Terran Orbital Corporation

Welcome to the Terran Orbital Q1 2024 earnings call. My name is Carla, and I will be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I would now like to turn the call over to John Segman, Senior Vice President of Corporate Development of Terran Orbital, to begin. Please go ahead.

Thank you, Carla. Good morning, everyone. And thank you for joining Terran Orbital's first quarter 2024 earnings call. With me this morning are Mark Bell, co-founder, chairman, and chief executive officer of Terran Orbital Corporation, and Matt Ripple, acting chief financial officer, corporate controller at Terran Orbital. Mark will provide a business update and highlights for the past quarter, and then Matt will review the quarterly results. Terran Orbital's executive team will then be available to answer your questions. During today's call, we will make certain forward-looking statements. These statements are based on our current expectations and assumptions, and as a result, are subject to 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.terranorville.com. Readers are cautioned not to put any undue reliance on forward-looking statements. And the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call. 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.

I just realized there's a thing called the mute button, so I'm going to start totally from scratch again. Apologies. Thank you, John, and welcome and thank you, everyone, to our first quarter 2024 earnings call. In light of the company's strategic review, management decided to cancel the previously scheduled fourth quarter and full year 2023 earnings conference call. Although the strategic review is still ongoing, we are hosting today's conference call to keep our stakeholders up to date on recent events and first quarter results. I'm going to go a little off script here for a minute, if you don't mind. You know, I don't think people are realizing, you know, we have Ravada, which is this amazing program that we won last year. But people aren't realizing we have $400 million of signed backlog, which becomes revenue. And it becomes revenue over the course of the next 18 to 24 months. So that's money that we'll build. The bulk of it is from Lockheed Martin. And we're very appreciative of our relationship with Lockheed Martin. It continues to grow stronger every day. we are rapidly we're changing our workforce here a little bit until we've gone from only 675 to 695 people yet our throughput has gone up dramatically and we're able to produce and our workforce is changing it's now just under 20 percent of our workforce is now cleared as we're going to be moving more and more and to do more classified work more work for the government and the dod and uh i think these are important metrics to see how that 400 million becomes revenue. And I don't think people are quite grasping that because we realize it looks like revenues were down this quarter, but we have just under 50 space vehicles that will be delivered in 2024 alone. With that, I'm going to get back to the script, but I just want to make some quick points up front to hopefully give you some context to the rest of the conversation. Let me remind you that the critical mission of Terrent Team is pursuing historically space domain, which we all know of in a few nation states, with the capital and time to build bespoke billion-dollar satellites that took five to ten years to manufacture. Today, Terran Robo is strategically investing in manufacturing capacity to enable production at a mass scale with the efficiencies and significant improvement in speed. And that efficiency comes without significant headcount expansion. So we could dramatically increase the amount we can manufacture with only increasing our headcount just 20 people over the course of the past three months. We are utilizing modular design, automation, component standardization to drive synchronized improvements in speed, cost, and quality. Our automation is expanding beyond satellite components to satellite assembly and integration. We are realizing both cost savings and quality improvement from our recent investments in production, auto capacity, and automation. A proof of our success was clearly our early delivery of the 10 satellites for transport layer trans-zero to our customer and partner Lockheed Martin and supported the Space Development Agency. It took only 26 months from contract award to delivery of our space vehicles from our facility in California. While 26 months is a significant improvement relative to the years it traditionally would take to complete a new satellite program, we're not stopping here. We have plans to further reduce manufacturing time to just weeks, and have announced plans to be able to accommodate 30-day lead times for standard space vehicles. The successful collaboration between Taron Orban and Lockheed Martin has blossomed into a significant relationship. We are proud to announce additional contracts following our initial success, including the award contract we announced last night. This is just the beginning, as we see a vast opportunity set as the Department of Event increasingly relies on commercial states companies for national security missions. As of March 31st, we have over $25 billion identified pipeline, over 140 programs across a globally diverse customer set. End use markets include defense, intelligence, remote sensing, broadband communications, 5G, direct to handset, and span orbits from LEO, GEO, to lunar and beyond. Our current capacity, we are positioned to execute on multiple mega constellations of space vehicles such as the SCA and Ravada and many others, and maintain the ability to flex our resources to rapidly match customer demand. Equally important, our design and manufacturing capabilities uniquely position Terran Orbital to deliver highly engineered space vehicles in high volumes within compressed timeframes to meet each other's mission needs, and we do this at a fraction of historical cost. Disrupting an industry has its challenges. A key pillar of our strategic vision has been vertical integration. As I've always said, if you control your supply chain, you control your destiny. The benefits of vertical integration are best evidenced by our recent replacement of a propulsion subcontractor to protect the program's schedule. I am proud of our team's proactive decision to pivot to an alternative propulsion solution. Matt will provide further detail on the accounting impact of the first quarter, But I want non-overvalued shareholders to doubt our long-term consequences of this decision. At the end of the day, our goal is to deliver customers' emissions on time and on budget. And unfortunately, with the supply chain as of today, 85% of our supply chain we manufacture in-house. 