Friday, June 01, 2018

UPDATED: UrtheCast Receives a Vote of Confidence from American Investors

          By Henry Stewart

With a little help from a couple of new American friends, Vancouver BC based Urthecast seems to have dodged several fiscal bullets over the last few months, and is well on it's way to the eventual rollout of its planned $142Mln US ($184Mln CDN) UrtheDaily™ constellation. 

Deimos Imaging head of ground segmant Jose J. Ramos gives a presentation on the UrtheDaily™ constellation at the 2017 Conference on Big Data from Space, which was held in Toulouse France from November 28th - 30th, 2017.  Deimos is a spanish company which operates a complete Remote Sensing system including satellites and ground stations and is owned by UrtheCast. Photo c/o #urthedaily

UrtheCast's problems go back only a year and seem to have begun when an "unknown backer" asked for the company to develop a standalone radar satellite ahead of the rest of its planned OptiSAR constellation of sixteen multispectral optical and synthetic aperture radar (SAR) Earth observation satellites.

According to the August 15th, 2017 Space News post, "UrtheCast building precursor radar satellite, delays OptiSAR constellation by a year," the sale pushed out other UrtheCast programs and seems to have led to a cash crunch and internal labour shortages as UrthCast struggled to meet commitments. 

By November, and as outlined in the November 14th, 2017 UrtheCast press release, "UrtheCast Reports Third Quarter 2017 Financial Results and Expects UrtheDaily™ Constellation Financing Closing by Year End," Urthecast’s Q3 2017 earnings revealed that revenues in its Earth observation business had shrunk.

Third-quarter revenue amounted to $10.2Mln CDN, while the company recorded a net loss of $6.4Mln CDN although UrtheCast still expected to close financing in December for a second program, the proposed UrtheDaily™ constellation of eight high-quality, multispectral imagery satellites, optimized for geoanalytics applications. 

That plan didn't work.

As outlined in the April 3rd, 2018 post, "Do the Bells Toll for UrtheCast? Q4 2017 Fiscal Report Shows Another Net Loss and Concern over Long-term Survival," the last part of the funding for a second constellation didn't materialize, overall revenue continued to shrink, the quarterly investor conference call was cancelled and UrtheCast CEO and Director Wade Larson was out (although he remained at UrtheCast as "a special advisor to the board").

The first indication of a turnaround was the May 3rd, 2018 UrtheCast press release, "UrtheCast Closes $34 Million Private Placement of Subscription Receipts," which announce the closing of an approximately $27Mln US ($34Mln CDN) private placement of subscription receipts for the UrtheDaily™ constellation.

The private placement was over the minimum $25Mln US ($34Mln CDN) required to move forward with the UrtheDaily™ constellation and released the rest of the approximately $142Mln US ($182Mln CDN) subordinated capital financing for the project.

In it's broadest form, "subordinated capital financing" is a form of debt or "preferred equity," senior only to that of the common shares, where the funding is offered in exchange for a claim to the company and with the expectation that the overall value of the company will rise more than the total cost of the project.

Later in the month, and as outlined in the outlined in the May 15th, 2018 UrtheCast press release, "UrtheCast Reports First Quarter 2018 Financial Results and Provides Update on US$142 Million Credit Facility," the UrtheCast Q1 conference call and quarterly financial results were released without the confusion, fuss and bother which occurred during Q4 2017 report or even any of the concerns which followed the release of the Q3 2017 results.

But the biggest suprise was still to come.

In a series of press releases, the company announced its intention to almost completely restructure its board, subject only to the approval of stockholders at the upcoming annual general meeting (AGM), which will be held in Vancouver on June 25th.

The press releases included:
The proposed changes were so substancial that UrtheCast posted a May 30th, 2018 SEDAR filing, under the title, "Notice of Annual General Meeting and Special Meeting to be held on June 25th, 2018 Management Information Circular," which included a proposal to:
consider for approval, ratification and confirmation an amendment to General By-law No. 1 of the Company (the "Bylaw") to increase the number of permitted directors who are not Canadian residents to 75% in accordance with the residency requirements of the Business Corporations Act (Ontario) (the "OBCA"), with the full text of the amendment to the Bylaw attached as Exhibit "A" to this Circular (as defined herein).
Those who are "out" include:
  • "Interim" CEO Greg Nordal, who has “decided not to extend" his three-month term and has also resigned from the board of directors effective as of May 29, 2018.
  • Board member Tye Burt, a Canadian active in the mining industry.

An interesting assessment of UrtheCast potential revenue sources. Graphic c/o UrtheCast/ Seeking Alpha.

Those who are "in," at least until they have a chance to be ratified at the June 25th, 2018 AGM, include:
  • Mark Piegza, an investment banker, who also co-founded and acts as CFO and director of Dulles VA based US Space LLC.
  • Adam Vore, another US based investment banker, currently acting as the managing director of Seaport Global Securities.
  • John (Jack) Shannon, a New York attorney who for the past 14 years was a managing director and head of compliance for investment banking and capital markets at NY NY based Bank of America Merrill Lynch.
The new additions are believed to have been critical for putting together the funding of the UrtheDaily™ constellation and their appointment to the board is considered by the broader investment community to be "a vote of confidence" on UrtheCast's future prospects, according to sources.

They'll be joining former Canadian Space Agency (CSA) president William "Mac" Evans, who's been a director since June, 2013, and James Topham, an accountant with Vancouver BC based KPMG, who's been a director since May, 2015 and also chairs the UrtheCast audit committee.

UrtheCast is also actively searching for a new CEO. More information on that, and other items listed above will likely be released on June 25th, at the UrtheCast AGM.

So be there, or be square.

UrtheCast stock price current to 8am EST June 4th, 2018. As shown by the graph, UrtheCast stock dropped precipitously in March 2018, when it became clear that the original plan to fund the proposed the UrtheDaily™ constellation, originally expected to close in December 2017, would not succeed.  As outlined in the March 9th, 2018 UrtheCast press release, "UrtheCast Announces Senior Management Changes and Provides Corporate and Financing Update," founder Wade Larson then resigned his position as CEO and director, but stayed on as a special adviser to the board. Graphic c/o
Editors Note: Having the confidence of international investors might not be the same as having the support of it's existing Canadian investors, at least if the June 1st, 2018 Financial Post article, "With four new directors who can't vote, UrtheCast's AGM promises to be a lively affair," is any indication. 
According to the article: 
Some shareholders have used the word “bullying” to describe matters that are occurring a few weeks after UrtheCast, which 18 months ago was named the country’s fastest-growing tech company by Deloitte, raised $34 million of equity and snared a US$142-million secured credit facility.  
The article also called the replacement of most of the existing  board at UrtheCast "a board coup" and went on to state that, "shareholders can be expected to take umbrage at what amounts to a takeover without a premium. If that bylaw change is not approved, the June 25th, 2018 AGM) meeting could get very complicated."
No doubt, the real truth will begin to come out sometime after the scheduled June 25th AGM. 

Henry Stewart is the pseudonym of a Toronto based aerospace writer

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