UrtheCast's (LFDEF) CEO Wade Larson on Q3 2016 Results - Earnings Call Transcript

| About: UrtheCast Corp (LFDEF)

UrtheCast Corp. (OTCPK:LFDEF) Q3 2016 Earnings Conference Call November 10, 2016 5:00 PM ET

Executives

Chris Hoeschen – Executive Vice President and General Counsel

Wade Larson – Chief Executive Officer

Issa Nakhleh – Chief Financial Officer

Analysts

Eyal Ofir – Dundee Capital Markets

Noel Atkinson – Clarus Securities

Steven Li – Raymond James

Doug Taylor – Canaccord Genuity

Noel Atkinson – Clarus Securities

Operator

Good afternoon, ladies and gentlemen. Welcome to UrtheCast Quarterly Report Conference Call. I’d now like to turn the meeting over to Mr. Chris Hoeschen. Please go ahead.

Chris Hoeschen

Thanks very much, Patrick. Good afternoon everyone. I'm Chris Hoeschen. I'm Executive Vice President and General Counsel of UrtheCast. I want to thank everyone for taking the time to join us on the call today. With me from UrtheCast are our CEO, Wade Larson; our CFO, Issa Nakhleh; and our Executive Vice President of Finance and Strategy, Jeff Rath. So I'm going to start by reading our Safe Harbor statement and then I'm going to hand the meeting over to Wade.

You're reminded that certain statements made in this conference call and our responses to various questions may constitute forward-looking statements within the meaning of Securities Laws. These forward-looking statements such as statements about any financial outlook or guidance of UrtheCast 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 the Company’s control and which could cause the actual results, performance or achievements of the company to be materially different.

While the company believes that the assumptions concerning future events are reasonable, we caution that there are inherent difficulties in predicting certain important factors that could affect the future performance of our results of the business. The company expressly disclaims any intention or obligation to revise or publicly update any forward-looking statements whether as a result of new information, future events or otherwise except as may be required by applicable Securities Laws. During the course of this call, we may also refer to certain metrics such as EBITDA not recognized under IFRS.

Non-IFRS measures do not have any standardized meanings under IFRS and therefore unlikely to be comparable to similar measures presented by other issuers. UrtheCast believes that these measures may offer useful supplemental information, but they 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 and uncertainties and assumptions, which may lead to actual financial results or performances being different from that contained in our forward-looking information, please refer to our news releases dated November 10, 2016 and our most recently filed AIF and our amended and restated base shelf prospectus dated May 15, 2015, all of which are available on our website or on our CEDAR profile.

Wade, I turn the meeting over to you now.

Wade Larson

Sure, thank you, Chris. Good afternoon everyone. We want to thank you for joining us and we really provided that you have done so. In addition to deliver another solid quarter, one that really is our best ever, ever from our core business, Issa will go into a lot more financial details shortly. But before he does that, I want to give you just a quick update on some of the key initiatives that we're working on including UrtheDaily and OptiSAR. And then give you a little bit of context as well on the write-down we've taken on the ISS cameras.

First in Earth Observation, you're starting to see now in this quarter the ramp up in revenues from that business really developing quite nicely and we're really pleased about the way that's taking shape and the fact that that allows us to firmly maintain guidance for 2016. We have been as well developing that kind of virtual constellation with our other partners in the PanGeo Alliance. And we have been offering that now beating that into more and more opportunities around the world and it's really quite a unique offering. There’s more information on that in our website, but we're starting to see that really beginning to track financially as well, which we're very happy about.

The sales ramp on Deimos-2 this quarter has largely been in Europe, Latin America and Asia and that is a reflection. It's taking longer than we would have liked, but it is a reflection now that the consolidation of the sales forces, the market footprints, the distribution channels for the two companies is really starting to click. And one of the things we're seeing there is that the service offering, I believe the very rapid delivery of data from acquisition to processing to end customer, is one of the things that’s really that the differentiators in our customer engagements.

