Maxar shares plunge after earnings miss, satellite division writedown

David Milstead, The Globe and Mail, p. B1

Maxar Technologies Ltd., the former MacDonald Dettwiler & Associates Inc., saw its share price collapse on Wednesday on an earnings miss and a writedown that was an acknowledgment that one of its satellite businesses may never recover.

Maxar shares declined almost 45 per cent to close at $19.68, trading at record lows in the session. It is now almost 80 per cent below its 52-week high of $86.67.

The investor reaction threatens to immolate the promise of the 2017 merger that combined the storied Canadian defence firm Macdonald Dettwiler with DigitalGlobe, a Colorado imagery business.

Maxar, the resulting firm, moved its headquarters to Colorado to capture more U.S. work, but its shares still trade on the Toronto Stock Exchange and are widely held in Canada and followed by Bay Street analysts.

The writedown also validates the attack by U.S. short-selling firm Spruce Point Capital Management, which announced on Wednesday morning it's now targeting Montreal-based Dollarama Inc.

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.)

Spruce Point took on Maxar on Aug. 7, after the shares closed at $57.25. The firm suggested the company's preferred profit measures and the accounting choices made to arrive at them obscured weak cash flow that threatened the company's dividend and even its solvency. It suggested an impairment charge was likely.

In a detailed response later in the summer, Maxar said it had conducted a review of its accounting, found no errors and was confident in its future - but would review its businesses for potential impairment, a process that resulted in Wednesday's charge.

Maxar lost US$432.5-million, or US$7.31 a share, in large part owing to US$383.6-million in impairment charges as it wrote down the value of its GeoComm satellite business. But even on profit numbers that exclude the bad stuff, the company greatly disappointed: Its adjusted earnings per share of 75 US cents missed analyst consensus by nearly 30 per cent, and its sales of US$508.2-million were nearly 10 per cent below consensus.

The writedown came, Maxar said in a securities filing, when it lost confidence that it would win three to four major satellitebuilding contracts this year, or about 30 per cent of the total global market. In the third quarter, with one win in the books, it lost a deal to build an Israeli satellite it had believed it had won and saw just five remaining projects across the entire industry. Now, Maxar "does not expect the longterm outlook for the GeoComm business to rebound significantly from current year award levels."

Unfortunately, it has fixed costs from a major complex in Palo Alto, Calif., that are weighing it down as satellite sales fall. The company is trying to sell both the real estate and the entire GeoComm business.

That attempt to escape led chief executive Howard Lance to tell analysts on Wednesday: "Excluding the GEO communication satellite line of business that's been in decline for a number of quarters, Maxar continued to make solid progress and build momentum to establish a longterm profitable growth trend in the rest of the business."

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