Redwire Stock vs Terran Orbital Stock: Is There a Winner?

In the parlance of Trekkies, we’ve had to issue a couple of Red Alerts this month to Nanalyze subscribers concerning our two favorite space stocks. The first came after shares of Planet Labs (PL) dropped 15% following news that the company missed revenue expectations for the quarter and revised their 2023 fiscal year guidance downward for the second time this year. Meanwhile, Rocket Lab (RKLB) stock crashed by 25% following a recent rocket failure that may disrupt the flow of revenue.

Beyond PL and RKLB, retail investors keen on space stocks are pretty short on other options outside of a legacy space company called MDA (MDA.TO) that is pretty well diversified across geospatial intelligence, robotics and space operations, and satellite systems. MDA is growing revenues at a good clip but has its own drawbacks, though it recently cleared $1 billion in market cap, so maybe investors are starting to take notice.

Stocks the Space Opera

Meanwhile, other space stocks (all former SPACs) are kind of a mess.

Small launch company Virgin Orbit has gone out of business. Another small launch company, Astra Space (ASTR), is probably not far behind after a recent 15-1 reverse stock split with just a $40 million market cap and $3.5 million in revenue over the last 12 months. Momentus Space (MNTS), a space transportation and infrastructure company, appears to have zero momentum with a market cap of just $6 million and non-existent revenue. Virgin Galactic (SPCE) is finally starting to fly tourists into space but has yet to post significant (or really any) revenues this year. Ditto for AST SpaceMobile (ASTS) and its ~~pie~~ cell towers in the sky.

Wildfires in Greece earlier this summer. Geospatial intelligence is one of the more mature but less risky businesses in the emerging space industry. That’s one reason why we have invested in the leader in geospatial intelligence. Credit: Planet Labs

Geospatial intelligence companies BlackSky (BKSY) and Spire Global (SPIR) are both seeing significant revenue growth but with market caps well below $200 million. A third geospatial company, Satellogic (SATL), is similarly valued but with just a fraction of the revenues. Since we’re already long on the clear leader in geospatial intelligence, we’re not really interested in any of these companies until they pose a serious risk (or become a viable alternative) to our investment.

That just leaves us Terran Orbital (LLAP) and Redwire Space (RDW). The former develops and manufactures satellite systems, while the latter is something of a Swiss Army knife version of a space company. Both are small-cap companies, each hovering around $200 million in market cap. However, both are also projecting huge revenue growth in 2023 – 265% for Terran, 65% for Redwire at the high end of guidance – with each expecting upwards of $250 million for the full fiscal year. That would put both companies in the same ballpark as Planet Labs and Rocket Lab in terms of total annual revenue. Maybe it’s time to take a second look at LLAP and RDW to see if either merits long-term monitoring.

What About Terran Orbital Stock?

It did not take us long to recall why we did not like Redwire Space stock when we first reviewed the small satellite manufacturer that was big on defense contracts. No, it’s not because we’re tree-hugging peaceniks but generally avoid companies that are heavily reliant on government funding. That hasn’t changed.

Terran Orbital relies heavily on government contracts. Credit: Terran Orbital

For starters, defense contractor Lockheed Martin, which already owns more than 30% of Terran Orbital stock shares, accounted for 76% of revenues in 2022 and more than 80% of backlog at the end of last year. It’s no accident that those numbers are roughly the same for the amount of total revenue attributed to U.S. government contracts in general. Now, that changed significantly (in theory) back in February when Redwire announced a $2.4 billion contract with a private company called Rivada Space Networks to design, build, and deploy 300 spacecraft satellites weighing more than 1,000 pounds each – definitely not in the smallsat category. This low latency, low-earth orbit constellation will use lasers to create a private communication network uncoupled from the Internet for big government customers, among others.