Deimos-1 sales are still growing, continuing with legacy customers. And this has really been in spite of the fact that there are more and more free data sources, Sentinel et cetera that are coming in this class that hasn't impacted Deimos-1 data sales. And as you know, this past summer, we started streaming Deimos-1 onto the platform for a monthly cloud-free continuous image layer of the contiguous United States. UrtheDaily has been an area of really active engagement for us in the last little while. And we are now actively in contract negotiations with multiple parties to bring this constellation to market. And this has been designed to be very specific as the world's first Earth Observation constellation planned, from the ground-up, to truly power machine-learning and artificial intelligence-ready geoanalytics applications on a global scale.

And so, we're very, very pleased with the way that that is taking place. In parallel with those customer discussions, we are working with our partners on really finalizing the design, the contract plans to build phase the insurance and the financing of that system. On OptiSAR very pleased to tell you as you know from our previous disclosure that we did have three MOU, signed MOUs with international partners, representing in total US$490 million.

And I’m pleased to tell you that we are now actively in full contract negotiations with all three of those partners and the point I want to really emphasize there. Is that if we are successful in converting those MOU’s into full signed contracts that that $490 million represents about enough money to build the first orbital plane of satellites, so that would be a very significant thing.

On OptiSAR and specifically on the SAR excel technology which it forms that kind of IP backbone of OptiSAR, we are seeing increasing financial support. And user interest from the Government of Canada and there’s some engagements there that we feel very positive about relative to the government's own future imaging requirements.

In the summer, you may recall in August we put out a request for a proposal, we almost called colloquially a reverse RFP to prospective U.S. companies that might want to partner with us in a long-term kind of strategic partnership relative to the U.S. government market. And those bids are now in, we have completed a review of the bids received and we are now in the mode of inviting the down selected companies to really engage in the partnership negotiations related to making that happen.

And then finally as you had both seen in our press release, we have taken a $7.8 million asset impairment charge against the carrying value of our ISS Cameras and I wanted to say a couple of things on that. Just before we get into the Q&A, first-off that is a non-cash item very clearly. Secondly relative to the size of the company and in particular to Deimos Imaging strength in the book value and the other businesses ongoing, it's small amount. And we feel that it's not particularly that big of a deal to be candid.

We did thirdly; get a letter from our partners, which in essence, put us on notice that they would be wanting to negotiate with us on this program, renegotiate the terms of the partnership operationally starting really beginning in the next year. And that's what has served as the trigger. So and I think you know the context of this that there has been some there's been some geo political challenges that have influenced this relationship and candidly as we've been hinted at the last quarterly call that has impacted our ability to task these cameras operationally, and I think we all know that we've sort of seen this coming in some way shape or form.

Forth it is nevertheless still in our product offering and that is not worth it's worth the seeing the Camera still works and in fact we have been selling a little bit of HRC Videos this past quarter in spite of some of the operational challenges.

And fifth I just want to say we felt at this moment as financially conservative managers. And in partnership with our auditors that, that this was the right time to take a partial write-down. And to really try to recognize what the fair value of that asset is today, given the outlook and given these issues with our partners.

So let me hand it over to Issa and he’ll give us a bit more thoughts on the financial numbers.

Issa Nakhleh

Great thanks Wade. I am pleased to be able to speak to another good quarter here that showed strong growth in our revenue and our adjusted EBITDA on a year-to-year basis. Our Q3 non-IFRS revenues were $15.5 million a 68% increase over our Q3 2015 results of $9.3 million. Our IFRS revenue for the quarter was $20.7 million a 37% increase over the $15 million we reported in the same period last year.

Similarly the Company's non-IFRS adjusted EBITDA was positive $4.7 million in the quarter that compared to a loss of $4.3 million last years which was a $9 million improvement on year-to-year basis adjusting to Q3 alone.

