Terran Orbital Corporation (NYSE:LLAP) Q3 2023 Earnings Call Transcript

Terran Orbital Corporation (NYSE:LLAP) Q3 2023 Earnings Call Transcript November 14, 2023

Terran Orbital Corporation beats earnings expectations. Reported EPS is $-0.15, expectations were $-0.19.

Operator: Hello, everyone, welcome to the Terran Orbital Q3 2023 Earnings Call. My name is Emily, and I’ll be coordinating your call today. [Operator Instructions]. I’ll now turn the call over to our host, Jonathan Siegmann. Please go ahead, Jonathan.

Jonathan Siegmann: Thank you, Emily. Good morning, everyone, and thank you for joining Terran Orbital’s Third Quarter 2023 Earnings. With me this morning are Marc Bell, Co-Founder, Chairman and Chief Executive Officer of Terran Orbital Corporation; and Matt Riffel, acting Chief Financial Officer, Corporate Controller of Terran Orbital Corporation. Marc will provide a business update and highlights of the past quarter, and then Matt will review the quarterly results. Terran overall 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 risks 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 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 the non-GAAP financial measures with the most comparable GAAP measures in our earnings press release.

With that, I will turn it over to Marc.

Marc Bell: Well, thank you, John. Thank you, everyone, for joining our third quarter 2023 earnings conference call. I also want to thank those of you who attended our virtual town hall event on October 26, which is part of our effort to increase investor engagement. During our town hall, we were pleased to highlight the team’s recently announced contract wins across three several programs and two continents, our active engagement on 80 opportunities relating to more than 2,800 satellites for 40 different customers [indiscernible] valued at over $2.7 billion, and our current expectation that we will have sufficient cash to cover capital investments and operations until becoming cash flow positive, which is expected in 2024. We had an excellent quarter with year-over-year revenue growth of 58%, increasing revenue to $43.9 million from $27.8 million.

Our third quarter adjusted gross profit increased over 270% from $12 million — to $12 million from $3.2 million in the comparable period. Our team is successfully executing on converting our pipeline and to sign contracts resulting in a new record-breaking backlog inclusive of our $160 million surge of orders announced in October. We are starting to see the benefits of our investments in capacity, equipment, and automation with initial — with improvements in operating efficiency. These investments are intended to lay the foundation and position us for growth for the years to come. To establish us as the leading supplier of satellite buses globally, we recently announced two important strategic initiatives. First is the introduction of our new lineup of seven standard satellite bus platforms.

These standard platforms feature a flexible architecture using our comic components, which have extensive flight heritage and modular design. This design methodology allows us for a minimal level of customization, depending on our customers’ needs and enables us to deliver satellites that mass scale with speed, quality and pricing that our customers desire. Second, we launched our responsive space initiative, which represents turnouts of objective to be able to deliver to customers a standard bus within just 30 days and complete payload integration within 60 days by maintaining a stock of standard and interchangeable components, we will be able to deliver in days, not years. The satellites required by both government and commercial customers or critical missions.

We plan to have the initiative fully operational by Q4 of 2024. Now turning to our overall performance and quarterly updates. I’m happy to update you on our team’s progress and support of the Space Development Agency programs. We are pleased to announce in October our selection by our partner, Lockheed Martin, to build 36 satellite buses for the beta award of tranche two of the transfer layer. This brings us to a total of 88 satellites, we are providing in support of S-3 transfer later, of which 10 were launched in September. Meanwhile, on the production side, our team is hard at work at manufacturing 42 satellites and support a tranche 1 of the transfer layer. We are on track to begin delivering the first of these stellites during the fourth quarter and the balance by the end of the second quarter of 2024.

To enhance the security of our supply chain of critical components to this program, we made the strategic decision to commit to a new propulsion supplier. One of the very few components we don’t currently produce in-house. We are proud of the decade-long track record of not missing the satellite launch, and we took this action now to protect — to protect the program schedule. We believe that our experience and track record with T-0 and Tranche 1, we’re trying to be on tranche 1 of the transfer layer and a partnership with Lockheed Martin help differentiate us and position us well for SCA’s awards outside of the transfer layer. I am pleased to report our margin performance has significantly improved. Our increase in gross profit and adjusted gross profit primarily represents the fact that we are working on larger programs and that our mix of contracts have better margins.

