Terran Orbital Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2024

There are 12 speakers on the call.

Operator

Welcome to the Taron Orbital Q1 20 24 Earnings Call. My name is Carla, and I will be coordinating your call today. During the presentation, you can register to ask I would now like to turn the call over to John Sigman, Senior Vice President of Corporate Development of Tarrant Orbital to begin. Please go ahead.

Speaker 1

Thank you, Carla. Good morning, everyone, and thank you for joining Terent Orbital's Q1 2024 earnings call. With me this morning are Mark Bell, Co Founder, Chairman and Chief Executive Officer of Terran Orbital Corporation and Matt Riffle, Acting Chief Financial Officer, Corporate Controller of Terran Orbital. Mark will provide a business update and highlights for the past quarter and then Matt will review the quarterly results. Karen Orville's Adecco team will then be available to answer your questions.

Speaker 1

During today's call, we will make certain forward looking statements. These statements are based on our current expectations and assumptions and as a result are subject to risks and uncertainties. Many factors could cause actual events to differ materially from forward looking statements made on this call. For more information about these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, each of which can be found on our website, www.taronorbill.com. Readers are cautioned not to put any undue reliance on forward looking statements, and the company specifically disclaims any obligation to update the forward looking statements that may be discussed during this call.

Speaker 1

Please also note that we will refer to certain non GAAP financial information on today's call. You can find reconciliations of these non GAAP financial measures with the most comparable GAAP measures in our earnings press release. With that, I will turn it over to Mark.

Speaker 2

Just realized there's a thing called the mute button. So I'm going to start totally from scratch again. Apologies. Thank you, John, and welcome and thank you everyone to our Q1 2024 earnings call. In light of the company's strategic review, management decided to cancel the previously scheduled Q4 and full year 2023 earnings conference call.

Speaker 2

Although the strategic review is still ongoing, we're hosting today's conference call to keep our stakeholders up to date on recent events and Q1 results. I'm going to go a little off script here for a minute, if you don't mind. I don't think people are realizing, we have Revada, which is this amazing program that we won last year, but people are realizing we have 400 $1,000,000 of signed backlog, which becomes revenue. And it becomes revenue over the course of the next 18 to 24 months. So that's money that we'll build.

Speaker 2

The bulk of it is from Lockheed Martin, and we're very appreciative of our relationship with Lockheed Martin. It continues to grow stronger every day. We are rapidly we're changing our workforce here a little bit. And so we've gone from only 675 to 6 95 people, yet our throughput has gone up dramatically and we're able to produce. And our workforce is changing.

Speaker 2

It's now just under 20% of our workforce is now cleared. As we're going to be moving more and more into do more classified work, more work for the government and the DoD. And I think these are important metrics to see how that 400,000,000 dollars becomes revenue. And I don't think people are quite aggressive that because we realized it looks like revenues were down this quarter, but we have just under 50 space vehicles that will be delivered in 2024 alone. With that, I'm going to get back to the script, but I just want to make some quick points upfront to hopefully give you some context to the rest of the conversation.

Speaker 2

Let me remind you that the critical mission of Ternium is pursuing historically space with domain, of which we all know, in a few nation states, with the capital and time to build bespoke $1,000,000,000 satellites that took 5 to 10 years to manufacture. Today, Turnover is strategic investing in manufacturing capacity to enable production at a mass scale with the efficiencies and significant improvement in speed. And that efficiency comes without a significant headcount expansion. We could dramatically increase the amount we can manufacture with only increasing our headcount just 20 people over the course of the past 3 months. We are utilizing modular design, automation, component standardization to drive synchronized improvements in speed, cost and quality.

Speaker 2

Our automation is expanding beyond satellite components to satellite assembly and integration. We are realizing both cost savings and quality improvement from our recent investments in production, auto capacity and automation. Our proof of our success was clearly our early delivery of the 10 satellites for transport layer Tron 0 to our customer and partner Lockheed Martin in support of the space development agency. It took only 26 months from contract award to delivery of our space vehicles from our facility in California. While 26 months is a significant improvement relative to the years that traditionally would take to complete a new satellite program, we're not stopping here.

