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Momentus Inc. (NASDAQ:MNTS), a space-related business with its primary customers being satellite operators at this time, recently reported its progress and setbacks in the last quarter, with some deployments being successful and others only partially successful.
With the nature of the business of space, this is something that needs to be expected, but at the same time, shareholders and potential investors want to see how the company responds to its failures, and how quickly it can adjust and adapt to the challenges problems that need to be solved.
There is a little leeway in the process, but not enough where the company can afford to take a lot of time to successfully respond to what needs to be done in order to deliver successful payloads for its customers.
Some failure is built into the business when delivering payloads to space, but Momentus will have to prove to customers and investors that it can respond to failures and reduce the number of them as the company is trusted with expensive projects to release into space.
Latest earnings
While MNTS deployed several satellites in the quarter for customers, it resulted in very modest revenue of $129,000, with gross profits of $115,000. That’s not an issue, as the key thing in the report is the losses it’s incurring as it goes through its learning curve, and the available capital it has in order to continue operations.
The other major takeaway from the report is in relationship to it backlog, which at this time stands at about $43 million in potential revenue.
Something that a lot of retail investors in particular don’t understand about backlog in general, is that it represents potential sales, not guaranteed sales.
As for MNTS’s backlog, it represents 19 companies located in 14 different countries. I consider that a positive for the firm, as the diversification should mitigate some of the potential loss of revenue when the deals don’t come to fruition.
There are incentives to fulfill the contracts because of the loss of deposits and milestone payments, which should result in a significant amount of them not being cancelled.
Even so, investors should downwardly revise the total value of the backlog by assuming a small percentage of them will be cancelled. In other words, the $43 million in backlog is a best-case scenario.
For example, the company’s backlog dropped $12 million from the backlog reported in Q2 because of companies deciding to look at options or allowing options to “expire unexercised.” Options are a reference to companies being given the option to “opt into an available launch slot without requiring a separate agreement.”
At the end of the third quarter MNTS has cash and cash equivalents of $82 million. CFO Jikun Kim said he believes that is enough capital to carry the company through 2023. The company invested about $28 million in the quarter, $3 million more it did in the prior quarter.
The firm had close to $18 million in gross debt at the end of Q3. Losses from operations in the reporting period were around $22 million. Adjusted EBITDA in the quarter was a negative $16 million, about $2 million better the second quarter of 2022.
SG&A costs were $7 million, about $1 million lower sequentially. R&D expenses were close to $10 million, or $1 million lower than the previous quarter.
Failing fast
I think it’s instructive for investors to understand some of the processes involved with iteration and failing fast with as minimum effect as possible under the circumstances the company is given.
Over the last couple of quarters, the company has deployed seven satellites, with five of them deployed from its Vigoride 3 Orbital Service Vehicle (OSV) in the third quarter.
While Vigoride 3 carried 9 satellites into space, only seven of them have been deployed. While the mission to deliver the nine satellites is considered to be still in process, the company noted that because of the “low power situation on Vigoride 3,” the chances are fading of it successfully fulfilling that part of its mission.
Management noted that in May during the inaugural demonstration mission of Vigoride 3, it was able to quickly find the reason behind the reason for deployable solar arrays not working as they were supposed to. It was found to be a “mechanical issue with a hold down bracket and connector pin” that was the cause behind it.
In response to the issue, the company has been working on a rigorous test campaign in order to avoid something similar happening on future missions.
There were other issues on the inaugural launch that have also been identified at the root cause and changes have been in preparation for its next mission.
The point here is the company seems to have a solid group of engineers working for it, which have the skill and capacity to figure problems quickly and find solutions to them.
Of course, that will have to be confirmed on the next mission, but at least they can identify what the issues are. What remains to be seen is if the fixes to them are effective or not.
That’s important because the adaptations are being applied in preparation for the next generation Vigoride 5 vehicle which is scheduled for its first launch in about a month.
Conclusion
Let’s face it, space companies are cool, and they attract a lot of talent because it’s the type of things engineers love to work on. That said, the path to success and profitability is a long one, even if companies like MNTS can fail fast and successfully fix the problems that emerge from its flight launches and deployments.
As management mentioned, there is a lot of future potential in the space sector, including servicing orbital satellites for the purpose of repairing them refueling them, and/or deorbiting them.
Concerning deorbiting, the FCC recently introduced a new rule that requires satellite operators to remove low orbit satellites within a five-year period of the conclusion of the mission. That is a potential opportunity to open up another long-term revenue stream.
At this stage of the company’s growth, I think the key thing to watch is how effective the company is in identifying and solving problems, while being able to fail fast and respond quickly.
Momentus is a highly speculative and interesting company, and has probably been disproportionately punished from the low-risk investing environment we’re now in.
After plunging from its high of about $29.00 per share on February 6, 2021, it has crashed and burned to a 52-week low of $1.07 per share. It’s trading a little above $1.40 per share as I write.
For those with some money set aside for investing in high-risk companies like MNTS and aren’t in a hurry to get a return on their money, this is an interesting company, and if it succeeds it could generate some serious returns.
On the other hand, if it fails and isn’t able to quickly identify or solve the problems it faces, it could rapidly drop below the $1.00 per share mark and struggle to recover for a long time.
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