Closing Bell - Manifest Space: Lockheed Martin’s Takeover Attempt with Terran Orbital CEO Marc Bell 3/7/24

Episode Date: March 7, 2024

Terran Orbital, a small satellite maker which went public in a SPAC deal in early 2022, received an unsolicited takeover offer from supplier and investor Lockheed Martin last Friday. The defense prime already owns 28% of the company and now wants to buy the company in a deal valued just under $600 million—significantly below the market valuation when the company first went public at $1.8 billion. Terran Orbital quickly adopted a poison pill – or shareholder rights plan- as the company hopes to solicit other offers and strategize accordingly. CEO Marc Bell joins Morgan Brennan to discuss the company’s future as consolidation continues in a shifting satellite market.

Terran Orbital went public through a SPAC deal in early 2022, with a market valuation of $1.8 billion. Two years later, the stock, ticker LLAP in a nod to Star Trek, is down 90%, hovering around a buck a share, as unprofitable companies, especially SPACs, have been hit hard amid high interest rates and a market pivot. Terran Orbital's future may look different. Lockheed Martin, which already owns a stake in the small satellite maker and is a key customer, made public its intention to buy the new space company in a deal worth nearly $600 million. In response, Terran Orbital quickly adopted a shareholder rights plan, or poison pill, as it hopes to entertain other offers and build on

a strategic process started months ago. CEO and chairman Mark Bell says Taron Orbital is the last independent manufacturer of small sats in the U.S. that can do classified work and do so at lower price points. Big primes have 100,000 employees. We have 650 employees. We're able to do massive throughput with very little people, a lot of robotics, a lot of high tech ways of doing things. It's just a different way of doing business. So these new space primes that are being built all across all across this country are going to dramatically change how satellites get built today. While companies like Northrop Grumman are laying off a thousand employees, people like us are continuing to hire and build.

Investors have shunned the stock in recent years, but customers have not. Over the past week alone, the company has won multiple government contracts and had several satellites launched to orbit. On this episode, Bell discusses the future of Terran Orbital as consolidation continues in a shifting satellite market. I'm Morgan Brennan, and this is Manifest Space. Joining me now, Mark Bell, the CEO and Chairman of Taron Orbital. Mark, it's so great to have you on. Thanks for joining me today. Thank you, Morgan, for having me today. I'm thrilled to be here.

So you have a lot going on at Taron. You have had a lot going on. But I want to start with some of the more recent news, which is the fact that one of your largest shareholders, Lockheed Martin, is actually looking to acquire the company. Walk me through it. We were notified Friday afternoon, Lockheed Martin, probably the SEC, that they were offering to buy the company for a dollar a share. That we found out about it when the rest of the world found out about it. And Lockheed has been a strategic investor of ours and a partner of ours for many years. We are thrilled to work with them and continue to hope our partnership grows as time goes on. That said, the board has a fiduciary duty in evaluating their offer and the other transactions and offers we may receive.

To give some background, we started a formal strategic review process for strategic alternatives a few months ago. We hired Jeffries to do that. We are looking at everything from investment to a sale, to take private, to alternative strategic relationships. And so with that said we are um you know doing our fiduciary duty uh we did enact a uh a rights plan uh on Monday morning just to ensure that there's an orderly process here and to derive the best value for all of our shareholders but we have but we are thrilled at the validation that they're offered did give tern orbital and it's amazing. And it showed $600 million what they value Terran Orbital at. Yeah. I just think it's interesting that you were surprised as I was when I saw that filing cross. Are you already engaged in conversations with other potential investors or buyers? We've had many conversations with many people and we continue to run our process.

We have no deadline to our process and our goal is to have maximum value for all our shareholders. Now, I remember you and I sat down when you took the company public, which you did via SPAC. At the time, I think it was valued at $1.8 billion. We're talking about a sale potentially of $600 million that's being offered by, or a purchase that's being offered by Lockheed Martin. What would the benefits be of, I guess, why explore these strategic options? What would the benefits be of being acquired or doing a take private or basically not being a standalone publicly traded company anymore? Well, we think for every company that we've run over the decades, we always run strategic processes just as a checkmark to make sure that we are always looking to maximize shareholder value. Doesn't mean we're gonna sell the company,

doesn't mean we're gonna take it private, doesn't mean we're gonna take an investor, but we wanna look and see what options are always out there. So the goal is always to maximize shareholder value. And you know, in some days, you know, we look at yesterday as a great example, as a great day. You know, we want a $15 million contract from Air Force Research Labs or AFRL. We won a $45 million IDIQ from NASA.

