UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the fiscal year ended
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the registrant's shares of common stock on June 30, 2023 was approximately $
The number of shares of registrant’s common stock outstanding as of March 25, 2024 was
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for use in connection with its 2024 Annual Meeting of Stockholders, which is to be filed no later than 120 days after December 31, 2023, are incorporated by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
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PART I |
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Item 1. |
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Item 1A. |
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Item 1B. |
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Item 1C. |
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Item 2. |
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Item 3. |
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PART II |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
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Item 8. |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. |
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Item 9B. |
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
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PART III |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Certain Relationships and Related Transactions, and Director Independence |
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PART IV |
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PART I
Item 1. Business.
Company Overview
Terran Orbital Corporation, together with its wholly-owned subsidiaries (collectively, the “Company,” “we,” “our,” “us,” and “Terran Orbital”), is a leading manufacturer of satellite products primarily serving the aerospace and defense industries. We provide end-to-end satellite solutions by combining satellite design, production, launch planning, mission operations, and on-orbit support to meet the needs of our military, civil, and commercial customers. We have a foreign subsidiary based in Torino, Italy.
Recent Developments
On March 1, 2024, we received a non-binding proposal from Lockheed Martin Corporation (“Lockheed Martin”) to acquire all of our outstanding shares of common stock not owned by Lockheed Martin for $1.00 per share, payable in cash. The non-binding proposal (the “Lockheed Proposal”) delivered by Lockheed Martin to the Company is publicly available in a Schedule 13D/A filed by Lockheed Martin with the Securities Exchange Commission (the “SEC”) on March 1, 2024. Consistent with its fiduciary duties and in consultation with its financial and legal advisors, an independent committee (the “Independent Committee”) of our board of directors (the “Board”) is reviewing and evaluating the Lockheed Proposal as part of the Company’s ongoing review of strategic alternatives to determine the course of action that it believes will maximize value for the Company’s stockholders. However, there is no guarantee that a strategic transaction involving Lockheed Martin or any other party will be approved or consummated.
Corporate History and Background
On March 25, 2022, Tailwind Two Acquisition Corp. (“Tailwind Two”) acquired Terran Orbital Operating Corporation, formerly known as Terran Orbital Corporation (“Legacy Terran Orbital”) (such acquisition, the “Tailwind Two Merger”). The Tailwind Two Merger resulted Tailwind Two changing its name to Terran Orbital Corporation and Legacy Terran Orbital becoming a wholly-owned subsidiary 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 our consolidated financial statements represent a continuation of Legacy Terran Orbital and the issuance of common stock in exchange for the net assets of Tailwind Two. Operations prior to the Tailwind Two Merger are those of Legacy Terran Orbital and all share and per-share data presented in this Annual Report on Form 10-K have been retrospectively adjusted, by application of the exchange ratio of 27.585, to give effect to 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 members of the Board of Terran Orbital Corporation, and Legacy Terran Orbital's operations comprising the ongoing operations of the Company.
Beginning on March 28, 2022, our common stock and public warrants began trading on the New York Stock Exchange (the “NYSE”) under the symbols “LLAP” and “LLAP WS,” respectively.
Segment and Geographic Information
We evaluate and report our results based on the manner in which our Chief Executive Officer, who is the chief operating decision maker (the “CODM”), evaluates performance and allocates resources. Accordingly, we report our results as a single operating and reportable segment on a consolidated basis. Our operations are primarily performed in the U.S. Our international operations are primarily performed by our foreign subsidiary based in Torino, Italy.
Products and Services
We are an end-to-end satellite solutions provider with the following product and service offerings:
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Industry and Competitive Advantage Overview
The space industry is undergoing a transformation toward proliferation of small satellites, supported by several macro-themes:
We believe we are well positioned to capitalize on these macro-themes as a leading satellite solutions provider with a record of delivering successful mission outcomes and real time intelligence for defense, intelligence, and commercial customers. We believe our ability to compete successfully does and will depend on several factors, including our ability to maintain flight heritage ahead of our peers, our lead in advanced technology, vertical integration and control over our products, and customer confidence in the reliability of our solutions.
We operate in a highly competitive industry and many of our competitors are larger and have substantially greater resources than we have. Our competitors include: Blue Canyon Technologies (a subsidiary of Raytheon Technologies Corporation), Millennium Space Systems (a subsidiary of The Boeing Company), General Atomics Defense (a subsidiary of General Atomics), Northrop Grumman Corporation, Airbus, Maxar Technologies, Inc., Ball Aerospace, Rocket Lab USA, Inc., Sierra Space Corporation, MDA Ltd., Astranis Space Technologies Corp., LeoStella, LLC, Spire Global, Inc., and York Space Systems. We may also face competition in the future
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from emerging competitors or existing companies expanding their product and service offerings and becoming direct competitors, including companies such as Space Exploration Technologies Corp. (“SpaceX”).
We believe we have the following competitive advantages over our competitors:
Growth Strategy
Our financial success is based on our ability to deliver high quality products and services on a timely basis and at a cost-effective 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. We are actively executing on our growth initiatives in order to position ourselves to be awarded larger constellation contracts with recurring revenue opportunities.
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Our growth initiatives include, but are not limited to, the following:
As part of our evolving business strategy, we may expand our offerings from time to time. For example, we may diversify our offerings by pursuing the sale of components and subsystems to other spacecraft manufacturers and integrators.
Customers and Concentrations
Our direct and end customers include (i) U.S. Government defense, intelligence, and civil agencies such as the U.S. Department of Defense (the "DoD"), the Space Development Agency (the "SDA"), and the National Aeronautics and Space Administration ("NASA"); (ii) commercial aerospace and defense prime contractors, such as Lockheed Martin; (iii) foreign government and civil agencies, such as the European Space Agency ("ESA"); and (iv) other and foreign commercial companies that operate in the space industry.
A small number of customers and contracts historically have represented a significant portion of our consolidated revenue. Lockheed Martin represented approximately 81% and 76% of our consolidated revenue during 2023 and 2022, respectively. As of December 31, 2023, a single commercial program represented approximately 88% of our backlog and programs associated with Lockheed Martin represented approximately 8% of our backlog.
In addition, the majority (when excluding a single international commercial program) of our contracts are related to U.S. Government programs in which we operate as a prime contractor or a subcontractor. U.S. Government programs represented approximately 84% and 73% of our consolidated revenue during 2023 and 2022, respectively. As of December 31, 2023, approximately 8% of our backlog was related to U.S. Government programs, all of which the U.S. Government has the ability to terminate for convenience.
Resources Material to our Business
Intellectual Property
We believe that our unpatented research, development, and engineering skills and other trade secrets are important to our business operations. We also own a portfolio of U.S. and foreign trademark registrations and applications. While these intellectual property rights in the aggregate are important, we do not believe that any particular trade secret, trademark, copyright, license, or other intellectual property right, standing alone, is of such importance that its loss, expiration, or termination would have a material effect on our business as a whole.
The U.S. Government typically holds licenses to patents developed in the performance of U.S. Government contracts and receives certain rights in our data when used or produced in the performance of U.S. Government contracts. The U.S. Government may use or authorize others to use the inventions covered by these patents or data provided pursuant to contracts for certain purposes. Further, as many of our products are complex and involve patented and other proprietary technologies, we face a risk of claims alleging that we have infringed upon third-party intellectual property rights. Such claims could result in costly and time-consuming litigation, the invalidation of our intellectual property rights and/or increased licensing costs.
Supply Chain and Materials
Our production process is highly vertically integrated. We design and manufacture many modular and flight-proven components and subsystems used in our assembly, integration, and testing of satellite and satellite buses. Our portfolio of common modular components includes bus panels, flight computers and software, star trackers, radios and antennas, battery modules and power systems, torque rods, and reaction wheels. Although we aim, over time, to perform nearly all aspects of design and manufacturing of components and
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subsystems in-house, we currently outsource some capabilities to third-parties. For components and subsystems that we do not design and manufacture, we have an existing base of reputable and reliable third-party suppliers and subcontractors.
We have established and follow internal quality control processes to source suppliers, considering engineering validation, quality, cost, delivery, and lead-time. We have a quality management team that is responsible for managing and ensuring that supplied components meet quality standards. While we largely source raw materials and other inputs and services from multiple sources, in some cases we also purchase various inputs and services from a sole source. In those sole source supplier situations, as we endeavor to diversify our supply chain, we manage this sole source risk through carrying increased buffer stock, particularly on long-lead items.
The lingering effects of the coronavirus pandemic (the “COVID-19 Pandemic”), supply chain challenges, supplier disputes, regulatory restrictions, and inflationary pressures have contributed to a worldwide shortage of certain electronic components which has resulted in longer than historically experienced lead times for such electronic components. We continue working to minimize the impact of supply chain challenges on us but many of the challenges are industry wide or caused by geopolitical events and general economic conditions that are outside of our control. The reduced availability of electronic components used in our operations has negatively affected our timing and ability to deliver products and services to customers as well as increased the cost of such components in recent periods. In an effort to manage this disruption to our supply chain, we have focused on accumulating critical components to ensure an appropriate level of supply is available when needed.
Research and Development
Our current and future business is dependent on the development of new technology and applications as well as the maintenance and enhancement of existing offerings. We enhance our solutions via the performance of our customer contracts as well as self-funded research and development initiatives. In an effort to expand our end-to-end space-based solutions, we have, and plan to continue to, invest in the development of new satellite components and subsystems, payloads, and flight and ground software applications. Our efforts will continue to be directed into fields that we believe offer the greatest opportunities for long-term growth and profitability.
Government Regulation and Other Regulatory Matters
In addition to federal securities laws and regulations and applicable stock exchange requirements, our operations are subject to numerous federal, state, and local laws and regulations. Changes in laws and regulations can positively and negatively affect our operations and impact the manner in which we conduct our business. Additional information on the risks related to the regulation of our business and operations discussed below can be found in Item 1A, “Risk Factors” of this Annual Report on Form 10-K (“Annual Report”).
U.S. Government Contracts
A substantial portion of our revenue is earned as a subcontractor to third parties ultimately serving the U.S. Government. U.S. Government contracts are subject to termination by the government, either for convenience or for default in the event of our failure to perform. In the case of a termination for convenience, we would normally be entitled to reimbursement for our allowable costs incurred, termination costs, and a reasonable profit. If terminated by the government as a result of our default, we could be liable for payments made to us for undelivered goods or services, additional costs the government incurs in acquiring undelivered goods or services from another source, and any other damages it suffers. Our U.S. Government contracts generally are subject to the Federal Acquisition Regulation (“FAR”), which sets forth policies, procedures and requirements for the acquisition of goods and services by the U.S. Government; department-specific regulations that supplement the FAR, such as the DoD’s Defense Federal Acquisition Regulation Supplement; and other applicable laws and regulations. These regulations impose a broad range of requirements, many of which are unique to government contracting, including various procurement, import and export, security, contract pricing and cost, audit and product integrity requirements.
Our contracts with the U.S. Government are also subject to audits. Agencies that oversee contract performance include: the Defense Contract Audit Agency, the Defense Contract Management Agency, the Inspectors General of the DoD and other departments and agencies, the Government Accountability Office, the Department of Justice, and Congressional Committees. From time to time, agencies investigate or conduct audits to determine whether our operations are being conducted in accordance with applicable requirements. Such investigations and audits may be initiated due to a number of reasons, including routine periodic audits or as a result of a whistleblower complaint. Such investigations and audits could result in administrative, civil or criminal liabilities, including repayments, fines, treble or other damages, forfeitures, restitution, or penalties being imposed upon us, the suspension of government export licenses or the
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suspension or debarment from future U.S. Government contracting. The U.S. Government also reserves the right to debar a contractor from receiving new government contracts for fraudulent, criminal or other improper conduct.
Commercial Aerospace Product Regulation
Our business is subject to extensive rules, regulations, statutes, orders, and policies imposed by the government in the U.S. and in foreign jurisdictions. The Federal Communications Commission (“FCC”) is responsible for authorizing the operation of commercial spacecraft, and also authorizes non-U.S. licensed spacecraft to be used to serve the U.S. The FCC also licenses the operation of satellite earth stations and regulates the technical and other aspects of the operation of these facilities. Earth station licenses generally are granted for 15 year terms, and typically are renewed in the ordinary course. Major changes in earth station operations would require prior approval by the FCC. The operation of our U.S. earth stations is subject to various license conditions, as well as the technical and operational requirements of the FCC’s rules and regulations. The Department of Commerce, through the NOAA Commercial Remote Sensing Regulatory Affairs (“CRSRA”) office, regulates and licenses the operation of private Earth remote sensing space systems.
In addition, satellites are to be operated in a manner consistent with the regulations and procedures of the International Telecommunication Union (“ITU”), a specialized agency of the United Nations, which requires the coordination of the operation of satellite systems in certain circumstances, and more generally are intended to avoid the occurrence of harmful interference among different users of the radio spectrum. The ITU Radio Regulations specifies the procedures associated with the shared international use of limited spectrum and orbital resources in a manner that avoids harmful interference. Among other things, the ITU regulations set forth procedures for establishing international priority with respect to the use of such resources, deadlines for bringing satellite networks into use in order to maintain such priority, and coordination rights and obligations with respect to other networks, which vary depending on whether such networks have higher or lower ITU priority.
International Traffic in Arms Regulations (“ITAR”) and Export Controls
Our business is subject to stringent U.S. import and export control laws, including the ITAR, administered by the U.S. Department of State, Bureau of Political Military Affairs’ directorate of Defense Trade controls (“DDTC”), and Export Administration Regulations (“EAR”), administered by the Bureau of Industry and Security (“BIS”). The ITAR generally restricts the export of hardware, software, technical data, and services that have defense or strategic applications. The EAR similarly regulates the export of hardware, software, and technology that have commercial or “dual-use” applications (i.e., for both military and commercial applications) or that have less sensitive military or space-related applications that are not subject to the ITAR. These regulations exist to advance the national security and foreign policy interests of the U.S.
The U.S. Government agencies responsible for administering the ITAR and the EAR have significant discretion in the interpretation and enforcement of these regulations. The agencies also have significant discretion in approving, denying, or conditioning authorizations to engage in controlled activities. Such decisions are influenced by the U.S. Government’s commitments to multilateral export control regimes, particularly the Missile Technology Control Regime concerning the spaceflight business.
Many different types of internal controls and measures are required to ensure compliance with such export control rules. In particular, we are required to maintain registration under the ITAR; determine the proper licensing jurisdiction and classification of products, software, and technology; and obtain licenses or other forms of U.S. Government authorizations to engage in activities, including the performance by foreign persons, related to and who support our spaceflight business. Under the ITAR, we must receive permission from DDTC to release controlled technology to foreign person employees and other foreign persons.
The inability to secure and maintain necessary licenses and other authorizations could negatively affect our ability to compete successfully. Failure to comply with export control laws and regulations could expose us to civil or criminal penalties, fines, investigations, more onerous compliance requirements, loss of export privileges, debarment from government contracts, or limitations on our ability to enter into contracts with the U.S. Government. In addition, any changes in export control regulations or U.S. Government licensing policy, such as that necessary to implement U.S. Government commitments to multilateral control regimes, may restrict our operations. For further discussion of risks relating to ITAR and export controls, see “Risk Factors — Risks Related to Legal, Regulatory and Taxation Matters — We are subject to stringent U.S. export and import control laws and regulations. Unfavorable changes in these laws and regulations or U.S. Government licensing policies, our failure to secure timely U.S. Government authorizations under these laws and regulations, or our failure to comply with these laws and regulations could have a material adverse effect on our business, financial condition and results of operations.”
Environmental Regulation
We are subject to various federal, state, provincial, local, and international environmental laws and regulations relating to the operation of our business, including those governing pollution, the handling, storage, disposal and transportation of hazardous substances and the
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cleanup of contamination should it arise. The imposition of more stringent standards or requirements under environmental laws or regulations or a determination that we are responsible for a release of hazardous substances at our sites could result in significant costs, including cleanup costs, fines, sanctions, and third-party claims. In addition, we could be affected by future regulations imposed in response to concerns over climate change, other aspects of the environment or natural resources.
At this time, we do not believe that federal, state, and local laws and regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, or any existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on our business.
Foreign Regulations
Our customer base includes domestic and international governmental and commercial entities. As a result, our business and operations are subject to additional U.S. and non-U.S. laws, regulations, and procurement policies and practices, including regulations relating to foreign investment in the U.S, exchange controls, anti-corruption, and cash repatriation. Our international sales are also subject to varying currency, political and economic risks.
Human Capital Management
As of December 31, 2023, we employed over 660 full-time employees, all of whom are based in the United States and Italy. None of our employees are subject to any collective bargaining agreement. We generally consider our relations with our employees to be positive.
Our success largely depends on hiring and retaining top talent across the entire organization, with primary emphasis on key engineering capabilities. We compete for talent within specialized industries primarily in California, Florida, and Italy. In order to attract and retain top talent, we focus on having a diverse, inclusive, and safe work environment, while offering competitive compensation, health benefits, and retirement planning. Most employees are shareholders of the Company and have an equity ownership stake that is intended to align employee retention and value creation.
We have shared values, priorities, and principles across the organization that shape beliefs and drive behaviors and decision making to achieve high levels of performance at an individual, team, and organizational level. We are committed to fostering a culture and environment where every team member feels valued and empowered to collaborate and achieve business results. We provide employees with a structured performance management process and continuous feedback in order to further employee development.
We are committed to the highest standards of ethics and compliance and making sure every team member understands and embraces our core values of ethics, integrity, and respect for others. Our code of business ethics and conduct provides a framework of what is expected of our employees and fosters a culture of high integrity and compliance. Our code of business ethics and conduct is supplemented by a variety of additional policies applicable to all team members which are designed to further foster ethical and sound business practices.
We value and prioritize the health and safety of our team members and continually work to foster a culture of safety and compliance. Our vision is to build a culture that promotes safe behaviors on each task, every day, to achieve zero incidents and enhance employee wellness, and to minimize our environmental impact. In order to achieve our vision, we strive to incorporate our values of people, prevention, and accountability into our business and the decisions we make each day. For example, when certain restrictions and recommendations were in place during the COVID-19 Pandemic, we followed The Centers for Disease Control and Prevention guidelines with regard to quarantining, masking, and social distancing and will reinstate such guidelines as recommended in the future. We believe that all occupational injuries and illnesses, as well as environmental incidents, are generally preventable, and we focus on compliance with all applicable environmental, health, and safety requirements.
Available Information
Our corporate website is located at http://www.terranorbital.com. Our investor relations website is located at http://www.investors.terranorbital.com. We make available free of charge on our investor relations website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”), and any amendments to those reports that are filed or furnished pursuant to Section 13(a) or 15(d) of
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the Exchange Act as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. The SEC maintains a website that contains our filings at http://www.sec.gov.
Use of Website to Provide Information
From time to time, we have made, and expect in the future to use, our website as a means of disclosing material information to the public in a broad, non-exclusionary manner, including for purposes of the SEC’s Regulation Fair Disclosure (“Reg FD”). Financial and other material information regarding the Company is routinely posted on our website and accessible at http://www.investors.terranorbital.com. In order to receive notifications regarding new postings to our website, investors are encouraged to enroll on our website to receive automatic email alerts. None of the information on our website is incorporated into this Annual Report.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report 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 of 1933, as amended, and Section 21E of the Exchange Act. All statements, other than statements of present or historical fact included in this Annual Report, regarding our future financial performance, as well as our 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 Annual 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 Annual 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 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, our 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:
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This list of risks and uncertainties is not exhaustive, and new factors may emerge or changes to the foregoing risks and uncertainties may occur that would impact our business. Additional information regarding these risks, uncertainties and other factors is contained in Part I, Item 1A, “Risk Factors,” of this Annual Report, Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report and elsewhere in this Annual Report, and those as may be contained from time to time in our other filings with the SEC. All such risks and uncertainties are difficult to predict, contain material uncertainties that may affect actual results and may be beyond our control.
Item 1A. Risk Factors.
Investing in our securities involves risks. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before deciding whether to purchase any of our securities. Our business, results of operations, and financial condition could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of these risks actually occur, our business, results of operations, and financial condition could be materially and adversely affected. Unless otherwise indicated, references in these risk
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factors to our business being harmed will include harm to our business, reputation, brand, financial condition, and results of operations. In such event, the market price of our securities could decline, and you could lose all or part of your investment.
The following is a summary of the key risks and uncertainties associated with our business, industry, and ownership of our securities. The below summary does not contain all of the information that may be important to you, and you should read this summary together with the more detailed description of each risk factor contained in the subheadings below.
Risks Related to Our Reliance on Government Contracts, Key Customer Relationships, our Industry and the Economy
Other Risks Related to Our Business and Operations
Risks Related to Economic Conditions and Additional Capital Requirements
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Risks Related to Intellectual Property and Data Security
Risks Related to Legal and Regulatory, and Taxation Matters
Risks Related to Our Indebtedness
Risks Related to Being a Public Company
Risks Related to Ownership of Our Securities
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Risks Related to Our Reliance on Government Contracts, Key Customer Relationships, our Industry and the Economy
We derive a substantial portion of our revenue from U.S. Government contracts, which are dependent on continued political support and funding.
We derive a substantial portion of our revenue from direct or indirect contracts with the U.S. Government. For the year ended December 31, 2023, we generated approximately 84% of our total revenue from contracts supporting the U.S. Government. We expect that U.S. Government contracts will continue to be a substantial source of our revenue for the foreseeable future. Although the contracts we provide services under generally involve fixed annual minimum commitments, such commitments, along with all other contracts with the U.S. Government, are subject to annual Congressional appropriations and the federal budget process and, as a result, the U.S. Government may not continue to fund these contracts at current or anticipated levels. A decline in U.S. Government support and funding for programs in which we participate, including a reduction in overall U.S. defense spending, on an absolute or inflation-adjusted basis, because of shifting priorities, budget compromises or otherwise, could result in contract terminations, delays in contract awards, the failure to exercise contract options, the cancellation of planned procurements and fewer new business opportunities, any of which could have a material adverse effect on our financial condition and results of operations.
We are subject to extensive procurement laws and regulations, including those that enable the U.S. Government to terminate contracts for convenience, and contractual provisions in our contracts with commercial customers. Termination of our contracts could materially adversely affect our backlog, reputation and our future financial results.
All of our direct and indirect contracts with the U.S. Government or its prime contractors, including our contracts with Lockheed Martin in support of the SDA, may be terminated or suspended at any time, with or without cause, for the convenience of the government. U.S. Government contract awards also may be subject to bid protests, which may result in a contract award being rescinded or subject to reprocurement. In addition, our commercial satellite contracts also may give the customer the right to unilaterally terminate the contract. For example, some of our commercial contracts have been terminated for convenience in the past, and contracts may be terminated in the future. For these reasons, we cannot assure you that all of our backlog will ultimately be recognized in revenues. Termination or suspension of any of our significant U.S. Government contracts or termination of such commercial contracts could result in the loss of future revenues and unreimbursable expenses or charges that could have a materially adverse effect on our financial condition, results of operations and cash flow. In addition, compliance with any new government regulations can increase our costs of operation, reduce our margins and adversely affect our competitiveness. Also, a portion of our contracts may be classified by the U.S. Government, which imposes security requirements that limit our ability to discuss our performance on these contracts, including any specific risks, disputes and claims. Furthermore, the termination of any such contracts for default could also have a material adverse effect on our reputation and ability to obtain new business in the future.
The U.S. Government could invoke the Defense Production Act of 1950, as amended (the “DPA”) and require that we accept and prioritize contracts for materials deemed necessary for national defense, regardless of loss in revenue incurred on such contracts.