Our year-to-date adjusted gross profit margin of 16.5% is double last year’s gross margin of 8.2% for the comparable period and is now in line with our previously disclosed year-end targets. As we move to become EBITDA positive by next year, this is an important metric and it shows great progress. We continue to improve control of our supply chain. I believe that if we control your supply chain, we control our destiny. We now produce over 85% and growing of all our components in-house, which lowers our costs and speeds up our delivery. Some companies lay off employees we lay our vendors. We have bought in-house now, CNC machining, printed circuit board assembly, wire harnessing, torque rod assembly, live testing, and full bus TVAC. We will be adding other components, modules and subsystems and AIT in the coming months.

Any vendor who is not price competitive or cannot keep up with our schedule will be removed and that product to scale when we bought in-house. We live in a world of firm fixed price programs. The days of cost plus are long gone, and we are ready to meet the challenge. I’d like to provide a quick update on the company’s contract with Rivada Space Networks. As disclosed late last month, and at our first investor town hall meeting. Since our last earnings call, we have not received expected further milestone payments and do not yet have a definitive schedule and when further may be received. As a result of this delay, we have removed the expected revenue contribution related to Rivada for our full year 2023 outlook, hence the change in guidance.

We remain engaged with Rivada on a regular basis and have been reassured as recently as today by Rivada that we should expect to receive our contractual milestone payments this year. Accordingly, we continue to believe our Rivada contract will provide significant future revenue and cash flows, the timing of which over is uncertain, and we want to be conservative in our guidance going forward. Overall, I am proud of what we’ve accomplished and where we are heading. Now let me take the opportunity to introduce Matt Riffel who is joining us on the earnings call for the first time. Matt has been Terran Orbital Corporate Controller for the past last two years and has done an amazing job. And we couldn’t ask for anyone more prepared to serve as our acting Chief Financial Officer.

With that, I’ll hand the call over to Matt to review our financial performance in the quarter and provide the financial outlook for the full year. Over to you, Matt.

Mathieu Riffel : Thank you, Marc, and good morning, everyone. I’m happy to be here today and to help support the company at this exciting point in its journey. As we plan our 2024 budget, it’s the breadth and magnitude of our pipeline opportunities as well as the additional capabilities, which we have added, which I find most compelling about our company. While it’s difficult to forecast and model these discrete opportunities, it’s a privilege to help steer the company’s efforts to execute and deliver on these attractive opportunities. Now on to the financial results for the quarter. I am pleased with our continued growth in revenue, which was $43.9 million for the third quarter of 2023, a 58% increase over the same period in the prior year.

The increase in revenue was primarily due to the work performed on our SBA programs on a comparative basis as well as additional contribution from Rivada. Gross profit was $9.7 million for the third quarter compared to $37,000 in the same quarter of 2022. Excluding share-based compensation and depreciation and amortization included in cost of sales. Adjusted gross profit in the third quarter was $12 million compared to adjusted gross cost of $3.2 million in the same quarter in 2022. Our gross profit and adjusted gross profit benefited from EAC adjustments and certain nonrecurring changes in estimates relating to our inventory during the third quarter of 2023. Selling, general and administrative expenses were $29 million in the third quarter of ’23 compared to $24.7 million for the same quarter in 2022.

The increase was primarily driven by higher cost of labor and benefits, sales and marketing expenses, and business development activities due to our growth initiatives, offset by a decrease in our share-based compensation. Adjusted EBITDA was negative $13 million for the quarter compared to negative $13.9 million in the same period in the prior year. The increase in adjusted EBITDA was primarily due to an increase in adjusted gross profit partially offset by an increase in selling, general and administrative expenses. Overall, adjusted EBITDA loss is largely a function of increased expenses related to the ramping of our business development capabilities in back office across the company to serve as the foundation of supporting our multibillion-dollar backlog and pipeline in the coming quarters and years.

