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Terran Orbital Reports Third Quarter 2022 Financial Results Including Another Quarter of Record Revenue

November 09, 2022

Terran Orbital Corporation  announced financial results and operational highlights for the three and nine months ended September 30, 2022.

Post 3rd Quarter Closing Highlights

· Announced a $100 million investment from strategic partner Lockheed Martin

· Signed a new Strategic Cooperation Agreement (SCA) with Lockheed Martin extended into 2035

· On track to deliver Space Development Agency’s (“SDA”) Transport Layer Tranche 0 satellites by end of Q4

Third Quarter 2022 Highlights

· Generated record revenue of $27.8 million, a 171% increase compared to the third quarter of 2021

· Backlog of $198.0 million as of September 30, 2022, up 168% since December 31, 2021

· Increased headcount to greater than 440, up approximately 78% since the beginning of the year

· Net loss of $27.4 million improved from the net loss of $32.3 million for the second quarter of 2022

Marc Bell, Co-Founder, Chairman & CEO, said, “We are thrilled with the performance of our team this quarter as our strong execution drove another quarterly revenue record. We are especially gratified by the vote of confidence from our strategic partner Lockheed Martin as demonstrated by their $100 million investment and new thirteen-year Strategic Cooperation Agreement. This investment from the nation’s largest defense contractor validates that Terran Orbital is today focused on the right markets. Furthermore, it satisfies the Company’s near-term capital requirements to deliver on our business plan.”

Results for the Third Quarter of 2022

Total revenue for the third quarter of 2022 was $27.8 million, up 171% compared to $10.3 million in the same period in the prior year. The increase in revenue was primarily due to the continued and increased level of progress made in satisfying our customer contracts.

Cost of sales for the quarter was $27.8 million compared to $8.8 million in the same period in the prior year. The increase in cost of sales was primarily due to an increase of $15 million in direct costs incurred in satisfying customer contracts, an increase in share-based compensation expense following the Tailwind Two merger, and an increase of $584 thousand related to reserves for anticipated losses on contracts. Cost of sales included an estimated $1.9 million negative impact due to EAC adjustments.

Gross profit was $37 thousand, compared to $1.5 million in the same period in the prior year. Excluding share-based compensation and depreciation and amortization included in cost of sales, Adjusted Gross Profit⁽¹⁾ was $3.2 million, compared to $2.1 million in the same period in the prior year. EAC adjustments negatively impacted gross profit and Adjusted Gross Profit by an estimated $2 million, including approximately $100 thousand from revenue and $1.9 million from cost of sales.

Selling, general and administrative expenses were $24.7 million in the third quarter of 2022, compared to $11.4 million in the same period in the prior year. The increase was primarily due to an increase in share-based compensation expense as a result of the Tailwind Two merger, an increase in research and development expense, increases in salaries and wages, facility costs related to capacity expansions, and other operating costs, partially offset by a decrease in accounting and legal fees.

Our net loss for the quarter was $27.4 million compared to a net loss of $12.4 million for the same period in the prior year. In addition to the items discussed above, net loss increased as a result of higher interest expense and financing costs related to financing transactions, offset by a decrease in fair value of warrant and derivative liabilities following the Tailwind Two Merger.

Adjusted EBITDA⁽¹⁾ was $(13.9) million compared to $(8.7) million in the same period in the prior year. The decrease in Adjusted EBITDA was primarily due to an increase in selling, general, and administrative expenses related to salaries and wages, research and development, facility expenses, and other operating costs as a result of our growth initiatives, partially offset by an increase in Adjusted Gross Profit.

Backlog

Backlog represents the estimated dollar value of executed contracts, including both funded (firm orders for which funding is authorized and appropriated) and unfunded portions of such contracts, for which work has not been performed.

As of September 30, 2022, the Company’s backlog totaled approximately $198 million, a 168% increase since December 31, 2021, driven primarily by the Company’s major contract awards during the year including an award to build 42 satellites for the SDA Tranche 1 Transport Layer.

Balance Sheet and Liquidity

As of September 30, 2022, Terran Orbital had $35.8 million of cash on hand and approximately $202 million in gross debt obligations. The Company’s debt includes $24.4 million in connection with an obligation under one of the PIPE investment subscription agreements, of which $1.9 million is payable in cash with the remaining $22.5 million payable in cash or equity at the Company’s option, subject to certain requirements.

In July 2022, the Company entered into a common stock purchase agreement with an affiliate of B. Riley Securities, Inc., pursuant to which the Company has the right, but not the obligation, subject to certain conditions, to sell to B. Riley over a 24-month period up to the lesser of (i) $100 million of newly issued shares of the Company’s common stock and (ii) 27,500,000 shares of the Company’s common stock. During the quarter, the Company sold approximately 423 thousand shares for proceeds of $1.8 million under the B. Riley committed equity facility.

Subsequent Events

On October 31, 2022, the Company received a $100 million investment from Lockheed Martin in exchange for convertible notes and warrants issued by Terran Orbital. In connection with the investment, Terran Orbital and Lockheed Martin also entered into a new Strategic Cooperation Agreement (SCA). The new SCA runs through 2035 and allows Terran Orbital to pursue a wider variety of opportunities with Lockheed Martin. Terran Orbital intends to use the funds to acquire additional satellite assembly space, increase module production, and satisfy working capital needs while expanding advanced manufacturing capabilities. The investment and expanded partnership underpin plans to accelerate the expansion of both capacity and breadth of the Company’s satellite solutions.

Following the Lockheed Martin investment and the allocation of production capacity to fulfill existing customer programs, the Company no longer plans to pursue investment in its own synthetic aperture radar (SAR) constellation. The Company is currently evaluating options to offer SAR satellites and payloads as a product to its customers. This plan for PredaSAR is expected to require a much smaller investment than previously planned.

Terran Orbital’s disruptive technologies provide customers with innovative and cost-effective solutions. The SCA with Lockheed Martin creates further opportunities for both organizations to share their expertise and relationships to advance emerging technology across military, commercial, and civil customers. This will be achieved by focusing on:

· Mission assurance at both the satellite and constellation architecture level;

· Speed and schedule to deliver timely solutions for the most demanding and mission-critical customers; and

· Affordability through innovation with an industrial approach, combined with capacity and facility enhancement to deliver and share an unprecedented value proposition.

Terran Orbital believes there are growing unmet needs in adjacent markets to the company’s core satellite offerings. To address these needs, Terran Orbital plans to expand product and service offerings to include:

· Payloads including synthetic aperture radar (SAR), electro-optical, hyperspectral, infrared, and secure communication;

· High-reliability satellite subassemblies and component offerings, including, but not limited to, star trackers, flight computers, reaction wheels, battery solutions, and guidance, navigation and control solutions;

· Mission operations for satellites using Terran Orbital and partner ground networks; and

· Other defense-related products.

The terms and conditions of the Lockheed Martin investment transaction, including the note and warrant purchase agreement and the new SCA, are more fully described in the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 31, 2022.

Outlook

The Company continues to focus on the successful execution of its existing contracts and delivery of satellites on schedule while also winning new contracts to expand its backlog. Accordingly, the Company reiterates its expectation to deliver all ten buses in 2022 to Lockheed Martin in support of the SDA Transport Layer Tranche 0 and has commenced work on the next forty-two satellites for Tranche 1, which we expect to begin delivering in 2023.

To support the continuing expansion of manufacturing capacity, the Company expects to open its new Irvine, California manufacturing facility in the first quarter of 2023.