VANCOUVER — A Vancouver satellite-imaging company has erected figurative for-sale signs in space and on the International Space Station by filing for creditor protection.
UrtheCast hopes restructuring under the Companies’ Creditors Arrangement Act (CCAA) will give it “much needed breathing space” as it tries to repay tens of millions of dollars to creditors and works to get two delayed projects off the ground.
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UrtheCast’s application to enter creditor protection was “urgently required” to avoid bankruptcy, according to court documents filed in the Supreme Court of British Columbia in early September.
It is the latest Canadian tech firm to start creditor-protection proceedings since the start of the COVID-19 pandemic. The Vancouver-based company — which has offices in the U.S., France and Spain, and employed 186 people as of the end of August—owns two satellites, as well as two Earth-observation sensors and related equipment aboard the Russian module of the ISS.
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Two former MDA employees, Wade Larson and George Tyc, founded UrtheCast in 2010. It got a boost from Calgary-based accelerator Business Instincts Group, which helped it raise $52 million in financing to fund the installation of two cameras on the ISS “to stream live data back down to Earth.”
The company went public in 2013 through a reverse takeover and private placement. At the time, it was nearly done assembling the two cameras and working toward launching them into space later that year in an effort to “provide the world’s first commercially available continuous high-definition video of planet Earth, streamed from space.” UrtheCast now uses insights from satellite imaging to help customers in industries such as agriculture and forestry track trends and changes, according to CCAA documents, and makes money by selling the data to institutional users.
It also sells engineering and other services, and imagery-related products. The company has been banking on two new projects in development—the UrtheDaily Constellation and OptiSAR Constellation—that it believes “will generate significant revenue once operational.”
UrtheCast and its strategic partners have worked to develop synthetic aperture radar (SAR) technologies “with the intention of incorporating SAR sensory technology into a constellation of synchronized satellites” for the OptiSAR project. Meanwhile for UrtheDaily, UrtheCast is developing a second constellation of synchronized satellites equipped with optical Earth-observation sensors.
The completed project “would be the first earth observation system to provide scientific-quality, analytics-ready imagery of the entire Earth (excluding Antarctica) every day,” according to court documents. The company expects to launch the service in 2022, according to its website, and capture imagery of Earth’s land mass at the same time each day and make insights available hours later through a cloud-based platform. It has also been working on UrthePipeline, whose software and related infrastructure allow Earth-observation imagery processing and distribution at scale, according to court documents.
The project has started to offer some services; it will become part of UrtheDaily when completed. But the company experienced a cash crunch while finishing the projects thanks to a delay in funding requirements for UrtheDaily’s development and a contract delay related to OptiSAR. UrtheCast entered into a contract for the OptiSAR project in 2014 and expected it to be completed in March 2019, according to court documents.
But that date got pushed by about two years to May 2021 thanks to “technical design, production error and unsatisfactory deliverables produced by the project’s subcontractors,” as well as delays due to political forces, including Brexit and U.K.-Saudi Arabia relations. Then the pandemic hit. “These financial difficulties were further exacerbated by the COVID-19 pandemic, which has negatively impacted sales, the collection of receivables from customers, and timely completion of milestones under its engineering and services contracts,” the company said in court filings. Before the coronavirus started to spread, UrtheCast had already built up a large operating loss, which grew by double-digit percentage changes in recent quarters. At the end of 2019, it reported a working capital deficiency of nearly $48 million.
That jumped about 14.3 per cent to some $54 million by the end of March, and around 10.4 per cent to nearly $60 million by the end of June. UrtheCast owed unsecured creditors nearly $59.5 million at the time it filed on September 4, and a further $55.8 million to secured creditors in principal and interest as of Aug. 31, 2020. Their creditors include the University of Waterloo, which they owe some $49,000, and Export Development Canada, which they owe about $9.4 million, according to a creditor list updated September 26.
UrtheCast, which did not respond to The Logic’s request for comment, cannot pay its obligations when they are due, including what it owes these creditors, court documents read. The court granted the company an initial order, and trading of its shares was paused on the Toronto Stock Exchange. Its stock last traded at 6.5 cents with a market capitalization of about $9.5 million; in 2015, it traded at its all-time high of over $4.
The company expects its shares may be delisted from trading. UrtheCast’s proposed restructuring includes a sale and investment solicitation process to monetize some of its assets, including its two ISS cameras. It also needs to secure interim financing for short-term liquidity, as well as long-term funding for its major projects. The court granted UrtheCast the ability to start looking for a buyer for the ISS cameras.
That may include a stalking-horse bid of US$10,000 each by the interim lender. It may not be easy to find a buyer, and the deal may not be lucrative. “Commercial and operational issues related to the ISS Cameras have resulted in the termination of the access and operation agreement with UrtheCast’s Russian operating partner on the ISS, and the UrtheCast Group has not been able to access its ISS Cameras since November 2016,” according to court documents.
UrtheCast’s other primary tangible assets are the two satellites, Deimos-1 and Deimos-2. The company previously attempted to find a buyer for these in an effort to help address its financial challenges.
It received several bids and engaged in further due diligence with one of the potential buyers, “but ultimately could not complete the sale due to regulatory constraints in its country.” It re-engaged with another bidder, but did not provide further information in the court document.
The court has also granted UrtheCast an initial debtor-in-possession financing facility of up to US$1 million, and then up to US$5 million more. It has extended the stay of proceedings until December 18.
UrtheCast is not alone among Canadian tech companies to file for creditor protection during the pandemic.
FlightHub, a Montreal-based discount travel sales platform, filed in mid-May, owing $32.2 million to two numbered companies helmed by FlightHub executives. Travel restrictions aimed at stopping the spread of the coronavirus led to trip cancellations and a dearth of new bookings. Next came Peraso Technologies. Ontario’s Superior Court granted the Toronto-based semiconductor developer’s request for creditor protection over allegations one of its clients was “holding the financial stability of Peraso hostage.” But Peraso claimed in court documents that the coronavirus further hurt its situation. “The COVID-19 pandemic has exacerbated Peraso’s (and others’) efforts to obtain financing or engage in a strategic transaction because financial markets have become significantly more risk-averse,” it said.