Urthecast Corp. CEO Scott Larson on PepsiCo Deal, Streaming Video from the Space Station
Urthecast Corp. (TSX:UR) (OTCMKTS:LFDEF) (FRA:70LA)CEO Scott Larson discusses the recent deal with PepsiCo Inc. (NYSE:PEP) and how streaming video from the International Space Station is good for big consumer brands. He also talks about the company’s financial performance over the past year, and why the future is so bright for Urthecast.
[four_fifth_last padding=”0 0 0 20px”]Listen to the interview with Scott Larson:
James West: Scott, thanks for joining us today.
Scott Larson: Thanks, James. I appreciate that.
James West: Scott, last time we talked was over a year ago. The stock wasn’t doing so well in Urthecast; there were problems with Russia, you were struggling, you were behind on the installation of the cameras. The whole program has turned around; you’ve got deals with Pepsi, everything seems to be going well. What’s changed in the last year?
Scott Larson: It has been a big year for us, there’s no doubt about that. I think, and you’re absolutely right: last year we did have some technical issues, there’s some questions about our balance sheet, about the income statement of course, just where we were, there were some geopolitical concerns were giving us a bit of overhang on the stock. But I think at the end of the day, it just came down to technical.
And so in the last year, we’ve done a few things. One is, we announced an agreement to install two more cameras on the space stations, so show some kind of long-term growth. And then we also now announced earlier this year that we were able to come up with a technical fix for our camera. Space is hard. It’s slow. So we basically came out and said we announced the fix; the fix is installed on the cameras. And then just a few weeks ago, we also came out and said we’re going to be coming out with what’s called First Light, which in satellite-land is a pretty big deal: it’s when you have your first pictures, you kind of show them off to customers, mainly. But that event is scheduled for the middle of June, in New York.
James West: Okay. So I’ve seen, for example, last night I watched a BBC production about the planet and there was some fantastic footage which was obviously taken from space. Is that the kind of stuff you guys do? Is that coming from the space station, from your equipment there?
Scott Larson: Yes. I can’t comment on exactly what that was, because I don’t think I saw the same TV show, but yeah: pictures of Earth from space are used for forestry, farming, agriculture, lots of business intelligence kind of reasons of course. We will be selling into that market for sure.
James West: Okay. So then, what is the nature of your deal with Pepsi? How do they plan to leverage images from space into a brand campaign?
Scott Larson: We kind of divide our market up into three different segments. Basically a pyramid; it’s a triangle, if you will. At the top, you’ve got B to G, government customers, people who have been buying pictures of Earth from space for a long time, and they know what they’re looking for. It’s for Ministries of forestry, farming, urban planning, coast guard, border patrol, that kind of reasons.
In the middle section, on the middle of the triangle, would be a B to B, and that’s business to business: analytics, business information, counting cars in Walmart’s parking lot to predict revenue based on the number of cars, taking pictures of coffee farms in South America to see if the price of coffee is going to go up or down, taking pictures of oil tankers to see oil inventories, things like that. Business information, basically.
And then at the bottom of the pyramid would be the consumers. And that is the Pepsi partnership. They’re re-launching the Pepsi Challenge, and we challenge you to do something different, go above and beyond, change the status quo, kind of a lifestyle element to it if you will, as opposed to can you tell the difference between a couple of different types of colas. But it’s, we challenge you to do something different.
So people are going to be taking pictures of themselves from the International Space Station, organizing a bunch of outdoor events, using our cameras. Those cameras – but that imagery all goes into the Pepsi Challenge, filming outdoor concerts, events, people writing signs in fields that they think are relevant, and then the winners get prizes and trips and contests and cans of Pepsi and the rest of it.
So that’s the consumer: getting people to interact with space imagery.
James West: Okay. So then, going back to your pyramid analogy, on the other two points of the pyramid, how much of those sort of segments are going to contribute to the balance sheet going forward?
Scott Larson: Certainly in the near time, all of it. I think the web model is, you try to come up with some kind of utility, try to come up with some kind of value for people, iterate it a bunch of times, and then hopefully get some traction. But in the near term, certainly being able to go to people who have been buying pictures of Earth from space for a long time, and saying we have two cameras, a medium-resolution camera that’s typically good for agriculture and farming and so forth, and then we have a high resolution video camera which is entirely unique – you can see cars and all the rest of it. Certainly, going to the B to G market will be the bread and butter for the next little bit.
