Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
INTRODUCTION
The following discussion and analysis of our financial condition and results of operations and cash flows should be read in conjunction with our condensed consolidated financial statements, and the related notes thereto, included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 included in our registration statement on Form S-1, which was filed with the United States Securities and Exchange Commission (the “SEC”) on April 22, 2022 (the “Form S-1”) but has not yet been declared effective by the SEC. In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included in the Form S-1. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
OVERVIEW
Terran Orbital Corporation, formerly known as Tailwind Two Acquisition Corp. (“Tailwind Two”), together with its wholly-owned subsidiaries (collectively, the “Company,” “we,” “our,” “us,” and “Terran Orbital”), is a leading manufacturer of small satellites primarily serving the United States (“U.S.”) aerospace and defense industry. Through our subsidiary Tyvak Nano-Satellite Systems, Inc. (“Tyvak”), we provide end-to-end satellite solutions by combining satellite design, production, launch planning, mission operations, and in-orbit support to meet the needs of our customers. We access the international market through both Tyvak and our Torino, Italy based subsidiary, Tyvak International S.R.L. (“Tyvak International”). Through our subsidiary PredaSAR Corporation (“PredaSAR”), we are developing what we believe will be the world’s largest, most advanced NextGen Earth observation constellation to provide near persistent, near real-time Earth imagery.
BASIS OF PRESENTATION
All financial information presented in this section includes the accounts of Terran Orbital Corporation and its subsidiaries, and has been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All intercompany transactions have been eliminated.
Our Chief Executive Officer is our chief operating decision maker (the “CODM”). We report segment information based on how the CODM evaluates performance and makes decisions about how to allocate resources. Accordingly, we have two operating and reportable segments: Satellite Solutions and Earth Observation Solutions.
The reportable segments are defined as follows:
The Satellite Solutions segment is a vertically integrated satellite provider with modern facilities and a global ground station network that delivers end-to-end satellite solutions, including spacecraft design, development, launch services and on-orbit operations for critical missions across a number of applications in a variety of orbits to governmental agencies and commercial businesses.
•Earth Observation Solutions
Through the Satellite Solutions segment, the Earth Observation Solutions segment has commenced developing satellites and intends to continue to develop, build, launch and operate a constellation of Earth observation satellites that will feature Synthetic Aperture Radar (“SAR”) and electro-optical capabilities to provide Earth observation data and mission solutions that it believes will be distinguished by breadth of coverage, revisit rates and ability to observe and detect during day and night and through clouds and other interference. In addition, the Earth Observation Solutions segment plans to provide secondary payload solutions and onboard data processing capabilities on its satellite constellation, including sensors, optical links or other mission solutions.
The Earth Observation Solutions segment is still in its developmental stage and does not yet generate any material revenue. The scope and timing of the satellite constellation is subject to continuing assessments of customer demand and our financial
32
and other resources. We anticipate on completing two satellites of the constellation currently under construction, which we anticipate launching in late 2022 or the first half of 2023, while the remainder of the satellites of the constellation will be temporarily delayed based on our prioritization of production capacity to U.S. Government programs coupled with the level of our financial resources as of March 31, 2022.
The CODM uses income (loss) from operations by segment as the segment profitability measure in order to evaluate segment performance. Income (loss) from operations by segment excludes share-based compensation expense and corporate and other costs included within the Company’s consolidated income (loss) from operations.
FACTORS AFFECTING OPERATING RESULTS
Our financial success is based on our ability to deliver high quality products and services on a timely basis and at an economical price for our customers. With the majority of our contracts with customers reflecting firm fixed pricing structures, our gross profit is dependent on the efficient and effective execution of our contracts. Our ability to maximize gross profit may be impacted by, but not limited to, unanticipated cost overruns, disruptions in our supply chains, and mix of customer contracts based on newer technology demonstrations versus existing technology.
From time to time, we may strategically enter into contracts with low or negative margins relative to other contracts or that are at risk of cost overruns. This may occur due to strategic decisions built around positioning ourselves for future contracts or to enhance our product and service offerings. However, in some instances, loss contracts may occur from unforeseen cost overruns which are not recoverable from the customer. We establish loss reserves on contracts in which the estimated cost-at-completion exceeds the estimated revenue. The loss reserves are recorded in the period in which a loss is determined.
We are actively executing on our growth initiatives with significant increases in headcount as well as the expansion of manufacturing facilities and office space in order to position ourselves to be awarded larger contracts with recurring revenue opportunities that will lay the foundation for our long-term success. Our portfolio of contracts includes several technology demonstrations, studies, and prototypes with the potential to convert into contracts to support future constellations. As of March 31, 2022, we have identified approximately 140 opportunities representing over $12 billion in potential revenue for our Satellite Solutions segment.
We may experience variability in the profitability of our contracts in the future and that such future variability may occur at levels and frequencies different from historical experience. Such variability in profitability may be due to strategic decisions, cost overruns or other circumstances within or outside of our control. Accordingly, our historical experience with profitability on our contracts is not indicative or predictive of future experience.
COVID-19 Pandemic
During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”), which has become increasingly widespread across the globe. The COVID-19 Pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in the financial and capital markets.
The COVID-19 Pandemic has contributed to a worldwide shortage of electronic components which has resulted in longer than historically experienced lead times for such electronic components. The reduced availability to receive electronic components used in our operations has negatively affected our timing and ability to deliver products and services to customers as well as increased costs in recent periods. We have considered the emergence and pervasive economic impact of the COVID-19 Pandemic in our assessment of our financial position, results of operations, cash flows, and certain accounting estimates as of and for the three months ended March 31, 2022. Due to the evolving and uncertain nature of the COVID-19 Pandemic, it is possible that the effects of the COVID-19 Pandemic could materially impact our estimates and condensed consolidated financial statements in future reporting periods.
