COM DEV Announces Second Quarter Fiscal 2015 Results

CAMBRIDGE, ON, June 11, 2015 /CNW/ - COM DEV International Ltd. (TSX:CDV) today announced second quarter financial results for the three- and six-month periods ended April 30, 2015. All amounts are stated in Canadian dollars unless otherwise noted.

Second Quarter Highlights

  • Revenue was $56.4 million, a 3.9% increase over $54.3 million in the second quarter of 2014.
  • New orders totalled $43.8 million, up 24.4% from $35.2 million in Q2 2014.
  • Backlog closed at $152.1 million, a 16.9% increase over $130.1 million at the end of Q2 2014.
  • Gross margin was 21.6%, down from 29.0% in Q2 2014.  Negative impacts on margins included $2.8 million from the wind-down of the U.S. facility and $2.4 million due to higher material content in current Product division projects, and unabsorbed labour and overheads associated with the Company's Systems division, where key skills have been maintained in advance of expected orders being received.  Absent these factors, gross margin would have been 30.9%.
  • Adjusted EBITDA was $2.3 million, compared to $8.0 million in Q2 2014. (A definition and reconciliation are provided below.)
  • COM DEV's exactEarth™ subsidiary grew its revenue by 36.4% to $6.0 million, and increased EBITDA by 25.3% to $0.9 million.
  • Net loss attributable to shareholders was $(3.5) million or $(0.05) per share, compared to net income attributable to shareholders of $5.0 million or $0.07 per share in Q2 2014.

Update on Strategic Initiatives

  • Completed the wind-down of operations at our facility in El Segundo, California, and the transfer of intellectual property to our Cambridge facility.
  • Announced the US$20.2 million acquisition of leading waveguide manufacturer Pacific Wave Systems, and completed the transaction subsequent to quarter-end.
  • Integration of the previously completed MESL Microwave acquisition is on track, and has contributed to $15 million of recently announced new business for our UK facilities.
  • Subsequent to quarter-end, announced a strategic alliance between exactEarth™ and Harris Corporation that enables real-time tracking of maritime vessels and significantly advances exactEarth's™ growth strategy.
  • Subsequent to quarter-end, made a US$500,000 strategic investment in RF integrated circuit designer Anokiwave Inc. to secure access to key technology.

"This year has been one of our most active periods ever for executing on new strategic initiatives to strengthen the Company," said Michael Pley, CEO.  "Our exactEarth™ subsidiary has just established a strategic alliance that has the potential to transform its business. Our two recent acquisitions have added new products to our equipment portfolio while expanding our production capacity and geographic reach.  We are investing in new technologies to capitalize on exciting new areas of growth in our industry.  Finally, we have now fully wound down our legacy U.S. facility.  Most of these initiatives had short-term impacts on our second quarter results, but I believe they position us very favourably for longer-term growth and operational improvements."

Financial Review

COM DEV's second quarter 2015 revenues were $56.4 million, a 3.9% increase compared to $54.3 million in Q2 2014.  The largest component of total revenues, SatCom equipment revenues, was $37.8 million compared to $39.2 million in Q2 2014.  The breakdown of SatCom equipment revenues by sector during Q2 2015 was 92% commercial (2014: 82%), 7% civil (2014: 6%) and 1% military (2014: 12%).

Second quarter 2015 results include $3.7 million of revenue from MESL, the company COM DEV acquired in December 2014.  The Data Services segment also contributed $1.6 million of revenue growth compared to the prior year period.  These gains were partially offset by a $2.8 million revenue decrease at the Company's El Segundo facility, which was wound down during the quarter and generated less than $0.2 million of revenue.  In addition, the shift in CAD/USD currency exchange rates during the second quarter resulted in a $1.4 million decrease in revenues and gross margins on contracts denominated in USD.

The Company received new orders totalling $43.8 million during the quarter, an increase of 24.4% compared to $35.2 million of orders booked in Q2 2014.  SatCom equipment orders nearly doubled to $32.5 million, with a breakdown of 69% commercial and 31% civil.  

Total backlog at April 30, 2015 was $152.1 million, compared to $130.1 million a year earlier.  The SatCom equipment backlog of $91.9 million was split between the Company's commercial, civil and military sectors at a ratio of 80%, 19% and 1% respectively, compared to a 79%, 13% and 8% split of  $74.8 million SatCom equipment backlog at April 30, 2014. The Company expects to convert approximately 57% of the total backlog into revenue during fiscal 2015.  An additional $28.5 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 $41.1 million at the end of Q2 2014. COM DEV only includes amounts in orders and backlog once the final contracts are in place.