I think an important contributor to these results comes from the strong growth that we've seen in revenues in our Earth Observation business which grew about 130% quarter-over-quarter. And that our revenue in the year has gone from around $1 million in Q1 to $3 million in Q2 and with now just slightly over $7 million. This is a really good sign for us on that EO side in helping us really achieve the positive results in our quarterly basis.

I’ll turn it back over to Wade now.

Wade Larson

Okay, so I think with that moderator we’ll open this up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Eyal Ofir from Dundee Capital Markets. Please go ahead.

Eyal Ofir

Thanks, thanks for taking my questions. Just wanted to jump in, I guess into the data ramp here, so we see $7 million in revenue from the earth observation side. Can you just talk to considering the fact that, I guess, it’s more challenging here to sell the MRC and HRC data and you are more reliant on Deimos-2 and Deimos-1. How should we think about the revenue ramp and the revenue opportunity for those two satellites?

Wade Larson

Yes let me turn this over to Jeff, Eyal.

Jeff Rath

Hi Eyal, it’s Jeff Rath. I’m going to do my best Fabrizio invitation. Fabrizio is on a plane and so he would be more qualified. But I think the question about the outlook there’s a couple of key points that Wade touched on one of them. The write-down is really an accounting non-cash item and so I think those cameras work and these are generating revenue. And there is a very clear path for that to continue for us.

But I think there’s uncertainty and I think that’s the point we’re trying to make. And I do think we’re increasing – we’re actually seeing that we’re winning proposals on multiple levels, but with multiple sensors. And so to the customer it’s increasingly not significant just to which sensor, it’s really about us delivering a unique offering and that’s really where the PanGeo Alliance is becoming a very unique offering. We are positioning ourselves as solving the customers’ problems.

And so I think it’s going to be – it’s harder and harder for us frankly to see the difference. And I don’t think we’re really going to get into the sensor by sensor financial discussions here. So I think the points are that the asset write-down is really more about increased uncertainty. But at the same time we’re seeing a very strong pull from the customers and we think this is going to continue. So we feel good about the business, and we feel on a consolidated basis. And I don’t if it’s answering your question, but…

Eyal Ofir

No, no that’s fine. The other thing comment I want say is considering that Donald Trump is just elected as President you imagine the U.S. relationship is going to improve with Russia. And if your partners are actually looking to re-negotiate the contract with you there, but the possibility here that the turnaround times in terms of access to the data improves and allows you to kind of scale that revenue as well.

Jeff Rath

It’s a good question and I have really no idea, to be honest. I think that macro geopolitical context which has affected us at our little micro level these are big kind of turning wheels. And kind of handicapping when if how that would play out, I think is a really, really long shot guess, to be honest.

Eyal Ofir

Okay. And then just moving on to some of the constellations before passing the line, obviously the UrtheDaily seems to be more near term than the OptiSAR in terms of the actual build and launch. Can you just guide us through kind of what’s the next steps, what kind of milestones we need to see from you guys and it sounds like it’s also going to be fully funded from, I guess clients that you guys are speaking to. How should we think about, I guess requirements going forward on upside tone?

Wade Larson

Go ahead Jeff.

Jeff Rath

Yes, so Eyal, it’s Jeff again. Yes so again, there’s lots of activity and if you’re picking up increased confidence level, I think that’s right. I think we absolutely have an increasing confidence. And I think that’s a direct reflection on the customer level engagement. And so I don’t think we’re going to share too much more than that other than these types of systems get built because the customers need and want them. And so really we see this as a partnership with these customers. They want it, we are uniquely positioned for UrtheDaily, and I think we’re excited and I think that the financing package is a key element to secure in order to bring this forward.

But I think if we could leave you with a few thoughts it’s absolutely super encouraging. There’s lots of interest here and the customers really want this. And maybe one other data point that is a little bit subtle, I’ll make here, is today there’s only two commercial image systems that provide medium resolution sensors, sorry data. There’s RapidEye, which we know very well and then there’s Deimos-1, which we also know very well, own and operate. And when you think of the time it takes typically two years for a system to build, the industry is at an interesting point because there is no real continuity mission being tabled.