Under the DPA, the U.S. Government could require that we accept and prioritize contracts for the U.S. Government. We may be required to reallocate time and resources away from commercial and other customer groups to fulfill U.S. Government requests under the DPA. This could cause us to be unable to fulfill contractual obligations to non-U.S. Government customers and harm long-term business relationships with commercial and other customers, contribute to increased costs and materially impact our results and operations.
We may be subject to audit by our customers on government contracts and the results of those audits could have an adverse effect on our business, reputation and results of operations.
We may be subject to audits or investigations by U.S. Government agencies, including the Defense Contract Audit Agency, the Defense Contract Management Agency and various agency Inspectors General, from time to time. These agencies review a contractor’s compliance with applicable laws, regulations and contract terms, regarding, among other things, contract pricing, contract performance, cost structure and business systems. U.S. Government audits and investigations often take years to complete, and may result in adverse action against us. Audits and investigations may also occur related to cost reimbursements that are based upon our final allowable incurred costs for each year. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative sanctions, including reductions of the value of contracts, contract modifications or terminations, forfeiture of profits, suspension of payments, penalties, fines or suspension or debarment from doing business with the U.S. Government. Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S. Government.
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In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Similar government oversight and risks to our business and reputation exist in most other countries where we conduct business.
We are subject to the U.S. Government’s security requirements, including the DoD’s National Industrial Security Program Operating Manual, for our facility and personnel security clearances, which are prerequisites to our ability to perform on classified contracts and work for the U.S. Government.
A facility security clearance is required for a company to perform on classified contracts or classified work for the DoD and certain other agencies of the U.S. Government. Security clearances are subject to regulations and requirements including such requirements as those contained in the National Industrial Security Program Operating Manual (the “NISPOM”), which specifies the requirements for the protection of classified information released or disclosed in connection with U.S. Government contracts. The Defense Counterintelligence and Security Agency (“DCSA”) manages the facility clearance process under the NISPOM and conducts various facility audits and inspections throughout the life cycle of a respective facility clearance.
The U.S. Government requires certain facility and personnel security clearances to perform classified U.S. Government business. Any facility not staffed by appropriately cleared personnel, and/or that fails a DCSA inspection places the facility clearance and the ability to perform classified contracts in jeopardy. As such, we must comply with the requirements of the NISPOM and other applicable U.S. Government industrial security regulations. If we were to violate the terms and requirements of the NISPOM or such industrial security regulations (which apply to it under the terms of classified contracts, if any), or if one or more of our facilities or personnel security clearances is invalidated or terminated, we may not be able to continue to perform our existing classified contracts, if any, and may not be able to enter into new classified contracts, if any, which could adversely affect our revenues. Failure to comply with the NISPOM or other security requirements may result in loss of access to classified information and subject us to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. Government, which could have an adverse effect on our financial position, results of operations and/or cash flows and cause reputational harm.
We derive a substantial portion of our revenue from Lockheed Martin. If Lockheed Martin changes its business strategy or reduces or eliminates its demand for our products and services, our business, prospects, operating results and financial condition could be adversely affected.
Lockheed Martin is a significant customer of ours and accounts for, and is expected to continue to account for, a substantial portion of our consolidated revenue. Lockheed Martin individually represented approximately 81% of our consolidated revenues for the year ended December 31, 2023. In addition, programs associated with Lockheed Martin represent approximately 8% of our backlog as of December 31, 2023. Given the uncertainty surrounding future government spending and the right of U.S. Government customers to terminate contracts for convenience, and the rights of Lockheed Martin to in turn terminate our subcontracts for convenience, there can be no assurance that the backlog for these contracts will ultimately be recognized as revenue. Lockheed Martin could cancel our subcontracts for any reason, including as a result of reductions in appropriations or our failure to achieve milestones due to technical issues or delays. Our future operating results will continue to depend on the success of our relationship with Lockheed Martin, including under the 2022 SCA.
Orders from Lockheed Martin are subject to fluctuation and may be reduced materially or eliminated entirely due to changes in Lockheed Martin’s needs, our failure to meet Lockheed Martin’s specifications or price expectations or other factors. Any reduction or delay in sales of products to Lockheed Martin could significantly reduce our revenue. As a result, our future operating results will depend on successfully developing relationships with additional key customers. We cannot assure that we will be able to continue to retain Lockheed Martin at the same level of demand or that additional key customers will be recruited.
Our strategic cooperation agreement with Lockheed Martin is not a firm order for services and gives Lockheed Martin priority rights, including rights over satellite manufacturing, and we may be required to prioritize Lockheed Martin over other customers which could adversely affect our operating performance and result in a loss of expected revenue.
We are party to the 2022 SCA with Lockheed Martin pursuant to which the parties agree to (i) collaborate on the development, production and sale of satellites for use in U.S. Government spacecraft and spacecraft procurements and (ii) establish a cooperation framework to enable the parties to enter into projects, research and development agreements and other collaborative business arrangements and “teaming activities.” The 2022 SCA only sets forth the basic terms and conditions under which the parties may collaborate and is not a firm order for services. As such, there can be no assurance that the 2022 SCA will result in actual revenue during any particular period or at all.
The 2022 SCA also contains a number of provisions that require us to prioritize our relationship with Lockheed Martin. For example, under the 2022 SCA, if we are awarded a contract to build satellites for Lockheed Martin, then we are required to prioritize the Lockheed
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Martin order over manufacturing satellites for our other customers. Lockheed Martin also has the right of first refusal over certain large satellite manufacturing orders received from third parties and receives preferential rights to bid on certain services and products or to require us to use them as a supplier. Accordingly, our business with other current and prospective customers or suppliers may suffer due to the requirements of the 2022 SCA. The prioritization of Lockheed Martin over other customers and the other preferential terms of the 2022 SCA could materially adversely affect our business, financial condition and results of operations.
Our receipt of the written non-binding Lockheed Proposal may or may not result in an actual completed transaction. The uncertainty surrounding the outcome could adversely impact our business operations, result in the incurrence of significant expenses and cause our stock price to be subject to significant fluctuation or otherwise be adversely impacted.
As disclosed under “Item 1. Business - Recent Developments” above, on March 1, 2024, we received the non-binding Lockheed Proposal from Lockheed Martin to acquire all shares of our outstanding common stock not owned by Lockheed Martin for $1.00 per share, payable in cash. Consistent with its fiduciary duties and in consultation with its financial and legal advisors, the Independent Committee of the Board is reviewing and evaluating the Lockheed Proposal as part of the Company’s ongoing review of strategic alternatives to determine the course of action that it believes will maximize value for the Company’s stockholders. However, there is no guarantee that a strategic transaction involving Lockheed Martin or any other party will be approved or consummated.
The market price of our common stock may reflect various assumptions as to whether or not the transaction with Lockheed Martin on the terms described in the Lockheed Proposal, or otherwise, will occur. The market price of our common stock may experience volatility as a result of changing assumptions regarding the proposed transaction, independent of changes in our business, financial condition or prospects or changes in general market or economic conditions. As a result, a definitive agreement regarding a transaction, or a failure to reach a definitive agreement regarding a transaction, could result in a significant change in the market price of our common stock.
We have incurred, and may incur in the future, costs in connection with the consideration of the non-binding proposal from Lockheed Martin. In addition, uncertainly associated with any potential transaction could adversely affect the Company's ability to attract, retain and motivate key employees, which could have a negative effect on our operations and business plans.
Our contract with Rivada Space Networks GmbH is subject to uncertainty.
On February 21, 2023, we entered into a procurement contract with Rivada Space Networks GmbH (“Rivada”), providing for the development, production and operation of 300 satellites for Rivada’s planned low-earth orbit satellite constellation (the “Rivada Agreement”). While the total purchase price for the satellites provided pursuant to the Rivada Agreement could be approximately $2.4 billion if the contract is fully performed, Rivada has an option to terminate the Rivada Agreement for convenience at any time and for any reason, which could result in a termination fee for work performed up to such termination. In addition, the Rivada Agreement includes termination provisions for default due to missed delivery targets or deadlines, insolvency, or other failures to perform, which could result in the refund of all amounts paid up until the date of such termination.
Whether or not we ultimately recognize revenue or profit on the Rivada Agreement is subject to a number of risks and uncertainties including, among other things, our ability to successfully perform our obligations under the Rivada Agreement, increase our manufacturing capacity in order to meet the demands of this program, and deliver operational satellites in a timely manner and Rivada’s continuing ability to fund contract performance, maintain its regulatory licenses for its operations, and otherwise perform under the Rivada Agreement. If Rivada is unable to fund and maintain its operations, or we are unable to successfully execute this program, or our contract is terminated for any reason, our financial condition and results of operations in future periods would be materially adversely affected. As a result, there can be no assurance that the Rivada Agreement will result in material revenue in 2024 or future periods.
As of December 31, 2023, the Rivada Agreement represented 88% of our backlog.
We are subject to intense competition for U.S. Government and commercial contracts and programs and therefore may not be able to compete successfully.
We encounter competition for many contracts and programs, including in particular, U.S. Government contracts. Most of our competitors have substantially greater financial, technical, marketing, manufacturing, distribution and other resources. Our ability to compete for these contracts depends to a large extent upon our ability to offer high-quality performance at competitive prices. If we are not able to do so, our business may be adversely affected. Additionally, if competitors can offer lower cost services and products, or provide services or products more quickly, at equivalent or in some cases even reduced capabilities, we may lose new business opportunities or contract
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recompetes, which could adversely affect our future results. Furthermore, acquisitions in our industry, including vertical integration, also could result in increased competition or limit our access to certain suppliers without appropriate remedies to protect our interests.
A substantial portion of our business is awarded through competitive bidding. The U.S. Government increasingly has relied on competitive contract award types, including indefinite-delivery, indefinite-quantity and other multi-award contracts, which have the potential to create pricing pressure and to increase our costs, and the costs of prime contractors we bid alongside as subcontractor, by requiring us, or any prime contractor we bid with, to submit multiple bids and proposals. Multi-award contracts require us to make sustained efforts to obtain task orders under the contract. Additionally, procurements that do not evaluate whether the cost assumptions in the bids are realistic can lead to bidders taking aggressive pricing positions, which could result in the winner realizing a loss upon contract award or an increased risk of lower margins or realizing a loss over the term of the contract. Competitors may be willing to accept more risk or lower profitability in competing for contracts than we are. The U.S. Government also may not award us, or any prime contractor we bid with, large competitive contracts that we otherwise might have won in an effort to maintain a broad industrial base.
Other Risks Related to Our Business and Operations
We are an early stage company with a history of losses and may not achieve or maintain profitability.
We are currently not profitable, nor do we have positive cash flow. We have increased the scale of our operations over recent years which has increased our expenses at a higher rate than the increase in our revenue. Additionally, we expect to increase research and development efforts relating to new offerings and technologies, and hire more employees. These efforts may be more costly than we expect and may not result in increased revenue. Any failure to increase our revenue sufficiently to cover our operating expenses and other investments could prevent us from achieving or maintaining profitability or positive cash flow. The likelihood of success of our business plan must be considered in light of the substantial challenges, expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early-stage businesses and the competitive environment in which we operate.
We have a limited operating history and operate in a rapidly evolving and competitive industry, which makes it difficult to evaluate our business and future prospects and may adversely impact our financial condition and results of operations.
It is difficult to predict future revenue and appropriately budget for expenses, and we have limited insight into trends that may emerge and affect our business.
Additional risks and challenges we have faced or expect to face include our ability to:
If we fail to address the risks and difficulties that we face, including those associated with the challenges listed above as well as those described elsewhere in this “Risk Factors” section, our business, financial condition and results of operations could be adversely affected. Further, because we have limited historical financial data and operate in a rapidly evolving market, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more developed market. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of
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operations could differ materially from our expectations and our business, financial condition and results of operations could be adversely affected.
Our ability to successfully implement our business plan depends on a number of factors outside of our control.
The success of our business plan is dependent on a number of factors outside of our control, including but not limited to:
We expect to continue to consider, from time to time, strategic alternatives to maximize shareholder value, any of which may result in the use of a significant amount of management resources or significant costs, and we may not be able to fully realize the potential benefit of such transactions.
We expect to continue to consider strategic alternatives that may enhance shareholder value. The Board and management may from time to time be engaged in evaluating potential transactions and other strategic alternatives. In addition, from time to time, we have previously, and may continue to, engage financial and legal advisors, enter into non-disclosure agreements, conduct discussions, and undertake other actions that may result in one or more transactions. Although there would be uncertainty that any of these activities or discussions would result in definitive agreements or the completion of any transaction, we may devote a significant amount of management resources to analyzing and pursuing such a transaction, which could negatively impact operations. In addition, we may incur significant costs in connection with seeking such transactions or other strategic alternatives regardless of whether the transaction is completed. In the event that we consummate a transaction in in the future, we cannot be certain that we would fully realize the anticipated benefits of such a transaction and cannot predict the impact that such strategic transaction might have on our operations or stock price.
We may incur significant expenses and capital expenditures in the future to execute our business plan and expand satellite and other customer solutions, and we may by unable to adequately control our expenses.
We may incur significant expenses and capital expenditures in the future to further our business plan including, but not limited to, expenses to:
Because we will incur the costs and expenses from these efforts before we receive any revenue with respect thereto, our profitability will be negatively impacted in future periods. In addition, we may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in revenues or generate our desired margins, which would further negatively impact our profitability.
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Our ability to become profitable in the future will not only depend on our ability to successfully manufacture, satellites and other products and services, but also to control costs. If we are unable to do so efficiently, our margins, profitability and prospects would be materially and adversely affected.
A failure to successfully finance, open and operate our planned new or expanded manufacturing facilities could harm our business, financial condition and results of operations. Such new or expanded facilities may not be achieved on time or within our projected budget and may otherwise not provide the capability that we seek.
We may not be able to convert our backlog, or the sales opportunities represented in our pipeline, into revenue.
Our backlog totaled $2.7 billion as of December 31, 2023. However, many of these contracts are cancellable by customers for convenience. If a customer cancels a contract before it is required to pay the last deposit prior to launch, we may not receive all potential revenue from these orders, except for an initial non-refundable deposit which is paid at the time the contract is signed. In addition, backlog includes both funded (firm orders for which funding is authorized and appropriated) and unfunded portions of such contracts, for which work has not been performed. If a contract is unfunded in whole or in part, and the customer does not obtain funding or appropriation of funding, there is a risk that we may not receive revenue from that portion of the contract.
In addition, backlog is typically subject to large variations from quarter to quarter and comparisons of backlog from period to period are not necessarily indicative of future revenues. Furthermore, some contracts comprising the backlog are for services scheduled many years in the future, and the economic viability of customers with whom we have contracted is not guaranteed over time. As a result, the contracts comprising our backlog may not result in actual revenue in any particular period, or at all, and the actual revenue from such contracts may differ from our backlog estimates. The timing of revenue recognition, if any, on projects included in backlog could change because many factors affect the scheduling of missions and adjustments to contracts, including additional costs or scope changes, may also occur. The failure to realize some portion of our backlog could adversely affect our revenues and gross margins.
We may fail to convert any or all of our potential sales pipeline opportunities into revenue for a variety of reasons both inside and outside of management’s control, which would negatively impact our financial results, including revenue and profit.
If we fail to manage our future growth effectively, our business, prospects, operating results and financial condition may be materially adversely affected.
In order to achieve substantial future revenue growth, we must develop and market new products and services, generate a sustainable order rate, and significantly expand our operations. To properly manage our growth, we may need to hire and retain additional personnel, upgrade our existing operational management and financial and reporting systems, and improve our business processes and controls. Our future expansion will include:
If our operations continue to grow as planned, of which there can be no assurance, we will need to expand our sales and marketing, research and development, customer and commercial strategy, products and services, supply, and manufacturing functions. These efforts will require us to invest significant financial and other resources, including in industries and sales channels in which we have limited experience to date. We will also need to continue to leverage our manufacturing and operational systems and processes, and there is no guarantee that we will be able to scale the business and the manufacture of vehicles as currently planned or within the planned time frame. The continued expansion of our business may also require additional manufacturing and operational facilities, as well as space for administrative support, and there is no guarantee that we will be able to find suitable locations for the manufacture of our vehicles.
Our continued growth could increase the strain on our resources, and we could experience operating difficulties, including difficulties in hiring and training employees, finding manufacturing capacity to produce our vehicles and related equipment, and delays in production. These difficulties may divert the attention of management and key employees and impact financial and operational results.
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If we are unable to drive commensurate growth, these costs, including lease commitments, headcount and capital assets, could result in decreased margins, which could have a material adverse effect on our business, financial condition and results of operations.
Our products could fail to perform or could perform at reduced levels of service because of technological malfunctions or deficiencies or events outside of our control, which would harm our business and reputation.
We produce highly complex products including satellites that incorporate leading-edge technology. They are designed to be deployed across complex networks, which in some cases may include over a million users. On-orbit failure of a satellite may result from various causes, including component failure, loss of power or fuel, inability to control positioning of the satellite, solar or other astronomical events, including solar radiation, wind and flares, and space debris. Other factors that could affect the useful lifespan of our satellites include the quality of construction, gradual degradation of solar panels and the durability of components. Radiation-induced failure of satellite components may also result in damage to or loss of a satellite before the end of its expected life. Because of the nature of these satellites, there is no assurance that our pre-shipment testing programs will be adequate to detect all defects. As a result, our customers may discover errors or defects in our satellites, or our satellites may not operate as expected after they have been fully deployed to space. Hardware and software errors or defects discovered before launch of the spacecraft to orbit may be mediated while the spacecraft is still on the ground. However, once launched, we will no longer be able to change or service the hardware. While spacecrafts are in orbit, we may be able to fix software errors or defects. If our products fail to perform or perform at reduced levels because of malfunctions or other deficiencies or events outside of our control, we could experience damage to our reputation, reduced customer satisfaction, loss of existing customers and failure to attract new customers, failure to achieve market acceptance, cancellation of orders, loss of revenue, reduction in backlog and market share, increased service and warranty costs, diversion of development resources, legal action by our customers, issuance of credit to customers and increased insurance costs. Defects, integration issues or other performance problems in our satellites could also result in financial or other damages to our customers. Our customers could seek damages for related losses from us, which could seriously harm our business, financial condition and results of operations. The occurrence of any of these problems would seriously harm our business, financial condition and results of operations. We have experienced on-orbit anomalies and failures of our satellites in the past and may continue to do so in the future. These issues have impacted customer missions, resulting in loss of expected revenue, insurance payouts to customers and other costs.
In 2023, the world experienced an exponential level of growth in the availability of potential applications of artificial intelligence (“AI”). AI could disrupt certain aspects of our business and evolve use of technology in ways that are not yet known. If we are not able to adapt and effectively incorporate potential advantages of AI in our business, it may negatively impact our ability to compete. On the other hand, if we are not able to effectively manage the risks of AI, including the potential for poor or inconsistent quality, privacy concerns, risks related to automated decision-making, and the potential for exposure of confidential and/or propriety information, we may suffer harm to our results of operation and reputation.
We rely on a limited number of third parties for the supply of key raw materials and components, including semiconductor chip components.
We procure or subcontract for many raw materials, major components and product equipment, including semiconductor chip components, on a single or sole-source basis. Although we maintain a qualification and performance surveillance process, and we believe that sources of supply for components and key raw materials such as aluminum and titanium are generally adequate, it is difficult to predict what effects shortages or price increases may have in the future. Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers’ inability to scale production and adjust delivery of long-lead time products during times of volatile demand. The failure of these suppliers or others to perform could require us to seek alternative suppliers or expand our production capabilities, which could incur additional costs and have a negative impact on our cost or supply of components. In particular, due to the COVID-19 Pandemic, labor shortages at our suppliers and various other factors, we have experienced semiconductor chip shortages and longer than historically experienced lead times of semiconductor chips. These parts are vital to our manufacturing of printed circuit board assemblies that control all elements of satellite operations. This includes safety-of-flight radio communications as well as the flight computers that allow the satellite to deliver its capabilities. The semiconductor shortages, reduced availability of parts, supplier quality controls and longer than historical lead times to deliver parts and supplies have negatively affected our ability to timely deliver our products and services to customers over the last three years, which primarily affected our ability to recognize revenue on our forecasted timeline and increased our costs due to longer manufacturing durations. Future inability to fill our supply needs for key raw materials and components could jeopardize our ability to fulfill obligations under commercial and government contracts, which could, in turn, result in reduced sales and profits, contract penalties or terminations and damage to customer relationships and could have a
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material adverse effect on our business, financial condition, or results of operations. In addition, negative publicity from any failure of one of our products as a result of a failure by a key supplier could damage our reputation and could limit our ability to win new contracts.
Our manufacturing capacity is limited, and our facilities may be vulnerable to damage from natural disasters, which could further limited available capacity.
Our facilities used for satellite manufacturing, assembly, integration, and testing are located in Irvine, California, Santa Maria, California, and Torino, Italy. However, we do not currently maintain back-up manufacturing facilities or operations. Our manufacturing facilities may become capacity-constrained, or we could face financial difficulties as a result of a surge in demand for additional satellites, a natural disaster, or other event, including the impacts of the COVID-19 Pandemic. Our manufacturing site is vulnerable to damage or interruption from earthquakes, wildfires, other natural disasters, power loss or aging infrastructure. Any such events could result in the destruction of satellites under construction or inventory, manufacturing delays and other business interruptions, or additional costs, which could materially affect our business, financial condition, and results of operations.
We have material purchase commitments that may impact our profitability.
We entered into software and component supply agreements requiring $20 million of purchase commitments over three years from two affiliates of an equity investor. These supply agreements have minimum payment conditions regardless of the services utilized, the supplier goods or services may not be as valuable as we anticipate relative to alternatives and circumstances may change, and we may not need such services. Consequently, our use of these suppliers in order to fulfill our purchase commitments may materially adversely affect our liquidity. As of December 31, 2023, approximately $12.1 million of the purchase obligations remained outstanding under these supply agreements.
We are dependent on third-party launch vehicles to launch our satellites and payloads into space.
We are dependent on third-party launch vehicles to deliver our vehicles into space. If the number of companies offering launch services or the number of launches does not grow in the future or there is a consolidation among companies who offer these services, this could result in a shortage of space on these launch vehicles, which may cause delays in our ability to meet our customers’ needs and increase launch costs. Either of these situations could have a material adverse effect on our results of operations and financial condition.
Further, in the event that a launch is delayed, our timing for recognition of revenue may be impacted depending on the length of the delay and the nature of the contract with the customers with payloads on such delayed flight. While such delays are common in the space industry, any delay in a launch on which we are booked for missions with paying clients may result in a delay in recognizing revenue which could materially impact our financial statements or may result in negative impacts to our earnings during a specified time period, which could have a material effect on our results of operations and financial condition.
Our business plans are predicated on our ability to vertically integrate our production process by bringing certain component manufacturing processes in-house.
Our plans have been, and continue to be, to vertically integrate most of our supply chain by continuing to add additional capabilities including the production and test of printed circuit boards. Building out such capabilities will require significant capital expenditures, including the installation and/or transplantation of complex manufacturing equipment and processes and hiring and training new employees. If we are unable to manage this process successfully, we may fail to meet our objective of near-full vertical integration and could suffer delays in recognizing efficiencies, manufacturing and supply chain delays, product quality and delivery schedules, harm to our reputation with our customers, and loss of customers, which could negatively impact our financial condition and results of operations.
In order to be successful, we must attract and retain key personnel.
Our success depends, in part, on our ability to retain our key personnel. We are highly dependent on the services of Marc Bell, our Co-Founder, Chairman and Chief Executive Officer. If Mr. Bell was to discontinue his employment due to death, disability or any other reason, we would be significantly disadvantaged. We do not maintain “key person” life insurance policies on any of our employees, including Mr. Bell. The unexpected loss of or failure to retain one or more of our key employees could adversely affect our business.