James West: Okay. So then, how is the consumer-facing web portal model working out at this point?
Scott Larson: What we’ve been able to do is basically build an infrastructure which allows us to service all three of those components. So the back end, the architecture, the infrastructure of the company is the same, it’s just potentially a different interface depending on what customer you’re looking to service. So government customers have a very particular way of how they want the data presented, how they want to interact, it’s typically a little more hands on; you have a customer service representative and sales people, account managers, who are dedicated to those customers, because they write larger cheques.
On the B to B side, it’s all based through an API application program interface. We take all of our data, we wrap it up in this API, and we allow the developers and customers to target that, and then the revenue that comes off of API usage.
And then on the consumer side, it’s eyeballs. So it’s the same infrastructure, it’s the same architecture. You start with the long pole on the tent, which is the B to G. We’re starting to open up our API to app developers and app users, and then the B to C will be coming later this year.
James West: Interesting. So let’s talk a bit about your most recent financials; you released them last month. You recognized revenue of 3.3 million, your working capital position improved, and you raised a bit of money. So what does the immediate future hold in terms of new milestones that you have set for yourself that investors should look out for, that will represent sort of a success in executing on your business model?
Scott Larson: That’s a great question. Space is hard; there’s always delays, of course, but I think to your earlier point, we’ve been able to cross a few milestones over here just over the last five, six months. So I think the balance sheet was looking much better now. Over the next little bit, we’re going to be coming out with this First Light event, which is a customer-facing thing. People have been waiting for it; it’s a good milestone, it means the cameras are working, of course, and everything is kind of where it should be.
The more relevant, perhaps, long-term relevant milestone, is what’s called IOC: Initial operations capability. And we also announced that we would declare ourselves at that stage, a few weeks after this June 16th event. So, sometime in the middle of summer, we’re going to come out and say that we’ve now reached IOC, initial operations, which means we can take an order from a customer, the customer says ‘take a picture of the Amazon’, we can take a picture of the Amazon, it gets delivered, the money goes into our accounting system, and we can basically operate as a business. And so that is probably the more relevant, from a long term standpoint, milestone that we’re looking forward to.
James West: Okay, well, that’s interesting. Then I also saw that you filed a prospectus for a $100 million debenture offering, and is that to – what is that for? Is that because you’re going to need to use this capital until you sort of become more cash flow positive?
Scott Larson: Yes. I don’t think it was a debenture, it was just a prospectus saying that we might – it was just more standard business. I think last year we had filed one for 75 million in the prospectus. It’s a shell prospectus that gets filed every year. We’re certainly not planning on raising $100 million financing, it’s just kind of good corporate governance to say that this is filed every year as a standard, normal course of business.
James West: Sure. Okay. Great. What else is happening in terms of – I mean, is there anything in the relationship with Russia? I mean, it seems to not be affecting your business progress at all. So has that sort of risk been mitigated in some way, shape or form?
Scott Larson: Yeah. We thought so. I mean, it’s always – at the end of the day, whenever there are geopolitical considerations like we have certainly, it doesn’t help at all; it just makes things a little more difficult. Things take a little bit longer. Travel, things like that, it all kind of adds up.
I think at the end of the day, what it did was it padded schedule, frankly. If something normally takes two days to get signed off, it might take ten. If you need five signatures, now you need twelve, because no one really wants to be the person that signs off on something when things are as tense as they were. We think that that has been mitigated. We’ve been able to manage our way through that. It was certainly difficult, but at the end of the day, it didn’t really materially impact our business, it just kind of added schedule, and from an investors standpoint , I think there was probably a little more concern than we had, because we were kind of a little closer to it.
But yeah, it seems like that whole situation is reaching a bit of a status quo now, and people are focused, perhaps, on some different things.
James West: Okay. So are there any additional product offerings coming down the pike? Apart from sort of the three corners of the pyramid you talked about?
