Terran Orbital Corporation

Hello and welcome to the Terran Orbital first quarter 2023 earnings call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during the presentation, please press star followed by one on your telephone keypad. I'd now like to hand over to Jonathan Sigmund, Senior Vice President of Corporate Development. The floor is yours. Please go ahead.

Thank you, Elliot. Good morning, everyone. Thank you for joining Terran Orbital's first quarter 2023 earnings call. With me this morning, I'm Mark Bell, co-founder and chairman and chief executive officer of Terran Orbital Corporation, and Gary Hobart, chief financial officer of Terran Orbital Corporation. Mark will provide a business update and highlights of the past quarter, and then Gary will review the quarterly results. Terran Orbital's executive team will then be 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 uncertainty. 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 obligation to update the forward-looking statement 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 for the non-GAAP financial vendors with the most comparable GAAP measures in our earnings press release. With that, I will turn it over to Mark.

Thank you, John. And thank you, everyone, for joining our first quarter 2023 earnings conference call. I am excited with our year-to-date performance, especially our order flow. A new, even broader mix of customers are increasingly looking to turn Orbital for the design and manufacturing of their satellite constellation and new space-based projects. Customers are choosing us because of our 10-year-plus track record of success, our state-of-the-art design and mission breadth, our rapid-paced increased manufacturing speed, and our world-class quality. We added a $2.4 billion 300 satellite order from robotic space networks in February, which we believe is the largest single commercial constellation award ever. This has driven our March quarter end backlog to over $2.5 billion. In addition, we are pleased to announce today that we have signed a new $87 million, 16 satellite order with yet another new customer. This award, combined with several other awards we recently signed, brings our total order books to over 30 programs. More to say on this, but our pipeline to order conversion year to date is a standout highlight. Now, turning to our overall performance and quarterly update. First, I'm happy to announce that our team's positive momentum continues across our space development agency contract. After our successful delivery last year, of our 10 transport layer trans-zero satellites to our partner Lockheed Martin, we are very much looking forward to their launch next month. These trans-zero satellites will demonstrate the low latency communication length to support the warfighter with a resilient network of integrated capabilities from low earth orbit. As a reminder, the SDA transportation layer is a mesh communication network that will use hundreds of low earth orbiting satellites to connect with other solid layers plus critical ground, air, and sea-based systems. As such, the transport layer is foundational to the SDA space architecture for this decade and beyond. We are pleased to contribute this critical national security mission through work on the first two awards for this layer, known as Tronch Zero and Tronch One. Our team is hard at work manufacturing SDA's transport layer Tronch One. The 42 satellite order and we are pleased to confirm that we are on track to begin delivery of the first batch of these satellites during 2023 and the balance by the end of the first quarter of 2024. Tronics 1 will be the first operational generation of the proliferated warfighter space architecture and it's scheduled for deployment by the SBA in late 2024. The Space Development Agency strategy for construction of this advanced space architecture which will consist of hundreds of satellites, has been to rapidly acquire and deploy low-earth orbit satellites and truncheons every two years. The FDA recently issued a solicitation for Trunch 2 satellites, and we expect this award to be announced later this year. We believe our experience and track record with Trunch 0 and Trunch 1, in partnership with Lockheed Martin, differentiate us and position us well for additional awards from the space abomination. Many of you are familiar with our relationship with Lockheed Martin. This seven-plus-year strategic partnership was recently extended through 2035, and we continue leveraging the full spectrum of our combined capabilities to support the Space Development Agency. Tranche 2 of the Transfer Layer, along with the Space Development Layer opportunity, remain key pursuits for our team over the next 12 months. Second, we are very pleased to update you On the company's record $2.4 billion contract, design, manufacture, integrate, and test 300 satellites for Avada's space network. As we announced last month, we have received a further milestone payment, along with completion of the screening of our industrial partners. This mission will consist of satellites orbiting a low-earth orbit and multiple planes using laser communication terminals. Our initial $2.4 billion contract covers only the first 300 satellites. The contract includes an option for Ravada to purchase an additional 300 satellites at an additional cost. The contract is broadly grouped into a design phase and a build phase. We are currently executing on the design phase, which includes a, quote, demonstrator mission that will support the verification of gatewayless transmission from one user to another, routed within a small network of four satellites in space. Mission operations for the on-orbit demonstration satellites will be conducted from TerraMobile's new state-of-the-art satellite operations control center, which is currently under construction in Irvine, California. An additional 25 satellites will be built and commissioned as part of this phase. The build phase will consist of delivering the balance of 300 satellites in late 2025 and the first half of 2026. We are still ramping this program and recently received a milestone payment Revata revenues are projected to steadily ramp up in the coming months. Third, we are thrilled to announce today an $87 million award from a new customer for 16 Low Earth Orbit satellites. We are pleased to be partnering with this new customer who has a long history of advancing space technology. We see ourselves not just as a pioneer, but as an industry leader and a supplier of choice. which is validated by our most recent Constellation Contract Awards. Our backlog and pipeline both remain robust. As of March 31st, our backlog stood at $2.5 billion, representing orders for over 360 satellites, and our pipeline has $11.8 billion. These March 31 metrics include the successful conversion of the Rivada space contract from pipeline to backlog, but exclude today's announced award. In addition to the programs we noted, we have other active programs, many of which are precursors to larger consolation, both for the existing customers and as well as new and other customers who value our deep mission experience and track record. These missions and others we are pursuing are diverse across customer, channel, and mission. Included today is the prototyping and development of satellites, in support of the larger potential constellation. While many of these programs are undisclosed today, they serve the seed as a seed corn for a larger potential constellation awards tomorrow. Our announced Lockheed Martin Linus mission success of two Terran orbital geoseq satellite completing the rendezvous and proximity operations demonstration is just one example of the revolutionary program our team is currently working on. Another is our record-setting NASA Pathfinder technology-demonstrated three satellites, which enable the record 200 gigabits per second space-to-ground optical link. Low latency, secure communication, proliferated systems, speed to orbit, technology innovation, each of these are customer demands for which we are delivering advances today. Supporting all of these orders and opportunities is our vertically integrated and scaled design and manufacturing capability. We are investing in world-class production systems to support execution of our 360 satellites and backlogs and over 2,600 satellites identified in our pipeline. Our new facility, which we call 50 Tech in Irvine, California, has 60,000 square feet of floor space and brings our manufacturing capacity of approximately 20 satellites per month once this facilities fully commissioned later this year. Critically, this includes testing equipment, printed circuit board assembly equipment, and robotic and automated assembly lines to vastly improve throughput, quality, and speed. And we are pleased to announce we are progressing with the development of our recently announced 90,000-square-foot facility also in Irvine, which we expect to increase our capacity to multiples of our current capacity after commissioning in late 2024. Importantly, this new capacity includes 36-foot high bay for assembly and integration of significantly larger satellites. In summary, Terran Orbital has established itself as the leading supplier of the enabling satellite infrastructure of the new space age. Constellations of smaller, low-Earth orbiting satellites are the preferred architecture of the future. What used to cost billions and take a decade to launch, Terran Orbital is building on a fraction of the cost in months. Our investments in scale, vertical integration, and automation leverages our 10-year legacy. Our production system is designed to deliver satellites at a mass scale and at a speed and quantity our customers desire at a price point to stimulate new markets and at margins to reward our shareholders. We are thrilled our strategy was recognized by the two new franchise contract awards in recent months. Now, let me turn it over to Gary. to review our financial performance in the quarter and provide a financial outlook for the full year. Gary?

