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spk13: Hello, thank you for joining us and welcome to today's Terran Orbital fourth quarter and full year 2022 earnings call. My name is Leo and I'll be your moderator for today. You'll have an opportunity to ask the management team at the question at the end of the presentation. I'll now hand over to your host today, John Siegman, Senior Vice President of Corporate Development. John, please go ahead.
spk00: Thank you, Leo. Good morning, everyone. And thank you for joining Terran Orbital's year-end 2022 earnings call. With me this morning from Terran Orbital are Mark Bell, co-founder, chairman, chief and executive officer, and Gary Hobart, chief financial officer. Mark will provide a business update and highlights for the quarter and full year in 2022. And then Gary will review the quarterly and annual results. Terran Orbital's executive team will be then available to answer your questions. During today's call, we may make certain forward-looking statements. These statements are based on our current expectations and assumptions and, as a result, are subject to risk 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.terranorbital.com. readers are cautioned not to put any undue reliance on forward-looking statements, and the company specifically disclaims any obligations to update the forward-looking statements that may be discussed during this call. 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.
spk08: Thank you, John, and welcome and thank you to everyone for joining our year-end 2022 earnings conference call. 2022 was an exciting and pivotal year for Terran Orbital. In March, we became a publicly traded company and started trading on the New York Stock Exchange under the symbol LLAP, Live Long and Prosper. We built backlog, capacity, and revenues throughout 2022. We are well on our way to achieving the vision of industrializing small space satellite production. We made extraordinary progress in a very short time. Today, I am thrilled to review the highlights from 2022 and provide a business update, including the company's record $2.4 billion contract from Rivada Space Networks, which we announced last month. Gary will provide more detail on our financial results and then we're happy to take all your questions. Starting with a recap of Terran Orbital's achievements from 2022, in March our company became public via merger with Tailwind 2 Acquisition Corp. during challenging capital market conditions. Since then, our revenue has grown by 130% year-over-year to $94.2 million. Our backlog rose a similar percentage over the last 12 months, from under $74 million to over $170 million as of December 31st. Our backlog includes over 60 satellites and various stages of completion, which we expect to deliver in the coming quarters. Over the last year, escalating geopolitical tensions and new space technology advances drove unprecedented and urgent demand for low Earth orbit satellite solutions beyond even our earlier expectations. Our team has moved decisively and strategically to expand and vertically integrate our production facilities. I am delighted to report to you that our strategy is paying off. We delivered a record 19 satellites in 2022. Our investments in facilities, workforce, and automation are creating an industry-leading production base in Irvine, California facilities. And in October 2022, we were thrilled to complete a new $100 million investment and extension of our strategic cooperation agreement to the year 2035 with our partner, Lockheed Martin. Our steady execution was demonstrated by our early delivery of the 10 satellites to Lockheed Martin in support of the Space Development Agency's Transport Layer Tranche Zero. I couldn't be any more prouder of our Terran orbital team's performance in delivering this important customer commitment. As discussed on every earnings call since our listing, meeting our commitments to Lockheed Martin, the Space Development Agency, and our nation's warfighters on this critical program was a top goal for our team in 2022 and continues into 2023. I thank the entire production, program, and engineering teams for working hard to accomplish this goal and serve our customers' missions, which we believe differentiates our performance relative to our competitors. As an established small satellite manufacturer with a first mover advantage, we are expanding our competitive moat. Accordingly, we are landing bigger and even record-shattering new contracts. For example, the Space Development Agency has awarded the Lockheed Martin turnover team two successive tranches of the SDA's transfer layer. The first award was for 10 satellites, which was awarded in early 2020, which we just completed. The second tranche one award is for 42 satellites and was awarded just 12 months ago. We are executing on this tranche and expect to begin deliveries later this year. We expect the Space Development Agency to award the transport layer tranche two contracts later this year as well. And just last month we received our largest contract ever. We were awarded a $2.4 billion contract to deliver 300 satellites, and ground support to Rivada Space Network. Rivada also has the option to purchase an additional 300 satellites as well. This advanced constellation will utilize the most advanced space technologies available to a low Earth orbit proliferated constellation and provide cyber secure communications and data services for the protection of the U.S. and its allies in Europe. Terran Orbital offered Ravada both manufacturing heft to meet the critical mission and regulatory time stones and a more capable satellite design and architecture to provide mission assurance. To solidify our leadership position in small satellite manufacturing and support diverse customers such as the Space Development Agency, Ravada and others, we are pleased to announce further progress in expanding our capacity. Today, we are in the commissioning phase of our previously announced new facility in Irvine, California. This facility at 60,000 square feet of manufacturing space and once fully ramped is expected to support the buildup up to 250 satellites per year. In addition, we are thrilled to announce today our next capacity expansion step. an incremental 94,000 square feet of leased manufacturing and assembly space, also in Irvine, California. Importantly, this new facility, which has already begun construction, will have 36-foot high bay assembly space to accommodate the complete assembly and integration of larger size satellites along with their payloads. We are planning to transition all satellite assembly to this new facility and dedicate our existing facilities to the production of components and modules that will comprise our satellites. This optimization will enhance the efficiency and capacity of our entire production system. When