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Edited Transcript of UR.TO earnings conference call or presentation 15-Aug-19 3:00pm GMT

Q2 2019 UrtheCast Corp Earnings Call

CALGARY Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of UrtheCast Corp earnings conference call or presentation Thursday, August 15, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Donald F. Osborne

UrtheCast Corp. - CEO & Director

* Sai W. Chu

UrtheCast Corp. - CFO

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Conference Call Participants

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* Douglas Taylor

Canaccord Genuity Corp., Research Division - Director

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to the UrtheCast quarterly report conference call.

I would like to turn the meeting over to Sai Chu. Please go ahead, Mr. Chu.

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Sai W. Chu, UrtheCast Corp. - CFO [2]

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Thank you, operator. Good morning, everyone, and thank you for joining us today. Before we get started, I'd like to direct our listeners to the earnings presentation that we will be referring to throughout today's call. A copy of this presentation is available on the Investors Highlight section of our website, urthecast.com, under the heading, Presentations. I'll begin by reading our safe harbor statement, which can also be found on Page 2 of our presentation.

Certain statements made on this conference call and our responses to various questions may constitute forward-looking information within the meaning of Canadian securities laws. These forward-looking statements such as statements about growth -- expected growth, revenues or any financial outlook for upcoming fiscal periods rely on a number of assumptions concerning future events that are believed to be reasonable but are subject to a number of risks, uncertainties and other factors, many of which are outside UrtheCast's control, which could cause the actual results, performance or achievements of the company to be materially different. And while we believe that the assumptions underlying any forward-looking information are reasonable, we caution that there are inherent difficulties in predicting certain important factors that could affect the future performance, results of our business. We expressly disclaim any intention or obligation to revise or publicly update any forward-looking information, whether as a result of new information, future events or otherwise, except as maybe required by applicable securities laws.

During the course of this call, we may refer to certain metrics such as adjusted EBITDA and adjusted EBITDA from continuing operations, which are not recognized under the IFRS standard. Non-IFRS measures do not have any standardized meaning under IFRS and are therefore, unlikely to be comparable to similar measures presented by other issuers. UrtheCast believes that these measures may offer useful supplemental information but are subject to inherent uncertainties and limitations, and rely on various assumptions by the company and should, therefore, not be relied upon for the purpose of making an investment decision. For a complete discussion of the risks, uncertainties and assumptions, which may lead to actual financial results or performances being different from what's contained in our forward-looking information, please refer to our most recently filed AIF, which is available on our website or on our SEDAR profile at www.sedar.com.

And with that, I'll turn it over to Don.

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Donald F. Osborne, UrtheCast Corp. - CEO & Director [3]

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Thank you, Sai, and good morning, everyone. Thank you for joining us on our Q2 conference today.

I'll start things off by briefly mentioning some of the company's recent developments, and then provide an update on our progress this past quarter on several of our key initiatives. Sai will then discuss our second quarter financial results, and we'll wrap up by welcoming any questions you might have.

Please turn to Page 3 of our earnings presentation. We are pleased to report the following developments since our last call. In May, UrtheCast was awarded a $2 million study from the Canadian Space Agency's highly competitive Space Technology Development Program in 2 separate awards of $1 million each. These awards are a strong validation and recognition of the innovative work being done at UrtheCast, including the development of the UrtheDaily Constellation and our next-generation Synthetic Aperture Radar, or SAR, technology.

In June, we held our Annual General and Special Meeting of Shareholders, and we are pleased to report that all the resolutions put forward by management were passed with the strong support of our shareholders. Additionally, UrtheCast has secured 2 term loans in June and July, each in the amount of USD 1.5 million, the proceeds of which will be used to generate corporate purposes -- for general corporate purposes, excuse me. Finally, UrtheCast financed a second trade receivable for USD 2.5 million under its previously disclosed USD 10 million receivables purchasing agreement.