RECENT DEVELOPMENTS
The comparability of our results of operations has been impacted by the following events:
Tailwind Two Merger
Prior to March 25, 2022, Tailwind Two was a publicly listed special purpose acquisition company incorporated as a Cayman Islands exempted company. On March 25, 2022, Tailwind Two acquired Terran Orbital Operating Corporation, formerly known as Terran Orbital Corporation (“Legacy Terran Orbital”) (the “Tailwind Two Merger”). In connection with the Tailwind Two Merger, Tailwind Two filed a notice of deregistration with the Cayman Islands Registrar of Companies and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, resulting in Tailwind Two becoming a
33
Delaware corporation and changing its name from Tailwind Two to Terran Orbital Corporation. The Tailwind Two Merger resulted in Legacy Terran Orbital becoming a wholly-owned subsidiary of Terran Orbital Corporation.
As a result of the Tailwind Two Merger, all of Legacy Terran Orbital's issued and outstanding common stock was converted into shares of Terran Orbital Corporation's common stock using an exchange ratio of 27.585 shares of Terran Orbital Corporation's common stock per each share of Legacy Terran Orbital's common stock. In addition, Legacy Terran Orbital's convertible preferred stock and certain warrants were exercised and converted into shares of Legacy Terran Orbital's common stock immediately prior to the Tailwind Two Merger, and in turn, were converted into shares of Terran Orbital Corporation's common stock as a result of the Tailwind Two Merger. Further, in connection with the Tailwind Two Merger, Legacy Terran Orbital's share-based compensation plan and related share-based compensation awards were cancelled and exchanged or converted, as applicable, with a new share-based compensation plan and related share-based compensation awards of Terran Orbital Corporation.
While Legacy Terran Orbital became a wholly-owned subsidiary of Terran Orbital Corporation, Legacy Terran Orbital was deemed to be the acquirer in the Tailwind Two Merger for accounting purposes. Accordingly, the Tailwind Two Merger was accounted for as a reverse recapitalization, in which case the condensed consolidated financial statements of the Company represent a continuation of Legacy Terran Orbital and the issuance of common stock in exchange for the net assets of Tailwind Two recognized at historical cost and no recognition of goodwill or other intangible assets. Operations prior to the Tailwind Two Merger are those of Legacy Terran Orbital and all share and per-share data included in these condensed consolidated financial statements have been retroactively adjusted to give effect to the Tailwind Two Merger. In addition, the number of shares subject to, and the exercise price of, the Company’s outstanding options and warrants were adjusted to reflect the Tailwind Two Merger. The treatment of the Tailwind Two Merger as a reverse recapitalization was based upon the pre-merger shareholders of Legacy Terran Orbital holding the majority of the voting interests of Terran Orbital Corporation, Legacy Terran Orbital's existing management team serving as the initial management team of Terran Orbital Corporation, Legacy Terran Orbital's appointment of the majority of the initial board of directors of Terran Orbital Corporation, and Legacy Terran Orbital's operations comprising the ongoing operations of the Company.
In connection with the Tailwind Two Merger, approximately $29 million of cash and marketable securities held in trust, net of redemptions by Tailwind Two's public shareholders, became available for use by the Company as well as proceeds received from the contemporaneous sale of common stock in connection with the closing of a PIPE investment with a contractual amount of $51 million (the “PIPE Investment”). In addition, the Company received additional proceeds from the issuance of debt contemporaneously with the Tailwind Two Merger. The aggregate cash raised will be used for general corporate purposes, the partial paydown of debt, the payment of transaction costs and the payment of other costs directly or indirectly attributable to the Tailwind Two Merger.
Beginning on March 28, 2022, the Company's common stock and public warrants began trading on the New York Stock Exchange (the "NYSE") under the symbols “LLAP” and "LLAP WS," respectively.
Refer to the discussions below under “Liquidity and Capital Resources” for further details regarding our financing transactions which occurred in connection with the Tailwind Two Merger.
Public Company Costs
As a result of the Tailwind Two Merger, we have incurred and will continue to incur additional legal, accounting, board compensation, and other expenses that we did not previously incur, including costs associated with SEC reporting and corporate governance requirements. These requirements include compliance with the Sarbanes-Oxley Act of 2002 as well as other rules implemented by the
34
SEC and the national securities exchanges. Our financial statements for the periods following the Tailwind Two Merger will reflect the impact of these expenses.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
The following table presents our consolidated results of operations for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
Revenue |
$ |
13,120 |
|
|
$ |
10,494 |
|
|
$ |
2,626 |
|
Cost of sales |
|
15,953 |
|
|
|
9,734 |
|
|
|
6,219 |
|
Gross (loss) profit |
|
(2,833 |
) |
|
|
760 |
|
|
|
(3,593 |
) |
Selling, general, and administrative expenses |
|
30,217 |
|
|
|
6,673 |
|
|
|
23,544 |
|
Loss from operations |
|
(33,050 |
) |
|
|
(5,913 |
) |
|
|
(27,137 |
) |
Interest expense, net |
|
2,923 |
|
|
|
907 |
|
|
|
2,016 |
|
Loss on extinguishment of debt |
|
23,141 |
|
|
|
70,667 |
|
|
|
(47,526 |
) |
Change in fair value of warrant and derivative liabilities |
|
11,853 |
|
|
|
(34 |
) |
|
|
11,887 |
|
Other expense |
|
403 |
|
|
|
15 |
|
|
|
388 |
|
Loss before income taxes |
|
(71,370 |
) |
|
|
(77,468 |
) |
|
|
6,098 |
|
Provision for income taxes |
|
2 |
|
|
|
28 |
|
|
|
(26 |
) |
Net loss |
$ |
(71,372 |
) |
|
$ |
(77,496 |
) |
|
$ |
6,124 |
|
Revenue
The following table presents revenue by segment for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
Satellite Solutions |
$ |
12,974 |
|
|
$ |
10,494 |
|
|
$ |
2,480 |
|
Earth Observation Solutions |
|
146 |
|
|
|
- |
|
|
|
146 |
|
Revenue |
$ |
13,120 |
|
|
$ |
10,494 |
|
|
$ |
2,626 |
|
The increase in revenue attributable to the Satellite Solutions segment was primarily due to the continued and increased level of progress made in satisfying our customer contracts and reflects the ongoing favorable impact from significant contract wins and modifications in recent periods.