Our success also depends, in part, on our continuing ability to identify, hire, attract, train, retain and develop other highly qualified personnel, in particular engineers and government compliance personnel. Experienced and highly skilled employees and/or personnel with required security clearances are in high demand, and competition for these qualified employees can be intense. Because our satellites are based on a different technology platform than traditional LEO satellites, individuals with sufficient training in our technology may not be available to hire, and as a result, we will need to expend significant time and expense training the employees we do hire. We may not be able to attract, assimilate, develop or retain qualified personnel in the future, and our failure to do so could
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adversely affect our business, including the execution of our global business strategy. Any failure by our management team and employees to perform as expected may have a material adverse effect on our business, prospects, financial condition and operating results.
Our business involves significant risks and uncertainties that may not be covered by indemnity or insurance.
A significant portion of our business relates to designing, developing and manufacturing advanced technology products and systems. New technologies may be untested or unproven. Failure of some of these products and services could result in extensive losses and we may not be able to mitigate these risks through indemnification or insurance coverage. Substantial costs resulting from an accident; failure of or defect in our products or services; natural catastrophe or other incident; or liability arising from our products and services in excess of any legal protection, indemnity, and our insurance coverage (or for which indemnity or insurance is not available or not obtained) could adversely impact our financial condition, cash flows, and operating results. Any accident, failure of, or defect in our products or services, even if fully indemnified or insured, could negatively affect our reputation among our customers and the public and make it more difficult for us to compete effectively. It also could affect the cost and availability of adequate insurance in the future.
We face substantial risks associated with our international operations.
A portion of our revenue is generated internationally. Terran Orbital’s international operations are headquartered in Torino, Italy, where it also has a manufacturing facility. Terran Orbital also sources supplies from international suppliers. Operating in foreign countries may pose substantial burdens, costs and risks, including:
We cannot predict the effect of future exchange rate fluctuations on our business and operating results.
Our international operations are sensitive to currency exchange risks. We anticipate having currency exposure arising from both sales and purchases denominated in foreign currencies, as well as intercompany transactions. Significant changes in exchange rates between foreign currencies in which we anticipate transacting business and the U.S. dollar may adversely affect our business, results of operations and financial condition.
Our business could be negatively impacted as a result of actions by activist shareholders or others.
We have previously been, and may continue to be in the future, subject to actions from activist shareholders or others that may not align with our business strategies or the interests of our other shareholders. For example, in October 2023 a shareholder group led by Sophis Investments LLC sent a letter to our Board advocating certain corporate governance changes. While this particular matter has been resolved, as a publicly traded company we may be subject to additional activist shareholder action in the future. Responding to such actions, including the potential submission of proposals or director nominations by activist shareholders for consideration at our annual meeting of stockholders, could be costly and time-consuming, disrupt our business and operations, and divert the attention of our Board and senior management from the pursuit of our business strategies. Activist shareholders may create perceived uncertainties as to the
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future direction of our business or strategy which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel, potential customers and business partners and may affect our relationships with current customers, suppliers, investors and other third parties. In addition, actions of activist shareholders may cause periods of fluctuation in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Risks Related to Economic Conditions and Additional Capital Requirements
We may be negatively affected by global economic conditions or geopolitical factors.
Our operations and performance depend significantly on worldwide economic conditions, and we expect our future growth rate will be affected by the condition of the global economy. Uncertainty about global economic conditions and geopolitical factors, including, but not limited to, inflation (whether real or perceived) and interest rates, the ongoing conflict between Russia and Ukraine, the conflict between Israel and Hamas, the relationship between China and the U.S. and other actual or anticipated military or political conflicts, poses a risk as individual consumers, businesses and governments may postpone spending in response to tighter credit, negative financial news, declines in income or asset values, or budgetary constraints. Further risks stem from geopolitical tensions and volatility (such as in Cuba, Iran, Syria, Russia, North Korea, Israel and surrounding areas, and the Red Sea region), other future conflicts that may arise, and economic sanctions imposed relating to regions and persons included on sanctioned party lists. Reduced demand could cause a significant delay in the launch of our satellites which in turn could cause a decline in our anticipated future revenue and make it more difficult to operate profitably in the future, potentially compromising our ability to pursue our business plan.
We are unable to predict the future course of industry variables, the strength of the U.S., regional or global economies, or the effects of government actions. Negative economic conditions, such as a major economic downturn or recession, continued inflation, or disruptions in the financial markets, could have a material adverse effect on our business, financial condition or results of operations.
We may require additional capital to support the growth of our business, and this capital might not be available on terms favorable to us, if at all, or may be available only by diluting existing stockholders.
Historically, we have funded our operations and capital expenditures primarily through equity issuances, debt and cash generated from our operations. For example, in May 2023 and September 2023 we completed equity offerings resulting in $37.1 million and $32.5 million of gross proceeds, respectively. We may need to acquire additional alternative financing in the future, and we may not be able to obtain debt or equity financing on favorable terms, if at all. If we raise equity financing to fund operations or on an opportunistic basis, our stockholders may experience significant dilution of their ownership interests. If we obtain debt financing, the terms of such debt financing may restrict our ability to incur additional indebtedness, require us to maintain certain financial covenants, or restrict our ability to pay dividends. In addition, macroeconomic and market events (such as the Silicon Valley Bank takeover and current high levels of inflation and interest rates) and global conflicts (such as the currently ongoing conflict between Russia and Ukraine, the conflict between Israel and Hamas, the relationship between China and the U.S. and other actual or anticipated military or political conflicts), and investor willingness to fund emerging growth companies such as ours may negatively impact our access to the financial markets. If we need additional capital and cannot raise it on acceptable terms, or at all, our business, financial conditions, and results of operations may be negatively impacted.
Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.
We regularly maintain cash balances at third-party financial institutions in excess of the Federal Deposit Insurance Corporation insurance limit. Although we do not hold any cash or maintain any accounts at, nor do we have any other relationships with, Silicon Valley Bank or Signature Bank, on March 10, 2023 and March 12, 2023, respectively, the Federal Deposit Insurance Corporation took control and was appointed receiver of these banks, and if other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash
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equivalents and investments may be threatened, which could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to our Intellectual Property and Data Security
Our business may be adversely affected if we are unable to maintain or protect our intellectual property rights from unauthorized use by third parties.
The maintenance and protection of our intellectual property rights will be important to our future business opportunities. However, the measures we take to protect our intellectual property from unauthorized use by others may not be effective for various reasons, including the following:
In addition, we may have difficulty enforcing our rights against a competitor where an infringement occurs in outer space. Failure to adequately maintain or protect our intellectual property rights could result in our competitors offering similar or competitive services and products, potentially resulting in the loss of some of our competitive advantage and a decrease in revenue, which would adversely affect our business, prospects, financial condition and results of operations.
Our intellectual property may become subject to claims that our devices or services violate the patent or intellectual property rights of others, which could be costly and disruptive to our business.
Our success depends, in part, on our ability to protect our core technology and intellectual property and to keep use of licenses. The defense of intellectual property suits is both costly and time-consuming, even if ultimately successful, and may divert management’s attention from other business concerns. Further, an adverse determination in litigation to which we may become a party could, among other things:
Cyber-attacks and other security threats and disruptions could have a material adverse effect on our business.
As a provider of products in the aerospace and defense industry, we face a multitude of security threats, including cybersecurity threats ranging from attacks common to most industries, such as ransomware and denial-of-service, to attacks from more advanced and persistent, organizations, including nation state actors, which target the defense industrial base and other critical infrastructure sectors. The risk of cyberattacks has also increased, and is expected to continue to increase, in connection with geopolitical events and dynamics, including ongoing conflicts in Europe and the Middle East and tensions with Russia, China, North Korea, Iran and other states. State-sponsored parties or their supporters may launch retaliatory cyberattacks, and may attempt to cause supply chain disruptions, or carry out other geopolitically motivated retaliatory actions that may adversely disrupt or degrade our operations and may result in data compromise. The sophistication of the threats also continues to evolve and grow, including the risk associated with the use of emerging technologies, such as artificial intelligence and quantum computing, for nefarious purposes. In addition to cybersecurity threats, we could face threats to the security of our facilities and employees from terrorist acts, sabotage or other disruptions, any of which could adversely affect our business. The improper conduct of our employees or others working on behalf of us who have access to export controlled, classified or other sensitive information could also adversely affect our business and reputation.
If we are unable to protect sensitive information, including complying with evolving information security, data protection and privacy regulations, our customers or governmental authorities could investigate the adequacy of our threat mitigation and detection processes
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and procedures; and could bring actions against us for noncompliance with applicable laws and regulations. Moreover, depending on the severity of an incident, our customers’ data, our employees’ data, our intellectual property (including trade secrets and research, development and engineering know-how), and other third-party data (such as suppliers and vendors) could be compromised, which could adversely affect our business. Products and services we provide to customers also carry cybersecurity risks, including risks that they could be breached or fail to detect, prevent or combat attacks, which could result in losses to our customers and claims against us, and could harm our relationships with our customers and financial results.
Given the persistence, sophistication, volume and novelty of threats we face, we may not be successful in preventing or mitigating an attack that could have a material adverse effect on us and the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. The national security aspects of our business and much of the data we protect increase and create different risks relative to other industries. National security considerations may also preclude us from publicly disclosing a cybersecurity incident.
Our customers and suppliers face similar security threats and an incident at one of these entities could adversely impact our business. These entities are typically outside our control and may have access to our information with varying levels of security and cybersecurity resources, expertise, safeguards and capabilities. Their relationships with government contractors may increase the risk that they are targeted by the same threats we face, however, they may not be as prepared for such threats. Adversaries actively seek to exploit security and cybersecurity weaknesses in our supply chain. Breaches in our multi-tiered supply chain has, and could in the future compromise our data and adversely affect customer deliverables. We also must rely on our supply chain for adequately detecting and reporting cyber incidents, which could affect our ability to report or respond to cybersecurity incidents effectively or in a timely manner.
For information on our cybersecurity risk management, strategy and governance, see Item 1C. - Cybersecurity.
Risks Related to Legal, Regulatory and Taxation Matters
Our business is subject to extensive government regulation, which mandates how we may operate our business, may reduce or eliminate our business, and may increase our business costs and prevent our expansion into new markets.
Our business, both as the manufacturer and operator of satellites for others is subject to significant regulation in the United States, including by the Department of Commerce, the Department of Homeland Security, the Department of State, the Department of Labor, the FCC (as defined below), the Federal Aviation Administration, the FTC and others, and in foreign jurisdictions by similar local authorities, including the ITU and NKOM. The Department of Commerce, through the NOAA CRSRA office, also licenses certain commercial private Earth remote sensing satellite systems. The rules and regulations of these U.S. and foreign authorities may change, and such authorities may adopt regulations that limit or restrict our operations as presently conducted or currently contemplated. Such authorities may also make changes in the licenses of our partners or competitors that affect their spectrum and may significantly affect our business. Further, because regulations in each country are different, we may not be aware if some of our partners or suppliers do not hold the requisite licenses and approvals. Failure to provide services in accordance with the terms of our licenses or failure to operate our satellites or ground stations as required by licenses and applicable laws and government regulations, as well as the failure of customers to attain any necessary licenses, could result in the imposition of government sanctions and/or monetary fines, including the suspension or cancellation of our licenses, which could have a material impact on our business, financial condition and results of operations.
We are subject to stringent U.S. export and import control laws and regulations.
We are required to comply with U.S. export control laws and regulations, including the ITAR, administered by the U.S. Department of State, and the EAR, administered by the U.S. Department of Commerce. Pursuant to these foreign trade control laws and regulations, we are required, among other things, to (i) maintain a registration under ITAR, (ii) determine the proper licensing jurisdiction and export classification of products, software, and technology, and (iii) obtain licenses or other forms of U.S. Government authorization to engage in the conduct of our space transport business. Violations of applicable export control laws and related regulations could result in criminal and administrative penalties, including fines, possible denial of export privileges, and debarment, which could have a material adverse impact on our business, including our ability to enter into contracts or subcontracts for U.S. Government customers.
The inability to secure and maintain necessary export authorizations could negatively impact our ability to compete successfully or to operate our spaceflight business as planned. For example, if we were unable to obtain or maintain our licenses to export certain spacecraft hardware, we would be effectively prohibited from launching our vehicles from certain non-U.S. locations, which would limit the number of launch providers we could use. In addition, if we were unable to obtain a Department of State Technical Assistance Agreement to export certain launch related services, we would experience difficulties or even be unable to perform integration activities necessary to safely integrate our transfer vehicles to non-U.S. launch vehicles. In both cases, these restrictions could lead to higher launch costs which may have a material adverse impact on our results of operations. Similarly, if we were unable to secure effective export licensure
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to authorize the full scope of activity with a foreign partner or supplier, we may be required to make design changes to spacecraft or updates to our supplier chain, which may result in increased costs to us or delays in vehicle launches.
We may be affected by global climate change and our operations are subject to governmental law and regulations relating to environmental matters, which may expose us to significant costs and liabilities that could negatively impact our financial condition.
Increased concern over climate change has led to new and proposed legislative and regulatory initiatives regarding emissions of greenhouse gasses and climate change. New or revised laws, regulations and policies in this area and customer decarbonization requirements could directly and indirectly affect us and our customers and suppliers, including by increasing the costs of production or impacting demand for certain products or materials, which could result in an adverse effect on our financial condition, results of operations and cash flows. Since we utilize electricity and other energy sources to operate our facilities, significant increased energy costs and/or costs to transition to renewable energy sources, as a result of new laws, such as carbon pricing or product energy efficiency requirements, or as a result of customer requirements, could be passed along to us or our customers and suppliers. Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures us or our customers or suppliers. Further, physical risks associated with climate change may result in an increased exposure to, and impact of, events with damage due to flooding, extreme winds and extreme precipitation for our offices and manufacturing facilities. Prolonged periods of drought may result in wildfires and/or restrictions on water use. These climate-related impacts may have an adverse effect on production capacity at our or our suppliers’ or customers’ manufacturing facilities. These types of incidents could have a negative effect on our results of operations and financial condition.
Additionally, we are subject to various other international, federal, state, provincial and local environmental laws and regulations relating to the operation of our businesses, including those governing pollution, the handling, storage, disposal and transportation of hazardous substances and the cleanup of contamination should it arise. The imposition of more stringent standards or requirements under environmental laws or regulations or a determination that we are responsible for a release of hazardous substances at our sites could result in significant costs, including cleanup costs, fines, sanctions and third-party claims.
Our international operations may subject it to greater than anticipated tax liabilities.
The amount of taxes we pay in different jurisdictions depends on the application of the tax laws of various jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies, and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency. Similarly, a taxing authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a “permanent establishment” under international tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions.
Our ability to use net operating loss carryforwards and other tax attributes may be limited.
We have incurred losses during our history, do not expect to become profitable in the near future, and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire, if at all. As of December 31, 2023, we had approximately $236 million and $322 million net operating loss carryforwards (“NOLs”) in our federal and state tax jurisdictions, respectively. It is possible that we will not generate sufficient taxable income to use these NOLs before their expiration or at all.
Under legislation informally known as the Tax Act, as modified by the CARES Act, U.S. federal NOLs generated in taxable periods beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such NOLs in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act.
In addition, our NOLs are subject to review and possible adjustment by the IRS and state tax authorities. Under Sections 382 and 383 of the Internal Revenue Code (the “IRC”), our federal NOLs and other tax attributes (such as research tax credits) may become subject to an annual limitation in the event of certain cumulative ownership changes. An “ownership change” pursuant to Section 382 of the IRC generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Our ability to
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utilize NOLs and other tax attributes to offset future taxable income or tax liabilities may be limited as a result of any such ownership changes. Similar rules may apply under state tax laws. If we earn taxable income, such limitations could result in increased future income tax liability and our future cash flows could be adversely affected.
Risks Related to Our Indebtedness
We have a substantial amount of indebtedness and payment obligations that could affect operations and financial condition and prevent us from fulfilling our obligations under our indebtedness.
As of December 31, 2023, we had a substantial amount of indebtedness, consisting of approximately $177.4 million principal amount of first lien debt and $112.3 million principal amount of second lien convertible notes due 2027 issued to Lockheed Martin on October 31, 2022 (the “Convertible Notes due 2027”). In addition, we have $16.9 million of payment obligations owed to the Insider PIPE Investor and under warrants issued to affiliates of Francisco Partners pursuant to a stock and warrant purchase agreement entered into on March 25, 2022 (the “Stock and Warrant Purchase Agreement”), such warrant holders have the right to require us to exchange such warrants for $25 million in cash on March 25, 2025. For additional information on the terms of such indebtedness and payment obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and Note 5 “Debt” to the consolidated financial statements for a full description of our long-term debt.
Our substantial indebtedness and payment obligations could have important consequences. For example, it could:
Despite our significant leverage, we may incur significant amounts of additional debt, which could further exacerbate the risks associated with our significant leverage.
Restrictions imposed by our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations and dividend policy, limit our ability to react to changes in the economy or our industry and prevent us from making debt service payments.
Restrictions imposed by our outstanding indebtedness under the note purchase agreement we entered into on November 24, 2021 with affiliates of Francisco Partners (as amended, the “FP Note Purchase Agreement”), the note purchase agreement we entered into on March 8, 2021 with Lockheed Martin (as amended, the “Lockheed Note Purchase Agreement”), and the convertible note and warrant purchase agreement we entered into with Lockheed Martin on October 31, 2022 (the “Convertible Note and Warrant Purchase Agreement” and together with the FP Note Purchase Agreement and Lockheed Note Purchase Agreement, the “Note Purchase Agreements”) may limit our ability to operate our business and to finance our future operations or capital needs or to engage in other business activities. Each of these agreements contains restrictive covenants that limit our ability to engage in certain types of activities and transactions that may be in our long-term best interests. In addition, the Note Purchase Agreements include a financial liquidity maintenance covenant that is tested on a quarterly basis and a financial minimum Consolidated Adjusted EBITDA maintenance covenant requiring at least $0 of Consolidated Adjusted EBITDA (the “EBITDA Financial Covenant”) that will be tested on a quarterly basis commencing with the quarter ending December 31, 2024 (unless further extended through qualified equity issuances pursuant to the
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terms of the Note Purchase Agreements). These covenants restrict our ability and the ability of our restricted subsidiaries, among other things, to:
The failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all outstanding indebtedness under the Note Purchase Agreements. In the event our lenders accelerate the repayment of any outstanding indebtedness, we may not have sufficient cash and assets to repay such indebtedness, which could lead to a breach and acceleration of these obligations, in which event we may not have sufficient resources to pay and in turn could precipitate an insolvency event of filing. Also, as disclosed in Note 1 of our consolidated financial statements, we have substantial doubt as to our ability to continue as a going concern based on uncertainty regarding our ability to comply with the EBITDA Financial Covenant, which could adversely impact investors as well as our relationships with employees and suppliers. Whether or not we are able to ultimately comply with the EBITDA Financial Covenant is subject to a number of risks and uncertainties including, among other things, the risk of supply chain delays, our ability to win new customer orders, our ability to execute programs on schedule and in a cost-effective manner, or our ability to extend the EBITDA Financial Covenant beyond December 31, 2024 through qualified equity issuances.
In addition, the Convertible Note and Warrant Purchase Agreement includes preemptive rights that could impact our ability to raise additional equity capital and/or require consent or lead to an exercise of preemptive rights that may be dilutive to our share count.
We may not be able to generate sufficient cash to service all of our indebtedness, and we may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.
We have significant indebtedness that could affect operations and financial condition and prevent us from fulfilling our obligations under our indebtedness. Our ability to make scheduled payments on our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations (including redemption or repayment obligations), we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital through equity or debt financing, or restructure or refinance our indebtedness. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. We may sell equity securities or debt securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, our current investors may be materially diluted. Any debt financing, if available, may involve restrictive covenants and could reduce our operational flexibility or profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures. In the absence of such operating results and additional debt or equity financings, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations.
Risks Related to Being a Public Company
Operating as a public company requires us to incur substantial costs and requires substantial management attention. In addition, some members of our management team have limited experience in operating a public company.
As a public company, we incur substantial legal, accounting, administrative, and other costs and expenses that Legacy Terran Orbital did not incur as a private company. The Sarbanes-Oxley Act, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public company requirements increases costs and makes certain activities more time-consuming. A number of those requirements require us to carry out activities that
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Legacy Terran Orbital had not done previously. For example, we adopted new internal controls and disclosure controls and procedures. In addition, we incur expenses associated with SEC reporting requirements. Furthermore, we have identified issues in complying with those requirements, and if further issues are identified (for example, we identified material weaknesses in internal control over financial reporting and additional material weaknesses may be identified in the future), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect our reputation or investor perceptions of us. Risks associated with our status as a public company may make it more difficult to attract and retain qualified persons to serve on our Board or as executive officers, and director and officer liability insurance for public companies is expensive. The additional reporting and other obligations imposed by these rules and regulations have, and will continue to, increase legal and financial compliance costs and the costs of related legal, accounting, and administrative activities. These increased costs require us to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs.
Certain of our executive officers have limited experience in the management of a publicly traded company. Our management team may not successfully or effectively manage the ongoing transition to a public company subject to significant regulatory oversight and reporting obligations under federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could result in an increasing amount of their time that may be devoted to these activities which will result in less time being devoted to the management and growth of our business. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies in the U.S. The failure to maintain compliance with U.S. public company requirements could subject the company to regulatory inquiries, investigations, sanctions, and penalties, which could materially affect our stock performance, reputation, financial results, and continued status as a public company. In addition, continuing to develop, implement and maintain standards and controls necessary to achieve the level of accounting standards required of a public company in the U.S. may require costs greater than expected. It is possible that we will be required to expand our employee base and hire additional employees in future periods to support our operations as a public company, which could increase our operating costs in such periods.
We are an “emerging growth company,” and our election to comply with the reduced disclosure requirements as a public company may make our common stock less attractive to investors.
For so long as we remain an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies,” including not being required to comply with the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, being required to provide fewer years of audited financial statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We may lose our emerging growth company status and become subject to the SEC’s internal control over financial reporting management and auditor attestation requirements. If we are unable to certify the effectiveness of our internal controls, or if our internal controls have a material weakness, we could be subject to regulatory scrutiny and a loss of confidence by stockholders, which could harm our business and adversely affect the market price of our common stock.
As an emerging growth company, we may choose to take advantage of some but not all of these reduced reporting burdens. Accordingly, the information we provide to our stockholders may be different than the information you receive from other public companies in which you hold stock. In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to take advantage of this extended transition period under the JOBS Act. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. It is possible that some investors will find our common stock less attractive as a result, which may result in a less active trading market for our common stock and higher volatility in our stock price.
We have material weaknesses in our internal control over financial reporting and, as a result, we have determined that our disclosure controls and procedures were not effective.
In connection with the preparation and audit of our financial statements for the year ended December 31, 2023, certain material weaknesses were identified in our internal control over financial reporting, as described in Part II, Item 9A “Controls and Procedures” of this Annual Report.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely
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basis. In the future, each of the material weaknesses described above could result in a misstatement of substantially all account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
We may not be able to complete our evaluation, testing or any required remediation of these material weaknesses in a timely fashion, or at all. The measures we have taken to date and may take in the future, may not be sufficient to remediate the control deficiencies that led to our material weaknesses in internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business, stock price, reputation and results of operations, result in regulatory proceedings, shareholder litigation or delisting from the NYSE.