Scott Larson: Yeah. So we’ve got a bunch more. You know, the Pepsi stuff is going to be coming out late summer, early fall. That’s kind of when that really kicks off. There’s a bunch more business development kind of things that we’re working on, longer term things, none of them that are imminent right now, but things that will be rolling out over the next little bit. And then, just actually getting into a bit of a cadence in the business operations, customer discussions, sales. Sales.
James West: Sure. Okay. Now, in your prospectus, there’s a really comprehensive list of risk factors, which is also obviously good corporate governance. But I just want to ask you, is there anything in that list of risk factors that has sort of become more material in the last year, or threatens to? Or is all of this just saying well, these are things that could happen, but at this point, none of them have. Or is there anything out there that’s really sort of rising in potentiality in terms of a risk?
Scott Larson: That’s a great question. Good corporate governance, sure, and I think our Board has kind of made the statement that when someone reads those risks, they should do a bit of a double take, and kind of a bit of a gulp. When you’re working in space, it’s hard. There are technical risks, there’s operational, there’s financial risks. Urthecast is a bit of a business, we have to invest all the money, build all the technology, get through a bunch of hurdles that you never really imagined or could have imagined, and then at the end of the day, turn the operations on. And that’s actually where we are right now.
Urthecast has gone through lots of different risks. When we first started the company four and a half years ago, it was, could we come to an agreement with our partners on the International Space Station? Could we raise money? Could the cameras get finished on time? Was the rocket going to blow up? Was the installation going to go well? Were the cameras going to turn on? And so there’s been lots of risks that we’ve been able to manage our way through some easily, and some took a little more time. But moving forward, I think the main risk is operations. Can we actually execute on the business that we’ve built and the opportunity that we’ve kind of given to ourselves.
James West: Sure. And that seems to be going very well.
Scott Larson: Yeah. It’s early stages, but yeah. We have turned the corner from being a pre-revenue tech startup R&D type entity, into a company that has revenues, operations, we’ve got 110 people, something like that. So we’ve actually turned that corner.
James West: Sure. Okay. And finally, Scott, there’s a – in your press release, in which you’ve announced your financials, there’s a mention of a $9 million contract to provide space hardware and engineering services, which seems to be, at least at first blush, appears to be outside of the core business model of Urthecast. But is this an emerging sort of revenue stream that might be expanded upon in the future?
Scott Larson: I think it is. I don’t think it’s quite as far out from the business model as it might be at first blush, as you say. We also did make a statement in there that this does have some benefit to Urthecast from a data latency and kind of a communications standpoint. It’s not unusual, in space, for companies not to name the customer or the (inaudible, 0:14:12) exactly what they’re doing more of the contract, if you will, as opposed to some of the details behind it. So we’ve done something that is incredibly difficult, which is install two cameras on the outside of the International Space Station. No one’s ever done it before; hasn’t happened. And so when you do things like that in space and have some degree of success, you end up getting calls from other people who want to do other things in space. And so that’s basically what it is. It’s a good piece of the business for us, helps our cash flow of course, adds a little bit to the bottom line; all these things are kind of wrapped up into our core offering, which is, getting data down from space, pictures down from space, that we can use to further the business here on the ground.
So there’s a fair bit of crossover. I don’t think it’s going to be a core component of the business; I don’t think it’s going to be the core component of the business, certainly moving forward. But, a nice piece of business, and we’ll continue to take those as we can.
James West: Sure. Okay. So, and lastly, you’re not quite profitable yet. When will you become profitable?
Scott Larson: So we haven’t disclosed that. I mean, as a company that’s been raising money and spending money for the last four and a half years, I think it would be a little premature for us to give that kind of guidance. So we haven’t, and we don’t. We do say that we’ve had the first two quarters of revenue; those two quarters of revenue look good. I suspect you’d probably want to look at our analyst reports, which point to the not-too-distant future for actually getting to profitability. So I don’t think we want to give that kind of guidance, but we think we’re moving in the right direction.
James West: Okay, Scott, that’s been another great interview. We’re really impressed with what you’ve accomplished this year. Congratulations on that, and thanks for joining us today. We’ll come back to you again soon.
Scott Larson: Thanks, James. I really appreciate that.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.