So that creates a really interesting dynamic where some of the large customers need this solution and they’re actually facing the possibility if they don’t work to get one, that they might have a supply problem. So these are some of the reasons why we’re really optimistic and why we think there’s a strong customer demand for this solution. So we’re working hard to bring this to market and when we have everything in place, I think we’d look forward to sharing that with everyone.

Eyal Ofir

Okay, great. And just one last one from me and I’ll pass the line. Just on the OptiSAR, can you just speak to the outside of the three MOUs that you have, how much more interested they are today and how should we think about that as well, customer conversion standpoint. Thanks.

Jeff Rath

Yes thanks Eyal. There are multiple other discussions underway with prospect of customers around the world and in North America. And so that’s a very robust funnel. These are – this is a hard program, complex it’s because we are trying to sell our condominium where lots of people have to buy into the condos before you can build the full building and there is kind of the ebbs and flows and that will process which I think you probably observe this certain points. But we are at a point right now where we are seeing increasing momentum and kind of a real maturation of that process on a variety of fronts and we are very excited about it.

Eyal Ofir

Okay, great thanks for that one. Thank you.

Wade Larson

Thank you.

Issa Nakhleh

Thank you.

Operator

Thank you. The next question is from Noel Atkinson from Clarus Securities. Please go ahead.

Noel Atkinson

Hi, thanks for taking my call. First off, I was wondering if you could talk about or ask about operating costs. So you folks really did a nice job and reducing your operating expenses in the quarter from the June quarter. I was wondering if you could give us some sense of whether the overhead costs of the corporate level are stable from here or you have to hire some more where there is even more cost savings that are yet to be completed.

Issa Nakhleh

Hi, Noel. It’s Issa. Thanks for – yes, we did do quite a job over the first six months of reducing our operating costs and probably have a bit more to go on that but its more in the context of refining things as we move forward. So I wouldn’t look for that slope to continue at this point in time but we are doing a good job there.

Noel Atkinson

Okay, great. Secondly, on OptiSAR so you mentioned that you are now at a contract negotiations on the three MOUs would you say that the negotiations have progressed from the end of June to now?

Wade Larson

I would say massively.

Noel Atkinson

And then thirdly on UrtheDaily could you give us some sense of the scale of the dollar value of contracts that you folks are pursuing?

Wade Larson

I will answer that. So I think there is maybe a – I don’t want to be cute, but obviously we can’t betray things either. And also we don’t take it anything other than that I think there is a really robust business case here that the customers have actually shown us and we are working with us to refine. And I think one of the more exciting things is this capability without a doubt in our mind, expand the overall market dramatically. So I think there is a lot of opportunities, how do I say that, the challenge that everyone has that wants this including the customers is that they are going to help us – they are going to have to help us finance this.

And so I think our near-term goal is to try and create an environment that makes sense for those partners and for us. So it’s not so much about getting very pound of flesh that we can – because that doesn’t make any sense it’s really about helping us or helping working together with our partners to bring this to market. So we are focused on that right now. I think there will be a – and I think that’s a different problem, maybe then say winning the biggest contract out of gate does that make any sense.

Noel Atkinson

Sure. Just a quick follow-up, do you have any contracts that are signed either pending the completion of other critical amount of contracts or that you’ve got a firm contracts signed for UrtheDaily?

Wade Larson

So I mean we have obligations if we have material news, contracts on any parts of our business I mean we have to make that known. So I think you have to conclude that we are not sitting on any big contracts in that regard. But I don’t think you should take away that we are not in negotiations for contracts. So we take our obligation seriously on disclosure and if we have something here on OptiSAR or UrtheDaily we will announce it. And I think right now that’s probably all we can say.

Noel Atkinson

Okay. And then just one quick final one, how much cash is still expected to come in from the $65 million engineering contract?

Wade Larson

Sure, I think on that there is around roughly $40 million of the $65 million still to come in on that contract.