The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. Any failure to design or maintain effective internal controls over financial reporting or any difficulties encountered in their implementation or improvement could increase compliance costs, negatively impact share trading prices, or otherwise harm our operating results or cause us to fail to meet our reporting obligations.
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company listed on the NYSE, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the NYSE listing standards. These rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming, and costly and place significant strain on our personnel, systems, and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are continuing to improve our internal control over financial reporting, which includes hiring additional accounting and financial personnel to implement such processes and controls. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight. If any of these new or improved controls and systems do not perform as expected, we may continue to experience material weaknesses in our controls.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Failure to file our periodic reports on a timely basis will cause us to be ineligible to use short-form registration statements on Form S-3, which may impair our ability to obtain additional capital in a timely fashion. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal
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control over financial reporting could have an adverse effect on our business and results of operations and could cause a decline in the price of our common stock and public warrants.
Risks Related to Ownership of our Securities
We may not be able to satisfy the continued listing standards of the NYSE going forward.
Our common stock and public warrants are listed on the NYSE under the symbols “LLAP” and “LLAP WS,” respectively. However, an active trading market for our common stock or warrants may not be sustained. Furthermore, we cannot ensure that we will be able to satisfy the continued listing standards of the NYSE going forward. If we cannot satisfy the continued listing standards going forward, the NYSE may commence delisting procedures against us, which could result in our common stock or public warrants being removed from listing on the NYSE. If any of our common stock or public warrants were to be delisted, the liquidity of our common stock or warrants could be adversely affected and the market price of our common stock or warrants could decrease. Delisting could also adversely affect our security holders’ ability to trade or obtain quotations on our securities because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask price for our securities. You may also not be able to resell your common stock or warrants at or above the price you paid for such securities or at all.
Our stockholder rights agreement includes terms and conditions which could discourage a takeover or other transaction that stockholders may consider favorable.
On March 4, 2024, in order to protect the Company and our stockholders from coercive or otherwise unfair takeover tactics, we entered into a Rights Agreement dated as of March 4, 2024, with Continental Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agreement”). In connection with the Rights Agreement, stockholders of record at the close of business on March 14, 2024 received a dividend of one preferred share purchase right (a “Right”) for each outstanding share of our common stock. Each Right entitles the registered holder to purchase one one-thousandth of a share of our Series A Junior Participating Preferred Stock, par value $0.0001 (the “Preferred Stock”), for $5.35, subject to adjustment under certain conditions once the Rights become exercisable. The Rights are not exercisable until the earlier of: (i) ten business days after the public announcement that a person or group has become an “Acquiring Person” (as defined in the Rights Agreement) by obtaining beneficial ownership of 15% or more of our outstanding common stock and (ii) ten business days (or a later date determined by the Board before any person or group becomes an Acquiring Person) after a person or group Commences (as defined in the Rights Agreement) a tender or exchange offer which, if completed, would result in that person or group becoming an Acquiring Person. The Rights will expire at the close of business on March 4, 2027; provided that if the Company’s stockholders have not approved the Rights Agreement by the close of business on March 4, 2025, the Rights will expire at such time, in each case, unless previously redeemed or exchanged by the Board. The full description and terms of the Rights are set forth in the Rights Agreement.
While in effect, the Rights Agreement could make it more difficult for a third party to acquire control of the Company or a large block of our common stock without the approval of the Board. Additionally, if exercised, the Rights will cause substantial dilution to any stockholder who does not exercise such Right, including any person or group that attempts to acquire us on terms not approved by the Board. The potential exercise of the Rights may delay or prevent a change in control of the Company, discouraging bids for the common stock at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our common stock.
The trading price of our securities may be volatile.
The trading price of publicly traded securities, including our common stock, is subject to extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies. You may not be able to resell your shares at an attractive price due to a number of factors, many of which are beyond our control, including but not limited to those factors listed above and the following, to the extent not already stated:
30
These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were to become involved in additional securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
Because there are no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
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. The declaration, amount and payment of any future dividends on shares of our common stock will be at the sole discretion of the Board. The Board may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions, implications on the payment of dividends by us to our stockholders or by our subsidiaries to it and such other factors as the Board may deem relevant. 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 we
31
incur. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.
If securities analysts do not publish research or reports about our business or if they downgrade our common stock or our industry, the Company’s stock price and trading volume could decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. In addition, some financial analysts may have limited expertise with the Company’s model and operations. Furthermore, if one or more of the analysts who do cover us downgrade our stock or industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our common stock could decline. If one or more of these analysts ceases coverage of the Company or fails to publish reports on it regularly, we could lose visibility in the market, which in turn could cause our stock price and/or trading volume to decline.
Continental Stock Transfer & Trust Company (“Continental”), our Transfer Agent, controls the transfer of our securities upon issuance and a failure by Continental to perform its functions for us effectively may adversely affect our operations.
There is no assurance that Continental will be able to effectively provide transfer agent and registrar services to us. Furthermore, Continental will be responsible for supervising third party service providers who may, at times, be responsible for executing certain transfer agent and registrar services. If Continental fails to perform its functions for us effectively, our operations may be adversely affected and the value of our investors’ stockholdings may be negatively impacted.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 1C. Cybersecurity.
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information.
Our cybersecurity risk management program shares common methodologies, reporting channels and governance processes that apply to the other areas of enterprise risk, including legal, compliance, strategic, operational, and financial risk and is aligned to our business goals and strategy. Key elements of our cybersecurity risk management program include:
All cybersecurity risks are logged into our cybersecurity risk register where they are tracked for remediation. These cybersecurity risks are discussed with management for resolution planning and escalation. We leverage recognized cybersecurity frameworks to drive strategic direction and maturity improvement and engage third party security experts for risk assessments, risk mitigation actions, vulnerability identification, and program enhancements.
In 2023, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from
32
cybersecurity threats, or provide assurances that we have not experienced an undetected cybersecurity incident that could have a material negative impact. For more information about these risks, please see “Item 1A. Risk Factors - Cyber-attacks and other security threats and disruptions could have a material adverse effect on our business” in this annual report on Form 10-K.
Cybersecurity Governance
It is management’s responsibility to manage cybersecurity risks, as described above, and bring to the Board’s attention material risks. Our information security program is managed by our Senior Vice President and Chief Information Officer (“CIO”), who has over 25 years of IT Risk Management experience. The CIO’s cybersecurity team, which includes a team of personnel with more than 30 years of collective information and product security experience, ranging from early-career professionals with cybersecurity degrees to seasoned professionals with multiple cybersecurity-related certifications, is responsible for leading enterprise-wide cybersecurity strategy, policy, standards, architecture, and processes. The CIO provides periodic reports to our management team and our Board, as appropriate. These reports include updates on the Company’s cyber risks and threats, the status of related projects, assessments, and emerging threats. Our cybersecurity program is regularly evaluated and reported on to senior management and the Board.
Item 2. Properties.
As of December 31, 2023, our principal corporate and engineering offices are located in Boca Raton, Florida, Melbourne, Florida, Irvine, California, and Torino, Italy. Our facilities used for satellite manufacturing, assembly, integration, and testing are located in Irvine, California (approximately 98,000 square feet), Santa Maria, California (approximately 18,000 square feet), and Torino, Italy (approximately 4,000 square feet). In February 2023, we executed a lease for approximately 94,000 square feet of additional manufacturing and assembly space in Irvine, California, which is expected to commence in the second quarter of 2024. All of our properties are subject to long-term operating leases.
We believe our properties are adequate and suitable for our business and are adequately maintained.
Additional information in response to this Item is included in Note 15 “Leases” in the notes to the consolidated financial statements and is incorporated by reference into Part I of this Annual Report. Our consolidated financial statements and the accompanying notes to the consolidated financial statements are filed as part of this Annual Report under Item 15 “Exhibit and Financial Statement Schedules” and are set forth beginning on page F-1 immediately following the signature pages of this Annual Report.
Item 3. Legal Proceedings.
We are subject to claims and lawsuits in the ordinary course of business, such as contractual disputes and employment matters. We are also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings.
Additional information in response to this Item is included in Note 12 “Commitments and Contingencies” in the notes to the consolidated financial statements under the heading “Litigation and Other Legal Matters” and is incorporated by reference into Part I of this Annual Report. Our consolidated financial statements and the accompanying notes to the consolidated financial statements are filed as part of this Annual Report under Item 15 “Exhibit and Financial Statement Schedules” and are set forth beginning on page F-1 immediately following the signature pages of this Annual Report.
Item 4. Mine Safety Disclosures.
Not applicable.
33
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
We have one class of common stock outstanding.
Beginning on March 28, 2022, our common stock and public warrants began trading on the NYSE under the symbols “LLAP” and “LLAP WS,” respectively. From March 2021 until the consummation of the Tailwind Two Merger, our common stock and public warrants were publicly traded on the NYSE under the symbols “TWNT” and “TWNT WS,” respectively.
Holders of Record
As of March 25, 2024 the number of stockholders of record of our common stock was 48, which does not include the number of stockholders who hold our common stock through banks, brokers, and other financial institutions.
Dividends
We have never declared or paid any dividends on our common stock. 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.
Recent Sales of Unregistered Securities
There were no sales of unregistered equity securities during the three months ended December 31, 2023.
Issuer Purchases of Equity Securities
There were no repurchases of any shares of our common stock during the three months ended December 31, 2023.
Equity Compensation Plan Information
Information about our equity compensation plans is incorporated herein by reference to Part III, Item 12 of this Annual Report.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report. This section is intended to (i) provide material information relevant to the assessment of our results of operations and cash flows; (ii) enhance the understanding of our financial condition, changes in financial condition, and results of operations; and (iii) discuss material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future performance or of future financial condition.
The following discussion and analysis contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates involving risks, uncertainties, and assumptions, which could differ materially from actual results. Factors that could cause such differences are discussed in the sections of this Annual Report titled Item 1A “Risk Factors” and “Cautionary Statements Regarding Forward-Looking Statements.” Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
34
BUSINESS AND BASIS OF PRESENTATION
We are a leading manufacturer of satellite products primarily serving the aerospace and defense industries. We provide end-to-end satellite solutions by combining satellite design, production, launch planning, mission operations, and on-orbit support to meet the needs of our military, civil, and commercial customers. We have a foreign subsidiary based in Torino, Italy.
All financial information presented in this section has been prepared in U.S. dollars in accordance with GAAP, excluding our Non-GAAP measures, and includes the accounts of Terran Orbital Corporation and its subsidiaries. All intercompany transactions have been eliminated. We evaluate and report financial and operating information in one segment.
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 a cost-effective 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 learning curve and non-recurring engineering costs related to our contracts with customers. Furthermore, our overall profitability may be impacted by our internal research and development initiatives associated with developing new and innovative technology, including the expansion of our offerings to include additional satellite bus designs, payload solutions, satellite subassemblies and components, and other defense-related products.
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 cost estimate-at-completion (“EAC”) exceeds the estimated revenue. The loss reserves are recorded in the period in which a loss is determined. Our reference to adjustments to EAC in the context of describing our results of operations relates to net changes during the period in our aggregate program contract values and estimated costs at completion and include the net impact of contract terminations, cost overruns, and loss reserves.
In recent years, we have expanded our headcount and production facilities in order to position ourselves to be awarded, and have the capacity to execute on, larger contracts with recurring revenue opportunities. These growth initiatives are principally located in Irvine, California near our existing facilities. Our existing portfolio of contracts includes multiple-satellite constellations as well as several technology demonstrations, prototypes, and studies with the potential for option exercises or follow-on contracts for multiple-satellite constellations. Accordingly, we are incurring a heightened level of operating expenses in advance of larger customer awards. These opportunities are subject to numerous uncertainties, including but not limited to: the customer may withdraw the opportunity, we may not submit a proposal, or we may not win a contract award or the full value of the award.
We may experience variability in the profitability of our contracts in the future and 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.
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, the Tailwind Two Merger was completed. 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 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.
35
Further, in connection with the Tailwind Two Merger, Legacy Terran Orbital's share-based compensation plan and related share-based compensation awards were canceled 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 our consolidated financial statements 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 consolidated financial statements have been retrospectively 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 to Terran Orbital Corporation 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 cash raised was 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, Terran Orbital Corporation’s common stock and public warrants began trading on the NYSE under the symbols “LLAP” and “LLAP WS,” respectively.
Refer to the discussions below under “Liquidity and Capital Resources” and Note 5 “Debt” in the notes to the consolidated financial statements for further details regarding our financing transactions.
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 as a privately-owned company. These increase in costs include compliance with the Sarbanes-Oxley Act of 2002 as well as other corporate governance rules implemented by the SEC and the NYSE. Our financial statements for the periods following the Tailwind Two Merger reflect, and will continue to reflect, the impact of these incremental expenses.
Rivada Agreement
During February 2023, we entered into an agreement with Rivada providing for the development, production, and operation of 300 satellites, inclusive of 12 in-orbit spares and ground station equipment, for a total purchase price of approximately $2.4 billion. The agreement also includes options for additional satellites, equipment, and services, including an option for the purchase of an additional 300 satellites. Performance under the agreement will be split into a developmental phase, with amounts billed on a time and materials basis, and a firm fixed price production phase. Rivada has an option to terminate the agreement for convenience at any time and for any reason, which would result in a termination fee for work performed up to such termination. In addition, the agreement includes termination provisions for default in the event of missed delivery targets or deadlines, insolvency, or other failures to perform, which could result in the refund of all amounts paid up to such termination. Whether we ultimately recognize revenue and profit on this contract is subject to a number of uncertainties including, among other things, our ability to successfully perform our obligations, increase our manufacturing capacity, and deliver operational satellites in a timely manner and Rivada’s continuing ability to fund contract
36
performance and maintain its regulatory licenses for its operations. The amount of revenue recognized under the Rivada Agreement was $6.9 million during 2023.
RESULTS OF OPERATIONS
Year Ended December 31, 2023 Compared to 2022
The following table presents our consolidated results of operations for the periods presented:
|
|
Years Ended December 31, |
|
|||||||||
(in thousands) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Revenue |
|
$ |
135,915 |
|
|
$ |
94,237 |
|
|
$ |
41,678 |
|
Cost of sales |
|
|
127,355 |
|
|
|
111,494 |
|
|
|
15,861 |
|
Gross profit (loss) |
|
|
8,560 |
|
|
|
(17,257 |
) |
|
|
25,817 |
|
Selling, general, and administrative expenses |
|
|
117,458 |
|
|
|
111,870 |
|
|
|
5,588 |
|
Loss on impairment |
|
|
- |
|
|
|
23,694 |
|
|
|
(23,694 |
) |
Loss from operations |
|
|
(108,898 |
) |
|
|
(152,821 |
) |
|
|
43,923 |
|
Interest expense, net |
|
|
48,502 |
|
|
|
26,644 |
|
|
|
21,858 |
|
Loss on extinguishment of debt |
|
|
- |
|
|
|
23,141 |
|
|
|
(23,141 |
) |
Change in fair value of warrant and derivative liabilities |
|
|
(5,488 |
) |
|
|
(43,300 |
) |
|
|
37,812 |
|
Other (income) expense |
|
|
(103 |
) |
|
|
4,514 |
|
|
|
(4,617 |
) |
Loss before income taxes |
|
|
(151,809 |
) |
|
|
(163,820 |
) |
|
|
12,011 |
|
Provision for income taxes |
|
|
34 |
|
|
|
160 |
|
|
|
(126 |
) |
Net loss |
|
$ |
(151,843 |
) |
|
$ |
(163,980 |
) |
|
$ |
12,137 |
|
Revenue
The increase in revenue 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 2023 and 2022, revenue included an estimated negative impact of $6.1 million and $7.0 million, respectively, related to EAC adjustments on our firm fixed price contracts. While we believe our estimates as of December 31, 2023 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.
Cost of Sales
The increase in cost of sales was primarily due to the following:
These increases were partially offset by the following:
37
During 2023 and 2022, cost of sales included an estimated negative impact of $2.1 million and a negative impact of $11.3 million, respectively, related to EAC adjustments on our firm fixed price contracts and non-recurring changes in estimates related to inventory. While we believe our estimates as of December 31, 2023 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.
Selling, General, and Administrative Expenses
The increase in selling, general, and administrative expenses was primarily due to the following:
These increases were partially offset by the following:
Loss on Impairment
There were no material impairments during 2023.
During 2022, we recorded a loss on impairment of $22.4 million related to costs previously capitalized as construction-in-process associated with the development and construction of our company-owned Earth observation satellites. The resulting adjusted carrying amount represented the material, sub-assemblies, and other items which can be utilized for customer programs or other purposes. In addition, we recorded a loss on impairment of $1.3 million related to costs previously capitalized as construction-in-process associated with our former plans of constructing a facility in Florida’s Space Coast.
Interest Expense, net
The increase in interest expense, net was due to (i) an increase in contractual interest of $10.2 million primarily as a result of higher debt balances due to our financing transaction during the fourth quarter of 2022, (ii) an increase in amortization related to discount on debt
38
of $9.4 million, and (iii) a decrease in capitalized interest of $2.0 million as we are no longer developing our Earth observation constellation.
Loss on Extinguishment of Debt
There was no long on extinguishment of debt during 2023.
During 2022, loss on extinguishment of debt totaled $23.1 million and related to the refinancing and extinguishment of our debt obligations in connection with the Tailwind Two Merger.
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 2023, the gain on change in fair value was primarily due to a decrease in the market price of our common stock and warrants, which drove the decrease in the overall fair value of our warrants and derivatives during the period, partially offset by an increase in the fair value of certain warrants containing a put right feature during the period.
During 2022, the gain on change in fair value was due to a decrease in fair value of $60.3 million of warrants and derivatives primarily occurring subsequent to the Tailwind Two Merger driven by a decrease in the Company’s price per warrant and price share of common stock, partially offset by a net increase in fair value of $17.0 million primarily related to warrants and derivatives that were ultimately settled as part of the Tailwind Two Merger.
Other (Income) Expense
Other income was not material during 2023.
During 2022, other expense primarily related to $3.4 million of non-recurring legal and accounting fees associated with our financing transactions during the period, and $1.0 million of expense associated with the fair value of common stock issued as consideration for the execution of a committed equity facility.
Provision for Income Taxes
Provision for income taxes for 2023 was $34 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 taxable income from our foreign subsidiary.
Provision for income taxes for 2022 was $160 thousand, resulting in an effective tax rate for the period of -0.1%. 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 taxable income from 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 the non-GAAP financial measures Adjusted Gross Profit and Adjusted EBITDA. 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
39
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 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.
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 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.
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 2023 and 2022:
|
|
Years Ended December 31, |
|
|||||||||
(in thousands) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Gross profit (loss) |
|
$ |
8,560 |
|
|
$ |
(17,257 |
) |
|
$ |
25,817 |
|
Share-based compensation expense |
|
|
5,850 |
|
|
|
12,652 |
|
|
|
(6,802 |
) |
Depreciation and amortization |
|
|
4,946 |
|
|
|
2,415 |
|
|
|
2,531 |
|
Adjusted gross profit (loss) |
|
$ |
19,356 |
|
|
$ |
(2,190 |
) |
|
$ |
21,546 |
|
The increase in Adjusted Gross Profit was largely 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 as well as the estimated impact from EAC adjustments and non-recurring changes in estimates related to inventory, which had a negative impact of $4.0 million and $18.3 million during 2023 and 2022, respectively. While we believe our estimates as of December 31, 2023 consider all relevant and known information, such as supply chain and related production challenges, additional adjustments to our estimates could occur and have an impact on our Adjusted Gross Profit in future reporting periods.
Adjusted EBITDA
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.
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.
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
40
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 2023 and 2022:
|
|
Years Ended December 31, |
|
|||||||||
(in thousands) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Net loss |
|
$ |
(151,843 |
) |
|
$ |
(163,980 |
) |
|
$ |
12,137 |
|
Interest expense, net |
|
|
48,502 |
|
|
|
26,644 |
|
|
|
21,858 |
|
Provision for income taxes |
|
|
34 |
|
|
|
160 |
|
|
|
(126 |
) |
Depreciation and amortization |
|
|
7,843 |
|
|
|
4,008 |
|
|
|
3,835 |
|
Share-based compensation expense |
|
|
21,467 |
|
|
|
51,082 |
|
|
|
(29,615 |
) |
Loss on extinguishment of debt |
|
|
- |
|
|
|
23,141 |
|
|
|
(23,141 |
) |
Change in fair value of warrant and derivative liabilities |
|
|
(5,488 |
) |
|
|
(43,300 |
) |
|
|
37,812 |
|
Loss on impairment |
|
|
- |
|
|
|
23,694 |
|
|
|
(23,694 |
) |
Other, net(a) |
|
|
2,036 |
|
|
|
9,075 |
|
|
|
(7,039 |
) |
Adjusted EBITDA |
|
$ |
(77,449 |
) |
|
$ |
(69,476 |
) |
|
$ |
(7,973 |
) |
(a) - Represents other expense and other charges and items. Non-recurring legal and accounting fees related to our transition to a public company and financing transactions are included herein.
The decrease in Adjusted EBITDA was primarily due to an increase in selling, general, and administrative expenses as a result of our growth initiatives, partially offset by an increase in Adjusted Gross Profit. 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 and exercised contract options, 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). The unfunded portion of enforceable contracts is accounted for as variable consideration and is reported at our estimate of the most likely amount to which the Company is expected to be entitled. Backlog 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 $2.7 billion and $170.8 million as of December 31, 2023 and 2022, respectively. The increase in backlog was primarily due to the Rivada Agreement as well as increased support for the SDA’s Transport Layer program. The increase in backlog was partially offset by revenue recognized and terminations that occurred during the period.
As of December 31, 2023, the Rivada Agreement represented 88% of our backlog and programs associated with Lockheed Martin represented approximately 8% of our backlog.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We have historically funded our operations primarily through the issuance of debt and equity securities. 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, and (iv) research and development initiatives. Our long-term liquidity requirements include initiatives related to (i) design and development of payload solutions, (ii) expansion of advanced manufacturing and assembly facilities and capabilities, and (iii) development of new satellite components, infrastructure, and software. The timing and amount of spend on these initiatives may be materially delayed, reduced, or cancelled as a result of the level of our financial resources and available financing opportunities. Additionally, our liquidity requirements include the repayment of debt and other payment obligations incurred as a result of the Tailwind Two Merger and other financing
41
transactions. Our sources of liquidity include cash generated from operations, potential proceeds from the exercise of warrants, and potential proceeds from the issuance of debt and/or equity securities.
Certain warrants issued to affiliates of Francisco Partners provide the right to require us to exchange such warrants (in full but not in part) for $25 million in cash on March 25, 2025. If such warrant holders exercise their exchange right on March 25, 2025, then it will require us to make a $25 million cash payment, which would reduce the amount of cash available at such time to fund our operations and execute our business plan, and the amount of such future cash payment could have a material adverse effect on our financial position and cash flows at such time. Further, in the event such warrant holders exercise their right and we are unable to make the cash redemption payment on March 25, 2025, such failure for us to pay would constitute an event of default under our outstanding debt instruments, which, if not cured or waived could result in the acceleration of all outstanding indebtedness under such debt instruments. Other than such warrants, no investors have the unconditional right to sell back shares or other securities to us or have any forward purchase agreements with us.
There can be no assurances that holders of our warrants will elect to exercise for cash any or all of such warrants, and the likelihood that warrant holders will exercise their warrants is dependent upon the market price of our common stock. As of March 25, 2024, the market price of our common stock is less than the exercise price for all warrants. We believe that based on the current trading prices of our common stock it is uncertain whether we will receive cash proceeds from the exercise of warrants in the next twelve months. Accordingly, we have not relied upon, and are not dependent upon, the receipt of the cash proceeds from the exercise of warrants as a source of liquidity to fund our operations in the next twelve months. The exercise of any or all of the warrants outstanding as of December 31, 2023 for cash would result in an increase in our liquidity, with an aggregate maximum amount of proceeds to be received of approximately $464.9 million.
