Com Dev Closing California Plant But Expects To Find Another U.S. Foothold

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PARIS — Satellite component builder Com Dev International of Canada on Jan. 15 said it is closing its California plant because of a lack of U.S. government communication satellite orders but likely will acquire a U.S. company in the near future — one that does not depend on government communications satellites.

Cambridge, Ontario-based Com Dev said its decision to purchase MESL Holdings and MESL Microwave of Scotland, for about 23 million Canadian dollars ($20.5 million), is a reflection of the high growth in the British space market.

“The space market in the U.K. is booming,” Com Dev Chief Executive Mike Pley said in a conference call with investors. “We’ve been growing significantly.”

The British government’s decision two years ago to sharply increase spending at the 20-nation European Space Agency has stimulated the growth of many British companies, particularly those involved in Earth observation and telecommunications satellite programs.

Com Dev CEO Mike Pley. Credit: Com Dev
Com Dev CEO Mike Pley. Credit: Com Dev
Pley said Com Dev expected the new acquisition to generate about 10 million Canadian dollars ($8.8 million) in revenue in Com Dev’s fiscal year 2015, which ends in October.

Com Dev had established its El Segundo, California-based Com Dev USA operation on the assumption that U.S. government telecommunications satellites would be a growth business and that Com Dev could better attack the market from California than from Canada.

Pley and Com Dev Chief Financial Officer Gary Calhoun said two things had changed since the decision to open the U.S. office. First, the stresses on the U.S. budget and the annual tug of war between the U.S. administration and the Congress have slowed multiple programs and made it less likely that a rebound would occur in the next year or two.

The second change is in U.S. technology-export rules. Reform of U.S. government regulations on how satellite components are treated took effect in late 2014 and will, Pley said, permit Com Dev to bid on U.S. military communications satellite work from Canada, a lower-cost operation, even without a U.S. affiliate.

There were also other issues that soured Com Dev management on continuing the U.S. operation. An unnamed customer has declined to take delivery for certain Com Dev parts, forcing the company to take a write-down of 3.1 million Canadian dollars in the three months ending last Oct. 31. The cascading effects included the elimination of a deferred tax asset, which disappeared because there was insufficient business to produce much taxable income.

The California collapse dragged down Com Dev’s full-year revenue and profit figures despite the growth in Britain and the growth in Com Dev’s core business, which is providing electronics components for telecommunications satellites for civil government and commercial use. The company is typically a contractor on most telecommunications satellites built by U.S. or European prime contractors.

Com Dev’s fiscal-year 2014 revenue from commercial contracts was 137.4 million Canadian dollars, up 26 percent from the previous year as the global commercial telecommunications satellite market maintained a high level of activity. Pley said there was no slowdown in sight.

Total Com Dev 2014 revenue of 208.2 million Canadian dollars was down 3 percent from the previous year, with the California operation responsible for the decline. Com Dev backlog at Oct. 31 stood at 155.1 million Canadian dollars, down 6 percent from a year earlier.

Com Dev’s exactEarth subsidiary, which provides maritime traffic information, ship by ship, to coastal authorities based on ship data sent to satellites in low Earth orbit, is meeting revenue and backlog expectations.

Revenue for exactEarth in the 12 months ending Oct. 31 totaled 16 million Canadian dollars, up 33 percent from the previous year, with EBITDA, or earnings before interest, taxes, deprecation and amortization, at 1.8 million Canadian dollars — more than triple the previous year.

Com Dev is Canada’s second-largest space company after MDA of Richmond, British Columbia, and it counts on Canadian government programs to maintain some of its technological edge.

Pley said he is confident that the Canadian government sees the effect of space investment in Britain and is willing to maintain a space budget sufficient to nourish Canadian industry.

But he said Canada’s Department of National Defence has recently suspended a contract with Com Dev to build search-and-rescue transponders to be placed on future U.S. GPS-3 positioning, timing and navigation satellites. Pley said he has been assured by Canadian defense officials that what he called a contract “pause” would be of short duration, and that the program continues to be viewed as a priority.