Thank you, Mark, and good morning, everyone. I'm happy to report that in the first quarter, we achieved multiple milestones in satellite production, resulting in a record first quarter revenue of $28.2 million for the first quarter of 2023. This is a 115% increase over the same period of the prior year. As a reminder, we recognize revenue on most of our programs on a percentage of completion basis and adjustments and changes to our contract values and estimated cost of completions or EACs have a cumulative impact in the period in which we make the adjustment. In the first quarter, adjustments to EACs increased revenues by an estimated $800,000. Gross loss was $1.4 million for the first quarter compared to $2.8 million in the same quarter in 2022. Excluding share-based compensation and depreciation and amortization included in cost of sale, adjusted gross profit in the first quarter was $2.3 million, compared to adjusted gross loss of $0.2 million in the same quarter in 2022. EAC adjustments positively impacted adjusted gross profit by an estimated $1.5 million during the first quarter of 2023. Selling, general administrative expenses were $32.5 million in the first quarter of 2023, compared to $30.2 million for the same quarter in 2022. The increase was primarily driven by higher research and development activities, labor and benefits, and other costs as a result of our growth initiatives offset by decrease in share-based compensation expense. We continue to increase our staff to meet upcoming demand. Share-based compensation is an important part of acquiring and retaining employees. Although down year over year, Share-based compensation still represented over $10.2 million of our first quarter expenses, with approximately $6.9 million running through our GAAP SG&A expenses and $3.2 million balance reflected in our cost of sales. Subject to future equity program activity, we currently expect share-based expenses to be below $7 million per quarter in the balance of this year. Adjusted EBITDA was negative $22.6 million for the quarter compared with negative $14.7 million in the same period in the prior year. The decrease in adjusted EBITDA was primarily due to an increase in selling general administrative expenses related to higher research and development activities, labor benefits, and other costs as a result of our growth initiatives, partially offset by an increase in adjusted gross profit. Overall, adjusted EBITDA loss 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 we are well positioned, particularly given the strength in our signed quarter book. Our backlog at the end of the quarter was $2.5 billion. Capital expenditures for the quarter were $3.2 million. Finally, as of March 31st, we had approximately $57.4 million of cash on hand and approximately $305.3 million in gross debt obligations. Now for outlook. We are very excited about our outlook for the coming year. The efficient and successful execution of our new and existing contracts remains the number one priority for our team. The exact timing of execution on our new contract work is a primary variable affecting our projected full year 2023 results. But these contracts are the building blocks for what we believe will be a substantially higher sales base in 2024. Given our current view of our steep ramp ahead, we anticipate an excess of $250 million in sales in 2023. Upside beyond this level is possible depending on our successful execution of our customer commitments, just as our ability to achieve this target would be impacted by such execution. The timing of our new capacity commissioning and our anticipated schedule of contract milestones will drive our revenues to be weighted towards the second half of this year, particularly the fourth quarter. We expect gross margins to demonstrate year-over-year improvement, but pace improvements may be variable given timing impacts. Finally, we note that our capex for the year is expected to be less than $30 million. I will now turn the call back over to Mark.

