12 Aug 20. CAE reports first quarter fiscal 2021 results.
- Revenue of $550.5m down 33% vs. $825.6m in prior year
- Segment operating loss of $110.3m ($2.1m before specific items) vs. segment operating income before specific items of $113.3 m in prior year
- EPS of negative $0.42 (negative $0.11 before specific items) vs. $0.24 before specific items in prior year
- Free cash flow of negative $92.7m up from negative $102.1m in prior year
- Order intake of $417.1m for 0.76x book-to-sales(5) and $8.6bn backlog
- Announced approximately $100m restructuring program to yield $50m annual savings
(NYSE: CAE) (TSX: CAE) – CAE today reported revenue of $550.5m for the first quarter of fiscal 2021, compared with $825.6m in the first quarter last year. First quarter net loss attributable to equity holders was $110.6m (negative $0.42 per share) compared to a net income of $61.5m ($0.23 per share) last year. Net loss before specific items(6) in the first quarter of fiscal 2021 was $30.3 m (negative $0.11 per share) compared to a net income of $63.2m ($0.24 per share) last year.
First quarter segment operating loss was $110.3m compared with a segment operating income of $110.9m (13.4% of revenue) in the first quarter of last year. Segment operating loss before specific items in the first quarter of fiscal 2021 was $2.1m compared with a segment operating income of $113.3m (13.7% of revenue) last year. Backlog remains solid at $8.6bn. All financial information is in Canadian dollars unless otherwise indicated.
“The full brunt of the COVID-19 pandemic hit us during our first quarter, with sharply lower demand and major disruptions to our global operations,” said Marc Parent, CAE’s President and Chief Executive Officer. “At the onset of the pandemic, we acted quickly to ensure the health and safety of our employees and customers by taking extensive measures to protect the Company’s financial position and preserve liquidity. CAE has shown considerable agility and resiliency, having significantly mitigated our loss position and maintained a solid financial base in the first quarter, amid the most challenging conditions our company has ever faced. In Civil, mandatory temporary facility closures and travel restrictions presented our customers and us with considerable challenges. We were also required to temporarily suspend substantially all manufacturing at our main facility. Nevertheless, we still delivered two simulators during the quarter and averaged 33 percent utilization of our training network. With more than half of our global training network either closed or at reduced operations, utilization reached a low point during the quarter in the 20 percent range. Since then, we have seen training centre utilization increase to upwards of 40 percent, as our facilities reopened, and flight crews resumed their critical training activities. In Defence and Healthcare, the pandemic also caused significant disruptions, which have hampered customer demand and our ability to deliver.”
Marc Parent on CAE’s outlook, “The worst of the pandemic’s impacts on CAE may now indeed be behind us; however, the pace of recovery is unlikely to be linear or quick, and it will most certainly be dictated by the rate at which travel restrictions and quarantines can safely be lifted and economic activity improves. We continue to view the current fiscal year as a tale of two halves, with the first half of the year marked by lower demand and disruptions, and the second half, to potentially begin to inflect more positively. With that, we continue to expect free cash flow to turn positive in our second half of the fiscal year.”
On CAE’s strategic realignment for a post COVID-19 world, Parent added, “We have a deeply rooted culture of innovation and a proven ability to adapt quickly to dynamic market conditions. In Healthcare, for example, we rapidly applied the full gamut of our technical capabilities in response to the crisis and are now fielding new opportunities globally in the design, manufacture and sale of life saving ventilators. Tough times require new thinking and across our markets, we have adapted our offerings by introducing new ways to leverage virtual reality and distance learning technologies to serve our customers’ critical needs. We are currently taking actions company-wide to further strengthen CAE while our end markets recover. CAE has always been a nimble, technology-intensive company—and now more than ever, we are leaning forward and discovering more ways to accelerate the long-term transformation of the way we operate. We are applying digitally immersive technologies to further differentiate our solutions and address an even wider range of our customers’ most critical needs. We are also leveraging technology to drive enhanced customer experiences, and to find greater operational efficiencies. As such, in order to adjust to the current and expected level of demand for our products and services, and to enable approximately $50 m of expected annual recurring savings starting next fiscal year, we have announced a restructuring program of approximately $100 m to be carried out over the next 12 months. Our restructuring program includes the introduction and acceleration of new digitally enhanced processes and the optimization of CAE’s global asset base and footprint. We are effectively managing the things we can control within this unprecedented environment and we are decidedly focused on the future — and I expect we will ultimately be stronger for it.”
Restructuring program announced subsequent to the quarter to drive $50 m annual savings
Subsequent to the end of the first quarter, CAE announced that it would be taking additional measures to best serve the market by optimizing its global asset base and footprint, adapting its global workforce and adjusting its business to correspond with the expected lower level of demand for certain of its products and services. These measures also include the introduction and acceleration of new digitally enhanced processes.
As a result of these measures, CAE expects to record restructuring expenses of approximately $100m over the next 12 months, consisting mainly of real estate costs, asset relocations and other direct costs related to the optimization of our footprint and employee termination benefits.
Taken together, these measures are expected to enable CAE to emerge from the current period from a position of strength and the Company expects to fully realize cost reductions of approximately $50m annually starting in fiscal year 2022.