Consolidated gross margin was $12.2 million in Q2 2015, representing 21.6% of total revenues, compared to gross margin of $15.8 million or 29.0% of total revenues in Q2 2014. The Equipment segment gross margin percentage decreased from 29.3% during Q2 2014 to 19.8%, primarily as a result of the negative gross margin of $2.8 million realized in the Company's U.S. operation in El Segundo.  In addition, a shift in the mix of work within the Company's Products division resulted in $1.4 million in higher material content than in Q2 2014, and delays in expected contract awards for the Company's Systems division resulted in an impact of approximately $1.0 million from lower revenue and unabsorbed labour and overheads.   

Selling expenses of $4.1 million increased by $1.1 million due to an increased volume of bids and proposal work, and the addition of MESL's selling expenses for the second quarter. General expenses were up by $0.8 million during Q2 2015 primarily as a result of corporate development costs and the inclusion of MESL's general expenses. 

Net research and development expense of $1.4 million was up from $1.1 million in Q2 2014, as increased investments designed to favourably position the Company to participate in "new space" initiatives outpaced increases in both R&D funding recoveries and  investment tax credits recoverable.

The Company recognized an impairment loss of $1.7 million associated with the planned sale of the El Segundo land and building at an amount anticipated to be below its book value, and a deferred tax expense of $0.8 million related to the building. 

COM DEV recognized a foreign exchange gain of $1.2 million in Q2 2015 primarily due to an increase in the value of the Canadian dollar relative to the U.S. dollar during the quarter, compared with a gain of $1.2 million a year earlier.  The foreign exchange gain is the result of three factors: (i) an unrealized gain of $5.9 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 $1.4 million on the settlement of foreign currency derivatives maturing in the quarter; and (iii) losses of $3.3 million related to the translation of balance sheet accounts and settlements during the quarter.  Offsetting this foreign exchange gain was a $1.4 million decrease in revenue and gross margin relating to U.S. dollar-denominated contracts, which decreased in value during the second quarter as a result of the strengthening Canadian dollar.

EBITDA attributable to shareholders was $3.0 million in the second quarter, compared to $9.4 million in Q2 2014. The decrease in EBITDA is primarily related to losses associated with the wind-down of the U.S. operation, acquisition related costs, and an increase in selling and general expenses. Adjusted EBITDA attributable to shareholders, which adjusts for some of those costs as well as an unrealized gain on foreign currency derivatives, was $2.3 million, compared to $8.0 million in Q2 2014. (A definition and reconciliation of adjusted EBITDA are provided below.)

Net loss attributable to shareholders was $3.5 million in the second quarter, compared to net income attributable to shareholders of $5.0 million for Q2 2014.  The decrease in net income is primarily attributable to losses associated with the wind-down of the U.S. operation, acquisition related costs, and an increase in selling and general expenses.

COM DEV had $36.9 million of cash and equivalents at April 30, 2015, compared to $33.6 million at the end of fiscal 2014. The Company generated $14.5 million of cash from operating activities in Q2 2015, compared to Q2 2014 when $19.6 million was generated.

The Company's operating credit line of $20 million was not drawn upon at the end of Q2 2015, except for $2.8 million (Q2 2014: $2.8 million) in the form of guarantee letters issued to customers and government agencies in the normal course of operations.

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

Dividend

The Board of Directors has declared a quarterly dividend of $0.03 per share, to be paid on June 30, 2015, to shareholders of record on June 19, 2015.

Conference Call

A conference call will be held Thursday, June 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.comdevintl.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.comdev.ca) 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.

Forward-Looking Statements

This news release contains statements that, to the extent they are not recitations of historical fact, may constitute "forward-looking statements" within the meaning of applicable Canadian securities laws. Forward-looking statements may include financial and other projections, as well as statements regarding COM DEV's future plans, objectives or economic performance, or the assumptions underlying any of the foregoing. COM DEV uses words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions to identify forward-looking statements. Any such forward-looking statements are based on assumptions and analyses made by COM DEV in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors COM DEV believes are appropriate under the relevant circumstances. However, whether actual results and developments will conform to COM DEV's expectations and predictions is subject to any number of risks, assumptions and uncertainties.  Many factors could cause COM DEV's actual results, historical financial statements, or future events to differ materially from those expressed or implied by the forward-looking statements contained in this news release.  These factors include, without limitation: uncertainty in the global economic environment; fluctuations in currency exchange rates; delays in the purchasing decisions of COM DEV's customers; the competition COM DEV faces in its industry and/or marketplace; and the possibility of technical, logistical or planning issues in connection with the deployment of COM DEV's products or services.