Thank you, Gary, and thank you, everyone, on the call for your continued support of Terran Orbital. I will now look forward to taking your question, and I'll turn it over to the operator.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Ron Epstein from Bank of America. Your line is open.

Hey, I actually got Andre on for Ron today. Thanks for taking my question. So I wanted to note the CapEx expected spend for the year along with where the cash balance is at now. How are you guys finding the financing environment largely? Could you give a little more context around that?

Sure. This is Gary. The financing environment is we do a little bit of our equipment expenditures on a financing basis, and there are multiple providers of that. So I feel very comfortable and confident with that. Generally speaking, from a finance perspective, we look at the company punted to the market in terms of the equity markets. As you know, we have a little under $100 million e-lock in place with B. Reilly. We have not tapped into it for the last couple quarters. That is the primary area by which we look into the market to add additional capital. But overall, this is a tough finance environment, and we're very mindful of it.

Perfect. Thank you.

Yeah, I'll keep it open.

Oh, yeah, go ahead. Go ahead.

No, I wasn't sure if there was a follow-on question.

Oh, yeah, and CapEx for the year. If you could just repeat your question.

No, yeah, so I was just looking at where your cash balance is at now and then where CapEx is looking to be, you know, just obviously, and given the comment in your release about, you know, continuing to look at prospective financing, you know, beyond this point. I just kind of wanted more color as to how you were finding that and, you know, how you were planning to go about it.

Yeah, so thanks. I think, look, the way we're financing our business is we have substantial growth. As we've mentioned, the back half of the year is going to be a significantly higher revenue uptick versus the last several quarters. And so the way Mark and I and the board are looking at our finances is really bridging from this point through our profitability. We have a fair amount of working capital needs and obviously growth needs. And you've seen that in the last several quarters, including the first quarter. So we're matching up our financing with our needs. Overall, we're building to a path of profitability, both on an EBITDA basis and a free cash flow basis during 2024. So anything we're doing as far as capital is really looking at bridging between now and that period.

And we've been very, sorry, we've been very lucky in terms of, you know, Because of the type of contracts that we're getting, the size that we are, and how we are a standout in a new space. We understand a lot of people in all the SPACs that went out. The majority of them are data service. We're a purebred manufacturer, so we're in a different kind of business. And so we have been seeing a lot of attention from a number of different financing sources should we choose to go that route. So we feel pretty comfortable about our liquidity, pretty comfortable about our options out there. And so, you know, pretty much about our customer base.

Perfect. That's great, Carlo. Thanks, guys. I'll hop back in.

We now turn to Mike Crawford with B Riley Securities. Your line is open.

Thank you. Can you give us some more color on the timing and magnitude of the received milestone payments from Revata. I think one may have been before the March 31st balance sheet snapshot.

Yes. So unfortunately, we can't disclose how much they've paid for each of the two payments they've made to us. We have an NDA with them, and we have to respect that. They want to be in control of a lot of different things, including their capital sources.

Okay, and in that regard, it's understood that their capital sources have been disclosed to the ITU, but that public has not been made, that filing has not been made public yet. Yet that could be the case at or before this upcoming meeting at the end of June. Is that still your current understanding?

Yeah, I believe the meeting is July 2nd. And when I spoke to Ravana, they are a private company. They don't have to disclose to the public where their money is coming from. All I can tell you that it's public is that Declan Gamble is a partner in starting this with Peter Thiel.

