--12-31false0001835512Q1Florida00P1Y9M2http://terranorbital.com/20240331#WarrantAndDerivativeLiabilitieshttp://terranorbital.com/20240331#WarrantAndDerivativeLiabilitieshttp://terranorbital.com/20240331#ChangeInFairValueOfWarrantsAndDerivativeLiabilities5http://fasb.org/us-gaap/2023#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2023#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2023#PropertyPlantAndEquipmentNethttp://fasb.org/us-gaap/2023#PropertyPlantAndEquipmentNethttp://fasb.org/us-gaap/2023#OtherAccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#OtherAccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#LongTermDebtCurrenthttp://fasb.org/us-gaap/2023#LongTermDebtCurrenthttp://fasb.org/us-gaap/2023#OtherLiabilitiesNoncurrenthttp://fasb.org/us-gaap/2023#OtherLiabilitiesNoncurrenthttp://fasb.org/us-gaap/2023#LongTermDebtNoncurrenthttp://fasb.org/us-gaap/2023#LongTermDebtNoncurrent0001835512us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310001835512us-gaap:RestrictedStockUnitsRSUMember2023-01-012023-03-310001835512llap:USGovernmentContractsMemberus-gaap:FixedPriceContractMember2023-01-012023-03-3100018355122024-04-012024-03-310001835512llap:PipeInvestmentObligationMember2023-12-310001835512llap:EquipmentFinancingsMember2023-12-310001835512llap:USGovernmentContractsMemberus-gaap:TimeAndMaterialsContractMember2024-01-012024-03-310001835512llap:LaunchSupportMember2023-01-012023-03-310001835512llap:USGovernmentContractsMemberus-gaap:TimeAndMaterialsContractMember2023-01-012023-03-310001835512us-gaap:LeaseholdImprovementsMember2023-12-310001835512us-gaap:LeaseholdImprovementsMember2024-01-012024-03-310001835512llap:FPCombinationWarrantsMember2024-01-012024-03-310001835512us-gaap:CustomerConcentrationRiskMemberllap:LockheedMartinCorporationMemberus-gaap:SalesRevenueNetMember2023-01-012023-03-310001835512us-gaap:CustomerConcentrationRiskMemberllap:CustomerMemberllap:AccountsReceivableAndContractAssetsMember2024-01-012024-03-310001835512llap:RDOWarrantsMember2024-01-012024-03-310001835512us-gaap:CommonStockMember2024-03-310001835512llap:SatellitesMember2024-03-310001835512us-gaap:MachineryAndEquipmentMember2023-12-310001835512llap:PrivatePlacementWarrantsMember2023-12-310001835512llap:LockheedMartinMember2024-01-012024-03-310001835512llap:RDOWarrantsMember2024-03-310001835512llap:SubscriptionAgreementMemberllap:AffiliateOfDanielStatonMember2022-03-250001835512llap:PipeInvestmentObligationMember2024-01-012024-03-310001835512llap:LaunchSupportMember2024-01-012024-03-310001835512llap:PipeInvestmentObligationMemberus-gaap:SubsequentEventMember2024-04-012024-04-300001835512llap:CMPOPlacementAgentWarrantsMember2024-01-012024-03-310001835512us-gaap:LongTermDebtMember2024-03-310001835512llap:FranciscoPartnersNotePurchaseAgreementMember2024-03-310001835512llap:FranciscoPartnersNotePurchaseAgreementMember2023-12-310001835512us-gaap:AdditionalPaidInCapitalMember2023-12-3100018355122024-05-070001835512us-gaap:RetainedEarningsMember2022-12-310001835512llap:OperationsMember2024-01-012024-03-310001835512llap:TwoThousandAndTwentySevenWarrantMember2024-01-012024-03-310001835512us-gaap:ComputerEquipmentMembersrt:MinimumMember2024-03-310001835512llap:LockheedMartinMember2024-03-3100018355122024-03-310001835512us-gaap:LeaseholdImprovementsMember2024-03-310001835512srt:MaximumMemberllap:EquipmentFinancingsMember2024-03-310001835512llap:CommercialContractsMember2023-01-012023-03-310001835512llap:CurrentWarrantAndDerivativeLiabilitiesMember2024-03-310001835512llap:ConversionOptionDerivativeMember2023-01-012023-03-310001835512us-gaap:FixedPriceContractMemberllap:CommercialContractsMembercountry:US2024-01-012024-03-310001835512llap:LiabilityClassifiedWarrantsMember2023-01-012023-03-310001835512us-gaap:TimeAndMaterialsContractMembercountry:USllap:CommercialContractsMember2023-01-012023-03-3100018355122023-02-280001835512us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-03-310001835512llap:PlacementAgentWarrantsMember2024-03-310001835512us-gaap:CommonStockMember2024-01-012024-03-310001835512us-gaap:PreferredStockMember2024-01-012024-03-310001835512llap:RightsAgreementMember2024-03-042024-03-040001835512llap:ForeignGovernmentContractsMemberus-gaap:FixedPriceContractMember2024-01-012024-03-310001835512llap:CombinationWarrantsMember2023-01-012023-03-310001835512llap:FranciscoPartnersNotePurchaseAgreementMember2024-01-012024-03-310001835512llap:SatellitesMembersrt:MaximumMember2024-03-310001835512llap:TwoThousandAndTwentySevenWarrantMember2023-12-310001835512llap:PipeInvestmentObligationMember2024-01-012024-03-310001835512us-gaap:ComputerEquipmentMembersrt:MaximumMember2024-03-310001835512llap:FpCombinationWarrantsMember2024-01-012024-03-310001835512us-gaap:CommonStockMember2023-03-310001835512us-gaap:ConstructionInProgressMember2024-03-3100018355122023-12-310001835512llap:TwoThousandTwentySevenWarrantsMember2023-01-012023-03-310001835512us-gaap:RestrictedStockUnitsRSUMember2024-01-012024-03-310001835512llap:ChairmanAndCeoMemberllap:NewLeaseForOfficeSpaceMember2024-01-012024-03-310001835512llap:CombinationWarrantsMember2024-03-310001835512llap:EquipmentFinancingsMember2024-03-310001835512llap:WarrantAndDerivativeLiabilitiesMember2024-01-012024-03-310001835512llap:CMPOWarrantsMember2024-01-012024-03-310001835512llap:USGovernmentContractsMember2024-01-012024-03-310001835512llap:FpCombinationWarrantsMember2023-12-310001835512llap:BeachPointRolloverDebtMember2024-03-310001835512llap:FpCombinationWarrantsMember2024-03-310001835512llap:PrivatePlacementWarrantsMember2024-01-012024-03-310001835512us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001835512us-gaap:AdditionalPaidInCapitalMember2022-12-310001835512llap:TwoThousandTwentySevenWarrantsMember2024-01-012024-03-310001835512llap:GovernmentcustomersMembercountry:USus-gaap:GovernmentContractMember2024-03-310001835512us-gaap:RetainedEarningsMember2024-01-012024-03-310001835512llap:SatellitesMembersrt:MinimumMember2024-03-310001835512us-gaap:RetainedEarningsMember2023-03-310001835512us-gaap:CustomerConcentrationRiskMemberllap:CustomerMemberllap:AccountsReceivableAndContractAssetsMember2023-01-012023-12-310001835512llap:SeriesAJuniorParticipatingPreferredStockMemberllap:RightsAgreementMember2024-03-040001835512llap:CommercialContractsMemberus-gaap:FixedPriceContractMemberus-gaap:NonUsMember2023-01-012023-03-310001835512us-gaap:RetainedEarningsMember2023-12-310001835512llap:RivadaSpaceNetworksMember2023-02-012023-02-280001835512srt:MinimumMemberllap:OfficeEquipmentAndFurnitureMember2024-03-310001835512llap:ConvertibleNotesDue2027Member2023-12-310001835512us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310001835512llap:SatellitesMember2023-12-310001835512llap:ConversionOptionDerivativeMember2024-01-012024-03-310001835512llap:MissionSupportMember2023-01-012023-03-310001835512us-gaap:SalesRevenueNetMember2024-01-012024-03-310001835512llap:GroundStationEquipmentMember2024-03-310001835512llap:PrivatePlacementWarrantsMember2024-01-012024-03-3100018355122022-12-310001835512llap:PublicWarrantsMember2023-12-310001835512llap:ForeignGovernmentContractsMemberus-gaap:FixedPriceContractMember2023-01-012023-03-310001835512llap:EquipmentFinancingsMembersrt:MinimumMember2024-03-310001835512llap:EquityClassifiedWarrantsMember2024-01-012024-03-310001835512srt:MaximumMemberllap:OfficeEquipmentAndFurnitureMember2024-03-310001835512us-gaap:LongTermDebtMember2023-12-310001835512llap:ConvertibleNotesDue2027Member2024-01-012024-03-310001835512us-gaap:CommonStockMember2023-12-310001835512llap:MissionSupportMember2024-01-012024-03-310001835512us-gaap:TimeAndMaterialsContractMembercountry:USllap:CommercialContractsMember2024-01-012024-03-310001835512us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001835512llap:EquityClassifiedWarrantsMember2023-01-012023-03-310001835512us-gaap:MachineryAndEquipmentMember2024-03-310001835512llap:StudiesDesignAndOtherMember2024-01-012024-03-310001835512llap:OfficeEquipmentAndFurnitureMember2023-12-310001835512us-gaap:FixedPriceContractMemberllap:CommercialContractsMemberus-gaap:NonUsMember2024-01-012024-03-310001835512llap:PublicWarrantsMember2024-01-012024-03-310001835512llap:FPCombinationWarrantsMember2024-01-012024-03-310001835512llap:USGovernmentContractsMemberus-gaap:FixedPriceContractMember2024-01-012024-03-310001835512llap:BeachPointRolloverDebtMember2024-01-012024-03-310001835512us-gaap:EmployeeStockOptionMember2024-01-012024-03-310001835512us-gaap:SoftwareDevelopmentMember2023-12-310001835512us-gaap:TimeAndMaterialsContractMemberllap:CommercialContractsMemberus-gaap:NonUsMember2024-01-012024-03-310001835512llap:ConversionOptionDerivativeMember2023-12-310001835512llap:FPCombinationWarrantsMember2023-01-012023-03-310001835512llap:EquipmentFinancingsMember2024-01-012024-03-310001835512us-gaap:CustomerConcentrationRiskMemberllap:AccountsReceivableAndContractAssetsMemberllap:CustomerAMember2023-01-012023-12-310001835512us-gaap:CustomerConcentrationRiskMemberllap:AccountsReceivableAndContractAssetsMemberllap:CustomerAMember2024-01-012024-03-310001835512llap:USGovernmentContractsMember2023-01-012023-03-310001835512us-gaap:CustomerConcentrationRiskMemberllap:AccountsReceivableAndContractAssetsMemberllap:CustomerBMember2023-01-012023-12-3100018355122026-01-012024-03-310001835512llap:StudiesDesignAndOtherMember2023-01-012023-03-310001835512llap:LockheedMartinMember2023-01-012023-03-310001835512llap:PublicWarrantsMember2024-03-310001835512llap:RivadaSpaceNetworksMember2023-01-012023-03-310001835512us-gaap:CommonStockMember2023-01-012023-03-310001835512llap:ConvertibleNotesDue2027Member2024-03-310001835512llap:TwoThousandTwentyTwoStrategicCooperationAgreementMember2022-10-312022-10-310001835512llap:PipeInvestmentObligationMember2023-01-012023-03-310001835512us-gaap:ShareBasedCompensationAwardTrancheOneMemberus-gaap:RestrictedStockUnitsRSUMember2024-01-012024-03-310001835512srt:MaximumMember2024-03-310001835512llap:BeachPointRolloverDebtMember2023-12-310001835512llap:GroundStationEquipmentMembersrt:MaximumMember2024-03-310001835512llap:PublicWarrantsMember2023-01-012023-03-310001835512us-gaap:WarrantMember2024-01-012024-03-310001835512llap:WarrantAndDerivativeLiabilitiesMember2023-12-310001835512llap:LockheedMartinRolloverDebtMember2024-03-310001835512us-gaap:AdditionalPaidInCapitalMember2023-03-310001835512us-gaap:SalesRevenueNetMember2023-01-012023-03-310001835512llap:CMPOWarrantsMember2024-03-310001835512us-gaap:RetainedEarningsMember2023-01-012023-03-310001835512llap:ConversionOptionDerivativeMember2024-01-012024-03-310001835512llap:PipeInvestmentObligationMember2022-01-012022-12-310001835512llap:LockheedMartinMember2023-12-310001835512llap:WarrantAndDerivativeLiabilitiesMember2024-03-3100018355122023-03-310001835512us-gaap:CustomerConcentrationRiskMemberllap:LockheedMartinCorporationMemberus-gaap:SalesRevenueNetMember2024-01-012024-03-310001835512llap:GovernmentcustomersMemberus-gaap:GovernmentContractMembercountry:US2023-12-310001835512llap:CombinationWarrantsMember2024-01-012024-03-310001835512llap:OfficeEquipmentAndFurnitureMember2024-03-310001835512llap:ConversionOptionDerivativeMember2024-03-310001835512us-gaap:MachineryAndEquipmentMembersrt:MinimumMember2024-03-310001835512llap:PrivatePlacementWarrantsMember2024-03-310001835512us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001835512srt:MaximumMemberus-gaap:MachineryAndEquipmentMember2024-03-310001835512llap:CurrentWarrantAndDerivativeLiabilitiesMember2024-01-012024-03-310001835512us-gaap:ConstructionInProgressMember2023-12-3100018355122024-01-012024-03-310001835512llap:GroundStationEquipmentMember2023-12-310001835512llap:TwoThousandAndTwentySevenWarrantMember2024-03-310001835512llap:CommercialContractsMember2024-01-012024-03-310001835512country:USllap:CommercialContractsMemberus-gaap:FixedPriceContractMember2023-01-012023-03-310001835512us-gaap:RetainedEarningsMember2024-03-310001835512llap:PlacementAgentWarrantsMember2024-01-012024-03-3100018355122023-01-012023-03-310001835512llap:CMPOPlacementAgentWarrantsMember2024-03-310001835512llap:OperationsMember2023-01-012023-03-310001835512llap:LockheedMartinRolloverDebtMember2023-12-310001835512us-gaap:RestrictedStockUnitsRSUMember2024-01-012024-03-310001835512us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310001835512llap:RivadaSpaceNetworksMember2024-03-310001835512llap:ChairmanAndCeoMemberllap:NewLeaseForOfficeSpaceMember2023-01-012023-03-310001835512llap:PublicWarrantsMember2024-01-012024-03-310001835512llap:PrivatePlacementWarrantsMember2023-01-012023-03-310001835512llap:RivadaSpaceNetworksMember2024-01-012024-03-310001835512us-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310001835512llap:PipeInvestmentObligationMember2024-03-310001835512llap:GroundStationEquipmentMembersrt:MinimumMember2024-03-310001835512us-gaap:EmployeeStockOptionMember2023-01-012023-03-310001835512us-gaap:CommonStockMember2022-12-310001835512us-gaap:CustomerConcentrationRiskMemberllap:AccountsReceivableAndContractAssetsMemberllap:CustomerBMember2024-01-012024-03-310001835512us-gaap:AdditionalPaidInCapitalMember2024-03-310001835512us-gaap:SoftwareDevelopmentMember2024-03-310001835512llap:LockheedMartinRolloverDebtMember2024-01-012024-03-31llap:Satellitexbrli:pureiso4217:USDxbrli:sharesxbrli:sharesiso4217:USD

