Posted: Monday, June 29, 2020
UrtheCast Corp. (TSX: UR) ("UrtheCast" or the "Company"), a leading provider of information-rich products and services in the rapidly growing and evolving geospatial and geo-analytics markets, today announces financial results for the three months ended March 31, 2020.
Total Adjusted EBITDA(1) for the Company improved by $0.5 million in Q1 2020 compared to Q1 2019 and Adjusted EBITDA(1) from continuing operations declined by $0.2 million in Q1 2020 compared to Q1 2019.
The Company has signed a non-binding letter of intent with an institutional investor to provide equity or junior subordinated debt financing for a portion of the UrtheDaily project. Together with the expected senior secured debt, government funding and other supplier financing arrangements, these sources would finance the build, launch and operational commissioning of the UrtheDaily Constellation. The letter of intent includes a binding short-term exclusivity period for the parties to negotiate binding transaction terms for the equity or junior debt.
The Company also continues to make progress on securing the senior debt portion of the UrtheDaily financing and is working with selected institutional lenders to satisfy due diligence requirements and negotiate binding terms.
Q1 2020 Financial Results
As a result of the planned sale of the Deimos Imaging business or its assets, the operations of Deimos Imaging have been classified as a discontinued operation for the three months ended March 31, 2020 and the associated comparative prior period. Unless otherwise noted, the financial information in this press release is based on the Company's continuing operations and all financial figures are in Canadian dollars.
1 Non-IFRS earnings measure that does not have any standardized meaning prescribed by IFRS. See reconciliation of Adjusted EBITDA to Net Loss under "Non-IFRS Earnings Measures" in the Company's Management Discussion & Analysis for the three months ending March 31, 2020.
Donald Osborne, CEO of UrtheCast, commented, "Despite the unique challenges presented by COVID-19, our team's diligence and focus have enabled us to make important progress towards securing financing for the UrtheDaily Constellation. I am pleased to say that we have recently entered into a non-binding letter of intent with an institutional investor for equity or junior debt that will serve as the foundation of the UrtheDaily financing. Building on this positive momentum, we also continue to advance discussions for the remaining senior debt funding that will, in combination with expected government and supplier financing, enable us to complete the financing package and put our ground-breaking UrtheDaily Constellation into orbit.
During this unprecedented period, we worked hard to maintain the safety and wellbeing of our employees and partners, and I am proud that we have successfully adapted our processes and policies throughout the organization to sustain business operations in a safe manner that follows all local government guidelines.
In the meantime, we continue to make progress on our efforts to cut costs and rationalize the business, while benefitting from the differentiated geo-analytics capabilities of Geosys and building out our scalable, near-term service offering in UrthePipeline. By doing so, we are establishing the sustainable, cashflow-positive business that will propel the next phase of UrtheCast's development as a market leader in innovative geospatial and geo-analytics products and services."
UrtheCast recognized revenue of $4.4 million in the first quarter of 2020 and 2019, which was comprised entirely of geo-analytics products and services revenue from Geosys, including revenue from the 13-year geo-analytics imagery products and services contract with WinField, a Land O'Lakes, Inc. company.
Operating costs increased to $7.8 million in the first quarter of 2020 from $6.6 million in the first quarter of 2019, primarily as a result of the prior year quarter including Geosys' operating results only from the acquisition date of January 14, 2019 and due to an increase in amortization expense in the first quarter of 2020 as a result of commencing amortization of the Company's UrthePipeline ground segment systems development costs. SG&A costs from continuing operations, excluding Geosys, have been reduced by approximately 12% from the prior year.
Adjusted EBITDA from continuing operations of negative $1.0 million in the first quarter of 2020 decreased slightly compared to negative $0.8 million in the same quarter last year primarily due to an increase in operating costs of Geosys from the prior year, as described above.
The net loss from continuing operations of $2.5 million in the first quarter of 2020 increased compared to $1.1 million in the first quarter of 2019, due to the higher operating costs, as described above, and increased finance costs associated with its various debt facilities and UrtheDaily financing activities, partially offset by a more favourable foreign exchange gain (loss) than in the prior year. The net loss also includes a lower gain on derivative financial instruments of $2.6 million for the first quarter of 2020, compared to a gain of $3.5 million in the first quarter of 2019.
The net loss from discontinued operation of $8.6 million in the first quarter of 2020 increased compared to a net loss from discontinued operation of $5.1 million in the same period of 2019, primarily due to an impairment charge of $7.4 million in the first quarter of 2020, partially offset by the impact of lower depreciation and amortization as the Company ceased depreciating Deimos Imaging's assets effective April 1, 2019 due to their held for sale classification. The SG&A costs of Deimos Imaging have decreased from $2.5 million in the first quarter of 2019 to $1.6 million in the first quarter of 2020 largely as a result of the Company's cost reduction initiatives.