This is part of an overall investment of vision ourselves for future growth. Our backlog at the end of the quarter was $2.6 billion, of which $2.4 billion is related to our contract with Rivada. Capital expenditures for the quarter were $6.1 million and primarily related to our investments in capacity and capabilities. Finally, as of September 30, we had approximately 3.8 million — $38.7 million of cash on hand, which was aided by our $32.5 million equity offering in September and approximately $313.0 million of gross debt obligations. As of October 31, we had over $70 million of cash on hand. We remain excited about finishing the full year on a strong note and hope we can announce new awards heading into 2024. Efficient and successful execution on our new and existing contracts remain the number one priority for our team.

As highlighted in our previous calls, the exact timing of execution on our new contracts is an important variable impacting our near-term results. As a reminder, recognition under our accounting po — for revenue recognition and other accounting policies, revenue is not recognized in our results until we performed work on the contracts. That is cash receipts do not drive the recognition of revenue. We now expect our 2023 full year revenue to be greater than $130 million or at least a 38% increase year-over-year compared to 2022. The decrease in revenue guidance is primarily related to the removal of Rivada, the delayed start in awarding of certain larger programs and the potential for challenges we’re working through on other programs. Our year-to-date adjusted gross profit margin of $16.5 million is now in line with our previously disclosed year-end targets, and we expect gradual improvement in future periods.

The pace and magnitude of margin improvement may vary depending on program mix and execution. Finally, we know our CapEx for the year is expected to be less than $30 million. I’ll now turn the call back over to Marc.

Marc Bell : Thank you, Matt. Today, we’re going to do — and thank you, everybody, for your supportive turnout. We’re going to do questions that answers a little differently this time around. We’re going to start with institutions who cover us. And then we’re going to open it up to anybody who ask. As some people have e-mailed those questions, feel free to add yourself to the queue. And we’re going to take — we’re going to — unlike the Town Hall, where we did all reading off questions. Here, all questions will be asked live and answered live, and anybody can ask a question. With that, we’re going to turn over to our first — if you turn it over back to the operator, I guess, right? Operator, back to yours.

See also 13 Best Auto Components and Parts Stocks to Buy Now and Dividend Aristocrats Ranked By Yield: Top 25.

Q&A Session

Operator: [Operator Instructions]. We’ll now go to our first question, which comes from Greg Konrad with Jefferies. Greg please go ahead. Your line is open.

Unidentified Analyst : This is Sam Gates from Jefferies dialing in for Greg Konrad. Congratulations on winning a role in the third tranche transfer layer. With that order in the backlog, how should we think about where economics can go from here relative to the two prior tranches? And sort of how should we think about the economics on this tranche compared to tranches 0 and tranches 1?

Mathieu Riffel : Thanks, Greg. I’ll take an answer at that one. So, for this particular — as a reminder, this award was in our backlog as of September 30, it was an October award. The economics of which — it is a larger award. And with our larger awards, we generally expect it to be a little bit lower margin, but we think it’s going to be in the mid-teens — mid-to high teens as we go forward. And it’s — that’s relatively comparable with some of our other SDA programs.

Marc Bell: Yes. And we’re seeing, as we go — as time goes on, margins will continue to improve as we bring more and more components and modules in-house.

Unidentified Analyst : Got it. That’s helpful. And I guess, just maybe as a quick follow-up. You highlighted the responsive space initiative and some of the new products that you’ve been working on to enable that mission set. What should we think about in terms of timing for that to convert into revenue? And then could you maybe size the sort of the TAM on that and why you guys think you’re in a good spot to compete in that space?

Marc Bell: Can you repeat the very beginning of that again?

Unidentified Analyst : Yes. You’ve been highlighting the responsive space initiative and some of the new products that you’re working on to enable that? And just trying to understand sort of what that looks like in terms of revenue conversion and then what that does to your TAM and how you think about that opportunity set from here?

