Tuesday, April 03, 2018

Do the Bells Toll for UrtheCast? Q4 2017 Fiscal Report Shows Another Net Loss and Concern over Long-term Survival

          By Brian Orlotti

Vancouver, BC-based satellite imaging firm UrtheCast has finally released its Q4 2017 financials, reporting substantially lower earnings offset only partially by lower operating costs, along with an overall net loss of $31.8Mln CDN or $0.14 CDN per share.

The company has also announced a "brokered private placement," a capital raising event that typically involves the sale of securities to a relatively small number of select investors, usually large banks, mutual funds, insurance companies and pension funds. The company has been attempting to court "select institutional investors" for some time and still needs to raise at least $25Mln US ($32Mln CDN).

Details of the brokered private placement were released separately as part of the April 3rd, 2018 UrtheCast press release, "UrtheCast Announces CAD$35 Million Brokered Private Placement of Subscription Receipts as Subordinated Capital for the US$142 Million Senior Secured Facility."

However, even with the private placement, UrtheCast "continues to face significant liquidity challenges with recurring operating losses and negative cash flows" and may not survive as a going concern.

According to the April 3rd, 2018 UrtheCast press release, "UrtheCast Reports Fourth Quarter and Fiscal 2017 Financial Results and Announces Brokered Private Placement," Q4 2017 revenue totaled:
$40.4Mln CDN in 2017 compared to $111.3Mln in 2016, or $49.9Mln when excluding the non-cash revenue of $61.4Mln in 2016 related to the Company's cameras on the International Space Station. 
Engineering services revenue totaled $32.6Mln in 2017, compared to $34.7Mln in 2016 decreased due to a change in the expected completion date of one of our engineering services contracts, which resulted in revenue being recognized over a longer period, and also due to lower revenue being recognized on one of our contracts for the provision of space hardware, as a higher percentage of the work was completed in the prior year.  
Earth Observation ("EO") imagery revenue of $7.8Mln in 2017, compared to $15.2Mln in 2016, was significantly lower due to ongoing delay in securing a major contract award. 
The net loss of $31.8Mln and negative adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $3.2Mln in 2017 increased when compared to the net loss of $29.3Mln and positive adjusted EBITDA of $5.6Mln in 2016, primarily as a result of the lower revenues, which were only partially offset by the lower operating costs...

As of March 31st, 2018, UrtheCast possessed less than $7.5Mln cash on hand and $16.6Mln in restricted cash, held for a specific purpose and therefore not available for immediate or general business use.

According to the press release, the "current cash flow from operations may not be sufficient to cover its commitments, obligations and operating costs." 

As outlined in the December 10th, 2015 Business in Vancouver post, "UrtheCast CEO Scott Larson resigns, replaced by brother and co-founder," signs of trouble first appeared in 2015 when UrtheCast CEO and co-founder Scott Larson was forced out of his position and replaced with his brother (and UrtheCast co-founder) Wade.

Prior to UrtheCast, Wade Larson spent over seven years at the Canadian Space Agency (CSA) before leaving the public sector to work at Burnaby BC based MacDonald Dettwiler (now MDA, a subsidiary of San Francisco, CA-based Maxar Technologies). 

Scott Larson went on to found Helios Wire, a Vancouver-based startup seeking to build a space-based Internet of Things (IoT) network of 30 low-cost satellites.

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 revenues in its Earth observation business had been impacted by delays in the award of "a major contract."

Third-quarter revenue amounted to $10.2Mln CDN, while the company recorded a net loss of $6.4Mln CDN. 

Since then, the company said that it had continued negotiations with a “selected institutional investor” to secure financing for its flagship project, the OptiSAR constellation

OptiSAR is intended to be the world’s first fully-integrated, multi-spectral optical and synthetic aperture radar (SAR) Earth observation constellation, but required some $195Mln USD ($252Mln CDN) worth of additional funding in order to move forward.

Last month, as outlined in the March 9th, 2018 UrtheCast press release, "UrtheCast Announces Senior Management Changes and Provides Corporate and Financing Update," UrtheCast announced that Wade Larson had left his position as CEO and director, but was staying on as a special adviser to the board.

Larson was replaced by board director Greg Nordal, who was serving as an interim CEO until a permanent leader could be found. On the same day, the company also stated that it was working on a financing package for OptiSAR.

As outlined in the April 2nd, 2018 UrtheCast press release, "UrtheCast to Report Fourth Quarter 2017 Results on April 2, 2018 but Cancels Live Conference Call," UrtheCast was originally scheduled to hold an investor conference call at 4:30PM ET on April 2nd, 2018 to release its Q4 results and provide some context for its business actions.

Could the bell be tolling for Urthecast? We'll update this post as new information becomes available.
Editors Note: As outlined in the April 10th, 2018 UrtheCast press release, `UrtheCast Announces Commitments for CAD$35 Million Brokered Private Placement of Subscription Receipts to Enable the UrtheDaily™ Financing Package, ` UrtheCast has been advised by their agents, Clarus Securities and Canaccord Genuity that `investors have committed to purchase $35Mln CDN of subscription receipts` in connection with its previously announced brokered private placement.
That deal closed in May 2018, as outlined in the May 3rd, 2018 UrtheCast press release, "UrtheCast Closes $34 Million Private Placement of Subscription Receipts."
Expect further announcements over the next few weeks.
Brian Orlotti.

Brian Orlotti is a regular contributor to the Commercial Space blog.

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