Okay, Mark. And then regarding 50T, so I think we walked through that facility 11 months ago, and it was near online and you know i i think on your last conference call you talked about it being online april 1 and now you're talking about full commissioning so am i correct to understand that there are some satellites that are being assembled in that facility as we speak everything is currently still being done in the baraka facility

Uh, it would be local power company has taken their time and getting our power turned on. I'm not sure not upgraded to the building and so we're at their mercy to some extent. A lot of equipment has been delivered. The lines have been delivered, but they can't be powered up yet. We're hoping to power everything up starting next month. And then go through some testing over the summer. So, we are, but that being said, that building their 1st, big constellation that will be built in that building. is SDA's transport layer trunk one. Everything else is being done in the existing facility. And when you talk about... So by August of 2023, we expect that building to be in use, 100% in use.

And at that time, when you're talking about the capacity of 20 satellites per month, are you talking about transport layer-sized buses?

Correct. Or could you do that? That is correct. Not you, Seth. You are 100% correct. This is going to be all 450-kilogram, 500-kilogram-sized buses. That will be done there.

Okay. All right. Thank you very much. Well, thank you for coming.

Our next question comes from Greg Conrad with Jefferies. The line is open.

Good morning.

Good morning.

Maybe just to start, I mean, you mentioned screening of industrial partners for Rivada. Can you maybe talk about that a little bit, supply chain readiness, and just given that you manufacture a lot in-house, just kind of how you're thinking about that screening that you mentioned in the script?

Sure. So we manufacture 85% of the components today that go inside of a bus. And we are working diligently to get to 100% by the end of the year, with the exception of solar panels, which are manufactured by Lockheed Martin. So when we see a screen of industrial partners, we're specifically talking about the payload. So the only payloads we manufacture in-house today is synthetic aperture radar and certain kinds of RF radios. And for payloads, we go to the outside. So we have been screening and choosing with Regata Network all the different payload partners who will be part of the constellation and then reviewing their supply chain to ensure that they can get things done on time. And on the supply chain issue, I'm going to mention a lot of conversations we're having now with partners who are having supply chain issues. The number one supply chain issue everybody's having comes with printed circuit boards. Printed circuit board assembly has been the biggest problem. And so by us having two state-of-the-art printed circuit board assembly lines operational by the summer, we'll provide our own supply chain relief as we will be manufacturing components for our supply chain in order for our own satellites and possibly for some of their other customers as well. So this is a huge difference in how we do business with our vendors.

And then maybe just more of an accounting question, but you mentioned the ramp around systems engineering for Rivada. You had some positive EACs in the quarter, and I think you mentioned most revenues are under percentage of completion. When you think about a large program such as Rivada, is there a difference in profitability between the engineering and when you get to manufacturing, or is that all one program alone? from an accounting profitability perspective?

Yeah, so we haven't given the precise accounting on it, but Greg, some of the accounting on a program that large will have a mix of margins in them based on the type of cost.

Thank you.

I mean, obviously, you know, as you do the larger scale assembly, you have milestones you hit, you know, more gross profit dollars will hit. So we are cognizant that we are on our path to getting to EBITDA positive next year. And so as the assembly and the delivery of these new satellites gets completed, that will have a dramatic impact on our bottom line.

And then maybe just one last one. I mean, thinking about the pipeline and the contracts you've announced recently, whether, you know, Revato or the new one that you announced in the quarter, I mean, are you seeing a drift higher around ASPs per satellite versus, you know, some of those initial awards and kind of what's driving that?

So we see on, you know, it's interesting. So customers are willing to pay more money for faster delivery. So we had a time period maybe two years ago where it was all about price, price, price. And now we see customers are a little less focused on price. They're becoming much more focused on quality. You've had a lot of people launch what we call bricks in space across the industry, which only benefits us because, you know, everybody thinks it's easy to build a satellite. It's not that easy. And our 10-year plus heritage has helped us a lot. So we're seeing people focusing on the quality, on the speed of delivery, and slightly less on price. They're obviously all price conscious, and we try to explain to them it's about value. You can always buy it cheaper, but not everybody wants to drive like a car. You can always buy a Yugo and drive a cheap car. It doesn't mean you want to.

Greg, the other thing I'd say overall is We are entering the phase the last 12, 24 months of really getting into serial builds of Constellation versus the prior decade of our existence where it was a lot of prototyping, co-development. And so what we're seeing is a price point on a serial build basis, we're able to deliver to the customer a very consistent price point, even with inflation in the overall marketplace. And we're starting to laugh and get on the other side of some of the more upfront costs, whether it be non-recurring engineering, first article costs, and we're really starting to see that flow through. That will manifest itself on our income statement and our cash flows in the coming quarters, and I'll be pleased to show that that demonstrates that. So generally speaking, when we're building these big contracts, we're able to deliver to the customer a pretty consistent value point for the overall serial bill of the constellation.

