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COM DEV International Ltd. has announced second quarter results for the three-month period ended April 30, 2014. All amounts are stated in Canadian dollars unless otherwise noted.
Second Quarter Highlights
- Revenue was $54.3 million, a two per cent decline from the $55.2 million realized in the second quarter of 2013, but five per cent above the revenue reported in Q1 of this year.
- Commercial satellite component revenue was $34.5 million, a 33.2 per cent increase from $25.9 million achieved in the second quarter of 2013. Civil and military/defence program revenue was impacted by the continuing government budget constraints, largely in the United States.
- Gross margin increased to $15.8 million, or 29.0 per cent of revenue, compared to $14.7 million, or 26.5 per cent of revenue in Q2 2013.
- Backlog was $130.1 million, a 12 per cent decline from $149.1 million in Q2 2013, with additional Authority To Proceed (ATP) follow on work of $41.1 million expected at the end of Q2 this year, versus $4.1 million at the end of Q2 2013.
- COM DEV’s exactEarth subsidiary had revenue of $4.4 million, up 51.7 per cent from $2.9 million in Q2 2013.
- exactEarth received a record level of $9.6 million in orders for Q2 2014, comprised of both new customer subscriptions, and renewals from existing customers.
- exactEarth had EBITDA of $1.0 million in Q2 2014, compared to $0.3 million in Q2 2013.
- COM DEV announced its first ever quarterly dividend, in the amount of $0.03/share.
“We are very pleased with the continued growth in revenue and backlog from our commercial satellite business as well as our exactEarth subsidiary,” said Michael Pley, CEO. “exactEarth had record orders of $9.6 million in the quarter, a 70 per cent increase over its previous orders record for a single quarter.”
“Our results continue to strengthen,” Pley added. “We have made the necessary adjustments at our U.S. division to balance our costs against the expected revenue, and as expected, the impact to our bottom line in Q2 improved significantly from the prior quarter. With the continued strengthening of the Company’s financial performance, coupled with the investment phase of exactEarth nearing completion, our board of directors made the decision to initiate our Company’s first-ever quarterly dividend in the amount of $0.03 per share.”
Financial Review
COM DEV’s second quarter 2014 revenues were $54.3 million, a 1.6 per cent decline compared to $55.2 million in the previous year. The revenue split between the three market segments was 64 per cent commercial, 25 per cent civil and 11 per cent military/defence, compared to a 47 per cent, 35 per cent, 18 per cent split respectively in 2013. Revenues in the commercial sector increased 33.2 per cent in the quarter while the civil and military/defence sectors declined by 27.7 per cent and 41.2 per cent respectively.
COM DEV received new orders totaling $35.3 million during the quarter, of which 63 per cent were commercial, 25 per cent were civil, and 12 per cent were military/defence. In Q2 2013 the Company booked $57.0 million of new orders, with a commercial/civil/military split of 44 percent, 41 per cent, 15 per cent respectively.
Included in the $35.3 million of new orders received in the second 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 Q2 2014, the amount of potential order value in excess of ATP, which management expects to realize, stood at $41.1 million. This compares to $4.1 million at the end of Q2 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 April 30, 2014 was $130.1 million, compared to $149.1 million for the same period in 2013. Backlog was split between the Company’s commercial, civil and military/defence sectors at a ratio of 57 per cent, 35 per cent and 8 per cent respectively, compared to 54 per cent, 29 per cent and 17 per cent respectively at April 30, 2013. The Company expects to convert approximately 60 per cent of the total backlog into revenue during fiscal 2014.
Consolidated gross margin was $15.8 million in Q2 2014, representing 29 per cent of total revenues, a 2.5 per cent increase from Q2 2013 with gross margin of $14.7 million representing 26.5 per cent of total revenues. The year over year increase came from improvements in both the data and equipment segments of the business. The increase in the data services segment gross margin percentage is due to higher revenue generated from exactEarth’s fleet of on-orbit satellites. As exactEarth continues to ramp up its revenues, management expects gross margins to increase. The equipment segment increase quarter over quarter was primarily as a result of a change in the mix of contracts in progress, and efficiently advancing the work on customer projects.
COM DEV recorded a net research and development expense of $1.1 million in Q2 2014, compared to a net expense of $0.1 million in Q2 2013. Gross R&D spending declined slightly to $2.4 million from $2.8 million while R&D funding from external sources decreased to $0.3 million from $0.7 million. The Company also recognized $1.0 million of Investment Tax Credits (ITCs) in Q2 2014, to offset Canadian Federal taxes, compared to $2.0 million in Q2 2013. The reduction in R&D spending is a result of the Company’s efforts to focus on strategic R&D activities.
Selling expenses of $3.0 million were flat in Q2 2014 compared to Q2 of 2013. General expenses grew by $0.7 million in Q2 2014 to $5.7 million compared to $4.9 million in Q2 2013. The increase in general expenses reflects the cost of Corporate Development activities, as well as increases in legal and finance organization costs.
The Company recorded a foreign exchange gain of $1.2 million in Q2 2014, compared to a gain of $0.1 million in the same quarter in the previous year. Of the gain, $1.6 million is the result of unrealized mark to market valuation reductions in the Company’s hedge portfolio, partly offset by unrealized balance sheet translation losses.
EBITDA attributable to shareholders was $9.7 million in Q2 2014, compared to $9.6 million in Q2 2013. The quarter over quarter increase in EBITDA is the result of higher net income and lower interest and income tax expenses offset by an increase in amortization. The equipment segment EBITDA decreased compared to the same quarter last year, while the data services segment saw improved EBITDA attributable to shareholders over the prior year. The data services segment is EBITDA positive in Q2 2014 at $1.0 million compared to a Q2 2013 EBITDA of $0.3 million. The increase is the result of decreased net loss in exactEarth, driven by continued revenue growth as exactEarth expands its global customer base.
COM DEV ended Q2 2014 with $44.4 million of cash and equivalents, compared to $33.1 million in Q2 2013. The Company generated $19.6 million of cash from operating activities in Q2 2014, compared with Q2 2013 when $11.9 million was generated. During Q2 2014, $14.4 million of cash was generated compared to $6.7 million generated in Q2 2013.
The Company’s operating credit line of $20 million was not drawn upon at the end of Q2 2014, except for $2.8 million (Q2 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 76,570,236 on June 5, 2014.
