Maxar continues down a path to rein in costs which may yet include the sale of its MDA business unit. Though to listen to yesterday’s conference call, you might wonder why.
Let’s take a quick look at the numbers from Maxar’s second quarter 2019 results.
Key points from the quarter include (All figures in US dollars):
- Consolidated revenues were $490 million. However, total revenues decreased to $490 million from $579 million, or by $89 million, for the three months ended June 30, 2019, compared to the same period of 2018.
- Net income of $2.45 per share.
- For the three months ended June 30, 2019, net income of $146 million compared to net loss of $40 million in the comparative period of 2018. The increase is primarily driven by the receipt of satellite insurance proceeds in the second quarter of 2019.
- The Company had total order backlog of $2.2 billion as of June 30, 2019 compared to $2.4 billion as at December 31, 2018.
- A $12 million impairment was recorded by MDA’s investment in OneWeb.
You can read between the lines what you will below. But Maxar’s CEO, Dan Jablonsky, paints a picture that would suggest it might be better to keep MDA in the fold, rather than sell it. Or you can interpret it as, here’s the good coming from MDA, you may want want to buy it now.
What is clear from the investors conference call is that second half of the year looks promising from a revenue side but that the company is still carrying too much debt. The option to sell a division is still there.
Our third priority this year is positioning MDA for long-term growth on the heels of the recently completed RADARSAT Constellation Mission, which is creating revenue headwinds in 2019 and masking the low to mid single digit growth experienced in the first half of the year, across the rest of the business.
Importantly, during the quarter we signed a roughly $30 million contract with the Canadian government for flight ready repeaters that will be launched on the U.S. Air Forces GPS III satellites as well as several other government and commercial awards, which should begin to help fill in the gap left behind by RCM.
Turning to performance as expected, adjusted EBITDA declined year-over-year given the completion of the RCM satellites, which we successfully launched on our flight proven, SpaceX from Vandenberg Air Force Base in California with several dignitaries and attendance to watch this historic moment for the country of Canada.
Also during the quarter, the MDA manufactured Canadarm2, successfully completed the rendezvous and capture of SpaceX cargo capsule with Canadian astronaut, David Saint-Jacques in the driver seat from the International Space Station, marking the first time that the Canadian has performed such a maneuver.
MDA has a long history in space robotics and it currently has an annual support contract with Canadian Space Agency to assist with mission planning as well as the long-term maintenance of the robotic arm itself.
Finally, we began work this quarter on the requirements reconciliation phase of the Canadian Surface Combatant program with our partner, Lockheed Martin. We are excited about the long-term prospects for this program and look forward to moving into the official design phase at some point next year.
On the pipeline front, the CFC’s program production phase in the early part of the 2020s is clearly in front of us. So too is the Canadarm3 program, where the Canadian government has pledged its support for NASA’s Lunar Gateway and recently announced a procurement plan for the primary robotic arm on the mission.
And finally MDA continues to be active in the GEO and LEO markets through our components and ground station capabilities and space robotics through our rich heritage in this vertical. Combined we see a robust pipeline of opportunities ahead for MDA, which should allow for a return to growth next year as the full impact of the recently completed RCM program rolls off.
On the OneWeb investment, Biggs Porter, Maxar’s Chief Financial Officer said;
MDA made an investment and OneWeb as a part of — it’s participating in the overall program and is a supplier to OneWeb. So it had a $25 million investment that we’ve carried on the books. OneWeb is funded through private capital. They had a second round of funding, it was a down round of funding. So we and everybody else that had investments in OneWeb had to evaluate whether or not that last funding round at lower value represented an impairment and if you look across the industry, you will see other people who had OneWeb investments similar to us impaired their investment this quarter and roughly speaking 50% is a reasonably in the range of what others did.
SSL can breakeven
One of the other important takeaways from the call is that with the reduction in staff at SSL division and other cost cutting measures they feel they can make the division profitable going forward.
Specifically Jablonsky said;
As I’ve mentioned on prior calls, our near to medium term goal is to shape the space solutions talent base, so they can run a breakeven adjusted EBITDA with $500 million in annual revenue. And we think we can accomplish this with one to two 1300 class orders a year, along with a steady drumbeat of other civil, commercial and government work across our Legion class robotics offering. The (NASA) PPE (Power and Propulsion Element) award represents one 1300 class order for the year. So this is a good start on the plan.
The markets have so far reacted positively to Maxar’s latest results. The stock was up 12.5% over yesterday’s close.[pdf-embedder url=”https://sqreports.s3.ca-central-1.amazonaws.com/2019/2Q19_Maxar-Earnings-Call-Deck_final.pdf”]