Thank you.

As a reminder, if you'd like to ask any further questions, please press star 1 on your telephone keypad now. We now turn to Eric Rasmussen with Stifel. Your line is open.

Yes, thanks for taking the questions. Maybe back to the outlook on the revenue. I know you'd mentioned a strong second half ramp, but how would you sort of weight the first half versus the second half, realizing that Q4 is probably the big point of the year?

I mean, Q4 is definitely the big point of the year. I mean, unlike companies that are like your AT&T Mobile or something where you have monthly recurring revenues that go on, our revenues tend to be fairly lumpy, mostly around modules, building, and the assembly of the satellite. And so as we are growing at such a rapid rate, we still find lumpiness in our quarters. But at the end of the day, we look for the total revenue for the year. I'll turn it over to Gary, if you want to ask the question.

So we've got it to over $250 million for the year. I would, just to give you a rough guide point, I'd look at fourth quarter being 4x our first quarter.

OK, that's helpful. And then maybe just you mentioned possible upside. What are the factors that could contribute to that upside? And then you mentioned some gating items probably around execution or timing.

Yeah, well, we recognize revenue generally by adding value into programs. And value of programs is everything from direct labor and overhead, our internal modules, and then third-party parts and services. As we're able to execute on all three of those, that adds value to the programs, which then generates both costs on the programs, but also generates most of our revenue. So if we have programs in the grant we have, A weak acceleration or a weak delay has a big impact on the month and in the overall quarter. So what I'm trying to articulate is with the type of lift we have in overall execution, you can have variability up and down throughout the months and quarters to come. And that's maybe the best glossy way of describing timing on what it means. And that's why we've guided to 250 and indicated it could be substantially higher, but also hitting 250 has execution challenges and it has mostly to do with how we deliver those three categories into overall value of the program.

And we're seeing, you know, we've dramatically expanded our business development group over the past year. We went from a few people to over 30 people in the group. And we're seeing that turning into RFIs and RFPs. You know, whereas we would only have a few out at any given point in time, we are seeing ourselves now with an enormous number of RFIs and RFPs that we've issued in the past few months. And we will expect a number of those to turn into new contracts over the next few months. So in addition, we will be bidding on almost all of the SBA work that's coming up going forward. So as a transfer layer, alpha, beta, and gamma, we were bidding all three of those. We are looking at bidding on the tracking layer. We are doing this with our partner, Lockheed Martin, and we're thrilled to be doing it with them. And so, you know, we have the May 11th solicitation for 100 alpha satellites, and that follows the earlier request for 72 satellites for their beta solicitation. They're bringing the transfer layer into different pieces now. And so, we feel that we have performed fabulously so far, and once the SDAs have closed, those who deliver are those who keep winning, quote unquote. We have delivered. We delivered the first tran zero ahead of schedule. and we deliver them gifts throughout Christmas morning, as those of you who have seen the name out there. And we will continue to – but more importantly, our business development group is expanding, and we are sending out more and more RFPs. And as we expand our manufacturing footprint, we're getting more and more interest from people to build larger and larger constellations and larger and larger satellites. So these have all been positive data points and metrics in the development of our business, and we feel pretty confident about that.

Great. And maybe just on the margins, you expect sort of improvements. Would you expect both GAAP and adjusted gross margin to be positive in Q2? And then, obviously, for the year, you'll see that trend throughout. Just remind us what the targets are for maybe gross and operating margin.

We see margins continuing to improve. You know, what's happening here is that we're so small, you know, as we hire a bulk of people, for Rovada, for this new customer, and others that we believe that we will be getting, it does have a negative impact on our financials. We have to hire people from six months ahead of program to get them up to speed, and you're building facilities almost 18 months ahead of program. So eventually, things will start to level off, but I'll let Gary give you some more color.

Yeah, we generally see ourselves ramping to the high teams throughout this year. mid-20s in the prior year, and then as much as 25 to 30 in the outer years. And part of that's just going to be the mix of the programs that we're working on. A lot of the programs we're working on now in old backlog have a lower margin base, and the newer programs have a slightly higher base.

Great. Maybe just my last one. On the new award, the 16 satellites, you know, maybe any additional color on this award. The deal, you know, suggests, and I think we were talking a little bit about ESPs earlier, but it's about $5.5 million per satellite. That's sort of in between the Ravada and the SDA. And then maybe just, you know, comment on the timing of when these satellites will be delivered. Thanks.

You know, we deal with some customers who have a more confidentiality than others. At the customer's request, we're not allowed to give any more information other than that.

Great. Thank you.

We now turn to Robert Spinghorn with Milius Research. Your line is open.

