A pivot point for space startups
by Jeff Foust
|“The message we got from shareholders and even customers was, ‘Are you guys going to make it? How much runway do you have?’” said Astra’s Kemp.|
Space startups are not immune to pivots. Increasing, as launch, satellite manufacturing, and other companies run into difficulties, they are pivoting, sometimes going in a slightly different direction, but other times shifting more radically. Those pressures to pivot are growing as financial markets tighten up and what had been a growing stream of capital, from venture capital funds to public markets, diminishes (see “The space investment crunch”, The Space Review, October 24, 2022). Startups are increasingly seeing what they can do with the resources on hand to generate revenue rather than wait for long-term plans to build out.
One example is Astra. The company is best known for its small launch vehicles (and a less than sterling record of reaching orbit with them), but in the last couple of years the company has seen those rockets as only a means to an end. Particularly since going public last year in a merger with a special purpose acquisition company (SPAC), the company has talked up developing not just rockets but also spacecraft that would be launched by them, providing communications, imaging, and other services for customers.
The company even filed an application with the FCC last year for a constellation of up to 13,620 satellites providing V-band communications services. “Given the financing secured through its recent public offering, vertically integrated launch capability, and space systems design and operations experience, Astra is well-positioned to develop this project and to introduce new space-based services, including communications solutions, while maintaining a safe space environment, utilizing spectrum efficiently and without causing harmful radiofrequency interference,” the company said in its license application.
In August, though, Astra started to pivot when it announced it was retiring its Rocket 3.3 vehicle, which failed to reach orbit in five of seven launches (see “Small launchers struggle to reach orbit”, The Space Review, August 15, 2022). Instead, the company announced it would focus its attention on its larger Rocket 4 vehicle, capable of launching much heavier payloads. However, Rocket 4 won’t be ready for test flights until late 2023.
Last week, Astra continued its pivot. The company announced it would lay off 16% of its staff so it could focus its resources on launch vehicle development as well as production of satellite electric thrusters, the only product that generates revenue for Astra at the moment. The company said it is “reducing our near-term investments in developing Space Services” like that satellite constellation to focus on those lines of business. (The company didn’t disclose exactly how many people it would lay off but mentioning having “over 400” employees, suggesting that number will be more than 60.)
“With the backdrop of continued macroeconomic and geopolitical uncertainty, increasing inflation and interest rates, and equity market volatility, the team has prioritized resources on our core businesses,” Astra CEO Chris Kemp said in an earnings call November 8 where the company discusses that change in plans. In other words, the company, whose stock price has dropped to the point where it recently received a delisting warning from the Nasdaq exchange, realized it will be hard to support its plans with large infusions of capital in the near term.
“We’re in a mode where it’s like, let’s just focus on what’s in front of us,” Kemp said in a later interview, meaning Rocket 4 and spacecraft thruster production. “The message we got from shareholders and even customers was, ‘Are you guys going to make it? How much runway do you have?’”
|“Our goal is to get to profitability as quickly as possible with the lowest risk profile as quickly as possible,” said Bell of Terran Orbital’s plans.|
The company says it has enough runway—funding—to take it “well into 2024,” he said. Astra expects that to be enough to get Rocket 4 into commercial service as well as scale up thruster production, with the company in the process of opening a new facility devoted to thruster manufacturing.
The emphasis on Rocket 4 development over continuing to operate Rocket 3.3, he argued, allows the company to better serve the market for small satellites. “The market was not at 50 or 100 kilograms. The market was at 600 kilograms,” he said in the interview, referring to the planned payload capacity of the vehicle. “So, maturing a product that addresses such a small portion of the market just did not make sense.”
The pivot also includes a new emphasis on reliability. Astra once boasted of an iterative development approach, with version numbers like software applications. But in the earnings call and the later interview, Kemp emphasized the for Rocket 4 to be successful from the start.
