Calian weathers federal cutbacks as revenues, profit drop in Q1

Spending cutbacks by the federal government led to lower revenue at Ottawa-based Calian Technologies (TSX:CTY) during its first quarter of 2014, company officials said Wednesday.

Profits were also down but the company remains in the black.

The results “come with mixed feelings,” said Ray Basler, the company’s CEO, speaking to investors on a conference call on Wednesday afternoon.

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“We’ve been coping with extensions and delays from the federal government,” he said. However he added that other branches of the company, health services in particular, “continue to do well.”

The company depends on the federal government for between 60 and 65 per cent of its business, Mr. Basler said.

Revenue for the three-month period ending Dec. 31 was down to $51.8 million. That’s an 11-per cent drop from the $57.9 million reported during the same period last year.

The company saw a similar decline on a quarter-to-quarter basis. Calian took in revenue of $57.5 million during the previous quarter.

Calian reported net earnings of $2.8 million, an 18-per cent drop from the same period the previous year, when it had net earnings of $3.4 million.

The company saw declines across several of its business units. Its systems engineering division, which includes manufacturing, saw the biggest decrease, falling to $14.5 million from just under $18 million.

That decline was “due to reduced spending by the Department of National Defence and by U.S. defence subcontractors,” said Jacqueline Gauthier, Calian’s CFO.

Mr. Basler said the federal government’s decision to cancel the purchase of over 100 close combat vehicles, in which Calian had anticipated a manufacturing role, was one example of the cuts affecting the company.

Calian’s business and technology services division, which includes professional services, also saw a decline in revenue. It dropped to $37.3 million from just under $40 million previously, a decline company officials also blamed on federal cutbacks.

Ms. Gauthier said that increased competition for remaining federal contracts led to the division’s profit margins falling to 16 per cent from 16.8 per cent.

The company’s overall gross margin was up slightly to 18.9 per cent from 18.8 per cent a year ago. That was driven by an increase to 26.3 per cent in the systems engineering division’s margin from 23.4 per cent last year.

The company isn’t predicting the situation will change anytime soon.

“It’s going to take a balanced budget to loosen the purse strings,” said Mr. Basler.

He’s expecting “more of the same for the rest of this calendar year.”

As a result, the company has revised its guidance for the year. Calian is now predicting revenue of between $220 million and $240 million.

That’s down from the $230 million to $250 million in revenue the company forecast at the end of last quarter and its fiscal year.

Mr. Basler said the company is also looking to expand its heathcare business.

“We’re keeping our eyes open” for potential acquisitions, he added.

Despite smaller profits, the company is maintaining its quarterly dividend at $0.28 a share. With around 7.3 million shares issued, that works out to a little under $2.1 million.

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