During the three months ended March 31, 2022, we adjusted the estimate-at-completion (“EAC”) on certain firm fixed price contracts, which had an estimated $3 million negative impact to revenue in the Satellite Solutions segment. While we believe our estimates as of March 31, 2022 consider all relevant and known information, such as supply chain and related production challenges, additional adjustments to our EACs could occur and have an impact on our revenue in future reporting periods.
The Earth Observation Solutions segment was still in its developmental stage and generated limited revenue by providing expert analyses and planned technology demonstrations.
Cost of Sales
The following table presents cost of sales by segment and other components for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
Satellite Solutions |
$ |
13,803 |
|
|
$ |
9,720 |
|
|
$ |
4,083 |
|
Earth Observation Solutions |
|
37 |
|
|
|
- |
|
|
|
37 |
|
Share-based compensation expense |
|
2,113 |
|
|
|
14 |
|
|
|
2,099 |
|
Cost of Sales |
$ |
15,953 |
|
|
$ |
9,734 |
|
|
$ |
6,219 |
|
35
The increase in cost of sales was primarily due to an increase of $4 million in labor, materials, third-party services, overhead and other direct costs incurred in satisfying our customer contracts as part of our growth initiatives in the Satellite Solutions segment as well as an increase in share-based compensation expense due to a $2.1 million non-recurring cumulative recognition of share-based compensation expense associated with awards that included a liquidity event, such as the Tailwind Two Merger, as a vesting condition. Prior to the Tailwind Two Merger, the awards were not probable of vesting and no share-based compensation expense was previously recognized.
During the three months ended March 31, 2022, we adjusted the EAC on certain firm fixed price contracts, which had an estimated $0.7 million negative impact to cost of sales in the Satellite Solutions segment. While we believe our estimates as of March 31, 2022 consider all relevant and known information, such as supply chain and related production challenges, additional adjustments to our EACs could occur and have an impact on our cost of sales in future reporting periods.
The Earth Observation Solutions segment was still in its developmental stage and generated limited revenue by providing expert analyses and planned technology demonstrations, incurring limited cost of sales.
Selling, General, and Administrative
The following table presents selling, general, and administrative expenses by segment and other components for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
Satellite Solutions |
$ |
5,219 |
|
|
$ |
1,754 |
|
|
$ |
3,465 |
|
Earth Observation Solutions |
|
768 |
|
|
|
912 |
|
|
|
(144 |
) |
Corporate and other |
|
9,008 |
|
|
|
3,853 |
|
|
|
5,155 |
|
Share-based compensation expense |
|
15,222 |
|
|
|
154 |
|
|
|
15,068 |
|
Selling, general, and administrative expenses |
$ |
30,217 |
|
|
$ |
6,673 |
|
|
$ |
23,544 |
|
The increase in selling, general, and administrative expenses was primarily due to the following:
•an increase in share-based compensation expense due to a $15.1 million non-recurring cumulative recognition of share-based compensation expense associated with awards that included a liquidity event, such as the Tailwind Two Merger, as a vesting condition;
•an increase in corporate salaries and wages of $2.5 million as well as an increase in accounting, legal, and other professional fees of $1.2 million as part of the Company's efforts of becoming a public company;
•an increase in expenses, net of overhead allocations, in the Satellite Solutions segment due to incremental headcount, additional leases for manufacturing facilities and office space, and other selling, general, and administrative expenses as part of the Company's growth initiatives;
•an increase in corporate facility costs of $566 thousand due to new leases for office locations commencing in 2021;
•an increase of $184 thousand in depreciation and amortization expense in the Earth Observation Solutions segment due to a company-owned satellite that was placed in service in 2021; and
•partially offset by a reduction in various other expenses in the Earth Observation Solutions.
Interest Expense, net
The increase in interest expense, net was due to an increase in contractual interest of $2 million as a result of higher debt balances and higher interest rates as a result of our financing transactions during 2021 and 2022, an increase in amortization related to discount on
36
debt of $438 thousand as a result of our financing transactions, partially offset by an increase in capitalized interest of $434 thousand associated with the development of our Earth observation constellation.
Loss on Extinguishment of Debt
During the three months ended March 31, 2022, loss on extinguishment of debt totaled $23 million, which related to the refinancing and extinguishment of our debt obligations in connection with the Tailwind Two Merger.
During the three months ended March 31, 2021, loss on extinguishment of debt totaled $71 million, which related to the refinancing of convertible note instruments.
Change in Fair Value of Warrant and Derivative Liabilities
The change in fair value of warrant and derivative liabilities relates to the periodic fair value remeasurement of liability-classified warrants and derivatives issued in connection with our financing transactions during the first and fourth quarter of 2021. The increase during the three months ended March 31, 2022 was primarily due to fair value remeasurements as a result of the Tailwind Two Merger.
Other Expense
The increase in other expense was primarily related to an increase of $370 thousand for third-party legal fees expensed in connection with our financing transactions.
Provision for Income Taxes
Provision for income taxes for the three months ended March 31, 2022 was $2 thousand, resulting in an effective tax rate for the period of 0.0%. We had a minimal effective tax rate as a result of the continued generation of net operating losses (“NOLs”) offset by a full valuation allowance recorded on such NOLs as we determined it is more-likely-than-not that our NOLs will not be utilized.
Provision for income taxes for the three months ended March 31, 2021 was $28 thousand, resulting in an effective tax rate for the period of 0.0%. We had a minimal effective tax rate as a result of the continued generation of NOLs offset by a full valuation allowance recorded on such NOLs as we determined it is more-likely-than-not that our NOLs will not be utilized. The remainder of the provision for income taxes was related to our foreign subsidiary.
NON-GAAP MEASURES
To provide investors with additional information in connection with our results as determined in accordance with GAAP, we disclose non-GAAP financial measures, such as Adjusted Gross Profit and Adjusted EBITDA, that have not been prepared in accordance with GAAP. These non-GAAP measures may be different from non-GAAP measures made by other companies. These measures may exclude items that are significant in understanding and assessing our financial results. Therefore, these measures should not be considered in isolation or as an alternative to net income or other measures of financial performance or liquidity under GAAP.