“Customers have told us, ‘You need to demonstrate reliability,’” he said. Astra would not try to optimize for cost or performance on Rocket 4, he explained, as the company would be satisfied being “anywhere in the ballpark” of 600 kilograms to low Earth orbit for $5 million. “But if the rocket doesn’t work, if we don’t have a reliable system, that’s the thing that could Astra in a difficult position.”
Astra is not the only company changing directions. Terran Orbital, which also went public through a SPAC deal, planned to dramatically scale up production of smallsats. In September 2021, the company announced an agreement with Space Florida, the state’s space development agency, to build a 61,000-square-meter factory near the Launch and Landing Facility (formerly the Shuttle Landing Facility) at the Kennedy Space Center. The factory would support 2,100 jobs, the company said, and be able to produce up to 1,000 satellites a year.
Among the customers for those satellites would be Terran Orbital itself. Its PredaSAR subsidiary was planning a constellation of up to 96 satellites to generate synthetic aperture radar (SAR) imagery that is in increasing demand.
When Terran Orbital held a quarterly earnings call in August, though, the company was deemphasizing PredaSAR. The company’s near-term focus, it said, was to complete work on satellite buses it is producing for Lockheed Martin, which has a contract with the Space Force’s Space Development Agency for its Transport Layer communications constellation: 10 satellites for Tranche 0 and 42 for Tranche 1.
“We’ve made it a priority to get the Tranche 0 buses done first before finishing the PredaSAR,” Marc Bell, CEO of Terran Orbital, said on the call. The company was still working on the first two PredaSAR satellites for launch in early 2023, but he offered few details beyond that. “The plan is evolving. We are looking at getting the first two up,” he said. “The satellites continue to evolve.”
At the end of October, Terran Orbital announced a $100 million investment from Lockheed Martin, which already owned shares in the smallsat manufacturer. The investment, which increased Lockheed’s stake in Terran Orbital to 33.9%, gave Terran Orbital a much-needed cash infusion: the company was down to $35.8 million in cash as of the end of September.
The investment came with other changes at Terran Orbital. The company dropped plans to develop its own PredaSAR constellation, and would instead offer SAR satellites under the PredaSAR name as a product for customers. “Terran Orbital plans to no longer pursue its own constellation and believes that offering PredaSAR as a product is a financially efficient and expeditious method of getting SAR technology into the hands of those protecting and defending our nation and allies,” it said in a press release.
Also dropped was plans for the giant Florida factory. Instead, Terran Orbital said it would focus on growing an existing facility across the country in Irvine, California, a site where the company had already been expanding. That expansion, the company said, would support producing up to 250 satellites a year.
|“We could be going into a period where the stock market and the capital just isn’t available,” Kemp said. “Winning might just be surviving through the next couple of years.”|
“It was 36 months from the time we would have broken ground in Florida through the time it would have been open,” Bell said of that Florida satellite factory in a November 9 earnings call, “and we saw no path forward to breaking ground anytime soon.”
In that call, he said the company had seen “an immense amount” of interest in buying SAR satellites based on the PredaSAR design, although he did not identify specific customers. “They wouldn’t buy SAR satellites if we owned our SAR constellation,” he argued.
That’s likely true, and by selling satellites they turn what would be a cost to construct them into revenue. However, they also forego the revenue of selling SAR imagery and related services in the longer term, at potentially higher margins than building satellites, as demand for SAR imagery grows including from national security customers increasingly willing to buy commercial data.
However, Bell indicated the company was focused on near-term concerns rather than long-term potential. “Our goal is to get to profitability as quickly as possible with the lowest risk profile as quickly as possible, and this is the best way for us to get there.”
Other companies, including those that went public through SPAC deals and others that have relied on private funding, may feel similar pressures to focus on near-term projects and defer, if not cancel entirely, long-term plans given available funding. “I think that we are going into a period where a lot of the space tech companies are going to struggle,” Astra’s Kemp said. “We want to make sure we have the runway to get through this, regardless of how long this thing lasts.”
“We could be going into a period where the stock market and the capital just isn’t available,” he added. “Winning might just be surviving through the next couple of years.” And surviving might involve pivoting.
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