fully ramped, this addition has the potential to raise our satellite capacity to multiples of our prior 250 per year target. We will have a formal groundbreaking ceremony in May of this year and expect the facility to begin commissioning in 2024. Let's take a moment and talk about our outlook. As we look to the year ahead, we remain focused on continuing to convert our $14 billion pipeline of opportunities into firm contracts, scaling our capacity and executing our customer commitments. Given the potential and material impact of our contract, Revata, and other opportunities on our 2023 financial performance, we do not intend to provide 2023 guidance until the first phase of the Revata program has commenced and progressed sufficiently to permit us to have a good sense of our projected results. We expect progress on this program to accelerate throughout 2023 and 2024 with deliveries concentrated in 2025 and 2026. As a reminder, these affordable low earth orbit satellites are designed for replacement every few years with a potential for recurring revenue stream as they need to continuously be replaced as do all low earth orbit satellites. Additionally, We expect to begin delivering SDA transport layer tranche one satellites in 2023. The SDA has indicated they plan to run their procurements for new tranches of satellites every two years. They have announced multiple planned procurements over the next year, which we intend to participate. We are pleased that our on-time delivery and support of the early SDA missions positions us well for future awards. SDA programs Program priorities this year and next include tranche two of the transport layer, T2's demonstration and experimentation, and the tranche two of the SDA's tracking layer represent nearly 300 additional satellites. We are proud of our team's achievements in 2022 and excited for the year ahead. A highlight of the year was just last week when Tarrant Orbital's long legacy in satellites was recognized by the receipt of one of our earliest PropCube satellites, which is now on permanent display at the Smithsonian National Air and Space Museum in Washington, D.C. We highly encourage you to go see our success of the museum and thrilled to have it displayed there in perpetuity. Now I will hand the meeting over to Gary to review our financial performance and for the year end 2022. Gary.
spk04: Thank you, Mark, and good morning, everyone. I'm happy to report our strong finish to the year resulted in revenue of $31.9 million for the fourth quarter, a 197% increase over the prior year. The increase in revenue was primarily due to our continued support of the SDA's transport layer inclusive of the completion and delivery of 10 satellites to Lockheed Martin for the Tranche Zero program, and continued progress made in satisfying other customer contracts. Full year 2022 revenues were $94.2 million, a 130% increase over the prior year. Overall, we are actively executing on our growth initiatives in order to position ourselves to be awarded large Constellation contracts with recurring revenue opportunities. As a reminder, we recognize revenue on most of our programs on a percentage of completion basis, and changes to our estimated cost at completion for a program or EAC will generally result in a cumulative impact on program revenues and margins in the period in which we make an EAC adjustment. During 2022, adjustments to our EACs reduced revenues by an estimated $7 million. Gross profit was negative $10.8 million for the fourth quarter, and negative $17.3 million for the year in 2022, compared to $0.7 million and $7 million for the fourth quarter and full year in 2021. Excluding share-based compensation and depreciation and amortization included in cost of sales, adjusted gross profit was negative $7.3 million for the fourth quarter and negative $2.2 million for the full year in 2022, This compares with $1.7 million and $9.5 million in the same periods in the prior year. EAC adjustments negatively impacted gross profit and adjusted gross profit by an estimated $18.3 million in 2022. This includes approximately $7 million from revenue previously noted and approximately $11.3 million from cost of sales. A large portion of these adjustments relate to programs that involve prototypes and early phases of potentially large customer missions. During 2022, we focused on delivering quality satellite solutions on tight timeframes, often involving technical design and supply chain challenges. While EAC adjustments are possible in the future, I'm pleased to say that most of the drivers of the 2022 EAC adjustments relate to programs that are substantially complete at this point. Selling general administrative expenses were $27.6 million in the fourth quarter of 2022, compared to $13.1 million in the same period in the prior year, and $111.9 million for the full year of 2022, compared to $43.7 million for the full year of 2021. The increase for the full year was primarily due to an increase in share-based compensation expense as a result of the Tailwind 2 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. During the fourth quarter of 2022, the company abandoned plans to invest in a company-owned constellation of Earth observation satellites. As a result, we recorded a loss on impairment of $22.4 million related to costs previously capitalized as construction and progress associated with the development and construction of those initial satellites. Our net loss for the fourth quarter of 2022 was $33.0 million compared to a net loss of $40.3 million for the same period in the prior year. Our net loss for the year was $164 million compared to a net loss of $139 million in the prior year. In addition to the items discussed earlier, The increase in net loss was driven by higher interest expense recorded in 2022, partially offset by a decrease in loss on extinguishment of debt and a decrease in the fair value of warrant and derivative liabilities in 2022. Adjusted EBITDA was negative $26.1 million in the fourth quarter of 2022. This compares to a negative $11.3 million in the same period for the prior year. Adjusted EBITDA was negative $69.5 million for 2022. compared with negative $26.1 million in the prior year. The decrease in adjusted debit dollar for the year was primarily due to a decrease in adjusted gross profit and an increase in selling, general, and administrative expenses related to salaries and wages, research and development, and other operating costs. Our backlog at the end of the year was approximately $170.8 million And this does not include any contribution from the Revata Contract Award announced in February. Capital expenditures for the year 2022 were $22.5 million. Finally, December 31 of 2022, we had approximately $93.6 million of cash on hand and approximately $302 million in gross debt obligations. I will now turn the call back over to Mark.
