Shareholders of Terran Orbital (LLAP +0.00%) had a rough last week. After reporting a larger-than-expected Q4 loss on Tuesday, the start-up satellite manufacturer saw its stock price shaved by 7.5% -- and the shares kept on sliding all week long.
But it could have been worse.
NYSE: LLAP
Key Data Points
Terran by the numbers
Terran tripled its sales in fourth-quarter 2022, as compared to Q4 2021, and ended the year with sales up 130% over 2021 levels. True, input costs rose faster than revenues, resulting in larger losses for the year than experienced in 2021. But in Q4 in particular, Terran's losses slimmed, and a larger base of shares (a consequence of dilution from last year's SPAC IPO) cut per-share losses even further.
When all was said and done, Terran Orbital ended 2022 with full-year sales of $94.2 million, and a net loss of $164 million -- $1.28 per share.
What lies ahead
So much for 2022. But what does 2023 hold for Terran Orbital?
Unfortunately, management didn't tell us much about that -- giving neither sales nor earnings guidance. Instead, Terran Orbital management emphasized "business highlights" that are less easy to parse. Of particular note:
- Terran grew its 2022 backlog 131% year over year (roughly in line with sales growth) to $170.8 million through year-end. (It's not clear whether all this backlog will turn into 2023 revenue, however. In fact, according to Terran Orbital itself, "some contracts comprising the backlog are for services scheduled many years in the future.")
- Earlier this month, Terran Orbital landed an order from a little-known communications company called Rivada Space Networks. It's supposedly worth $2.4 billion in total -- but again, over what period of time isn't entirely clear.
- Finally, the company is "preparing bids" for a series of Space Force programs totaling another 300 satellites, with awards expected through 2024.
The fact that backlog grew a bit faster than sales in 2022 is a good sign, and Terran Orbital does have its sights set on continuing to grow backlog, and revenue, rapidly over the next few years. One thing investors might wonder about, though, is: Does Terran Orbital have the capacity to complete all the work it wins?
From start to finish
Consider that, while 2022 set a new "record" for satellite production at Terran Orbital, the company still only built 19 satellites in 12 months. Management has a plan to expand, and grow production capacity to 250 satellites annually -- which implies a potential 13-fold increase in (its ability to generate) revenue. And management says it will expand production capacity even more beginning in 2024.
But while Terran is clear about when it intends to begin expanding, it's not entirely clear when either of these expansions will be complete. Until we know that, it's hard to say how long it will take to ramp up production capacity to fulfill the Rivada contract, or other contracts, including one to build even more satellites for Lockheed Martin (LMT 1.64%).
And speaking of Lockheed Martin ...
A few words about Terran Orbital's closest customer are probably in order.
Production of 10 missile tracking satellites for Lockheed Martin, under the latter's contract with the U.S. Space Force, made up more than half the satellites Terran Orbital produced in 2022. And Terran Orbital's dependence on Lockheed is even greater than that. In fact, according to its 2022 10-K filing with the SEC, Terran Orbital got 76% of its revenue from Lockheed Martin last year. Contracts with Lockheed accounted for 81% of Terran's backlog -- up until the massive Rivada contract arrived.
But if Terran Orbital depends greatly upon Lockheed Martin's patronage (and it does -- at least until the Rivada contract starts paying off), Lockheed Martin also has a vested interest in seeing Terran Orbital survive. This could prove important to Terran Orbital. It has lost money every year of its existence so far, is expected to keep losing money this year (and next year as well), has $50 million more debt than cash on its balance sheet, and is burning through cash at the rate of $104 million per year (according to data from S&P Global Market Intelligence).
How much does Lockheed Martin need Terran Orbital? Enough that late last year, if you recall, Lockheed Martin threw Terran Orbital a financial lifeline, investing $100 million in the company in exchange for convertible notes and warrants to purchase Terran Orbital stock.
Thus, it seems Terran Orbital actually has two ways to succeed. One: If its contract with Rivada works out, it should generate sufficient revenue and income that Terran Orbital will no longer depend almost entirely upon sales to Lockheed Martin for its survival. Two: if the contract with Rivada doesn't work out -- indeed, if nothing works out, Terran Orbital keeps burning cash, and eventually runs out of money -- Lockheed Martin may still want to acquire the company to ensure it can fulfill its own Space Force contracts.
With a stock down 85% since its IPO, a share price now well under $2, continuing losses, and fierce cash burn, Terran Orbital stock may not look like much right now. Bad as things look, though, I wouldn't count this stock out entirely. Although it's a long shot, it could still bounce back.