Speaker 2

We have plans to further reduce manufacturing time to just weeks and have announced plans to be able to accommodate 30 day lead times for standard space vehicles. The successful collaboration between Terran Orbital and Lockheed Martin has blossomed into a significant relationship. We are proud to announce additional contracts following our initial success, including the award contract we announced last night. This is just the beginning as we see a vast opportunity set as the Department of Defense increasingly relies on commercial stakes companies for national security missions. As of March 31st, we have over $25,000,000,000 identified top line, over 140 programs across a globally diverse customer set End use markets include defense, intelligence, remote sensing, broadband communications, 5 gs, direct to handset and span orbits from LEO to Flushlunar and beyond.

Speaker 2

Our current capacity, we are positioned to execute on multiple mega constellations of space vehicles such as the SCA and Ravada and many others and maintain the ability to flex our resources to rapidly match customer demand. Equally important, our design and matching capabilities uniquely position Terran Orbital to deliver highly engineered space vehicles in high volumes within compressed timeframes to meet each other's mission needs, and we do this at a fraction of historical costs. Disrupting an industry has its challenges. A key pillar of our strategic vision has been vertical integration. As I've always said, if you control your supply chain, you control your destiny.

Speaker 2

The benefits of vertical integration are best evidenced by our recent replacement of a propulsion subcontractor to protect the program schedule. I am proud of our team's proactive decision to pivot to an alternative propulsion solution. Matt will provide further detail on the accounting impact of the Q1, but I want none of our shareholders to doubt our long term consequences of this decision. At the end of the day, our goal is to deliver customers' missions on time and on budget. And unfortunately, with the supply chain as today, 85% of our supply chain we manufacture in house.

Speaker 2

85% of our components and modules are manufactured in house. We have our own CNC shops, printed board circuit assembly facilities, our own testing facilities, shaker tables, TVACs. We have our own torque rod assembly, our own harnessing shop. But the reality is anything we have to outsource, we're at the mercy of subcontractors. And that unfortunately is getting more and more difficult in this environment, which is why we continue to bring things in house.

Speaker 2

We realized over the past few years, we've invested 100 of 1,000,000 of dollars in building and designing our own components and modules, bringing things in house, but the future of the next $400,000,000 of orders that we're delivering and beyond, the impact of that will be significant on our financial statements as we drive to become EBITDA positive. But other challenges have been the timing of orders in FICO Capital Markets, which have constrained available capital for our customers' constellation plans. Our customers have to raise money on the commercial space, not the DoD space, and we're very cognizant of that. We share our shareholders' frustration with some delays our company and industry have experienced. With that, we are steadfast in our confidence and long term prospects for the industry and our company's positioning.

Speaker 2

As a result of these delays, our team responsibly swelled back capital expenditures, tightened discretionary expenditures. The intent was to flex appropriately to the delays while preserving the option to ramp capacity as demand for these pending mega constellations may acquire. We'd like to talk about some specific operational highlights. We did make substantial investments in our design and manufacturing capabilities over the past few years. We just completed our 60,000 square foot addition to our original manufacturing facility.

Speaker 2

As we speak, we have well over 40 space vehicles in the final stages of assembly on manufacturing floor, and we expect to launch just under 50 space vehicles this year. That would be that is a record for us. Late last year, we opened our advanced printed circuit board assembly lines. We now have the capacity to assemble over 5,000 printed circuit boards per month. Yields have exceeded our original optimistic expectations and we are thrilled with the progress we are making.

Speaker 2

We are seeing estimated 30% reduction to certain elements of our standard satellite bus costs and PCBA lines alone are yielding almost 100% every time. Our next capacity addition, which we've previously announced, is our new 94,000 square foot facility here in Irvine, which we expect to be handed over to us in the coming months as physical construction is nearly complete. The facility offers us the ability to scale and add capacity on the frequency of magnitude of new customer awards. We are actively pursuing other constellation opportunities that would depend on this capacity, and we expect to open this facility no later than Q1 2025. I am proud of the progress Terra Norbula has made in building the infrastructure to supply space vehicles at mass scale with the speed, quality and pricing that our customers desire.

