Com Dev Ousts Chief Executive, Plans Job Cuts as Losses Grow
PARIS — Canadian satellite component builderInternational is dismissing its chief executive, laying off 5 percent of its work force and dropping several product lines in the wake of financial losses in five satellite contracts that have torpedoed the company’s financial performance this year, Com Dev announced Sept. 2.
In a conference call with investors, Com Dev officials said it is forcing cost reductions on all of its divisions. But it will maintain its two principal new investments, the Com Dev USA subsidiary, created in 2009 to harvest U.S. military satellite work; and exactEarth, which is developing a commercial service to track ships worldwide via satellite.
Terry Reidel, chairman of Cambridge, Ontario-based Com Dev’s board, endorsed the broad strategic direction put into place by Chief Executive Officer (CEO) John Keating, but said profitability had suffered too much from poor program management.
Speaking during the conference call, Reidel made no attempt to sugarcoat the company’s problems, and said Keating will be leaving the company immediately. Mike Pley, who had been chief operating officer, has been named interim chief executive while the board begins a search for a permanent replacement.
“[R]ecent performance is unsatisfactory, and the CEO is ultimately accountable,” Reidel said, adding that the board’s decision to replace Keating was unanimous. “We share investors’ concerns about our performance, and we want a renewed focus on profitability. We continue to be committed to our U.S. initiative and the exactEarth business. But I reiterate: In today’s economy, profitability should be viewed first.”
Com Dev on Aug. 26 had warned investors that, for the fourth consecutive quarter, its financial performance has been hurt by cost growth in several programs, all of them apparently government satellites for U.S. and Canadian customers.
Pley said the programs in question are the main cause of the company’s net loss of 1.7 million Canadian dollars ($1.6 million) for the three months ending July 31, which is the third quarter in Com Dev’s fiscal year.
Pley said the programs in question are, in the aggregate, 86 percent complete and will decline in importance as they move toward delivery in the coming months.
In addition to the net loss, the problem contracts were the main reason Com Dev’s revenue for the three months ending July 31 dropped 15 percent from a year earlier, to 52.3 million Canadian dollars. Gross profit margin sank to 16 percent from 29 percent.
Com Dev uses the percent-of-completion accounting method to recognize revenue. As a program confronts unplanned obstacles, the company is forced to reduce the revenue associated with it and may even be obliged to de-book revenue booked in earlier quarters.
Chief Financial Officer Gary Calhoun said four of the five programs in question are now expected to be completed at a loss, forcing Com Dev to post the full expected loss immediately.
For the three months ending July 31, Calhoun said, “the impact was negative gross margin — and I underscore this — negative gross — of 6.7 million” Canadian dollars. “If these had simply been break-even, rather than loss-making, our revenue would have been 6.7 million higher in the quarter.”
Pley said the company would be laying off 81 employees, or 5 percent of its work force, to cut costs. The company will take a one-time charge of about 3 million Canadian dollars but expects to save 8 million Canadian dollars per year in staff costs.
In addition, he said, “We have decided not to pursue further opportunities in some types of electronic products in the commercial satellite market. Quite simply, the financial return … in offering these products has not been sufficient to warrant continuing to support them.”
Pley said Com Dev in the future would take a harder line with prospective customers before accepting fixed-price contracts that include technology risk — even if that means losing the business — especially for “one-off, highly sophisticated programs.”
Com Dev’s results also have been hurt by a delay in the revenue expected from exactEarth, which uses a Com Dev-patented technology to track individual ships from low-orbiting satellites for coastal authorities. Com Dev has launched one experimental satellite for this Automatic Identification Service (AIS), but the launch of two other payloads that will permit commercial work has been delayed.
Peter Mabson, president of the exactEarth division, said the launch of the company’s AIS payload on India’s Resourcesat 2 Earth observation satellite aboard India’s Polar Satellite Launch Vehicle rocket has been delayed until November. The ADS-1B satellite, being built by Surrey Satellite Technology Ltd. of Britain, will not be launched until February because of delays in the availability of its Russian Soyuz rocket, he said.
To accelerate the start of the commercial business, Mabson said exactEarth has contracted with SpaceQuest Ltd. of Fairfax, Va., to use two small SpaceQuest satellites launched in 2009 for AIS service. The Aprizesat-1 and Aprizesat-2 satellites, launched in July 2009, are capable of receiving the AIS signals sent by ships, and to process the messages.
The raw data will then be downlinked to exactEarth’s processor in Toronto, equipped with a patent-pending technology that Com Dev says is capable of sorting out the riot of signals from hundreds of ships, and delivering to customers data on each vessel.
Combined with Com Dev’s experimental satellite, the two SpaceQuest satellites are able to track more than 25,000 vessels per day, delivering an average of 10 daily reports for each ship. The two exactEarth payloads, once launched, will double that capacity, Mabson said.
Mabson said exactEarth is beginning trial AIS service for seven customers and is expected to generate no more than 2 million Canadian dollars in revenue when Com Dev’s fiscal year closes Oct. 31. He reiterated previous Com Dev estimates that exactEarth reaches financial break-even at between 10 million Canadian dollars and 15 million Canadian dollars in annual revenue.