Marc Bell: So, it all started — a little background here, in 2005, Kernel J. Raymond at the time, wrote a paper called Tactically Responsive Space. Nobody really paid a lot of attention to it. And then we became two years ago at National Space, I suppose. I was [indiscernible] with him and he became the fourth or general who started space for us. And he was talking at that dinner about his dream was to order a satellite on the first of the month to get it delivered on the 30th of the month. And we’re making that dream come true as he just recently came down and visited the facility where we’re going to be doing this. It’s all about the days of — it used to cost take a decade and cost billions to build a satellite. They need things faster.

They need it now. The world stage is very fluid. Ukraine, Israel has shown us how quickly things could change overnight and they want the ability to get assets to put them into space. The government has always talked about only 4% to 6% of all their ISR currently being met from space. There’s just incredible demand and not enough supply, and it was taking too long. Space development agency has helped shorten that cycle, but only by — down to two years for a program, and the goal is to, they want to get it down to days, not years. And so, we see the TAM just incredibly large, not just for the U.S. but globally for any country who has been able to do it, but we’re going to start slow. We’re seeing — we just bid on three different programs where it’s a six-month to eight-month turnaround for the satellites.

We’ll know by the end of this year if we won. And that will be the first shot of us get doing it. Once we have all our components and modules in stock, at the end of next year in our new facility, which will be called Goodyear for now or calling Goodyear. That will allow us to really assemble things robotically, very quickly. We currently assemble modules, one-third of our modules are assembled robotically. By next year, all of our models be robotically assembled and the satellite buttons as well will be robotically assembled. So, any time a conflict on pops up, that country could order satellites from us and get an orbit within 60 days. It’s a big difference. Does that help?

Unidentified Analyst : Yes. Thank you, Marc. That’s very helpful. I appreciate it.

Marc Bell: Any other questions?

Operator: Our next question comes from Erik Rasmussen with Stifel. Please go ahead. Erik your line is open.

Erik Rasmussen : Great. I just wanted to ask about the progress with the SDA programs to date and in the context of what we’ve learned from various sources on future programs so far. It seems that the team has executed well, but — if we think about what has been awarded thus far, it seems that Terran is sort of under-indexing what others have been awarded. What are your expectations for additional FDA awards? And — and what could you share be? And were you surprised on how the alpha award played out?

Marc Bell: So many questions there. So as far as SDA goes, we never want to make assumptions of what we could and couldn’t win in the future. On the Alpha award, we knew we can’t win everything, and there are other players out there. And the FDA, Derek has made it very clear, he wants a diversity of manufacturing base. So, we went three in a row. We do — we didn’t expect to win in a row. So that was — and it’s not us winning. It’s Lockheeds’, the prime and were Lockheed up. So, it was not a big surprise at the end of the day for us that we weren’t winning. But now we’re looking at other SDA programs because we never been on tracking before. We haven’t been on most of the other types of programs that they’ve done to and what have you.

So, we are — and we’re talking to other primes as well about partnering with them on their SDA bids because Lockheed does not on everything with the FDA. And also, we want to — our buses are becoming more popular. And now that we have 10 in orbit for Tranche 0 and we’ve been very pleased with their performance, we have a lot more street cred than we had before. So, we’re feeling pretty good about other SDA programs in the future. We never really want to guess as to what they think as they’re probably listening to this, but we appreciate their business very much.

Erik Rasmussen : Yes. Got you. Great. And then maybe on your backlog is at $2.6 billion at the end of the quarter. I know it’s higher with those new awards. Are you still expecting to convert 80% of this by 2025, which reflects the Rivada portion? And then with that, how should we think about the split between 2024 and 2025?

Marc Bell: It’s definitely heavily weighted towards ’25 because that’s when you get into real assembly mode, ’24 is a lot of manufacturing and the production of modules. But you’re talking about your — as things get pushed to the right, revenue gets pushed out to the right as well, which is what happened here. We’re with Rivada this year. The important part is if the revenue happens at all at the end of the day.

Erik Rasmussen : Great. So, but the time line though is — hasn’t moved for Rivada in terms of having those satellites up by Q2 or Q3 of ’25.

