Rocket Lab USA, Inc.

Q4 2021 Earnings Conference Call

2/28/2022

spk01: Good afternoon. Thank you for attending today's Rocket Lab fourth quarter 2021 financial results conference call. My name is Tamia and I will be your moderator for today's call. Our lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Gideon Massey, financial planning and analyst manager. Please go ahead.
spk05: Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss Rocket Lab's fourth quarter and full year 2021 financial results. Today's call is being hosted by our founder and CEO, Peter Beck, and our chief financial officer, Adam Spice. After our prepared comments, we will take questions. Our comments today include forward-looking statements within the meaning of applicable security laws, including statements relating to our guidance for the first quarter of 2022, including revenue in our principal target markets, GAAP and non-GAAP gross margins, GAAP and non-GAAP operating expenses, interest, and other expense and adjusted EBITDA. In addition, we will make forward-looking statements relating to trends, opportunities, and uncertainties in various products and geographic markets, including without limitation statements concerning opportunities, arising from our launch services and space systems markets, and opportunities for improved revenue across our target markets. These forward-looking statements involve substantial risk and uncertainty, including risk arising from competition, global trade, and expert restrictions, the impact of the COVID-19 pandemic, our dependence on limited number of customers, average selling price trends, and risks that our markets and growth opportunities may not develop as we currently expect and our assumptions concerning these opportunities may prove incorrect. More information on these and other risks that may affect the forward-looking statements, as outlined in the risk factors section of our 2021 10-K filing, which will be filed on or before March 31, 2022, and the documents incorporated therein. Any forward-looking statements are made as of today, and Rocket Lab has no obligation to update or revise any forward-looking statements. The fourth quarter and full year 2021 earnings release is available in the investor relations section of our website at rocketlabusa.com. To supplement our unaudited consolidated financial statements presented on a basis consistent with GAAP, we disclosed certain non-GAAP financial measures, including gross margin and operating expenses. These supplement measures exclude the effects of stock-based compensation expense, amortization of purchase intangible assets and other non-recurring interest and other income expenses, net attributable to acquisitions, non-cash income tax benefits and expenses, and performance reserve escrow amortization. We also supplement our unaudited historical statements and forward-looking guidance with the measure of adjusted EBITDA, where adjustments to EBITDA include share-based compensation, warrant expense related to customers and partners, third-party expenses related to mergers and acquisition activities, foreign exchange gains or losses, performance reserve escrows, and other non-operating income and loss, excluding interest expense related to debt and other non-preoccurring gains or losses. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in our investors' updated presentation available on our website. We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges, including stock-based compensation and its associated tax effects and the effects of worn expense related to customers and partners. Non-GAAP financial measures discussed today are not in accordance with and do not serve as an alternative for the presentation of Rocket Lab's GAAP financial results. We're providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to the management's analysis of our business. We believe that these non-GAAP measures have limitations in that they do not reflect all the amounts associated with our GAAP results of operations. These non-GAAP measures should only be viewed in conjunction with corresponding GAAP measures. And lastly, this call is also being webcast with a supporting presentation and a replay and copy of the presentation will be available on our website for two weeks. And now let me turn the call over to Peter Beck, founder and CEO.