 

 

ROC

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

 

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-40170

 

TERRAN ORBITAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

98-1572314

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

6800 Broken Sound Parkway NW, Suite 200

Boca Raton, FL 33487

(561) 988-1704

 

 

(Address of principal executive offices, including zip code, Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbols

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share

 

LLAP

 

New York Stock Exchange

Preferred Stock Purchase Rights

 

 

 

New York Stock Exchange

Warrants to purchase one share of common stock, each at an exercise price of $11.50 per share

 

LLAP WS

 

New York Stock Exchange

 

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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

 


 

 

As of May 7, 2024, the registrant had 202,053,138 shares of common stock, $0.0001 par value per share, outstanding.

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

1

 

Condensed Consolidated Balance Sheets (Unaudited)

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

2

 

Condensed Consolidated Statements of Shareholders' Deficit (Unaudited)

3

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

4

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

 

 

 

PART II.

OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

Signatures

36

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

TERRAN ORBITAL CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share amounts)

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

43,701

 

 

$

71,663

 

Accounts receivable, net of allowance for credit losses of $191 and $182
   as of March 31, 2024 and December 31, 2023, respectively

 

 

1,642

 

 

 

14,735

 

Contract assets, net

 

 

26,370

 

 

 

21,390

 

Inventory

 

 

34,680

 

 

 

33,348

 

Prepaid expenses and other current assets

 

 

22,129

 

 

 

14,843

 

Total current assets

 

 

128,522

 

 

 

155,979

 

Property, plant, and equipment, net

 

 

48,356

 

 

 

46,449

 

Other assets

 

 

16,020

 

 

 

17,885

 

Total assets

 

$

192,898

 

 

$

220,313

 

Liabilities and shareholders' deficit:

 

 

 

 

 

 

Current portion of long-term debt

 

$

12,839

 

 

$

11,740

 

Accounts payable

 

 

24,791

 

 

 

22,850

 

Contract liabilities

 

 

111,549

 

 

 

103,924

 

Reserve for anticipated losses on contracts

 

 

620

 

 

 

977

 

Accrued expenses and other current liabilities

 

 

35,719

 

 

 

14,408

 

Total current liabilities

 

 

185,518

 

 

 

153,899

 

Long-term debt

 

 

179,421

 

 

 

171,033

 

Warrant and derivative liabilities

 

 

17,283

 

 

 

34,462

 

Other liabilities

 

 

17,756

 

 

 

18,555

 

Total liabilities

 

 

399,978

 

 

 

377,949

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

Shareholders' deficit:

 

 

 

 

 

 

Preferred stock - authorized 50,000,000 shares of $0.0001 par value; zero issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

-

 

 

 

-

 

Common stock - authorized 600,000,000 shares of $0.0001 par value; issued and outstanding shares of 201,279,662 and 199,413,917 as of March 31, 2024 and December 31, 2023, respectively

 

 

20

 

 

 

20

 

Additional paid-in capital

 

 

358,981

 

 

 

355,144

 

Accumulated deficit

 

 

(566,255

)

 

 

(513,011

)

Accumulated other comprehensive income

 

 

174

 

 

 

211

 

Total shareholders' deficit

 

 

(207,080

)

 

 

(157,636

)

Total liabilities and shareholders' deficit

 

$

192,898

 

 

$

220,313

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


2

TERRAN ORBITAL CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenue

 

$

27,235

 

 

$

28,198

 

Cost of sales

 

 

33,391

 

 

 

29,597

 

Gross loss

 

 

(6,156

)

 

 

(1,399

)

Selling, general, and administrative expenses

 

 

28,308

 

 

 

32,530

 

Loss from operations

 

 

(34,464

)

 

 

(33,929

)

Interest expense, net

 

 

13,696

 

 

 

10,934

 

Change in fair value of warrant and derivative liabilities

 

 

5,043

 

 

 

9,455

 

Other (income) expense

 

 

(11

)

 

 

109

 

Loss before income taxes

 

 

(53,192

)

 

 

(54,427

)

Provision for income taxes

 

 

52

 

 

 

18

 

Net loss

 

 

(53,244

)

 

 

(54,445

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

   Foreign currency translation adjustments

 

 

(37

)

 

 

20

 

Total comprehensive loss

 

$

(53,281

)

 

$

(54,425

)

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

 

 

 

 

Basic and diluted

 

 

201,442,209

 

 

 

144,062,103

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

Basic and diluted

 

$

(0.26

)

 

$

(0.38

)

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

TERRAN ORBITAL CORPORATION

Condensed Consolidated Statements of Shareholders’ Deficit (Unaudited)

(In thousands, except share amounts)

 

 

Three Months Ended March 31, 2024

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid-in Capital

 

