Com Dev Builds a Backlog Despite Slowdown in U.S. Defense Spending

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PARIS — Satellite component builder Com Dev of Canada on Jan. 9 reported a modest increase in revenue but a 26 percent increase in backlog for the 12 months ending Oct. 31 and said its commercial satellite business is flourishing even as its U.S. division suffers from defense budget cuts.

The commercial outlook is so favorable that Com Dev announced it would begin paying a shareholder dividend this year even as it scouts for acquisition targets among smaller satellite-component builders.

The company’s majority-owned exactEarth business, which is building a global satellite-based maritime identification network, grew revenue by 23 percent in 2013 and expects to report similar growth this year, Com Dev said.

ExactEarth now has five small satellites in orbit fitted with Automatic Identification System (AIS) terminals to capture data from more than 150,000 maritime vessels. A sixth satellite is scheduled for launch in May, with two more to be launched later this year, the company said.

ExactEarth reported 100 customers as of Oct. 31, compared with 57 a year earlier.

Cambridge, Ontario-based Com Dev said it is directing some of its commercial satellite work to its El Segundo, Calif.-based Com Dev USA division but that nonetheless will be restructuring the U.S. business to adjust for lower near-term business.

Com Dev took a noncash impairment charge of 3.5 million Canadian dollars ($3.4 million) against its fiscal year 2013 earnings as a result of the sour prospects for a business created to perform work on U.S. government communications satellites as subcontractors to U.S. primes.

In a Jan. 9 conference call with investors, Com Dev Chief Financial Officer Gary Calhoun said the company remains committed to the U.S. operation, which should recover starting around 2016 as the U.S. defense budget stabilizes and new military communications satellites are ordered.

“We will be resizing our [U.S.] operations for a lower revenue run rate” to ride out the current budget cuts, Com Dev Chief Executive Mike Pley said during the conference call.

Com Dev provides satellite payload electronics to multiple satellite prime contractors. It announced a four-satellite contract in October valued at 65 million Canadian dollars over four years with an unidentified customer that is likely Boeing Space and Intelligence Systems of El Segundo, which is building four high-throughput satellites for fleet operator Intelsat of Luxembourg and Washington.

Com Dev reported revenue of 215.5 million Canadian dollars, up 3.3 percent from a year earlier. The increase would have been higher without the drag of the U.S. business.

But backlog, mainly from new orders for commercial satellite components — some of these satellites are owned by governments but are identical in form and function to commercial spacecraft — grew by 26 percent, to 164.7 million Canadian dollars, as of Oct. 31 compared with where it stood three months earlier.

The commercial satellite division alone accounted for 164 million Canadian dollars in new orders in the 12 months ending Oct. 31, including 80 million Canadian dollars booked in the last three months of the fiscal year alone, a record quarter for the business.

Com Dev has long had a small British subsidiary performing work mainly on one-off satellite contracts for science and technology programs. But thanks to a research and development program run by the U.K. Space Agency and the European Space Agency, the British operation has developed a telemetry, tracking and control transponder that already has booked 14 orders, with options for 12 more, Pley said.

The British government has increased its space budget dramatically in the past year, having concluded that space technology generates jobs. Pley said Com Dev is well placed to take advantage of this new investment. He said he hopes the Canadian government, which has promised a review of space policy for mid-2014, comes to a similar conclusion about space as a vector for economic growth.

Pley said Com Dev’s cash position — 35 million Canadian dollars compared with 26 million Canadian dollars a year ago — and bank credit lines are such that it can actively search for acquisitions of small-satellite component builders and begin paying out dividends to shareholders.

The exactEarth division grew revenue by 23 percent, to 11.4 million Canadian dollars, in the 12 months ending Oct. 31 compared with the previous year and expects a similar percentage growth this year, exactEarth President Peter Mabson said. Com Dev estimates that exactEarth has a 70 percent share of the global satellite-based AIS market.

Calhoun said Com Dev estimates it has about 5.5 million Canadian dollars in capital expenses remaining for exactEarth, mainly relating to the launch costs of the three remaining satellites. That will complete the early infrastructure investment in the business.