As of December 31, 2023, we had $71.7 million of cash and cash equivalents, which included $3.2 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, the earnings of our foreign subsidiary are 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.
We rely on winning new customer orders, timely execution of programs and, ultimately, collections from customers to provide liquidity and fund our business plan. Our customer contracts are generally structured to result in advance payments to mitigate program and credit risk. The failure to win new orders, execute on programs on schedule or collect from customers in a timely manner would negatively impact our liquidity and increase our need to rely on capital raising activities to provide liquidity. In order to proceed with our strategic business plan, we may 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, among other things, 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
42
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.
Long-term Debt
As of December 31, 2023, long-term debt was comprised of the following (including accrued interest paid-in-kind):
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Description |
|
|
|
Issued |
|
Maturity |
|
Interest Rate |
|
Interest Payable |
|
|
December 31, 2023 |
|
||
Francisco Partners Facility |
|
|
November 2021 |
|
April 2026 |
|
9.25% |
|
Quarterly |
|
|
$ |
120,023 |
|
||
Lockheed Martin Rollover Debt |
|
|
March 2021 |
|
April 2026 |
|
9.25% |
|
Quarterly |
|
|
|
25,000 |
|
||
Beach Point Rollover Debt(1) |
|
|
March 2021 |
|
April 2026 |
|
11.25% |
|
Quarterly |
|
|
|
32,380 |
|
||
Convertible Notes due 2027(2) |
|
|
October 2022 |
|
October 2027 |
|
10.00% |
|
Quarterly |
|
|
|
112,251 |
|
||
PIPE Investment Obligation(3) |
|
|
March 2022 |
|
December 2025 |
|
N/A |
|
N/A |
|
|
|
16,875 |
|
||
Equipment Financings(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,287 |
|
Finance leases |
|
|
|
|
|
|
|
|
|
|
|
|
4,988 |
|
||
Unamortized deferred issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,664 |
) |
Unamortized discount on debt |
|
|
|
|
|
|
|
|
|
|
|
|
(128,367 |
) |
||
Total debt |
|
|
|
|
|
|
|
|
|
|
|
|
182,773 |
|
||
Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
11,740 |
|
||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
$ |
171,033 |
|
(1) - Incurs annual interest at 11.25%, of which 2.00% is payable-in-kind at our option.
(2) - Interest is payable-in-kind at our option. Principal and interest prior to maturity are convertible into common stock at a conversion price of $2.898 per share at the holder’s option.
(3) - Requires quarterly repayment of $1.875 million, which is payable in cash or common stock at our option, subject to certain restrictions.
(4) - Consists of equipment financing debt agreements with maturities through September 2030, annual interest rates ranging from 6.25% to 20.05%, and requiring monthly payments of principal and interest.
N/A - Not meaningful or applicable.
Refer to Note 5 “Debt” in the notes to the consolidated financial statements for a full description of our long-term debt.
In January 2024, we paid $1.875 million of principal related to the PIPE Investment Obligation, which was outstanding as of December 31, 2023.
Our primary corporate debt agreements contain a liquidity maintenance financial covenant requiring us to have an amount of unrestricted cash and cash equivalents of the greater of $20 million or 15% of certain aggregated funded indebtedness for each fiscal quarter end. In addition, our corporate debt agreements have a financial covenant related to the EBITDA Financial Covenant. The commencement of the EBITDA Financial Covenant may be further delayed by one quarter for every additional $25.0 million of net cash proceeds received from qualified equity issuances. If we are unable to comply with these financial covenants, our creditors may accelerate the principal and interest on our primary corporate indebtedness to be immediately due and payable. As of December 31, 2023, debt subject to the these financial covenants totaled $289.7 million with related accrued but unpaid interest of $2.1 million.
As of December 31, 2023, we were in compliance with all financial covenants. However, there is uncertainty regarding our ability to comply with the EBITDA Financial Covenant for at least twelve months from the issuance of these consolidated financial statements. To address the potential future breach of the EBITDA Financial Covenant, we are executing on our business plan to improve operating results. Additionally, we are in active discussions with funding sources to have access to additional sources of qualified equity issuances in the event needed to extend the EBITDA Financial Covenant beyond December 31, 2024. Furthermore, we can request waivers from existing creditors to waive the EBITDA Financial Covenant to the extent necessary. We cannot provide assurances that we will be successful in improving operating results, obtaining new financing, and/or receiving waivers to the EBITDA Financial Covenant. Our inability to improve operating results, raise capital through qualified equity issuances, or receive waivers may negatively impact our compliance with the EBITDA Financial Covenant, which may have a material adverse impact on our financial condition. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.
43
Warrants and Derivatives
Liability-classified Warrants and Derivatives
As of December 31, 2023, our liability-classified warrants and derivatives were comprised of the following:
(in thousands, except share and per share amounts) |
|
Number of Issuable Shares |
|
|
Issuance |
|
Maturity |
|
Exercise/Conversion Price |
|
|
Fair Value |
|
|||
Public Warrants |
|
|
19,221,960 |
|
|
March 2021 |
|
March 2027 |
|
$ |
11.50 |
|
|
$ |
1,346 |
|
Private Placement Warrants |
|
|
78,000 |
|
|
March 2021 |
|
March 2027 |
|
|
11.50 |
|
|
|
5 |
|
FP Combination Warrants(1) |
|
|
8,291,704 |
|
|
March 2022 |
|
March 2027 |
|
|
10.00 |
|
|
|
21,476 |
|
2027 Warrants |
|
|
17,253,279 |
|
|
October 2022 |
|
October 2027 |
|
|
2.898 |
|
|
|
9,842 |
|
Conversion Option Derivative(2) |
|
|
38,733,878 |
|
|
October 2022 |
|
October 2027 |
|
|
2.898 |
|
|
|
1,793 |
|
Warrant and derivative liabilities |
|
|
83,578,821 |
|
|
|
|
|
|
|
|
|
$ |
34,462 |
|
(1) - Holders have the right to exchange the warrants for a $25 million cash payment on March 25, 2025.
(2) - Represents the bifurcated embedded derivative associated with the Convertible Notes due 2027’s conversion option.
Equity-classified Warrants and Derivatives
As of December 31, 2023, our equity-classified warrants and derivatives were comprised of the following:
(in thousands, except share and per share amounts) |
|
Number of Issuable Shares |
|
|
Issuance |
|
Maturity |
|
Exercise Price |
|
||
Combination Warrants |
|
|
2,763,902 |
|
|
March 2022 |
|
March 2027 |
|
$ |
10.00 |
|
RDO Warrants |
|
|
29,000,000 |
|
|
May 2023 |
|
November 2028 |
|
|
1.43 |
|
Placement Agent Warrants |
|
|
2,030,000 |
|
|
May 2023 |
|
May 2028 |
|
|
1.60 |
|
CMPO Warrants |
|
|
23,214,290 |
|
|
September 2023 |
|
September 2028 |
|
|
1.50 |
|
CMPO Placement Agent Warrants |
|
|
1,625,000 |
|
|
September 2023 |
|
September 2028 |
|
|
1.75 |
|
Total equity-classified warrants and derivatives |
|
|
58,633,192 |
|
|
|
|
|
|
|
|
Refer to Note 6 “Warrants and Derivatives” in the notes to the consolidated financial statements for a full description of our warrants and derivatives.
Committed Equity Facility
On July 5, 2022, we entered into a common stock purchase agreement (the “Committed Equity Facility”) with an institutional investor giving us the right, but not the obligation, to sell to the investor over a 24-month period up to the lesser of (i) $100 million of newly issued shares of our common stock and (ii) 27,500,000 shares of our common stock. The price per share of common stock sold by us is determined by reference to the volume weighted average price of our common stock as defined within the Committed Equity Facility less a 3% discount, subject to certain limitations and conditions.
As of December 31, 2023, the remaining availability under the Committed Equity Facility was the lesser of 27,077,304 shares of common stock or $98.2 million of proceeds from the sale and issuance of common stock. We terminated the Committed Equity Facility in March 2024.
Refer to Note 8 “Shareholders’ Deficit” to the consolidated financial statements for a full description of the Committed Equity Facility.
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 and may be limited by covenants of any future indebtedness. There are no current restrictions in the covenants
44
of our existing and outstanding indebtedness on our wholly-owned subsidiaries from 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, our existing and outstanding indebtedness allows for the declaration and payment of dividends or prepayment of junior debt obligations in cash subject to certain limitations.
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 consolidated financial statements for further information regarding our operating leases.
Purchase Commitments
Our material cash requirements for purchases of goods or services entered into in the ordinary course of business, including purchase orders and contractual obligations, primarily relate to materials and services required to manufacture, assemble, integrate, and test satellites and satellite buses in connection with satisfying our customer contracts.
Refer to Note 12 “Commitments and Contingencies” to the consolidated financial statements for further information regarding our purchase commitments
Off-Balance Sheet Arrangements
As of December 31, 2023, we do not have any material off-balance sheet arrangements other than our equity-classified warrants and derivatives, which are discussed above. Our equity-classified warrants and derivatives are both indexed to and classified as equity under GAAP.
Cash Flow Analysis
The following table is a summary of our cash flow activity for the years ended December 31, 2023 and 2022:
|
|
Years Ended December 31, |
|
|||||||||
(in thousands) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Net cash used in operating activities |
|
$ |
(55,720 |
) |
|
$ |
(81,804 |
) |
|
$ |
26,084 |
|
Net cash used in investing activities |
|
|
(23,147 |
) |
|
|
(22,469 |
) |
|
|
(678 |
) |
Net cash provided by financing activities |
|
|
56,808 |
|
|
|
170,549 |
|
|
|
(113,741 |
) |
Effect of exchange rate fluctuations on cash and cash equivalents |
|
|
161 |
|
|
|
(40 |
) |
|
|
201 |
|
Net (decrease) increase in cash and cash equivalents |
|
$ |
(21,898 |
) |
|
$ |
66,236 |
|
|
$ |
(88,134 |
) |
Cash Flows from Operating Activities
The decrease in net cash used in operating activities was primarily due an increase in cash received from customers, partially offset by an increase in selling, general, and administrative expenses and outflows related to satisfying customer contracts and other working capital needs. The remainder of the activity in net cash used in operating activities is 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 was primarily driven by an increase in spending associated with the expansion of our manufacturing facilities and equipment in connection with our growth initiatives, partially offset by a decrease in outflows of $7.1
45
million associated with the development of company-owned satellites as we are no longer developing our Earth observation constellation.
Cash Flows from Financing Activities
During 2023, net cash provided by financing activities primarily consisted of $47.4 million of proceeds received allocated to the issuance of warrant and derivative instruments and $22.2 million of proceeds received allocated to the issuance of common stock. These increases were partially offset by $8.8 million related to the repayment of long-term debt, inclusive of prepayments on finance leases, and $6.2 million related to the payment of issuance costs related to our financing transactions.
During 2022, net cash provided by financing activities primarily consisted of $101.7 million of proceeds received allocated to the issuance of warrant and derivative instruments, $77.4 million of proceeds received allocated to the issuance of debt, $58.4 million of proceeds received from the Tailwind Two Merger and the PIPE Investment, and $14.8 million of proceeds received allocated to the issuance of common stock. These increases were partially offset by $49.5 million of payment of issuance costs related to our financing transactions and $32.9 million related to the repayment of long-term debt.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accompanying consolidated financial statements are prepared in accordance with GAAP, which requires us to select accounting policies and make estimates that affect amounts reported in the consolidated financial statements and the accompanying notes. Management’s estimates are based on the relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions.
The following discussion includes estimates prepared in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations, and are based on, among other things, estimates, assumptions, and judgments made by management that include inherent risks and uncertainties. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
Refer to the notes to the consolidated financial statements included in this Annual Report for further discussion of our significant accounting policies and the effect on our consolidated financial statements.
Revenue Recognition
The majority of our contracts with customers relate to the creation of specialized assets that do not have alternative use and entitle the us to an enforceable right to payment for performance completed to date. Accordingly, we generally recognize revenue over time using the cost-to-cost input method.
The recognition of revenue over time using the cost-to-cost input method is dependent on our EAC, which is subject to many variables and requires significant judgment. EAC represents the total estimated cost-at-completion and is comprised of direct material, direct labor and manufacturing overhead applicable to a performance obligation. There is a company-wide standard and periodic EAC process in which we review the progress and execution of outstanding performance obligations. As part of this process, we review information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include our judgments about the ability and cost to achieve the schedule (e.g., the number and type of milestone events), technical requirements (e.g., a newly-developed product versus a mature product) and other contract requirements. We must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), execution by subcontractors, the availability and timing of funding from customers and overhead cost rates, among other variables.
Based on the results of the periodic EAC process, any adjustments to revenue, cost of sales, and the related impact to gross profit are recognized on a cumulative catch-up basis in the period they become known. These adjustments may result from positive program performance, and may result in an increase in gross profit during the performance of individual performance obligations, if it is determined we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations or realizing related opportunities. Likewise, these adjustments may result in a decrease in gross profit if it is determined we will not be successful in mitigating these risks or realizing related opportunities. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations.
46
Some of our long-term contracts contain award fees, incentive fees, or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. Variable consideration is estimated at the most likely amount to which we expect to be entitled. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current, and forecasted) that is reasonably available. The unfunded portion of enforceable contracts are accounted for as variable consideration.
For contracts in which the U.S. Government is the ultimate customer, we follow U.S. Government procurement and accounting standards in assessing the allowability and the allocability of costs to contracts. Due to the significance of the judgments and estimation processes, it is likely that materially different amounts could be recorded if different assumptions were used or if the underlying circumstances were to change. We monitor the consistent application of its critical accounting policies and compliance with contract accounting. Business operations personnel conduct periodic contract status and performance reviews. When adjustments in estimated contract revenues or costs are determined, any material changes from prior estimates are included in earnings in the current period. Also, regular and recurring evaluations of contract cost, scheduling and technical matters are performed by personnel who are independent from the business operations personnel performing work under the contract. Costs incurred and allocated to contracts with the U.S. Government are subject to audit by the Defense Contract Audit Agency for compliance with regulatory standards.
When the estimated cost-at-completion exceeds the estimated revenue to be earned for a performance obligation, we record a reserve for the anticipated losses in the period the loss is determined.
Fair Value Measurements
The measurement of our share-based compensation awards and warrant and derivative financial instruments are based on the fair value of our common stock.
Prior to the Tailwind Two Merger, there was no public market for Legacy Terran Orbital’s common stock. As such, the estimated fair value of Legacy Terran Orbital’s common stock was subject to a significant level of estimation uncertainty. There were no estimates of the fair value of Legacy Terran Orbital’s common stock performed during 2022 prior to the Tailwind Two Merger.
Following the Tailwind Two Merger, there is a public market for Terran Orbital Corporation’s common stock and certain warrants and derivatives. Accordingly, the fair value of Terran Orbital Corporation’s common stock and applicable warrant and derivative financial instruments is based on the closing price on the relevant valuation date as reported on the NYSE, thereby eliminating the significant level of estimation uncertainty.
The fair values of certain warrants and derivatives were estimated using the Black-Scholes option-pricing model. In addition to the fair value of common stock, additional assumptions used in the Black-Scholes option-pricing model included:
The fair values of certain warrants and derivatives were estimated using models similar to that of the Black-Scholes option-pricing model and included additional assumptions such as the estimated counterparty credit spread based on an estimated credit rating of CCC and below.
The fair value of the Conversion Option Derivative was estimated as the difference in the fair value of the Convertible Notes due 2027 inclusive of the conversion option and the fair value of the Convertible Notes due 2027 exclusive of the conversion option. The fair value inclusive of the conversion option was estimated using a lattice model with the following significant inputs and assumptions: (i) time to maturity, (ii) coupon rate, (iii) discount rate based on an estimated credit rating of CCC and below, (iv) risk-free interest rate, (v) contractual features such as prepayment options, call premiums and default provisions, (vi) price per share of common stock, (vii) dividend yield, and (viii) estimated volatility. The fair value exclusive of the conversion option, along with certain other long-term debt instruments, was estimated using a discounted cash flow method using a discount rate based on an estimated credit rating of CCC and below plus a risk-free interest rate.
47
The grant date fair value of certain share-based compensation awards which included a market-based vesting condition was estimated using the Monte Carlo simulation model using the following significant inputs and assumptions as of the valuation date: (i) the price per share of common stock, (ii) the risk-free interest rate, (iii) the dividend yield, (iv) the estimated volatility, and (v) a discount for lack of marketability.
The assumptions underlying these valuations represented our best estimate, which involved inherent uncertainties and the application of judgment. If we had used different assumptions or estimates, the estimated fair value of the instruments described above could have been materially different.
Inventory
Inventory consists of parts and sub-assemblies that are ultimately consumed in the manufacturing and final assembly of satellites. When an item in inventory has been identified and incorporated into a specific satellite, the cost of the sub-assembly is charged to cost of sales in the consolidated statements of operations and comprehensive loss. Inventory is measured at the lower of cost or net realizable value. The cost of inventory includes direct material, direct labor and manufacturing overhead and is determined on a first-in-first-out basis. Inventory is presented net of an allowance for losses associated with excess and obsolete items, which is estimated based on our current knowledge with respect to inventory levels, planned production and customer demand.
Long-lived Assets Impairment
We review long-lived assets for impairment whenever events or changes in business circumstances indicate that the net carrying amount of an asset or asset group may not be fully recoverable. We group assets at the lowest level for which cash flows are separately identified. Recoverability is measured by a comparison of the net carrying amount of the asset group to its expected future undiscounted cash flows. If the expected future undiscounted cash flows of the asset group are less than its net carrying amount, an impairment loss is recognized based on the amount by which the net carrying amount exceeds the fair value less costs to sell. The calculation of the fair value less costs to sell of an asset group is based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.
Loss Contingencies
From time to time, we are subject to claims and lawsuits in the ordinary course of business, such as contractual disputes and employment matters. We are also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. We record accruals for losses that are probable and reasonably estimable. These accruals are based on a variety of factors such as judgment, probability of loss, opinions of internal and external legal counsel. Legal costs in connection with claims and lawsuits in the ordinary course of business are expensed as incurred.
ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 “Organization and Summary of Significant Accounting Policies” to the consolidated financial statements for further information about recent accounting pronouncements and adoptions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable to smaller reporting companies.
Item 8. Financial Statements and Supplementary Data.
The Report of Independent Registered Public Accounting Firm, our consolidated financial statements, and the accompanying notes to the consolidated financial statements that are filed as part of this Annual Report are listed under “Item 15. Exhibit and Financial Statement Schedules” and are set forth beginning on page F-1 immediately following the signature pages of this Annual Report.
48
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective due to the material weaknesses in our internal control over financial reporting described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result, we performed additional analysis as deemed necessary to ensure that our consolidated financial statements were prepared in accordance with GAAP. Accordingly, management believes that the consolidated financial statements included in this Annual Report present fairly in all material respects our financial position, results of operations, and cash flows for the periods presented.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined under Exchange Act Rules 13a-15(f) and 15d-15(f)). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment and those criteria, our management determined that our internal control over financial reporting was not effective as of December 31, 2023 because all of our previously disclosed material weaknesses in the Annual Report on Form 10-K filed with the SEC on March 23, 2023 (the “2022 Annual Report”), except for one, remain to be remediated.
Previously Identified Material Weaknesses in Internal Control over Financial Reporting
While we have made progress on our remediation plan, we require additional time to complete the design and implementation of our remediation plan and to demonstrate the effectiveness of our remediation efforts. As a result, our internal control over financial reporting continues to have the following material weaknesses:
49
Each of the material weaknesses described above could result in a misstatement of substantially all account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
We did not design and maintain effective controls over information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain:
The IT deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, management has determined these deficiencies in the aggregate constitute a material weakness.
Remediation Plan
We are actively working to remediate our identified material weaknesses. These remediation measures are ongoing and include (i) hiring additional accounting and IT personnel to bolster our technical reporting, transactional accounting, internal controls, and IT capabilities; (ii) designing and implementing controls to formalize roles and review responsibilities and designing and implementing formal controls over segregation of duties; (iii) designing and implementing formal processes, accounting policies, procedures, and controls supporting our financial close process, including completion of business performance reviews, creating standard balance sheet reconciliation templates, and journal entry controls; and (iv) designing and implementing IT general controls, including controls over change management, the review and update of user access rights and privileges, controls over data backups, and controls over program development efforts. We implemented a new enterprise resource planning system on January 1, 2023 in connection with our remediation efforts and we anticipate to implement additional modules and functionality during 2024 that will further assist in our remediation efforts.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended December 31, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting, other than changes related to the remediation of a material weakness as described below.
Remediation of a Previously Disclosed Material Weakness
As disclosed in the 2022 Annual Report, our management concluded that a material weakness existed regarding an ineffective risk assessment process that operates at a precise enough level to identify new and evolving risks of material misstatement in our financial statements as changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting. During 2023, we remediated the material weakness by implementing a new and comprehensive risk assessment process related to the identification, evaluation, and monitoring of (as well as the response to) risks of material misstatements, whether due to error or fraud, in our financial reporting, allowing management to implement new controls or
50
change existing controls that are responsive to new and evolving risks of material misstatement in our financial statements, exclusive of the material weaknesses described above.
Attestation Report of the Registered Public Accounting Firm
Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting for as long as we are an “emerging growth company” pursuant to the provisions of the JOBS Act.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
51
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item 10. “Directors, Executive Officers and Corporate Governance” is incorporated herein by reference from our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after our fiscal year end of December 31, 2023 (the “Proxy Statement”).
Item 11. Executive Compensation.
The information required by this Item 11 “Executive Compensation” is incorporated herein by reference from our Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, ” other than as set forth below as required by Item 201(d) and Item 403(c) of Regulation S-K, is incorporated herein by reference from our Proxy Statement.
Securities Authorized for Issuance Under Equity Compensation Plans
The Terran Orbital Corporation 2021 Omnibus Incentive Plan (the “2021 Plan”) provides for the issuance of share-based compensation awards to certain employees, officers, directors, and consultants. The 2021 Plan initially authorized the issuance of no more than 13,729,546 shares of Terran Orbital Corporation's common stock pursuant to share-based compensation awards under the 2021 Plan. Beginning on January 1, 2022, the number of authorized shares issuable under the 2021 Plan is subject to an annual increase on the first day of each calendar year during its term of the 2021 Plan, equal to the lesser of (i) 3% of the aggregate number of shares of Terran Orbital Corporation’s common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of Terran Orbital Corporation’s common stock as determined by our board of directors.
The following table provides information as of December 31, 2023 with respect to shares of our common stock issuable under the 2021 Plan:
|
|
|
|
|
Equity Compensation Plan Information |
|
|
|
|
|||
|
|
Number of securities to be issued upon exercise of outstanding options, warrants, and rights |
|
|
Weighted-average exercise price of outstanding options, warrants, and rights |
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
|
|||
Equity compensation plans approved by shareholders: |
|
|
|
|
|
|
|
|
|
|||
2021 Plan (1)(2)(3) |
|
|
23,578,719 |
|
|
$ |
0.05 |
|
|
|
4,514,920 |
|
|
|
|
|
|
|
|
|
|
|
|||
Equity compensation plans not approved by shareholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
23,578,719 |
|
|
|
|
|
|
4,514,920 |
|
(1) Column (a) includes (i) 15,941,115 of the 19,298,409 share-based compensation awards authorized by the 2021 Plan, (ii) 3,338,458 of the 5,440,438 share-based compensation awards authorized by the merger agreement governing the Tailwind Two Merger, and (iii) 4,299,146 share-based compensation awards of Legacy Terran Orbital that were converted into share-based compensation awards of Terran Orbital Corporation. The share-based compensation awards for (ii) and (iii) are incremental to, and do not count against, the authorized share pool of the 2021 Plan.