Adjusted Gross Profit
We believe that the presentation of Adjusted Gross Profit is appropriate to provide additional information to investors about our gross profit adjusted for certain non-cash items. Further, we believe Adjusted Gross Profit provides a meaningful measure of operating
37
profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against that of other peer companies using similar measures.
We define Adjusted Gross Profit as gross profit or loss adjusted for (i) share-based compensation expense included in cost of sales and (ii) depreciation and amortization included in cost of sales.
There are material limitations to using Adjusted Gross Profit. Adjusted Gross Profit does not take into account all items which directly affect our gross profit or loss. These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted Gross Profit in conjunction with gross profit or loss as calculated in accordance with GAAP.
The following table reconciles Adjusted Gross Profit to gross profit or loss (the most comparable GAAP measure) for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
Gross (loss) profit |
$ |
(2,833 |
) |
|
$ |
760 |
|
|
$ |
(3,593 |
) |
Share-based compensation expense |
|
2,113 |
|
|
|
14 |
|
|
|
2,099 |
|
Depreciation and amortization |
|
513 |
|
|
|
453 |
|
|
|
60 |
|
Adjusted gross (loss) profit |
$ |
(207 |
) |
|
$ |
1,227 |
|
|
$ |
(1,434 |
) |
The decrease in Adjusted Gross Profit was largely due to adjustments to the EAC on certain firm fixed price contracts, which had an estimated $3.7 million negative impact to Adjusted Gross Profit. While we believe our estimates as of March 31, 2022 consider all relevant and known information, such as supply chain and related production challenges, additional adjustments to our EACs could occur and have an impact on our Adjusted Gross Profit in future reporting periods.
Adjusted EBITDA
We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about our operating profitability adjusted for certain non-cash items, non-routine items that we do not expect to continue at the same level in the future, as well as other items that are not core to our operations. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against that of other peer companies using similar measures.
We define Adjusted EBITDA as net income or loss adjusted for (i) interest, (ii) taxes, (iii) depreciation and amortization, (iv) share-based compensation expense, (v) loss on extinguishment of debt, (vi) change in fair value of warrant and derivative liabilities, and (vii) other non-recurring and/or non-cash items.
There are material limitations to using Adjusted EBITDA. Adjusted EBITDA does not take into account certain significant items, including depreciation and amortization, interest, taxes, and other adjustments which directly affect our net income or loss. These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EBITDA in conjunction with net income or loss as calculated in accordance with GAAP.
The following table reconciles Adjusted EBITDA to net loss (the most comparable GAAP measure) for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
Net loss |
$ |
(71,372 |
) |
|
$ |
(77,496 |
) |
|
$ |
6,124 |
|
Interest expense, net |
|
2,923 |
|
|
|
907 |
|
|
|
2,016 |
|
Provisions for income taxes |
|
2 |
|
|
|
28 |
|
|
|
(26 |
) |
Depreciation and amortization |
|
846 |
|
|
|
671 |
|
|
|
175 |
|
Share-based compensation expense |
|
17,335 |
|
|
|
168 |
|
|
|
17,167 |
|
Loss on extinguishment of debt |
|
23,141 |
|
|
|
70,667 |
|
|
|
(47,526 |
) |
Change in fair value of warrant and derivative liabilities |
|
11,853 |
|
|
|
(34 |
) |
|
|
11,887 |
|
Other, net(a) |
|
555 |
|
|
|
1,452 |
|
|
|
(897 |
) |
Adjusted EBITDA |
$ |
(14,717 |
) |
|
$ |
(3,637 |
) |
|
$ |
(11,080 |
) |
38
(a) - Represents other expense and other charges and items. Non-recurring legal and accounting fees related to our transition to a public company are included herein.
The decrease in Adjusted EBITDA was primarily due to a decrease in gross profit and an increase in salaries and wages, legal and accounting fees, and facility expenses as a result of our growth initiatives. Refer to the discussions above under “Results of Operations” for further details.
KEY PERFORMANCE INDICATORS
We view growth in backlog as a key measure of our business growth. Backlog represents the estimated dollar value of executed contracts, including both funded (firm orders for which funding is authorized and appropriated) and unfunded portions of such contracts, for which work has not been performed (also known as the remaining performance obligations on a contract). Order backlog excludes contracts in which we recognize revenue in proportion to the amount we have the right to invoice for services performed and does not include unexercised contract options and potential orders under indefinite delivery/indefinite quantity contracts. Although backlog reflects business associated with contracts that are considered to be firm, terminations, amendments or contract cancellations may occur, which could result in a reduction in our total backlog.
Our backlog totaled $221.8 million and $73.9 million as of March 31, 2022 and December 31, 2021, respectively. The increase in backlog was primarily due to a new award to build 42 satellites for the U.S. Space Development Agency's ("SDA") Tranche 1 of the Transport Layer. The award is in addition to the 10 satellites we are building for the SDA's Tranche 0 of the Transport Layer.
As of March 31, 2022, programs associated with Lockheed Martin represented approximately 86% of the Company’s backlog.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our future cash needs are expected to include cash for operating activities, working capital, purchases of property and equipment, strategic investments, research and development expenses, development and expansion of facilities, development of our Earth observation constellation and debt service requirements.
We have historically funded our operations primarily through the issuance of debt and equity securities. In order to proceed with our business plan, we expect to need to raise additional funds through the issuance of additional debt, equity or other commercial arrangements, which may not be available to us when needed or on terms that we deem to be favorable. To the extent we raise additional capital through the sale of equity or convertible securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we are unable to obtain sufficient financial resources, our business, financial condition and results of operations may be materially and adversely affected. We may be required to delay, limit, reduce or terminate parts of our strategic business plan or future commercialization efforts. There can be no assurance that we will be able to obtain financing on acceptable terms.
Furthermore, our ability to meet our debt service obligations and other capital requirements depends on our future operating performance, which is subject to future general economic, financial, business, competitive, legislative, regulatory, and other conditions, many of which are beyond our control. Changes in our operating plans, material changes in anticipated sales, increased expenses, acquisitions, or other events may cause us to seek equity and/or debt financing in future periods.