spk07: Great.
spk08: Thank you, Gary, and thank you everyone on the call for your continued support of Terran Orbital. I now look forward to taking your questions, and I'll turn it over to the operator.
spk13: Thank you, Mark. If anyone would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. And when preparing to ask your question, please ensure your phone is unmuted locally. Firstly, we've got Austin Mola from Canaccord on the line. Please go ahead.
spk02: Hi, Mark and Gary. Good morning.
spk08: Good morning. Thanks for joining us.
spk02: So I just have a question here on the fiscal year 23 budget. So Congress added an incremental $500 million to the Space Development Agency's budget for
spk08: 2023 so how do you see this as benefiting terra normal going into bid on on the tranche 2 of tracking and transport where along with other planned constellations like the deterrence flare you know the physical 2024 request you'll continue to aggressively integrate space force into the fabric of national international security by collaborating across the department of defense interagency commercial industry our allies and our partners With their request of $26.1 billion, which is 8% of the investment budget request, or for perspective, this is 181% higher than the $9.3 billion requested five years ago, which represented just less than 4% of the budget. Yeah, we see this moving in a very positive direction for us. We see the FDA specifically approaching almost $3 billion now of total funding and growing rapidly as Congress gets more and more comfortable with their mission and as they prove results that they're able to deliver satellites quickly on time and on budget.
spk02: Great answer. And then just to follow up this question for Gary, but Do we see improvements in the pipeline on materials and labor costs? And is the timeline to be EBITDA and free cash flow positive? Is that more, would we think, maybe in 2024 now?
spk04: Yes. Hi, Austin. So we are seeing improvements. As I mentioned in our prepared remarks, a lot of the programs we've been working on are prototypes and early versions of bigger missions. And so as we have those programs are retired and we're building and scaling up with bigger programs, our ability to really leverage and scale and have economies of scale are starting to manifest themselves. I think that's going to play out over the next several quarters. Our general update with regard to your response of your question about EBITDA continues to be that we have a reference to in our debt covenants. A requirement to be EBITDA, breakeven, or positive by LTM June of 2024.
spk10: Okay, great. Thanks for all the color. Okay, next we have a question from Mike Crawford from B Reilly.
spk13: Please go ahead.
spk11: Thank you. Hey, Mark, what do you expect to show in your backlog 10 days from now at the end of Q1 for the $2.4 billion Rivada contract?
spk04: Hi, Mike. We are still evaluating how we want to present the Rivada contract. For now, what you're seeing in this release in the 10K is going to be just a separate reference to the Rivada contract. And we'll make determinations as we finish the March quarter on how properly to approach that in terms of backlog of the overall presentation. For now, we're just going to separately present it to you guys so you can see it separate from our year-end backlog.
spk11: Okay, let me try it differently. So, well, first, we find it intriguing that Nevada appears to have spectrum rights that have priority over Starlink. But what can you tell us about your understanding of approvals that Rivada needs both to start launching its satellites and also regarding the funding that it has to pay you to build these, at least these first 300 satellites or a portion thereof?
spk08: Sure. So I can't comment on, you know, on Rivada's business specifically that there's a customer's job to do that. I can tell you about what we know about the ITU process. You know, Rivada is entitled to a waiver of the deployment of 10% of the constellation against the deadline this year. The Radio Regulations Board, which consists of 12 elected I2 experts, can grant this. The regulator from the country where Ravada filed its orbital positions, which is the Office of Communications for the Principality of Liechtenstein, submitted all the necessary documentation to the Radio Regulations Bureau on time. Ravada believes that this submission contains full and clear evidence As requested in the relevant procedure, provided submitted evidence in time to receive a positive decision as early as possible as the end in March would be the end of March, but understands this framework allows for the actions to be taken. at the July RRB meeting instead. The German letter did not argue against granting the waiver. It merely asked that the RRB uses maximum time foreseen until June and a considered reading of the process will be applied. And as far as funding goes, You know, they have given, they have given our attorneys comfort, uh, where they are in the funding process and, um, you know, they have to get their ITU stuff finished. And otherwise they, I can tell you, they did make our first payment to us already.
