Satellite systems maker Com Dev International Ltd. has warned that its fourth-quarter financial results will be disappointing due to a significant underestimation of costs related to two domestic government contracts.
It also announced that it has replaced the president of Com Dev Canada, a former Mosaid chief executive officer who joined the company last year, with one of Com Dev's long-time senior executives.
Com Dev shares fell nearly 9 per cent in early trading after the announcements.
Com Dev said its revenue and profit for the August-October quarter suffered a $4.3-million shortfall in revenue and net income in its Com Dev Canada division.
The company, based in the southwestern Ontario city of Cambridge, is a leading designer and manufacturer of hardware subsystems used on space satellites and ground stations.
The company has more than 1,100 employees at facilities in Canada, the United Kingdom and the United States. It manufactures advanced products and subsystems that are sold to major satellite builders for use in communications, space science, and remote sensing.
Com Dev said while other parts of its business apart from Com Dev Canada continued to perform well, its overall profit will be less than $1-million for the fiscal fourth quarter ended Oct. 31.
It's also expecting revenue will be in a range of $56-million to $58-million, down from $60-million recorded in the fourth quarter of fiscal 2008.
"We're mentally troubled by this and we know this is a disappointment to everybody including ourselves," John Keating, the company's chief executive officer, said in a conference call early Monday morning. "We want to assess what this means for the future."
Mr. Keating said the company had also identified problems with project management processes in the quarter and experienced challenges with subcontractors that have now been resolved.
Mr. Keating pointed out that the negative news was entirely confined to the Com Dev Canada division, which deals with Canadian government contracts, and provides about 20 per cent of the company's overall revenue.
"The other three divisions are performing just fine thank you very much," Mr. Keating said.
The company's bottom line was also affected by an unrealized foreign exchange loss of $1.5-million.
Analysts had estimated revenue to come in at $65-million for the quarter, according to estimates compiled by Thomson Reuters.
"What we do in this business is essentially difficult and complex," Mr. Keating said. "If something goes off the rails it can cause a significant impact."
Com Dev said however it was still on track to achieve revenue growth of 14 per cent for the fiscal year, despite the losses in the latest quarter.
The company's chief financial officer Gary Calhoun said that after excluding the impact of Monday's negative news, the Com Dev's overall revenue would have increased by 16 per cent year over year.
"We're looking at all avenues to improve the situation on the programs," said Mr. Calhoun, who wouldn't add if Com Dev was going to charge its government customers more for the underestimated contracts.
The company also announced new president for Com Dev Canada.
The new president, Dave Lizius, joined Com Dev in 1997 and has held several positions within the company, and had recently been Com Dev International's vice-president of corporate development.
"He knows our industry and the market very well," Mr. Keating said. "We are confident he is the right person to take our Com Dev Canada division to the success we know it is capable of."
Com Dev also announced that George Cwynar has left the company. Mr. Cwynar joined the company in June 2008 as president of Com Dev Canada. Before that he was president and CEO of Mosaid.
Mr. Keating noted that Com Dev expects to report record orders of nearly $250-million for 2009 and anticipates revenue growth of at least 10 per cent next year.
While Com Dev did not disclose which customers were involved with the problematic contracts, it pointed out that the problems were not to do with a manufacturing failure or a quality program in production but rather an underestimation of costs to complete the programs.
Mr. Keating said the company was determined to understand how such an underestimation occurred and would work to ensure such an event didn't repeat itself in the future.
"We will take that issue very seriously," he said.
Complete financial results for fiscal 2009 are expected on Jan. 11, 2010.
Com Dev's shares fell 31 cents or 8.6 per cent to $3.29 on the Toronto Stock Exchange.