Speaker 2

I'm also happy to update you the progress in support of the space development agency programs. Yesterday, we announced our selection by our partner Lockheed Martin to build 18 space vehicles for transport layer tranche 2 of the tracking layer tranche 2 of the SLA's proliferated warfighter architectures tracking layer. 16 of these satellites are planned to be wide field of view missile warning missile tracking space vehicles with infrared sensors and the remaining 2 space vehicles will carry missile defense infrared sensors. This award expands our participation to an entirely new layer of the SDA's mission architecture. Our team near term priority is completing the 4 gs space vehicles of the Tranche 1 transport layer, which should aim to deliver as many 8 vehicles this month, then 10 vehicles per month thereafter.

Speaker 2

I am proud of our nimble supply chain management to protect our customer schedule by being able to pivot quickly to replace contractors who are unable to deliver. Regarding the company's program with Rubada, we continue to execute on the program, although it was a modest contributor to our Q1 revenue. We have agreed in principle on a payment schedule that we believe will keep the program on track and make the launch timetable. For further information, please contact Gravada directly at the customer's request. Now, I'd like to provide an update on our strategic review process.

Speaker 2

On March 1, we received an all cash proposal from Lockheed Martin, one of our largest stakeholders and partners. Lockheed, who already owns or has the right to acquire approximately 27.7% of Terence shares, proposed buying all Terence shares at the price of $1 a share, which represented a 6.5% discount to the then current market price of 1.07 dollars In response, Terra Orbital adopted a shareholder rights plan. The shareholders' rights plan was intended to encourage anyone seeking to acquire the company, including Locke and Martin, to negotiate with the Board, but prior to attempting to oppose the transaction that is not in the best interest of stakeholders. A special committee of the Board was diligently evaluating the Lockheed Martin proposal as part of the company's ongoing strategic review alternatives, including direct engagement with Lockheed Martin. On April 30, Lockheed Martin withdrew a proposal.

Speaker 2

However, the strategic review is still ongoing and allows us to explore all options. There is no guarantee, however, this will result in any transaction or a strategic alternative. The Specialty Committee does not intend to provide any updates on the review unless and until it deems further disclosure is appropriate. We value Lockheed Martin as a customer, investor and strategic partner, and I look forward to continued our collaboration under our strategic cooperation agreement, which runs through 2,035. Believe this continuing partnership was reinforced by this week's Tranche 2 tracking award, which shows that we are still working together on programs across the board.

Speaker 2

Overall, I am proud of what we've accomplished and where we are heading. With that, I'll hand the call over to Matt to review our financial performance in the quarter and the year end.

Speaker 3

Matt? Thank you, Mark, and good morning, everyone. Now on to the financial results for the quarter. Revenue for the Q1 of 2024 was $27,200,000 down 3% relative to the same quarter in 2023. The decrease in revenue was primarily driven by unfavorable EAC adjustments on a single program due to challenges with a subcontractor, partially offset by an increase in revenue due to the continued and increased level of progress made in satisfying our customer contracts.

Speaker 3

As a reminder, EEC adjustments represent net changes during the period in our aggregate program contract values, estimated cost at completion, program estimates and changes and include the cost overruns and recognition of loss reserves. As disclosed in our Q3 2023 earnings call, our team made a strategic decision to arrange for an alternative subcontractor as a contingency plan. Unfortunately, our intuition proved correct as evidenced by ongoing challenges by the subcontractor in 2024. The majority of our $13,100,000 negative EAC adjustments to the Q1 revenue reflects our complete pivot away from the initial subcontractors. This event ultimately added a significant amount of estimated cost to the program, negatively impacting our cumulative revenue recognized on a percent completion basis to the program, though this revenue will be recognized in future reporting periods.

