Q2 2023 Terran Orbital Corporation Earnings Call
Speaker 1: Thank you for your patience ladies and gentlemen. The Terran orbital second quarter 1023 earnings call will begin shortly. During the conference call, you will have the opportunity to ask a question by pressing star or by one on tap on keypad. Thank you for your patience.
Speaker 2: Muted this Mike, right? Yeah.
Speaker 1: Ladies and gentlemen, welcome to the Teran orbital Q2 2023 earnings call. My name is Gran and I'll be the operator of today's call. If you'd like to ask a question during the presentation, you may do so by pressing star 1 or tap on keypad.
Speaker 3: I will now hand it over to your host, Jonathan Seggman, Senior Vice President of Corporate Development to begin. Jonathan? And everyone, and thank you for joining Teran Orbital's second quarter 2023 earnings. With me this morning are Mark Bell, Co-Founder, Chairman and Chief Executive Officer of Teran Orbital Corporation and Gary Hobart, Chief Financial Officer of Teran Orbital Corporation. Mark will provide a business update and highlights for the past quarter and Gary will review the quarterly results and Mark will finish with closing remarks. Teran Orbital's executive team will then be available to answer your questions.
Speaker 2: Operationally, we are also delivering on our comments through our customers. We demonstrated this with our successful on-time delivery last year of our 10 transport layer Tronch Zero Satellite Buses to our partner Lockheed Martin for the Space Development Agency. We look forward to the extended launch of the completed Tronch Zero Satellite in the coming weeks. In addition, we are on track to begin developing delivering the first batch of the SDA's transport layer, Tronch One Satellite in 2023. The balance of the 42 satellites will be delivered by the end of 2024, which will bring in approximately $65 million of additional cash. Additionally, I am pleased to note that our runner-one satellite launched successfully on June 12th on a South Space X Falcon 9 rocket from Van der Berg Air Force Base in California. This multi-purpose remote sensing satellite, Tronch Zero Satellite, turned over to its first micro satellite, was jointly developed with ImageSat International. We have successfully completed the spacecraft bus commissioning on July 31st. Our next upcoming step is payload commissioning. Congratulations to the ImageSat team for the great progress of our commissioning with this newest satellite. As of June , our identified pipeline represents over $20 billion of opportunities.
Speaker 2: The expansion of our pipeline is due in part to increase in commercial engagements following the Rivado award announcement earlier this year. We are also harvesting benefits from our investments in broadened product offerings, expanded capacity, and strengthened business development team. To support our backlog and pipeline opportunities, we are continuing to increase production capacity with our continuing investments in our design and manufacturing capabilities. We are investing in a world-class production system to support the execution of over 370 satellites in backlog and over 5,000 satellites identified in our pipeline. Our new 50 tech facility in Irvine, California is now open adding 50,000 square feet of floor space, bringing our manufacturing capacity from 10 satellites to 20 satellites per month, a 100% increase. Critically, this includes additional testing equipment, our new piece printed circuit board assembly lines, and automation that we expect will vastly improve throughput, quality, and speed. Since the spring, we've been moving employees and equipment and now have our certificate of occupancy for all floors. We expect our now operational 50 sec facility will be a key facilitator in completing the majority of the plan work for the 42 Tranche 1 buses. In addition, we are progressing on and developing another 94,000 square foot facility in Irvine, which we expect to increase our capacity to multiple of our current capacity after commissioning in 2024. Importantly, this new capacity includes 36 foot high bay for assembly and integration of larger satellites.
Speaker 3: per quarter through the balance of this year. Adjusted debit DAW was negative $21.4 million for the quarter compared with negative $14.8 million in the same period of the prior year. The decrease in adjusted debit DAW was primarily due to an increase in selling general administrative expenses as a result of our growth initiatives, partially offset by an increase in adjusted gross profit. Overall, adjusted debit DAW loss is largely a function of our ramping capabilities. Adjusted debit DAW is largely a function of our ramping capabilities across the company to serve our multi-billion dollar backlog and pipeline in the coming quarters and years. This is part of an overall investment in our capabilities that supports our path to profitability for which...