The triangular logo and the word COM DEV are each registered trademarks and the property of COM DEV Ltd. All rights reserved.

Non-IFRS Measures

In this news release, the Company provides information about orders, contract backlog and earnings before interest, taxes, depreciation and amortization ("EBITDA"), as well as adjusted EBITDA. Orders, backlog, EBITDA and adjusted EBITDA measures are not defined by International Financial Reporting Standards ("IFRS") and the Company's measurement of them may vary from that used by others.  For additional information, please see the "Use of Non-IFRS Measures" section in the Company's Management's Discussion and Analysis for the second quarter ended April 30, 2015.

The Company measures EBITDA as net income attributable to shareholders plus interest, taxes, depreciation and amortization.  The Company defines adjusted EBITDA as EBITDA adjusted for acquisition-related costs, restructuring and termination benefits (recovery), losses related to the wind down of the Company's El Segundo, California operation, impairment loss (reversal) and unrealized gain or loss on foreign currency derivatives.  The Company believes that adjusted EBITDA is useful supplemental information as it provides an indication of the income generated by the Company's main business activities before taking into consideration how they are financed or taxed, and excludes the impact of items that are considered by management to be outside of COM DEV's ongoing operational results.  Readers should be cautioned, however, that adjusted EBITDA should not be construed as an alternative to net income (loss) determined in accordance with IFRS as an indicator of the Company's performance or to cash flows from operating, investing and financing activities as a measure of liquidity and cash flows.

A reconciliation of adjusted EBITDA to net income determined in accordance with IFRS, is provided below.


For the three months ended April 30,

In millions of dollars


2015


2014






Net (loss) income attributable to shareholders

$

(3.5)


5.0

Interest expense


0.3


0.1

Income taxes


2.2


1.7

Depreciation and amortization


4.0


2.9

Depreciation and amortization on acquisition related assets


0.6


-

Non-controlling interest adjustment for interest and amortization


(0.6)


(0.3)

EBITDA attributable to shareholders

$

3.0


9.4

Adjustments:





Acquisition related costs

$

0.6


-

Restructuring and termination benefits (recovery) expense


-


0.2

Loss from El Segundo (see note)


2.9


-

Impairment loss


1.7


-

Unrealized gain on foreign currency derivatives


(5.9)


(1.6)

Adjusted EBITDA attributable to shareholders

$

2.3


8.0






Note: Loss from El Segundo operation excludes restructuring expenses, depreciation & amortization, and management fees.

 

COM DEV International Ltd.

Consolidated Statements of Financial Position

(Canadian dollars in thousands)

Unaudited











As at April 30,
2015



As at October 31,
2014








Assets








Current assets









Cash and cash equivalents


$

36,855


$

33,570



Accounts receivable



32,387



35,613



Inventory



57,010



61,934



Prepaid expenses and other



5,328



3,701



Income taxes recoverable



895



1,002



Investment tax credits



3,195



3,195



Assets held for sale



12,838



-


Total current assets



148,508



139,015









Non-current assets









Property, plant and equipment



85,394



97,499



Intangible assets



32,235



22,110



Goodwill



10,366



-



Investment tax credits



11,922



12,571



Deferred income tax assets



3,870



4,032


Total non-current assets



143,787



136,212

Total assets


$

292,295


$

275,227








Liabilities








Current liabilities









Accounts payable and accrued liabilities


$

33,871


$

31,492



Income taxes payable



127



296



Provisions



1,716



417



Billings in excess of costs and earnings on contracts in progress



17,662



12,790



Current portion of loans payable



10,710



7,677


Total current liabilities



64,086



52,672









Non-current liabilities









Accounts payable and accrued liabilities



3,549



283



Loans payable



27,627



11,649



Employee future benefits



6,209



6,207



Deferred income tax liabilities



1,911



-


Total non-current liabilities



39,296



18,139

Total liabilities 


$

103,382


$

70,811








Equity









Share capital


$

177,361


$

177,100



Treasury stock



(1,681)



(912)



Contributed surplus



179,646



178,439



Accumulated other comprehensive income



6,323



2,357



Deficit



(177,450)



(157,792)


Equity attributable to shareholders



184,199



199,192



Non-controlling interest



4,714



5,224


Total equity



188,913



204,416

Total liabilities and equity 


$

292,295


$

275,227















See accompanying notes to the interim condensed consolidated financial statements

 

COM DEV International Ltd.