Civil Aviation Training Solutions (Civil)
The COVID-19 pandemic continued to negatively impact Civil training revenues during the quarter, with significantly lower than usual training utilization resulting from lower customer demand and government restrictions including travel bans, border restrictions, lockdown protocols and self-isolation measures that forced temporary closures and disruptions to Civil operations worldwide. At the worst point during the first quarter of fiscal 2021, more than half of our Civil training locations worldwide had totally suspended operations or operated at significantly reduced capacity. Because of these extreme conditions, training centre utilization touched down in the low 20 percent range and averaged 33 percent for the quarter. By the end of June 2020, all previously closed training locations had re-opened, however several locations remained operating at reduced capacities. In addition to the disruptions to Civil’s training centre network, Civil was also required to suspend the manufacture of simulator products at its main facility.
First quarter Civil revenue was $248.0m, down 48% compared to the same quarter last year. Segment operating loss was $97.9m compared to a segment operating income of $98.6m (20.6% of revenue) in the first quarter last year. First quarter segment operating loss before specific items was $16.2m, down 116% compared to the first quarter last year. During the quarter, Civil delivered 2 full-flight simulators (FFSs)(7) to customers and first quarter Civil training centre utilization(8) was 33%. Utilization averaged 41% in June and has since continued to be approximately 40%.
During the quarter, Civil signed training solutions contracts valued at $193.5m, including a contract for an Airbus A320 FFS for China Express, a four-year training agreement with Alitalia, a 5-year training agreement with Boeing to support Boeing’s ab initio Pilot Development Program, a five-year training agreement with WAMOS Air, a five-year training agreement with long term business aviation partner, SC Aviation and a two-year business aviation training agreement with Air Hamburg. We also introduced new virtual service offerings to support our customers as a response to border restrictions arising from the COVID 19 pandemic, including offering remote support for the installation, acceptance and qualification of FFSs, obtaining FAA and other Civil Aviation Authority approvals for virtual training in certain of our flight training organizations, and developing remote instructor operating station solutions for live instructor interactions during training sessions. Also, as a product of our digital innovation, we launched instructor-led online courses for aviation maintenance training and CAE Airside, a new digital platform that provides training and career resources to pilots grounded due to COVID-19. The platform features articles and tools that were created on the subjects that matter the most to thousands of pilots surveyed around the world during this pandemic (https://www.airside.aero/).
The Civil book-to-sales ratio was 0.78x for the quarter and 1.02x for the last 12 months. The Civil Defence and Security (Defence)
The COVID-19 pandemic contributed to delays in the execution of programs from backlog and in order intake. A range of global defence programs involving government and OEM customers experienced delays due to travel bans, border restrictions, client access restrictions and supply chain disruptions. While some of the required progress and acceptance testing continued with virtual meetings and remote work procedures, delays impacted the attainment of key program milestones. In addition, there have been delays in the award of new contracts, as government acquisition authorities follow directives in their respective countries to shelter-in-place and eliminate travel. These delays continued to impact Defence order intake during the first quarter.
First quarter Defence revenue was $280.2m, down 13% compared to the same quarter last year and segment operating loss was $9.2m compared to a segment operating income of $15.1m (4.7% of revenue) in the first quarter last year. First quarter segment operating income before specific items was $17.3m (6.2% of revenue), up 15% compared to the first quarter last year.
During the quarter, Defence booked orders for $201.3m, including contracts to provide the U.S. Air Force with upgrades and enhancements to both the KC-135 and C-130H aircrew training system programs and to continue providing a range of in-service support solutions for the Royal Canadian Air Force’s CF-18 aircraft. Other notable contracts include providing Airbus Defence and Space with support for the development of new and upgraded training capabilities for Germany’s Eurofighter program. Defence also received orders to continue providing maintenance and support services for the Royal Navy Merlin helicopter training systems.
The Defence book-to-sales ratio was 0.72x for the quarter and 0.94x for the last 12 months (excluding contract options). The Defence backlog, including options and CAE’s interest in joint ventures, at the end of the quarter was $4.0bn. The Defence pipeline remains strong with some $5bn of bids and proposals pending customer decisions. (Source: PR Newswire)
13 Aug 20. Elbit Systems Ltd. (NASDAQ: ESLT and TASE: ESLT) (the “Company” or “Elbit Systems”), the international high technology company, reported today its consolidated results for the quarter ended June 30, 2020. In this release, the Company is providing US-GAAP results as well as additional non-GAAP financial data, which are intended to provide investors a more comprehensive understanding of the Company’s business results and trends. Unless otherwise stated, all financial data presented is GAAP financial data.
Bezhalel (Butzi) Machlis, President and CEO of Elbit Systems, commented: “Our second quarter results demonstrate the resilience of our business during a period in which we continued to face the operational and logistical challenges posed by the COVID-19 pandemic. We are particularly pleased by the improved operating profit margin and cash flow in the quarter.
Our ability to win new business and grow our backlog during the quarter is a testimony to the continued interest in our products and solutions around the world, even during the pandemic. As we look towards a post-pandemic world, our $10.8bn backlog provides us with good revenue visibility.”
Second Quarter 2020 Results:
Revenues in the second quarter of 2020 were $1,079.4m, as compared to $1,064.0m in the second quarter of 2019.
Non-GAAP (*) gross profit amounted to $286.4m (26.5% of revenues) in the second quarter of 2020, as compared to $294.3m (27.7% of revenues) in the second quarter of 2019. GAAP gross profit in the second quarter of 2020 was $280.5m (26.0% of revenues), as compared to $288.4m (27.1% of revenues) in the second quarter of 2019.
Research and development expenses, net were $79.0m (7.3% of revenues) in the second quarter of 2020, as compared to $77.3m (7.3% of revenues) in the second quarter of 2019.
Marketing and selling expenses, net were $67.4m (6.2% of revenues) in the second quarter of 2020, as compared to $73.6m (6.9% of revenues) in the second quarter of 2019.
General and administrative expenses, net were $52.0m (4.8% of revenues) in the second quarter of 2020, as compared to $57.2m (5.4% of revenues) in the second quarter of 2019.
Other operating income, net in the second quarter of 2020 was $35.0m, resulting mainly from capital gains related to sale and lease back of buildings by a subsidiary in the U.S.
Non-GAAP(*) operating income was $92.7 m (8.6% of revenues) in the second quarter of 2020, as compared to $89.6m (8.4% of revenues) in the second quarter of 2019. GAAP operating income in the second quarter of 2020 was $117.1m (10.9% of revenues), as compared to $80.3m (7.5% of revenues) in the second quarter of 2019.
Financial expenses, net were $16.6m in the second quarter of 2020, as compared to $20.3m in the second quarter of 2019.
Other income, net in the second quarter of 2020 was $13.0m , as compared to other income of $1.6m in the second quarter of 2019. Other income in the second quarter of 2020 includes income of approximately $15.4m as a result of revaluation and capital gain related to the sale of shares in a subsidiary in Israel.
Taxes on income were $23.6m (effective tax rate of 20.8%) in the second quarter of 2020, as compared to $10.8m (effective tax rate of 17.6%) in the second quarter of 2019. The tax rate in the second quarter of 2020 was affected by the higher tax rate of the capital gains.
Equity in net earnings (losses) of affiliated companies and partnerships was a loss of $0.4m in the second quarter of 2020, as compared to earnings of $3.5m in the second quarter of 2019. The loss in the second quarter of 2020 was a result of the write-off of a $4.4m investment in an affiliated company in Israel.
Net income attributable to non-controlling interests in the second quarter of 2020 was $0.2m, as compared to $0.4m in the second quarter of 2019.
Non-GAAP(*) net income attributable to the Company’s shareholders in the second quarter of 2020 was $68.9m (6.4% of revenues), as compared to $64.3m (6.0% of revenues) in the second quarter of 2019. GAAP net income attributable to the Company’s shareholders in the second quarter of 2020 was $89.3m (8.3% of revenues), as compared to $53.8m (5.1% of revenues) in the second quarter of 2019.
Non-GAAP(*) diluted net earnings per share attributable to the Company’s shareholders were $1.56 for the second quarter of 2020, as compared to $1.46 for the second quarter of 2019. GAAP diluted earnings per share in the second quarter of 2020 were $2.02, as compared to $1.22 for the second quarter of 2019.
The Company’s backlog of orders as of June 30, 2020 totaled $10,804m, as compared to $9,796m as of June 30, 2019. Approximately 63% of the current backlog is attributable to orders from outside Israel. Approximately 55% of the current backlog is scheduled to be performed during the second half of 2020 and during 2021.
Operating cash flow in the six months ended June 30, 2020 was a positive $169.3m, as compared to a negative operating cash flow in the six months ended June 30, 2019 in the amount of $91.5m.
Impact of the COVID-19 Pandemic on the Company:
The Coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization in March 2020. COVID-19 has had significant negative impacts on the worldwide economy, resulting in disruptions to supply chains and financial markets, significant travel restrictions, facility closures and shelter-in-place orders in various locations. Elbit Systems is closely monitoring the evolution of the COVID-19 pandemic and its impacts on the Company’s employees, customers and suppliers, as well as on the global economy.
As we last reported on May 26, 2020, we have been taking a number of actions to protect the safety of our employees as well as maintain business continuity and secure our supply chain. We also reported on a number of activities where we are leveraging our technological capabilities to assist hospital staffs and other first responders protecting our communities from the impact of the pandemic. All of these actions remain ongoing.
During the first and second quarters of 2020 our business was not materially impacted by the pandemic, although some of our businesses are experiencing certain disruptions due to government directed safety measures, travel restrictions and supply chain delays.
We have implemented a series of cost control measures to help limit the financial impact of the pandemic on the Company, in parallel to the measures we are taking to maintain business continuity and deliveries to our customers. We also are working on efficiency initiatives with a number of our suppliers. We continue to evaluate our operations on an ongoing basis in order to adapt to the evolving business environment.
While our commercial avionics business line has been negatively affected by the pandemic’s impact on the commercial aviation market, most of our defense markets have continued to show relative stability. We are continuously analyzing our business and its vulnerability to the possible future impact of the pandemic.
We believe that as of June 30, 2020, Elbit Systems had a healthy balance sheet, adequate levels of cash and access to credit facilities that provide liquidity when necessary. We have given high priority to cash management and adequate cash reserves to run the business.
The extent of the impact of COVID-19 on the Company’s performance will depend on future developments including the duration and spread of the pandemic, the measures adopted by governments to limit the spread of the pandemic and resulting actions that may be taken by our customers and our supply chain, all of which are uncertain. As noted in our annual report on Form 20-F, the preparation of financial reports such as our quarterly financial results requires us to make judgments, assumptions and estimates that affect the amounts reported. For our quarterly financial results for the quarter ended June 30, 2020, we considered the economic impact of the COVID-19 pandemic on our critical and significant accounting estimates. The expected impact of the COVID-19 pandemic did not have a material effect on our significant judgments, assumptions and estimates reflected in the results. However, our future results may differ materially from our estimates. As events continue to evolve in connection with the COVID-19 pandemic, the estimates we use in future periods may change materially.