spk06: Thanks very much, Gideon. And before I get going here, I just want to confirm that Flight 24, which we launched earlier today, has deployed its payload and the mission is successful. So today's presenters are joining me to review Rocket Lab's business highlights and final financial results for the fourth quarter and 2021 year. Joining me on today's call is Chief Financial Officer Adam Spice. So the agenda today, today I'll be taking you through our key business accomplishments for the fourth quarter and full year 2021, and Adam will be covering off our financial highlights and outlook, sharing our up and coming conference schedule, and of course we'll have junior time for some Q&A. So firstly, let's start with a bit of a review of our key accomplishments in 2021. I think this slide speaks for itself, but I will touch on a key point. Despite all the challenges created by the ongoing pandemic, including stringent border restrictions impacting our operations at our New Zealand launch site in particular, we still managed to launch six Electron missions in 2021. As such, Electron retained the title of the second most frequently launched US rocket. Beyond launch, the breadth and scope of our achievements across geographic region, space application, and customers is very encouraging to me, and there's so much more to come. So Q4 highlights. In Q4, I'm very pleased that we're able to welcome Advanced Solutions Inc., or ASI, and Planetary Space Corporation, or PSC, into the Rocket Lab family and portfolio of solutions and amount the intent to inquire for their technologies, which ultimately closed in Q1 2022. Not only do these teams provide decades of industry experience and industrial-leading technology, culturally these companies have great leadership teams that will provide value to Rocket Lab for years to come. While all of this was happening, we still had a business to run and were able to launch several rockets, complete our third ocean recovery of an electron booster, inching closer to full reusable electron launch, and signing some significant contracts and achieving some pretty good project milestones. Backlog. This is the best slide. So in 2021, saw a significant uptick in our backlog. And that has continued into 2022. At December 31st, 2020, our backlog stood at 82 million. And we ended December 31st, 2021, at 241 million. And today, our backlog stands at over half a billion at 545 million, representing a $463 million increase in our total backlog since the end of 2020. And, you know, backlog to us confirmed customers and contract signs. We've seen bookings strengthen across every major product in the company, including electron launch contracts, government study contracts, interplanetary photon satellites, orbital debris removal programs, NASA demonstration missions that include photon satellites, and numerous Rocket Lab satellite components and software sales, being a global customer base. These customers include the US government, foreign governments, universities and commercial customers, and constellation operators. I do want to take a moment to state how incredibly proud I am to see all of the use cases we're finding for our technology and high-value missions we're enabling with our suite of products and services. I had a vision for Rocket Lab many years ago that it would become an end-to-end space company, delivering best-in-class technology and services spanning the entire space economy. While Rocket Lab is still in the early stages of this strategy, it's very exciting to see that strategy start to bear fruit. As I mentioned in the prior slide, 2-4-2021 saw two successful electron launches. Sorry. As mentioned in the prior slide, 2021 saw successful electron launches, bringing our total to six launches for 2021. Rocket Lab has now deployed 109 satellites across 23 electrons launched, and if you want to include today as well, that's 110 and 24. So we stated that part of our strategy after entering the public markets would be to further expand our vertical integration into space systems, manufacturing and greater space systems supply chain ecosystem. We've executed on that strategy as evidenced by the acquisition of ASI, PSC and Solero. With a quick refresher, ASI is based in Littleton, Colorado, the nation's second largest aerospace economy. and they develop industry-leading off-the-shelf flight software and guidance navigation and control systems. ASI's MAX flight software has been operating across more than 45 spacecraft for a cumulative 135 years in space. ASI's customers include leading aerospace prime contractors, the U.S. Air Force, U.S. DOD organizations, NASA, and commercial spacecraft developers. In Q4, we also acquired PSE, a Maryland-based provider of mechanical separation systems and satellite sensors with 100% mission success heritage to date across more than 100 missions. Moving on to Solero Technologies based in Albuquerque, New Mexico. Solero is a premier supplier of space solar power products and precision aerospace structures for the global aerospace market. Aquarium Solero brought the world's largest production line of high-performing space solar cells into the rocket lab business. Solero's