UrtheCast Reports Third Quarter 2017 Financial Results and Expects UrtheDaily™ Constellation Financing Closing by Year End

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.

Government Funding

  • 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.

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 unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2017.

(in thousands of Canadian dollars)

Three Months Ended September 30,

Nine Months Ended September 30,



2017


2016


2017


2016

Revenue    

$

10,165

$

20,651

$

31,415

$

53,776

Other operating income


90


61


201


756



10,255


20,712


31,616


54,532

Operating costs









Direct costs, selling, general and










administrative expenses                    


10,418


13,853


31,821


42,895

Research expenditures


211


844


599


4,073

Depreciation and amortization


4,156


6,321


12,818


19,277

Asset impairment


355


7,780


664


7,780

Share-based payments


822


769


2,033


1,892



15,962


29,567


47,935


75,917

Operating loss


(5,707)


(8,855)


(16,319)


(21,385)

Net finance costs


(528)


(535)


(1,406)


(1,636)

Gain (loss) on derivative financial










instruments


422


(775)


1,345


(775)

Foreign exchange (loss) gain


(760)


296


(1,965)


(106)

Loss before income taxes


(6,573)


(9,869)


(18,345)


(23,902)

Income tax recovery


173


251


2,961


2,907

Net loss


(6,400)


(9,618)


(15,384)


(20,995)

Other comprehensive (loss) income


(340)


1,425


2,664


(2,031)

Comprehensive loss

$

(6,740)

$

(8,193)

$

(12,720)

$

(23,026)

Net loss per share – basic and diluted

$

(0.05)

$

(0.09)

$

(0.13)

$

(0.20)


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