Speaker 3

While we are disappointed with the negative impact on this quarter's results, the proactive decision last year has at least helped mitigate this program schedule and financial impact from being worse. Gross loss for the Q1 of 2024 was $6,200,000 compared to $1,400,000 in the prior year. Excluding share based compensation and depreciation and amortization included in cost of sales, our adjusted gross loss was $3,400,000 for the Q1 compared to adjusted gross profit of $2,300,000 in the same period in 2023. EAC adjustments primarily related to the subcontractor discussed earlier negatively impacted gross loss and adjusted gross profit by an estimated $13,600,000 during the period. Selling, general and administrative expenses were $28,300,000 in the Q1 of 2024 compared to $32,500,000 in the same period in the prior year.

Speaker 3

The decrease in selling, general and administrative expenses was primarily due to a decrease in share based compensation expense and a decrease in research and development activities. These decreases were partially offset by an increase in administrative labor and benefits due to the increase in headcount on a comparative basis. Overall, we're at a point where our selling, general and administrative expenses should be materially stabilized compared to our historical growth trends. Adjusted EBITDA was negative $28,200,000 for the Q1 of 2024 compared to $22,600,000 in the same quarter of 2023. The decrease in adjusted EBITDA was primarily due to a decrease in our adjusted gross profit.

Speaker 3

Our backlog at the end of the quarter was $2,700,000,000 dollars of which $2,400,000,000 was related to our contract with the Revada and approximately $300,000,000 was related to non Revada programs. As of today, backlog is estimated to be over $2,800,000,000 inclusive of approximately $400,000,000 of non RAVADA programs due to our Q2 awards, which have exceeded $100,000,000 so far. Our programs generally take 18 to 24 months to complete, and our backlog is expected to be fully recognized as revenue by the end of 2026. Capital expenditures were slightly down during the Q1 of 2024 and primarily relate to our finishing touches on 50Tech. Our capital expenditures going forward will largely be related to our new facility and the timing and extent of our capital expenditures is flexible in relation to the addition of new awards that require the level of increased capacity that facility can offer.

Speaker 3

Finally, as of March 31, we had approximately $43,700,000 of cash on hand and approximately 300 and $16,700,000 of gross debt obligations. We remain excited about building on our success from 2023 into a strong 2024, as we have numerous large opportunities we are actively working on or waiting to hear back on. Efficient and successful execution of our new and existing contracts and becoming adjusted EBITDA positive in 2024 are our top priorities for our team. As highlighted in our previous calls, the exact timing of execution of our new contracts is an important variable impacting near term results. Given this timing uncertainty as well as our ongoing strategic review, we are withholding from providing guidance for the current year.

Speaker 3

I'll now turn the call back over to Mark for his concluding remarks.

Speaker 2

Thank you, Matt, and thank you everyone on the call for your continued support of Terran Orbital. The future of space is responsive and Terran Orbital is at the forefront. We are not just driving growth, we plan on shaping the future of the space economy. We are committed to becoming the undisputed leader in responsive space solutions. I now look forward to taking your questions and I'll turn it over to the operator.

Operator

Thank Our first question comes from Erik Rasmussen from Stifel. Your line is now open.

Speaker 4

Yes, thanks for taking the questions and good to see the step up in the backlog. Maybe on the award, the new sure. Maybe on the new contract with that you signed with Lockheed for the 18 satellites,

Speaker 5

the

Speaker 4

value per satellite for Lockheed, when we looked at it, it was almost 3 times what it was awarded per satellite for the transport layer. How should we think about your value on this latest award given you were at roughly $3,500,000 per satellite on the previous awards?

Speaker 2

So the the tracking layer is a far more sophisticated solution than what you would see on the transfer layer. There are different kinds of satellites. The buses that we provide have some similar components and some unique components on that. So we're not allowed to go into the detail on price for bus that we're selling it for.

Speaker 4

Okay. But you'd say it would be higher than what we've sold previously just because of the content and the more sophisticated?

Speaker 2

It's higher, it's more sophisticated as you have more stability needed for the payloads that are on board for them to do their mission.

