UrtheCast Reports Third Quarter 2017 Financial Results and Expects UrtheDaily™ Constellation Financing Closing by Year End
Posted: Tuesday, November 14, 2017
UrtheCast Corp. (TSX:UR) ("UrtheCast" or the "Company") today announces financial results for the three and nine months ended September 30, 2017.
Excluding the non-cash revenue related to the ISS cameras of $5.1 million recorded in the third quarter of 2016, revenues decreased by $5.3 million in the third quarter of 2017. Revenues from EO imagery in the third quarter were $5.3 million lower than the prior year, primarily due to a delay related to a major contract award, while engineering services revenues in the third quarter were essentially flat compared to the prior year.
Operating costs of $16.0 million in the third quarter were $13.6 million lower than the prior year. When excluding non-cash costs such as depreciation, amortization, stock-based compensation, asset impairment charges and other non-cash costs associated with the ISS cameras in 2016, operating costs were $10.6 million in the quarter compared to $10.8 million in the prior year. The decrease in the quarter was mainly due to the consolidation of certain software development activities and lower cloud storage costs.
The net loss of $6.4 million in the third quarter of 2017 decreased by $3.2 million when compared to the prior year, primarily due to the $7.8 million asset impairment charge in 2016, which was partially offset by the decrease in revenues in the current quarter. The lower revenues were the main reason for the $5.1 decrease in Adjusted EBITDA compared to the third quarter of 2016.
"During and subsequent to the third quarter, we have made significant progress in advancing our strategic growth initiatives and transitioning UrtheCast to a business model based on predictable, long-term revenue streams derived from our revolutionary earth imaging technology," said Wade Larson, UrtheCast's President and CEO. "We are proud to have secured a multi-year revenue commitment from a global leader in the aerospace industry, further validating our belief that UrtheDailyTM represents the state of the art in the rapidly expanding geoanalytics market. Additionally, we have received expressions of interest from top-tier institutional investors meaningfully in excess of our needs for the full build and launch of the UrtheDailyTM Constellation and have entered a binding build commitment agreement with leading satellite manufacturer SSTL ahead of a planned launch in 2020."
Sai Chu, UrtheCast's CFO, stated, "At this time we have expressions of interest that indicate we can finance UrtheDaily's capital needs entirely with senior secured debt and subordinated capital. We expect this to close by the end of 2017. The entire financing package is expected to be very attractive for shareholders. Upon closing this financing, we believe that we will have a clear path to the launch and commercialization of the UrtheDaily Constellation."
Mr. Larson concluded, "As we take advantage of the near-term opportunity with UrtheDailyTM while securing additional contracts from high-quality global customers, we believe that UrtheCast is well positioned to create long-term value for our shareholders as a market leader in earth observation."
Earth Observation ("EO")
EO revenues of $1.8 million declined by 74%, compared to $7.1 million in the same period in 2016 (excluding non-cash revenues).
EO revenues during the quarter were impacted by a delay in the award of a major contract, with the expectation of the award taking place by Q1 2018.
During the third quarter of 2017, the Company announced a strategic agreement with e-Geos for the co-marketing of our complementary SAR/Optical capabilities, and the offering of new geointelligence products based on our combined optical and SAR data, targeting in this initial phase maritime surveillance and oil & gas customers.
Also during the third quarter of 2017 the Company expanded the assets available through the PanGeo Alliance, which now includes the TripleSat Constellation owned and operated by Beijing Space Eye Innovation Technology Co., Ltd. (which is a wholly owned subsidiary of Twenty First Century Aerospace Technology Co., Ltd.), a Beijing-based leading provider of commercial high-resolution imagery products and services. We are now able to offer to our customers worldwide an unprecedented fleet of 7 submetric satellites, including our Deimos-2. This has significantly expanded our capability to bid for large contracts in the higher resolution/revisit segment of the EO market.
Update on OptiSARTM Constellation and UrtheDailyTM Constellation
Today, the Company announced that it had entered into an advance data subscription agreement with a major international aerospace company.
The Company also announced today that it had entered into a build contract with UK-based Surrey Satellite Technology Ltd. to build the UrtheDailyTM Constellation, subject to the closing and funding of the UrtheDailyTM financing described below.
Additionally, the Company announced today that it has received expressions of interest regarding secured financing from a syndicate of top tier institutional lenders that significantly exceedes the US$175 million needed to be raised for the funding of the development of the UrtheDailyTM Constellation. Subject to finalizing terms, definitive documentation and confirmatory business and legal due diligence, this financing is expected to close prior to the end of 2017, with funding beginning in early 2018.
The development of the UrtheDailyTM Constellation continues to progress and, subject to the closing and funding of the financing described below, management believes that the UrtheDailyTM Constellation will commence operations in 2020. The Company continues to see robust market interest in the best-in-class daily multispectral imaging data and unmatched change detection capability derived from the UrtheDailyTM Constellation. Our announcement today of an advance data subscription, the previously announced strategic partnerships with OmniEarth, Inc. in July 2016, and the advance data subscription agreement with GEOSYS, a subsidiary of Land O'Lakes, Inc., announced in February 2017 are strong indications of market interest. The Company continues to engage in negotiations with additional prospective UrtheDailyTM data purchasers.