Marc Bell: Rivada has — according to the ITU, Rivada has to have their satellites in orbit by a specific date — two specific dates. So, at the end of the day, it’s just going to cost them more in order to get there because we have to spend more money to get there. But it is — but we have $187 million of non-Rivada backlog that will be recognized through the end of 2025, and if you think about it, we still 42 buses for T1 and 36 for T2, we got to deliver. And that does include all the other things we’ve bid on that we’re waiting to hear. We have just recently stood up a business development organization, and we are now seeing — we relied on Lockheed Martin for the first couple of years. We are now expanding our wings to lots of different primes.

I think there are 10 primes — the 10 largest primes in the world, six of them we’re in dialogue with. Three of them are Chinese, we don’t talk to, and there’s only one left. And so, we’ve been very busily talking to all the other major primes on how we can work together. It’s a big planet.

Erik Rasmussen : Got you. Great.

Marc Bell: Yes. And I’ll make one more point. We’ve been spending a lot more time on commercial. So, we are spending a lot of not just DoD and IC in the U.S., but commercial is making up a larger and larger part of our future revenue base we’re seeing in the future. So, we’re going — we’re pushing very hard for revenue diversity across the board. There are many Rivada’s kicking around the planet.

Operator: Our next question comes from Griffin Boss from B. Riley Securities. Please go ahead. Your line is open.

Griffin Boss : So — just first off on the gross margin. I understand going forward, it’s dependent on program mix quarter-to-quarter. But generally speaking, are you now — are you now at a point where your remaining backlog mix represents the programs in, call it, the high teens, 20% gross margin? So, I guess, in other words, are you expecting to be able to expand that pro forma gross margin in ’24 beyond the 16.5% target you have for this year?

Marc Bell: Yes. Thanks for the question, Gavin. So, we’re optimistic that our 16.5% is really the [indiscernible] point for our future margin expectations. What we have in backlog right now is in the low to mid-20s. And so just leading out our backlog, tacking on new programs, higher margins than what we’ve seen on some of our legacy program. We feel pretty good margin profile going forward.

Griffin Boss : Okay. Sure. Then jumping over to tranche 1. So, you’re still expecting deliveries in the fourth quarter. That’s good to see. But just given the switch in propulsion suppliers away from Astra, has that pushed out the number of deliveries that you initially expected to complete in the fourth quarter. So, is that at all contributing to the lower revenue guide pushing more of that tranche revenue into ’24?

Marc Bell: I mean we had a dream originally, just like we do with T-0 to deliver way ahead of schedule and deliver the whole thing by the end of this year. The reality is propulsion has been with Astra has been quite — been a challenge. We do expect to SDA seems according to them, but we’re hedging our bets. Moving forward, music, we used on Tranche 0 that we will have two different providers that are not dependent on Astra. So, Astra deliver is great. If they don’t deliver, we’ll still have all our engines, and it just means a lot of extra engines frontier the next program that we have both deliver.

Griffin Boss : Okay. All right. And then so shifting gears to your enterprise bus, you had the new disclosure last week on the three configurations for that. It was interesting to see the third configuration C for MEO and GEO applications. So just curious if you could give any more color. Are you currently building any MEO or geo buses? Or are you bidding on RFPs for those applications?

Marc Bell: We are bidding on RFPs for lots of MEOs and lots of micro geos. And it is — so that’s what we decided. We are getting a lot of demand for that. We decided to expand the enterprise bus line to do that. That’s why you see three different configurations that are out there because this is what you were asking for. And so, we are trying to focus our NRE on an bus sizes for what customers are demanding today.

Griffin Boss : Okay. Great. And then just last one for me. You talked about the 2,800 satellites valued at $2.7 billion across the whatever it was, 80 opportunities, 40 customers. So that — I mean, just the quick math on that implies sort of around $1 million per satellite, which I mean, I think historically, you guys have talked about maybe — call it $3 million to $5 million per satellite is sort of a sweet spot. So, can you just help us understand sort of the disconnect there?

Marc Bell: I’m sorry. I don’t understand. You have static on your line? Can you repeat that question?