Speaker 4

Okay. And I appreciate it's probably difficult being complexity around Robatas and given sort of guidance, but is there any color you can provide to help sort of structure the revenue ramp this year? We know the backlog was 2,700,000,000 dollars I think the disclosures in the Q suggests 80% realized by the end of next year and then the remainder in 2026. But not really sure how this will layer into sort of this year and next. So if any sort of commentary you could give would be helpful.

Speaker 2

Well, the thing about it is we have just under 50 space vehicles being delivered this year alone. So you'll probably see the revenue ramp. Q2 is a good and you'll see a little bit, but really Q3 and Q4 especially is we'll see the big revenue ramp will start to hit because we're delivering the solid through the end of the year.

Speaker 6

Okay.

Speaker 4

And part of that is also the T1 that sort of been pushed out, if you were to think about the delays you talked about?

Speaker 2

We expect all of T1 to be delivered by August of this year, the absolute latest. If we can make some contracts and move faster, we'll move faster. But the August and that's 42 space vehicles right there alone.

Speaker 4

Okay. Great. And then maybe just on Roboto, you received several milestone payments, I think smaller amounts thus far. Are you still in the PDR stage? And then maybe what's holding things up for Rubata and Taren at this point?

Speaker 4

And then maybe just with that, what sort of payment would you need from Rubata to begin the next steps? And what is that next step? Is it the beginning of the design phase?

Speaker 2

Prepares performance, we could finish PDR. We're still in the PDR stage. And once we complete PDR, then that will trigger the next payment. We expect PDR to be done by the end of this quarter. Okay.

Speaker 2

And remember that they Okay, great. They also made over time in order to make sure they keep schedule.

Speaker 4

Okay. I'll jump back in to the queue. Thank you.

Operator

Our next question comes from Scott Buck from H. S. Wainwright. Your line is now open.

Speaker 7

Hey, good morning guys. Thanks for taking my questions. Mark, since it's been a minute or 2 since we've had a call like this, I was hoping you might be able to update us on your thoughts around path to profitability. It sounds like with the ramp in the second half, maybe even by Q4, we could see something on a quarterly basis. Is that fair?

Speaker 2

I think it's fair. I think we're thinking of Q4. We're looking at maybe a little bit beyond. It all depends on when these other programs coming in. But the goal is Q4 to be there.

Speaker 2

You're seeing as our headcount has ramped slowed dramatically, but our yield is increasing dramatically and this has to do with all the automation. We still have to deal with some subcontractor issues as we've talked about earlier. But once the but as we bring new subcontractors on board and we bring some more components and modules in house, we see no reason why we wouldn't be the goal to get EBITDA positive before the end of the year. That is the goal.

Speaker 7

Great. I appreciate that. And then I just want to double check, the delayed revenue, you're expecting to receive 100% of that, right? There's not any kind of loss there?

Speaker 2

Correct. The $400,000,000 of backlog excluding Nevada is fully funded backlog that is almost all Lockheed Martin or DoD work.

Speaker 7

I was referencing the EAC adjustments in the that took place this quarter that you're expected to kind of recoup here in the Q3?

Speaker 2

No. Matt, you want to tackle that?

Speaker 3

Yes, sure. So yes, it's just a timing issue. Since our accounting model, it's effectively percentage completion. And so the percentage just changed because we now have additional cost of the program. So we just had to have a clawback of revenue, which will be recognized in future periods.

Speaker 3

But fortunately, the total contract value that we are getting paid on is fixed. So we will eventually re recognize that revenue.

Speaker 7

Okay, perfect. And then last one for me. Given it's an election year, I'm sure you guys have kind of handicapped potential outcomes. Any programs you're working on or bidding on that could potentially be at risk

Speaker 4

given election outcome?

Speaker 2

We're lucky to be in a space. I mean, other I mean, NASA, of course, is always at risk as they're spending a lot of money on virtue things. They put a lot of their eggs in 1 basket. And we have bid on a number of NASA programs. But our core DoD work, we think is pretty solid and safe.