11 Aug 20. RADA Reports Record Q2/2020 Results and Increases 2020 Revenue Guidance to $70m.
– Record Q2 revenues of $17.5m, up 75% year-over-year
– Increased full year revenue guidance from over $65m to over $70m
RADA Electronic Industries Ltd. (NASDAQ: RADA) announced today its financial results for the three and six months periods ended June 30, 2020.
Highlights of the second quarter of 2020
- Quarterly revenues up 75% year-over-year to a record $17.5m
- Net income of $0.7m and Adjusted EBITDA of $1.75m – 10% of revenue
- 2020 revenue guidance increased to over $70m, implying over 58% growth year-over-year, with continued sequential revenue growth throughout the remainder of the year
- US manufacturing facility at full operation to supply US market demand.
Dov Sella, RADA’s Chief Executive Officer commented, “We are very pleased with our results and the positive momentum in our business, which led to a significant 75% year-over-year revenue growth and sequential quarterly growth of 16%. Our strong revenue growth, stable gross margins and stabilizing operating expenses are yielding strong EBITDA improvement. We reported Adjusted EBITDA of $1.7m in the quarter, which was more than double that of the first quarter.”
Continued Mr. Sella, “Our radars enable life-saving active protection solutions for advanced military tactical forces and critical infrastructure, and are in the heart of current modernization programs, especially in the USA. The strong demand for our radars is being driven by significant and urgent counter-UAV, SHORAD and C-RAM needs in the US and other geographies. Our orders in-hand have enabled us to increase our 2020 revenue guidance to over $70 m. As our end-markets become mainstream, we expect the growth to continue throughout the remainder of this year and into 2021. Our net cash level of $30 m is sufficient for our working capital and R&D needs to support our expected strong growth.”
2020 Second Quarter Summary
Revenues totaled $17.5m in the quarter compared with revenues of $10m in the second quarter of 2019, an increase of 75%.
Gross profit totaled $6.2m in the quarter (36% of revenues), an increase of 73% compared to gross profit of $3.6m in the second quarter of 2019 (36% of revenues).
Operating income was $0.6m in the quarter compared to an operating loss of $0.8m in the second quarter of 2019.
Net income attributable to RADA’s shareholders in the quarter was $0.7m, or $0.02 per share, compared to a net loss of $0.6m, or $0.01 per share, in the second quarter of 2019.
Adjusted EBITDA was $1.7m in the quarter compared to adjusted EBITDA loss of $0.3m in the second quarter of 2019.
2020 First Half Summary
Revenues totaled $32.6m in the first half of 2020 compared with revenues of $18.7m in the first half of 2019, an increase of 74%.
Gross profit totaled $11.6m in the first half (36% of revenues), an increase of 72% compared to gross profit of $6.7m in the first half of 2019 (36% of revenues).
Operating income was $0.7m in the first half of 2020 compared to an operating loss of $1.4m in the first half of 2019.
Adjusted EBITDA was $2.6m in the first half of 2020 compared to adjusted EBITDA loss of $0.3m in the first half of 2019.
Net income attributable to RADA’s shareholders in the first half was $0.9m, or $0.02 per share, compared to a net loss of $1m, or $0.03 per share, in the first half of 2019.
As of June 30, 2020, RADA had net cash and cash equivalents of $29.5m compared to $13.8m as of year-end 2019. The inventory level has increased to $26.5m from $17.2m as at the end of 2019. RADA management decided to strategically increase the inventory level to support the future expected growth and to ensure full availability of components, given the current environment and the need to mitigate against any negative influence of the Covid-19 pandemic on the supply chain. (Source: PR Newswire)
11 Aug 20. OnSolve Announces Acquisition of Stabilitas, an AI-driven Intelligence Platform for Situational Awareness. Situational Awareness and Enhanced Incident Management Capabilities Complete Transformation to Critical Event Management Provider. OnSolve, the global leader of mass notification and critical communication solutions for enterprise, small business, and government organizations, today announced the acquisition of Stabilitas, a situational awareness provider that leverages artificial intelligence and machine learning to identify adverse events, analyze the risks posed by those events, and provide stakeholders with actionable threat intelligence.
Stabilitas’ AI solution constantly ingests more than 17,000 global data sources to identify nearly 300,000 critical events each day, such as natural disasters and geopolitical incidents. The solution then identifies the people, facilities, assets, and operations impacted by those events in real time. This allows decision-makers to effectively monitor and confidently respond to the multitude of natural and man-made incidents that endanger lives and pose billions of dollars in risk to organizations each year.
OnSolve’s award-winning critical communications solutions coupled with Stabilitas’ critical event intelligence will deliver a platform for end-to-end threat intelligence and response capabilities. This acquisition is part of OnSolve’s strategy to enhance its global portfolio of solutions that enable people to make faster, better-informed decisions and reduce risk when managing critical events.