Griffin Boss : Yes, sure. So, you talked about the 2,800 satellites valued at $2.7 billion. So just a quick math on that implies under $1 million per satellite. I think historically, you’ve talked about $3 million to $5 million for satellite. I just wondered if you could give some color on the disconnect.

Marc Bell: It’s all over the place. So, you have some for $1 million, you have some for $10 million. Some for $15 million. It’s really just — you have a very wide — depending on what people are building, things in micro geo or EMEA are much more expensive than things in LEO or delio. So, everybody is going out and looking at different sites, satellites, not all sizes fit all needs, which is why we keep expanding the bus lines.

Operator: Our next question comes from Scott Buck with H.C. Wainwright. Scott, please go ahead. Your line is open.

Scott Buck : Good morning, guys. Thanks for taking my question. Marc, just to kind of follow up on your comments regarding the commercial space. Curious what kind of demand you’re seeing from potential commercial partners and whether or not kind of general macro uncertainty has dampened maybe some of that demand in the near term?

Marc Bell: The demand we’ve seen from commercial partners around the world is just astronomical. I mean, it’s far greater than and your [indiscernible]. I was very hyper-focused on the DoD and the IC when I first started, but the demand for commercial far exceeds that. We’re seeing — we don’t see anything slowing down. There’s lots of spectrum out there. People want to utilize the spectrum, everything from Internet of Things to 5G from space to direct to handset to the tons of applications that people are looking at and that are requiring very large, very robust constellations. So, it’s interesting. It’s also interesting to note the size of our — we think 500 kilograms is like the sweet spot right now for buses. We use the thing was a little bit smaller, but we’re seeing people — things are getting bigger and people want bigger, but the dollars we’re willing to spend is more, but there’s more money to make it space and then the wave has been before.

So, we’re seeing a big push into commercial to then the refreshes for LEOMEonGO [ph]. Because remember, when is the recurring revenue business. Everything we build, we’ve got to replace but we’re seeing huge quantities in LEO that people are looking at. It’s very exciting. Let me just add one thing. One thing to point out is as we start building these quantities, the costs start to go down significantly. So, as we stood to replicate these things over and over again, the recurring costs go down dramatically. There is a lot of — with volume comes better pricing across the board for everybody.

Scott Buck : Sure. No, that makes sense. And Marc, are you actively bidding on programs now? Or are you still in kind of the discovery phase or research phase there?

Marc Bell: Oh, no, we were quite actively bidding. So, we have Mac Jan and his team have done a great job, and they are very actively running around the world, bidding on things at a very rapid pace. So, we’ve gotten in front of a lot of people, and people are coming to us. It’s great that the customers are now finding us. They’re seeing what we’re doing. We know the technologies and the abilities for mass production of small specs is invigorating the marketplace. People are proliferated, it’s not just for government, it’s for everybody. But we’re getting it from all — every country has somebody who wants to build their own constellation. Every country wants to have their own transfer later tracking layer, the DoD side, the military side of the country, commercial, they want to have their own 5G network. They want to have their own Internet of Things. They don’t want to just have a beauty Americans. It’s amazing.

Scott Buck : Yes. That makes sense and very helpful. Matt, can you tell us what contribution from Rivada was in the quarter in terms of revenue?

Mathieu Riffel : Yes. Rivada’s revenue was about — was around $6.7 million on a year-to-date basis in around like $5 million for the quarter.

Operator: Our next question comes from the line of Mark Stone, who is a private investor. Mark, please go ahead. Your line is open.

Unidentified Analyst : Yes. First, my comment was, I think a previous question a couple back, may have made a math there, and that comes out to $8 million of satellite, not $1 million of satellite on Rivada. And anyhow, my question is, presuming Rivada never gets a single additional sent for Rivada, do you have enough cash to make it through to cash flow positive?

Marc Bell: Yes, we do.

Operator: We have no further questions in on the line. So, I’ll turn the call back to the management team.

Marc Bell: As I know these people still people on left on the call. If anybody wants to ask a question, we are more than happy to take anybody’s questions. If not, we’re going to thank everybody for coming today. And I appreciate your time and your support. And we’re excited, everyone here at Terran Orbital was very excited going into the year-end and 2024 is going to be an amazing year for us. Hold on, I think we have a question, bear with me. I think it’s there. Is there a question? There is a question. Operator?