 

Accumulated
Deficit

 

 

Accumulated Other
Comprehensive Income

 

 

Total
Shareholders'
Deficit

 

Balance as of December 31, 2023

 

 

199,413,917

 

 

$

20

 

 

$

355,144

 

 

$

(513,011

)

 

$

211

 

 

$

(157,636

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(53,244

)

 

 

-

 

 

 

(53,244

)

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(37

)

 

 

(37

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

3,816

 

 

 

-

 

 

 

-

 

 

 

3,816

 

Settlement of vested restricted stock units

 

 

1,834,805

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercise of stock options

 

 

30,940

 

 

 

-

 

 

 

21

 

 

 

-

 

 

 

-

 

 

 

21

 

Balance as of March 31, 2024

 

 

201,279,662

 

 

$

20

 

 

$

358,981

 

 

$

(566,255

)

 

$

174

 

 

$

(207,080

)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid-in Capital

 

 

Accumulated
Deficit

 

 

Accumulated Other
Comprehensive Income

 

 

Total
Shareholders'
Deficit

 

Balance as of December 31, 2022

 

 

142,503,771

 

 

$

14

 

 

$

269,574

 

 

$

(361,168

)

 

$

159

 

 

$

(91,421

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(54,445

)

 

 

-

 

 

 

(54,445

)

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20

 

 

 

20

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

10,166

 

 

 

-

 

 

 

-

 

 

 

10,166

 

Settlement of vested restricted stock units

 

 

1,665,333

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercise of stock options

 

 

511,119

 

 

 

-

 

 

 

355

 

 

 

-

 

 

 

-

 

 

 

355

 

Balance as of March 31, 2023

 

 

144,680,223

 

 

$

14

 

 

$

280,095

 

 

$

(415,613

)

 

$

179

 

 

$

(135,325

)

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

3


 

TERRAN ORBITAL CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(53,244

)

 

$

(54,445

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

2,391

 

 

 

919

 

Non-cash interest expense

 

 

9,581

 

 

 

7,053

 

Share-based compensation expense

 

 

3,816

 

 

 

10,166

 

Provision for losses on receivables and inventory

 

 

511

 

 

 

3

 

Change in fair value of warrant and derivative liabilities

 

 

5,043

 

 

 

9,455

 

Amortization of operating right-of-use assets

 

 

378

 

 

 

279

 

Other non-cash, net

 

 

77

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

13,072

 

 

 

1,992

 

Contract assets

 

 

(5,017

)

 

 

1,423

 

Inventory

 

 

(1,309

)

 

 

(3,990

)

Accounts payable

 

 

2,844

 

 

 

1,009

 

Contract liabilities

 

 

7,676

 

 

 

(8,021

)

Reserve for anticipated losses on contracts

 

 

(357

)

 

 

(1,723

)

Accrued interest

 

 

(49

)

 

 

(88

)

Other, net

 

 

(8,228

)

 

 

3,145

 

Net cash used in operating activities

 

 

(22,815

)

 

 

(32,823

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant, and equipment

 

 

(2,498

)

 

 

(3,162

)

Net cash used in investing activities

 

 

(2,498

)

 

 

(3,162

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayment of long-term debt

 

 

(2,551

)

 

 

(518

)

Payment of issuance costs

 

 

(44

)

 

 

-

 

Proceeds from exercise of stock options

 

 

21

 

 

 

339

 

Net cash used in financing activities

 

 

(2,574

)

 

 

(179

)

 

 

 

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

(75

)

 

 

30

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(27,962

)

 

 

(36,134

)

Cash and cash equivalents at beginning of period

 

 

71,663

 

 

 

93,561

 

Cash and cash equivalents at end of period

 

$

43,701

 

 

$

57,427

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Purchases of property, plant, and equipment not yet paid

 

 

405

 

 

 

5,265

 

Issuance costs not yet paid

 

 

-

 

 

 

139

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Note 1 Organization and Summary of Significant Accounting Policies

Organization and Business

Terran Orbital Corporation, 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.

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.

 

Basis of Presentation and Significant Accounting Policies

The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, they include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The interim results reported in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year. For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the years ended December 31, 2023 and 2022 included in its Annual Report on Form 10-K, which was filed with the United States (“U.S.”) Securities and Exchange Commission (the “SEC”) on April 1, 2024 (the “2023 Annual Report”). The condensed consolidated balance sheet as of December 31, 2023 included herein was derived from the audited consolidated financial statements as of that date but does not include all the footnote disclosures from the annual consolidated financial statements.

The condensed consolidated financial statements have been prepared in U.S. dollars in accordance with generally accepted accounting principles in the U.S. (“GAAP”) and include the accounts of Terran Orbital Corporation and its subsidiaries. All intercompany transactions have been eliminated. The Company’s accounting policies used in the preparation of these condensed consolidated financial statements do not differ from those used for the annual consolidated financial statements, unless otherwise noted. Certain prior period amounts have been reclassified to conform with current period presentation.

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 single operating and reportable segment on a consolidated basis.

Going Concern

The condensed 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.