Hey, everybody. Hey, there. Mark or Gary, as you build out this $250 million-plus in revenue this year, what programs should we think are driving that? I assume Tranche 1 is a big piece of that. It's not clear if Rivada is or not or any of this other stuff. So how do we think about the $250 million from a program support perspective?

I mean, Tranche 1 is a big part of it. Then you have Rivada right after that. and you have this new customer, and there's some other things coming down the pipe. But Tranche 1 is by far the largest part of that component. We're getting delivered, call it two-thirds of Tranche 1 in calendar year 2023.

Yeah, and the overall backlog is that we're at like 30 programs. And so while there might be some Wednesdays and Tuesdays in there, there's some other programs that are confidential we haven't mentioned, but they contribute in aggregate to the overall number. I concur with what Mark's saying, but there's a mix of deliveries this year. You know, keep in mind that most of the orders we get, we're turning around in two years. Rivada's a little bit of an outlier, albeit it's 300 satellites, call it over three years.

Okay. And then I just wanted to think about the backlog a little bit. I mean, the backlog is obviously highly weighted toward the Rivada orders. So you got $2.5 billion in backlog. 2.4 of that is Rivada. So it kind of suggests that the 60 non-RAVATA satellites are $100 million in backlog, but I'm not sure that reconciles with tracking one and the other stuff you're doing. So is there a better way to think about this?

I think with what we've disclosed is we started the year with about $170 million in backlog before we included RAVATA, and we did roughly $29 to $28 million in the first quarter. So that might help you get to kind of a pro forma of the January 1 backlog, I think that'll help you to kind of slide around on that.

Right. And the 87 million.

We're not doing Tracking 1. So you said Tracking 1. We actually didn't bid on Tracking 1. Oh, I'm sorry. Transfer. Oh, fine. Okay. Got it.

Yeah, right. But you understood what I was getting at. Is the 87 in there or is that post-March 31?

That's not in there. So all the numbers we've given include the conversion of Bravada into backlog as of March 31, but the newly announced deal today is not in the numbers. Okay.

And then the other thing I wanted to ask you, Mark, as we think about future opportunities, you know, beyond what we've already talked about today, where are some of the other opportunities outside of these two or three contracts that we've focused on today?

Some of these opportunities are SDAs. They've got seven new bids going out. But the three starting with the three new transport layer bids we're bidding on, we're going to bid on tracking and possibly some others. So that's just one small part of a very, very big part.

The other thing I'll add is, in an overall area, is there's a lot of positive feedback loop in the marketplace. As we add and complete existing programs and add more programs, there's a feedback loop within the marketplace where other customers are looking to us to leverage off of that experience and that track record to produce programs for them. And so in the last six months in particular, but maybe even 18 months, our track record is really allowing us to get in and have good purchase with new constellations, both on the Sybil but on the government side as well on the commercial side.

Okay. The only other thing I was going to ask, Mark, is as you get through your capacity ramp, I wanted to clarify when the most significant milestones are. Is it the end of 24 when you have most of your capacity in place? And, you know, what's the revenue capacity at whatever that milestone is?

You know, capacity is a never-ending thing, I'm hoping. Being an optimist, when we say it's never-ending, it's always that capacity. You know, we are looking at, you know, we have 20 buses here and 50 tech, as we call it. We are with the new facility that is on Goodyear, 5.4 Goodyear. You know, that allows us to get into the billion-dollar revenue category. But more importantly, that new facility not only allows us to build buses, but build full satellites. We can do the payloads. We can do the solar panel assembly. We can do everything under one roof, which is a big game-changer for us. We can do payloads on small satellites, like 12U's and stuff like that, but we couldn't do the payloads, for example, on a T-Zero and the existing Baraka facility. So that facility really takes us to the next level. So we will build Rivada in that facility. So that will only take up about a third of the facility. So we have two-thirds available for other customers who we're talking to today.

Right. Is there a good rule of thumb for what the ASP, Alley ASP changes when you add in payloads?