Operator: We have a question from Jordan Klein with Corporate Sunder Aviation. Jordan please go ahead.

Unidentified Analyst : In regards to the cash flow positive, with or without Rivada, what is the earliest possible quarter you see becoming cash flow positive, and worst-case scenario, what’s the latest down the road you see it happening?

Marc Bell: Yes. Thanks, Jordan. We’re still currently going through our 2024 budget and forecast cycle. So earliest will be Q1, late will be Q4, but the plan is to be cash flow positive during 2024.

Mathieu Riffel : A lot of that is just based on timing of programs.

Marc Bell: All right. As we have — we’ve got one more just popped up. Operator?

Operator: Our next question comes [indiscernible] of Investment. Please go ahead.

Unidentified Analyst : Yes. Can you please discuss opportunities within your pipeline where you just expect decisions within the next three months? And just maybe quantify what you expect within the pipeline to be announced within the next three months?

Marc Bell: Well, we don’t go through details on bids that haven’t closed yet. We just talked about the pipeline in general, but we were trying to give that was specific we don’t help our competitors figure out what we’re working on.

Unidentified Analyst : But within the pipeline, that’s got to be spread out probably over the next year or more. But is there any color that you can shed on maybe more near-term size without getting into specific programs as to what you’re looking for over the next few months?

Marc Bell: We expect to have — we set to have over the next six months some significant announcements to make. We’re seeing more and more large opportunities from both commercial and government entities from around the world. And so, we will have more color on that as they get announced, there’s some competitive processes that we are bidding on now. We just don’t want to go into detail or the phone.

Unidentified Analyst : And then with regard to commercial opportunities, what other commercial opportunities besides Rivada have you won or are optimistic about?

Marc Bell: We have many to be optimistic about, but back to the same answer. I’m not trying to be argumentative here. We don’t want to go into details on things that haven’t been closed yet. So, we are doing very well in the bidding process with a number of opportunities. And as they close, we won’t — we will publicly disclose them.

Unidentified Analyst : And then just two more. Just one is with regard to return on invested capital. Does the company utilize a specific return on invested capital hurdle rate when allocating capital? And if so, can you just discuss the rate that you use?

Marc Bell: I mean, we look at things that we purchased, whether it be robots or test equipment and such, as we try to get a 12-month ROI or better. So, for example, virtually all of our robotics 12-month ROI on [indiscernible] with less than 12 months. It is on a less than 12 months. So, we look at all the big CapEx that we spend, and we want to get our money back less than 12 months or less. And that’s kind of how we’ve been viewing it. As well we want very quick returns because we’ve been outsourcing a lot of these things. And by bringing them in-house, the returns tend to be very, very fast. So, we try to — we’re very capital efficient as far as the CapEx that we spend. I mean we projected only $30 million of CapEx this year, and we expect to come in below that.

Unidentified Analyst : And then just final thing. So, this morning, there was a tweet out Declan Ganley, talking about they fully expect the payment to Terran Orbital by the end of this year and that the events of October 7 have slowed things down, but they’re confident that they’re getting back on track and that the program remains on schedule. Have you spoken directly with Rivada about this? And can you just maybe talk about that this morning. It looks like you retweeted that. Just wondering if you can just shed any more light on that.

Marc Bell: Yes. I just speak to Declan this morning, and he — we obviously are aware of who their funding source is and we personally know who their funding sources. So, we have confidence in their funding source. That said, yes, I did retweet it because I like the tweet. Feel free to retweet it yourself. It’s always a good thing. But that said, other than that, I don’t — more to comment other than he’s very frustrated that they haven’t closed yet, but they are making progress. We have one more? Two more, two more. This is great. Keep them coming.

Operator: Our next question comes from Peter Singh, a Private Investor. Please go ahead.

Unidentified Analyst : Thank you, Marc, and thank you, everyone, for hosting this call and for taking this format. I appreciate that. I know it’s not easy, given how.

Marc Bell: Yes, we want to hear from everybody. I think this is great.