Okay.
Great.
Origins.
But we're sticking with the 200 and we're sticking with the $250 million number.
That being more of that's great, but we're we feel very comfortable at $2 50.
Great and then maybe on margins do you expect to grow sequentially.
But there's obviously some variability.
Within that on pace and size, but maybe help us understand the components of that variability when do you see gross margins, where do you see them settling for the year and then maybe sort of any update you can share for next year.
Sure as we said last quarter during Q&A.
The bulk of what we're expecting for the back half of this year will be in the mid to high teens.
Going forward, we expect kind of mid 20% margins and Thats just based on looking at what we have in our backlog and our expectation based on budgets in our backlog.
Okay great.
So no update there and then maybe on the.
Competitive landscape have you seen any changes anything.
In the last 90 days since our last update.
There's been a lot of consolidation in the space and maybe just your thoughts on sort of staying independent.
We have CEO , we watched what happened with Australia as first satellite they launched at brick into space.
It's not so easy as we keep trying to tell people, it's an art form.
We are we like being independent it gives us we believe it works. It works for US we are ever expanding our ability to work with many more and more customers both.
On the globe.
And.
We're very happy with where we are right now.
Okay.
Great and then any other color you can give on the New award the <unk> satellites.
Any timeline, maybe when you satellite could be delivered.
The customer requests we are not giving out any information sorry.
Great. Thanks.
Okay.
Thank you.
Our next question comes from Robert Spingarn from <unk> Research Robert Your line is now.
Hey, good morning.
Gary could you dig into the second half revenue cadence, maybe a little bit more in terms of.
Is it all in the fourth quarter I guess, Mark you were suggestion, suggesting it's really hockey stick at the end of the year, but on percentage of completion accounting Shouldnt, we see sales ramp to some extent here in Q3. So how do we think about Q3 and Q4, that's the first question.
Sure Rob I think my comments a couple of minutes ago. I think there is most most I'm going to dig into on that.
Looked at $2 50 for the full year with third quarter being bigger in the second and fourth bigger than third.
I really don't want to provide more details on that.
Any changes, particularly with third party deliveries and third party performances can have a significant move from one week to an extra one months in an accident so well.
We're going to limit ourselves in terms of just giving more glossy discussions about how the $2 50 plays out which would be more than $1 90 for the second half.
Right.
What's the right way to think about.
This implies kind of $190 million in revenue in the second half how much of that is rivas, how much of it is SDA. It sounds like SDA deliveries next year. So just how do we think about the allocation of that revenue across the programs.
Sure I don't think we're going to break it down precisely, but I think you can back into our $2 6 billion of backlog has been roughly $2 four from Nevada.
A little under 100 million from Lockheed Martin, including the SBA.
The program that we're working on in below expected finished by the end of this year or April of next year and then the other $100 million of other programs.
The I would say that we haven't really broken down the mix it comes up to that $190 million number.
But if you think about the.
The ramp was shown in Nevada.
And.
We started the year with ease.
It's probably close to a little under half from Nevada, and the balance from other other backlog.
Okay, and then just to clarify I think you said Gary that from a free cash perspective, its kind of plus or minus for the second half did I hear that right.
In other words about breakeven.
It could be about breakeven.
Okay, and then you would become cash flow positive at some point in 'twenty four just want to make sure I got all of this.
Correct.
Correct Okay.
Okay, and so what is the capital.
Plan at this point going forward either for you or for Mark how do you think about.
Raising cash to the extent that you need to.
Yes, it's really just about timing of payments at this point right now and the last thing any of US want to do is raise additional cash.
I don't want the dilution is one of the largest shareholders I can say that the last thing on why does any dilution. So it really is about timing of payments if things work out as planned we're being pretty good shape.
Right now everything seems to be lining up well for us.
Okay Super helpful. Thank you.
Thank you.
As a reminder, ladies and gentlemen, if you would like to ask any further question. Please.
