MNTS - Momentus: Successful Launch Maintain Buy-Venture Rating

2023-03-14 08:39:52 ET

Summary

• Momentus hit its milestones in Q4:22, followed by a successful launch with two client payloads aboard in January 2023.
• Two more launches set for 2023 should book material revenue and monetization of $33 million backlog.
• We maintain a Buy-Venture rating and a $1.15 price target.

Investment Thesis

Momentus ( MNTS ) is an early mover in the space sector, offering satellite transportation to space well as in-space services such as mission hosting aboard the Company's satellites. Compared to the traditional approach of deploying a satellite in custom orbit using a dedicated rocket, MNTS can reduce client launch costs by up to 75% through its ride share launch service and last-mile delivery capability.

The number of satellites deployed annually is expected to increase by 50% over the next three years, reaching 5,000 deployments per year and $4 billion in annual revenue for space transportation providers. Momentus has technology and service advantages compared to other deployment providers, advantages which have helped the Company secure NASA and CalTech as clients.

MNTS is also developing additional in-space services such as satellite de-orbiting. The number of satellites that will reach their end-of-life and require de-orbiting is expected to increase by 150% over the next three years, reaching $500 million in annual revenues for de-orbiting services. The market opportunity in de-orbiting is driven by regulatory concern over the risks that defunct satellites pose to functioning satellites, and even to manned missions. In September, 2022 the U.S. FCC issued regulations requiring that satellites be removed from orbit within five years of their end-of-life, and the EU and UK space agencies also took action last year.

With technology advantages and a reputation-enhancing client list, Momentus was seen as an attractive investment at its launch as a public company in 2020. Unfortunately, regulatory difficulties in early 2021 delayed the Company's launch plans by over a year. Since then the new Momentus management team has delivered results, including resolving the regulatory problems and executing a fully successful launch in January, 2023. Continued success with missions planned for later in 2023 are likely to cement the Company's reputation as a reliable deployment partner, leading to monetization of the Company's $33 million order backlog and a significant increase in the value of MNTS shares.

Q4:22 Financial Performance

• Revenue. Q4:22 revenues were $120 thousand in non-service revenue. The non-service revenue arose from a client canceling plans to fly aboard a future Vigoride mission, forfeiting their deposit as a result. Full-year revenues were $299 thousand, down 9.4% from the prior year. We forecast Momentus will begin to book meaningful revenue in 2023.
• Gross Margin. Gross margin averaged 82% for 2022 in the two quarters where Momentus booked service revenue.
• GAAP Net Income. Q4:22 GAAP net income was $(24.44) million. Prior year figures are not comparable due to the impact of warrants on 2021 net income.
• Adjusted EBITDA. Full-year adjusted EBITDA was $(67.20) in 2022. Prior year figures are not comparable due to the impact of warrants and notes on 2021 adjusted EBITDA.

Management Commentary & Forecasts

• MNTS sees rapid growth and robust demand for satellite deployment services and satellite de-orbiting services. The Company cites independent analysts who forecast 50% growth over the next three years in the number of satellites deployed annually and 150% growth in the number of satellites that reach their end-of-life and require de-orbiting. Satellite deployment services are forecast to reach $4 billion annually by 2025, while the market for satellite de-orbiting is forecast to reach $500 million per year
• In Q4:22, Momentus signed agreements with FOSSA, a repeat client, and two new clients, the Australian Research Council Training Centre for CubeSats and South Korean firm CONTEC.
• The Company believes its success in gaining client commitments reflects technology advantages that Momentus has compared to its competitors, including the use of water as a propellant and the ability to host client missions aboard its satellites.
• Momentus has established a launch schedule with Space-X for the remainder of 2023. Vigoride vehicles are scheduled to fly aboard Space-X flights in April and October. Both flights offer opportunities to test new technologies the Company has developed. The Vigoride 6 mission in April is scheduled to test a new solar array that could reduce costs and delivery times if successful. Several client satellites are also scheduled for the April flight. The Vigoride 7 flight in October is scheduled to test the Company's close approach and maneuverability capabilities, a step toward offering additional in-orbit services. The Company discussed news that Space-X has raised prices for rideshare providers. Momentus is protected from the increased prices for a period of time due to a fixed price arrangement.
• Management is focused on the need to conserve liquidity until operating cash flow can sustain the business. The Company's interim CFO stated that he believes existing liquidity can fund operations through the end of 2023.

News and Events Since Quarter-End

• In January 2023, the Company's Vigoride 5 vehicle was successfully launched on a Space-X flight with two client payloads aboard, a Qosmosys satellite, and a hosted service for CalTech. All systems aboard the vehicle are performing as specified, including the solar array.
• The Company's Vigoride 6 vehicle has passed final launch readiness tests and has been delivered to Vandenberg Space Force Base in preparation for a planned April launch.
• In February, the Company announced the settlement of securities class action lawsuits that were filed in the wake of the 2021 regulatory issues and related launch delays. Momentus agreed to pay $8.5 million, of which at least $4 million is expected to be covered by insurance.
• In February, Momentus announced that an institutional investor invested $10 million to purchase shares and pre-funded warrants amounting to 11.566 million shares, valued at $0.8646 per share. Note that the investor purchased shares at a price above the then-current market price of $0.8252 per share and above today's price of $0.72 per share. In addition, the investor was granted warrants to purchase a further 11.566 million shares at a price of $1.15 per share. The warrants become exercisable in six months and remain exercisable for five years.
• Momentus used the $10 million cash inflow to pay a share re-purchase liability owed to the Company's founders, eliminating that liability from its balance sheet. Shares purchased from the founders will partially offset the shares issued in return for the $10 million investment.
• With the settlement of litigation and the buyout of the liability to its founders, Momentus can now focus on operating its business and delivering value to clients.

Valuation

Since MNTS is not currently profitable, we use Forward Price/Sales as a valuation metric to compare the Company to its peers (see Exhibit 1).

Based on an industry average multiple of 14.39x 2023 estimated sales and discounting by the Company's cost of equity, we derive a value of $0.47 per share. This value is below the Company's current share price of $0.72 per share as of March 7, 2023, suggesting the bulk of the Company's value lies in future earnings from converting its substantial revenue backlog.

We also value MNTS using a DCF model. Our DCF model uses forecasted cash flows to the firm for years one through four and grows EBITDA by fixed dollar amounts in years five through nine since percentage growth rates aren't applicable given prior year negative values. We then apply a weighted average cost of capital of 18.65% to arrive at a value of $1.79.

We then average together the two values of $0.47 and $1.79 to arrive at a value of $1.13, which we then round to $1.15.

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