UrtheCast takes $7.8M impairment charge on ISS-mounted cameras

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WASHINGTON — UrtheCast said Nov. 10 it expects to record a $7.8 million impairment charge on two Earth-observing cameras attached to the Russian side of the International Space Station.  

The Vancouver-based company said its was writing off some of the cameras’ value because of strained relations with their Russian hosts, who recently approached UrtheCast with a request to renegotiate their deal.

Russian cosmonauts installed two UrtheCast cameras on the exterior of space station in 2014. The medium-resolution camera, called Theia, captures 50-kilometer swaths of multispectral imagery sharp enough to discern features 5-meters across. The high-resolution camera, called Iris, records ultra-high-def-quality, full-color video of the Earth and still images at a resolution of one meter per pixel.  Iris entered service only last year due to technical issues.

Wade Larson, UrtheCast’s co-founder and chief executive, told investors during a Nov. 10 conference call that tensions between Russia and the U.S. and its allies are spilling over into UrtheCast’s agreement with the Russian space agency, Roscosmos, and Russia’s lead space station contractor RSC Energia.

“There’s been some geopolitical challenges that have influenced this relationship and candidly … that has impacted our ability to task these cameras operationally,” Larson said.

Larson said UrtheCast’s Russian partners sent a letter indicating intent to renegotiate their agreement come 2017. That letter prompted the non-cash impairment on the cameras, though Larson admitted it was not much of a surprise.

“I think we all know that we’ve seen this coming in some way, shape or form,” he said.

While UrtheCast might have expected Russia to seek to reopen negotiations, the company doesn’t pretend to know what to expect when it sits down at the bargaining table. Larson said negotiations “could involve basically anything.” Among the potential outcomes Larson laid out for investors: an ongoing partnership, new licensing, a joint venture, or even selling off infrastructure on the station.

Russia’s relationship with Western countries has been shaky in recent years, and Larson said it is entirely unclear if Donald Trump becoming U.S. president in January will change that.

At one point UrtheCast’s business was more closely tied to these cameras, but Larson said now that the company has the Deimos-1 and 2 satellites it obtained through the purchase of Deimos Imaging from Elecnor in 2015, the station cameras now constitute a smaller amount of overall business.

Imagery from the Iris and Theia cameras are still in UrtheCast’s product offering, Larson said. He added that the cameras both still work, and that the company has sold some Iris video in recent months despite operational challenges.

Jeff Rath, UrtheCast’s executive vice president of corporate finance and strategy, said the cameras are still generating revenue. Given that UrtheCast now has multiple assets in space, he downplayed the significance of gaining Earth observation data from any one specific source.

“Increasingly, we are actually seeing that we are winning proposals on multiple levels, but with multiple sensors, so to the customer, it’s increasingly not significant which sensor. It’s really about us delivering a unique offering,” he said.

UrtheCast is currently planning two satellite constellations — UrtheDaily and OptiSAR. UrtheDaily, an eight-satellite constellation underway with partner OmniEarth, is intended to capture 5-meter-resolution imagery of 140 million square kilometers of land per day. OptiSAR is a proposed 16-satellite constellation comprised of eight optical and eight Synthetic Aperture Radar (SAR) satellites orbiting in tandem pairs.

In the company’s third quarter financial earnings report, UrtheCast said it is actively negotiating contracts with multiple partners to bring the UrtheDaily constellation to reality, and has Memoranda of Understanding (MOUs) with three prospective customers potentially worth some $490 million. Larson said if all three MOUs mature into signed contracts, UrtheCast would have most of the funding it needs to build the first orbital plane of satellites.

Larson said UrtheCast’s Earth-observation business is exhibiting strong growth. For the three months ended Sept. 30, the company reported a 129-percent increase in Earth-observation revenue, up to $7.1 million compared to the previous quarter’s $3.1 million. Total revenue for the company during the quarter was $15.5 million, up 68 percent year over year.

Rath said UrtheCast is positioned for continued growth regardless of what happens with its cameras on ISS.

“The strength of our [Earth-observation] business is no longer dependent on the ISS sensors,” he said. “If the worst case happens — and we don’t even know what that is — we feel we can absolutely grow this business for many years.”