Noel Atkinson

And that’s U.S. dollars?

Wade Larson

And that’s U.S. yes.

Noel Atkinson

Okay. Thanks very much.

Wade Larson

Yes.

Operator

Thank you. The next question is from Steven Li from Raymond James. Please go ahead.

Steven Li

Thank you. Wade, on your reaffirm guidance, so the midpoint it would imply revenues to be up sequentially in Q4 to about $20 million. But then at the midpoint EBITDA would be down sequentially to about $1 million. Am I missing something here or maybe you are tracking ahead of plan on your EBITDA guidance?

Wade Larson

Yes. So Steven, it’s a very good question and I think unfortunately the answer is not going to satisfy you. This is a first year of our operations of the business and we really are learning the business as we go a bit. And so at this point we just don't want to get into the sort of quarter-on-quarter guidance. And so I think the message that we would like people to take away is we feel really good about our guidance. And if we feel that we're going to miss it or beat it, we actually have an obligation to share that with the market, and so that's the key message. But if your second question really is, is there something wrong with our business; the answer is no. There's nothing wrong with our business.

Steven Li

Okay. Good.

Wade Larson

And so we feel good about it and we're working hard to grow it.

Steven Li

Great and then maybe a question for Issa. On your cash position, I saw your unbilled and receivable went up quite a bit. When do you expect those to convert into cash and what are the milestones that need to happen? Thank you.

Issa Nakhleh

I will answer the questions. Thanks, Steven. So we are on that as you know that that contract we have on management services side is quite lumpy. So when we hit a payment milestone we get to bill quite a large amount and the reason that it does billed is the record as the revenue on the straight line basis and then we get to bill and then collect that in cash.

So I am working on getting that smoothed out through operating lines of credit and being able to finance that from a strictly working capital perspective. But we expect that as we said signal there's about US$40 million still coming in and that's forecasted to be collected between now and June of 2018, but it is very lumpy within that time period.

Steven Li

Is there a payment milestone coming up next quarter?

Issa Nakhleh

Yes. So the milestones come quite frequently on a random basis, Steven, which I think, so we…

Steven Li

Okay. And then my last question is on OptiSAR. Wade, you mentioned last year in your press release, can you elaborate a little bit more what is the Canadian government looking for and how UrtheCast is positioned? Thank you.

Wade Larson

Okay. Thank, Steven. Yes, I mean, it's no news to anyone that the Canadian government has long standing requirements for SAR data continuity. The original requirement for RADARSAT Constellation Mission actually specified six satellites, but they had at that time only a demand for three. And so that's the three that they have procured in our building which will launch soon. But we are seeing now is more and more evidence that they you’re starting to think about what comes next. And in that context we have been speaking to the government.

It's become clear that the government is increasingly interested in alternative and more perhaps flexible or service delivery models as opposed to just the capital asset procurement model that historically has been the case. And what we've seen I think to be very honest is a high degree of interest in our technology, and the technology and the IP that we have developed is the world's best very much so and we're demonstrating that now with customers directly, more and more showing what we've built there. And so I think we're off a long way here from a contract, but this will be a competitive environment clearly. But I think it's a very, very interesting market potential for us.

Steven Li

That's great. Thank you, Wade.

Operator

Thank you. Your next question is from Doug Taylor from Canaccord Genuity. Please go ahead.

Doug Taylor

Thanks. Good evening. I'm going to ask some of Steven’s question maybe in another way. Last year around this time I think you said you expected some sequential decrease in the Earth Observation revenues; it’s sort of a seasonality phenomenon. Do you expect that same thing or do you expect to outgrow that with the Deimos sensors this time around this year? Or is the engineering services piece of the business is causing you to guide your revenue up sequentially? Any color there.

Issa Nakhleh

Guys – I mean, Doug, you’ve actually answered the question in a way for us. And so I think everything you've said is kind of why we really don't feel that we're in a position to really comfortably get into quarterly guidance because you've got a bunch of things going on and you summarized better than we could. You've got some seasonality which is absolutely the case particularly with Deimos-1 and MRC, but then you've got a very strong ramp in some of our VHR. And then you've got all the accounting requirements of when do you book it, when do you take it in.

