Leadership Missteps Have Resulted in Multiple
Highly Dilutive Financings and Share Price Decline of ~94% Since
Going Public in March 2022 Despite Estimated $3 Per Share Present
Intrinsic Value
Believes Urgent Board and Management Changes
are Required to Remediate Self-Inflicted Harm, Drive Share Price
Appreciation, Minimize Operational Risk, Optimize Long-Term
Stockholder Value and Restore Market Credibility
Terran Board Must Immediately Separate Roles of
CEO and Chairman and Install New Highly Qualified CEO, Establish
Best-in-Class Corporate Governance by De-Staggering and
Reconstituting the Board, and Conduct a Strategic Review
A group of concerned investors (the “Concerned Investor Group”)
in Terran Orbital Corp. (NYSE: LLAP) (“Terran” or the “Company”)
comprised of Sophis Investments LLC, Roark’s Drift LLC, and Tyvak
Nano-Satellite Systems’ Co-Founders, Jordi Puig-Suari, Roland
Coelho and Austin Williams, sent a letter to Terran’s Board of
Directors (the “Board”) detailing the path required for Terran to
regain market credibility and restore stockholder value. The
Concerned Investor Group, together with certain affiliates,
beneficially owns 16,581,465 shares of common stock of the Company,
representing approximately 8.4% of the shares outstanding.
Despite Terran’s significant competitive advantages, the Company
is now meaningfully undercapitalized and operating from a position
of weakness due to leadership missteps, lack of internal controls,
poor corporate governance, and a loss of public market confidence.
Moreover, the public markets have been unable to reflect the
intrinsic value of the Company, which the Concerned Investor Group
estimates to be at least $3.00 per share today, as set forth in
more detail below. The Concerned Investor Group believes the issues
plaguing Terran are largely self-inflicted and can be remediated
with the right management team and Board who are collectively
committed to putting the Company on a path towards profitable
growth.
The Concerned Investor Group’s three-pronged approach it
believes the Board must pursue immediately is as follows:
- Separate the role of CEO and Chairman and install a new
CEO with demonstrable industry experience and a track record of
outperformance, who can turn around the operational, cultural, and
capital allocation issues plaguing the Company.
- Evaluate and implement best-in-class corporate governance
practices by, among other things, de-staggering and
reconstituting the Board to ensure it is best positioned to provide
proper management oversight and act as fiduciaries with a
stockholder-first mindset.
- Commence a comprehensive strategic review process and
retain outside financial and legal advisors to evaluate all
strategic alternatives and opportunities available to maximize
stockholder value.
The Concerned Investor Group is sharing its letter to the Board
publicly so that all stakeholders understand the urgency facing the
Company, and stockholders recognize the steps that it believes are
required by the Board to protect and unlock the significant upside
potential embedded in their investment.
The full text of the letter follows. For additional information,
please visit: www.llapvalue.com.
October 11, 2023
Terran Orbital Corporation 6800 Broken Sound
Parkway NW, Suite 200 Boca Raton, FL 33487 Attention: Board of
Directors
Re: Optimizing Long-Term Stockholder Value
While Minimizing Risk
Dear Members of the Board of Directors,
Sophis Investments LLC, Roark’s Drift, LLC,
Austin Williams, Roland Coelho, Jordi Puig-Suari and certain of
their respective affiliates (collectively, the “Concerned Investor
Group,” “we” or “our”) beneficially own, in the aggregate,
16,581,465 shares of common stock of Terran Orbital Corporation
(“Terran” or the “Company”), representing approximately 8.4% of the
shares of common stock outstanding. We write to you as aligned,
long-term stockholders and experienced Aerospace & Defense
investors seeking a constructive dialogue to protect and maximize
the material value we believe is embedded within Terran. Jordi
Puig-Suari, Roland Coelho and Austin Williams are Co-Founders of
Tyvak Nano-Satellite Systems, Inc.’s (“Tyvak”), the Company’s
primary operating subsidiary, and care deeply for Terran’s success
today and for years to come.
Tyvak was founded in 2011 on the principles
of innovation, integrity, and a relentless pursuit of excellence,
establishing a reputation and culture for transforming the industry
by executing never-been-done-before missions on timelines and
budgets that radically increased industry capabilities. While we
believe Tyvak’s significant competitive advantages developed over
the last decade remain with the Company—including its
industry-leading technical capabilities, flight heritage across a
diverse set of missions and orbital regimes, market position,
vertical integration, deep bench of highly dedicated and talented
employees, low cost, and speed to market—the Company is operating
from a position of weakness due to leadership missteps, lack of
internal controls, poor corporate governance and a loss of
credibility in the public markets.
Despite claiming an order backlog of more
than $2.6 billion,1 as of today, Terran’s stock has fallen
approximately 94% since its March 2022 public market debut,2 with
the Company’s mistimed and poorly executed de-SPAC transaction
leaving it in constant need of cash. In addition to being
undercapitalized, Terran’s materially misaligned compensation
incentives and its reckless “growth at all costs” philosophy have
significantly harmed the business, resulting in a lack of trust by
the market, an inability to raise money on favorable terms, and
highly-dilutive follow-on share offerings. Stockholders have seen
the value of their investment dwindle, and while we expect the
Company can continue to win new contract awards over the near term,
we do not believe that it can effectively scale towards
profitability without addressing underlying strategic and
operational issues.