Speaker 2

This stuff is necessary, and it's very low cost compared to other programs that are out there. So with the proliferated water fighter architecture, it's something the DoD is committed to. We are working on ways to diversify our pipeline going forward. We have a very diverse pipeline. We historically have done it.

Speaker 2

But now we're reorganizing ourselves to help that pipeline convert into revenue. We haven't done a very good job historically of converting pipeline into revenue and we're making some adjustments internally to ensure that that pipeline starts to convert into revenue.

Speaker 7

Great. I appreciate the color guys. Thank you.

Speaker 2

Thank you.

Operator

And our next question comes from Josh Sullivan from Benchmark. Your line is now open.

Speaker 8

Hey, good morning. Just a follow-up on that $400,000,000 of non

Speaker 9

yes, just on that $400,000,000 of non Revada backlog to convert over the next 18 to 24 months, what do you think the cash flow conversion of that looks like?

Speaker 2

It's all milestone based. So it is very lumpy as cash converts on these programs. Some programs are front loaded, some programs are back loaded. For example, like transfer layer tranche 1 is a very back loaded program, really upon delivery, actually 30 days net after delivery versus other programs are very much or have a lot of cash upfront. So it's lumpy per program depending on the type of satellite that we're building.

Speaker 9

And then just a question on headcount. You mentioned some progress on the cleared personnel. Do you have enough cleared personnel to execute on that $400,000,000 of non Revada backlog at this point? Or is a number you still need to get to?

Speaker 2

Well, if you ask my guys, we never have enough. That said, we are we have enough more than enough to complete those programs. It's the work that we're going after now is we're going after more and more, cleared more and more classified programs. We feel we can be hyper competitive in the classified marketplace.

Speaker 4

Got it. Thank you for the time.

Speaker 2

Thank you.

Operator

Our next question comes from Robert Spingarn from Melius Research.

Speaker 8

Hey, good morning everybody. I don't know Mark, if this is for you or for Matt, but it's sort of follow on to the prior question on free cash cadence. And I understand why it was asked before. We don't have a lot of visibility into Revada. So ex Revada, what should be the free cash flow cadence as we look out maybe over the rest of this year and into next year?

Speaker 2

I'm going to turn it over to Matt. How's that? Fair enough?

Speaker 3

Yes. No, no, fair question. Yes. So our liquidity and cash flow, it's really dependent on customer programs, us managing our expenses and then to the extent necessary to make up the difference, we have capital transactions. So our path to profitability and free cash flow is dependent on having these larger programs coming online.

Speaker 3

So that's the best way to think about it.

Speaker 2

Okay.

Speaker 8

So moving away from that, but related, you've got a debt covenant that requires you to be EBITDA positive on an LTM basis by the end of this year. But if that doesn't happen, it sounds like you might inflect at the end of the year. So how do you deal with that particular covenant? Can you get a waiver?

Speaker 3

Yes. So in our disclosing in our SEC filings, there's a couple of mechanisms that we could explore to either get waivers or extend the deadline for when we have to be EBITDA positive. Unfortunately, we can't make any guarantees that any of those solutions are achievable. We do have several options.

Speaker 8

Okay. And then just going back to this program, the fixed price program, the one that's delayed, is that strictly due to just changing the propulsion supplier? Or are there any other issues? Trying to ask before, but are there any other issues popping up during testing that might have contributed to the delay?

Speaker 2

The propulsion has been the number one problem, Charles, here. It's been a unfortunately, we picked a propulsion manufacturer who was unable to deliver the product that caused us to do some redesign to accommodate a new propulsion manufacturer and we are well on our way. So we'll receive the first 8 units by the end of this month and then we should have steady cadence on them going forward. We obviously are pushing them to move faster as we will be done with our space vehicles long before the propulsion guys are done. But there was no issue of testing of the vehicles.

Speaker 8

Okay, great. Thank you, Mark and Matt.

