COM DEV International Ltd. (TSX:CDV) today announced fourth quarter and year-end financial results for the three- and twelve-month periods ended October 31, 2014. All amounts are stated in Canadian dollars unless otherwise noted.

2014 Highlights

– Full year revenue from the Commercial segment of the Company’s operations was $137.4 million, showing significant (26.5%) growth over 2013 levels of $108.6 million.

– The Company’s equipment manufacturing operations in Canada and the UK delivered solid performance, at or above their targets for the year.

– exactEarth™, the Company’s Data Service subsidiary, completed the year with significant growth in new orders. The final tally for new orders in 2014 was $34.3 million, up by 237% over 2013’s order total of $14.5 million

– exactEarth™ continued to gain traction in its market, with revenue reaching $16 million, a year over year increase of 33% from 2013 revenues of $12 million.

– EBITDA at exactEarth™ expanded in line with its business plan, closing out the year with $1.8 million of EBITDA, representing a growth of 260% over 2013 EBITDA of $0.5 million.

– Total Company revenue in fiscal 2014 was $208.2 million, down 3.4% from fiscal 2013, largely as a result of continued U.S. government spending constraints. In the Company’s core commercial equipment sector, revenue increased year over year by 26.5% to $137.4 million from $108.6 million in fiscal year 2013.

– Total orders for the Company rebounded in Q4 with the awarding of a record $91.1 million in new contracts, bringing the total new business won for the year to $199.5 million, and year-end backlog to $155.1 million. An additional $33.8 million in follow-on orders are expected from Authorities to Proceed (ATPs) that have already been awarded, increasing the ultimate backlog expected to $188.9 million. Orders in the prior year totaled $243.3 million leading to a 2013 backlog of $164.7, or roughly 6% higher than the 2014 ending backlog.

– While there was strength in the performance of the Company’s equipment operations in Canada and the UK, as well as at exactEarth™, the Company’s operations in the US realized significant losses for the year due to US government spending reductions, and the resulting absence of new contract awards during the year. The lack of work at the El Segundo site led directly to continuing quarterly losses in 2014, which for the full year, totaled approximately $10.3 million, including gross margin losses of $2.2 million from regular project execution, (compared to positive gross margin of $2.8 million in 2013), $3.1 million in write down of unbilled contract amounts and related inventory resulting from a program review and the resulting management decision that it would not proceed with a cost recovery claim, and $2.6 million from the elimination of a deferred tax asset due to the diminished future prospects for taxable income being generated in the existing US operation.

– Gross margins averaged 25.8% for the year compared to 26.9% in fiscal 2013. The decrease in gross margin reflects gross margin losses in the Company’s U.S. operation due to reduced U.S. government spending, partially offset by strong program execution during the year in the remainder of the equipment segment of the business, and year-over-year growth in revenues from the Company’s exactEarth™ subsidiary.

– Net income attributable to shareholders was $10.1 million or $0.13 per share, after reflecting losses from the Company’s U.S. business of approximately $10.3 million for the year. In 2013, net income attributable to shareholders was $18.3 million or $0.24 per share.

Fourth Quarter Highlights

– The Company booked $91.1 million in new orders, compared to $87.9 million in the fourth quarter of 2013, and $36.5 million in the third quarter of 2014.

– Revenue was $51.2 million, a 4.8% decline from $53.8 million in the fourth quarter of 2013, reflecting the continuing sales decline in the Company`s government and military businesses.

– Gross margins averaged 22.0%, compared to 26.1% in the third quarter of 2014 and 28.3% in the fourth quarter of 2013. The drop in margin is attributable to $1.0 million negative gross margin on regular project execution in the Company`s U.S. business, along with the aforementioned $3.1 million write down of unbilled contract amounts and related inventory. Excluding the US operations, the Company’s gross margins increased year over year for Q4.

– Net income (loss) attributable to shareholders was a net loss of $0.6 million, or $0.02 per share, including $6.6 million of losses from the Company’s U.S. operation in Q4, compared to $4.0 million or $0.05 per share in the fourth quarter of 2013.

Events Subsequent to Year-End

On December 31, 2014, the Company acquired 100% of the outstanding shares of MESL Holdings Ltd. and MESL Microwave Ltd. (collectively “MESL”). MESL is based in Edinburgh, Scotland, and specializes in the global microwave technology market, including the design and manufacture of high-reliability components and subsystems for the radar, communications, defence and aerospace industries. The primary reason for the acquisition is to provide the Company with greater access to the aerospace market with microwave component products that are complementary to the Company’s product offering in the space market.