As of March 31, 2022, we had $76.7 million of cash and cash equivalents, which included $1.3 million of cash and cash equivalents held by our foreign subsidiary. We are not presently aware of any restrictions on the repatriation of our foreign cash and cash equivalents; however, earnings of our foreign subsidiary is essentially considered permanently invested in the foreign subsidiary. If these funds were needed to fund operations or satisfy obligations in the U.S., they could be repatriated and their repatriation into the U.S. may cause us to incur additional foreign withholding taxes. We do not currently intend to repatriate these earnings.
Our short-term liquidity requirements include initiatives related to (i) expansion of existing facilities and upgrade of equipment in order to increase operational capacity, (ii) recruitment of additional employees to meet operational needs, (iii) upgrade of information technology, (iv) research and development initiatives and (v) continued buildout of corporate functions and public company compliance requirements, inclusive of accounting and legal fees. Our long-term liquidity requirements include initiatives related to (i) development of our Earth observation constellation, inclusive of ground infrastructure, (ii) potential development of our proposed new campus of
39
approximately 660,000 square foot satellite manufacturing facility (the “Space Florida Facility”) and (iii) development of new satellite components and data and analytics software and infrastructure. Additionally, our liquidity requirements include the repayment of debt and other payment obligations incurred as a result the Tailwind Two Merger. The timing and amount of spend on these initiatives may be materially delayed, reduced, and cancelled as a result of our level of our financial resources.
Long-term Debt
As of March 31, 2022, debt was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
|
|
Issued |
|
Maturity |
|
Interest Rate |
|
Interest Payable |
|
|
March 31, 2022 |
|
Francisco Partners Facility |
|
|
November 2021 |
|
April 2026 |
|
9.25% |
|
Quarterly |
|
|
$ |
120,023 |
|
Senior Secured Notes due 2026(1) |
|
|
March 2021 |
|
April 2026 |
|
9.25% and 11.25% |
|
Quarterly |
|
|
|
56,267 |
|
PIPE Investment Obligation |
|
|
March 2022 |
|
December 2025 |
|
N/A |
|
N/A |
|
|
|
28,125 |
|
Finance leases |
|
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
|
|
|
49 |
|
Unamortized deferred issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,115 |
) |
Unamortized discount on debt |
|
|
|
|
|
|
|
|
|
|
|
|
(99,905 |
) |
Total debt |
|
|
|
|
|
|
|
|
|
|
|
|
102,444 |
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
7,515 |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
$ |
94,929 |
|
(1) - Includes the Lockheed Martin Rollover Debt and Beach Point Rollover Debt, each as defined below.
N/A - Not meaningful or applicable
Significant changes in our long-term debt during the three months ended March 31, 2022 were as follows:
Francisco Partners Facility
On March 9, 2022, we amended the note purchase agreement (the “FP Note Purchase Agreement”) governing the issuance and sale of senior secured notes due on November 24, 2026 (the “Francisco Partners Facility”) to, among other things, (i) increase the principal amount of senior secured notes that may be issued under the FP Note Purchase Agreement to up to $154 million, (ii) increase the second tranche of the Francisco Partners Facility (the “Delayed Draw Notes”) to $24 million of senior secured notes, and (iii) accelerate the funding of the Delayed Draw Notes. The Delayed Draw Notes were issued net of a $4 million original issue discount and resulted in proceeds received of $20 million, before allocations for accounting purposes.
On March 25, 2022, we further amended the FP Note Purchase Agreement to, among other things, (i) decrease the principal amount of senior secured notes that may be issued under the Francisco Partners Facility to up to $119 million, (ii) amend certain existing covenants, as described below, (iii) add an additional covenant, as described below, (iv) revise the maturity date to April 1, 2026, and (v) change the timing of quarterly interest payments to May 15th, August 15th, November 15th and February 15th of each calendar year, with the first such interest payment required to be made on May 15, 2022. As consideration for the amendment on March 25, 2022, Francisco Partners received an additional 1.9 million shares of Terran Orbital Corporation's common stock in connection with the Tailwind Two Merger. Upon closing of the Tailwind Two Merger, the Company issued $65 million of senior secured notes as the third tranche of the Francisco Partners Facility (the “Conditional Notes”). The Conditional Notes were issued net of a $5 million original issue discount and resulted in proceeds received of $60 million, before allocations for accounting purposes.
As part of the amendment on March 25, 2022, the liquidity maintenance financial covenant of the Francisco Partners Facility was modified to require that as of the last day of each fiscal quarter, we must have an aggregate amount of unrestricted cash and cash equivalents of at least (i) $20 million in the case of the fiscal quarters ending March 31, 2022, June 30, 2022 and September 30, 2022, (ii) $10 million in the case of the fiscal quarter ending December 31, 2022 and (iii) $20 million plus 15% of certain aggregate funded indebtedness of the Company in the case of each fiscal quarter thereafter. In addition, a new covenant was added requiring us to at least break even on an EBITDA basis (as defined in the FP Note Purchase Agreement) by December 31, 2023, subject to certain extensions.
Senior Secured Notes due 2026
On March 25, 2022, the senior secured notes issued on March 8, 2021 and due April 1, 2026 (the "Senior Secured Notes due 2026") were impacted as described below.
In connection with the PIPE Investment, two holders of the Senior Secured Notes due 2026 agreed to, in substance, exchange the outstanding amount of principal and interest for common stock of Terran Orbital Corporation with any residual amounts settled in cash,
40
resulting in a loss on extinguishment of debt of $727 thousand. The consideration transferred as part of the extinguishment included common stock with a fair value of $4.6 million and a cash payment of $703 thousand, of which $293 thousand represents financing cash flows related to the repayment of debt and $410 thousand represents operating cash flows related to the payment of interest in the condensed consolidated statements of cash flows.