One on telephone keypad.
With our next question comes from within Bos B.
<unk> Securities.
Line is now open.
Hi, Thanks for taking my questions I wanted to jump back to the competitive landscape in margins.
So Leo Stella recently talked about a bigger box to focus on ft contracts <unk> is making a bigger push in a small fats and then you have your orkin millennium sort of ramping up capacity alongside yourselves.
Obviously that highlights the demand Mark that you were talking about earlier, but how is this translating into the bid and proposal process as it is it having any effect on your prior expectations regarding how you think about gross margins when youre bidding for contracts or said differently is your ability to grow margins as quickly as you might have thought in the past changed at all.
It's just like launch there is an incredible shortage of launch and is an incredible shortage of capacity to build satellites. I mean think about it 60000 satellites are on file with the FCC right now.
You add up all the capacity in the United States doesn't even come anywhere near close to that it's a fraction of that so we see continued margin expansion as we continue to grow. It's also as we add payloads to the mix, we're adding more value into the mix, which also allows us to grow margins.
Our margins, obviously were very small when we started off on us becoming now more appropriate for the size of business and what we're doing for the customer.
Okay. Thanks Martin.
Related to that.
How are the gross margins or how are you looking at gross margins for <unk>.
And then how does that how does that stack up to the guide that Gary gave earlier in terms of commentary.
Mid to high teens.
Well, we don't we don't break out customer margin. So obvious reasons on the call. So but that said, we're very comfortable with our overall blended gross margin and where it's going.
Okay Sure thing and then just in terms of the EAC adjustments.
Any expectation on when those are going to begin to abate.
I think we're seeing them level off right now a lot of it really comes down to teething as we're doing ramping up module production and really commissioning out all of our lines.
It's really hard to tell.
The numbers have kind of leveled.
Leveled off the last couple of quarters.
I would expect them to stay low and hopefully get down to.
Something we're not even to the point of reporting but right now I feel like they are they.
<unk> seen bigger Beast, because we are dealing with smaller numbers, but relative to our backlog I would expect them to be de minimis going forward, but that's going to be part of how we execute and commission our overall offering.
Okay, Alright, great. Thanks, guys and then just last one from me wanted to shift gears and talk about Lockheed.
We opened up a new 20000 square foot low Bay facility earlier this month for satellite integration and testing can you just comment on how this fits into yours and lockheed's overall small satellite supply chain.
Just your overall ability to continue servicing growing defense demand.
It's actually it's perfect for what we do with Lockheed So they were using a GPS III facility to do the assembly and test for the SDA transport layer. It really required its own facility. So we build the buses for them at our facility. We shipped the buses to their new facility to do the solar power integration and payload integration and final testing.
So it's very complementary to what we're doing it's similar to our version.
Good year that we can be doing for us they have their own goodyear to for them, which was there which is the water too. So it's a very complementary facility for us to work with.
Okay, great. Thanks, Mark I appreciate you taking my questions.
Thank you.
Thank you.
We have a follow up question from Erik Rasmussen of Stifel. Erik Your line is now open.
Yes. Thanks.
A follow up piece of real Here's just a clarification you had mentioned the tech 50 facilities opened in Irvine.
Now at the <unk> satellite per month capacity run rate or is there still some work to do to get to that run rate.
We are there.
Great.
Hey, Joe.
We're very excited about it.
That's all I got it thank you.
Thank you.
We have no further questions on the line I will now hand back to the management team for closing remarks.
Great well I just wanted to thank everybody for joining us today.
We appreciate everyone's participation.
Being patient with us as we grow as a company. We are very mindful of our cash flow mindful of we don't want dilution. We are very mindful that we are we have a lot coming up in Q4 Q4 is a very big quarter for US and then that ramp will continue on next year, which is pretty exciting and we look forward to any.
<unk> wishes to come visit facility, we always encourage that to see the new 50 ticket operation.
What we do and with that I will turn it back over to the operator. Thank you.
Thank you ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Operator, thank you.
Thank you ladies and gentlemen.