“This transaction demonstrates OnSolve’s deep commitment to transforming its mass notification offerings to create the most innovative and modern platform in the comprehensive critical event management segment,” said OnSolve Chief Executive Officer Mark Herrington. “Our customers will now be able to leverage the latest technological advances to more quickly and accurately anticipate, analyze and manage crises to ultimately keep people safe, informed, assured and productive when it matters most. This acquisition also enables us to uniquely provide business resiliency and continuity by combining situational awareness, critical communications as well as incident management. We are excited to welcome the talented Stabilitas employees in this next chapter of OnSolve’s growth.”
“Joining OnSolve was a natural fit because we are both focused on keeping people and organizations safe,” said Greg Adams, CEO and Co-Founder of Stabilitas. “Stabilitas’ AI-powered critical event intelligence coupled with OnSolve’s leading global critical communications solutions will take critical event management to the next level. We developed Stabilitas to help organizations save time, money, and lives. By partnering with OnSolve, we can realize that vision and provide organizations the most comprehensive critical event management capabilities available.”
Complete and holistic critical event management from three industry leaders
OnSolve’s critical communication solutions combined with Stabilitas’ situational awareness capabilities are enhanced by a strategic partnership with Groupdolists, a global incident management provider. Groupdolists’ mobile-centric solution instantly convenes geographically disparate incident response teams, automatically assigns tasks and tracks completion in real time, facilitates rich media file-sharing as well as real-time voice, text, and chat while providing a chronological audit trail of actions taken toward critical event resolution – all without dependency on organizational infrastructure.
Before, during, and after a critical event strikes, organizations will now have the power of AI to inform timely and accurate situational awareness, the relevance and speed of leading mass notification services to manage critical communications, and the ability to holistically and seamlessly manage critical events through incident management – all from OnSolve.
With over two billion notifications sent annually and over 60 years of proven support to both the public and private sectors, OnSolve delivers critical event management solutions backed by unmatched industry expertise, which gives our customers the ability to proactively keep everyone informed, instill confidence, foster teamwork, mitigate disruptions, improve operational outcomes, protect assets, and save lives. We do that through a SaaS-based global portfolio that delivers scalable, easy-to-deploy-and-use solutions for the rapid and secure exchange of vital information and coordination among organizations, people, devices and partners, regardless of the situation or level of need. (Source: BUSINESS WIRE)
11 Aug 20. Magellan Aerospace Corporation Announces Financial Results. Magellan Aerospace Corporation (“Magellan” or the “Corporation”) released its financial results for the second quarter of 2020. All amounts are expressed in Canadian dollars unless otherwise indicated. The results are summarized as follows:
A summary of Magellan’s business and significant updates
Magellan is a diversified supplier of components to the aerospace industry. Through its wholly owned subsidiaries, Magellan designs, engineers, and manufactures aeroengine and aerostructure components for aerospace markets, advanced products for defence and space markets, and complementary specialty products. The Corporation also supports the aftermarket through supply of spare parts as well as performing repair and overhaul services.
Magellan operates substantially all of its activities in one reportable segment, Aerospace, which is viewed as one segment by the chief operating decision-makers for the purpose of resource allocations, assessing performance and strategic planning. The Aerospace segment includes the design, development, manufacture, repair and overhaul, and sale of systems and components for defence and civil aviation.
On May 7, 2020, Magellan announced an agreement with an undisclosed customer for the supply of complex machined rotating engine components for military aircraft platforms. The contract, valued at approximately $46.4m, will be carried out at Magellan’s facility in Mississauga, Ontario over a five-year period commencing in 2020.
Magellan announced on May 25, 2020 that the Toronto Stock Exchange had approved its notice of intention to make a normal course issuer bid (“the Bid”) to purchase for cancellation, from time to time, as it considers advisable, up to 2,910,450 of the Corporation’s issued and outstanding common shares (the “Shares”), being 5% of the 58,209,001 Shares outstanding as of May 25, 2020. The Bid commenced on May 27, 2020 and will terminate on the earlier of May 26, 2021 or the date on which the Corporation has acquired all of the Shares sought pursuant to the Bid.
In late June 2020, Airbus decided that, due to the COVID-19 crisis, it would cancel its plan to develop its own A320neo nacelle. Magellan had been selected by Airbus in 2017 to design, develop and manufacture exhaust systems for the A320neo PW1100G-JM nacelle with the first unit scheduled to enter into service in 2022. Revenue generated from this life-of-program contract was estimated to exceed CDN $200m over the first ten years of the contract.
Impact of COVID-19
In March 2020, the World Health Organization declared coronavirus (“COVID-19”) a global pandemic. Governments worldwide, including those countries in which Magellan operates, enacted emergency measures to combat the spread of the virus. These measures, which included the implementation of travel bans, self-imposed quarantine periods and social distancing, caused a material disruption to businesses globally resulting in an economic slowdown and decreased demand in the aerospace industry. Governments and central banks reacted with significant monetary and fiscal interventions designed to stabilize economic conditions; however, the long-term success of these interventions is not yet determinable.
In the second quarter of 2020, the continued disruption to air travel and commercial activities, particularly within the aerospace and commercial airline industries negatively impacted global supply, demand and distribution capabilities. In particular, the significant decrease in air travel resulting from the COVID-19 pandemic is adversely affecting Magellan’s customers and their demand for the Corporation’s products and services. The situation remains dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect on the Corporation remains unknown at this time.