CAD$1.0 Million Canadian Space Agency Contribution Award
In June 2020, the Company was awarded an approximately $1.0 Million non-repayable contribution from the Canadian Space Agency (CSA) under its Space Technology Development Program (STDP) towards funding further development of the Company's UrthePipeline ground segment systems' enhanced analytics capabilities.
Deferral of Second Instalment Payable of US $3.5 Million to Land O'Lakes
The Company and Land O'Lakes agreed to further defer the remaining US $3.5 million of the second purchase price instalment for the Geosys acquisition, which would have otherwise been payable on May 14, 2020. In consideration for an extension fee of US $0.25 million and interest accruing on the unpaid balance at 10% per annum beginning on May 15, 2020, the next instalment, and this fee and interest, are now due on October 1, 2020.
Extension of Existing Term Loans and Convertible Debentures
The Company is in continuing discussions with the lenders of (i) the secured US $12.0 million term loan which matured April 15, 2020 (ii) the US $1.5 million secured term loan entered into in June 2019 and the US $1.5 million secured term loan entered into in July 2019, both of which matured January 15, 2020, (iii) the $6.6 million convertible debentures which matured December 31, 2019, (iv) the $5.0 million interest-bearing debentures which matured August 31, 2019, and (v) the $2.0 million convertible debenture which matured March 31, 2020, to further defer maturity and principal repayments as the Company seeks to finalize a binding commitment to finance the UrtheDaily Constellation. None of these lenders have issued a notice of default to date, although there can be no assurances they will not do so in the future.
As highlighted above, the Company has entered into a non-binding letter of intent with an institutional investor to provide equity or junior debt financing to fund a portion of the UrtheDaily project. This junior capital would satisfy one of the conditions for a senior secured debt facility which, together with government funding and other supplier financing arrangements, would finance the build, launch and commissioning of the UrtheDaily Constellation. This indicative letter of intent includes a binding short-term exclusivity period for the parties to negotiate binding transaction terms for the equity or junior debt, but is otherwise non-binding and subject to further negotiation between the parties and the satisfactory completion of the investor's due diligence.
As previously disclosed, the Company also continues to make progress on securing the senior secured debt portion of the UrtheDaily financing and is working with selected institutional lenders to satisfy due diligence requirements and negotiate binding terms. Management expects that such debt facilities will require first charge security liens against substantially all of the Company's assets, as well as significant dilution to shareholders through equity and/or warrant issuances to lenders. Management believes the indicative letter of intent for the junior capital portion is a positive development and demonstrates investors' support for the project, and is working to rapidly conclude a binding agreement and to obtain firm commitments for the other required components of the financing.
With regards to the sale of its Deimos Imaging business, the Company continues to engage in due diligence activities with interested parties in order to secure a binding sale agreement. While management remains confident in its strategy and is pleased with the progress of these ongoing discussions and indicative letters of intent, there can be no assurance that the Company will enter into binding agreements with respect to the financing of the UrtheDaily Constellation or the sale of the Deimos Imaging business.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease known as COVID-19 to be a pandemic. The COVID-19 pandemic has caused a global market and economic downturn that is expected to have near-term impacts on securing new Earth observation data and geo-analytics products and services sales, collection of receivables from customers, and timely completion of milestones under the Company's existing engineering and value-added services contracts. This volatility and uncertainty has contributed to a deterioration of market conditions and a reduced outlook for Earth Observation data sales for the Deimos Imaging business as at March 31, 2020, which has resulted in recognizing an impairment loss of $7.4 million in the results of its discontinued operation during the three months ended March 31, 2020.
While we continue to execute and reach payment milestones under our government contracts and are working closely with our advisors to complete the proposed UrtheDaily Constellation financing and sale of the Deimos Imaging business, these efforts have been, and may continue to be, adversely affected or delayed by the COVID-19 pandemic and the government responses thereto, which have caused disruptions and volatility in equity and debt markets. We are continuing to monitor the situation closely and are prepared to further adjust our operations in Spain, France, the U.S. or Canada as needed to ensure minimal disruption to our business. Despite these challenges, management believes the Company's medium- and long-term outlook are strong, and its strategy remains unchanged.
Outlook & Going Concern
We refer you to the Company's consolidated financial statements for the three months ended March 31, 2020 and the related Management's Discussion & Analysis for further details relating to the Company's liquidity position. The Company has continued to take steps to seek to continue as a going concern and ensure adequate liquidity in the near-term.
SELECTED FINANCIAL INFORMATION
The following table provides selected financial information of the Company, which was derived from, and should be read in conjunction with, the consolidated financial statements for the three months ended March 31, 2020. All financial information is in thousands of Canadian dollars, unless otherwise noted, and except for number of shares and per share amounts.
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