COM DEV Announces Third Quarter Fiscal 2015 Results

COM DEV International Ltd. (TSX:CDV) today announced third quarter financial results for the three- and nine-month periods ended July 31, 2015. All amounts are stated in Canadian dollars unless otherwise noted.

Third Quarter Highlights

– Revenue was $58.4 million, a 15.0% increase over $50.8 million in the third quarter of 2014.
– New orders totalled $53.1 million, up 45.9% from $36.4 million in Q3 2014.
– Backlog closed at $151.2 million, a 30.9% increase over $115.5 million at the end of Q3 2014.
– Gross margin was 28.9%, up from 26.1% in Q3 2014.
– Adjusted EBITDA was $7.9 million, compared to $7.8 million in Q3 2014. (A definition and reconciliation are provided below.)
– COM DEV’s exactEarth™ subsidiary doubled its revenue to $7.7 million, and significantly grew its EBITDA to $2.0 million and its adjusted EBITDA to $3.3 million. Both EBITDA figures compare to $0.0 million in Q3 2014.
– Net income attributable to shareholders was $2.9 million or $0.04 per share, compared to $3.5 million or $0.05 per share in Q3 2014.
– Made a US$500,000 strategic investment in RF integrated circuit designer Anokiwave Inc. to secure access to key technology.

“With the wind-down of our El Segundo facility behind us we delivered solid performance in our core business in the third quarter,” said Michael Pley, CEO. “Integration of our two recent acquisitions is proceeding as planned, and in addition we are pursuing a number of compelling organic growth opportunities. These factors, combined with the ongoing strength of our traditional business, position us to maintain and accelerate our recent momentum into 2016.”

Progress on Growth Initiatives

On June 1, COM DEV completed the US$22.6 million acquisition of leading waveguide manufacturer Pacific Wave Systems (PWS). The transaction strengthens COM DEV’s equipment portfolio with a complementary space product that is expected to benefit from market trends including the growth in high-throughput satellites.

On June 8, exactEarth™ announced a strategic alliance with Harris Corporation that will provide exactEarth with exclusive access to 58 satellites on the forthcoming Iridium NEXT satellite constellation. The alliance will enable exactEarth to enhance its system performance with real-time global coverage which, combined with its superior detection technology, creates an overwhelming competitive advantage. The alliance is also designed to allow exactEarth to significantly expand its range of maritime services and broaden its customer base. The establishment of Harris as exactEarth’s partner provider of AIS data services to all U.S. Government customers is expected to increase penetration in that key market.

Financial Review

COM DEV’s third quarter 2015 revenue was $58.4 million, a 15.0% increase compared to $50.8 million in Q3 2014. The largest component of total revenue, SatCom equipment revenue, was $38.2 million compared to $37.4 million in Q3 2014. The breakdown of SatCom equipment revenue by sector during Q3 2015 was 98% commercial (2014: 86%), 1% civil (2014: 5%) and 1% military (2014: 9%).

The two companies acquired in 2015, MESL Microwave and PWS, generated a total of $5.9 million of revenue in the third quarter. The Data Services segment contributed $4.1 million of revenue growth, driven by an increased subscriber base and by a sale of historic ship tracking data to Harris Corporation carried out in accordance with exactEarth’s agreement with that company. Growth in these areas helped offset a $2.6 million revenue decrease at the Company’s El Segundo facility, which contributed minimal revenue after being wound down in the second quarter of 2015.

The Company received new orders totalling $53.1 million during the quarter, an increase of 45.1% compared to $36.4 million of orders booked in Q3 2014. Order activity increased company-wide, led by the UK operations including MESL. The sector split for SatCom equipment orders of $35.6 million was 97% commercial and 3% civil.

Total backlog at July 31, 2015 was $151.2 million, compared to $115.5 million a year earlier. The SatCom equipment backlog of $88.8 million was split between the Company’s commercial, civil and military sectors at a ratio of 80%, 19% and 1% respectively, compared to a split of 85%, 11% and 4% applicable to SatCom equipment backlog of $68.6 million at July 31, 2014. The Company expects to convert approximately 62% of the total backlog into revenue beyond the end of fiscal 2015.

An additional $56.2 million of follow-on orders are expected to be realized from Authorities to Proceed (ATPs) already received, as well as highly probable unexercised options on contracts awarded during the current and previous quarters which management expects to realize. This compares to $37.1 million at the end of Q3 2014. COM DEV only includes amounts in orders and backlog once the final contracts are in place.