And we put two satellites in orbit late in the day for Lockheed Martin. So yesterday was an amazing day here in Taron. And we look forward to many more amazing days in the future. So let's talk a little bit about what you are doing what you are doing at Taron Orbital, because you're in the satellite business. And the way I would sort of see it, or the way I would phrase it, tell me if this is right, is, is you're making, you're making the satellite business more commoditized, more accessible, more affordable, more mainstream. Yeah. I mean, the way we look at our business is, you know, we produce space vehicles, buses, in our case is mostly what we produce.

That's the guts of a satellite. You have the part that runs the payloads. You have the bus, you have the payloads on top of it, which is the mission. And we control our supply chains. We've done it very differently than most primes have done in the past. Most primes subcontract out their supply chain. We make our own reaction wheels, our own flight computers, our own star trackers, our own power systems. And we own all of our own technology and we call them Legos. So they all

fit together and they all work together. So we know that every time we launch a satellite, it should work perfectly every time. And by doing this with robotics and standardization, we've dramatically lowered the cost of manufacturing a satellite and dramatically increased the reliability. So it's a lower cost, a higher reliability, and a higher functionality is what we bring to the marketplace. So when we talk about lower costs, just how much lower? And just how quickly can you actually develop and produce these satellites and the space hardware? Great questions. So what used to cost billions, we could do for millions. What used to take a decade, we could do it in months.

I mean, we literally are we're going to be down by the end of this year. We'll be able to produce a full space vehicle in 60 days and a satellite bus in 30 days, which is unheard of for an industry that used to take 10 years to build a full satellite. And it used to take over a billion dollars to build it. So we can do for 10 million what the world used to do for 1 billion. It's a major game changer of what's going on out there. And so what does that mean in terms of the proliferation of satellites and constellations and spacecraft in space? It's the Wild West. I mean, you're seeing Congressman Michael Waltz mentioned and when General Salsman was testifying that in the U.S. alone, the FCC had applications and permits for over 60,000 satellites to be launched. That's 60,000. And that's just the US alone. That doesn't include any foreign countries, all the other 190 countries in the ITU. So there are hundreds of thousands of satellites that people are contemplating and

building to go up in orbit. And there's only so much capacity. And we are the last independent manufacturer that I'm aware of, of small sets in the United States that can do classified work. and there's only so much capacity. And we are the last independent manufacturer that I'm aware of, of small sets in the United States that can do classified work. So we are in a very unique position and I like to think we're the pole position for a lot of the future.

So given the fact that you are able to do that classified work, where's the bigger opportunity moving forward? Is it on the commercial side or is it on the government side and particularly the national security side? Depending on what you ask me, I can answer it one of two ways. I think right now with this great power competition going on, the national security space is a massive opportunity,

but commercial is catching up. Everybody used to build satellites at GEO in the last 25 years that were obsolete the day they were launched. We can design, build, and launch a satellite while your current iPhone 15 is still being made. And so my current technology, getting into low-earth orbit, is far more economical than putting satellites in geosegmentous orbit. So you just mentioned that you've been awarded a couple contracts. You also just launched some satellites for Lockheed Martin. What does that book of business look like? I guess, what are some of the key milestones from a launch and deployment standpoint for Taron this year and beyond? I mean, we have, for example,

working on Trunch One for the transport layer for the proliferated warfighter architecture that's being built by the Space Development Agency. I think the SDA has it right. I know there's been a lot of conversations about that. The SDA has a firm fixed price contract approach. The DoD historically has been on a cost plus approach. So primes had no incentive to do things cheap

because the more they spent, the more they made. With a firm fixed price and the accelerated timetables, Dr. Torornow has showed the world that it can be done. It can be done inexpensively, and it can be done quickly, and still be done with the quality that the DoD demands and requires. So it's been a game changer. So we've got Trunch 1 going on. We have Trunch 2 Beta for the Transparelator that we're working on,

and we have other programs we're working as well for the U.S. government. So it's exciting. I think we have over 121 satellites right now on the production line being built, which is very exciting. Do you have enough production capacity for what you expect the future demand pipeline to look like? We will never have enough capacity, I joke. We have a building under construction now that will open later this year. It's the size of two football fields and we expect that facility to be fully committed by the time it's open. Just like our facility that we just opened recently, by the time it opened, which is a new 20,000 square foot clean room, that was fully committed by the time it opened. The demand