(2) Column (a) includes (i) 19,234,312 shares of common stock that may be issued upon the vesting and settlement of service-based restricted stock unit (”RSUs”), (ii) 3,338,458 shares of common stock that may be issued upon the vesting and settlement of market-based RSUs, and (iii) 1,005,949 shares of common stock that may be issued upon the exercise of service-based stock options.
(3) The weighted-average exercise price in column (b) is inclusive of outstanding RSUs, which result in the issuance of shares of common stock for no consideration. Excluding the RSUs, the weighted-average exercise price is equal to $1.10.
52
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 “Certain Relationships and Related Transactions, and Director Independence” is incorporated herein by reference from our Proxy Statement.
Item 14. Principal Accountant Fees and Services.
The information required by this Item 14 “Principal Accountant Fees and Services” is incorporated herein by reference from our Proxy Statement.
53
PART IV
Item 15. Exhibit and Financial Statement Schedules.
See Index to Consolidated Financial Statements appearing on page F-1.
All financial statement schedules are omitted because either they are not required, are included in the consolidated financial statements or notes thereto included elsewhere in this Annual Report, or are not material.
The exhibits listed on the accompanying Exhibit Index are filed/furnished or incorporated by reference as part of this Annual Report.
54
Exhibit Index
The information required by this Item is set forth on the exhibit index below.
55
|
|
|
|
|
|
|
8-K |
10.19 |
3/28/2022 |
||
|
8-K |
10.4 |
10/31/2022 |
||
|
8-K |
10.21 |
3/31/2022 |
||
|
8-K |
10.3 |
10/31/2022 |
||
|
10-Q |
10.10 |
5/16/2022 |
||
|
10-Q |
10.11 |
5/16/2022 |
||
|
10-Q |
10.12 |
5/16/2022 |
||
|
10-Q |
10.13 |
5/16/2022 |
||
|
10-Q |
10.14 |
5/16/2022 |
||
|
10-Q |
10.15 |
5/16/2022 |
||
|
10-Q |
10.16 |
5/16/2022 |
||
|
Pre-Tailwind Two Merger Form of Employment Agreement for Non-NEO Officers |
10-Q |
10.17 |
5/16/2022 |
|
|
Form of Terran Orbital Corporation 2021 Omnibus Incentive Plan Substitute Stock Option Agreement |
10-Q |
10.19 |
8/10/2022 |
|
|
10-Q |
10.20 |
8/10/2022 |
||
|
10-Q |
10.21 |
8/10/2022 |
||
|
10-Q |
10.22 |
8/10/2022 |
||
|
10-Q |
10.23 |
8/10/2022 |
||
|
10-Q |
10.24 |
8/10/2022 |
||
|
10-Q |
10.25 |
8/10/2022 |
||
|
10-Q |
10.26 |
8/10/2022 |
||
|
10-Q |
10.27 |
8/10/2022 |
56
|
10-Q |
10.28 |
8/10/2022 |
||
|
10-Q |
10.29 |
8/10/2022 |
||
|
10-Q |
4.3 |
5/16/2022 |
||
|
8-K |
10.1 |
7/6/2022 |
||
|
8-K |
10.2 |
7/6/2022 |
||
|
8-K |
10.1 |
10/31/2022 |
||
|
8-K |
10.2 |
10/31/2022 |
||
|
8-K |
10.3 |
10/31/2022 |
||
|
8-K |
10.5 |
10/31/2022 |
||
|
10-K |
10.37 |
3/22/2023 |
||
|
10-Q |
10.2 |
5/15/2023 |
||
|
8-K |
10.1 |
5/30/2023 |
||
|
Offer Letter, dated as of May 25, 2023, by and between Tony Gingiss and Terran Orbital Corporation |
10-Q |
10.2 |
8/14/2023 |
|
|
8-K |
10.1 |
9/20/2023 |
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
Terran Orbital Corporation Clawback Policy Relating to Recovery of Erroneously Awarded Compensation. |
|
|
|
|
101 |
|
XBRL Instant Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
104 |
|
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document |
|
|
|
57
* Filed herewith.
** Furnished herewith.
+ Indicates a management contract or compensatory plan.
# Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit.
Schedules and exhibits to this Exhibit omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
Item 16. Form 10-K Summary
None.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
TERRAN ORBITAL CORPORATION |
|
|
|
|
|
Date: April 1, 2024 |
|
By: |
/s/ Marc H. Bell |
|
|
|
Marc H. Bell |
|
|
|
Chairman and Chief Executive Officer |
59
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Marc Bell and James Black, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such individual in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or the individual’s substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name |
|
Title |
|
Date |
|
|
|
|
|
/s/ Marc H. Bell |
|
Chairman and Chief Executive Officer |
|
April 1, 2024 |
Marc H. Bell |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Mathieu Riffel |
|
Senior Vice President, Acting Chief Financial Officer and Corporate Controller |
|
April 1, 2024 |
Mathieu Riffel |
|
(Principal Financial Officer and Principal Accounting Officer) |
|
|
|
|
|
|
|
/s/ Daniel C. Staton |
|
Director |
|
April 1, 2024 |
Daniel C. Staton |
|
|
|
|
|
|
|
|
|
/s/ James LaChance |
|
Director |
|
April 1, 2024 |
James LaChance |
|
|
|
|
|
|
|
|
|
/s/ Thomas E. Manion |
|
Director |
|
April 1, 2024 |
Thomas E. Manion |
|
|
|
|
|
|
|
|
|
/s/ Richard Y. Newton III |
|
Director |
|
April 1, 2024 |
Richard Y. Newton III |
|
|
|
|
|
|
|
|
|
/s/ Tobi Petrocelli |
|
Director |
|
April 1, 2024 |
Tobi Petrocelli |
|
|
|
|
|
|
|
|
|
/s/ Douglas L. Raaberg |
|
Director |
|
April 1, 2024 |
Douglas L. Raaberg |
|
|
|
|
|
|
|
|
|
/s/ Stratton Sclavos |
|
Director |
|
April 1, 2024 |
Stratton Sclavos |
|
|
|
|
60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Terran Orbital Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Terran Orbital Corporation and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, shareholders’ deficit, and cash flows for each of the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended in conformity with U.S. generally accepted accounting principles.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has a history of recurring losses from operations and has debt agreements that contain a covenant requiring the Company to have Consolidated Adjusted EBITDA (as defined in the agreements) of not less than $0 by December 31, 2024. This raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
We have served as the Company’s auditor since 2021.
April 1, 2024
F-2
Terran Orbital Corporation
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
|
|
December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, net of allowance for credit losses of $ |
|
|
|
|
|
|
||
Contract assets, net |
|
|
|
|
|
|
||
Inventory |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property, plant, and equipment, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and shareholders' deficit: |
|
|
|
|
|
|
||
Current portion of long-term debt |
|
$ |
|
|
$ |
|
||
Accounts payable |
|
|
|
|
|
|
||
Contract liabilities |
|
|
|
|
|
|
||
Reserve for anticipated losses on contracts |
|
|
|
|
|
|
||
Accrued expenses and other current liabilities |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
||
Warrant and derivative liabilities |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Shareholders' deficit: |
|
|
|
|
|
|
||
Preferred stock - authorized |
|
|
|
|
|
|
||
Common stock - authorized |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive income |
|
|
|
|
|
|
||
Total shareholders' deficit |
|
|
( |
) |
|
|
( |
) |
Total liabilities and shareholders' deficit |
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Terran Orbital Corporation
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
|
|
Years Ended December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Revenue |
|
$ |
|
|
$ |
|
||
Cost of sales |
|
|
|
|
|
|
||
Gross profit (loss) |
|
|
|
|
|
( |
) |
|
Selling, general, and administrative expenses |
|
|
|
|
|
|
||
Loss on impairment |
|
|
- |
|
|
|
|
|
Loss from operations |
|
|
( |
) |
|
|
( |
) |
Interest expense, net |
|
|
|
|
|
|
||
Loss on extinguishment of debt |
|
|
|
|
|
|
||
Change in fair value of warrant and derivative liabilities |
|
|
( |
) |
|
|
( |
) |
Other (income) expense |
|
|
( |
) |
|
|
|
|
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
Provision for income taxes |
|
|
|
|
|
|
||
Net loss |
|
|
( |
) |
|
|
( |
) |
Other comprehensive income, net of tax: |
|
|
|
|
|
|
||
Foreign currency translation adjustments |
|
|
|
|
|
|
||
Total comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Weighted-average shares outstanding |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Net loss per share |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Terran Orbital Corporation
(In thousands, except share amounts)
|
Mezzanine Equity |
|
|
|
Shareholders' Deficit |
|
||||||||||||||||||||||||||
|
Redeemable Convertible Preferred Stock |
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated Other |
|
|
Total |
|
||||||||
Balance as of December 31, 2021 |
|
|
|
$ |
|
|
|
|
|
|
$ |
- |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||||
Retrospective application of reverse recapitalization |
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|||
Balance as of December 31, 2021 - Recast |
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|||||
Adoption of accounting standard, net of tax |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Net loss |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Other comprehensive income, net of tax |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Conversion of redeemable convertible preferred stock into common stock |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Net settlement of liability-classified warrants into common stock |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Net settlement of equity-classified warrants into common stock |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
Issuance of common stock in connection with the Tailwind Two Merger and PIPE Investment, net of issuance costs |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Issuance of common stock in connection with financing transactions, net of issuance costs |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Reclassification of liability-classified warrants and derivatives to equity-classified |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Issuance of contingently issuable common stock |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Issuance of common stock under the Committed Equity Facility |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Share-based compensation |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Settlement of vested restricted stock units, net of net share settlements |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Exercise of stock options |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Other |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Balance as of December 31, 2022 |
|
- |
|
|
$ |
- |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||||
Net loss |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Other comprehensive loss, net of tax |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Issuance of common stock, net of issuance costs |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Issuance of warrants, net of issuance costs |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Share-based compensation |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Settlement of vested restricted stock units |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Exercise of equity-classified warrants |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Exercise of stock options |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Balance as of December 31, 2023 |
|
- |
|
|
$ |
- |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
TERRAN ORBITAL CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
|
|
Years Ended December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Non-cash interest expense |
|
|
|
|
|
|
||
Share-based compensation expense |
|
|
|
|
|
|
||
Provision for losses on receivables and inventory |
|
|
|
|
|
|
||
Loss on impairment |
|
|
- |
|
|
|
|
|
Loss on extinguishment of debt |
|
|
- |
|
|
|
|
|
Change in fair value of warrant and derivative liabilities |
|
|
( |
) |
|
|
( |
) |
Amortization of operating right-of-use assets |
|
|
|
|
|
|
||
Other non-cash, net |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( |
) |
|
|
|
|
Contract assets |
|
|
( |
) |
|
|
( |
) |
Inventory |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
( |
) |
|
|
|
|
Contract liabilities |
|
|
|
|
|
|
||
Reserve for anticipated losses on contracts |
|
|
( |
) |
|
|
|
|
Accrued interest |
|
|
|
|
|
( |
) |
|
Other, net |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of property, plant, and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from long-term debt |
|
|
|
|
|
|
||
Proceeds from warrants and derivatives |
|
|
|
|
|
|
||
Proceeds from Tailwind Two Merger and PIPE Investment |
|
|
- |
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
|
|
|
|
||
Proceeds from issuance of common stock under the Committed Equity Facility |
|
|
- |
|
|
|
|
|
Repayment of long-term debt |
|
|
( |
) |
|
|
( |
) |
Payment of issuance costs |
|
|
( |
) |
|
|
( |
) |
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Exercise of equity-classified warrants |
|
|
|
|
|
- |
|
|
Payment of withholding taxes on net share settlements |
|
|
- |
|
|
|
( |
) |
Net cash provided by financing activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Effect of exchange rate fluctuations on cash and cash equivalents |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Net (decrease) increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Interest paid, net of amounts capitalized |
|
|
|
|
|
|
||
Interest capitalized to property, plant, and equipment not yet paid |
|
|
- |
|
|
|
|
|
Purchases of property, plant, and equipment not yet paid |
|
|
|
|
|
|
||
Reclassification of property, plant, and equipment to inventory and prepaid expenses and other current assets |
|
|
- |
|
|
|
|
|
Depreciation and amortization capitalized to construction-in-process |
|
|
- |
|
|
|
|
|
Issuance costs not yet paid |
|
|
|
|
|
- |
|
|
Non-cash exchange and extinguishment of long-term debt |
|
|
- |
|
|
|
|
|
Conversion of redeemable convertible preferred stock into common stock |
|
|
- |
|
|
|
|
|
Net settlement of liability-classified warrants into common stock |
|
|
- |
|
|
|
|
|
Net settlement of equity-classified warrants into common stock |
|
|
- |
|
|
|
( |
) |
Non-cash issuance of common stock in connection with PIPE Investment |
|
|
- |
|
|
|
|
|
Non-cash issuance of common stock in connection with financing transactions |
|
|
- |
|
|
|
|
|
Reclassification of liability-classified warrants and derivatives to equity-classified |
|
|
- |
|
|
|
|
|
Issuance of contingently issuable common stock |
|
|
- |
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
Note 1 Organization and Summary of Significant Accounting Policies
Organization and Business
Terran Orbital Corporation, formerly known as Tailwind Two Acquisition Corp. (“Tailwind Two”), together with its wholly-owned subsidiaries (the “Company”), is a leading manufacturer of satellite products primarily serving the aerospace and defense industries. The Company provides end-to-end satellite solutions by combining satellite design, production, launch planning, mission operations, and on-orbit support to meet the needs of its military, civil, and commercial customers. The Company has a foreign subsidiary based in Torino, Italy.
Tailwind Two Merger
Prior to
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
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 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
In connection with the Tailwind Two Merger, approximately $
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.
F-7
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
Basis of Presentation and Significant Accounting Policies
The preparation of the consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires the Company to select accounting policies and make estimates that affect amounts reported in the consolidated financial statements and the accompanying notes. The Company’s estimates are based on the relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions.
The consolidated financial statements have been prepared in United States (“U.S.”) dollars in accordance with GAAP and include the accounts of Terran Orbital Corporation and its subsidiaries. All intercompany transactions have been eliminated. Certain prior period amounts have been reclassified to conform with current period presentation.
Information on select accounting policies and methods not discussed below are included in the respective footnotes that follow.
Going Concern
The consolidated financial statements have been prepared in accordance with GAAP assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, substantial doubt about the Company’s ability to continue as a going concern exists.
As disclosed in Note 5 “Debt,” the Company’s primary corporate debt agreements contain a covenant requiring the Company’s Consolidated Adjusted EBITDA (as defined in the underlying note agreements), on a trailing twelve month basis, to not be less than $
There is uncertainty regarding the Company’s ability to comply with the EBITDA Financial Covenant for at least twelve months from the issuance of these consolidated financial statements. To address the potential future breach of the EBITDA Financial Covenant, the Company is executing on its business plan to improve operating results. Additionally, the Company is in active discussions with funding sources to have access to additional sources of qualified equity issuances in the event needed to extend the EBITDA Financial Covenant beyond December 31, 2024. Furthermore, the Company could request waivers from existing creditors to waive the EBITDA Financial Covenant to the extent necessary. The Company cannot provide assurances that it will be successful in improving operating results, obtaining new financing, and/or receiving waivers to the EBITDA Financial Covenant. The Company’s inability to improve operating results, raise capital through qualified equity issuances, or receive waivers may negatively impact its compliance with the EBITDA Financial Covenant, which may have a material adverse impact on the Company’s financial condition.
The consolidated financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern.
Segments
The Company evaluates and reports its segment information based on the manner in which its Chief Executive Officer, who is the chief operating decision maker (the “CODM”), evaluates performance and allocates resources. Accordingly, the Company reports its results as a operating and reportable segment on a consolidated basis.
Foreign Currency Translation and Transaction Gains and Losses
The Company’s reporting currency is the U.S. dollar. The financial statements of the Company’s foreign subsidiary are translated from its functional currency, which is the Euro, into U.S. dollars using the foreign exchange rates applicable to the dates of the financial statements. Assets and liabilities are translated using the end-of-period spot foreign exchange rate. Revenue, expenses and cash flows are translated at the average foreign exchange rate for each period. Equity accounts are translated at historical foreign exchange rates.
F-8
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
The effects of these foreign currency translation adjustments are reported as a component of accumulated other comprehensive income (loss) (“AOCI”) in the consolidated balance sheets.
For any transaction that is denominated in a currency different from the entity’s functional currency, a gain or loss is recognized in other (income) expense in the consolidated statements of operations and comprehensive loss based on the difference between the foreign exchange rate at the transaction date and the foreign exchange rate at the transaction settlement date or end-of-period rate, if unsettled.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less from the time of purchase.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of the dates presented:
|
|
December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Deferred equity issuance costs |
|
$ |
|
|
$ |
|
||
Deferred cost of sales |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following as of the dates presented:
|
|
December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Payroll-related accruals |
|
$ |
|
|
$ |
|
||
Current operating lease liabilities |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
Research and Development
Research and development includes materials, labor, and overhead attributable to the development of new products and solutions and significant improvements to existing products and solutions. Research and development costs are expensed as incurred and recognized in selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss. Research and development expense was $
Retirement Plans
The Company maintains a qualified defined contribution plan for U.S. employees in the form of a 401(k) plan. Employee participants are permitted to make contributions on a before-tax or after-tax basis. The Company’s contributions to the plan totaled approximately $
In addition, the Company maintains a defined contribution plan for international employees. The Company’s contributions to the plan were not material during 2023 and 2022.
Concentration of Credit Risks
F-9
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and contract assets.
The majority of the Company’s cash and cash equivalents are held at major financial institutions. Certain account balances exceed the Federal Deposit Insurance Corporation insurance limits of $
Concentrations of credit risk with respect to accounts receivable and contract assets are limited because a large portion of our balances are related to (i) reputable companies with significant financial resources or (ii) customer programs in which the U.S. Government is the ultimate customer.
A small number of customers and contracts historically have represented a significant portion of the Company's consolidated revenue. Lockheed Martin Corporation (“Lockheed Martin”) represented approximately
The table below presents individual customers who accounted for more than 10% of the Company’s combined accounts receivable, net of allowance for credit losses, and contract assets, net of allowance for credit losses, as of the dates presented:
|
|
December 31, |
||
|
|
2023 |
|
2022 |
Customer A |
|
|
||
Customer B |
|
|
||
Customer C |
|
|
||
Customer D |
|
|
||
Total |
|
|
Recently Issued Accounting Pronouncements
Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, improves reportable segment disclosure requirements primarily by enhancing disclosures about significant segment expenses. The guidance, among other requirements, also enhances interim disclosures, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and provides new segment disclosure requirements for entities with a single reportable segment. The guidance is effective for annual periods beginning after December 15, 2023 and interim periods within annual periods beginning after December 15, 2024. This guidance should be applied retrospectively to all periods presented. Early adoption is permitted. The Company is currently evaluating the impact of this guidance.
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, focuses on improvements to income tax disclosures, primarily related to the rate reconciliation and income tax paid information. The guidance also includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective for annual periods beginning after December 15, 2024 and interim periods within annual periods beginning after December 15, 2025. This guidance should be applied prospectively, with retrospective application also a permitted option. Early adoption is permitted. The Company is currently evaluating the impact of this guidance.
Note 2 Revenue and Receivables
The Company applies the following five steps in order to recognize revenue from contracts with customers: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.
F-10
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
At contract inception, the Company assesses whether the goods or services promised within the contract represent a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation on a relative basis using the best estimate of the stand-alone selling price of each performance obligation, which is estimated using the expected-cost-plus-margin approach. Generally, the Company’s contracts with customers are structured such that the customer has the option to purchase additional goods or services. Customer options to purchase additional goods or services do not represent a separate performance obligation as the prices for such options reflect the stand-alone selling prices for the additional goods or services. Contracts are generally priced on a firm-fixed price basis, cost-plus fee basis, or time and materials basis.
The Company recognizes the transaction price allocated to the respective performance obligation as revenue as the performance obligation is satisfied. The majority of the Company's contracts with customers relate to the creation of specialized assets that do not have alternative use and entitle the Company to an enforceable right to payment for performance completed to date. Accordingly, the Company generally measures progress towards the satisfaction of a performance obligation over time using the cost-to-cost input method.
Payments for costs not yet incurred or for costs incurred in anticipation of providing a good or service under a contract with a customer in the future are included in prepaid expenses and other current assets on the consolidated balance sheets.
Estimate-at-Completion (“EAC”)
The recognition of revenue over time using the cost-to-cost input method is dependent on the Company’s cost estimate-at-completion (“EAC”), which is subject to many variables and requires significant judgment. EAC represents the total estimated cost-at-completion and is comprised of direct material, direct labor and manufacturing overhead applicable to a performance obligation. There is a company-wide standard and periodic EAC process in which the Company reviews the progress and execution of outstanding performance obligations. As part of this process, the Company reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include the Company’s judgment about the ability and cost to achieve the schedule (e.g., the number and type of milestone events), technical requirements (e.g., a newly-developed product versus a mature product) and other contract requirements. The Company must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), execution by subcontractors, the availability and timing of funding from customers and overhead cost rates, among other variables.
Based on the results of the periodic EAC process, any adjustments to revenue, cost of sales, and the related impact to gross profit are recognized on a cumulative catch-up basis in the period they become known. These adjustments may result from positive program performance, and may result in an increase in gross profit during the performance of individual performance obligations, if it is determined the Company will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations or realizing related opportunities. Likewise, these adjustments may result in a decrease in gross profit if it is determined the Company will not be successful in mitigating these risks or realizing related opportunities. A significant change in one or more of these estimates could affect the profitability of one or more of the Company’s performance obligations.
Contract modifications often relate to changes in contract specifications and requirements. Contract modifications are considered to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the Company’s contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue either as an increase in or a reduction of revenue on a cumulative catch-up basis.
Some of the Company’s long-term contracts contain award fees, incentive fees, or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. Variable consideration is estimated at the most likely amount to which the Company is expected to be entitled. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are
F-11
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
based largely on an assessment of the Company’s anticipated performance and all information (historical, current, and forecasted) that is reasonably available. The unfunded portion of enforceable contracts are accounted for as variable consideration.
For contracts in which the U.S. Government is the ultimate customer, the Company follows U.S. Government procurement and accounting standards in assessing the allowability and the allocability of costs to contracts. Due to the significance of the judgments and estimation processes, it is likely that materially different amounts could be recorded if different assumptions were used or if the underlying circumstances were to change. The Company monitors the consistent application of its critical accounting policies and compliance with contract accounting. Business operations personnel conduct periodic contract status and performance reviews. When adjustments in estimated contract revenues or costs are determined, any material changes from prior estimates are included in earnings in the current period. Also, regular and recurring evaluations of contract cost, scheduling and technical matters are performed by Company personnel who are independent from the business operations personnel performing work under the contract. Costs incurred and allocated to contracts with the U.S. Government are subject to audit by the Defense Contract Audit Agency for compliance with regulatory standards.