And so all of that is really some – a real baseline as to why at this point – and given that we're the first year of operation with some of these sensors, so you’ve just answered the question in a way we just – at this point we just feel that – we hope that we get to a point where we can start to give much more specific quarterly numbers, but at this point Doug, all we would like – we feel that is prudent is just to reiterate guidance and then go from there.

Doug Taylor

Okay. I appreciate the more consistent positive EBITDA generation that you guys have shown. I think investors would like some more color on how and when we can expect that to translate into more consistent cash flow. And I realize that’s a bit of a working capital question. But is there any color or comfort that you can give us around when you expect to see that on a consistent basis?

Issa Nakhleh

Yes. Hi Doug, it's Issa. I think actually you can certainly see on the Earth Observation side. It ramp up of the revenue there and that one is a very much typical invoice and collect in a normal billing cycle. So that growth will start – as it’s achieved and maintain, it continues to grow you’ll see the cash flows mirror that on obviously a lag basis. So I think you can see that the cash flows will start be much more regular coming in from the Earth Observation side of the business.

Going back to Stephen also ask question and those I mean we are expecting about $40 million of cash flow of cash proceeds coming in off of that large contract and those are lumpy, but we’ll have quarters, we'll collect two or three payment milestones and we'll have quarters that are zero and that shift the nature of that contract, but that’s why we – it was operating lines, credited in, it will smooth all that out for you and you will start seeing better consistency on our cash flow.

Doug Taylor

Okay. Last question for me. Can you just walk through the range of outcomes with this renegotiation for these ISS sensors to the extent you’re able to? Is there a scenario where you guys would just walk away from those at all or shut them down or can you help me think about that?

Scott Larson

Doug, thanks. We are looking at everything. And I want to give you a sense of that could be a creative ongoing partnership, it could involve licensing, it could involve the JV, it could involve an asset sale, it could involve basically anything. But they still work, they still part of our offering. We still have some customers demand. And I think we all knew there is something that we thought it was coming, we probably saw it coming in some ways. But I think at this stage, it’s going to be what it’s going to be.

Issa Nakhleh

Maybe if I could jump in there, Doug and give some context and I think this is a fair question, I think as well, which is how does it bad outcome here impact our business going forward. And I think the message here is that the strength of our EO business is no longer dependent on the ISS sensors. So the way we’d like to praise it, 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. And one of the sources of that is just our current offering and the other thing is PanGeo offering.

This is essentially the world’s first virtual constellation. And this has the ability for us to bid for bigger contracts, yes, at lower margin and so it is a bit of a revenue mix there. But I think the point that we like to make is that in many ways the revenue opportunities in front of us dwarf certainly what we were doing on the ISS sensor. So we feel good that we were hopeful of a positive outcome and there is certainly scenarios there. But if something doesn’t go well here, this we feel really good that we can grow our EO data revenues for a long time to come quite strongly.

Doug Taylor

I guess my – the one follow-up to that then would be I mean assuming the worst and no reason to expect that. Is there a bunch of cost you are carrying to run those sensors that might roll off if you were to cut, bait and run from that.

Issa Nakhleh

Doug, it's Issa. Those costs aren’t really material that the operations as in the exorbitant to our EO operations business. So the growth from the other sensors will just consume that.

Scott Larson

Even more specifically I mean I think its clear here that the revenue ramp for those sensors really were slower and not what we had hoped and expected. And we took action a while back to derisk the cost side of that. And I think that’s part of the sort of the sequential cost savings you’re seeing through the model here. So I think there was increasing uncertainty there and instead of sort of hoping we feel that we mitigated a bunch of that revenue and cost risks fall back.

Doug Taylor

Okay, that’s helpful. Thank you.