Speaker 5

Yes, good morning. Congratulations on the Tranche 2 tracking layer contract. Just wondering in the past when you announced some of these contracts, sometimes they come with down payments of cash or maybe an upfront cash payment. Just wondering if you believe that will come with an upfront cash payment and perhaps if you can talk about maybe what your cash levels are as of today or anticipated around this time this week?

Speaker 2

I mean, we don't normally disclose payments, but every program comes with what's called an ATP to proceed. And usually, we get an ATP payment within the 1st 30 days of getting a contract. And then those payments can vary dramatically depending on the program and long lead items that have to be purchased for the program versus things that we manufacture in house.

Speaker 5

So in terms of you're looking at your cash balances at the end of the quarter and then maybe doing some math on what they might be around now, it would be safe to assume that you're comfortable with your liquidity position in part due to the ATP?

Speaker 2

Yes, we feel very comfortable with our liquidity position as it stands today.

Speaker 5

And then just a question on Revada. So understanding that there's a small number of satellites that Revada needs to launch by the end of this year to kind of stay on track on their program. Just wondering if you're actively working on those or if there's that Revita would do those without Taryn or if everything is on track with that?

Speaker 2

No. As of right now, everything is on track. We're calling the precursor satellites with the Nevada. They have asked that all detailed questions of the Nevada go to them. They want to be able to control their own narrative on this.

Speaker 2

But right now we're tracking based on the schedule we have.

Speaker 5

And then with regard to the pipeline and commercial customers, is there anything that you can share with regard to any visibility, any near term opportunities that you're working on on the

Speaker 3

commercial side?

Speaker 2

So I can I will say that, you know, we have a number of commercial customers, who we've made it to the final round? So commercial customers are not like DoD customers where DoD gets their budget every year. Commercial customers tend to move much slower, believe it or not, if that's even possible than the DoD. But that said, when they move when they start to move, there's a lot of inertia. We have a number of commercial programs we've been working on for over a year, starting with RFIs and RFPs and then we go to co engineering phases, which we're in now with some, which means we're in the final round.

Speaker 2

And we continue to aggressively work on those customers to get them from co engineering to a contract. And it is a competitive marketplace on a global basis, but we feel we are very much price competitive and we're very much schedule competitive, which are 2 very big deals out there. So it tells me all these people were looking at 5 gs, direct to handset, internet things. There's a lot of companies around. We're talking to our customer base is getting geographically immensely diverse in terms of foreign telephone companies, foreign Internet providers.

Speaker 2

Everybody people who used to buy geos from other people are not talking to us. We have one customer, for example, who's been buying the entire time buying satellites from China and now looking to pivot to United States to buy satellites for our small set geo offering. So we're very we know we have the right products at the right time. And people are finally as they come over to Irvine to see what we're doing, they develop a huge amount of comfort in what we've built here in our manufacturing capabilities, which hopefully will lead to contracts later this year and beyond.

Speaker 5

Final question, so and appreciate all that color. Thank you. Just the final question would be, so Lockheed Martin offered $1 a share. The company essentially rejected that offer based on presumably its belief that intrinsic value is higher than the offer that was made. And just kind of wondering if you could talk a little bit about your views on intrinsic value or value of the company is.

Speaker 5

Clearly, you didn't believe the dollar properly reflected the value of the company. So just kind of wondering where the Board believes fair value would reside? And how you think about that?

Speaker 2

So, I've been, there's a special committee of the board that does this. It's a great question. I am out of the process. Myself and my partner have refused ourselves from the process. So the committee is made up only of independent directors in order to maximize shareholder value and make sure there's a fair decision being made.

Speaker 2

That said, we are looking in our comments we made earlier, we said the committee is going to be the ones talking about it. And I have been told that the social committee is the only ones who will talk about it. So I have no comment, unfortunately. And whatever my personal opinion is irrelevant, it's all about the social committee.

Speaker 5

All right. Thank you.

Speaker 2

So thank you very much. Appreciate it.

Operator

And our next question is from Phil Boswell, a Private Investor.

