to the Canadian dollar resulted in a foreign exchange loss of $1.5 million in the quarter. Of this loss, $0.9 million is the result of unrealized mark to market valuation reductions in the Company’s hedge portfolio, partly offset by unrealized balance sheet translation gains. Revenues and gross margins were positively impacted by the shift in currency.
EBITDA attributable to shareholders was $6.7 million in Q1 2014, compared to $9.6 million in Q1 2013. The quarter over quarter decrease in EBITDA is the result of lower net income from the Company’s U.S. division, offset by a decrease in income tax expense. The equipment segment EBITDA decreased compared to the same quarter last year due to the impact of lower gross margins and foreign exchange losses. The data services segment saw improved EBITDA attributable to shareholders over the prior year. The data services segment is EBITDA positive in 2014 at $0.4 million compared to a 2013 negative EBITDA of $0.1 million. The increase is the result of decreased net loss, interest and amortization expense in exactEarth.
COM DEV ended Q1 2014 with $30.1 million of cash and equivalents, compared to $26.4 million in Q1 2013. The Company invested $2.5 million of cash from operating activities in Q1 2014, compared with 2013 when $4.1 million was generated. For Q1 2014, $4.8 million of cash was invested compared to $0.6 million generated in Q1 2013.
The Company’s operating credit line of $20 million was not drawn upon at the end of Q1 2014, except for $2.8 million (Q1 2013: $2.8 million) in the form of guarantee letters issued to customers in the normal course of operations by the bank on behalf of the Company and to government agencies while certain tax objections are resolved.
The Company’s basic share count stood at 76,574,453 on March 10, 2014.