85% of our components and modules are manufactured in-house. We have our own CNC shops, printer board circuit assembly facilities, our own testing facilities, shaker tables, TVACs. We have our own torque rod assembly, our own harnessing shop. But the reality is anything we have to outsource, we're at the mercy of subcontractors. And that, unfortunately, is getting more and more difficult in this environment, which is why we continue to bring things in-house. We realize over the past few years, we've invested hundreds of millions of dollars in building and designing our own components and modules, bringing things in-house. But the future of the next $400 million of orders that we're delivering and beyond, the impact of that will be significant on our financial statements, as we drive to become even a positive. But other challenges have been the timing of orders in fickle capital markets, which have constrained available capital for our customers' constellation plans. Our customers have to raise money on the commercial space, not the DOD space, and we're very cognizant of that. We share our shareholders' frustration with some delays our company and industry have experienced. With that, we are steadfast in our confidence in long-term prospects for the industry and our company's positioning. As a result of these delays, Our team responsibly swallowed back capital expenditures, tightened discretionary expenditures. The intent was to flex appropriately to the delays while preserving the option to ramp capacity as demand for these pending mega constellations may acquire. We'd like to talk about some specific operational highlights. We did make substantial investments in our design and manufacturing capabilities over the past few years. We just completed our 60,000 square foot addition to our original manufacturing facility. As we speak, we have well over 40 space vehicles in the final stages of assembly on the manufacturing floor, and we expect to launch just under 50 space vehicles this year. That is a record for us. Late last year, we opened our advanced printed circuit board assembly lines. We now have the capacity to assemble over 5,000 printed circuit boards per month. Yields have exceeded our original optimistic expectations, and we are thrilled with the progress we are making. We are seeing an estimated 30% reduction to certain elements of our standard satellite bus costs, and PCBA lines alone are yielding almost 100% every time. Our next capacity addition, which we've previously announced, is our new 94,000 square foot facility here in Irvine, which we expect to be handed over to us in the coming months as physical construction is nearly complete. The facility offers us the ability to scale and add capacity on the frequency of magnitude of new customer awards, We are actively pursuing other constellation opportunities that would depend on this capacity, and we expect to open this facility no later than Q1 2025. I am proud of the progress TerraNORBIL has made in building the infrastructure to supply space vehicles at mass scale with the speed, quality, and pricing that our customers desire. I am also happy to update you the progress and support of the Space Development Agency programs. Yesterday, we announced our selection by our partner Lockheed Martin to build 18 space vehicles for transport layer of the tracking layer of the SAA proliferated warfighter architectures tracking layer. 16 of these satellites are planned to be wide field of view missile warning, missile tracking space vehicles with infrared sensors, and the remaining two space vehicles will carry missile defense infrared sensors. This award expands our participation to an entirely new layer of the SAA's mission architecture. Our team near-term priority is completing the four chief space vehicles of the Tranche 1 transport layer, which aims to deliver as many as eight vehicles this month, then 10 vehicles per month thereafter. I am proud of our nimble supply chain management to protect our customer schedule by being able to pivot quickly to replace contractors who are unable to deliver. Regarding the company's program with Rivada, we continue to execute on the program, although it was a modest contribute to our first quarter revenue. We have agreed in principle on a payment schedule that we will believe will keep the program on track and make the launch timetable. For further information, please contact Rovada directly at the customer's request. Now, I'd like to provide an update on our strategic review process. On March 1st, we received an all-cash proposal from Lockheed Martin, one of our largest stakeholders and partners. Lockheed, who already owns or has the right to acquire approximately 27.7% of Terran shares, proposed buying all Terran shares at $1 a share, which represented a 6.5% discount to the then current market price of $1.07. In response, Terran Orbital adopted a shareholder rights plan. The shareholder rights plan was intended to encourage anyone seeking to acquire the company, including Locke & Martin, to negotiate on the board prior to attempting to oppose a transaction that is not in the best interest of stakeholders. A special committee of the board was diligently evaluating the Lockheed Martin proposal as part of the company's ongoing strategic review alternatives, including direct engagement with Lockheed Martin. On April 30th, Lockheed Martin withdrew the proposal. However, the strategic review is still ongoing and allows us to explore all options. There is no guarantee, however, this will result in any transaction or a strategic alternative. The special committee does not intend to provide any updates on the review unless and until it deems further disclosure is appropriate. We value Lockheed Martin as a customer, investor, and strategic partner, and we look forward to continued collaboration under our strategic cooperation agreement, which runs through 2035. I believe this continuing partnership was reinforced by this week's Tronch2 Tracking Award, which shows that we are still working together on programs across the board. Overall, I am proud of what we've accomplished and where we're heading. With that, I'll hand the call over to Matt to review our financial performance in the quarter and the year end. Matt?