Consolidated Statements of Changes in Equity

(Canadian dollars in thousands)

Unaudited










For the six months ended April 30, 2015

Deficit

Accumulated
Other
Comprehensive
Income

Share Capital

Treasury Stock

Contributed
Surplus

Total Equity
Attributable to
Shareholders

Non-Controlling
Interest

Total Equity










Balance, October 31, 2014

$   (157,792)

$        2,357

$    177,100

$          (912)

$    178,439

$    199,192

$        5,224

$    204,416

Net loss

(15,090)

-

-

-

-

(15,090)

(495)

(15,585)

Other comprehensive income (loss)

-

3,966

-

-

-

3,966

(15)

3,951

Common shares issued

-

-

261

-

(228)

33

-

33

Expense recognized for ESOP awards

-

-

-

-

115

115

-

115

Treasury stock

-

-

-

(769)

-

(769)

-

(769)

Dividends

(4,568)

-

-

-

-

(4,568)

-

(4,568)

Tax impacts on long-term incentive plans

-

-

-

-

187

187

-

187

Expense recognized for long-term incentive plans

-

-

-

-

956

956

-

956

Expense recognized for stock-based compensation

-

-

-

-

177

177

-

177

Balance, April 30, 2015

$   (177,450)

$        6,323

$    177,361

$       (1,681)

$    179,646

$    184,199

$        4,714

$    188,913



















For the six months ended April 30, 2014


















Balance, October 31, 2013

$   (163,259)

$        1,982

$    346,572

$       (1,051)

$        8,326

$    192,570

$        6,220

$    198,790

Net income (loss)

7,103

-

-

-

-

7,103

(391)

6,712

Other comprehensive income (loss)

-

1,993

-

-

-

1,993

(26)

1,967

Common shares issued

-

-

754

-

(415)

339

-

339

Common stock repurchased and cancelled

-

-

(273)

-

(71)

(344)

-

(344)

Expense recognized for ESOP awards

-

-

-

-

110

110

-

110

Treasury stock

-

-

-

(488)

-

(488)

-

(488)

Reduction in stated capital

-

-

(170,000)

-

170,000

-

-

-

Settlement of long-term incentive plans, net of tax

-

-

-

51

(81)

(30)

-

(30)

Expense recognized for long-term incentive plans

-

-

-

-

686

686

-

686

Expense recognized for stock-based compensation

-

-

-

-

198

198

-

198

Balance, April 30, 2014

$   (156,156)

$        3,975

$    177,053

$       (1,488)

$    178,753

$    202,137

$        5,803

$    207,940










See accompanying notes to the interim condensed consolidated financial statements

 

COM DEV International Ltd.

Consolidated Statements of Income

(Canadian dollars in thousands, except for per share figures)

Unaudited












For the three months ended April 30,


For the six months ended April 30,



2015


2014


2015


2014











Revenue


$             56,355


$             54,332


$           109,997


$           106,153


Cost of revenue


44,147


38,569


84,406


76,923


Gross margin


12,208


15,763


25,591


29,230











Selling expenses


4,081


3,002


7,559


5,838


General expenses


6,603


5,769


12,155


10,645


Acquisition related costs


589


-


2,212


-


Net research and development expenses


1,406


1,096


2,918


1,510


Impairment loss


1,731


-


1,731


-


Restructuring and termination benefits expense


30


212


3,019


191


Operating expenses


14,440


10,079


29,594


18,184










Operating (loss) income


(2,232)


5,684


(4,003)


11,046











Interest expense


258


134


235


251


Foreign exchange (gain) loss


(1,178)


(1,178)


8,632


334


Other expense


196


170


411


180

(Loss) income before income taxes


(1,508)


6,558


(13,281)


10,281











Income tax expense


2,217


1,702


2,304


3,569

Net (loss) income


$             (3,725)


$               4,856


$           (15,585)


$               6,712










Attributable to:










Shareholders


(3,493)


5,011


(15,090)


7,103


Non-controlling interest


(232)


(155)


(495)


(391)



$             (3,725)


$               4,856


$           (15,585)


$               6,712










(Loss) earnings per share










Basic and diluted (loss) earnings per share


$               (0.05)


$                 0.07


$               (0.20)


$                 0.10










See accompanying notes to the interim condensed consolidated financial statements

 

COM DEV International Ltd.