solar cells, solar panels, and composite structural products have supported more than 1,000 successful space missions with, once again, 100% reliability and mission success to date. Over the past two decades, Solero's products have played key roles in some of the industry's most ambitious space missions. including supplier power to NASA's Parker Solar Probe and Mars InSight Lander, the largest solar array ever to be deployed on the surface of Mars, and several Cygnus cargo resupply missions to the International Space Station to mention just a few. These three strategic acquisitions joined Sinclair Interplanetary, which we acquired in April 2020. Later in the presentation, I'll spend some time discussing the positive impact of these acquisitions and the capabilities that we have now bought in-house. So acquisition strategy, I love this slide as it highlights the breadth of Rocket Lab's capabilities and that we've rapidly developed over the past few years, spanning nearly the entire space ecosystem. and proving that Rocket Lab is a leading provider of end-to-end space solutions. Investments both organically and inorganically allow Rocket Lab to capture value from almost every active mission in whatever phase the mission is in. We're seeing this in our internal business development meetings as it can be seen in the backlog growth we have experienced in 2021 and that has continued into 2022. From the James Webb telescope to ISS resupply missions, mega constellations, or cutting-edge defense industry satellites, Rocket Lab's products and services can be seen almost everywhere. In 2021, our technology was included in 38% of all launches in 2021. And we have over 220 missions in development through the launch and spacecraft programs across almost every sector of the rapidly growing space economy. These missions include NASA, European Space Agency, Japan Aerospace Exploration Agency, or JAXA, Department of Defense, commercial constellation operators, and prime contractors. In addition to Rocket Lab's expanding products and services and technologies, Rocket Lab's footprint is also expanded. With the recent acquisitions closed, Rocket Lab now has locations across five different states in the United States, as well as three locations in New Zealand and one location in Toronto, Canada. This expanded footprint has enabled Rocket Lab to attract and recruit some of the smartest people in the space industry to help guide and shape our programs, and I see this as a really strategic long-term differentiator from our peers. It seems like years ago that Rocket Lab completed the successful D-SPAC merger with our partner, Vector Acquisition Corporation, but it was such a watershed moment in Rocket Lab's history and will continue to enable considerable growth into the future for Rocket Lab. We could not be happier to work with Vector and who really turned out to be the perfect partner for Rocket Lab. This has unlocked considerable amounts of opportunities for Rocket Lab and we continue to do so And I could not be happier with really how things have gone in the last six months. We've also signed and continue to sign a large number of multi-launch agreements. So Electron really continues to distinguish itself in the industry, leading small launch vehicles with multiple multi-launch deals signed across commercial constellation operators. Customers are choosing Electron as a reliable, dedicated launch solution that will place their assets on orbit where and when they need them to ensure the highest long-term value and quickest path to revenue for their world-changing technology. In the midst of everything else Rocket Lab accomplished in 2021, the Neutron program remains on track. Rocket Lab remains committed to becoming a launch provider for the National Security Space Launch, or NSSL, program. which launches the US's most critical missions, as well as becoming the constellation building workhorse across a broader government and commercial sectors and operators. With two Electron first stage recoveries successfully completed in 2021, the foundation has been laid for the first mid-year launch recovery attempt, which will occur very soon in 2022. Full stage one recovery is important to enabling greater launch cadence and also lowering electrons cost per mission. In August 2021, our ESCAPADE program passed the key NASA mission review, moving the mission into the next phase with a target launch readiness date of October 2024. This mission is in partnership with UC Berkeley's Space Science Laboratory, and it will put two photon spacecraft into the atmosphere of Mars to study its magnetosphere. The mission will leverage Sinclair, PSC, ASI, Solero, and Rocket Lab organic products and services, helping provide a really low-cost solution with considerably less supply chain risk than traditional programs. Lastly, for 2021 accomplishments, it's important to highlight the diverse and high-quality new and repeat customer base that Rocket Lab is establishing and supporting across our equally diverse set of products and service offerings. So now I'd just like to discuss a few additional accomplishments that Rocket Lab has achieved post the end of the fiscal year 