Executive Summary

Record revenue and margin inflection: Q3 revenue $43.9M (+58% YoY) with gross profit $9.7M and gross margin 22.1% (vs. 0.1% in Q3’22), aided by positive EAC/inventory estimate changes and larger program mix .
Guidance cut on Rivada timing: FY2023 revenue lowered to “in excess of $130M” (from >$250M) after removing Rivada contributions for the year; capex maintained at < $30M; YTD adjusted gross margin 16.5% now in line with year-end target .
Backlog strong but timing uncertain: Backlog $2.6B at 9/30 (incl. $2.4B Rivada); pro forma ~$2.75B with October awards; conversion weighted to 2025; Q3 cash $38.7M, >$70M as of Oct 31 .
Strategic wins and productization: Selected by Lockheed Martin for SDA Tranche 2 Transport Layer Beta (36 buses); launched seven standard bus designs and a “Responsive Space” initiative (30-day bus, 60-day integrated) .
2024 setup: Management targets cash flow positive in 2024 (earliest Q1, latest Q4) and cites improving margins via vertical integration (>85% of components in-house) and program mix; propulsion supplier change mitigates T1 schedule risk .

What Went Well and What Went Wrong

What Went Well
- Record Q3 revenue ($43.9M) and material gross margin expansion to 22.1% on larger programs and EAC/inventory estimate tailwinds .
- New awards and strategic positioning: >$160M new awards since 6/30; selected for SDA Tranche 2 Transport Layer Beta (36 buses), extending prior Tranche 0/1 roles .
- Product and ops advances: Introduced seven standard bus designs; launched Responsive Space (30-day bus/60-day integrated), underpinned by >85% in-house component production—“If you control your supply chain you control your destiny” .
What Went Wrong
- Guidance reset: FY2023 revenue outlook cut to >$130M (from >$250M) due to removal of Rivada revenue and delays in awarding larger programs; results now more back-end loaded .
- Rivada timing: Company had to remove 2023 Rivada contributions given delayed milestone payments; Rivada YTD revenue ~$6.7M and ~$5M in Q3, but timing remains uncertain .
- Cost and propulsion challenges: SG&A grew to $29.0M on growth investments; propulsion supplier issues (Astra) required switching to protect SDA T1 schedules, adding operational complexity .

Financial Results

Quarterly trend (oldest → newest)

Metric	Q1 2023	Q2 2023	Q3 2023
Revenue ($M)	$28.2	$32.2	$43.9
Diluted EPS ($)	$(0.38)	$(0.18)	$(0.15)
Gross Profit ($M)	$(1.4)	$0.8	$9.7
Adjusted Gross Profit ($M)	$2.31	$2.81	$12.04
Adjusted EBITDA ($M)	$(22.55)	$(21.35)	$(12.98)

Q3 year-over-year and estimate comparison

Metric	Q3 2022	Q3 2023 Actual	YoY	S&P Global Consensus	Surprise
Revenue ($M)	$27.8	$43.9	+58%	N/A	N/A
Diluted EPS ($)	$(0.19)	$(0.15)	Improve	N/A	N/A

Notes: S&P Global consensus for LLAP was unavailable via our estimates tool; comparison to Wall Street consensus cannot be shown (consensus not retrievable).

Margins and drivers

Gross margin improved to 22.1% in Q3 (vs. 0.1% in Q3’22), aided by positive EAC adjustments and non-recurring inventory estimate changes; mix shift to larger programs also helped .
YTD adjusted gross profit margin is 16.5%, in line with year-end target; management expects gradual improvement subject to program mix/execution .

KPIs and balance sheet

KPI	Q1 2023	Q2 2023	Q3 2023
Backlog ($B)	>$2.5	>$2.6	$2.6 (incl. $2.4 Rivada)
Pro Forma Backlog ($B)	—	—	~$2.75 incl. Oct awards
Cash & Equivalents ($M)	$57.4	$48.6	$38.7 (>$70 as of Oct 31)
Current Portion LT Debt ($M)	$9.8	$11.3	$11.6
Long-term Debt ($M)	$148.0	$157.5	$164.3
Capital Expenditures ($M)	$3.2 (Q1)	$9.2 (Q2)	$6.1 (Q3)

