Terran Orbital Corp (LLAP)·Q2 2023 Earnings Summary

Executive Summary

• Q2 2023 revenue reached $32.2M, up 51% year over year, with gross profit of $0.8M; EPS was $(0.18) and Adjusted EBITDA was $(21.4)M. Management reaffirmed FY2023 revenue “in excess of $250M,” with a steep ramp and very heavy Q4 phasing .
• Backlog increased to >$2.6B across >370 satellites; management expects ~80% to convert to revenue by end-2025 .
• Rivada Space Networks program ramped: Terran anticipates invoicing and collecting ~$180M in H2 2023; management asserted Rivada is current on payments and expressed confidence in Rivada’s funding following ITU waiver approval .
• Capacity doubled to ~20 satellites/month with the 50 Tech facility now operational; Q3 is expected to exceed Q2 and Q4 to exceed Q3, contingent on third-party suppliers (radios, propulsion) .
• Gross margin trajectory: mid-to-high teens in H2 2023 and mid-20% longer term; management targets free cash flow positive on a run-rate basis in 2024, with H2 2023 around breakeven .

What Went Well and What Went Wrong

What Went Well

• Backlog and pipeline expansion: Backlog grew to >$2.6B (>370 satellites), with identified pipeline >$20B, aided by Rivada and new commercial engagements .
• Capacity scaling and operational milestones: 50 Tech Irvine facility opened, doubling capacity to ~20 satellites/month; management confirmed “We are there” on the 20 sat/month run-rate .
• Rivada ramp and regulatory de-risking: ITU Radio Regulations Board approved Rivada’s waiver; Terran expects ~$180M of H2 collections tied to design phase milestones and long-lead procurement; “Rivada remains current on all payments” .

What Went Wrong

• Profitability still pressured: Adjusted EBITDA was $(21.4)M; share-based comp remained a notable expense (~$3.6M in Q2), though guided lower for the rest of 2023 .
• EAC adjustments impacted results: Q2 revenue decreased by ~$1.2M and adjusted gross profit by ~$2.5M due to EAC changes; management noted EACs should trend de minimis as scaled programs mature .
• Supplier constraints remain a gating factor: Radios and propulsion (third-party) cited as bottlenecks for accelerating deliveries into Q4; vertical integration continues but these external items are limiting speed .

Financial Results

Notes: Q2 EAC adjustments reduced revenue by ~$1.2M and negatively impacted Adjusted Gross Profit by ~$2.5M; Q1 EAC adjustments increased revenue by ~$0.8M and positively impacted Adjusted Gross Profit by ~$1.5M .

KPIs and Operating Metrics

Estimates vs Actuals (Q2 2023)

Note: S&P Global consensus data unavailable due to a Capital IQ mapping issue for LLAP; we attempted retrieval but could not access estimates.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Overall, we are anticipating invoicing and collecting approximately $180 million from Rivada in the second half of 2023.” — Marc Bell .
• “We expect a steep ramp in revenue ahead and confirm our expectation of generating in excess of $250 million in revenue in fiscal year 2023.” — Gary Hobart .
• “Our new 50 Tech facility in Irvine... brings our manufacturing capacity from 10 satellites to 20 satellites per month, a 100% increase.” — Marc Bell .
• “As we said last quarter... the bulk of what we’re expecting for the back half of this year will be in the mid- to high-teens. Going forward, we expect kind of mid-20% margins.” — Gary Hobart .
• “We are there [20 satellites per month].” — Marc Bell .

Q&A Highlights

• Backlog mix and feeder programs: Many 1–3 satellite precursors could scale to 100+ satellites; backlog spans ~30 programs .
• Free cash flow timeline: H2 2023 around breakeven; run-rate FCF positive by early/during 2024 .
• Revenue phasing clarity: Q3 > Q2; Q4 > Q3 with very heavy Q4, dependent on third-party suppliers (radios/propulsion) .
• Rivada funding diligence: Management expressed confidence in Rivada’s funding and highlighted the ITU waiver and supportive stakeholders .
• Competitive landscape and margins: Industry-wide capacity shortage supports margin expansion; payload integration increases value and blended margins .

Estimates Context

• Consensus EPS and Revenue (S&P Global) for Q2 2023 were unavailable due to a Capital IQ mapping issue for LLAP; we attempted retrieval but could not access estimates. As such, no direct beat/miss analysis versus Wall Street consensus is possible at this time.
• Implication: Street models should reflect the reaffirmed FY2023 revenue “in excess of $250M” with heavy Q4 weighting and Q3 > Q2 phasing, and incorporate margin trajectory (mid-high teens in H2, mid-20% thereafter) .

Key Takeaways for Investors

• Revenue trajectory intact with heavy back-half ramp; FY2023 “in excess of $250M” reaffirmed and Q4 is expected to be very heavy, positioning near-term catalysts around program deliveries and Rivada milestone collections .
• Backlog conversion visibility: >$2.6B backlog with ~80% expected to convert by end-2025 suggests multi-year revenue visibility, contingent on program execution and supplier performance .
• Rivada de-risking: ~$180M H2 collections and ITU waiver approval reduce near-term funding uncertainty; management reiterated Rivada is current on payments .
• Margin path improving: H2 gross margins targeted in the mid-to-high teens, stepping to mid-20% longer term as scale and vertical integration take hold .
• Capacity is in place: 50 Tech operational and at ~20 satellites/month; further facilities under development to support larger-scale assembly and payload integration .
• Liquidity and FCF: H2 2023 ~breakeven on FCF and run-rate positive in 2024; watch working capital cadence and third-party supplier timing as key variables .
• Risks: Continued EAC adjustments (though expected to abate), supplier constraints (radios/propulsion), and program timing remain core sensitivities to quarterly phasing and margins .