Unidentified Analyst : Just a quick question regarding Q4 performance. I know you mentioned that the Tranche 1 deliveries are delayed now into Q1 and potentially Q2.

Marc Bell: It’s not delayed the original. Yes, we’re not delayed. The original schedule went out to Q2. We were trying to beat the schedule. There’s a difference. So, we’re on schedule. We were trying to beat it. Making it on schedule is easy, but I like to beat schedule. I don’t like to just make them.

Unidentified Analyst : Fair enough. So, what is the expected revenue now for Q4? I mean if I’m going off of the $130 million target for 2023 and where we are currently, it looks like around $26 million, $27 million for Q4. Is that correct?

Marc Bell: That would be on the low side. As we have mentioned earlier, we’re providing conservative guidance — and the reason for that 130 number, which would imply a lower Q4 revenue is the fact that there’s certain challenges on certain programs, and the ultimate resolution of those challenges aren’t known at this time.

Mathieu Riffel : And I never ever want to get caught again with having to go out with — to raise my revenue target and then have to lower them again. So, we’re going back to the way we used to do it. And for 20 years, we’ve never missed the revenue target, and this is the first. So, we never want to make that mistake again. So, we’re back to being conservative.

Unidentified Analyst : Okay. Fair enough. Yes. I guess, lesson learned from the 250 target. During the Q2 call, you had mentioned about the extreme due diligence done around Rivada funding and payment. Did we research not consider the potential delays that we are experiencing right now? And does Terran not require any alternative funding from Rivada?

Marc Bell: No. We knew their funding source very well. I met with them personally a long time ago. I had extreme confidence and saw no reason why they wouldn’t have been funded. So, this was just a — it was quite a surprise, both to us and to Rivada. But yes, we did — a lot of diligence was done on all sides, and we had extreme confidence on their ability to fund. And we still expect them to get funded. Just there are other some external circumstances that have popped up that have delayed things. But it is a large sovereign and we expect them to come through at the end of the day.

Operator: Our next question comes from Mark Stone, who is a private investor.

Unidentified Analyst : So, the previous mentioned a Twitter reminding of a comments last question I have. As of a few weeks ago, the Terran Twitter site, posts are protected. And I actually submitted and still have pending in a question about two weeks or three weeks ago to have them unprotected. So why are they protected? Was that some kind of mistake by Terran Orbital or on purpose?

Marc Bell: Guy with social media is shaking his head looking at me, saying, he’s no clue what you’re talking about, but we will really check it out. So obviously I believe you. I don’t know. Like I said, he is shaking his head. He’s going to look into it. So sorry, I don’t put the accounts, but the guy who does is going to find out. Thanks for pointing that out to us.

Operator: Next, we have a follow-up question from Peter Singh again, he is a private investor.

Unidentified Analyst : Just one more question here. Regarding the proposal from the cofounders and their recent letter after the fact when you announced the reduced revenue guidance. Any thoughts there? And how should the shareholders consider the pipeline that they are proposing and how does it align with the pipeline that you have minus Rivada?

Marc Bell: I don’t understand the question.

Unidentified Analyst : The cofounders are proposing — the cofounders their pipeline.

Marc Bell: First of all, they’re not cofounders. The 3 founders of Terran Orbital are Marc Bell, Dan Staton, and Anthony Privates who is deceased. Those are the three founders. So, you got to get your facts straight, please. Second, they predicted they were able they proposed — they said they can close $1.7 billion, which is great. We have not seen — we have lots of things that we’re bidding on, but we don’t disclose what we’re working on. It could be the same thing. It cannot be the same things. If they wanted to be helpful shareholders, they could give us the information, they choose not to, and that’s their decision.

Operator: Those are all the questions we have. So, I’ll talk all back to the management team.

Marc Bell: Okay. Well, thank you very much for attending, everybody. We really appreciate it. We appreciate all the feedback and inviting everybody else to have questions. And I want everyone to — I guess the next time we’ll speak to you will be after the holidays, everybody, and enjoy your Thanksgiving, and thank you very much for joining us.

Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.