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Technology Shares spiral as Maxar Technologies loses major revenue-producing satellite

Maxar Technologies Ltd. says one of its top revenue-producing satellites has failed a little over two years after launch, the latest crushing piece of bad news for what was once a leading Canadian aerospace company.

Shares of the company, the successor to Macdonald Dettwiler & Associates Inc., fell by a third in Monday’s trading to $10.62 on the Toronto Stock Exchange, nearly 87 per cent below the company’s 52-week high of $79.91.

Maxar was in the midst of integrating the acquisition of U.S.-based imagery business DigitalGlobe Inc. last year when short-seller Spruce Point Capital Management took aim at it in August. Spruce Point suggested Maxar’s preferred profit measures and accounting obscured weak cash flow that threatened the company’s balance sheet.

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In October, the company missed earnings and took a writedown that was an acknowledgment that one of its satellite businesses may never recover, sending the shares down 45 per cent.

The company said Monday that its WorldView-4 satellite experienced a failure that prevents it from collecting imagery. While Maxar is working with suppliers to fix it, the company believes the satellite “will likely not be recoverable and will no longer produce usable imagery.”

The satellite, built by Lockheed Martin Corp. and Honeywell International Inc., was acquired by a predecessor to DigitalGlobe and launched in November, 2016. Maxar says it generated US$85-million in revenue in the year that ended Dec. 31. It will try to “meet as much of the existing customer commitments and obligations as possible,” but said it will be able to offset just US$10-million to US$15-million of the lost revenue.

Analyst Doug Taylor of Canaccord Genuity says he believes WorldView-4, which cost US$835-million and took several years to build, “is Maxar’s most valuable satellite in orbit. … It represents one of the company’s most significant assets and was the flagship of the DigitalGlobe constellation."

“The news is negative,” said Mr. Taylor, who has a “speculative buy” and $30 price target on the stock.

Maxar said it expects to write off the entire US$155-million balance-sheet value of WorldView-4 in its fourth-quarter numbers and pursue a full US$183-million recovery from the insurance policies it has on the satellite.

In response to a question, Maxar spokesman Turner Brinton declined to say when, exactly, the satellite failed, but said in an e-mail that “the team is disappointed but focused on the future and how we will support our customers’ important missions and each other.”

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On Monday, Spruce Point tweeted: “$MAXR didn’t listen to us when we said it should cut its dividend, and now its situation is is getting worse not better. It needs to do the right thing and immediately eliminate this dividend burden.” It later tweeted the stock “increasing[ly] looks like [it’s] worthless.”

In the 12 months ended Sept. 30, Maxar generated US$424-million in operating cash flow, spent US$138-million on capital expenditures and used US$67-million to pay dividends, according to S&P Global Market Intelligence. The dividend of US$1.17, which represented a yield of more than 9 per cent heading into Monday, is now pushing 15 per cent.

As a short-seller, Spruce Point borrows shares, sells them and repays the loan after buying back the stock at a lower price. Therefore, it profits as shares decline in value. (A Spruce Point spokesman declined to reveal the size of the firm’s short position.)

The 2017 merger combined Macdonald Dettwiler, founded in 1969 and the inventor of the Canadarm used on U.S. space shuttles, with DigitalGlobe, a Colorado imagery business. Maxar, the resulting firm, moved its headquarters to Colorado to capture more U.S. work.

Last Thursday, Maxar announced its “U.S. domestication” was complete, with shareholders of the Canadian corporation receiving stock in the Delaware-incorporated parent. Maxar shares still trade on the Toronto Stock Exchange and are widely held here and followed by analysts at Bay Street firms. Of the nine analysts who cover the stock, eight are based in Canada. As of Monday, six have “buy” ratings, with three “neutrals.”

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