The current challenging economic climate may have material adverse impact on Magellan including, but not limited to, significant declines in revenue similar to what Magellan experienced in the second quarter of 2020 as the Corporation’s customers are concentrated in the aerospace industry; impairment charges to our property, plant and equipment and intangible assets due to declines in revenue and cash flows; and future restructuring charges as we align our structure and personnel to the dynamic environment. Estimates and judgements made in the preparation of financial statements are increasingly difficult and subject to a higher degree of measurement uncertainty during this volatile period.
Magellan has implemented measures to align our cost structure and maximize cash preservation during the current market conditions, including headcount reductions; elimination of all non-essential travel, entertaining and other discretionary spending; and reductions to the 2020 capital expenditure plan. The Corporation also applied and received the Canada Emergency Wage Subsidy for its Canadian employees. The carrying value of the Corporation’s long-lived assets are reviewed for indications of impairment at the end of each reporting period. At June 30, 2020, the Corporation reviewed each cash-generating unit and did not identify indications of impairment.
The third quarter of 2020 will be challenging for Magellan’s revenue on a year over year basis as COVID-19 continues to impact aircraft production rates over the short and medium term. In response to this impact, in the second quarter of 2020, Magellan initiated plans to right-size our business with major restructuring charges expected to be incurred in the third quarter of 2020. Magellan continues to actively monitor the COVID-19 situation and reassesses its operating plan as program updates become available.
During this pandemic, in regions where the local authorities have ordered non-essential business closures and implemented “stay at home” orders, the aerospace manufacturing industry has been classified as an “essential service”. As a result, the Corporation’s operations remained open, but at reduced levels of activity, for the majority of the second quarter of 2020.
To manage the additional safety risks presented by COVID-19, Magellan implemented standardized tools and templates to keep its employees safe and well informed. Magellan has implemented additional safety, sanitization and physical distancing procedures, including remote work sites where possible and ceased all non-essential business travel. Magellan’s procedures are in accordance with recommendations from the World Health Organization, the United States’ Centers for Disease Control and Prevention, and applicable federal, state and provincial government health authorities.
During the second quarter of 2020, Magellan improved its overall liquidity position despite the challenges posed by COVID-19. The Corporation ended the quarter with a cash balance of $61.7m and $70.4m of available borrowing capacity under Magellan’s operating credit facility, providing the Corporation with $132.1m of total liquidity as compared with $103.3m at March 31, 2020. The credit facility agreement also includes a $75m uncommitted accordion provision that provides the Corporation with the option to increase the size of the operating credit facility to $150m. Magellan expects that cash provided by operations, cash on hand and its sources of financing will be sufficient to meet the Corporation’s debt obligations and fund committed and future capital expenditures.
For additional information, please refer to the “Management’s Discussion and Analysis” section of the Corporation’s 2019 Annual Report available on www.sedar.com.
- Results of Operations
A discussion of Magellan’s operating results for second quarter ended June 30, 2020
The Corporation reported revenue in the second quarter of 2020 of $162.2m, a $101.9m decrease from the second quarter of 2019 of $264.1m. Gross profit and net income for the second quarter of 2020 were $25.3m and $6.1m, respectively, in comparison to gross profit of $45.1m and net income of $21.7m for the second quarter of 2019.
Revenues in Canada decreased 13.1% in the second quarter of 2020 in comparison to the same period in 2019 primarily due to decreased volumes across a number of programs and lower proprietary product sales, partially offset by higher repair and overhaul sales and the strengthening of the United States dollar relative to the Canadian dollar when compared to the same period in the prior year.
Revenues in United States decreased by 45.5% in the second quarter of 2020 when compared to the second quarter of 2019, largely due to volume decreases for single aisle aircraft, specifically the Boeing 737 MAX, offset in part by favourable foreign exchange impact due to the strengthening of the United States dollar against the Canadian dollar.
European revenues decreased 60.7% in the second quarter of 2020 compared to the corresponding period in 2019 primarily driven by build rate reductions for both single aisle and wide body aircrafts.
Gross profit of $25.3m for the second quarter of 2020 was $19.7m lower than the second quarter of 2019 gross profit of $45.1m, and gross profit as a percentage of revenues of 15.6% for the second quarter of 2020 was lower than the second quarter of 2019 of 17.1%. The lower gross profit in the current quarter when compared to the same quarter in 2019 was primarily driven by decreased volumes in a number of commercial programs, offset in part by production efficiencies realized on certain programs and the recognition of $7.9m in subsidies from the Canada Emergency Wage Subsidy (“CEWS”) program.
Administrative and general expenses as a percentage of revenues of 7.8% for the second quarter of 2020 were 1.6% higher than the same period of 2019. Administrative and general expenses decreased $3.7m to $12.6m in the second quarter of 2020 compared to $16.3m in the second quarter of 2019 mainly due to lower discretionary expenses, lower salary and salary related expenses, subsidies of $0.7m received from the CEWS program and cost reductions across the majority of the expense categories to align with current business volumes.
Total restructuring and other for the second quarter of 2020 included a $0.7m restructuring cost related to one-time cost of streamlining operations, and a $1.0m foreign exchange loss compared to a $1.1m foreign exchange gain in the same period of 2019, mainly driven by the movements in balances denominated in foreign currencies and the fluctuations of the foreign exchange rates.
Total interest expense of $1.1m in the second quarter of 2020 was $0.2m lower than the second quarter of 2019 amount of $1.3m mainly due to lower discount on sale of accounts receivables offset by higher accretion charge on lease liabilities.