Operator

Thank you. The next question comes from the line of Atkinson from Clarus Securities. Please go ahead.

Noel Atkinson

Thanks for taking the follow-up. Your corporate presentation only talks about €200 million and more of sales funnel for EO. Was that all relate just to the day mostly – your existing sensors and the PanGeo Alliance?

Scott Larson

Hey, Noel. That number is larger now then what is say in this on the deck, point number one, point number two, it overwhelmingly relates to Deimos-2 and Deimos-1. But it does also include some other the assets including little bit on HRC and MRC. And of course then, as we've been saying depend your life partners. So it's really the full mix. But you should think that the majority of that is the fact that Deimos-2 and Deimos-1.

Noel Atkinson

Okay, great. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from Eyal Ofir from Dundee Capital Markets. Please go ahead.

Eyal Ofir

Thanks. Just actually follow-up on the – in your presentation you also discuss number of countries that you’ve sign agreements with in terms of new wins. I'm assuming that – some of these have not probably contributed into the third quarter. Is that the safe assumption? And those are still ramping.

Wade Larson

Yes. But let me qualified a bit Eyal, thanks for the question. This business does have a bunch of elements to it. Some of the contracts are simply you’ve take – you execute them and you book to revenue. Some are framework contracts that are more new launched as far as it allows them to order. Some of them actually are contracts that I have some seasonality built into it. So I don't want to – I don't think we want to mislead you here. The answer is absolutely. We have contracts that we won that did not contribute to revenue this quarter, absolutely. And we think that's a good thing and it's going to continue. But I don't think we're also saying that this is just a linear exercise here, our revenue will just grow for every quarter consistently. I think that's one of the elements that we're watching and learning and that's probably the best way you can describe it.

Eyal Ofir

Okay. That’s fair. And then just on the 200 million plus your sales funnel. This is come only for EO observations just to confirm. Is that correct?

Wade Larson

That is correct.

Eyal Ofir

That doesn’t include – it doesn’t include the UrtheDaily stuff. And then last one just in terms of the reverse RFP that’s in the States and obviously you entering some contract and we’re chasing them. How should we think about that from – like how long would that take to select the final partner I should say? And then once that occurs, how should we think about you guys entering the market with that partner into the U.S. government.

Wade Larson

Yes, it's going to be a little bit dependent on how these partnership discussions develop. Just to clarify they've not contracts. These are partnership discussions with the U.S. companies. I think you depending on the type of company – discussions could take a variety of different directions. I think in terms of timelines you should be thinking that this is in timeframe of months in terms of having impact on us, not – certainly not faster than that.

And what we're looking for again just to remind you, these are – we're looking for a long-term partners, that can kind of bridge us into customers and to contract opportunities that we as a Canadian company and as a very commercially focused company. That really can't get out at ourselves. So think of these – you should really think of these as more of a building block of longer term process as opposed to some kind of near-term impact thing.

Jeff Rath

The other thing Eyal, its Jeff here, if I could just comment, I think we all and we fall victim of this as well. We kind of generalized sometimes things too much. The U.S. government is somehow just one customer. And it's just one sales channel. So interesting, Eyal, I mean we're winning contracts effectively where the end customer is quote the U.S. government now.

And there's just different ways to see that demand we can come through some of our partners. And then we can also – and we do have a direct relationship. So I think just to remind everyone it's more than one customer, it's a multi-channel discussion and I don't think anyone should be left with the impression that this is the only path to that opportunity. We're seeing demand and we're actually, we know where the end customer is, and that's actually showing up already.

Eyal Ofir

Okay. So is there also scenario, we signed up with more than one partner. So they can go into two like different parts of the government.

Wade Larson

Yes. There is absolutely a scenario to do that.

Eyal Ofir

Okay. Perfect, thanks.

Operator

Thank you. There are no further questions registered at this time. I would like to turn meeting back over to Mr. Larson.

Wade Larson

Okay. Well, thank you. We really appreciate your time everybody. And we look forward to chatting with you in a few months.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!