We recognize that many SPACs have
underperformed in the public markets, however, we believe the issues plaguing Terran are largely
self-inflicted and can be remediated if the right management team
and directors are installed immediately. Accordingly, time is of
the essence.
Terran must regain market credibility and
more favorable access to capital, which we believe can only be
achieved through a meaningful change in leadership and greater
operating efficiency. Given the urgency that we believe exists, it
is in the best interests of all of the Company’s stakeholders that
we share our concerns publicly. To that end, we recommend that the
Company’s Board of Directors (the “Board”) pursue the following
strategic steps immediately, as set forth in more detail below:
- Separate the role of CEO and Chairman and install a new
CEO with demonstrable industry experience and a track record of
outperformance, who can turn around the operational, cultural, and
capital allocation issues plaguing the Company.
- Evaluate and implement best-in-class corporate governance
practices by, among other things, de-staggering and
reconstituting the Board to ensure it is best positioned to provide
proper management oversight and act as fiduciaries with a
stockholder-first mindset.
- Commence a comprehensive strategic review process and
retain outside financial and legal advisors to evaluate all
strategic alternatives and opportunities available to maximize
stockholder value.
I. SEPARATE THE ROLE
OF CEO & CHAIRMAN AND HIRE A NEW CEO WITH DEMONSTRABLE INDUSTRY
EXPERIENCE AND CREDIBILITY
Separating the role of CEO and Chairman is
in-line with corporate governance best practices and highly
correlated with sustained superior long-term returns. We believe
separating these roles would immediately restore Terran’s market
credibility while demonstrating the Board’s commitment to acting in
the best interests of its stockholders rather than itself.
Given the highly technical and sensitive
nature of designing and manufacturing satellite components for the
U.S. government and commercial customers, this role requires deep
industry expertise, relationships, and a technical understanding of
satellite systems. To that end, we have identified a highly
credible and qualified CEO candidate with over 30 years of relevant
industry experience, operational and financial expertise, and
leadership capabilities required to restore market confidence in
Terran’s world-class offerings. In addition to a proven track
record of raising billions of dollars in funding for businesses
with which he has been involved in attracting and retaining top
talent within the Aerospace & Defense industry, our CEO
candidate has deep relationships with many prospective customers of
Terran.
Based on our rigorous due diligence, we
believe our CEO candidate can attract and work to close on more
than $1.7 billion of potential satellite orders as well as a
pipeline that spans more than 12 separate customers. Furthermore,
we believe that a new CEO, namely our identified CEO candidate,
will help Terran to attract the needed capital on favorable terms,
minimizing future dilution to stockholders and providing
prospective customers and employees with the confidence to conduct
business with the Company going forward. In addition, we believe,
if installed, our CEO candidate would attract and retain world
class talent. As just one example, provided these recommended
changes are made, Austin Williams, former Terran Chief Technology
Officer and Co-Founder of Tyvak, would welcome the opportunity to
explore returning to the Company he helped build over the last 12
years.
II. RECONSTITUTE THE
BOARD AND IMPLEMENT BEST-IN-CLASS CORPORATE
GOVERNANCE
For a CEO to be successful, he or she must
have the unwavering support of a board of directors that is
committed to driving value for all stockholders. In addition to
separating the roles of Chairman and CEO, we believe that the Board
needs fresh perspectives from directors willing to make hard but
informed decisions and institute corporate governance best
practices.
In our view, the current Board lacks the
ability to provide proper oversight of management. To wit, the
Nominating and Corporate Governance Committee has seemingly
rubberstamped poor corporate governance practices, with the members
thereof earning negative voting recommendations from Institutional
Shareholder Services, Inc. in connection with the Company’s 2023
annual meeting of stockholders; the Audit Committee has overseen
material weaknesses in internal controls and negative
Estimate-at-Completion (EAC) accounting adjustments; and the
Compensation Committee has approved excessive compensation to
management, regardless of the return to stockholders. As an example
of misaligned executive compensation incentives, based on our
review, it appears management is rewarded for expanding capacity
and headcount, as well as chasing a customer backlog regardless of
its funded status and whether profits result.
In order to enhance management oversight, we
have identified several highly credible, qualified, and independent
director candidates who are committed to working on behalf of all
stockholders and have the industry, financial and operational
expertise required to transform Terran. We believe that the Board
must be de-staggered and reconstituted with the four replacement
director candidates that we have identified to ensure improved
management and Board accountability. Installing new directors best
suited to work as fiduciaries for all stockholders will help put
the Company on a clear path toward value creation.
Our candidates are prepared to join the Board
immediately. We stand ready, willing, and able to work
constructively with the Board to expedite the process.