spk11: Okay. Um, excellent. Thank you. And then just one final question is regarding your, your new Irvine expansion. So. You also have the new high bay facility right next to your existing components factory, but that also will just be for higher, bigger size components that then you would move to Irvine? Is that the new plan?
spk08: The plan is to take what we call Barranca, which is the original facility, and we're going to attach it to the building next door, which is 50 Tech, which is our new facility coming on 9 April 1st. Those two buildings will do all of our module and component manufacturing, development, and testing. All the assembly will move down the street to this new building, and that will just be for assembly and TVAC and final testing. But the 50 tech building with the hybrid you're referring to, It's 25-foot high bay. The new building is 36-foot tall high bay, allowing us to do significantly larger-sized satellites. We're seeing satellite buses get larger and larger. Even though we invented the CubeSat over a decade ago, we're seeing the requests. People are going the opposite direction. Everybody wants smaller, and now people want larger. We've seen it go. We're now building, I think we have a single satellite in the house now that's 800 kilograms. So we're seeing things get larger and larger requests because people want more power. But we also are learning that responsive space and the go-fast model is what is more important than price and more important than anything else is getting it quickly. And so we're seeing incredible interest. and, you know, us being able to deliver stocking buses and reducing down our cycle to do buses. But we're also looking to expand into payloads and to go ahead and have payloads that will be stocking payloads as well. So instead of right now having a two-year cycle to design, build, and deliver a satellite, we want to shorten that up dramatically. And we have to, especially coming out of satellite 2023, the big conference in D.C., overwhelmingly, customers prefer speed to price. It was a very interesting conversation. And so with all the robotics that we're putting in, speed is something that we will excel at, and price is where we're going to go make our margin and become profitable.
spk11: Okay. Thank you very much.
spk13: Thank you. Okay. Okay, next we have a question from Eric Rasmussen from Stifel. Eric, please go ahead.
spk14: Yeah, thanks for taking the questions. Maybe just staying with the Irvine expansion. It seems like you're working on bringing up capacity to 250 satellites throughout the year. When do you expect to be at that run rate, and is there additional capital needed to get there?
spk08: I expect to be at that run rate in the next 60 days in terms of capacity. The new facility is coming online April 1st. We'll go through some testing to make sure everything's working as planned. But by the end of Q2, that facility will be humming along. And basically, we look at this 20 satellites a month. is what we're able to produce, give or take. That's how we view these things. So we can do 10 a month now. We learned that in T1. We can do 20 a month with the new facility. And the facility that we're just constructing now dramatically increases that because it is a space purely designed for assembly and nothing else.
spk14: So would you say then, you said you mentioned multiples of that. And so at some point, you're looking at 500,
spk08: 750 a thousand it depends on the size of the satellite it's all size dependent but we haven't released the numbers yet we will as we get further down this year where we'll be and and just you know to preface you know we will continue to we always have to hire ahead and we have to build ahead of programs that we are getting so rivada was a great people look at our back our pipeline and we talk about a 14 billion dollar pipeline and everyone's like wow that's such a crazy big number but the reality is we just converted 2.4 billion of that pipeline and that shows that you know our pipeline is quite real and quite active and so you know we try we have to build ahead of programs and we have to hire people ahead of programs so i would expect for people to see that we will be making later this year other announcements in terms of other new facilities that will be coming online over the next couple of years.
spk14: Got it. And then maybe just my follow-up. You delivered on time the 10 satellites by year end to support the T0TL program. And it seems like you're now transitioning to build the next tranches of 42 satellites. Can you just remind us, though, the timing of delivery for these satellites? What are the milestones you guys are targeting? And then maybe just, you know, give a little more color on how you think you're positioned for the other tranches that will be awarded by the SDA. Thanks.
spk08: Sure. I can tell you, we have to have all the satellites delivered by Q1 of 2024. And we are well on our way as we've already begun manufacturing. And as far as how we do with the SDA, you know, we believe we've proven ourselves to the SDA. They said, you know, those who deliver will continue to win, I think was the quote. And we will start to obviously we start delivering tranche one in 2023. But, you know, they said those who deliver will continue to win. And we are delivering. We're doing everything we said we're going to do. And we will continue to do that. And I will do it at a price that makes sense. So we feel like we're in a pretty good – it's obviously a very competitive bid. There were, I think, 17 people who bid on tranche one. So we expect to have a lot of bidders. But we continue to prove ourselves, and that means something. Great. Thank you.