Income tax expense for the three months ended June 30, 2020 was $3.9m, representing an effective income tax rate of 38.9% compared to 21.8% for the same period of 2019. The change in effective tax rate and current and deferred income tax expenses year over year was primarily due to change in mix of income and loss across the different jurisdictions in which the Corporation operates.
- Selected Quarterly Financial Information
Revenues and net income reported in the quarterly financial information were impacted by the movements in the Canadian dollar relative to the United States dollar and British pound, when the Corporation translates its foreign operations to Canadian dollars. Further, the movements in the United States dollar relative to the British pound impact the Corporation’s United States dollar exposures in its European operations. During the periods reported, the average quarterly exchange rate of the United States dollar relative to the Canadian dollar fluctuated between a high of 1.3859 in the second quarter of 2020 and a low of 1.3069 in the third quarter of 2018. The average quarterly exchange rate of the British pound relative to the Canadian dollar moved from a high of 1.7315 in the first quarter of 2019 to a low of 1.6280 in the third quarter of 2019. The average quarterly exchange rate of the British pound relative to the United States dollar reached its high of 1.3037 in the third quarter of 2018 and hit a low of 1.2327 in the third quarter of 2019.
Revenue for the second quarter of 2020 of $162.2m was lower than that in the second quarter of 2019. The average quarterly exchange rate of the United States dollar relative to the Canadian dollar in the second quarter of 2020 was 1.3859 versus 1.3375 in the same period of 2019. The average quarterly exchange rate of the British pound relative to the Canadian dollar moved from 1.7190 in the second quarter of 2019 to 1.7203 during the current quarter. The average quarterly exchange rate of the British pound relative to the United States dollar decreased from 1.2852 in the second quarter of 2019 to 1.2388 in the current quarter. Had the foreign exchange rates remained at levels experienced in the second quarter of 2019, reported revenues in the second quarter of 2020 would have been lower by $4.2m.
As discussed above, net income reported in the quarterly information was impacted by the foreign exchange movements. In the fourth quarter of 2018, the Corporation recorded a net gain of $9.7m related to prior acquisitions. The fourth quarter of 2019 was impacted by volume decrease in Europe, production inefficiencies in certain operating divisions and an accrual recorded in relation to the wind-down of the A380 program. Results for the second quarter of 2020 were impacted by volume decreases in a number of commercial programs due to COVID-19. In addition, the Corporation recognized a $8.6m government subsidy relating to the CEWS program in order to reduce the expense that the grant is intended to offset. (Source: Google/BUSINESS WIRE)
07 Aug 20. Terra Drone Invests in Dutch Drone Solution Provider Skytools to Together Establish Europe’s Largest Drone Hub in Rotterdam. Terra Drone invests in Dutch Drone Solution provider Skytools to offer corporate and government clients with advanced drone solutions. The companies will together establish a strong drone hub in Rotterdam consisting of Training facilities and Research & Development centers.
Terra Drone Corporation, one of the largest providers of industrial drone solutions in the world, is announcing the completion of its investment in Skytools, a leading Dutch company that provides advanced drone solutions to corporate and governmental clients. Skytools supplies a very wide range of professional Drone equipment together with the registration, training, and maintenance having 12 years of experience in the drone industry. Skytools support clients to grow drone-based solutions within the organization of the clients to enhance Safety, Efficiency, and Productivity. Skytools serve a wide range of corporate clients in industries such as Oil & Gas, Chemical, Engineering, Utilities, etc. as well as a wide range of governmental clients. Skytools is working together with its clients on the New European rules and regulations from EASA (European Union Aviation Safety Agency) which can accelerate BVLOS (Beyond Visual Line of Sight) and night flights. Skytools is also working on Research and Development of solutions such as fully automated drones (Drone in the box) and remotely operated drone-powered with 5G. Services such as survey, inspection, or surveillance will be developed further collaborating together with Terra Drone Europe and Terra Inspectioneering also having offices in The Netherlands. Skytools will also start providing military-grade fixed wings from C-Astral a Terra Drone group company in Slovenia. There will also be a dedicated focus on the expansion of the business throughout Europe and worldwide collaborating with the Terra Drone group companies around the globe.
Marko Van Es, CEO, Skytools, says, “Working close together with the Terra drone group next to the Port of Rotterdam will give our clients a strong partner for aerial services at their facilities. For Skytools this collaboration means that we can look further than the Dutch borders and expand a high level of service on a European and Global scale”
Yuki Ueno, Head of Europe, Terra Drone Corporation, says, “Skytools has been dedicating themselves to provide the best drone-based solutions to the clients and has contributed to the growth of the market. Collaboration with Skytools will surely boost Terra Drone’s force to create a better future by utilizing and developing the capability of drones on a global scale.”
Terra Drone Group will continue to offer clients the best drone-based solutions with the latest cutting-edge technologies embedded and supported by industry professionals. (Source: ASD Network)
04 Aug 20. Aspen Avionics Joining New Aerospace/Defense Group. Airo Group has come together as a growing mid-tier aerospace and defense (A&D) company aiming to fill a void left by the mergers of midsize companies with larger A&D players. The group plans to bring nine companies together under Airo’s Project Jupiter after launching with founding companies Airo Drone and AgileDefense. Six other companies are targeted for acquisition under signed letters of intent, including urban air mobility (UAM) vehicle developer VRCO and avionics manufacturer Aspen Avionics, and one company as part of a joint venture.