Disaggregation of Revenue
Below is a summary of the Company’s accounting by type of revenue:
The following tables present the Company’s disaggregated revenue by offering and customer type for the periods presented:
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Years Ended December 31, |
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(in thousands) |
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2023 |
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2022 |
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Mission support |
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$ |
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$ |
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Launch support |
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Operations |
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Studies, design and other |
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Revenue |
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$ |
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$ |
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F-12
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
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Years Ended December 31, |
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(in thousands) |
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2023 |
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2022 |
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U.S. Government contracts |
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Fixed price |
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$ |
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$ |
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Cost-plus fee and other |
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Foreign government contracts |
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Fixed price |
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Commercial contracts |
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Fixed price, U.S. |
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Fixed price, International |
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Cost-plus fee and other, U.S. |
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Cost-plus fee and other, International |
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- |
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Revenue |
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$ |
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$ |
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Remaining Performance Obligations
Revenue from remaining performance obligations is calculated as the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period on executed contracts, including both funded (firm orders for which funding is authorized and appropriated) and unfunded portions of such contracts. The unfunded portion of enforceable contracts is accounted for as variable consideration and is reported at the estimated most likely amount to which the Company is expected to be entitled. Remaining performance obligations do not include unexercised contract options and potential orders under indefinite delivery/indefinite quantity contracts.
As of December 31, 2023, the Company had approximately $
During February 2023, the Company entered into an agreement with Rivada Space Networks GmbH (“Rivada”) providing for the development, production, and operation of
Contract Assets and Contract Liabilities
For each of the Company’s contracts with customers, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period.
Fixed-price contracts are typically billed to the customer either using progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance-based payments, which are based upon the achievement of specific, measurable events or accomplishments defined and valued at contract inception. Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis.
F-13
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
Contract assets
Contract assets relate to instances in which revenue recognized exceeds amounts billed to customers and are reclassified to accounts receivable when the Company has an unconditional right to the consideration and bills the customer. Contract assets are classified as current and non-current based on the estimated timing in which the Company will bill the customer and are not considered to include a significant financing component as the payment terms are intended to protect the customer in the event the Company does not perform on its obligations under the contract.
The Company records an allowance for credit losses against its contract assets for amounts not expected to be recovered. The allowance is recognized at inception and is reassessed each reporting period. The allowance for credit losses on contract assets was not material for the periods presented.
Contract assets from products and services for which the U.S. Government is the ultimate customer was $
The following is a summary of contract assets, net, recognized in the consolidated balance sheets as of the dates presented:
|
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December 31, |
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|||||
(in thousands) |
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2023 |
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2022 |
|
||
Contract assets, gross |
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$ |
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$ |
|
||
Allowance for credit losses |
|
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( |
) |
|
|
( |
) |
Contract assets, net |
|
$ |
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|
$ |
|
As of December 31, 2023 and 2022, all contract assets were classified as current assets.
There were
Contract liabilities
Contract liabilities relate to advance payments and billings in excess of revenue recognized and are recognized into revenue as the Company satisfies the underlying performance obligations. Contract liabilities are classified as current and non-current based on the estimated timing in which the Company will satisfy the underlying performance obligations and are not considered to include a significant financing component as they are generally utilized to procure materials needed to satisfy a performance obligation or are used to ensure the customer meets contractual requirements.
As of December 31, 2023 and 2022, substantially all contract liabilities were classified as current liabilities.
During 2023 and 2022, the Company recognized revenue of $
Accounts Receivable
Accounts receivable represent unconditional rights to consideration due from customers in the ordinary course of business and are generally due in one year or less. Accounts receivable are recorded at amortized cost less an allowance for credit losses, which is based on the Company’s assessment of the collectability of its accounts receivable. The Company reviews the adequacy of the allowance for credit losses by considering the age of each outstanding invoice and the collection history of each customer. Accounts receivable that are deemed uncollectible are charged against the allowance for credit losses when identified.
Accounts receivable from products and services for which the U.S. Government is the ultimate customer was $
The following table presents changes in the allowance for credit losses for the periods presented:
F-14
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
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Years Ended December 31, |
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|||||
(in thousands) |
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2023 |
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2022 |
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Beginning balance |
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$ |
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$ |
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Adoption of CECL |
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- |
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Provision for credit losses |
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Write-offs |
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( |
) |
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( |
) |
Ending balance |
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$ |
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$ |
|
Reserve for Anticipated Losses on Contracts
When the estimated cost-at-completion exceeds the estimated revenue to be earned for a performance obligation, the Company records a reserve for the anticipated losses in the period the loss is determined. The reserve for anticipated losses on contracts is presented as a current liability in the consolidated balance sheets and as a component of cost of sales in the consolidated statements of operations and comprehensive loss in accordance with Accounting Standards Codification (“ASC”) 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts.
The Company recorded a decrease in cost of sales related to the reserve for anticipated losses on contracts of $
Note 3 Inventory
Inventory consists of parts and sub-assemblies that are ultimately consumed in the manufacturing and final assembly of satellites. When an item in inventory has been identified and incorporated into a specific satellite, the cost of the sub-assembly is charged to cost of sales in the consolidated statements of operations and comprehensive loss. Inventory is measured at the lower of cost or net realizable value. The cost of inventory includes direct material, direct labor, and manufacturing overhead and is determined on a first-in-first-out basis. Inventory is presented net of an allowance for losses associated with excess and obsolete items, which is estimated based on the Company’s current knowledge with respect to inventory levels, planned production, and customer demand.
The components of inventory as of the dates presented were as follows:
|
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December 31, |
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|||||
(in thousands) |
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2023 |
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2022 |
|
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Raw materials |
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$ |
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$ |
|
||
Work-in-process |
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Total inventory |
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$ |
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$ |
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Note 4 Property, Plant, and Equipment, net
Property, plant, and equipment, net is stated at historical cost less accumulated depreciation. Cost for company-owned satellite assets includes amounts related to design, construction, launch, and commission. Cost for ground stations includes amounts related to construction and testing. Interest is capitalized on certain qualifying assets that take a substantial period of time to develop for their intended use.
Machinery and equipment |
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|
Satellites |
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|
Ground station equipment |
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|
Office equipment and furniture |
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Computer equipment and software |
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Leasehold improvements |
|
F-15
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
The determination of the estimated useful life of company-owned satellites involves an analysis that considers design life, random part failure probabilities, expected component degradation and cycle life, predicted fuel consumption and experience with satellite parts, vendors and similar assets.
Depreciation expense is included in cost of sales and selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss based on whether the underlying asset is used as part of manufacturing overheard or administrative overhead, respectively. Additionally, a portion of depreciation and amortization expense may be capitalized to inventory as part of manufacturing overhead. Depreciation expense was $
Repairs and maintenance expenditures are expensed when incurred.
The gross carrying amount, accumulated depreciation, and net carrying amount of property, plant, and equipment, net as of the dates presented were as follows:
|
|
December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Machinery and equipment |
|
$ |
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|
$ |
|
||
Satellites |
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Ground station equipment |
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Office equipment and furniture |
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Software |
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Leasehold improvements |
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Construction-in-process |
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Property, plant, and equipment, gross |
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|
||
Accumulated depreciation |
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|
( |
) |
|
|
( |
) |
Property, plant, and equipment, net |
|
$ |
|
|
$ |
|
Construction-in-process primarily includes machinery, leasehold improvements, and ground station equipment not yet placed into service. The Company capitalized $
The Company reviews property, plant, and equipment, net for impairment whenever events or changes in business circumstances indicate that the net carrying amount of an asset or asset group may not be fully recoverable. The Company groups assets at the lowest level for which cash flows are separately identified. Recoverability is measured by a comparison of the net carrying amount of the asset group to its expected future undiscounted cash flows. If the expected future undiscounted cash flows of the asset group are less than its net carrying amount, an impairment loss is recognized based on the amount by which the net carrying amount exceeds the fair value less costs to sell. The calculation of the fair value less costs to sell of an asset group is based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.
Loss on Impairment
There were
During 2022, the Company recorded a loss on impairment of $
F-16
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
Note 5 Debt
Long-term debt (including accrued interest paid-in-kind) as of the presented periods was comprised of the following:
(in thousands) |
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December 31, |
||
Description |
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Issued |
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Maturity |
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Interest Rate |
|
Interest Payable |
|
2023 |
|
2022 |
Francisco Partners Facility |
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$ |
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$ |
||||
Lockheed Martin Rollover Debt |
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||||||
Beach Point Rollover Debt |
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||||||
Convertible Notes due 2027 |
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PIPE Investment Obligation |
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N/A |
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N/A |
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||||
Equipment financings(1) |
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Finance leases(2) |
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Unamortized deferred issuance costs |
( |
|
( |
|||||||||
Unamortized discount on debt |
( |
|
( |
|||||||||
Total debt |
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Current portion of long-term debt |
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|||||||||||
Long-term debt |
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$ |
|
$ |
(1) -
(2) -
Francisco Partners Facility
On November 24, 2021 (the “FP NPA Closing Date”), the Company entered into a note purchase agreement (the “FP Note Purchase Agreement”) for the issuance and sale of senior secured notes with an aggregate principal amount of up to $
On November 24, 2021, the Pre-Combination Notes were issued net of a $
On March 9, 2022, the Company amended the FP Note Purchase Agreement to, among other things, (i) increase the total principal amount of senior secured notes that may be issued under the FP Note Purchase Agreement to up to $
The Delayed Draw Notes were issued net of a $
On March 25, 2022, the Company 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 FP Note Purchase Agreement to up to $
F-17
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
Upon closing of the Tailwind Two Merger, the Company issued $
In connection with the Convertible Note and Warrant Purchase Agreement (as defined below), the FP Note Purchase Agreement was amended to, to among other things, provide consent for the Company to enter into the Convertible Note and Warrant Purchase Agreement as well as a First Lien/Second Lien Intercreditor Agreement to govern the relative priorities of the security interests and certain other matters related to the Company’s outstanding debt. In addition, the amendment made certain changes to the FP Note Purchase Agreement to conform to the language of the Convertible Note and Warrant Purchase Agreement, including language in the financial covenants.
Senior secured notes issued under the Francisco Partners Facility bear interest at a rate of
The Francisco Partners Facility requires certain mandatory prepayments with (i)
Lockheed Martin Rollover Debt and Beach Point Rollover Debt
On March 8, 2021, the Company issued $
On November 24, 2021, the Senior Secured Notes due 2026 note purchase agreement was amended to provide consent to the issuance of the Pre-Combination Notes and to align the terms of cash interest payments with those of the FP Note Purchase Agreement. In addition, Lockheed Martin and Beach Point Capital (“Beach Point”) each agreed to, at their option, (a) exchange up to $
On March 25, 2022, 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, resulting in a loss on extinguishment of debt of $
F-18
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
payment of $
On March 25, 2022, the Senior Secured Notes due 2026 note purchase agreement was amended to, among other things, (i) set the Rollover Debt for Lockheed Martin to $
The Company partially extinguished Lockheed Martin's portion of the Senior Secured Notes due 2026, resulting in a gain on extinguishment of debt of $
In connection with the PIPE Investment and the amendment on March 25, 2022, Beach Point agreed to, in substance, exchange a portion of its 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
In connection with the Convertible Note and Warrant Purchase Agreement, the Lockheed Martin Rollover Debt and Beach Point Rollover Debt agreements were amended to, to among other things, provide consent for the Company to enter into the Convertible Note and Warrant Purchase Agreement as well as a First Lien/Second Lien Intercreditor Agreement to govern the relative priorities of the security interests and certain other matters related to the Company’s outstanding debt. In addition, the amendment made certain changes to the Lockheed Martin Rollover Debt and Beach Point Rollover Debt to conform to the language of the Convertible Note and Warrant Purchase Agreement, including language in the financial covenants.
Prior to the March 25, 2022 amendment, the Senior Secured Notes due 2026 bore interest at the rate of
Convertible Notes due 2027
On October 31, 2022, the Company issued and sold second lien secured convertible notes in an aggregate principal amount of $
The Convertible Notes due 2027 bears interest at
F-19
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
the election of the Company subject to certain conditions. As of December 31, 2023 and 2022, the amount of contractual paid-in-kind interest that was included in the outstanding principal balance of the Convertible Notes due 2027 was approximately $
The Convertible Notes due 2027 are convertible by their holders at any time prior to maturity into the number of shares of the Company’s common stock on the date of conversion obtained by dividing (i) the outstanding principal amount of the Convertible Notes due 2027, plus any accrued but unpaid interest, by (ii) a conversion price equal to $
On or after May 1, 2024, the Company may redeem, at its option, for cash, all or any portion of the Convertible Notes due 2027, at a redemption price equal to
The agreement relating to the Convertible Notes due 2027 (and the agreements relating to the Francisco Partners Facility, Lockheed Martin Rollover Debt, and Beach Point Rollover Debt, collectively with the agreement relating to the Convertible Notes due 2027, the “Debt Agreements”) include financial covenants that require that as of the last day of each fiscal quarter, the Company must have an aggregate amount of unrestricted cash and cash equivalents of the greater of $
In connection with the Convertible Note and Warrant Purchase Agreement, the Company entered a First Lien/Second Lien Intercreditor Agreement to govern the relative priorities of the security interests and certain other matters related to the Company’s outstanding debt. The Convertible Notes due 2027 are secured by a second lien on substantially all of the Company’s assets.
PIPE Investment Obligation
An affiliate of a director and shareholder of the Company invested $
The Insider PIPE Investment resulted in proceeds received of $
In January 2024, the Company paid $
Other
Interest on the Company's long-term debt was $
F-20
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
thousand and $
As of December 31, 2023, the aggregate annual maturities of debt, excluding finance leases, were as follows:
(in thousands) |
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2024 |
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$ |
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2025 |
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2026 |
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2027 |
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2028 |
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Thereafter |
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Total debt maturities |
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Less: Unamortized deferred issuance costs |
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( |
) |
Less: Unamortized discount on debt |
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( |
) |
Plus: Finance leases |
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Total debt |
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Less: Current maturities of long-term debt |
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Long-term debt |
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$ |
|
Note 6 Warrants and Derivatives
The Company’s warrants and derivatives consist of freestanding financial instruments and embedded derivatives requiring bifurcation issued in connection with the Company’s debt and equity financing transactions. The Company does not have any derivatives designated as hedging instruments.
The Company evaluates whether each warrant or derivative represents a liability-classified financial instrument within the scope of ASC 480, or either a liability-classified or equity-classified financial instrument within the scope of ASC 815, Derivatives and Hedging.
Warrants and derivatives classified as liabilities are recognized at fair value in the consolidated balance sheets and are remeasured at fair value as of each reporting period with changes in fair value recorded in the consolidated statements of operations and comprehensive loss. Warrants and derivatives classified as equity are recognized at fair value, or relative fair value if issued with other financial instruments, in additional paid-in capital in the consolidated balance sheets and are not subsequently remeasured.
Liability-classified Warrants and Derivatives
The fair values of liability-classified warrants and derivatives recorded in warrant and derivative liabilities on the consolidated balance sheets as of the presented periods were as follows:
F-21
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
|
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December 31, |
|
|||||||
(in thousands, except share and per share amounts) |
|
Number of Issuable Shares as of |
|
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Issuance |
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Maturity |
|
Exercise/Conversion Price |
|
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2023 |
|
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2022 |
|
||||
Public Warrants |
|
|
|
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|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Private Placement Warrants |
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FP Combination Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
2027 Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Conversion Option Derivative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
The changes in fair value of liability-classified warrants and derivatives during the periods presented were as follows:
(in thousands) |
|
Current Warrant |
|
|
Warrant and Derivative |
|
|
Total |
|
|||
Balance as of December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Initial recognition from Tailwind Two Merger |
|
|
- |
|
|
|
|
|
|
|
||
Initial recognition as discount on debt |
|
|
- |
|
|
|
|
|
|
|
||
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Reclassification of current warrant and derivative liabilities to warrant and derivative liabilities |
|
|
( |
) |
|
|
|
|
|
- |
|
|
Reclassification of liability-classified warrants and derivatives to equity-classified |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Net settlement of liability-classified warrants into common stock |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Issuance of contingently issuable shares |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Balance as of December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Change in fair value of warrant and derivative liabilities |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balance as of December 31, 2023 |
|
$ |
- |
|
|
$ |
|
|
$ |
|
Inducement Warrants
In connection with the issuance of the Senior Secured Notes due 2026, the Company issued warrants to the note holders to purchase
In connection with the Tailwind Two Merger, holders of the Inducement Warrants were entitled to receive an additional
The Company recorded a loss on change in fair value of the Inducement Warrants of $
Francisco Partners Warrants and Derivatives
F-22
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
As part of the Francisco Partners Facility, the Company issued warrants to Francisco Partners to purchase
As additional consideration for the Francisco Partners Facility, the Company committed to the issuance of (i) an equity grant package equal to
Upon consummation of the Tailwind Two Merger, approximately
In addition, upon consummation of the Tailwind Two Merger, approximately
Pre-Combination and Combination Warrants and Derivatives
Upon funding of the Pre-Combination Notes, and in connection with the amendment to the Senior Secured Notes due 2026 note purchase agreement, the Company issued warrants to each of Lockheed Martin and Beach Point to purchase
In connection with the amendment to the Senior Secured Notes due 2026 in 2021, the Company committed to issue to each of Lockheed Martin and Beach Point (i) an equity grant package equal to
Upon consummation of the Tailwind Two Merger, approximately
In addition, upon consummation of the Tailwind Two Merger, approximately
Public Warrants and Private Placement Warrants
As part of the Tailwind Two Merger, the Company assumed outstanding warrants giving the holders the right to purchase an aggregate of
F-23
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
exercisable on April 24, 2022, 30 days after the completion of the Tailwind Two Merger, and will expire
The Company may redeem the outstanding Public Warrants when the price per share of the Company’s common stock equals or exceeds $
In addition, the Company may redeem the outstanding Public Warrants when the price per share of the Company’s common stock equals or exceeds $
In addition, as part of the Tailwind Two Merger, the Company assumed outstanding warrants that were previously issued in a private placement and that give their holders the right to purchase an aggregate of
During 2022, the initial purchasers of
The Company recorded gains on change in fair value of the Public Warrants and Private Placement Warrants of $
2027 Warrants
In connection with the Convertible Note and Warrant Purchase Agreement, the Company issued warrants to Lockheed Martin to purchase
F-24
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
The issuance costs related to the 2027 Warrants totaled approximately $
Conversion Option Derivative
The Company determined that the conversion option of the Convertible Note due 2027 represented an embedded derivative requiring bifurcation as a liability-classified derivative (the "Conversion Option Derivative"). Accordingly, the Conversion Option Derivative was bifurcated from the Convertible Notes due 2027 and recognized at a fair value of $
The issuance costs related to the Conversion Option Derivative totaled approximately $
Equity-classified Warrants and Derivatives
As of December 31, 2023, the Company’s equity-classified warrants and derivatives were comprised of the following:
(in thousands, except share and per share amounts) |
|
Number of Issuable Shares |
|
|
Issuance |
|
Maturity |
|
Exercise Price |
|
||
Combination Warrants |
|
|
|
|
|
|
$ |
|
||||
RDO Warrants |
|
|
|
|
|
|
|
|
||||
Placement Agent Warrants |
|
|
|
|
|
|
|
|
||||
CMPO Warrants |
|
|
|
|
|
|
|
|
||||
CMPO Placement Agent Warrants |
|
|
|
|
|
|
|
|
||||
Total equity-classified warrants and derivatives |
|
|
|
|
|
|
|
|
|
|
Detachable Warrants
In March 2021, Legacy Terran Orbital issued warrants in connection with the extinguishment of certain convertible notes (the “Detachable Warrants”). As part of the Tailwind Two Merger, all of the Detachable Warrants were ultimately net settled into approximately
Registered Direct Offering
On May 30, 2023, the Company completed a registered direct offering (the “Registered Direct Offering”) with an institutional investor in which the Company received proceeds of approximately $
The fair values of the common stock and Pre-Funded Warrants were estimated based on the market price of the Company’s common stock while the fair values of the RDO Warrants and Placement Agent Warrants were estimated using the Black-Scholes option-pricing model.
F-25
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
During 2023, all of the Pre-Funded Warrants were exercised.
Confidentially Marketed Public Offering
On September 21, 2023, the Company completed a confidentially marketed public offering (the “CMPO”) in which the Company received proceeds of approximately $
The fair values of the common stock and CMPO Pre-Funded Warrants were estimated based on the market price of the Company’s common stock while the fair values of the CMPO Warrants and CMPO Placement Agent Warrants were estimated using the Black-Scholes option-pricing model.
During 2023, all of the CMPO Pre-Funded Warrants were exercised.
Note 7 Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market, or if none exists, the most advantageous market, for the specific asset or liability at the measurement date (the exit price). The fair value is based on assumptions that market participants would use when pricing the asset or liability. A fair value measurement is assigned a level within the fair value hierarchy, depending on the source of the inputs utilized in estimating the fair value measurement as follows:
The carrying amounts of cash and cash equivalents, accounts receivable, contract assets, contract liabilities, and accounts payable approximate their fair values due to the short-term maturities of these financial instruments.
Fair Value of Common Stock
Prior to the Tailwind Two Merger, there was no public market for Legacy Terran Orbital’s common stock. As such, the fair value of Legacy Terran Orbital’s common stock was estimated using an option pricing model, which allocated the total enterprise value of the Company to the different classes of equity as of the valuation date and represented a Level 3 fair value measurement. There were no estimates of the fair value of Legacy Terran Orbital’s common stock performed during 2022 prior to the Tailwind Two Merger.
Following the Tailwind Two Merger, there is a public market for Terran Orbital Corporation’s common stock. Accordingly, the fair value of Terran Orbital Corporation’s common stock is based on the closing price on the relevant valuation date as reported on the NYSE.
Warrants and Derivatives
F-26
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
The fair values of certain warrants and derivatives were estimated using the Black-Scholes option-pricing model, which uses the following significant inputs and assumptions for each security as of the valuation date: (i) the price per share of common stock, (ii) the exercise price, (iii) the risk-free interest rate, (iv) the dividend yield, (v) the contractual term, and (vi) the estimated volatility. The resulting fair values represent Level 3 fair value measurements.
The fair values of certain warrant and derivative were estimated using models similar to that of the Black-Scholes option-pricing model and included additional assumptions such as the estimated counterparty credit spread based on an estimated credit rating of CCC and below.
The final fair values of certain warrants and derivatives were based on the number of shares of Terran Orbital Corporation common stock issued as part of the Tailwind Two Merger and the price per share of Terran Orbital Corporation's common stock as of the Tailwind Two Merger and represent Level 1 fair value measurements.
The fair value of the Public Warrants was based on their quoted market price as of each valuation date and represents a Level 1 fair value measurement. As the Private Placement Warrants are substantially similar to the Public Warrants, their fair value was based on the quoted market price of the Public Warrants as of each valuation date and represents a Level 2 fair value measurement.
The fair value of the Conversion Option Derivative was estimated as the difference in the fair value of the Convertible Notes due 2027 inclusive of the conversion option and the fair value of the Convertible Notes due 2027 exclusive of the conversion option. The fair value inclusive of the conversion option was estimated using a lattice model with the following significant inputs and assumptions: (i) time to maturity, (ii) coupon rate, (iii) discount rate based on an estimated credit rating of CCC and below, (iv) risk-free interest rate, (v) contractual features such as prepayment options, call premiums and default provisions, (vi) price per share of common stock, (vii) dividend yield, and (viii) estimated volatility. The fair value exclusive of the conversion option was estimated using a discounted cash flow method using a discount rate based on an estimated credit rating of CCC and below plus a risk-free interest rate. The resulting fair values represent Level 3 fair value measurements.
The assumptions underlying the above valuations represented the Company’s best estimate, which involved inherent uncertainties and the application of judgment. If the Company had used different assumptions or estimates, the fair values above could have been materially different.
