A class action lawsuit was filed against Terran Orbital Corporation (LLAP) by Levi & Korsinsky on September 27, 2024. The plaintiffs (shareholders) alleged that they bought LLAP stock (now delisted) at artificially inflated prices between August 15, 2023 and August 14, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Terran Orbital stock during that period can click here to learn about joining the lawsuit.
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Terran Orbital designs and manufactures small orbital satellites and serves as a prime supplier to the U.S. and allied aerospace and defense industries. The company provides the full range of services, from satellite production to launch to in-orbit support for military, civil, and commercial customers.
Importantly, on October 30, 2024, Terran Orbital was acquired by one of the leading American aerospace and defense companies, Lockheed Martin (LMT). Terran Orbital’s claims about its revenue and free cash flow generating potential and its agreement with Lockheed Martin are at the crux of the current complaint.
Terran Orbital’s Misleading Claims
According to the lawsuit, Terran Orbital and four of its current and/or former senior officers and or/directors (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the conversion of customer contracts into revenue and free cash flow and ancillary issues from SEC filings and related material.
For instance, at the beginning of the Class Period, the CEO stated that the company had increased its order backlog to $2.6 billion in the first half of 2023. He added that Terran Orbital now had 30 programs and over 370 satellites on contract. The company expected 80% of the backlog to get converted into revenue over the next two and a half years.
Similarly, on November 14, 2023, the CEO stated in a press release that the company was encouraged by the continued growth in revenue, gross profit, and adjusted gross profit margins.
Moreover, in the quarterly report filed the same day, the company mentioned that it expected to satisfy and recognize all of the remaining performance obligations (RPOs) as revenue by December 31, 2027. Also, roughly $187 million of the RPOs would be converted into revenue as soon as December 31, 2025. As of September 30, 2023, Terran Orbital had RPOs worth $2.6 billion.
Furthermore, Terran constantly reiterated that the company was financially sound and did not need any additional funding. For example, on February 7, 2024, the CEO noted in an interview that the company was not looking to raise any money.
However, subsequent events (discussed below) revealed that Terran Orbital had failed to inform investors about the true extent and picture of revenue potential from the RPOs and its financial health. This ultimately led to Terran Orbital’s takeover by Lockheed Martin.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the extent of the revenue and free cash flow generation capabilities.
The information became clear in a series of events that occurred between March 1, 2024 and September 9, 2024. The last blow came when Terran Orbital filed a proxy statement with the SEC detailing its deal with Lockheed Martin.
Interestingly, the statement noted that LMT had offered only $0.25 per share for buying all of the outstanding shares of Terran Orbital because the company had been suffering from severe liquidity issues and was on the brink of bankruptcy. It is worth noting that LMT had earlier given a better offer to buy Terran Orbital but withdrew the buyout offer and gave a less appealing offer, citing Terran’s financial ill-health.
Since the beginning of 2024 and until the date of delisting, LLAP shares plunged over 78%, causing massive damages to shareholder returns.