You know, it also is a satellite. You know, you could build a, you know, we, I mean, Starlight builds these satellites for $300,000, you know, with a very high failure rate, but it's successful. Everybody, every customer is different. The Swerve building satellites, I think our largest we have right now is 800 kilograms that we're building. The way we viewed it, as long as it fits on an Esper ring or Esper grande, we'll build it. That's kind of, you know, but we are, you know, the satellites are getting larger and larger. We went over time. People wanted smaller. They wanted cheaper. We started with a CubeSat. CubeSat changed it all. And then when we took a CubeSat and we started making it bigger, showed people we could take three CubeSats and put them together, what we called a 3U. Then it was a 6U with six of them together. They started getting bigger. And what's happened is they went from demonstrators to people really wanting more power. They need more batteries. They want larger solar arrays. So now you went from, you know, with Tron 0, 350 kilograms to Tron 1, 450 kilograms. And now we see new ones coming in the 500 to 600 kilogram range. You know, people want more power. Well, it's just that they're seeing it no longer as demonstrators, but a fully functioning replacement for geosynchronous satellites that can be built and launched with current technology. And yes, there's a replacement cycle to the recurring revenue business, So every satellite that's built now for a constellation has to be replaced every five years, but that's still phenomenally cheaper than building it in geosync minutes orbit, and it allows them to continue to upgrade their technology, just like the SBA does with each tranche. We've seen it update the technology on each satellite. So our business kind of becomes a recurring revenue business down the road, but you're talking about that's only a few years out.

Right, right. Thanks for all the help. Thank you.

We now turn to Gene Inger from Inger and Company. The line is open.

Good morning, gentlemen. This is my first time on one of your calls. We just recently initiated coverage at the buy in this price range for Torin. So obviously, we see superb prospects and congratulate you on what you've achieved so far. I do have a question speaking of business development. as to cross ownership in the small world of space between AE Industrial, Bain Capital, and whether or not you expect some of this to come together over time, whether it be the Australian programs, Crescent, and so on, or that's Lockheed, or whether or not you're going to be involved with Constellation Space Management, such as Big Bear AI is doing, or anything like that. Could you expand a little bit more on whether or not you're going to be limited to manufacturing? Well, we are not limited to anything.

We can do anything that we want to do, anything that our customers want. So, you know, we do see, you know, we do expect there'll be a continued consolidation in the space. You saw Millennium got acquired by Boeing. Blue Canyon got acquired by Raytheon. AE got acquired, I'm sorry, York got acquired by AE. So we'll continue to see consolidation in the space. But, you know, we could, if we chose, could expand beyond satellites and do other space-based initiatives or ground-based initiatives, for that matter, as we do own a ground station network. And we do do mission operations. And, you know, we could even get into AI. You know, that is something we've been talking about a lot here. And we'll have more on that later on this year.

Well, I'm glad I brought that up. Thank you, Mark. And also, my only other question, because so many have been asked, is many of the older shareholders come back from the SPAC days or from Beach Point or from, what's it called, Payac, TVAC, the original CubeSat designers, and they still have a lot of shares. How do you work through, or could you and or Lockheed eliminate that concern among shareholders and therefore eliminate overhead supply in one fell swoop?

Well, the reality is you have, you know, I mean, you know, as you're talking about the original investors, people like myself who aren't going anywhere, you know, people like myself, you know, Mark Lavelle, you see myself, Mark Lavelle, Lockheed Martin, maybe a handful of others. We're a 50% of companies. So, you know, there are not, so we don't see any, you know, You have one or two former employees who own a few million shares, but, you know, they can do, you know, the most people, those who have made the mistake and chose to sell, that's their choice. And, you know, we all believe in the company, and we're sticking around.

Great. I appreciate it. And I really like the Lockheed Association, and given the suppressed share price, I'm hopeful that they do not acquire you. I think they won't for competitive or monopolistic purposes anyway. But I should ask whether or not that allows you to maintain adequate profit margins or they have a leverage in negotiating that makes it hard for you to make money on the 11 or 12 programs you have going on with Lockheed.

Lockheed has been an incredible partner. And they, more than anybody else, would like us to become profitable as soon as possible. And they've made that very clear. So we are working as quickly as possible. So they are aligned with the shareholders. Being a large shareholder, they want to see profitability and they want to see the stock go to where it needs to go and not be where it's at now. So they have been big supporters of us to get to profitability as soon as possible.

Great. I'm looking forward to that as well. Congratulations and congratulations We'll see you another time. Thank you very much.

Our next question comes from James Byrne from Ostrowski Investment Management. Your line is open.

Well, I was in the queue. My only, I guess, comment is that I was a bit alarmed that, you know, your sales doubled year over year and you weren't able to leverage any of your fixed costs so that into the operating margin line. I know you're doing a lot of hiring ahead of time, but what I, like I said, what I get concerned about is, you know, look at the statement of cash flow. And if I do a very quick analysis, you're going to run into a cash crunch in about six months. And the other thing, going back to the cost of sales, what it tells me is that since it didn't look like you were able to leverage any of your fixed costs, your variable costs are growing faster than your sales are, which does worry me a bit. It's just a comment because I've been through a number of startups before and I've seen this kind of thing happen. right now your stock in the market is about down about eight and a half, 9%. So I think other people are concerned about this too. I'm not asking you to, I mean, I heard a lot of the commentary. I just, I just hope that, um, this can turn quickly so that, you know, you, if you're, if you're going to burn through cash, you've got to get it from somewhere and it's, it's going to be really hard to raise it in the open market, given your, where your stock price is right now. So I'm just, I'm, I'm in a different camp than a few other people I heard on there. I'm just, uh, I'm a little concerned about what I see, that's all.