spk13: Thank you. Next, we have a question from Elizabeth Grenfell from Bank of America. Please go ahead.
spk09: Hi, good morning. Good morning. Did you get any color on what you expect revenue growth to be this year or capex associated with the facility expansions or any additional color in terms of just general modeling for the year?
spk04: Hi, Elizabeth. In general, what we're doing is not providing guidance, just given the magnitude of the award regarding Revata. Away from Rivada, we've said in the past we're looking to double our revenue as a general matter each of the coming years. And I would still look to that as a principle of guidance, if you will. But we're really not guiding until we have more color on not only Rivada, but other pipeline conversions that we're in the middle of doing.
spk09: Okay. And can you give us any sort of idea around the cadence of how you expect Rivada to come in and how we should think about that?
spk08: You know, we are waiting for Rivada to, you know, they have to get their ITU license finished, and then everything goes full speed ahead. So one more step to do, and then we're good to go.
spk09: Okay. All right. And what about CapEx associated with these facility expansions, and how should we think about that? And at what point is it, a little bit of putting the cart before the horse.
spk08: In our business, you always have to put the cart before the horse because if the horse shows up and has no place to go, then we're in deep trouble. Everybody has an 18- to 24-month horizon, right? And we know what programs we believe we're going to be winning, and we have pretty good insight in our P-win rate of what we think we're going to get. And so we're not building for the sake of building. We knew, for example, we had a high degree of confidence we were going to win T1. So we went ahead and we started building an addition onto our existing 60,000 square feet because we knew our existing facility wasn't big enough to do T1. And we won T1, and now we have enough space to build T1. We had a good feeling that we would be winning something like Rivada. So we went ahead and we signed a lease earlier this year to go begin building another facility that gives us the space to build Rivada. Now, if you look at us, as we sign more leases for more space and assembly space, manufacturing space, That should be a good indicator to the market that we expect to be getting more customers in-house.
spk09: Okay, thank you very much.
spk08: And one other thing I'd like to add is, you know, in building these facilities, you know, there's a very long lead time for a lot of specialized equipment that goes into these things. So some of the stuff takes as much as 48 weeks to get. But when we get a program, they want it delivered on time, and we can't say we've got to wait 48 weeks to get equipment. So we're not a capital-intensive business. We're a technology-intensive business. But we've made massive strides forward. I mean, we just opened up a 3D printing facility. We are opening up in about a month our printed circuit board assembly facility. We will be opening up also in about a month our own testing facility with our own TVAC chambers that could fit an entire satellite and our own shaker tables. So we are taking a lot of the stuff we used to send outside, bringing it inside, going back to if you control your supply chain, you control your destiny. And we are vertically integrating so we control our supply chain so we don't have supply chain issues down the road like a lot of other people are having. And this is one of the keys to our success.
spk13: Okay. And next we have a question from Greg Conrad from Jefferies. Greg, please go ahead.
spk01: Hey, good morning. Good morning. Maybe just to start, I appreciate that you're not giving guidance, but you called out you delivered 19 satellites in 2022, and it seems like maybe majority of Tranche 2, or sorry, Tranche 1 delivers in 2023. How many satellites do you plan to deliver in 2023?
spk08: You know, Gary, you want to answer that? Gary?
spk04: Sure, sure. Greg, this may help at least guide you a little bit. The backlog at the end of the year is about $171 million. And in that backlog are a little over 60 satellites that are in various stages of construction. And generally speaking, our backlog converts inside of two years to the date of order. So while we're not guiding precisely to when that backlog will be converted or those satellites are delivered, It's going to be closer to inside of two years, and so you can kind of start modeling around using those as at least a reference point. And then Mark had mentioned earlier that the 42 satellites for tranche one are due before the end of the first quarter of 24. So hopefully that gives you a little more color.
spk01: And then just on the $14 billion pipeline, I mean, you called out the Rivada award. If you think about just the breakdown, how much of that is these larger, chunky awards versus maybe smaller awards? Just thinking about Catalyst as some of that pipeline converts.