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 $0 by December 31, 2024, which date is the result of the original determination date on June 30, 2024 being extended by two fiscal quarters pursuant to contractual terms (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 the Company is unable to comply with these financial covenants, the Company’s creditors may accelerate the principal and interest on the Company’s primary corporate indebtedness to be immediately due and payable. As of March 31, 2024, cash and cash equivalents totaled $43.7 million and debt subject to the EBITDA Financial Covenant totaled $292.6 million with related accrued but unpaid interest of $2.1 million.

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

5


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

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 condensed 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.

Use of Estimates

The preparation of the condensed consolidated financial statements in accordance with GAAP requires the Company to select accounting policies and make estimates that affect amounts reported in the condensed 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.

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.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following as of the dates presented:

 

(in thousands)

 

March 31, 2024

 

 

December 31, 2023

 

Current warrant and derivative liabilities(1)

 

$

22,222

 

 

$

-

 

Payroll-related accruals

 

 

6,249

 

 

 

8,248

 

Current operating lease liabilities

 

 

1,674

 

 

 

1,505

 

Accrued interest

 

 

2,067

 

 

 

2,116

 

Other current liabilities

 

 

3,507

 

 

 

2,539

 

Accrued expenses and other current liabilities

 

$

35,719

 

 

$

14,408

 

(1) - Refer to Note 6 “Warrants and Derivatives” for further discussion.

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 condensed consolidated statements of operations and comprehensive loss. Research and development expense was $3.4 million and $7.5 million during the three months ended March 31, 2024 and 2023, respectively.

Concentration of Credit Risks

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 $250,000 per account. As a result, there is a concentration of credit risk related to amounts in excess of the insurance limits. The Company regularly monitors the financial stability of these financial institutions and believes that there is no exposure to any significant credit risk in cash and cash equivalents.

6


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

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 73% of consolidated revenue during the three months ended March 31, 2024 and 2023. There were no other individual customers who accounted for more than 10% of the Company’s revenue during these periods.

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:

 

 

 

 

 

 

 

 

March 31, 2024

 

December 31, 2023

Customer A

 

88%

 

82%

Customer B

 

0%

 

12%

Total

 

88%

 

94%

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. 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.

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.

7


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

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 condensed 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 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

8


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

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:

Mission Support: Mission support services primarily relate to the integrated design, manufacture, and assembly of satellites for customers.
Launch Support: Launch support services relate to the assistance the Company provides in the process of launching a satellite into space by identifying and securing launch opportunities with launch providers as well as coordinating and managing the activities leading up to the launch event on behalf of customers.
Operations: Operations relates to the management, operations, and communication of information of satellites that are on-orbit on behalf of a customer.
Studies, Design and Other: Studies, design and other services primarily relate to professional engineering feasibility studies and preliminary design services for customers.

The following tables present the Company’s disaggregated revenue by offering and customer type for the periods presented:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Mission support

 

$

24,171

 

 

$

26,591

 

Launch support

 

 

487

 

 

 

1,087

 

Operations

 

 

1,034

 

 

 

194

 

Studies, design and other

 

 

1,543

 

 

 

326

 

Revenue

 

$

27,235

 

 

$

28,198

 

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

U.S. Government contracts

 

 

 

 

 

 

Fixed price

 

$

19,800

 

 

$

21,552

 

Cost-plus fee and other

 

 

173

 

 

 

1,688

 

 

 

19,973

 

 

 

23,240

 

 

 

 

 

 

 

Foreign government contracts

 

 

 

 

 

 

Fixed price

 

 

2,293

 

 

 

1,478

 

 

 

 

 

 

 

Commercial contracts

 

 

 

 

 

 

Fixed price, U.S.

 

 

930

 

 

 

1,276

 

Fixed price, International

 

 

1,633

 

 

 

2,154

 

Cost-plus fee and other, U.S.

 

 

732

 

 

 

50

 

Cost-plus fee and other, International

 

 

1,674

 

 

 

-

 

 

 

4,969

 

 

 

3,480

 

 

 

 

 

 

 

Revenue

 

$

27,235

 

 

$

28,198

 

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

9


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

(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 March 31, 2024, the Company had approximately $2.7 billion of remaining performance obligations, of which $2.4 billion is related to the Rivada Agreement (as defined below). The Company estimates that approximately 80% of the remaining performance obligations will be recognized as revenue by December 31, 2025 and the remainder by December 31, 2026.

During February 2023, the Company entered into an agreement with Rivada Space Networks GmbH (“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 $2.4 billion (the “Rivada Agreement”). 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 the Company ultimately recognizes revenue and profit on this contract is subject to a number of uncertainties including, among other things, its ability to successfully perform its obligations, increase its manufacturing capacity in order to meet the demands of the program, and deliver operational satellites in a timely manner and Rivada’s continuing ability to fund contract performance and maintain its regulatory licenses for its operations. The amount of revenue recognized under the Rivada Agreement during the three months ended March 31, 2024 was $1.7 million. The Company did not recognize revenue under the Rivada Agreement during the three months ended March 31, 2023.

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.

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 $23.3 million and $19.6 million as of March 31, 2024 and December 31, 2023, respectively.