The estimated purchase price for MESL is £12.8 million ($23.0 million CAD) and is subject to final working capital adjustments.

“In fiscal 2014 we had strong results in our Products and Systems divisions which met all of their targets for the year, and our data services subsidiary, exactEarth, performed exceptionally well with a 65% increase in EBITDA.” stated Michael Pley, President and CEO. “Our U.S. operations however continued to underperform as the military satellite market remained stagnant. To position COM DEV for future growth we made the difficult decision to substantially cease operations at our El Segundo facility effective March 16, 2015 and consolidate our passive microwave component production in Cambridge. Due to changes in component classifications related to the International Trade in Arms Regulations we expect to be able to satisfy military satellite contracts from our Cambridge facility when the market recovers.”

“We will continue to be disciplined in fiscal 2015 and are well-positioned to grow,” Mr. Pley added. “In addition to the large order backlog of $155 million, and the $17 million data contract awarded to exactEarth from the Canadian government during 2014, we expect strong results from the acquisition of MESL. This new business is an excellent fit with our International Systems division and will help us maintain our leadership position in the UK space industry.”

Financial Review

COM DEV received new orders totalling $199.5 million during the year, of which 65% were commercial, 19% were civil, and 16% were military. In fiscal 2013 the Company booked $243.3 million of new orders, with a commercial/civil/military split of 68%, 26%, and 65.

COM DEV’s fiscal 2014 revenues of $208.2 million decreased by $7.3 million or 3.4% compared to $215.5 million the previous year. The revenue split between the three market segments was 66% commercial, 24% civil and 10% military, compared to a 50%, 31%, and 19% split in 2013

Order backlog at October 31, 2014 was $155.1 million, compared to $115.5 million three months earlier, and $164.7 million at the end of fiscal 2013. An additional $33.8 million of follow-on orders are expected to be realized from ATPs already received; COM DEV only includes these ATP amounts in orders and backlog once the final contracts are in place. Backlog was split between the Company’s commercial, civil and military sectors at a ratio of 57%, 26% and 17% respectively, compared to a 58%, 33%, and 9% split at October 31, 2013. The Company expects to convert approximately 84% of the total backlog into revenue during fiscal 2015

Consolidated gross margin was $53.8 million in fiscal 2014, representing 25.8% of total revenues, compared to $58.0 million or 26.9% of revenues in 2013.

COM DEV recorded a net expense for research and development of $3.2 million in 2014, compared to a net recovery of $3.9 million in 2013. Gross R&D spending declined to $9.2 million from $9.9 million while R&D funding from external sources decreased to $0.9 million from $2.1 million. The Company also recognized $5.1 million of Investment Tax Credits (ITCs) in 2014, compared to $11.7 million in 2013.

Selling expenses were $12.0 million in 2014, about even with $11.9 million in 2013. Selling expenses fluctuate from quarter to quarter depending on the bids and proposal work that is underway. General expenses were in line with the prior year, with increases in corporate development costs in support of the Company’s strategy, being largely offset by reductions in spending elsewhere.

Net income attributable to shareholders was $10.1 million in 2014, a decrease of $8.2 million from $18.3 million in 2013. The decrease in net income is attributable to $10.3 million in losses from the Company’s U.S. operations, reductions in R&D funding, and foreign exchange fluctuations, partly offset by an impairment reversal recognized during 2014 on certain of the Company’s property, plant and equipment (PP&E) and intangible assets compared to an impairment loss during 2013.

COM DEV ended the year with $33.6 million of cash and equivalents, compared to $34.9 million at October 31, 2013. Operating activities generated $24.3 million of cash for the year, compared to $31.8 million in fiscal 2013. The Company generated $0.5 million from changes in working capital in 2014 which compares to the $3.5 million generated from changes in working capital in 2013. The change in non-cash working capital in 2014 was mainly due to changes associated with decreases in accounts receivable and income taxes recoverable and increases in accounts payable and accrued liabilities, partially offset by increases in inventory and prepaid expenses and decreases in provisions and billings in excess of costs and earnings on contracts in progress.

The Company’s operating credit line of $20 million was not drawn upon at the end of 2014, except for $2.8 million (2013: $2.8 million) in the form of guarantee letters issued to customers and government agencies.

The Company had 76,486,927 outstanding common shares on January 15, 2015.

Full financial data available here.