is incredible that's out there, both for the military, for the intelligence community, for commercial customers, both domestic and abroad. I mean, it's a global marketplace. It's truly incredible. So you just talked about the shift to fixed price contracts that we've seen across the industry and what that means for opportunity for a company like Terran Orbital. I just wonder what it means for how the government does business with Primes overall, particularly, I guess we'll use space as kind of the example, like how much this business model is changing, how much it will continue to evolve, and what it means for this debate that we continue to see of proliferated architecture and this idea of low cost, many, many satellites going to orbit versus some of the more exquisite, expensive, high tech,

takes a long time to build satellites. Because there is this debate on how much we need of each right now. So, you know, I think of it a little bit as, you know, people call us a new space SPAC. And SPAC became a bad word on Wall Street. Everybody was anti-SPAC. So I'm thinking, you know, these really change us to new space primes. Because now you have these companies like us that are becoming primes. And we're changing the way we do business. Big primes have 100,000 employees. We have 650 employees. We're able to do

massive throughput with very little people, a lot of robotics, and a lot of high-tech ways of doing things. It's just a different way of doing business. So these new space primes that are being built all across this country are going to dramatically change how satellites get built today. While companies like Northrop Grumman are laying off 1,000 employees, people like us are continuing to hire and build do you have enough people we definitely don't have enough people we never have enough space we never have enough people okay i can say we never have enough money but we're in good shape money-wise but you know it's always about how do we how to continue to grow we're trying to grow faster capture market share continue to improve our products we build satellites in leo today

we're working next on micro geo and then neo we already reduced this lunar we have this great satellite going around the moon right now called capstone that hit was over 400 days we've been flying and operating which is amazing and phoning home every day and that was part of a test fit for a future communications network around the moon for what would be eventually a permanent moon base and permanent moon station so it's really amazing the types of technologies we get to work on, amazing people we get to work with across this country. So what does the company look like five years from now, 10 years from now? Do you expand beyond satellite buses and some of the technology,

some of the hardware that you're currently sending to space? How do you think about it? We are definitely going to expand beyond satellite buses, expand the technology, some of the hardware that you're currently sending to space? How do you think about it? We are definitely going to expand beyond satellite buses, expand the technology. We are looking at everything from, you know, we would love to do a lunar lander. We'd love to do a lunar rover. We would love to do all sorts of other types of vehicles in space, space debris, space situational awareness. We'd love to get around space refueling, space replenishment. I mean, there's a huge market out there that has all of a sudden become price effective, cost effective, and realistic. You know, a decade ago, people would have laughed at what we were talking about today. But responsive space is truly where we think we're going. And so then what I mean by

responsive space is you know ordering a satellite and getting it within 30 days getting something quick getting something fast and we're getting to that point we're beginning to stock components stock buses we announced seven standard buses earlier this year we've announced some more buses later this last year and i mean earlier last year later we'll have some new buses coming out of satellite 2024 and we continue to innovate and create standards and these just like the cubesat which is standard we created and we proliferated we're creating new standards of buses uh that will be the buses that we hope everybody will use for the next decade so what does path to profitability

look like in all of this so a great great question. So first it was about revenues. You know, we've got over $2 billion in backlog right now, pipeline backlog right now. We have a $20 billion pipeline. So first it's about revenues. I think we're cheating them on the revenue side. Then it's about gross profit. We went from 0% to 10 to 15.

The goal is to get more on our tracking on our way to get to 30% gross profit margins. Then EBITDA. So we're tracking now to get the EBITDA, our way to get to 30% gross profit margins. Then EBITDA. So we're tracking now to get the positive EBITDA at the end of this year. Then getting to net income positive and that'll happen next year. And then we use the cash flow that we have either to pay off the debt that we have or refinance it. So more importantly, as we continue to hit our milestones internally, we continue to

grow and that's the part of part. And in terms of, I think you already touched on this earlier, but just to bring it full circle in terms of when and how you could potentially see some sort of deal, whether it's an investment or whether it's an acquisition play out for Taron Orbital, is there, is there a timeline, an actual set timeline? There is no timeline for this. We it's a process we're going through we're going to take our time we've set up an independent committee on the board to evaluate and review these processes uh so i thought i thought it was better to separate myself from

from the process and i think it's important from good corporate governance to allow the independent directors to be the ones driving the process and uh so without without undue influence and i think it's important. And so we're doing it that way. All right. Mark Bell of Terran Orbital. Thanks so much for joining me. Great to speak with you.

Thank you for having me today. It's great to see you. That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage

on Closing Bell Overtime. I'm Morgan Brennan.