2021. Well, this week we announced in collaboration with NDA and Global Star a $143 million contract to design and manufacture 17 satellites for Global Star with the option for nine more. This contract reflects a deliberate and well-resourced strategy to grow Rocket Lab's space systems business and deepen our value proposition beyond launch and into complete end-to-end space mission solutions. Rocket Lab was awarded this contract over established Tier 1 prime contractors in a highly competitive bid process. It's important to say these are not CubeSats, these are large, complex 500kg spacecraft. Meeting the stringent customer requirements for designing and building this constellation required demonstrating that Rocket Lab has the expansive facilities, expertise and embedded supply chain capabilities to deliver on such a complex mission. To deliver these spacecraft and establish long-term capabilities for spacecraft manufacturing at scale, we are building out state-of-the-art spacecraft manufacturing facilities at our Long Beach headquarters and production complex. Feeding into this are the components and subsystems created by Rocket Lab's recently acquired company. This deep level of vertical integration offers our customers central security and really attractive pricing. When we first announced plans to become a public company, we underpinned our space system strategy with one simple aspiration. Everything that goes to space should have a Rocket Lab logo on it. Today, we've made great progress on that strategy with our organically developed technology and Avira acquisitions. Rocket Lab now delivers multiple parts of the launch and satellite supply chain, enabling us to offer schedules, security, and attractive pricing. We operate state-of-the-art facilities, have 1,200 strong global team and a robust supply chain now in place to deliver spacecraft and component manufacturing at scale to meet growing demand. The NDA contract is just one example of the strategy now in play. Since the end of the fiscal year 2021, Rocket Lab has also been selected by NASA to be part of the beta program, which unlocks up to $300 million in potential launch services and revenue across 12 different launch providers of which Rocket Lab is one of them. We began the development of a new space systems complex. Last month, we announced a dramatic expansion with a new space systems complex in Littleton, Colorado, to support the growing customer demand for flight software, mission simulation, and guidance and navigation and control services. When we made the decision to acquire ASI, the Littleton, Colorado location was viewed as a strategic geographical location, and this investment signifies our views. Last week, we announced bringing on our third launch pad to operational status, and today we well and truly christened that, representing the second launch pad at our Launch Complex 1. This essentially doubles our launch capacity and allows us to meet the growing demand for Electron launch services. After a considerable deliberation, we're excited to have chosen the state of Virginia for our Neutron launch site and production complex. The Commonwealth of Virginia came forward with a very attractive offer that we could turn down, and with considerable investment incentives, both in infrastructure and an operational system improvement at the Mid-Atlantic Regional Spaceport to enable neutron launch and production needs. So neutron is officially basing itself at Wallops Island, Virginia. So with that, I'll hand over the call to Adam Spice, our Chief Financial Officer. Adam, over to you.
spk04: Great. Thanks, Pete. I'll first review our fourth quarter and full year 2021 results, and then discuss our outlook for Q1 2022. Fourth quarter 2021 revenue was $27.5 million, with $1.7 million of revenue contribution coming from a partial quarter of PSC, which was not included in the guidance for Q4. Net of this, revenue was $25.8 million, slightly above the high end of our prior guidance range. Revenue in the fourth quarter included two successful Black Sky Global launches, consistent with prior guidance. Space Systems saw strength across both service contracts and Sinclair components, as well as partial quarter contribution for ASI and the aforementioned PSD acquisition. Full-year 2021 revenue was $62.2 million, with 63% or $39 million coming from launch services and 37% or $23.2 million coming from space systems. Overall, our revenue grew by 77% year-on-year, with launch services growing 18% year-on-year and space systems growing 14-fold year-on-year. GAAP and non-GAAP gross margins for the fourth quarter of 2021 were 24% and 36% respectively. This was better than the Q4 guidance on a GAAP and non-GAAP basis, driven by lower than expected launch costs, as well as by a positive revenue mix of higher profit space systems products and services. This compares to GAAP and non-GAAP gross margins of negative 236% and negative 84% respectively in the third quarter of 2021. which were significantly impacted by a one-time catch-up related to stock-based compensation charges triggered by the D-SPAC transaction, as well as COVID restrictions in New Zealand and the related impacts on our