spk08: Well, the biggest chunk of the pipeline is the $6 billion NASA Rapid Rewards Contract 4. So that is where NASA can call us up and order satellites off that contract. We just met with NASA the other day. We haven't seen a lot of that. But Ravada really demonstrates the size of the things that we are spending our time going after. We are whale hunting, and it is working. We're spending a lot less time with people who are trying to build one satellite than we do do that. But we are spending a lot more time with people who want to build hundreds of satellites. And what Ravada did for us as a business is it gave us credibility in the marketplace that we can build a large satellite. So we spent the past week meeting with multiple constellation opportunities, the size of Ravada, some smaller, some larger, but it was an incredibly, people are viewing us now very differently, very credibly, both within the DoD and in the commercial marketplace. And we're seeing a lot of interest now from foreign companies and foreign governments that we didn't see before. It's really been a huge transformation. If you look at our pipeline, you have 125 different possibilities with over 3,700 satellites kicking around in there. And with the new facility we just announced today, that gives us a huge advantage. And with all the automation we're doing, And keep in mind, we make 85% of our components in-house. Most of our competitors buy components from lots of other manufacturers. And we all know when you buy components from 20 different manufacturers and put them all together, they work perfectly every time. It doesn't work like that. And that's one of the reasons all of our stuff is plug and play. They're all designed to work with each other. And most of our stuff is flight proven at this point, which gives us also a huge advantage. So, and you know, and you, you, you have a lot of foreign entries coming into the United States, people like Airbus, people like Leo Stella, a lot of foreigners coming in, but the DOD, you know, is getting to, and the Congress is getting to a point that they want to create jobs here in the U S and we shouldn't be spent suspending taxpayer dollars on defense programs built by foreigners. And that is becoming a bigger, bigger topic up on the Hill. And we expect that over the next year to have some real impact on our business as we are made in the USA.
spk01: And then just last one, just two-part question on cash. I might have missed it, but in terms of CapEx for 2023 and given expansion plans, I mean, does CapEx kind of peak in 2023 or 2024 and kind of tie to that? You actually had really good working capital in 2022, right? Just given the upcoming contracts, would you expect that kind of carry into 2023 in terms of staying positive on working capital?
spk04: Yeah. So two parts to that question. On CapEx, as we've now ceased pursuing the self-funded constellation, that will reduce to zero that type of spend in CapEx. Predominantly CapEx will be a combination of facility and equipment expansion both in Irvine this year and in the new facility this year and next. Right now we haven't fully scoped that, but think about the two facilities as roughly a number that's maybe 10 million all in. It could be more depending on how exquisite we get for each facility. We spent a little bit of that already for the existing Irvine expansion. I would also say maybe that there's a maintenance CapEx or an IT spend that's anywhere from five, maybe as high as 10 million, depending on how we think about equipment. So right now, generically speaking, I'm looking at a CapEx profile that's anywhere from plus or minus 15, maybe less, maybe more, depending on how accelerated we are on bringing on this additional facility in Irvine, as well as how we think about the equipment that we're adding and testing capabilities. Regarding working capital, we do have fairly significant swings in working capital. You saw that a little bit throughout last year. We had positive working capital swings and pretty chunky working capital swings. A part of that is, quite frankly, the teething of growing when we had revenue growth in the fourth quarter of almost almost 200 percent. the working capital swings can be quite dramatic. And so part of how we think about our cash flows is factoring in working capital. And it's one of the reasons why we're looking at our liquidity constantly and thinking about how to manage that, both our growth and also our liquidity profile.
spk16: Thank you.
spk13: Next, we have a question from Robert Springarm from Mellius. Please go ahead.
spk05: Hey, good morning, everyone. Mark, just all the color you've given us, net-net, how would you say the market has changed from a demand perspective as the economy changes and maybe marginalized players are moving away? So how has the demand changed and then how is the supply chain? Are you seeing any of your competition exit the market?
spk08: Sure. So let's bring this down to a couple pieces. So on the market side, you know, The NDAA is the only thing Democrats or Republicans always agree on. It's recession-proof. It's interest rate-proof. It will be for 61 years. It's always been near and unanimous. We don't see us cutting our defense budget anytime soon. With everything going on in Ukraine and China, we just don't see that as a reality. We always see our biggest threat to our business is world peace. We don't see that happening anytime soon as well. What we do see... And the commercial side is people are seeing that commercially-owned satellite constellations are now economically viable. When they were building billion-dollar satellites in geosynchronous orbit, they weren't economically viable. When you're building million-dollar satellites in low-Earth orbit, business applications become economically viable, whether it's 5G, Internet of Things. all sorts of other things. There are things we can do to make the world has changed that has made it more productive for companies to do business. On the supply chain side, by continuing to build things in-house, we are seeing less and less supply chain issues. We are seeing a lot of our competitors, not competitors per se, a lot of the new space SPACs We see them continuing to get into trouble. You saw what happened to Virgin Orbit. You know, all these guys are building it and hope they will come. In our case, we don't build something unless they come to us first. So we have a very different business model, but we're just lumped into a bad neighborhood. And unfortunately, our stock doesn't represent that.
spk05: Okay. And Gary, you talked about a lot of, you know, positives and negatives just, you know, with with regard to the numbers. So when you put all that together, how should we expect free cash burn to continue as we go through the year? I know you're not guiding, but what should the trend be between the facility expansions against the prototyping winding down and so on?