III. CONDUCT A
STRATEGIC REVIEW TO EVALUATE STRATEGIC OPPORTUNITIES
We believe that Terran has several potential
strategic opportunities available to maximize value for
stockholders and other stakeholders. Potential strategic
alternatives may include a sale of the Company to Lockheed Martin
Corporation (“Lockheed”) at a substantial premium, negotiating a
debt guarantee from Lockheed, or entering into similar transactions
with a strategic third-party.
Critically, any strategic review must be
conducted after the Company has been stabilized under a
reconstituted board of directors, best positioning it to execute
the next step of its business transformation with regained market
confidence. We believe our roadmap represents a potential return of
multiples of the current share price over a reasonable timeframe,
whereby the Company reverses negative market sentiment, procures
material new contracts, realizes a higher share price, secures
additional financing on favorable terms, and becomes generally
de-risked heading toward a bright future on a standalone basis.
To assist with an optimal strategic review
process and ensure an unbiased analysis for all stockholders, we
would urge Terran’s Board to retain a leading independent
investment banking firm, specializing in the Space sector and
highly regarded by market participants.
Conclusion
Terran is an integrated, high growth,
innovative company delivering complex state-of-the-art solutions to
mission critical applications, with satellite manufacturing
operations of increasing national strategic importance and some of
the industry’s most talented experts and engineers. The Company and
its stockholders should be able to enjoy the benefits of having the
right product portfolio during the best time the satellite industry
has seen in 30 years. Unfortunately, operational and financial
missteps, coupled with a lack of oversight and accountability at
the Board level, have left stockholders in a perilous position.
Indeed, the public markets have been unable
to reflect the intrinsic value of the Company, leaving Terran’s
shares trading at a material discount to our estimate of private
market value. At the current price of $0.7223 per share, we
estimate that shares trade at a 75.9% discount to our present
intrinsic value estimate of $3.00 per share. We calculate our
estimate of present intrinsic value per share based on an
Enterprise Value-to-Sales valuation multiple of 2.0x our future
2027E revenue estimate of $1.4 billion, discounted back five years
at a rate of 20% per annum, or $7.50 per share at year end 2027
incorporating outstanding warrant and convertible securities share
issuances. We anticipate that additional dilution from potential
financings, which may be required in the future, may reduce our
price targets by about 12%, yet still represent over 250% upside to
our estimate of present intrinsic value per share.4
As outlined, we believe Terran and its
stockholders would materially benefit from stronger management of
its people and resources, stewardship of cash, cost rationalization
and a broader customer base—all of which our highly credible and
qualified CEO candidate, who has a demonstrable track record of
success and deep contacts within the satellite industry, is
prepared to immediately deliver. Furthermore, the Company’s
co-founders supporting this effort are each ready, willing and able
to engage with the Board and offer their deep expertise regarding
Terran and the industry to the benefit of the Company and its
stockholders.
We believe that our three-pronged plan for
the Company—(1) installing a new CEO, (2) instituting best-in-class
corporate governance practices and (3) conducting a strategic
review under reconstituted leadership—if enacted, has the potential
to position Terran to reestablish itself as the respected and
valuable company it once was, with a share price floor above $3.00
per share.5
We hope to constructively engage directly
with the Board on the matters outlined in this letter at your
earliest convenience. We are highly confident that doing so will
maximize long-term value for Terran and is in the best interests of
the Company’s stockholders, employees, and customers. We look
forward to your prompt response.
Kindest regards,
Tassos D. Recachinas Sophis Investments, LLC,
on behalf of the Concerned Investor Group
Olshan Frome Wolosky LLP is serving as legal counsel to the
Concerned Investor Group.
About the Concerned Investor Group
The Concerned Investor Group is comprised of Sophis Investments
LLC, Roark’s Drift LLC, and Tyvak Nano-Satellite Systems’
Co-Founders, Jordi Puig-Suari, Roland Coelho and Austin Williams
and certain affiliates thereof. Sophis Investments LLC is a
supportive, long-term investor and seeks to establish constructive
dialogues with issuers as appropriate. The Concerned Investor
Group, together with affiliates, beneficially owns 16,581,465
shares of common stock of the Company, representing approximately
8.4% of the shares outstanding.
1 Terran Q2 Earnings Release August 14,
2023
2 Bloomberg. Satellite Startup Terran
Orbital Falls in Debut After SPAC Deal
3 As of the close of business on October
11, 2023
4 Sophis Investments LLC internal
estimates
5 We estimate a current present intrinsic
value of $3.00 per share, with $2.70 per share reflecting the
adjusted estimated present intrinsic value, incorporating an
illustrative additional 65 million new shares issued in exchange
for $65 million additional cash at an illustrative $1.00 per share,
or illustrative “maximum potential dilution.”
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231012923235/en/
For Media Nathaniel Garnick/Amanda Shpiner Gasthalter
& Co. (212) 257-4170 LLAPvalue@gasthalter.com
For Investors Tassos Recachinas Sophis Investments LLC
(212) 572-6360 contact@LLAPvalue.com
Terran Orbital (NYSE:LLAP)
過去 株価チャート
から 7 2024 まで 8 2024
Terran Orbital (NYSE:LLAP)
過去 株価チャート
から 8 2023 まで 8 2024