Terran Orbital Corporation (NYSE:LLAP) Q4 2022 Earnings Call Transcript

Josh Sullivan: As far as the EACs, any areas or aspects of the contracts to call out or for lessons learned? I think you mentioned might have been related to some legacy program.

Marc Bell: I mean, it’d be more specific.

Josh Sullivan: So, I mean, just as far going forward, should we think about, you mentioned they were part of legacy programs, so should we anticipate going forward in a better position or just?

Gary Hobart: Yeah. So, like, as I mentioned, it’s possible that we have additional EAC adjustments in the future. We’ve finished the year with our estimates in our EAC based on what we knew. So, what I — we’ll just reiterate is, a large portion of the EAC adjustments we saw throughout 2022, we’re on programs that we are substantially completed on. And so those programs tended to be more prototype and early phase programs, where quite frankly, technical challenges, supply chain challenges, running additional shifts, all those things contributed to additional costs. And also just quite frankly, trying to move things and accelerate the speed to get things out the door. So, there’s a little bit of teething here as we bring on board things, but those one-off programs tend to be the ones where you have a million or $2 million impact.

And if you have a couple of programs like that, it adds up each quarter. And that’s what we’re seeing. What we can see going forward is a lot of our programs now are the bigger, more scaled programs where if we do have an impact, the size impact relatively overall program is much more muted. So, we have the — we’re encouraged by where we are to begin the year. And — but a lot of EAC adjustments, we hopefully are our rear view mirror, but there is possible, we have some in the future.

Marc Bell: Yeah. I mean, 36 months ago we were building satellites you can hold in the palm of your hand. Today, we’re holding things that need to go into a truck, but more — but the sizing seems to be stabilizing and 350 to 500 kilogram ranges where most people are soon to be stabilizing. But there was a learning curve to get to that point. But now the size of stabilizing, we’ll see less NREs going forward than we have in the past.

Josh Sullivan: Got it. And then maybe just one on the announcement on Monday with cognitive space. Can you talk about the dual use assets there? Is that going to be owned by you and does it include any SAR?

Marc Bell: Terran Orbital is now scheduling. And on orbit asset using cognitive spaces, Sentient software platform. We expect this partnership to help drive down costs of internal operations as well as our customers grow the larger constellation easier. I can’t comment as to what we’re using it for. That’s all I could say at this point.

Josh Sullivan: Thank you for the time.

Operator: Next we have a question from . Please go ahead.

Unidentified Analyst: Hi. Thank you for taking the question. I do have a question regarding the $14 billion pipeline that I would assume doesn’t include a 2.4 of Rivada. Can you give us any color on the composition in the stage of that pipeline, and what are you expecting of that to convert in 2023 and what would that go into 2024?

Marc Bell: Sure. Well, it was a $16.4 billion pipeline. That’s now a $14 billion pipeline. But there are about 125 programs in there that could make up about 3,700 satellites. The biggest of that $14 billion is a $6 billion NASA Rapid Rewards contract. And then after that you’ve got some very, very large programs and some smaller programs as well.

Unidentified Analyst: Thank you.

Operator: We have a question from James Byron . Please go ahead.

Unidentified Analyst: Hi. Thank you so much for taking my call. I’m not sure really if I have any kind of a question, but just an observation. I’ve been a finance guy my whole career. And when I see the kinds of losses I see you folks act up last year, I just get very concerned that there might be fundamental problems in the manufacturing operations that are hard to see. And so, I — it’s just — I have quite a few shares of your stock. I think I’m going to be acquiring more, but I hope you have a very strong cost accounting person on your staff so that when you ship a satellite, they can say immediately this is how we did on that satellite or this group of satellites. And so, that’s my only comment. The other thing I see is I’ve been at — I’ve also been involved in a number of startups and unfortunately for me, not one of them has succeeded.

And one thing I see very much is that people are very focused on trying to get more and more and more sales. You guys got $2.4 billion worth of a contract, focus on that. Never mind trying to get any more business. You need to succeed on this $2.4 billion or you’re going to get overwhelmed. And I see people run out of cash very quickly and all of a sudden there’s a problem. And then the next thing, the company’s gone. So, I’m putting a lot of faith in you guys. I’ve got a lot of shares. I’m going to acquire some more, but I’m just giving you some of my thoughts and my experience in the future. You got a huge contract and make sure you succeed with what’s in front of you and don’t be so focused on trying to get more.

Marc Bell: So, we — I appreciate very much your comments. We are a — so be to — my business partner Dan Staton and I, we’ve built seven unicorns. This will be our eighth. We’ve taken 17 comedies public successfully. We are old experience management team. We understand that we’ve had losses and part of that is, we are hiring ahead of programs. We are a hundred percent committed to Rivada in getting it out the door on time and profitably. And as we are to all the programs we have going forward. But we needed to build up scale, because we knew what programs we would be — we knew that we would be getting some big programs and you have to hire ahead of scale. But you will start to see the financials improve going into 2024 because obviously gain to EBITDA positive and free cash flow positive is enormously important to all of us.

And so — but we had to spend a lot of money to get where we are today, but we totally understand your concerns and trust me, Gary, myself, and the rest of the management team are working to make sure — are in a great place. And thankfully with a partner like Lockheed Martin, they have been very supportive of us and have be — we’ve been keeping us enormously busy. Running two shifts a day, seven days a week in our existing facility. And we will be — with the new facilities, we will get to a more normal work cycle. And we’ll also help to keep our costs down, especially with all the robotics we’re building. And as with any investor on the call, we invite people to come to see our facilities, see what we do. We’re always welcome to have investors come take a tour.

Unidentified Analyst: Very good. Thank you so much.