Consolidated gross margin was $16.9 million in the third quarter of 2015, representing 28.9% of total revenues, compared to gross margin of $13.3 million or 26.1% of total revenues in Q3 2014. Consolidated gross margin was positively impacted by a historic data sale in the Data Services segment, but negatively impacted by a one-time depreciation charge.

Selling expenses of $3.9 million increased by $1.0 million due to an increased volume of bids and proposal work. This level of bids and proposal work is consistent with the volume of opportunities the Company is seeing in the Space market. General expenses of $8.8 million were up by $3.7 million from the previous year, reflecting the inclusion of expenses for MESL and PWS, as well as $2.5 million of IPO and other one-time strategic corporate development costs recognized in the quarter.

Net research and development expense of $2.9 million was up from $1.4 million in Q3 2014. Increased investments designed to favourably position the Company to participate in “new space” initiatives and a reduction in investment tax credits recoverable were only partially offset by higher R&D funding recoveries.

The Company recorded an income tax recovery of $8.7 million in the third quarter. This was primarily a result of the PWS acquisition which led to the recognition of deferred tax assets relating to U.S. loss carryforwards that were previously unrecognized as it was not considered probable that these assets would be realized.

COM DEV recognized a foreign exchange loss of $4.5 million in Q3 2015 primarily due to a decrease in the value of the Canadian dollar relative to the U.S. dollar during the quarter, compared with a gain of $0.3 million a year earlier. The foreign exchange loss is the result of three factors: (i) an unrealized loss of $3.0 million (which must be recognized immediately for accounting purposes) on the mark-to-market valuation of the Company’s forward currency derivative instruments; (ii) a realized loss of $2.4 million on the settlement of foreign currency derivatives maturing in the quarter; and (iii) a realized gain of $0.9 million related to the translation of balance sheet accounts and settlements during the quarter. Offsetting this foreign exchange loss was a $2.0 million increase in revenue and gross margin relating to U.S. dollar-denominated contracts, which increased in value during the third quarter as a result of the weakening Canadian dollar.

EBITDA attributable to shareholders was $(0.5) million in the third quarter, compared to $7.0 million in Q3 2014. The decrease in EBITDA is primarily related to increased operating expenses as described above. Adjusted EBITDA attributable to shareholders, which adjusts for a foreign exchange loss and IPO and one-time strategic corporate development costs, among other items, was $7.9 million, compared to $7.8 million in Q3 2014. (A definition and reconciliation of adjusted EBITDA are provided below.)

Net income attributable to shareholders was $2.9 million in the third quarter, compared to $3.5 million a year earlier. Increased gross margin and the income tax recovery were offset by higher operating expenses, including IPO and corporate costs and acquisition-related costs, and by the foreign exchange loss.

COM DEV had $17.2 million of cash and equivalents at July 31, 2015, compared to $33.6 million at the end of fiscal 2014. The Company used $4.0 million of cash in operating activities in Q3 2015, compared to Q3 2014 when $1.1 million was used. During the third quarter the Company borrowed $20 million under its acquisition facility to finance the PWS acquisition. An operating credit line of $20 million was not drawn upon at the end of Q3 2015.

The Company’s basic share count stood at 76,554,352 on September 10, 2015.

Dividend

The Board of Directors has declared a quarterly dividend of $0.03 per share, to be paid on October 5, 2015, to shareholders of record on September 21, 2015.

Conference Call

A conference call will be held Friday, September 11, 2015 at 10:00 am EDT to discuss this announcement. To access the call, dial 647-427-7450 or 1-888-231-8191. To access the live webcast, please visit the Company’s website at www.comdevinternational.com or www.newswire.ca for directions. Participants will require Windows Media Player™ to listen to the webcast.

About COM DEV

COM DEV International Ltd. (www.comdevinternational.com) is a leading global provider of space hardware and services. The company has a staff of more than 1,250, annual revenues of over $200 million, and facilities in Canada, the United Kingdom, the United States, India and China. COM DEV designs, manufactures and integrates advanced products, subsystems and microsatellites that are sold to major satellite prime contractors, government agencies and satellite operators, for use in communications, space science, remote sensing and defence applications. The company has won contracts to supply its equipment on over 950 spacecraft. COM DEV’s majority-owned subsidiary, exactEarth Ltd., provides satellite data services for global maritime surveillance.