spk04: Yeah, Rob, thanks for the question. It's a little bit difficult to say in addition to not providing guidance. I can point to the near-term history that we could see swings, particularly in working capital, that impact our liquidity or at least our free cash flow to the tune as much as $25 to $30 million in any one quarter. It could be a little bit higher than that. It could be a little bit lower, particularly if Revata onboards on the time frame we're thinking about. So it is a fairly big swing that we are managing. And that one working capital is probably the biggest one, as well as overall the timing of new awards and the execution of those awards. That has a very dramatic impact, generally positive with new awards as we bring them on. And so it makes it difficult to guide, but it also is kind of a function of where we're at in terms of growth and use of liquidity. And so let me pause there because it's really difficult to give much more guidance than that.
spk05: Okay. And just a housekeeping question. Where are you on the B. Reilly facility?
spk04: So the B. Reilly facility is still open and available to us. We have available to us the lesser of about 98 million of proceeds or the sale of about 27 million shares. So we barely tapped it last year. Okay. Thanks.
spk05: Okay, thank you both.
spk13: Next, we have a question from Josh Sullivan from Benchmark. Please go ahead.
spk15: Hey, good morning. Good morning. As far as the EACs, you know, any areas or aspects of the contracts that call out or lessons learned? You know, I think you mentioned it might have been related to some legacy programs.
spk08: I mean, be more specific.
spk15: So, I mean, just as far as going forward, should we think about, you know, you mentioned they were part of legacy programs. So, should we anticipate going forward in a better position?
spk04: Yeah. So, like as I mentioned, it's possible that we have additional EAC adjustments in the future. We finished the year with our estimates and our EAC based on what we knew. So, what I will just reiterate is, A large portion of the EAC adjustments we saw throughout 2022 were on programs that we are substantially completed on. And so those programs tended to be more prototype and early phase programs, where quite frankly, technical challenges, supply chain challenges, running additional shifts, all those things contributed to additional costs. And also just quite frankly, trying to move things and accelerate the speed to get things out the door. So there's a little bit of teething here as we bring on board things, but those one-off programs tend to be the ones where you have a million or $2 million impact. And if you have a couple of programs like that, it adds up each quarter. And that's what we were seeing. What we can see going forward is a lot of our programs now are the bigger, more scaled programs, where if we do have an impact, The size impact relative to the overall program is much more muted. So we're encouraged by where we are at the beginning of the year. But a lot of EAC adjustments, we hopefully are in the rear view mirror, but there is possible we have some in the future.
spk08: Yeah, I mean, 36 months ago, we were building satellites you could hold in the palm of your hand. Today, we're holding things that need to go into a truck. But the sizing seems to be stabilizing in the 350 to 500-kilogram ranges where most people seem to be stabilizing. But there was a learning curve to getting to that point. But now that we're out of the size of stabilizing, we'll see less NREs going forward than we have in the past.
spk15: Got it. And then maybe just one on the announcement on Monday with cognitive space. If you talk about the dual use assets there, is that going to be owned by you? And does it include any SAR?
spk08: You know, Terran Orbital is now scheduling an on-orbit asset using Cognitive Space's sentient software platform. We expect this partnership to help drive down costs of our internal operations, as well as our customers grow to larger concentrations easier. I can't comment as to what we're using it for. That's all I can say at this point.
spk15: Thank you for your time.
spk13: Next, we have a question from Vlad Sazeo. Please go ahead.
spk16: Hi, thank you for taking the question. I do have a question regarding the 14 billion pipeline that I would assume doesn't include a 2.4 of rebuttal. Can you give us any color on the composition and the stage of that pipeline and what are you expecting of that to convert in 2023 and what would that go into 2024? Sure.
spk08: Well, it was a $16.4 billion pipeline that's now a $14 billion pipeline, but there are about 125 programs in there that could make up about 3,700 satellites. The biggest of that $14 billion is a $6 billion NASA rapid rewards contract. And after that, you've got some very, very large programs and some smaller programs as well.
spk14: Thank you.
spk13: We have a question from James Burren. Please go ahead.