The following is a summary of contract assets, net, recognized in the condensed consolidated balance sheets as of the dates presented:

10


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

(in thousands)

 

March 31, 2024

 

 

December 31, 2023

 

Contract assets, gross

 

$

26,433

 

 

$

21,444

 

Allowance for credit losses

 

 

(63

)

 

 

(54

)

Contract assets, net

 

$

26,370

 

 

$

21,390

 

As of March 31, 2024 and December 31, 2023, all contract assets were classified as current assets.

There were no material impairments of contract assets during the three months ended March 31, 2024 or 2023.

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 March 31, 2024 and December 31, 2023, all contract liabilities were classified as current liabilities.

 

During the three months ended March 31, 2024 and 2023, the Company recognized revenue of $9.5 million and $21.0 million, respectively, that was previously included in the beginning balance of contract liabilities.

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 $33 thousand and $13.3 million as of March 31, 2024 and December 31, 2023, respectively.

The following table presents changes in the allowance for credit losses for the periods presented:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Beginning balance

 

$

182

 

 

$

764

 

Provision for credit losses

 

 

9

 

 

 

(23

)

Write-offs

 

 

-

 

 

 

(700

)

Ending balance

 

$

191

 

 

$

41

 

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 condensed consolidated balance sheets and as a component of cost of sales in the condensed consolidated statements of operations and comprehensive loss in accordance with Accounting Standards Codification (“ASC”) 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts.

11


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

The Company recorded decreases of $0.4 million and $1.7 million in cost of sales related to the reserve for anticipated losses on contracts during the three months ended March 31, 2024 and 2023, respectively.

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 condensed 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:

 

(in thousands)

 

March 31, 2024

 

 

December 31, 2023

 

Raw materials

 

$

17,917

 

 

$

18,284

 

Work-in-process

 

 

16,763

 

 

 

15,064

 

Total inventory

 

$

34,680

 

 

$

33,348

 

 

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. Depreciation expense is calculated using the sum-of-the-years’ digits or straight-line method over the estimated useful lives of the related assets as follows:

 

Machinery and equipment

 

5-7 years

Satellites

 

3-5 years

Ground station equipment

 

5-7 years

Office equipment and furniture

 

5-7 years

Computer equipment and software

 

3-5 years

Leasehold improvements

 

Shorter of the estimated useful life or remaining lease term

 

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 condensed 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 $2.4 million and $0.9 million during the three months ended March 31, 2024 and 2023, respectively.

 

Repairs and maintenance expenditures are expensed when incurred.

12


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

The gross carrying amount, accumulated depreciation, and net carrying amount of property, plant, and equipment, net as of the dates presented were as follows:

 

(in thousands)

 

March 31, 2024

 

 

December 31, 2023

 

Machinery and equipment

 

$

32,568

 

 

$

28,321

 

Satellites

 

 

2,209

 

 

 

2,209

 

Ground station equipment

 

 

2,095

 

 

 

2,095

 

Office equipment and furniture

 

 

4,216

 

 

 

4,621

 

Software

 

 

1,583

 

 

 

1,582

 

Leasehold improvements

 

 

21,869

 

 

 

21,800

 

Construction-in-process

 

 

10,106

 

 

 

9,210

 

Property, plant, and equipment, gross

 

 

74,646

 

 

 

69,838

 

Accumulated depreciation

 

 

(26,290

)

 

 

(23,389

)

Property, plant, and equipment, net

 

$

48,356

 

 

$

46,449

 

 

Construction-in-process primarily includes machinery, leasehold improvements, and ground station equipment not yet placed into service.

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.

There were no material impairments of property, plant, and equipment during the three months ended March 31, 2024 and 2023.

Note 5 Debt

Long-term debt (including accrued interest to be paid-in-kind) as of the presented periods was comprised of the following:

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

Issued

 

Maturity

 

Interest Rate

 

Interest Payable

 

March 31, 2024

 

December 31, 2023

Francisco Partners Facility

 

November 2021

 

April 2026

 

9.25%

 

Quarterly

 

$120,023

 

$120,023

Lockheed Martin Rollover Debt

 

March 2021

 

April 2026

 

9.25%

 

Quarterly

 

25,000

 

25,000

Beach Point Rollover Debt

 

March 2021

 

April 2026

 

11.25%

 

Quarterly

 

32,541

 

32,380

Convertible Notes due 2027

 

October 2022

 

October 2027

 

10.00%

 

Quarterly

 

115,041

 

112,251

PIPE Investment Obligation

 

March 2022

 

December 2025

 

N/A

 

N/A

 

15,000

 

16,875

Equipment financings(1)

 

 

 

 

 

 

 

 

 

2,182

 

2,287

Finance leases(2)

 

 

 

 

 

 

 

 

 

6,873

 

4,988

Unamortized deferred issuance costs

(2,530)

 

(2,664)

Unamortized discount on debt

(121,870)

 

(128,367)

Total debt

 

 

 

 

 

 

 

 

 

192,260

 

182,773

Current portion of long-term debt

12,839

 

11,740

Long-term debt

 

 

 

 

 

 

 

 

 

$179,421

 

$171,033

 

(1) - 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 interest and principal.

(2) - Refer to Note 14 “Leases” for further discussion.

