Third Quarter Financial Report Released by Terran Orbital
Third Quarter Financial Report Released by Terran Orbital
Company Reports a Record Third Quarter in 2023
Terran Orbital Corporation has announced financial results and operational highlights for the three and nine months ended September 30, 2023.
“I am pleased to report our company’s continued growth in revenue, which highlights the confidence and trust our customers have in us."
Marc Bell, Terran Orbital
According to the report, the company generated record revenue of $43.9 million, up 58% year-over-year. It also recorded gross profits of $9.7 million compared to $37 thousand in 3Q22 and an adjusted gross profit of $12.0 million compared to $3.2 million in 3Q22 against a net loss of $26.4 million compared to a net loss of $27.4 million in 3Q22.
“I am pleased to report our company’s continued growth in revenue, which highlights the confidence and trust our customers have in us," said Marc Bell, Co-Founder, Chairman, and Chief Executive Officer of Terran Orbital. "In addition, we are seeing improvements in our gross profit and adjusted gross profit margins. I am a big believer that if you control your supply chain you control your destiny. We are still in the early stages of leveraging our enhanced capabilities from our investments in our supply chain such as machinery, equipment, and automation. We believe these investments will help us position ourselves to win major customer awards while improving our operating metrics. Finally, we are excited to have recently announced $160 million of new awards, including our selection to be a satellite bus provider for the Space Development Agency’s Tranche 2 of the Transport Layer Beta award. This award represents a continuation of our involvement on Tranche 0 and Tranche 1 of the Transport Layer, and we believe this is a prime example of how early-stage awards can blossom into larger awards over time.”
Revenue for the third quarter of 2023 was $43.9 million, up 58% compared to $27.8 million for the same quarter in 2022. The increase in revenue was primarily due to continued and increased progress made in satisfying customer contracts and reflects the ongoing favorable impact from significant contract wins and modifications in recent periods. Third quarter revenue was negatively impacted by an estimated $1.8 million of EAC adjustments on certain firm fixed programs during the period. EAC adjustments represent net changes during the period in our aggregate program contract values, estimated costs at completion and other program estimates and changes and include the cost of overruns and recognition of loss reserves.
Cost of sales for the third quarter of 2023 was $34.2 million compared to $27.8 million in the same quarter in 2022. The increase in cost of sales was primarily due to an increase of $4.6 million in labor, materials, third-party services, overhead, launch costs, other direct costs, $2.2 million in inventory reserves, and $0.9 million in depreciation and amortization partially offset by a decrease of $1.8 million in share-based compensation expense. Cost of sales included an estimated positive impact of $3.2 million due to EAC adjustments on certain programs and non-recurring changes in estimates related to inventory during the third quarter of 2023.
Gross profit was $9.7 million in the third quarter of 2023, compared to $37 thousand in the same quarter in 2022. Excluding share-based compensation and depreciation and amortization included in cost of sales, Adjusted Gross Profit(1) in the third quarter was $12.0 million, compared to Adjusted Gross Profit of $3.2 million in the same quarter in 2022. Gross profit and Adjusted Gross Profit included an estimated positive impact of $1.5 million due to EAC adjustments and non-recurring changes in estimates related to inventory during the third quarter of 2023.
Selling, general, and administrative expenses were $29.0 million in the third quarter of 2023, compared to $24.7 million for the same quarter in 2022. The increase was primarily driven by increases in labor and benefits, sales and marketing, and business development, partially offset by a decrease in share-based compensation expense and business insurance expense.
The net loss for the third quarter of 2023 was $26.4 million compared to a net loss of $27.4 million for the same period in the prior year. The decrease in net loss for the quarter was primarily driven by improvements in losses from operations and a decrease in other expenses, partially offset by higher interest expense.
Adjusted EBITDA was $(13.0) million for the third quarter of 2023, compared to $(13.9) million in the same quarter of 2022. 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 as a result of our growth initiatives.
Capital expenditures totaled $6.1 million in the third quarter of 2023 and $18.5 million in the nine months ended September 30, 2023.
As of September 30, 2023, Terran Orbital had $38.7 million of cash on hand and approximately $313.0 million in gross debt obligations. The Company’s debt includes $18.8 million in connection with an obligation under one of its PIPE investment subscription agreements, all of which is payable in cash or equity at the company’s option, subject to certain requirements. Subsequent to quarter-end, the Company had over $70 million of cash on hand as of October 31, 2023.
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. 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.
The company backlog totaled $2.6 billion and $170.8 million as of September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023, our backlog included $2.4 billion related to our contract with Rivada, which is subject to uncertainty with regard to the timing of performance.
Including the October award announcements mentioned, the backlog increases to an estimated $2.75 billion on a pro forma basis.
Due to the delay and uncertainty regarding the timing of performance related to a contract with Rivada versus original expectations, Terran Orbital is removing any further revenue contribution from this contract in our current year forecast but continues to expect revenue contribution in future years. As a result of this removal and other factors, they now expect 2023 revenue to be in excess of $130 million, a reduction from our prior expectation of generating revenue in excess of $250 million in 2023. Additionally, the year-to-date adjusted gross profit margin of 16.5% is now in line with the previously disclosed year-end targets, and gradual improvement in future periods is expected. However, the pace and magnitude of margin improvement may vary depending on program mix and execution. The capital expenditures for the year 2023 are expected to be less than $30 million.