spk12: Hi, thank you so much for taking my call. I'm not sure really if I have any kind of a question, but just an observation. I've been a finance guy my whole career. And when I see the kinds of losses I see you folks racked up last year, I just get very concerned that there might be fundamental problems in the manufacturing operations that are hard to see. And so I have quite a few shares of your stock. I think I'm going to be acquiring more. But I hope you have a very strong cost accounting person on your staff so that when you ship a satellite, they can say immediately, this is how we did on that satellite or this group of satellites. And so that's my only comment. The other thing I see is I've also been involved in a number of startups. And unfortunately for me, not one of them has succeeded yet. And one thing I see very much is that people are very focused on trying to get more and more and more sales. You guys got $2.4 billion worth of a contract. Focus on that. Nevermind trying to get any more business. You need to succeed on this 2.4 billion or you're going to get overwhelmed. And I see people run out of cash very quickly. And all of a sudden there's a problem. And then the next thing you know, the company's gone. So, I'm putting a lot of faith in you guys. I've got a lot of shares. I'm going to acquire some more, but I'm just giving you some of my thoughts and my experience in the future. You've got a huge contract, and make sure you succeed with what's in front of you, and don't be so focused on trying to get more.
spk08: I appreciate very much your comments. So between my business partner, Dan Staden, and I, we've built seven unicorns. This will be our eighth. We've taken 17 companies public successfully. We are an old, experienced management team. We understand that we've had losses, and part of that is we are hiring ahead of programs. We are 100% committed to Rivada and getting it out the door on time and profitably. And as we are to all the programs we have going forward, but we needed to build up scale because we knew what programs we would be. We knew that we would be getting some big programs and you have to hire at a scale. But you will start to see the financials improve going into 2024 because obviously gained EBITDA positive and free cash flow positive is enormously important to all of us. And so, but we had to spend a lot of money to get where we are today. But we totally understand your concerns. And trust me, Gary, myself, and the rest of the management team are working to make sure we are in a great place. And thankfully, with a partner like Lockheed Martin, they have been very supportive of us and have been keeping us enormously busy, running two shifts a day, seven days a week in our existing facility. And we will be with the new facilities We will get to a more normal work cycle, which also will help to keep our costs down, especially with all the robotics we're building. And as with any investor on the call, we invite people to come to see our facilities, see what we do. We're always welcome to have investors come take a tour.
spk12: Very good. Thank you so much.
spk08: Thank you.
spk13: As a reminder, everyone, to ask any further questions, please press star followed by one on your telephone keypad now. We have a question from Den Rapp from Ascending Capital. Please go ahead.
spk06: I appreciate your time, guys. I wonder if you could speak to your cash needs and how that could change once the Revata gets the ITU approval. Is that a benefit to you guys, or would that make your cash needs worse? In other words, is there a possibility of getting a large upfront payment when this project kicks off that could ameliorate some of your cash needs?
spk08: Yeah, so with any commercial program, see, we don't give a lot of credit. We're a cash in advance kind of people, you know, and God we trust, but all of them must pay cash. And so we want, we try, most commercial contracts are pay in advance, then we work, pay in advance, then we work. It's like a law firm working off a retainer. We give very little credit. Unlike the Department of Defense, where we give credit to you, but they pay very, very quickly.
spk06: um so but we are on the commercial side all of all of our commercial contracts are written so we have very very little cash up front we have to spend okay and uh kind of a follow-up to that uh regarding uh you know what you're seeing in the market now and the banking crisis i think part of the reason you're seeing some pressure on the stock even before today last few days we've seen this across the stock market, is any companies that require cash have really been punished because of the crunch in regional banks, et cetera. And I'm wondering if you have that on your radar and what kind of alternatives you may have in mind to be able to limit dilution if you do need to go out and get that capital. And as part of that as well, are there any concerns? I know your lawyers feel comfortable with the financing for Rabada. But if there is some sort of a crunch in the banking space, a further one, would that risk the funding coming into Revata as far as you know?
spk08: You know, while we are thrilled that we have Revata, we don't count on any one contract. We continue to go out, and just like we will be bidding on the new SDA programs coming up, We continue to bid on lots of things, and we have a very high success rate in winning what we bid on. So we continue to bid. With Lockheed Martin, we've had a tremendously high success rate. I think we have 11 Lockheed programs in-house right now, and we continue to be a phenomenal partner and working together. So we've done very well on the cash management side. We just raised $100 million last year from Lockheed. We feel pretty good about where we are and have no concerns at this point about our cash.
spk12: Okay, thank you.
spk13: Thanks. We currently have no further questions, so I'll hand it back over to the management team.
spk08: Great. Well, on behalf of Gary Hobert, myself, and the rest of the Terran Orbital management team, and all of our employees, we thank you very much for your support and your continuing confidence in Terran Orbital. We appreciate everybody tuning in for today's call. And as always, we try to make ourselves as accessible as possible to the investing community. We're going to be at the Stodoti conference this week, Wednesday and Thursday this week, for those of you who wish to attend. And we continue to make ourselves available. So feel free to reach out to us at ir.terranorbital.com. And we are happy to answer any and all questions and look forward to seeing you in another quarter. Thank you very much.
spk13: This concludes today's call. Thank you for joining. You may now disconnect your lines.
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