Satellites as a source of recurring revenues. — The company sees satellite constellations as a source of recurring revenue as spacecraft wear out faster than a new toaster oven. Credit: Terran Orbital

Some digging into this deal reveals some interesting connections. Rivada Space Networks is a subsidiary of Rivada Networks, which is reportedly backed by billionaire Peter Thiel of Palantir (PLTR), a somewhat shadowy big data company that is a little too politically active for our tastes. A few years ago, Rivada Networks was reportedly at the center of a plan involving its lobbyist Karl Rove. The plan was for Rivada to become a private sector partner to the U.S. government for managing the unused bandwidth reserved for the Department of Defense to create a national 5G network. That never happened so maybe the satellite network is something of a consolation prize. Potential conspiracy theories aside, it’s worth noting that while the contract is (nominally) commercial, it adds a second large customer that can cancel the whole deal at any time.

Terran Orbital revenue. — Revenue growth is mostly on the back of government contracts. Credit: Terran Orbital

The fact that the company is carrying a negative gross margin – it costs Terran more to build its satellite systems than it earns before adding in all of the operating expenses – is another huge strike against this company. Maybe that will start heading in the right direction following the Rivada deal. In addition, Terran has scrapped plans to build and deploy its own satellite-imaging constellation. Instead, it will offer the synthetic aperture radar technology through a specialized satellite product line.

What About Redwire Space Stock?

Redwire is a more difficult company to dissect. That’s largely because, as we noted in our article last year, private equity group AE Industrial Partners rapidly assembled a space infrastructure company through nine separate acquisitions since March 2020. We don’t really know what organic growth looks like because revenues have been continuously bolted on for the last 3.5 years, though the picture is starting to come into focus. The last acquisition, a Belgian space infrastructure company called QinetiQ Space NV, was back in October 2022. Revenues increased by $48.1 million, or 69%, for the first half of 2023 compared to last year. The Space NV acquisition accounted for more than half of revenue growth at $26.5 million. In other words, subtract Space NV and revenue growth was closer to 23%.

Redwire Space has built a space infrastructure company through nine acquisitions. Credit: Redwire Space

Like Terran Orbital, Redwire Space leans heavily on government contracts for revenues. About 67% of revenues so far this year come from civil and defense customers, while just two customers account for 30% of total revenues. The Belgian acquisition did help diversification, with about a quarter of revenues now coming out of Europe.

Redwire Space revenues. — Credit: Redwire Space

In addition, the company improved gross margin from 17% through the first half of 2022 to 26% in the first six months of this year. Redwire even ended the most recent quarter with positive but very modest free cash flow. Even overhead costs declined, partly thanks to some tightening of administrative expenses, presumably as the company consolidates its acquisitions and finds efficiencies. It also helped that Redwire did not have to write off $80 million in paper losses like it did last year at this time because it overpaid for certain assets and acquisitions.

Financial snapshot of Redwire Space. — While the financial picture is looking up, Redwire recently filed a so-called “mixed shelf offering” that would allow it to sell up to $400 million in different equities such as stock or convertible debt securities. In other words, Redwire may need more money soon.

Outside of these hard financial metrics, it’s worth noting that Redwire appears to be positioning itself as a leader in space R&D, specifically in microgravity research and 3D bioprinting. It recently supported a project to 3D bioprint a human knee meniscus on the International Space Station (ISS). While still pretty niche, bioprinting in space brings some big advantages compared to terra firma where gravity can cause a drag on biological 3D structures. Redwire currently has 10 experiments operating on the space station. In November, the company is scheduled to launch more microgravity research payloads focused on pharmaceutical drug development and regenerative medicine, including an experiment in bioprinting cardiac tissue.

Conclusion

While both Terran Orbital and Redwire Space offer some upside compared to most other post-SPAC companies, neither is an overly appealing play on the space theme. The former is too reliant on Lockheed Martin and its military and government contracts and connections. That $2.4 billion deal with Rivada also feels a little tenuous in more ways than we have time or inclination to break down here. Redwire represents somewhat less customer concentration risks but we’re still waiting for the company’s core competencies to come into focus. The microgravity research around drug development and regenerative medicine makes for good headlines but it’s unclear how big a money-maker that can become.

Both companies are still way too small for us to consider seriously, and we don’t see that changing any time soon. Until then, warp speed to Planet Labs.