Space firm Maxar sees its shares crater

Shares of space systems conglomerate Maxar Technologies Ltd. fell back to Earth Wednesday, losing nearly 45 per cent of their value after the company reported an earnings and guidance that disappointed investors.

Analysts had been predicting that Maxar — the name adopted by B.C.-based MacDonald, Dettwiler and Associates after its takeover of U.S.-based DigitalGlobe in 2017 — would post a profit this quarter, but the company instead reported a $432-million net loss, $383.6 million of which was attributed to impairment losses and inventory obsolescence. Without the impairment — usually a one-time item — Maxar still lost more than $49 million.

While its geostationary satellite manufacturing business has been lauded as an industry leader, Maxar’s orders have fallen every year for the past three years. GEO Comsat orders declined to eight in 2017 from 15 in 2016. At one point, the firm was averaging 20 or more a year.

“The space systems, GEO Comsat business has been a significant drag,” acknowledged Biggs Porter, Maxar’s chief financial officer, in a conference call.

BMO Capital Markets analyst Thanos Moschopoulos said in a note that the GEO business is struggling because of multiple factors from supplier performance issues and lower overhead absorption. In a pinch for cash, Biggs said Maxar can bring in additional funds by selling its struggling satellite business.

Maxar CEO Howard Lance also put much of the blame for the poor showing on the GEO market’s decline. The rest of the company, particularly its imagery section, continues to see “solid revenue growth,” Lance said.

Maxar’s imagery section, which Lance touted for transitioning a contract to the National Reconnaissance Office, reported $209.2 million in revenue — a 1,673-percent gain from the $11.8 million it made in the third quarter of 2017. Without this section of the company, Maxar is actually growing three to four per cent for 2018, Moschopoulos wrote.

The wide losses, however, were so unexpected that going into the earnings report, five out of 11 analysts covering the company for major Canadian banks and investment firms held an outperform rating. An additional four held buy ratings.

Not everyone was taken aback by Maxar’s earnings miss. New York-based shortselling research firm Spruce Point Management predicted trouble ahead in a report published in August.

In it, Spruce Point Management said it was concerned Maxar “appeared to be overcapitalizing costs by inflating intangible asset purchases.” Spruce Point predicted Maxar would face significant headwinds in 2018’s fourth quarter and estimated that shares would fall to an intermediate range of $20 to $25. Maxar closed at $19.68 on Wednesday, down 44.55 per cent.

Maxar’s outlook was also less than reassuring: it expects a 6.5-per-cent decline in revenue for the year in total.