While inflation and macroeconomic uncertainty continued, interest in space demand drew attention from notable investors, international governments and key players in the federal contractor market in Q3. Space and intelligence players navigated their short- and long-term objectives to successfully execute mission-critical milestones, hedge supply chain and inflationary constraints, and impress investors in their pursuit of becoming market leaders.
Executives shared their perspectives recently in earnings calls that covered their companies’ third-quarter results. Five themes emerged from the calls, transcripts of which were provided by Bloomberg.
Financial and strategic investors are all in
Investors see significant opportunities to forge relationships to deliver innovative technology solutions to defense and civilian customers. Lockheed Martin’s $300 million investment in Terran Orbital shows investor appetite has not slowed through 2022.
Marc H. Bell, CEO of Terran Orbital, said the expanded partnership with Lockheed Martin would drive cost-effective measures for the company’s industrialized production satellite solutions to steer the firm toward profitability. Bell said the investment would help the company acquire incremental satellite assembly space, increase production capabilities and accelerate manufacturing processes. He believes the expanded partnership will promote the importance of critical national security missions, which aligns with other contract opportunities through the company’s rapport with a major federal contractor.
Peter Cannito, CEO of Redwire Corporation, said the increased strength of the company’s balance sheet and liquidity position was attributable to the $80 million investment from notable industry investors AE Industrial Partners and Bain Capital. The capital will support Redwire’s growth initiatives and finance its acquisition of the Belgium-based space company QinetiQ Space NV. This is part of Redwire’s continued effort to improve operational leverage and expand into European countries.
International traction continues to climb
Demand for geospatial information related to strategic assets and locations, spaceport services and satellite solutions continues to capture the attention of international governments and allied partners, as year-over-year revenues climbed during 2022.
Brian O’Toole, CEO of BlackSky Technology, Inc., said expansion of the company’s international sales team and strong global demand yielded significant international revenue increases. He said such initiatives resulted in an international customer base expansion, which helps reinforce the demand for the company’s high-frequency imagery and analytics services.
According to Dan Hart, CEO of Virgin Orbit Holdings, Inc., multiple countries are interested in the company’s international spaceport sector. These nations include Australia, South Korea and Luxembourg, which is a key logistics hub for NATO.
The company will undertake the first orbital launch from the United Kingdom’s soil and the first orbital spaceport in Western Europe. Hart anticipates the Cornwall launch will provide a playbook for other allied nations to develop spaceport capabilities in supporting local space economies and government needs.
From a macroenvironment perspective, Terran Orbital’s Bell acknowledged the critical importance of satellite solutions to both the United States and its allies, which depend upon space-based assets, missile tracking, communication and geospatial intelligence. He said the increased vulnerability of traditional large satellites to light weaponry from hostile powers has sparked demand for a distributed network of numerous small satellites, which is Terran Orbital’s area of expertise. Bell said escalated global tensions from Russia—based upon Vladimir Putin’s announcement that U.S. satellites may become a legitimate target for Russian anti-satellite attacks—illustrates this demand.
Subcontracting as a penetration tool
Space companies are subcontracting with large federal contractors to build their market presence for future government opportunities. Even the largest federal contractors seek space-service acumen to help execute mission-critical objectives for their government customers.
Bell noted increased opportunities for Terran Orbital, given that Lockheed Martin initiates significant subcontractor work because of its capacity as acting prime.
Daniel L. Jablonsky, CEO of Maxar Technologies, Inc., announced that L3 Harris Technologies had selected Maxar as a subcontractor to procure buses for the company’s fleet of 14 satellites. Jablonsky said Maxar is reengineering its manufacturing footprint and space-design architecture.
New opportunity abounds
The Federal Communications Commission (FCC) established a new rule requiring satellite operators to remove their satellites from low earth orbit within five years following mission conclusion. The goals are to combat the challenges of orbital debris and promote space sustainability. Significant customer demand for satellite-deorbiting services could increase contract proposal efforts.
John Rood, CEO of Momentus, Inc., said the FCC previously required deorbiting within 25 years following mission conclusion. He applauded the FCC for its proactive approach in resolving both the short- and long-term challenges of space access and sustainability, which orbital debris threatens. Rood anticipates a significant demand for complex satellite deorbiting services, and he said Momentus’ early development investments will promote a competitive advantage ahead of other market players.
Inflation is still causing pain
Many companies insulated themselves from inflation by utilizing early subcontractor signing to control costs on firm-fixed-price contracts, renewing contracts with favorable pricing and amending pricing through economic pricing adjustments. Some companies have moved toward reusing rockets and capitalizing on existing infrastructure (e.g., transforming airports into spaceports) to minimize local environmental impacts and lower capital expenditures.
Cannito said Redwire’s cost-plus-fixed-fee contracts can absorb inflation impacts, but challenges lie within firm-fixed price contracts, given the company’s responsibility for changes in cost versus bid. Regarding firm-fixed price contracts, he said inflationary impacts are hedged via early subcontractor signings to lock in previously established pricings. Cannito said adhering to industry best practices on cash milestone payments will permit Redwire to capitalize on upfront cash inflows.
Peter Beck, CEO of Rocket Lab USA, Inc., said rocket reusability can lead to cost savings. Beck said strong margin performances can be attained by salvaging a rocket, given that the majority of costs are for a rocket’s initial construction.
Hart said Virgin Orbit Holdings has improved operational efficiency through airport conversions into spaceports. This has permitted the company to capitalize on existing infrastructure where a traditional ground launch may not be practical.
Executive optimism is strong despite continued inflationary constraints in an evolving competitive landscape. Healthy capital investments, strategic initiatives and heightened attention from allied nations keep the space ecosystem in orbit. Investors, international governments and major federal contractors are looking up in anticipation, as executives close the final quarter of the calendar year.