No, I mean, listen, we are an experienced management team. I mean, this is my, between my partner Dan and I, this is the 17th company we've taken public. We've raised over $20 billion of equity and $100 billion of debt over the course of our careers combined. So we understand the capital market. We understand how to grow a business from scratch. This will hopefully be between the two of us our seventh unicorn. uh so we are very much you know uh aligned with you we understand you know unfortunately sitting where i sit i see things differently uh because we have a lot of uh information of where we're going how we're getting there but we've had to go ahead and make sure you know we had we started as a very you know for years we were a tiny little company that still keeps that and uh i took over ceo a little over two and a half two years ago and uh we decided at that point to partner with body blocking martin And we are growing at a rapid pace. So, yes, we are spending money. We have $100 million ELOC that Gary mentioned. It would be Raleigh. And, you know, we have lots of options in the capital market. But we're going to be smart as we move forward. The last thing we want to do is, you know, we're trying to be smart as we raise capital, as we do lease our equipment out. But eventually, you'll see very quickly as these new facilities come online and these new programs start building, that things turn very quickly in terms of revenues, in terms of profitability, in terms of cash. Gary, do you want to add more?

No, I'd say if you think about what we're looking at with the $2.5 billion backlog, the facilities, the labor, the process, the automation, all that's built in to feed into that. And it's hard to describe the difference between the lines in our income statement that are fixed and variable. A lot of the labor, a lot of the SG&A you're seeing is the precursor to be able to deliver in value into the programs. And so you'll see numbers that show up in SG&A moving into the COG line as new labor, for instance, comes online and has been here. If you have a new hire that's been here for one or two months, they're not going to be contributing to the program side of things for at least six months. So you'll see things moving up the income statement into the COG line and then from the COG line into revenue and ultimately margins. Think of it in terms of building a business that's looking to generate a billion a year of revenue. And that'll kind of give you a perspective on how we're trying to set up the company as far as cost now versus performance later.

Yeah, I understand everything you're telling me. And I mean, I've been a part of three startups. Unfortunately, all three of them went bankrupt. I've also been a part of a number of smaller companies that have gone through exactly what you're going through. And they were in different businesses, so it could be different. But we tried to make sure as we ramped up, I mean, if we had sales double year over year, we were trying to make sure we leveraged some of the fixed costs as we went along. So, you know, I haven't done 17, but I've certainly done a number of companies and I've seen seen some work and some not. So I just, like I said, when I saw this income statement, I went, you know, I was a little bit concerned. But anyway, I heard what you said. So I'll just keep, we'll just keep watching. So thank you.

All right. Thank you for coming.

We have a follow-up question from Mike Crawford with B Riley Securities. Your line is open.

Thank you. A little follow-up towards your comment about integrating full payloads and solar panels in addition to buses in the new facility. In that regard, can you remind us how proprietary you think your own potential synthetic aperture radar payload solutions might be? versus others, and if you could comment on likelihood or number of conversations of any of these resonating with potential customers that contract with you to build something like that for them.

So our SAR panels, specifically, are incredibly exquisite. They were built originally for the Missile Defense Agency, what was a classified program that got declassified by Georgia Tech Research Institute. It was paid for by your taxpayer dollars, so we thank you for that. And it is an absolutely exquisite antenna. But we are, but it is, that being said, you know, most of the customers we are talking to about that are a lot of government customers. And so I can't go into the details of who we're talking to about it, but it is a very unique American-made, which is important, program. And I'm going to leave it there.

All right. Thank you, Mark.

Our next question comes from Ori Santello from Orient Consulting. Your line is open.

Hi. Thank you for taking my question. I was wondering about Revata's waiver that's coming up for your September 2023 delivery?

We know everything you know about the IT. We have no information other than what is publicly filed.

Fair enough. Thank you. Thank you.

Our final question comes from Christopher Frost, a private investor. Your line is open.

This question is for Mark. You stated that you have to replace, satellites get replaced every five years, and I'm wondering with the current amount of satellites you produce, can you keep that flow going?

That is the reason, it's a good question, and that is the reason why we announced that new facility. The one that's under construction right now will help us so we can continue to build and keep up with that demand.

Now, my other question is, the Samaritan Island, is that still a go?

That was killed by a bald eagle almost over a year ago, exactly.

Okay, thank you.

Ladies and gentlemen, today's call is now completed. We'd like to thank you for your participation. You may now disconnect your lines.