Non-GAAP adjustments (definitions and reconciliations provided by the company) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2023	In excess of $250M	In excess of $130M	Lowered
Gross Margin Trajectory	FY 2023	QoQ improvement expected (pace may vary)	YTD Adj. GP margin 16.5% in line with YE target; gradual improvement expected	Maintained/clarified
Capex	FY 2023	< $30M	< $30M	Maintained
Backlog Conversion	Through 2025	~80% of backlog recognized by 12/31/2025	Heavily weighted to 2025; push-outs from Rivada timing	Timing risk noted
Cash Flow	2024	—	Plan to be cash flow positive in 2024 (earliest Q1, latest Q4)	New disclosure

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q3’23)	Trend
Rivada timing/funding	Q1: initial milestone received; guiding >$250M FY23; Q2: Rivada current on all payments, large H2 milestones expected	Removed 2023 Rivada revenue from guidance; YTD ~$6.7M, ~$5M in Q3; timing uncertain	Deteriorated near term
SDA program execution	Q1/Q2: capacity expansion to support SDA; doubled capacity with 50 Tech	Selected for Tranche 2 Beta (36 buses); 10 Tranche 0 satellites launched in Sept; T1 propulsion supplier change to protect schedule	Positive awards; execution de-risking
Vertical integration	Ongoing investment in capacity and automation	>85% components in-house; targeted to improve margins and schedules	Improving
Productization/Responsive Space	—	Seven standard buses launched; 30-day bus/60-day integrated payload initiative	New growth vector
Margin trajectory	Expect improvement with scale; adjusted gross profits improving (Q1/Q2)	Q3 gross margin 22.1%; YTD adj. GP margin 16.5%; backlog margins low-mid 20s	Improving
Macro/supply chain	Capacity expansions; supplier dependencies implied	Propulsion supplier change; inventory/EAC estimate adjustments benefited Q3	Mixed: actions mitigate risk

Management Commentary

“I am a big believer that if you control your supply chain you control your destiny.”
“We now produce over 85% and growing of all our components in-house, which lowers our costs and speeds up our delivery.”
“We launched our responsive space initiative… deliver to customers a bus within just 30 days and complete payload integration within 60 days.”
“We have removed the expected revenue contribution related to Rivada for our full year 2023 outlook, hence the change in guidance.”
“What we have in backlog right now is in the low to mid-20s [gross margins].”
“Plan is to be cash flow positive during 2024.”

Q&A Highlights

Margins: Backlog margin profile “low to mid-20s,” with expectation of ongoing improvement as more components are insourced .
Responsive Space TAM/timing: Management sees large global demand and expects initial 6–8 month turns on bids with full initiative operational by Q4 2024 .
SDA cadence: Tranche 2 Beta award via Lockheed Martin; propulsion supplier change de-risks T1 schedule; deliveries begin Q4 with bulk through H1 2024 .
Rivada contributions: ~$5M revenue in Q3; ~$6.7M YTD; timing of milestone payments remains the key variable .
Backlog conversion: Heavily weighted to 2025; revenue and schedules push right when program timing shifts; management diversifying beyond a single program .

Estimates Context

S&P Global consensus estimates for LLAP were unavailable via our tool at this time; therefore, we cannot present Q3 revenue/EPS vs. consensus or surprise metrics. We will update this section when S&P Global consensus becomes available.

Key Takeaways for Investors

Revenue inflection and margin proof point: Q3 delivered record revenue and a 22.1% gross margin, indicating operating leverage as larger programs and vertical integration scale .
Guidance derisked: Slashing FY23 revenue to >$130M removes Rivada timing from near-term expectations; watch for milestone updates as catalysts .
Strategic momentum intact: SDA Tranche 2 Beta (36 buses) and seven standard bus platforms/Responsive Space should broaden the pipeline and accelerate turns .
Execution priorities: Protect SDA schedules (propulsion diversification), drive in-house production (>85%) to lift margins and reduce supply chain risk .
2024 watch items: Path to cash flow positive (timing within 2024), margin trajectory versus “low-to-mid-20s” backlog profile, award cadence in commercial and defense .
Liquidity runway: $38.7M cash at Q3-end; >$70M cash as of Oct 31; debt profile rising—monitor financing flexibility versus working capital needs and award conversion .
Narrative drivers for the stock: Rivada funding/milestones, SDA delivery execution, award announcements, and evidence that Responsive Space can monetize quickly .

Additional details, disclosures, and reconciliations are available in the Q3 2023 8-K press release and the full earnings call transcript -.

Terran Orbital Corp (LLAP)·Q3 2023 Earnings Summary