On March 25, 2022, the note purchase agreement governing the Senior Secured Notes due 2026 was amended to, among other things, (i) set the amount of senior secured notes that will remain outstanding with Lockheed Martin Corporation ("Lockheed Martin") subsequent to the Tailwind Two Merger to $25 million (the "Lockheed Martin Rollover Debt"), (ii) increase and set the amount of senior secured notes that will remain outstanding with Beach Point Capital ("Beach Point") subsequent to the Tailwind Two Merger to $31.3 million (the "Beach Point Rollover Debt"), (iii) set the terms of the Lockheed Martin Rollover Debt and the Beach Point Rollover Debt to have substantially similar terms as the terms in the Francisco Partners Facility, excluding call protection and the Beach Point Rollover Debt bearing interest at 11.25% (9.25% of which is payable in cash and 2.0% of which is payable in kind), and (iv) cause the Beach Point Rollover Debt to be subordinated in right of payment to the Francisco Partners Facility.
In connection with the Tailwind Two Merger, we partially extinguished Lockheed Martin's portion of the Senior Secured Notes due 2026, resulting in a gain on extinguishment of debt of $1.8 million, with the remainder representing the Lockheed Martin Rollover Debt. The consideration transferred as part of the partial extinguishment included a cash payment of $30.8 million, of which $25 million represents financing cash flows related to the repayment of debt and $5.8 million represents operating cash flows related to the payment of interest in the condensed consolidated statements of cash flows.
In connection with the PIPE Investment and the amendment on March 25, 2022, Beach Point agreed to, in substance, exchange a portion of the outstanding amount of principal and interest for common stock of Terran Orbital Corporation with the remainder representing the Beach Point Rollover Debt. As consideration for the amendment on March 25, 2022, Beach Point received an additional 2.4 million shares of Terran Orbital Corporation's common stock as part of the Tailwind Two Merger. Accordingly, Beach Point's portion of the Senior Secured Notes due 2026 was deemed to have been extinguished for the issuance of the Beach Point Rollover Debt and common stock of Terran Orbital Corporation, resulting in a loss on extinguishment of debt of $24.2 million.
PIPE Investment Obligation
An affiliate of a director and shareholder of the Terran Orbital Corporation invested $30 million, before allocations for accounting purposes, as part of the PIPE Investment (the "Insider PIPE Investment"). The subscription agreement for the Insider PIPE Investment included a provision that obligates us to pay the affiliate a quarterly fee of $1.875 million for sixteen quarters beginning with the period ending March 31, 2022 (the "PIPE Investment Obligation"). The first four quarterly payments are to be paid in cash and the remaining payments are to be paid, at our option, in cash or common stock of Terran Orbital Corporation, subject to subordination to and compliance with the Company's debt facilities.
Warrants and Derivatives
As of March 31, 2022, our liability-classified warrants were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and per share amounts) |
|
Number of Issuable Shares as of March 31, 2022 |
|
|
Issuance |
|
Maturity |
|
Exercise Price |
|
|
March 31, 2022 |
|
Public Warrants |
|
|
11,499,960 |
|
|
March 2021 |
|
March 2027 |
|
$ |
11.50 |
|
|
|
5,750 |
|
Private Placement Warrants |
|
|
7,800,000 |
|
|
March 2021 |
|
March 2027 |
|
$ |
11.50 |
|
|
|
3,900 |
|
FP Combination Warrants |
|
|
8,291,704 |
|
|
March 2022 |
|
March 2027 |
|
$ |
10.00 |
|
|
|
25,966 |
|
Warrant liabilities |
|
|
27,591,664 |
|
|
|
|
|
|
|
|
|
$ |
35,616 |
|
Significant changes in our warrants and derivative instruments during the three months ended March 31, 2022 were as follows:
Inducement Warrants
As part of the Tailwind Two Merger, all of the warrants issued by Legacy Terran Orbital in connection with the issuance of the Senior Secured Notes due 2026 (the "Inducement Warrants") were ultimately net settled into approximately 695 thousand shares of Terran Orbital Corporation’s common stock.
Francisco Partners Warrants and Derivatives
41
As part of the Francisco Partners Facility, we issued warrants to Francisco Partners in November 2021 to purchase 1.5% of the fully diluted shares of Legacy Terran Orbital’s common stock (the "FP Pre-Combination Warrants"). The FP Pre-Combination Warrants terminated unexercised upon consummation of the Tailwind Two Merger pursuant to their contractual provisions.
As additional consideration for the Francisco Partners Facility in November 2021, we committed to the issuance of (i) an equity grant package equal to 1.5% of the fully diluted shares of Terran Orbital Corporation’s common stock outstanding as of immediately following the closing of the Tailwind Two Merger, plus an additional one million shares of Terran Orbital Corporation's common stock (the “FP Combination Equity”), and (ii) warrants to purchase 5.0% of the Terran Orbital Corporation's common stock on a fully diluted basis as of immediately following the closing of the Tailwind Two Merger at a strike price of $10.00 per share, redeemable at the option of Francisco Partners for $25 million on the third anniversary of the closing of the Tailwind Two Merger, and expiring on March 25, 2027 (the “FP Combination Warrants”).
The FP Combination Equity and the FP Combination Warrants were contingently issuable upon closing of the Tailwind Two Merger. Upon consummation of the Tailwind Two Merger, approximately 3.3 million shares of Terran Orbital Corporation's common stock were issued related to the FP Combination Equity. In addition, approximately 8.3 million warrants were issued related to the FP Combination Warrants.
Pre-Combination and Combination Warrants and Derivatives
Upon initial funding of the Francisco Partners Facility and in connection with the amendment to the Senior Secured Notes due 2026 note purchase agreement in November 2021, we issued warrants to each of Lockheed Martin and Beach Point to purchase 0.25% of the fully diluted shares of Legacy Terran Orbital’s common stock for on the same valuation and terms and conditions as the FP Pre-Combination Warrants (the “Pre-Combination Warrants”). The Pre-Combination Warrants terminated unexercised upon consummation of the Tailwind Two Merger pursuant to their contractual provisions.
In November 2021, we committed to issue to each of Lockheed Martin and Beach Point (i) an equity grant package equal to 0.25% of the fully diluted shares of Terran Orbital Corporation’s common stock outstanding as of immediately following the closing of the Tailwind Two Merger (the “Combination Equity”), and (ii) warrants to purchase 0.83333% of Terran Orbital Corporation's common stock on a fully diluted basis as of immediately following the closing of the Tailwind Two Merger at a strike price of $10.00 per share expiring on March 25, 2027 (the “Combination Warrants”).