13


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

There were no significant changes in the Company’s long-term debt during the three months ended March 31, 2024.

In April 2024, the Company paid $1.875 million of principal related to the PIPE Investment Obligation, which was outstanding as of March 31, 2024.

Note 6 Warrants and Derivatives

 

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, Distinguishing Liabilities from Equity, 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 condensed consolidated balance sheets and are remeasured at fair value as of each reporting period with changes in fair value recorded in the condensed 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 condensed 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 condensed consolidated balance sheets as of the presented periods were as follows:

 

(in thousands, except share and per share amounts)

 

Number of Issuable Shares as of
March 31, 2024

 

 

Issuance

 

Maturity

 

Exercise/Conversion Price

 

 

March 31, 2024

 

 

December 31, 2023

 

Public Warrants

 

 

19,221,960

 

 

March 2021

 

March 2027

 

$

11.50

 

 

$

3,076

 

 

$

1,346

 

Private Placement Warrants

 

 

78,000

 

 

March 2021

 

March 2027

 

 

11.50

 

 

 

12

 

 

 

5

 

FP Combination Warrants

 

 

8,291,704

 

 

March 2022

 

March 2027

 

 

10.00

 

 

 

-

 

 

 

21,476

 

2027 Warrants

 

 

17,253,279

 

 

October 2022

 

October 2027

 

 

2.898

 

 

 

11,465

 

 

 

9,842

 

Conversion Option Derivative

 

 

39,696,788

 

 

October 2022

 

October 2027

 

 

2.898

 

 

 

2,730

 

 

 

1,793

 

Warrant and derivative liabilities

 

 

84,541,731

 

 

 

 

 

 

 

 

 

$

17,283

 

 

$

34,462

 

During the three months ended March 31, 2024, the Company received notice from the holders of the FP Combination Warrants of their intent to exercise their right to redeem the FP Combination Warrants for $25 million in cash on March 25, 2025. Accordingly, the Company reclassified the fair value of the FP Combination Warrants as of March 31, 2024 from warrant and derivative liabilities to accrued expenses and other current liabilities on the condensed consolidated balance sheets.

The changes in liability-classified warrants and derivatives included in accrued expenses and other current liabilities on the condensed consolidated balance sheets during the three months ended March 31, 2024 were as follows:

14


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

(in thousands)

 

Current Warrant
and Derivative
Liabilities

 

 

Warrant and Derivative
Liabilities

 

 

Total

 

Balance as of December 31, 2023

 

$

-

 

 

$

34,462

 

 

$

34,462

 

Change in fair value of warrant and derivative liabilities

 

 

-

 

 

 

5,043

 

 

 

5,043

 

Reclassification of warrant and derivative liabilities to current warrant and derivative liabilities

 

 

22,222

 

 

 

(22,222

)

 

 

-

 

Balance as of March 31, 2024

 

$

22,222

 

 

$

17,283

 

 

$

39,505

 

There were no significant changes in the Company’s liability-classified warrants and derivatives during the three months ended March 31, 2023, except for changes in fair value.

Equity-classified Warrants and Derivatives

As of March 31, 2024, 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

 

 

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

 

 

 

 

 

 

 

 

There were no significant changes to the Company’s equity-classified warrants and derivatives during the three months ended March 31, 2024 and 2023.

 

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:

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly.

 

Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

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

The fair value of Terran Orbital Corporation’s common stock was based on the quoted market price as of each relevant valuation date.

Warrants and Derivatives

15


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

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 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 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.

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:

 

 

 

March 31, 2024

 

 

December 31,
2023

 

(in thousands)

 

Carrying Amount

 

 

Fair Value

 

 

Carrying Amount

 

 

Fair Value

 


Long-term debt

 

$

185,387

 

 

$

288,671

 

 

$

177,785

 

 

$

285,918

 

 

As of March 31, 2024 and December 31, 2023, 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

The Company is authorized to issue up to 600 million shares of common stock with a par value of $0.0001 per share. Each share of common stock entitles the shareholder to one vote.

Preferred Stock

The Company is authorized to issue up to 50 million shares of preferred stock with a par value of $0.0001 per share. There were no shares of preferred stock issued and outstanding as of March 31, 2024 or December 31, 2023.

16


 

TERRAN ORBITAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

Rights Agreement

On March 4, 2024, the Company entered into a Rights Agreement (the “Rights Agreement”), as amended on April 18, 2024, 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 that acquires 15% or more of the Company’s outstanding common stock, including through derivatives agreements, without the approval of the Company. The Rights Agreement should not interfere with any merger or other business combination approved by the Company.

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 $0.0001 per share (“Preferred Shares”), for $5.35, subject to adjustment under certain conditions, once the Rights become exercisable. This portion of a share of Preferred Stock would give the holder thereof approximately the same dividend, voting, and liquidation rights as would one share of the Company’s common stock. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights. The Rights will expire in one year but may be extended for an additional two years, subject to shareholder approval.

Note 9 Share-Based Compensation

Share-based compensation expense totaled $3.8 million and $10.2 million during the three months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024, the Company granted approximately 2.5 million restricted stock units (“RSUs”) with a weighted average grant date fair value of $