In October 2017, the Company formed a Special Committee comprised of independent directors to review and respond to expressions of interest from leading industry players interested in exploring potential partnerships and transaction structures to exploit our leading SAR-IP and engineering talent to capitalize on the growing interest by the US and Canadian governments in SAR technology, and to explore other strategic alternatives potentially available to the Company. There can be no assurance that this process will result in any transaction.
During the third quarter of 2017, the Company announced that it had entered into a contract with a value in excess of C$100 million dollars with a confidential customer for the development and delivery of a dual frequency stand-alone SAR operational class satellite as an accelerator mission for the OptiSARTM Constellation. The contract remains subject to the customer obtaining final government appropriation approval, and to UrtheCast and its suppliers obtaining technology transfer export permits on terms agreeable to the customer. Subject to satisfaction of these conditions, we expect work on the program to begin in early 2018, for launch in late 2020. As is customary, payments by the customer to UrtheCast under the contract are conditional on us successfully reaching various program delivery milestones.
The Company believes that the sale of one or more accelerator SAR satellites mitigates some of the technical risks associated with the OptiSARTM Constellation and assists in demonstrating the advantages of our unique SAR technology to the market. The accelerator program also allows the Company to continue to work closely with its current and prospective OptiSARTM customers to refine the technical specifications. Selling one or more stand-alone SAR satellites provides a means to finance a significant portion of the ongoing development costs of the OptiSARTM Constellation.
Although the above statements reflect the Company's current views on the OptiSARTM Constellation and the UrtheDailyTM Constellation, the completion of the Constellations are inherently subject to significant business, economic, competitive, political, timing and social uncertainties and contingencies and there can be no guarantee that either Constellation will be completed in the expected time frame or at all.
As previously announced, during the first quarter of 2017, the Company was awarded approximately $17.6 million in funding from Innovation, Science and Economic Development Canada's Industrial Technologies Office as part of its Strategic Aerospace & Defense Initiative program to support the development of the OptiSARTM Constellation. The agreement is structured as a repayable contribution that management anticipates will be disbursed in quarterly installments, on a cost-reimbursement basis, over the next four years and repaid by the Company in annual installments over 15 years. The Company has filed claims totaling $6.0 million for the reimbursement of eligible costs incurred for the period from April 2016 to September 2017.
During the first quarter of 2017, the Company was also awarded three non-repayable grants from the Government of Canada's Defence Innovation Research Program ("DIRP") to reimburse up to approximately $2.2 million of eligible OptiSARTM development costs. The Company has submitted claims of $0.5 million with respect to eligible costs incurred in the third quarter ($1.5 million for the nine months ending September 30, 2017).
During the second quarter of 2016, the Company was awarded $5.0 million from the Government of Canada's Technology Development Program ("TDP") to support the development of the OptiSARTM Constellation. The Company has submitted claims of $0.3 million with respect to eligible costs incurred in the third quarter ($1.2 million for the nine months ending September 30, 2017).
Financing and Liquidity
As previously announced, the Company obtained a new $10 million revolving demand credit facility from the Royal Bank of Canada (RBC) in the first quarter of 2017, which was originally intended to be used to finance up to 90% of bank-approved accounts receivable. The agreement was amended during the second quarter to enable the Company to have unrestricted access to the facility by providing security in the amount of $10 million through a combination of bank-approved accounts receivable and cash. The interest rate on this facility is RBC's prime rate plus 2% and borrowings are repayable on demand. At September 30, 2017, $10 million had been drawn under this facility.
In April 2017, the Company obtained an additional credit facility to finance up to 1 million Euros of trade accounts receivables. At June 30, 2017, $0.4 million (or 0.3 million Euros) had been drawn under this facility.
UrtheCast Corp. is a Vancouver-based technology company that serves the rapidly evolving geospatial and geoanalytics markets with a wide range of information-rich products and services. The Company operates Earth Observation ("EO") sensors in space, including two satellites, Deimos-1 and Deimos-2, to produce imagery data for partners and customers in multiple markets. Through its subsidiary Deimos Imaging, UrtheCast processes and distributes imagery data and value-added products on behalf of the PanGeo Alliance, a network of seven satellite operators with a combined 13 medium- and high-resolution EO sensors. UrtheCast is also developing and expects to launch two EO satellite constellations: the world's first fully-integrated constellation of sixteen multispectral optical and synthetic aperture radar ("SAR") satellites, called OptiSAR™, and a six-satellite constellation designed to capture high-quality, medium-resolution optical imagery of the Earth's entire landmass (excluding Antarctica) every day, called UrtheDaily™. Together, the Company believes these constellations will revolutionize monitoring of our planet with medium- and high-resolution, high-coverage and high-revisit imagery in all weather conditions. Common shares of UrtheCast trade on the Toronto Stock Exchange as ticker "UR".