It’s been rough start to the year for UrtheCast as it tries to move forward with its plan to build its UrtheDaily Constellation. A confluence of events though has the company on the edge of a precipice.
The UrtheDaily Constellation would include eight medium-resolution optical satellites that would be built U.K. based Surrey Satellite Technology Ltd. The Constellation would provide global coverage, excluding Antartica, of high-quality multispectral imagery at 5 meter Ground Sampling Distance (GSD).
A confluence of events
UrtheCast has made progress on building the the ground segment of the Constellation infrastructure, but to move forward with the expensive build phase of the space segment, the satellites themselves, is where UrtheCast has run into issues, funding issues to be specific.
The inability to close the financing for the UrtheDaily Constellation and significantly lower Earth Observation revenue with depleting cash reserves, is why UrtheCast finds itself in serious trouble.
In 2017 UrtheCast expected to have an Earth Observation contract renewed. SpaceQ previously reported that contract was with the European Space Agency (ESA) and was being serviced by its subsidiary, Deimos Imaging. That contract though had to be re-tendered.
SpaceQ spoke with Jeff Rath, EVP Corporate Finance and Strategy, today. Rath said UrtheCast had not mentioned whom the Earth Observation contract was with and could not confirm it was ESA. However, a well placed source had previously informed SpaceQ that the contract was with ESA. Rath also said that UrtheCast remains optimistic it will win the contract at some point this year. If true, this would certainly help the company at that time, just not now. And now is when they need more cash on hand.
The earnings release
In the press release stating their earnings today UrtheCast said it “continues to face significant liquidity challenges with recurring operating losses and negative cash flows. As at March 31, 2018, the Company had (i) less than $7.5 million in cash on hand, a decrease of $4.5 million from its previously announced cash position of $12 million as at February 28, 2018, and a decrease of $15.7 million since December 31, 2017; and (ii) $16.6 million in restricted cash. Based on the Company’s forecasted cash flows for the next twelve months, the Company’s current cash flow from operations may not be sufficient to cover its commitments, obligations and operating costs.”
That’s a very serious statement to make and shows the very difficult situation UrtheCast finds itself in.
I asked Rath when the company would reschedule the investor call that was supposed to place yesterday. He said the call won’t happen. Rath said the company included significant information in its financial results and that they would not do an investor call this time.
The earnings release also had the following troubling statement; “Management for the Company has concluded that material uncertainties regarding the Company’s ability to secure adequate financing to fund its working capital deficiency and meet its commitments to lenders raise significant doubt as to the ability of UrtheCast to continue as a going concern and therefore has included notice of such in the Company’s audited financial statements.”
UrtheCast also said “that it has received permission from a syndicate of lenders (the “Senior Lenders”) to release certain terms of the senior secured facility for the UrtheDaily project.” The terms included that a “loan will make available to the Company US$142 million in two equal drawdowns subject to such finalized documentation and upon satisfaction of the conditions precedent described below.”
That loan had the following condition attached to it; “As a condition precedent for the UrtheDaily Senior Secured Facility closing, the Company must raise subordinated capital (such as in the Subordinated Capital Financing described below) of at least US$25 million.”
Some good news
At 8:00 a.m. EDT the Investment Industry Regulatory Organization of Canada (IIROC) halted trading of UrtheCast “pending news.” That news came at 8:13 a.m. EDT. UrtheCast announced that it had just closed a CAD$35 million Brokered Private Placement of Subscription Receipts as Subordinated Capital for the US$142 million Senior Secured Facility.
The press release stated “UrtheCast Corp. announced today a brokered private placement of up to CAD$35 million in subscription receipts (the “Subscription Receipts”) at a purchase price of CAD$0.35 per Subscription Receipt with Clarus Securities Inc. and Canaccord Genuity Corp. (the “Dealers”) acting as joint lead agents and joint bookrunners (the “Subordinated Capital Financing”). The Subordinated Capital Financing is being raised to satisfy certain conditions under the US$142 million senior secured facility for the UrtheDailyTM Constellation (the “UrtheDaily Senior Secured Facility”). ”
The halt to trading was removed at 9:00 a.m. EDT.
The company went on to say that it “expects to be in line to close the (UrtheDaily Senior Secured) facility over the next two weeks, although there can be no assurance that the transaction will be closed on the terms described above or on any other terms.”
It should be noted according to the UrtheCast website that Rath “spent 14 years as a senior member of Canaccord’s global research team, and as a managing director within its technology equity research practice, covering location technologies and digital media.” There’s no doubt that Rath’s past experience in working at Canaccord is helping UrtheCast as it works with Canaccord to make the UrtheDaily Constellation come to life.
What happens if the UrtheDaily Senior Secured Facility isn’t secured in the next two weeks? Could one option be bankruptcy?
Another possibility is addressed in the earnings release, partnerships.
The release says UrtheCast initiated a “Strategic Review Process” last October. “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 the Company’s 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.”
“While no decision on any particular alternative has been reached at this time, the Company continues to receive interest from third parties, including in areas outside of traditional channels, such as licensing the SAR-IP to other companies, selling SAR-IP payloads for inclusion on others’ satellites or deployment of the SAR-IP technology in a variety of innovative Smallsat configurations, which the Company’s SAR-IP supports. There can be no assurance that this process will result in any transaction. The Company does not currently intend to disclose further developments with respect to this process, unless and until the Board of Directors approves a specific transaction or otherwise concludes its review of strategic alternatives.”
The next two weeks will certainly be stressful for UrtheCast as it tries to stay afloat.
Related: The full financial results from Q4 2017 and year end results.