Com Dev Posts Rising Profit, Creates Subsidiary for AIS Services

PARIS
— Satellite component builder Com Dev of Canada is reporting near-record revenue and backlog and improved profitability and said its near-term prospects in the defense, civil government and commercial satellite sectors are looking up.

The
Cambridge
,
Ontario
, company is so optimistic about its core businesses that it is raising its revenue forecast for the current fiscal year, which ends Oct. 31. Com Dev Chief Executive John Keating said in a June 11 conference call with investors that the company expects to raise revenue this year by 15 percent, to 242 million Canadian dollars ($216.4 million).

In a move Com Dev hopes will spur government agencies around the world to become customers, the company on June 10 announced the creation of a subsidiary, called exactEarth Ltd., to commercialize Com Dev’s proposed space-based Automatic Identification System (AIS).

Com Dev has committed about 30 million Canadian dollars to the AIS effort and expects to have the first two small AIS-equipped satellites operational in polar low Earth orbit by early
2010. A
third satellite, being built under contract to the Canadian government, will be launched in 2011.

Peter Mabson, a Com Dev vice president who has been named chief executive of exactEarth, said commercial service will begin with the first two satellites. Ultimately, he said, the constellation should expand to six spacecraft to ensure that ship information is sent to coastal authorities every 90 minutes. With three satellites, information on ship location, identification, speed and heading is sent every three hours.

Mabson
said the creation of exactEarth should nudge national maritime and coastal authorities into subscribing to the service insofar as demonstrates, along with the financial investment, that Com Dev is committed to the service. He said that government budget and procurement calendars mean it will take 12 to 18 months for the first exactEarth customers to sign on.

Mabson
estimated that a full six-satellite constellation, including the ground infrastructure needed to operate the service, would cost around 100 million Canadian dollars, a figure that includes the 30 million Canadian dollars Com Dev has already committed. The company raised some 23 million in new equity earlier this year, mainly to fund the AIS program.

Com Dev officials say their AIS satellite technology permits the spacecraft to detect and process signals coming simultaneously from 7,000 ships in the satellite’s coverage area. That is the ship-traffic volume in the
North Atlantic
that will send AIS signals to the Com Dev satellites. The technology breakthrough, according to Com Dev, is in being able to receive, distinguish and process each individual AIS-generated signal – all in the same frequency bands – without being overwhelmed.

Keating said the company is not limiting research and development to AIS. In the three months ending April 30, he said, Com Dev invested 1.9 million Canadian dollars to design a new search-and-rescue transponder. Com Dev hopes to win contracts from
‘s Galileo and the U.S. GPS 3 satellite positioning, navigation and timing constellations. If successful in these bids, Keating said the new search-and-rescue transponder could generate “tens of millions of dollars, possibly many tens of millions, in revenue.”

Com Dev
USA
, an El Segundo, Calif.-based subsidiary created to funnel
U.S.
government satellite-component work to Com Dev, reported a 33 percent increase in revenue, to 10 million Canadian dollars, in the three months ending April 30 compared to a year earlier and has reached satisfactory profit levels, Com Dev Chief Financial Officer Gary Calhoun said during the conference call. The El Segundo facility is sized to handle between 50 million and 60 million Canadian dollars in business per year.

Com Dev Chief Operating Officer Mike Pley said the
U.S.
subsidiary, which began with Boeing Satellite Systems International as its main customer, has recently delivered products to Lockheed Martin and expects to develop the Lockheed relationship.

The U.S. Defense Department’s decision to scrap the planned Transformational Satellite (T-Sat) broadband constellation in favor of building more current-generation military telecommunications satellites is likely to work in Com Dev USA’s favor as a supplier of passive microwave electronics for the current-generation spacecraft, Keating said.

In addition to giving Com Dev access to the U.S. military satellite market, the U.S. subsidiary gives Com Dev a natural hedge against any future weakening of the U.S. dollar against the Canadian dollar – an issue that has undermined Com Dev’s financial results in the past.

Calhoun said an increase in Canadian government business, combined with Com Dev’s success in signing some non-Canadian contracts in Canadian dollars or with an automatic exchange-rate adjustment, have also lessened the company’s exposure to the U.S. dollar’s fluctuations.

For the three months ending April 30, Com Dev reported revenue of 64.1 million Canadian dollars, up 18 percent over the same period a year earlier. The pretax profit margin was 27.7 percent, up from 23.7 percent a year earlier. Backlog was 173 million Canadian dollars, slightly down from a year earlier.