Please turn to Page 4 of the presentation. We continue to work tirelessly to advance our top near-term priorities, and I'm pleased to be able to share the following updates with you. First, we are continuing to show improvement in our operating results due to the significant restructuring efforts that we have been engaged on since I joined the company more than a year ago. Revenue and adjusted EBITDA continue to trend upward on a sequential and year-on-year basis, and our fixed operating cost base continues to be reduced and brought in line to a sustainable level.

Year-to-year, total adjusted EBITDA has improved by $11 million, and we are within reach of achieving a breakeven EBITDA level. As I have said before, I intend to run UrtheCast as a profitable business which can stand on its own and which will provide a firm foundation as we head into the critical build phase of the UrtheDaily Constellation.

Second, we continue to make progress in securing financing for UrtheDaily Constellation. To this end, we have engaged a leading investment bank as our financial adviser, and we are in discussions with institutional investors to finance UrtheDaily and the company's growth. We have made material progress on this front, and we are on target to receive multiple indications of interest by the end of the third quarter. The UrtheDaily Constellation, once operational, will expect to be a groundbreaking global change detection system, which is uniquely designed to serve the big data analytics market. To date, we have signed more than USD 200 million of binding subscription contracts for the UrtheDaily data. UrtheDaily will generate high-quality scientific-grade data. The market demand for this data is robust, and we continue to be in active discussions with a growing pipeline of prospective customers.

Third, our Deimos sale process is continuing to move forward. We have received a number of nonbinding bids to acquire all or substantially all of the Deimos Imaging's assets and have narrowed the field of potential buyers to a select few. The proceeds from the sale of Deimos will be used to strengthen our balance sheet by reducing our debt and improving our working capital position. Again, while I want to be clear that the process remains underway and nonbinding at the current stage, we are optimistic that we will be in a position to announce a binding transaction in the coming months.

Finally, we are nearing the commercialization of our UrthePipeline technology and are in advance discussions with a number of select noncompetitive customers. UrthePipeline is an automated cloud-based ground processing software that was specifically designed to power AI and machine learning applications to support the UrtheDaily Constellation, but also has the ability to optimize and augment the value of a wide range of currently available geoanalytic data streams. In addition to the near-term commercial opportunities for UrthePipeline, we are leveraging this technology today to realize significant cost savings with our recently acquired subsidiary, GEOSYS, one of the world's leading providers of geoanalytic solutions for precision agriculture.

And with that, I'll turn it back to Sai to discuss our second quarter results.

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Sai W. Chu, UrtheCast Corp. - CFO [4]

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Thanks, Don. Please turn to Page 5 of the presentation for a year-over-year comparison of our Q2 and year-to-date results. I'll need to note that due to our plan to sell Deimos, the company's operating results have been represented to classify discontinued operations separately from continuing operations. As such, unless otherwise stated, the financial results I'll be discussing today refer to the company's continuing operations and exclude the results of Deimos.

As Don mentioned earlier, our Q2 results continued to show substantial sequential improvement as we continue to restructure the organization, integrate GEOSYS and rightsize the business, cut costs and improve our ability to translate revenue directly to the bottom line. Analytics revenues from our GEOSYS subsidiary, which was acquired in January, met expectations at $5 million for Q2 and $9.5 million for the year-to-date. The company did not recognize any SAR-related engineering services revenue for Q2 or year-to-date while last year, the company recognized $1.5 million and $4.8 million, respectively. This change was primarily due to progress delays incurred by our key subcontractors, which has affected our expected completion date.

Operating costs were $8.4 million Q2 and $15.6 million year-to-date compared to $5.9 million and $13.4 million, respectively. The increase in operating costs were primarily due to the consolidation of GEOSYS, and were partly offset by cost reductions that were implemented across the rest of the business. If GEOSYS operating costs were excluded, the reduction in operating costs between Q2 and prior year is greater than 55%. We've continued to execute as expected to realize substantial improvements as we transition the business with a plan for a sustainable and valuable enterprise. Total adjusted EBITDA in Q2 improved by $7 million compared to the same quarter last year, and improved by $11 million year-to-date. Adjusted EBITDA from continuing operations was negative $0.7 million in Q2 and negative $1.5 million year-to-date, a significant improvement of $3 million and $5.8 million, respectively. Improvements in adjusted EBITDA were primarily driven by positive EBITDA from GEOSYS as well as cost reductions in rest of the business.