Speaker 10

Yes. I have a question about the recurring income. Is there any like SaaS type income or any other income that will that you'll be receiving as each satellite is deployed over the next several years?

Speaker 2

I mean, the only recurring anytime we get from satellites is if we do the mission operations for the satellite. We have 6 satellites currently in orbit that we do mission operations for. But the real thing that people miss and you actually asked a great question here. What the real thing that people miss is we're in the recurring revenue business. So every satellite that we build and launch has to get replaced in approximately 5 years on average.

Speaker 2

That is a huge opportunity for us. So if we have $400,000,000 of backlog today that we're fulfilling, 5 years from now, we're going to have that same $400,000,000 plus more coming from new customers. So everything we build gets replaced over and over again. So our revenues will continue to climb as the silage rebuilds will get replaced. Things and that's the beauty of low earth orbit is on one hand, they're very low cost and but they have a very short lifespan, but it means always current technology is being used versus the big geos that cause billions to build that were functionally obsolete the day they were launched that take 10 years to build.

Speaker 2

They last 25 years in space. They were around when the rotary telephone was around is when they were built. So it is a it's a and then the new FCC regs are talking about now every 5 years to de orbit to low earth orbit. So we're in the recurring revenue business and that's where we will get lots of recurring revenue down the road. That's a great question.

Speaker 2

Thank you.

Speaker 10

So as more satellites are put into orbit, the more the revenue will increase as time goes on?

Speaker 2

That's right, sir.

Speaker 10

Fantastic. Thank you.

Speaker 2

Thank you, Phil. Appreciate it. Thank you for your support and interest.

Operator

And our next question comes from Sean Hollander, a Private Investor.

Speaker 6

Hi, Mark. Thanks for taking the call here. Congratulations on the performance for Q1. Can you throw some light on the required cash balance at the end of quarter 2 that is part of the requirement under SCA agreement?

Speaker 2

Matt?

Speaker 3

I'm sorry, what's the question again?

Speaker 6

Can you throw some light on the required minimum cash balance?

Speaker 3

Oh, minimum cash balance? That's not so we have financial covenants that require minimum cash balances from our debt arrangements, which is $20,000,000 effectively as of quarter end.

Speaker 6

And you think Terrain will be okay to meet that requirement?

Speaker 3

We do not have any concerns about that covenant at this time.

Speaker 2

The answer is yes. We'll meet the requirements. We're well positioned to do that.

Speaker 6

Perfect. Awesome. That's good to know.

Speaker 2

Thank you for your time.

Operator

And our next question comes from Robert Mennesmann from Personal Wealth Management.

Speaker 11

Good morning, everyone. This is a Robotic question. Evidently, they do not have all their financing in place to build the 600 satellite array that you will be constructing. That's my understanding. So therefore, are there concerns that this whole thing could fall apart and have a major impact on your business operations in the future because the capital is not available to pay for the build out of the satellites for which you've contracted?

Speaker 2

So there are really 2 different questions there. As far as Revada goes, I can't comment on what they have and don't have. That's a question for Revada. On but I can comment on does it affect us and no, it doesn't have any impact on us going forward. We have lots of other customers.

Speaker 2

As you could stick with this way, Rivado has built 300 space vehicles with us. Lockheed alone has already placed orders for over 100 space vehicles with us. So it is just upside for us at the end of the day.

Speaker 11

Thank you.

Speaker 2

Thank you. Thank you very much. Okay.

Operator

We currently haven't any further questions. I'll hand back over to Mark Bell.

Speaker 6

Great. Listen, I want to

Speaker 2

thank everybody coming today. I'd like to thank some of the new people asking questions today. I really appreciate, the more the interaction. I encourage people on the call to ask as many questions as they'd like and participate. We think it is wonderful to have more participation, and we appreciate everybody's support.

Speaker 2

And we look forward to the quarter ahead. Thank you very much.

Operator

And this concludes today's call. Thank you for joining. You may now disconnect your lines.

Powered by Quartr
Earnings Conference Call
Terran Orbital Q1 2024
00:00 / 00:00