The Combination Equity and the Combination Warrants were contingently issuable upon closing of the Tailwind Two Merger. Upon consummation of the Tailwind Two Merger, approximately 774 thousand shares of Terran Orbital Corporation's common stock were issued related to the Combination Equity. In addition, approximately 2.8 million warrants were issued related to the Combination Warrants. Subsequent to the Tailwind Two Merger, the Combination Warrants now represent equity-classified financial instruments.
Public Warrants
As part of the Tailwind Two Merger, we assumed outstanding warrants giving the holders the right to purchase an aggregate of 11.5 million shares of the Terran Orbital Corporation's common stock for $11.50 per share (the "Public Warrants"). The Public Warrants became exercisable on April 24, 2022, 30 days after the completion of the Tailwind Two Merger, and will expire five years from the completion of the Tailwind Two Merger.
We will not be obligated to deliver any shares of common stock pursuant to the exercise of a Public Warrant and will have no obligation to settle such warrant exercise unless a registration statement with respect to the shares underlying the warrants is then effective and a related prospectus is current, unless a valid exemption from registration is available. No Public Warrant will be exercisable for cash or on a cashless basis and we will not be obligated to issue shares upon exercise of a Public Warrant unless the underlying shares have been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. On April 22, 2022, we filed the Form S-1 with the SEC for, among other transactions, the registration of the shares of common stock issuable by us upon exercise of the Public Warrants. The Form S-1 has not yet been declared effective by the SEC.
Once the Public Warrants become exercisable, we may redeem the outstanding warrants when the price per share of the Terran Orbital Corporation’s common stock equals or exceeds $18.00 as follows:
•in whole and not in part;
•at a price of $0.01 per warrant;
•upon not less than of 30 days’ prior written notice of redemption to each warrant holder; and
42
•if, and only if, the closing price of the Terran Orbital Corporation’s shares of common stock equals or exceeds $18.00 per share (as adjusted) for any 20 trading days within a 30-trading day period ending three trading days before we send the notice of redemption to the warrant holders.
In addition, once the Public Warrants become exercisable, we may redeem the outstanding warrants when the price per share of Terran Orbital Corporation’s common stock equals or exceeds $10.00 as follows:
•in whole and not in part;
•at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption; provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined based on the redemption date and the fair market value of Terran Orbital Corporation’s shares of common stock;
•if, and only if, the closing price of the Terran Orbital Corporation’s shares of common stock equals or exceeds $10.00 per share (as adjusted) for any 20 trading days within the 30-trading day period ending three trading days before we send the notice of redemption of the warrant holders; and
•if the closing price of Terran Orbital Corporation’s shares of common stock for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we send the notice of redemption to the warrant holders is less than $18.00 per share (as adjusted), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above.
If and when the Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If we call the Public Warrants for redemption, as described above, we will have the option to require any holder that wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of common shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the Public Warrants will not be adjusted for issuances of common shares at a price below its exercise price. Additionally, in no event will we be required to net cash settle the Public Warrants.
Private Placement Warrants
As part of the Tailwind Two Merger, we assumed outstanding warrants that were previously issued in a private placement and that give the holders thereof the right to purchase an aggregate of 7.8 million shares of Terran Orbital Corporation's common stock for $11.50 per share (the "Private Placement Warrants"). The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the common shares issuable upon their exercise will not be transferable, assignable or salable until 30 days after the completion of the Tailwind Two Merger. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable, except as described above, so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable by such holders on the same basis as the Public Warrants. During April 2022, we filed a registration statement for the registration of the Private Placement Warrants and the shares of common stock issuable upon exercise of the Private Placement Warrants.
Detachable Warrants
As part of the Tailwind Two Merger, all of the warrants issued by Legacy Terran Orbital in connection with the extinguishment of convertible notes (the "Detachable Warrants") were ultimately net settled into approximately 22.3 million shares of the Terran Orbital Corporation’s common stock.
Dividends
We intend to retain future earnings, if any, for future operations, expansion and debt repayment (if any) and there are no current plans to pay any cash dividends for the foreseeable future. In addition, our ability to pay dividends is limited by covenants of our existing and outstanding indebtedness, including the Francisco Partners Facility, and may be limited by covenants of any future indebtedness. There are no current restrictions in the covenants of our existing and outstanding indebtedness on our wholly-owned subsidiaries from
43
distributing earnings in the form of dividends, loans or advances and through repayment of loans or advances to Terran Orbital Corporation.
Following the Tailwind Two Merger, the Company’s existing and outstanding indebtedness allows for the declaration and payment of dividends or prepayment of junior debt obligations in cash in an amount not to exceed $5 million.
Cash Flow Analysis
The following table is a summary of our cash flow activity for three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
Net cash used in operating activities |
$ |
(29,300 |
) |
|
$ |
(548 |
) |
|
$ |
(28,752 |
) |
Net cash used in investing activities |
|
(4,030 |
) |
|
|
(2,422 |
) |
|
|
(1,608 |
) |
Net cash provided by financing activities |
|
82,687 |
|
|
|
44,348 |
|
|
|
38,339 |
|
Effect of exchange rate fluctuations on cash and cash equivalents |
|
(28 |
) |
|
|
(66 |
) |
|
|
38 |
|
Net increase in cash and cash equivalents |
$ |
49,329 |
|
|
$ |
41,312 |
|
|
$ |
8,017 |
|
Cash Flows from Operating Activities
The increase in net cash used in operating activities was primarily due to an increase in selling, general and administrative expense largely related to salaries and wages, legal and accounting fees, and facility expenses as a result of the Company’s growth initiatives as well cash interest payments of approximately $6.2 million related to the partial extinguishment of the Senior Secured Notes due 2026. The remainder of the activity in net cash used in operating activities related to changes in assets and liabilities due to the volume and timing of other operating cash receipts and payments with respect to when the transactions are reflected in earnings.
Refer to the discussions above under “Results of Operations” for further details.
Cash Flows from Investing Activities
The increase in net cash used in investing activities primarily was due to an increase of $745 thousand related to the payment of capital expenditures incurred in previous reporting periods, an increase in the development of company-owned satellites of $327 thousand, and the buildout of other manufacturing facilities and office space.