Net loss of $5.2 million for Q2 and $11.7 million year-to-date improved substantially by $8.1 million and $12.6 million, respectively, due to higher revenue and lower GEOSYS -- non-GEOSYS operating costs as well as a reduction in the net loss from discontinued operations.

In terms of liquidity and financing, we ended the quarter with cash and cash equivalents of $2.7 million, an increase of $1.2 million from December 2018. In May 2019, we factored a $2.5 million trade receivable under our $10 million receivables purchasing agreement. In June, we entered into a USD 1.5 million term loan secured by the assets of GEOSYS with any proceeds to be repaid from the sale of Deimos. The term loan will be used for general corporate purposes. Subsequent in the quarter, in July, the company entered into an additional USD 1.5 million term loan under the same terms and security as the previous June term loan. Also in July, a further extension was granted to the company with respect to interest-bearing convertible debentures to extend the date by which the company must draw down on financing for the UrtheDaily Constellation by 1 month.

And finally, the company remains in good standing with Banco Sabadell regarding its existing secured term loan. Banco has agreed to defer the scheduled payment of EUR 1.5 million for at least 1 month as we progress with the Deimos sale.

In closing, I'll note that we will not be providing additional guidance at this time due to our ongoing restructuring efforts, but we hope that the strategic commentary that we provided here gives you an insight into the primary moving pieces, and what we're focused on over the next few months and quarters.

And with that, operator, we'd like to open up the line for questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question is from Doug Taylor from Canaccord Genuity.

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Douglas Taylor, Canaccord Genuity Corp., Research Division - Director [2]

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Certainly, a step in the right direction with respect to the EBITDA. I appreciate you don't want to give guidance. You have said previously EBITDA positive target by the end of this year. As you continue to scale EBITDA or improve EBITDA, should we expect that to come from further reductions in costs, or be more driven by revenue increases on a more stable cost base from this point forward?

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Donald F. Osborne, UrtheCast Corp. - CEO & Director [3]

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I think at this point, it is driven by revenue growth off a stable cost base. There's probably some minor cost reductions, but they're not material. At this point, we're going to be driving the top line.

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Douglas Taylor, Canaccord Genuity Corp., Research Division - Director [4]

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Okay. Deimos in the quarter was a positive contributor to EBITDA, which is a bit of a surprise. Was there -- I mean, was this reflecting some catch-up revenue that you'd kind of -- there's some revenue that had slipped out of previous quarters. Is that what led to the improvement in the Deimos business? I understand it's a discontinued operation, but certainly was quite a bit improved from previous quarters.

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Sai W. Chu, UrtheCast Corp. - CFO [5]

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Yes. It's a good question. And Doug, what's happened is, really, the people there have done a great job, but we needed to make some adjustments in the cost base. So it was rightsized. So it was a combination of revenues from really primarily the European Space Agency contract, which has lagged much longer than expected. But also because the cost base has been substantially reduced to match the revenues that are expected there.

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Douglas Taylor, Canaccord Genuity Corp., Research Division - Director [6]

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Okay. And one more question for me. If my memory serves, there was another milestone payment owing to GEOSYS I think upcoming in the next couple of months. Can you confirm whether that's true and what flexibility there might be with respect to the timing and amount of that payment?

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Sai W. Chu, UrtheCast Corp. - CFO [7]

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Yes. That would be in October for USD 5 million. And Land O'Lakes have been a great partner for us, very supportive, and certainly understand the importance of UrtheDaily. So, yes.

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Operator [8]

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Mr. Osborne, there are no further questions on the phone lines.

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Donald F. Osborne, UrtheCast Corp. - CEO & Director [9]

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Okay. Well, I'd like to thank everybody today for joining us, and we look forward to giving you another update next quarter. Thank you, everybody, and thank you, Donna.

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Operator [10]

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Thank you, Mr. Osborne. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.