Civil Space Drags on Com Dev’s Otherwise Steady Sales

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PARIS — Canadian satellite component provider Com Dev International revised downward Sept. 2 its revenue forecast for its current fiscal year, saying continued delays in Canadian government programs are likely to drag down results even as military and commercial satellite orders maintain their pace.

The company reported 50.5 million Canadian dollars ($53 million) in revenue for the three months ending July 31, which is the third quarter in Com Dev’s fiscal year. Backlog was 123 million Canadian dollars, plus an expected 27 million Canadian dollars when counting expected revenue from initial contracts already signed.

Com Dev said its space equipment business reported a gross profit margin of 29 percent, up from 19 percent in the same period a year ago. Com Dev Chief Executive Mike Pley said the return to expected gross-margin levels is evidence that several troublesome satellite programs in Com Dev’s backlog are now nearing completion. These programs will show little or no profit for Com Dev.

Cambridge, Ontario-based Com Dev also said its exactEarth subsidiary, which is building a service to provide satellite-based ship-identification to global coastal authorities, expects to launch three more payloads in the next 15 months, which would bring its in-orbit constellation to eight.

The two most recent exactEarth satellites, built by SpaceQuest Ltd. of Fairfax, Va., were launched in August and are expected to enter service in October, exactEarth President Peter Mabson said in a conference call with Com Dev investors.

The satellites provide Automatic Identification System (AIS) services by collecting data already being transmitted by commercial ships. Mabson said six satellites are enough to provide global service but that adding two more payloads in orbit, whether independent satellites or AIS terminals as host payloads on other operators’ spacecraft, adds in-orbit backup in case of a satellite failure.

Com Dev views exactEarth as a key revenue growth driver in the coming years, especially if Canada’s government space program is restricted by overall government spending concerns, and if the commercial telecommunications satellite market levels off.

Com Dev Chief Financial Officer Gary Calhoun said Com Dev is sticking with its previous estimate that it will spend 35 million Canadian dollars of its own cash on exactEarth, plus 15 million Canadian dollars invested by Spanish satellite operator Hisdesat.

Mabson said electing to launch some exactEarth sensors as hosted payloads, and to use very small, inexpensive satellites such as the two from SpaceQuest, has enabled the company to put eight exactEarth AIS payloads into orbit for the price of the five originally expected. Mabson said exactEarth had booked 6.4 million Canadian dollars in orders as of July 31, and expects to end the fiscal year with 10 million Canadian dollars in orders.

A majority of Com Dev’s business is providing payload components for commercial telecommunications satellites. Its success in finding work with most of the world’s principal satellite prime contractors makes the company a bellwether for the commercial satellite telecommunications sector.

Pley said that while the larger commercial satellite fleet operators’ big capital-spending plans are now tailing off as their fleets are replenished, regional operators appear to be taking up the slack. The result, he said, is that Com Dev sees no material change in global business for commercial telecommunications satellites in the near term outside the occasional quarterly dip or surge.

Similarly, he said the U.S. government’s decision to purchase some military communications satellites in bulk to save money is good news for Com Dev, whose California-based Com Dev USA subsidiary was created to give the Canadian company a shot at the military work. For now, Pley said, Com Dev USA is performing to expectation.

The one weak point is civil government space work, mainly from the Canadian Space Agency. In remarks that echoed statements by MDA Corp. of Canada, Pley said the large Radarsat Constellation Mission, which will succeed the current Radarsat 2 radar Earth observation satellite, is almost certain to go forward. But Canadian authorities have sliced the contract awards into such small pieces that Com Dev has been unable to sustain its current work force.

The company dismissed 73 employees in the three months ending July 31, a decision that ultimately will yield about 5 million Canadian dollars in annual savings. Com Dev’s work force totaled 1,264 as of July 31.

Com Dev reported 221 million Canadian dollars in fiscal year 2010 revenue and previously had said it expected to match that figure in 2011. Pley said the company will fall between 5 percent and 7 percent below that target. “Civil space is the main reason,” he said.