Space play falls short of the stars
UrtheCast hits financial bump in evolving geo-analytics market
As an early leader in the Earth observation market, Vancouverbased UrtheCast Corp. has given Canadian investors the opportunity to get in on the ground floor of a futuristic high-tech play.
But as with even much more simpler businesses, things don’t always pan out exactly as planned, and UrtheCast’s fourth quarter was a perfect example.
Serving the evolving geo-analytics market with four Earth observation sensors in space, including two cameras on the International Space Station and two satellites elsewhere, the company shares collected images and video on its cloud-based web platform, and distributes them directly to partners and customers.
This includes governments and businesses that can use imagery to track things like cargo ships leaving ports in China to help determine trends in the flow of goods, or farmers’ fields in the U.S. to monitor crops and weather condition, for example.
More recently, one of UrtheCast’s cameras on the ISS captured images suggesting Iran may soon attempt to launch a satellite into space.
So far, the markets with highest level of customer engagement for its UrthePlatform web platform appear to be agriculture and water management.
UrtheCast is also developing something called OptiSAR, which will be the world’s first fully integrated constellation of multi-spectral optical and synthetic aperture radar satellites. In simpler terms, these are used to create two- or three- dimensional representations of objects such as landscapes.
The company hopes technologies such as this will revolutionize how the planet is monitored, using high-quality imagery in all conditions, and at all times of day.
On Wednesday, it reported quarterly results that came in well below expectations in several respects. Investors responded by driving the stock down 14 per cent to $1.07 on the TSX — nearly matching its 52-week low of $1.05 set in January.
Yet despite falling approximately 75 per cent from a high of $4.92 in June 2015, analysts still see a lot of upside in the stock.
UrtheCast’s revenue miss was the result of disappointing data sales for its medium- and highresolution cameras, as well as seasonal impacts that hurt revenue from its Deimos-1 satellite.
Earnings also fell short of forecasts due to higher costs and operating spending associated with factors like increased staffing, while management’s guidance also disappointed.
“At first blush it is negative, but considering that Q1 will be relatively flat, it points to a material revenue ramp in Q2 onwards,” said Eyal Ofir, an analyst at Dundee Capital Markets.
The company’s ambitious plan for a 16- satellite OptiSAR constellation first emerged last summer and initial expectations assumed its build out would begin as early as Q4 2016. However, management appears unwilling to put a firm target out just yet.
UrtheCast has $370 million worth of memorandums of understanding, and noted it is in the late stages of converting at least one of these MOUs. It also said it has potential engagements with 12 different customers and governments, representing demand for more than 40 satellites.
Some of this uncertainty contributed to management’s weaker-than-anticipated guidance. Clarus Securities analyst Noel Atkinson said that will reset investor expectations, yet he continues to see substantial upside in the stock, maintaining a $7.25 price target.
Atkinson noted that the UrtheCast story will now be dominated by OptiSAR, both because of its technological prowess and its potential to generate hundreds of millions of dollars in annual sales at a high margin.
The technical progress made so far has him anticipating entry into service in 2021.
“We believe the Company has largely built out its staff and infrastructure and expect contained opex spending going forward,” Atkinson said in a report, adding that this should result in high EBITDA leverage on additional content sales.
“While government budgets may be in flux in certain regions as a result of soft commodity prices, we continue to view the OptiSAR constellation as a highly cost-effective and powerful imagery solution for defence and commercial applications.”
Among the other analysts that reduced their outlook for UrtheCast was Steven Li at Raymond James, who trimmed his price target on the stock to $5 from $7.
However, he noted that several potential de-risking catalysts are on the horizon in the next year.
Doug Taylor at Canaccord Genuity cut his price target to $2.25 from $4, but sees significant upside if UrtheCast can execute on its opportunities.
“However, the timing of contributions remains challenging to predict,” the analyst said in a research note, adding that while guidance was lighter than expected, at least investors now have an anchor to work with.