Integral CEO Resigns Amid Lower Expectations

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  Space News Business

Integral CEO Resigns Amid Lower Expectations

By PETER B. de SELDING
Space News Staff Writer
posted: 13 August 2009
02:35 pm ET






PARIS
— Integral Systems Inc. announced the resignation of its president and chief executive, John Higginbotham, Aug. 6, just one year after he took the job and three days after the satellite ground system software provider reported a quarterly operating loss and warned that it would not meet its year-end revenue expectations.

Higginbotham, who arrived at Integral in July 2009 with the stated goal of turning around a company he said had suffered from accounting lapses and a lack of investment in its product lines, also resigned as a member of Integral’s board of directors.

Integral board member Paul Casner, former chief operating officer of DRS Technologies, will replace Higginbotham as interim chief executive, the company said.

Columbia, Md.-based Integral reported an operating loss for the three months ending June 30 – the company’s fiscal-year third quarter – and said its full-year results, while showing a profit, will fall well short of the 10 percent growth the company had predicted in December.

The company said its costs across the board �- legal, accounting, research and development, and regular operating expenses – have been higher than expected, but that some of the investment will pay off as Integral positions itself for more government work.

The results for the quarter also have been affected by the Chapter 11 bankruptcy filing by ProtoStar, a San Francisco-based start-up satellite operator that has been an Integral customer.

In an Aug. 3 conference call, Integral Chief Financial Officer William M. Bambarger said Integral’s revenue for the three months ending June 30 was reduced by $600,000 because ProtoStar indicated it could not pay its bills. He said Integral has created an $800,000 bad-debt reserve for ProtoStar work, which he said is equivalent to 50 percent of what ProtoStar owes.

In its July 29 Chapter 11 submission to the Delaware Bankruptcy Court, ProtoStar listed $2.5 million in debt to Integral.

Higginbotham said during the call that the company’s internal system for judging customers’ financial soundness worked acceptably well in the case of ProtoStar.

“We did a pretty good job of early warning on this,” Higginbotham said of ProtoStar, adding that Integral has contained the financial damage to the extent possible and remains hopeful that a satisfactory repayment agreement can be reached with ProtoStar.

Bambarger
said that when ProtoStar is removed from the company’s results, Integral’s Commercial Systems division reported higher-than-expected revenue, in part because of a big commercial satellite contract with Mitsubishi Electric Co. of Tokyo as part of Mitsubishi’s commercial DS2000 commercial satellite platform program.

Bambarger
said commercial contracts in
Europe
also helped contribute to the better-than-expected revenue performance of the Commercial Systems division not including ProtoStar.

Integral management had told investors the company had a good chance to unseat Harris Corp. for a multiyear contract for the U.S. Army’s Modernization of Enterprise Terminals (MET) program.

Melbourne, Fla.-based Harris, which was the incumbent supplier for the satellite communications terminals to be replaced under the MET program, announced in April that it had won the 10-year, $600 million contract along with its partner, General Dynamics Satcom Technologies of Newton, N.C.

Higginbotham said that while Integral is disappointed in the loss, the result should not be viewed as an indicator that Integral’s cost basis is a problem for future government work.

Integral reported revenue of $39.8 million for the three months ending June 30, down 5.6 percent from the same period a year ago. The company reported an operating loss of $3.9 million for the period, compared to operating income of $7.9 million a year ago.

One of Higginbotham’s tasks in taking the Integral job was to clean up accounting practices that were recently the subject of a settlement with the U.S. Securities and Exchange Commission (SEC).

The SEC settlement, which principally involved Integral executives who are no longer with the company, was announced July 30 and did not include any financial penalties. But the investigation has cost the company in management time and legal fees.

Government programs represent more than half of Integral’s revenue. Higginbotham said Integral is positioning itself for a large number of classified and unclassified U.S. government contracts to be awarded in the next year or so. The internal costs incurred now to prepare for those contracts will bear fruit later on, he said.

One of the larger near-term contracts Integral hopes to win is for the ground control and command of the current GPS-2 and future GPS-3 timing and positioning satellites, a contract known as GPS OCX. Integral is part of a team led by Northrop Grumman Corp. of Los Angeles.