Cash Flows from Financing Activities
During the three months ended March 31, 2022, net cash provided by financing activities primarily consisted of $58 million of proceeds received from the Tailwind Two Merger and the PIPE Investment, $42 million of proceeds received allocated to warrant and derivative instruments, $36 million of proceeds received allocated to the issuance of debt, and $15 million of proceeds received allocated to the
44
issuance of common stock in relation to our financing transactions. These increases were partially offset by $42 million of payments of issuance costs related to our equity and debt transactions coupled with $27 million related to the repayment of long-term debt.
During the three months ended March 31, 2021, net cash provided by financing activities primarily consisted of $47.5 million of proceeds received allocated to the issuance of debt and $2.5 million of proceeds received allocated to warrant and derivative instruments. These increases were partially offset by $5.7 million of payments of issuance costs related to our debt transactions.
Other Material Cash Requirements
In addition to debt service requirements on our long-term debt and any payment obligations on our warrants and derivatives, we have certain short-term and long-term cash requirements under operating leases and certain other contractual obligations and commitments.
Operating Leases
Refer to Note 15 "Leases" to the condensed consolidated financial statements for further information regarding our operating leases.
PIPE Investment
We entered into commercial agreements to purchase $20 million of goods and services over three years from two affiliates of a PIPE investor. These commercial agreements became effective upon the closing of the Tailwind Two Merger.
Off-Balance Sheet Arrangements
As of March 31, 2022, we do not have any material off-balance sheet arrangements other than the Combination Warrants, which are described above. Upon closing of the Tailwind Two Merger, the Combination Warrants became both indexed to and classified as equity under U.S. GAAP.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to the “Critical Accounting Policies and Estimates” section of “Terran Orbital's Management's Discussion and Analysis of Financial Condition and Results of Operations” under Exhibit 99.3 in the amendment to the current report on Form 8-K filed with the SEC on March 31, 2022. There were no material changes to these policies and estimates during the three months ended March 31, 2022.
ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 “Organization and Summary of Significant Accounting Policies” to the condensed consolidated financial statements for further information about recent accounting pronouncements and adoptions.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” for purposes of the federal securities laws. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements, other than statements of present or historical fact included in this report, regarding Terran Orbital’s future financial performance, as well as Terran Orbital’s business strategy, future operations, financial position, estimated revenues, and losses, projected costs, earning outlooks, prospects, expectations, plans and objectives of management are forward-looking statements. When used in this report, the words “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements are based on management’s current expectations, forecasts, assumptions, hopes, beliefs, intentions and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to our business.
These forward-looking statements are based on information available as of the date of this report, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. There can be no assurance that future developments will be those that have been anticipated. Accordingly, forward-looking statements in this report should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances
45
after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, Terran Orbital’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to:
•expectations regarding our strategies and future financial performance, including our future business plans or objectives, anticipated cost, timing and level of deployment of satellites, prospective performance and commercial opportunities and competitors, the timing of obtaining regulatory approvals, the ability to finance our operations, research and development activities and capital expenditures, reliance on government contracts and a strategic cooperation agreement with a significant customer, retention and expansion of our customer base, product and service offerings, pricing, marketing plans, operating expenses, market trends, revenues, margins, liquidity, cash flows and uses of cash, capital expenditures, and our ability to invest in growth initiatives;
•the ability to implement business plans, forecasts, and other expectations, and to identify and realize additional opportunities;
•anticipated timing, cost and performance of our Earth Observation Solutions’ planned satellite constellation and our ability to successfully finance, deploy and commercialize its business;
•anticipated timing, cost, financing and development of our satellite manufacturing capabilities, including the Space Florida Facility;
•prospective performance and commercial opportunities and competitors;
•our ability to finance our operations, research and development activities and capital expenditures;
•our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
•our expansion plans and opportunities;
•our ability to comply with domestic and foreign regulatory regimes and the timing of obtaining regulatory approvals;
•our ability to finance and invest in growth initiatives;
•our ability to deal appropriately with conflicts of interest in the ordinary course of our business;
•the outcome of any legal proceedings that may be instituted against us and others;
•the ability to maintain the listing of our common stock and the public warrants on the NYSE and the possibility of limited liquidity and trading of such securities;
•geopolitical risk and changes in applicable laws or regulations;
•the possibility that we may be adversely affected by other economic, business, and/or competitive factors;
•that we have identified material weaknesses in our internal control over financial reporting which, if not corrected, could affect the reliability of our condensed consolidated financial statements;
•the possibility that the COVID-19 Pandemic, or another major disease, disrupts our business;
•supply chain disruptions, including delays, increased costs and supplier quality control challenges; the ability to attract and retain qualified labor and professionals and our reliance on a highly skilled workforce, including technicians, engineers and other professionals;
•we do not expect to become profitable in the near future and may never achieve our profitability expectations, plus we expect to generate negative cash flow from operations and investments for the foreseeable future;
•our leverage and our ability to service cash debt payments and comply with debt maintenance covenants, including meeting minimum liquidity and operating profit covenants;
•limited access to equity and debt capital markets and other funding sources that will be needed to fund operations and make investments, including investments in our NextGen Earth Observation constellation and the Space Florida Facility;
•delays and costs associated with developing our NextGen Earth Observation constellation, Space Florida Facility and other initiatives whether due to changes in demand, lack of funding, design changes or other conditions or circumstances;
46
•litigation and regulatory enforcement risks, including the diversion of management time and attention and the additional costs and demands on our resources; and
•the other risk factors disclosed in our filings with the SEC from time to time including our Registration Statement on Form S-1 (File No. 333-264447), which was filed with the SEC on April 22, 2022.
These forward-looking statements are based on our current expectations, plans, forecasts, assumptions and beliefs concerning future developments and their potential effects. There can be no assurance that the future developments affecting us will be those that we have anticipated and we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. New risk factors and uncertainties may emerge from time to time and it is not possible to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from the expectations disclosed in the forward-looking statements we make. All forward-looking statements we make are qualified in their entirety by this cautionary statement. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this report, and we do not assume any obligation to update any forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as required by law.