According to Airo Group CEO Joe Burns, the new company’s goal is to target three key growth areas in aerospace and defense: drone technology and UAM; advanced avionics; and defense and training. Plans call for going public with an initial public offering or through the purchase of a special acquisition stock company (SPAC).
“We think the public market value should cross over $1bn when we’re merged into a SPAC or do an IPO,” said Chirinjeev Kathuria, executive chairman of Airo Group. “There is a void for mid-tier aerospace and defense companies after [recent mergers],” he said. The roll-up of the companies forming Airo Group brings a balanced portfolio of both A&D and high-growth opportunities, he explained. “Drone services, cargo delivery, adverse-air are all growing, and autonomous UAM technology is very important. We already have this, and it’s being integrated into everything we’re doing. We have a strong set of advisors, and we can accelerate growth as a public company. I think we’re well positioned.”
Two companies are the core of Airo Group and serve the drone detection, remote sensing, and unmanned aircraft systems (UAS) markets (Airo Drone) and aircraft leasing and consulting services to all aviation segments (Agile Defense). The other companies that are joining Airo Group, in addition to Aspen Avionics and VRCO, include Airgility, an unmanned UAS company; Coastal Defense, which provides contract air services and target-simulation services for military organizations; Sky-Watch, a developer, manufacturer, and systems integrator of unmanned aircraft systems; drone-delivery provider Valqari; and Glocal Healthcare, a joint venture with Airo that provides advanced healthcare services.
Airo Group has hired private investment banking firm Stephens, Inc. to raise funds for the Airo Group acquisitions, and the two companies have been working on this effort for the past two years. “Not only is the market timing right, but the technology being developed in the group is on point,” said Chris Gidden, leader of the global aerospace and defense practice for Stephens. “Our goal is to bring this to the public market, to leverage the strong sentiment around autonomy, [to make this] a platform for growth and continue to expand.” Gidden also noted that Airo Group’s existing contracts in defense markets will help the company grow during the downturn in other sectors.
While the acquisition of Aspen Avionics might raise questions about how a general aviation avionics manufacturer fits into an A&D company, it makes sense in terms of growth opportunities, according to Aspen president and CEO John Uczekaj. “The general aviation market is still growing, and we have a good position,” he said. But for an independent avionics manufacturer, gaining a presence on new aircraft with original equipment manufacturers (OEMs) is critical, and Aspen has specialized in the retrofit market. “To attract investment dollars, you have to have growth,” he explained. “We need investment to create flight controls and integrated avionics. The drone world is helping to attract investors for us to be a true competitor.”
In 2015, Aspen Avionics acquired Accord Technology, which manufactures GPS sensors, and this helps Aspen expand into the drone and UAM markets. “General aviation is a good, solid business, but not high growth,” Uczekaj said. “We see all that [drone and UAM technology] as part of the growth cycle, and we want to accelerate that.” The plan is for Aspen to expand beyond its expertise in display manufacturing into other avionics products for the UAM market. “Airo gives us the platform to grow,” he said.
Burns explained that the Valqari acquisition targets the rapid growth of last-mile package delivery with drones that can land on a target and automatically signal a door to open for secure delivery. “It’s a fascinating prospect,” he said, “and solves a lot of last-mile issues.”
VRCO, a UK-based UAM developer, is competing with well-financed players such as Joby and Lilium. “This is an opportunity to develop transportation craft,” said Burns. “We’re working with auto manufacturers to make the flying car of the future.”
Airo’s Airgility acquisition will also contribute artificial intelligence technology for in-flight autonomous decision-making. This will be useful for tasks such as gas-line leak detection, power-outage monitoring, and other functions, all of which Airgility’s technology enables in a GPS-denied environment. (Source: glstrade.com/ainonline)
07 Aug 20. Huntington Ingalls Industries reports drop in quarterly revenues. US-based military shipbuilding company Huntington Ingalls Industries (HII) has reported a revenue of $2.02bn in the second quarter of the year. The figure represents a 7.4% drop from the $2.19bn registered in the same period a year ago.
The operating income of the company plummeted 67.4% from $175m in the second quarter of 2019 to $57m in 2020 Q2.
In the April to June period, net earnings of the company amounted to $53m, compared to $128m in the second quarter of 2019.
HII primarily attributed the fall to the cumulative catch-up adjustments, which amounted to $167m following revised cost and schedule assumptions across all programmes.
It includes a $61m hit resulting from Covid-19 induced delays and disruptions, as well as cost adjustments to the Virginia-class submarine programme.
HII president and CEO Mike Petters said: “As we discussed when we provided our first quarter results, staffing at our shipyards has been significantly impacted by the pandemic as we worked to preserve the significant investments in human capital that we have made over the past five years.
“As a result of the pandemic and our response, hourly production workforce attendance at our shipyards averaged approximately 65% during the second quarter.
“The delay and disruption from lower attendance, availability of critical skills, and out-of-sequence work caused by Covid-19 has impacted our ability to complete work as efficiently as initially planned and has added incremental programme costs and pushed schedules and milestones to the right, which is incorporated in our results and updated outlook for 2020.”
In the second quarter, HHI secured new contracts with a combined value of $2.9bn. It increases its total backlog to nearly $46.1bn.
Earlier this year, HHI signed an agreement to acquire underwater technology company Hydroid from Kongsberg Maritime. (Source: airforce-technology.com)