Consolidated Statements of Comprehensive Income

(Canadian dollars in thousands)

Unaudited












For the three months ended April 30,


For the six months ended April 30,



2015


2014


2015


2014










Net (loss) income


$             (3,725)


$               4,856


$           (15,585)


$               6,712










Other comprehensive income (loss):









Items that may be subsequently reclassified to net income:










Foreign currency translation, net of income tax expense


488


(380)


3,960


1,967










Items that will not be subsequently reclassified to net income:










Actuarial gains (losses) on defined benefit pension plans and other post-retirement
plans, net of income tax expense


1,279


-


(9)


-










Other comprehensive income (loss); net of income taxes


1,767


(380)


3,951


1,967










Comprehensive (loss) income


$             (1,958)


$               4,476


$           (11,634)


$               8,679










Attributable to:










Shareholders


$             (1,745)


$               4,635


$           (11,124)


$               9,096


Non-controlling interest


(213)


(159)


(510)


(417)



$             (1,958)


$               4,476


$           (11,634)


$               8,679










See accompanying notes to the interim condensed consolidated financial statements

 

COM DEV International Ltd.

Consolidated Statements of Cash Flows

(Canadian dollars in thousands)

Unaudited













For the three months ended April 30,



For the six months ended April 30,




2015



2014



2015



2014














Operating activities















Net (loss) income


$

(3,725)


$

4,856


$

(15,585)


$

6,712



Depreciation and amortization



4,571



2,869



8,976



5,517



Impairment loss



1,731



-



1,731



-



(Gain) loss on disposal of assets



(25)



9



(21)



18



Defined benefit plan (gains) expenses



(1,300)



384



(312)



550



Defined benefit plan contributions



(242)



(250)



(251)



(498)



Stock-based compensation expense



546



423



1,133



884



Employee stock ownership plan awards



51



49



115



110



Non-cash loan adjustments



(998)



(120)



1,898



952



Investment tax credits recoverable



(1,199)



(1,001)



(1,529)



(2,268)



Deferred income tax expense



442



104



244



1,376



Unrealized fair value (gain) loss on foreign exchange derivatives



(5,941)



(1,560)



5,614



1,422



Withholding tax remittance on stock units settlement



-



(5)



-



(31)




(6,089)



5,758



2,013



14,744



Net change in non-cash working capital balances



20,580



13,873



17,765



2,734


Operating activities



14,491



19,631



19,778



17,478














Financing activities















Common shares issued



-



76



33



339



Common stock repurchased and cancelled



-



(344)



-



(344)



Purchase of treasury stock



(433)



(227)



(769)



(488)



Proceeds from advances of long-term debt



-



304



21,871



838



Repayments of long-term debt and debt issue costs



(1,287)



(780)



(4,757)



(1,560)



Dividends paid



(4,568)



-



(4,568)



-


Financing activities



(6,288)



(971)



11,810



(1,215)














Investing activities















Acquisition of property, plant and equipment



(753)



(2,491)



(5,244)



(4,705)



Proceeds on disposal of property, plant and equipment



103



-



109



-



Acquisition of intangible assets



(736)



(1,654)



(1,254)



(2,606)



Business acquisition, net of cash acquired



-



-



(23,401)



-


Investing activities



(1,386)



(4,145)



(29,790)



(7,311)














Effect of exchange rate changes on cash and cash equivalents



678



(153)



1,487



570














Net increase in cash and cash equivalents



7,495



14,362



3,285



9,522

Cash and cash equivalents, beginning of the period



29,360



30,057



33,570



34,897

Cash and cash equivalents, end of the period


$

36,855


$

44,419


$

36,855


$

44,419














Supplemental cash flow information















Interest received


$

22


$

39


$

97


$

78



Interest paid



231



164



409



258



Income taxes paid



499



-



652



1















SOURCE Com Dev International Ltd.

For further information: Gary Calhoun, Chief Financial Officer, Tel: (519) 622-2300 ext. 2826, gary.calhoun@comdev.ca; Jeff Codispodi, Director, Investor Relations & Communications, Tel: (519) 622-2300 ext. 2844, jeff.codispodi@comdev.ca

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