Long-term Debt
The following table presents the total net carrying amount and estimated fair value of the Company’s long-term debt instruments, excluding finance leases, as of the dates presented:
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
(in thousands) |
|
Carrying Amount |
|
|
Fair Value |
|
|
Carrying Amount |
|
|
Fair Value |
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
As of December 31, 2023 and 2022, the fair value of the Company's long-term debt, except as otherwise described, was estimated using a lattice model with the following significant inputs and assumptions: (i) time to maturity, (ii) coupon rate, (iii) discount rate based on an estimated credit rating of CCC and below, (iv) risk-free interest rate, and (v) contractual features such as prepayment options, call premiums and default provisions. The fair value related to Convertible Notes due 2027 was exclusive of the conversion option and estimated as described above. The fair value of long-term debt related to the PIPE Investment Obligation was estimated using a discounted cash flow method applied to the remaining quarterly payments using a discount rate based on a risk-free rate derived from constant maturity yields plus a credit risk derived from an estimated credit rating of CCC and below. The resulting fair values represent Level 3 fair value measurements.
Note 8 Shareholders’ Deficit
Common Stock
F-27
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
Subsequent to the Tailwind Two Merger, the Company was authorized to issue up to
Registered Direct Offering
In connection with the Registered Direct Offering, the Company issued
Confidentially Marketed Public Offering
In connection with the CMPO, the Company issued
Tailwind Two Merger
In March 2022, the Company issued
Committed Equity Facility
On July 5, 2022, the Company entered into a common stock purchase agreement (the “Committed Equity Facility”) with an institutional investor giving the Company the right, but not the obligation to sell to the investor over a 24-month period up to the lesser of (i) $
The Committed Equity Facility represented a derivative instrument with a fair value of $
During 2023, the Company did
As of December 31, 2023, the remaining availability under the Committed Equity Facility was the lesser of
Preferred Stock
As of December 31, 2023 and 2022, the Company was authorized to issue up to
F-28
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
As part of the Tailwind Two Merger, all of the convertible preferred stock of Legacy Terran Orbital, which was presented as mezzanine equity outside of shareholders’ deficit, was converted into approximately
Subsequent Event: Rights Agreement
On March 4, 2024, the Company entered into a Rights Agreement (the “Rights Agreement”) in order to protect the Company and its shareholders from coercive or otherwise unfair takeover tactics. The Rights Agreement imposes a significant penalty upon any person or group (including a group of persons that are acting in concert with each other) that acquires
In connection with the Rights Agreement, the Company declared a dividend of one preferred share purchase right (“Right”) for each outstanding share of the Company’s common stock. The dividend is payable to shareholders of record on March 14, 2024. In addition, one Right will automatically attach to each share of the Company’s common stock until the date in which the Rights become exercisable, redeemed, or expired.
The Rights will initially trade with, and will be inseparable from, the Company’s common stock. Each Right will allow its holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $
Note 9 Share-Based Compensation
Prior to the Tailwind Two Merger, Legacy Terran Orbital maintained the Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan (the “2014 Plan”). In connection with the Tailwind Two Merger, the Company terminated the 2014 Plan and adopted the Terran Orbital Corporation 2021 Omnibus Incentive Plan (the “2021 Plan”), under which the Company grants share-based compensation awards to certain employees, officers, directors, and consultants. All of the outstanding share-based compensation awards granted under the 2014 Plan were cancelled and substituted for share-based compensation awards under the 2021 Plan in the same form and on substantially the same terms and conditions.
Share-based compensation expense for service-based awards is recognized on a straight-line basis over the requisite service period. For awards that include a performance condition, share-based compensation expense is recognized only if it is probable that the performance condition will be met. Share-based compensation expense is included in cost of sales and selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss. Additionally, certain costs related to share-based compensation awards may be capitalized based on the activities performed by employees. The Company accounts for forfeitures as they occur.
Share-based compensation awards are classified as equity awards and are settled through the issuance of authorized but previously unissued shares of common stock.
Share-based compensation, inclusive of amounts capitalized, for the periods presented was as follows:
|
|
Years Ended December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Restricted stock units |
|
$ |
|
|
$ |
|
||
Retention restricted stock units |
|
|
|
|
|
|
||
Stock options |
|
|
|
|
|
|
||
Share-based compensation expense |
|
$ |
|
|
$ |
|
There was no income tax benefit associated with the Company’s share-based compensation during 2023 and 2022 as a result of a full valuation allowance on the Company’s deferred tax assets.
F-29
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
2021 Plan
The 2021 Plan initially authorized the issuance of no more than
As of December 31, 2023, there were approximately
Restricted Stock Units
The Company’s restricted stock units (”RSUs”) are service-based awards that vest over a - to
Prior to the Tailwind Two Merger, the grant date fair value of RSUs was based on the fair value of Legacy Terran Orbital’s common stock using an option pricing model. As a result of the Tailwind Two Merger, these estimates are no longer necessary as there is a public market for the Company’s common stock. There were no grants requiring estimates of the fair value of Legacy Terran Orbital’s common stock performed during 2022 prior to the Tailwind Two Merger.
The weighted-average grant-date fair value of RSUs granted during 2023 and 2022 was $
Prior to the closing of the Tailwind Two Merger, all outstanding RSUs included a performance condition that required a liquidity event to occur in order to vest. Accordingly, the Company previously did not recognize share-based compensation expense associated with the RSUs as the performance condition was not probable of being met until such an event occurred. Upon closing of the Tailwind Two Merger, the Company recorded a cumulative catch-up of approximately $
The following table summarizes activity related to RSUs during 2023:
|
|
Number of RSUs |
|
|
Weighted- |
|
||
Unvested as of December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested as of December 31, 2023 |
|
|
|
|
$ |
|
The fair value at the date of vest for RSUs that vested during 2023 and 2022 was $
As of December 31, 2023, unrecognized compensation cost related to RSUs was $
F-30
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
Retention Restricted Stock Units
The merger agreement governing the Tailwind Two Merger authorized the issuance of no more than
The weighted-average grant-date fair value of Retention RSUs granted during 2022 was $
The following table summarizes activity related to Retention RSUs during 2023:
|
|
Number of RSUs |
|
|
Weighted- |
|
||
Unvested as of December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
— |
|
|
|
— |
|
Vested |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested as of December 31, 2023 |
|
|
|
|
$ |
|
As of December 31, 2023, unrecognized compensation cost related to Retention RSUs was $
Stock Options
Stock options are primarily service-based awards that vest over a - or
The following table summarizes activity related to stock options during 2023:
|
|
Number of |
|
|
Weighted- |
|
|
Aggregate |
|
|
Weighted- |
|
||||
Outstanding as of December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding as of December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||
Exercisable as of December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
F-31
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
The intrinsic value of stock options exercised during 2023 and 2022 was $
As of December 31, 2023, unrecognized compensation cost related to stock options was $
Note 10 Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Equity-classified warrants that are exercisable for nominal consideration are included in basic weighted-average shares outstanding at the time of issuance.
Diluted net loss per share gives effect to all securities having a dilutive effect on net loss, weighted-average shares of common stock outstanding, or both. The effect from potential dilutive securities included, but was not limited to: (i) incremental shares of common stock calculated using the if-converted method for the Convertible Notes due 2027 and Conversion Option Derivative, the PIPE Investment Obligation, and the Series A Preferred Stock; (ii) incremental shares of common stock calculated using the treasury stock method for warrants and share-based compensation awards; (iii) incremental shares and potential shares of common stock that were contingently issuable upon closing of the Tailwind Two Merger; and (iv) the corresponding impact to net loss associated with the preceding considerations.
The RDO Warrants and CMPO Warrants each meet the definition of a participating security because they are entitled to participate in distributions by the Company while in the form of a warrant; however, the RDO Warrants and CMPO Warrants are not required to share in the net losses of the Company. Accordingly, these participating securities do not have an impact on basic net loss per share in periods of net loss and with no distributions.
For purposes of the diluted net loss per share computation, all potentially dilutive securities, except as otherwise noted, were excluded because their (i) effect would be anti-dilutive, (ii) exercise price was “out-of-the-money,” or (iii) contingent issuance conditions were unsatisfied. However, the application of the if-converted method related to the Convertible Notes due 2027 and Conversion Option Derivative resulted in a dilutive impact to net loss per share as a result of the gain on change in fair value of the Conversion Option Derivative during 2022. Accordingly, the computation of diluted net loss per share includes the dilutive impact associated with the Convertible Notes due 2027 and the Conversion Option Derivative for 2022.
The table below represents the anti-dilutive securities that could potentially be dilutive in the future for the periods presented:
|
|
As of December 31, |
|
|||||
(in shares of common stock) |
|
2023 |
|
|
2022 |
|
||
Stock options |
|
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
|
||
FP Combination Warrants |
|
|
|
|
|
|
||
Combination Warrants |
|
|
|
|
|
|
||
Public Warrants |
|
|
|
|
|
|
||
Private Placement Warrants |
|
|
|
|
|
|
||
2027 Warrants |
|
|
|
|
|
|
||
RDO Warrants |
|
|
|
|
|
— |
|
|
Placement Agent Warrants |
|
|
|
|
|
— |
|
|
CMPO Warrants |
|
|
|
|
|
— |
|
|
CMPO Placement Agent Warrants |
|
|
|
|
|
— |
|
|
PIPE Investment Obligation |
|
|
|
|
|
|
||
Conversion Option Derivative |
|
|
|
|
|
— |
|
F-32
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
The computations of basic and diluted net loss per share for the periods presented were as follows:
|
|
Years Ended December 31, |
|
|||||
(in thousands, except per share and share amounts) |
|
2023 |
|
|
2022 |
|
||
Net loss - basic |
|
$ |
( |
) |
|
$ |
( |
) |
Effect of dilutive potential shares |
|
|
- |
|
|
|
( |
) |
Net loss - diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Weighted-average shares outstanding - basic |
|
|
|
|
|
|
||
Dilutive potential shares |
|
|
- |
|
|
|
|
|
Weighted-average shares outstanding - diluted |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Net loss per share - basic |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per share - diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Note 11 Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the results of operations in the period the new laws are enacted. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets to the estimated realization amount.
The Company recognizes positions taken or expected to be taken in a tax return in the consolidated financial statements when it is more-likely-than-not (i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit with greater than 50% likelihood of being realized upon ultimate settlement. The Company records liabilities for positions that have been taken but do not meet the more-likely-than-not recognition threshold. The Company includes interest and penalties associated with unrecognized tax benefits as income tax expense and as a component of the recorded balance of unrecognized tax benefits, which are reflected in other liabilities or net of related tax loss carryforwards in the consolidated balance sheets. The Company did
Significant components of loss before income taxes for the periods presented were as follows:
|
|
Years Ended December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
United States |
|
$ |
( |
) |
|
$ |
( |
) |
Foreign |
|
|
( |
) |
|
|
|
|
Loss before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
F-33
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
Significant components of provision for income taxes for the periods presented were as follows:
|
|
Years Ended December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Current: |
|
|
|
|
|
|
||
Federal |
|
$ |
— |
|
|
$ |
— |
|
State |
|
|
|
|
|
|
||
Foreign |
|
|
|
|
|
|
||
Current provision for income taxes |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Deferred: |
|
|
|
|
|
|
||
Federal |
|
|
— |
|
|
|
— |
|
State |
|
|
— |
|
|
|
— |
|
Foreign |
|
|
— |
|
|
|
— |
|
Deferred provision for income taxes |
|
|
— |
|
|
|
— |
|
Provision for income taxes |
|
$ |
|
|
$ |
|
The reconciliation between the provision for income taxes and the amount computed at the statutory U.S. federal income tax rate for the periods presented was as follows:
|
|
Years Ended December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Income taxes computed at the U.S. federal statutory rate |
|
$ |
( |
) |
|
$ |
( |
) |
State and local income taxes, net of federal benefit |
|
|
( |
) |
|
|
( |
) |
Permanent differences |
|
|
|
|
|
( |
) |
|
Change in valuation allowance |
|
|
|
|
|
|
||
Other, net |
|
|
|
|
|
|
||
Provision for income taxes |
|
$ |
|
|
$ |
|
F-34
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
The components of the Company's net deferred tax assets for the periods presented were as follows:
|
|
December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Tax loss and credit carryforwards |
|
$ |
|
|
$ |
|
||
Disallowed interest |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Impairment loss |
|
|
|
|
|
|
||
Research and development |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total deferred tax assets |
|
|
|
|
|
|
||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
Deferred tax assets, net of valuation allowance |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Property, plant, and equipment |
|
$ |
( |
) |
|
$ |
( |
) |
Total deferred tax liabilities |
|
|
( |
) |
|
|
( |
) |
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
The valuation allowance for deferred tax assets relates to the uncertainty of the utilization of U.S. federal, state and foreign deferred tax assets. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, which include its past operating results, the existence of cumulative losses in the most recent years, and its forecast of future taxable income. In estimating future taxable income, the Company develops assumptions related to the amount of future pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company is using to manage its underlying businesses. The Company believes that it is more-likely-than-not that it will not generate sufficient future taxable income to realize its deferred tax assets. Accordingly, the Company has recorded a full valuation allowance as of December 31, 2023 and 2022.
The change in the valuation allowance for deferred tax assets for the periods presented was as follows:
|
|
Years Ended December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Beginning balance |
|
$ |
( |
) |
|
$ |
( |
) |
Change in valuation allowance |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
$ |
( |
) |
|
$ |
( |
) |
As of December 31, 2023 and 2022, the Company had federal net operating losses (“NOL”) carryforwards of $
Internal Revenue Code Section 382 generally limits NOL and tax credit carryforwards following an ownership change, which occurs when one or more shareholder increases its ownership, in aggregate, by more than
As of December 31, 2023 and 2022, the Company had state NOL carryforwards of $
F-35
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
As of December 31, 2023 and 2022, the Company’s foreign NOL carryforwards were not material. The foreign NOL carryforwards can be carried forward indefinitely and used to offset up to
The Company files income tax returns for U.S. federal and various state jurisdictions and in Italy for its foreign subsidiary. The income tax returns are subject to audit by the taxing authorities. These audits may culminate in proposed assessments which may ultimately result in a change to the estimated income taxes. The following is a summary of open tax years by jurisdiction:
Jurisdiction |
|
Years Open to Audit |
Federal |
|
|
State |
|
|
Italy |
|
Note 12 Commitments and Contingencies
Litigation and Other Legal Matters
From time to time, the Company is subject to claims and lawsuits in the ordinary course of business, such as contractual disputes and employment matters. The Company is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. The Company records accruals for losses that are probable and reasonably estimable. These accruals are based on a variety of factors such as judgment, probability of loss, and opinions of internal and external legal counsel. Legal costs in connection with claims and lawsuits in the ordinary course of business are expensed as incurred.
Class Action
In February 2023, a putative class action complaint was filed in the United States District Court for the Southern District of New York (the “Court”), Case No. 1:23-cv-01394. The litigation was instituted by Jeffrey Mullen on behalf of himself and all others similarly situated. In July 2023, an amended complaint was filed by Jeffrey Mullen, Robert Irwin, Justin Carnahan and Thomas Bennett, each on behalf of himself and all others similarly situated, naming the Company, its Chief Executive Officer, and the members of Legacy Terran Orbital’s Board of Directors as defendants. The amended class action complaint (as amended, the “Complaint”) asserts claims for violations of Section 11(A) of the Securities Exchange Act of 1933 and Section 158 of the Delaware General Corporation Law, and breach of fiduciary duties, resulting from the Company’s alleged failure to timely transfer shares of common stock to current and former employee shareholders after the consummation of the Tailwind Two Merger and alleges materially false and misleading statements made in the Company’s Form S-4 Registration Statement and Proxy Prospectus primarily relating to the process for exchanging shares in connection with the Tailwind Two Merger. The Complaint seeks an award of damages, an award of reasonable costs and expenses at trial, including counsel and expert fees, and an award of such other relief as deemed appropriate by the Court. The Company intends to defend this action vigorously and filed a motion to dismiss with the Court on December 18, 2023. On February 2, 2024, the Company filed a response brief to the plaintiff’s opposition to the motion to dismiss. The motion to dismiss is currently pending with the court.
Stockholder Rights Agreement
On March 6, 2024, Andrew Jones filed a putative class action complaint against the Company and its Board of Directors in the Delaware Court of Chancery. The complaint objects to the Company’s implementation of the Rights Agreement, specifically a provision in the Rights Agreement which aggregates share ownership in situations where parties are “acting in concert.” The plaintiff alleges breaches of fiduciary duty and seeks to have the acting in concert provision enjoined and declared unenforceable.
Commercial Agreements
In connection with the Tailwind Two Merger, the Company entered into commercial agreements to purchase an aggregate amount of $
Note 13 Related Party Transactions
F-36
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
Lockheed Martin
Lockheed Martin, directly and through its wholly-owned subsidiary Astrolink International, LLC (“Astrolink”), is a significant holder of debt and equity instruments of the Company. Refer to Note 5 “Debt” and Note 6 “Warrants and Derivatives” for further discussion regarding debt and equity transactions with Lockheed Martin.
Strategic Cooperation Agreement
On June 26, 2017, the Company entered into a strategic cooperation agreement with Lockheed Martin (the “Strategic Cooperation Agreement”), as amended, pursuant to which the parties agreed to (i) collaborate on the development, production and sale of satellites for use in U.S. Government spacecraft and spacecraft procurements and (ii) establish a cooperation framework to enable the parties to enter into projects, research and development agreements and other collaborative business arrangements and “teaming activities.”
On October 31, 2022, in connection with the Convertible Note and Warrant Purchase Agreement, the Company and Lockheed Martin terminated the Strategic Cooperation Agreement, as amended, and entered into a new Strategic Cooperation Agreement (the “2022 SCA”), pursuant to which the parties have agreed to continue to share business development opportunities and work collaboratively on small satellite and other aerospace and defense opportunities and ventures. Unless earlier terminated, the 2022 SCA has a term of
Revenue
The Company recognized revenue from Lockheed Martin of $
As of December 31, 2023 and 2022, programs associated with Lockheed Martin represented approximately
Expenses
During 2023, the Company incurred approximately $
GeoOptics, Inc.
The Company owns a non-controlling equity interest in GeoOptics, Inc. (“GeoOptics”), a privately held company engaged in the acquisition and sale of Earth observation data and a purchaser of products and services from the Company. Additionally, one of the Company’s executive officers formerly served as a member of the GeoOptics board of directors. As of December 31, 2023 and 2022, the Company’s $
The did
Transactions with Chairman and CEO
F-37
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
The Company leases office space in a building beneficially owned by its Chairman and CEO with a lease term of
PIPE Investment Obligation
The PIPE Investment Obligation is considered a related party transaction. Refer to Note 5 “Debt” for further discussion.
Note 14 Geographic Information
The following table presents revenue by geography and a reconciliation to consolidated revenue for the periods presented:
|
|
Years Ended December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
United States |
|
$ |
|
|
$ |
|
||
Europe |
|
|
|
|
|
|
||
Revenue |
|
$ |
|
|
$ |
|
Revenue is classified geographically based on the location of the operating entity that records the transaction.
The following table presents property, plant and equipment, net by geography and a reconciliation to consolidated property, plant and equipment, net for the periods presented:
|
|
December 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
United States |
|
$ |
|
|
$ |
|
||
Europe |
|
|
|
|
|
|
||
Property, plant, and equipment, net |
|
$ |
|
|
$ |
|
Property, plant and equipment, net is classified geographically based on the location of the underlying assets.
Note 15 Leases
As part of normal operations, the Company leases real estate and equipment from various counterparties with lease terms and maturities extending through
The Company’s right-of-use assets and lease liabilities primarily represent lease payments that are fixed at the commencement of a lease and variable lease payments that depend on an index or rate. Lease incentives that are probable and within the Company’s control are estimated and included in lease payments at the commencement of a lease. Lease payments are recognized as lease cost on a straight-line basis over the lease term, which is determined as the non-cancelable period, including periods in which termination options are reasonably certain of not being exercised and periods in which renewal options are reasonably certain of being exercised. The discount rate for a lease is determined using the Company’s incremental borrowing rate that coincides with the lease term at the commencement of a lease. The incremental borrowing rate is estimated based on the Company's recent financing transactions.
Lease payments that are neither fixed nor dependent on an index or rate and vary because of changes in usage or other factors are included in variable lease costs. Variable lease costs are recorded in the period in which the obligation is incurred and primarily relate to utilities, maintenance, and repair costs.
The Company’s leases do not contain material residual value guarantees or restrictive covenants. The Company is not a lessor in any leases and does not sublease.
F-38
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
The following table presents the amounts reported in the Company’s consolidated balance sheets related to operating and finance leases as of the dates presented:
|
|
|
|
December 31, |
|
|||||
(in thousands) |
|
Classification |
|
2023 |
|
|
2022 |
|
||
Right-of-use assets: |
|
|
|
|
|
|
|
|
||
Operating |
|
|
$ |
|
|
$ |
|
|||
Finance |
|
|
|
|
|
|
|
|||
Total right-of-use assets |
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Lease liabilities |
|
|
|
|
|
|
|
|
||
Operating |
|
|
$ |
|
|
$ |
|
|||
Finance |
|
|
|
|
|
|
|
|||
Operating |
|
|
|
|
|
|
|
|||
Finance |
|
|
|
|
|
|
|
|||
Total lease liabilities |
|
|
|
$ |
|
|
$ |
|
The following is a summary of the Company’s lease cost for the presented period:
|
|
|
|
Years Ended December 31, |
|
|||||
Lease cost (in thousands) |
|
|
|
2023 |
|
|
2022 |
|
||
Operating lease cost |
|
|
|
$ |
|
|
$ |
|
||
Finance lease cost |
|
|
|
|
|
|
|
|
||
Amortization of right-of-use assets |
|
|
|
|
|
|
|
|
||
Interest on lease liabilities |
|
|
|
|
|
|
|
|
||
Variable lease costs |
|
|
|
|
|
|
|
|
||
Total lease cost |
|
|
|
$ |
|
|
$ |
|
The following is a summary of the cash flows and supplemental information associated with the Company’s leases for the period presented:
|
|
|
|
Years Ended December 31, |
|
|||||
Other information (in thousands) |
|
|
|
2023 |
|
|
2022 |
|
||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
||||
Operating cash flows from operating leases |
|
|
|
$ |
|
|
$ |
|
||
Operating cash flows from finance leases |
|
|
|
|
|
|
|
|
||
Financing cash flows from finance leases |
|
|
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
|
|
Lease payments prior to lease commencement are classified in the consolidated statements of cash flows based on the expected classification of the lease upon commencement and are excluded from the table above. During 2023, lease payments prior to the commencement of finance leases totaled $
F-39
Terran Orbital Corporation
Notes to the Consolidated Financial Statements
The following is a summary of the weighted-average lease term and discount rate for operating and finance leases as of the date presented:
|
|
|
|
Years Ended December 31, |
|
|||||
Lease term and discount rate |
|
|
|
2023 |
|
|
2022 |
|
||
Weighted-average remaining lease term (years) |
|
|
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
|
|
||
Weighted-average discount rate |
|
|
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
% |
|
|
% |
||
Finance leases |
|
|
|
|
% |
|
|
% |
The following is a maturity analysis related to the Company’s operating and finance leases as of December 31, 2023:
Maturity of lease liabilities (in thousands) |
|
|
|
Operating Leases |
|
|
Finance Leases |
|
||
2024 |
|
|
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
|
- |
|
|
Thereafter |
|
|
|
|
|
|
|
- |
|
|
Total lease payments |
|
|
|
|
|
|
|
|
||
Less interest |
|
|
|
|
|
|
|
|
||
Total lease liabilities |
|
|
|
$ |
|
|
$ |
|
In February 2023, the Company executed an operating lease for manufacturing and assembly space with an original lease term of
F-40