launch rate and overhead absorption in the prior Q3 2021 period. Gross margins for the full year 2021 were negative 3% and positive 16% respectively. Launch services gap and non-gap gross margins were 1% and 6% in the fourth quarter, respectively, versus a negative 1371% and negative 668% in Q3 of 2021. For full year 2021, launch services gap and non-gap gross margins were negative 38% and negative 15%, respectively, and showed a positive trend as we exited the year. The improvement in gross margin in the fourth quarter of 2021 was a result of higher electron build rates. Space systems gap and non-gap gross margins were 48% and 67% in the fourth quarter respectively, versus a 71% and 73% in Q3 of 2021. For full year 2021, space systems gap and non-gap gross margins were 56% and 68% respectively. Turning to operating expenses, GAAP operating expenses for the fourth quarter of 2021 were $31 million, which was approximately $6 million higher than prior guidance, driven by unforecasted purchase price and tangible amortization expenses related to the acquisitions of ASC and PSE with $700,000, with stock-based compensation related to PSE of $800,000, performance-based escrow revest related to ASI of $1.8 million, and a one-time stock-based compensation bonus related to certain R&D and production milestones, as well as costs associated with our employee share purchase plan of $800,000, and $1.8 million and higher than anticipated deal-related fees and expenses from acquisition activity in the quarter. Full-year 2021 GAAP operating expenses were $100.2 million, compared to $43.1 million in 2020. The step-up in 2021 operating expenses were $100.2 million compared to – oh, sorry. The step-up in 2021 as compared to 2020 was primarily driven by higher prototyping spend and staff costs targeting the broadening out of our space systems products and services and the development of our neutron launch vehicle, as well as higher public company spending related to our audit and professional services, staff costs, and director of offices insurance premiums. Non-GAAP operating expenses for the fourth quarter of 2021 were $20.4 million. in line with fourth quarter's guidance. Full year 2021 non-GAAP operating expenses were $62.3 million versus $38.4 million in 2020. We will continue to aggressively invest in TAM-expanding product initiatives that we believe will strengthen our competitive positioning as an end-to-end space company, as well as scaling our public company infrastructure. Moving to the Consolidated Statement of Operations and Income and Adjusted EBITDA, Q4 2021 adjusted EBITDA loss was $8.5 million, which was $1.5 million better than the midpoint of our Q4 guidance range, driven by the previously mentioned outperformance relative to revenue and margin in the quarter. Primary adjustments in reconciling Q4 GAAP net income to adjusted EBITDA included mark-to-market warrant income of $24.1 million related to the outstanding publicly and privately traded warrants, which were subsequently redeemed on January 31, 2022. income tax provision benefit of $6.1 million, depreciation and amortization of $4.1 million, the full quarter impact of our Hercules loan interest expense of $2.8 million, performance-based escrow revest of $1.9 million, acquisition costs of $1.8 million, and $0.2 million of FX-related expenses. GAAP R&D expense was $12 million for the fourth quarter. which included stock-based compensation of $3 million and amortization of purchase intangibles of $1 million, yielding $8 million of non-GAAP R&D expense for the fourth quarter of 2021. Growth in R&D spend continues to be driven largely by increased staffing and prototyping expenses related to our space systems products and services, neutron development, and continued spend on our launch vehicle automated flight termination systems development efforts. GAAP SG&A expense was $19 million for the fourth quarter, which included stock-based compensation of $2.9 million, acquisition costs of $2.1 million, performance-based escrow rebates related to ASI of $1.8 million, and amortization of purchase intangibles of $100,000, yielding approximately $12.1 million of non-GAAP SG&A expense for the fourth quarter of 2021. The quarter-and-quarter step-up of $5 million was primarily due to higher transaction costs, performance-based escrow revest, and the first full quarter expense of director and officer insurance as a public company. Cash flow from operating activities was a negative $21.9 million for the fourth quarter of 2021, with $2.8 million generated from operating results. Q4 saw an increase in cash consumed of $8.6 million versus the third quarter of 2021. Cash flow from operating activities in Q4 was impacted by the add-back of non-cash warrant income of $4.1 million and $8.6 million increase in prepaids and other current assets, mainly derived from prepaid director and officer insurance premiums and ASI acquisition-related performance revesting charges. These were offset somewhat by non-cash expense add-backs from stock-based compensation of $8.4 million and depreciated amortization charges of $3.4 million. For full year 2021, our cash flow consumed from operating activities was $71.8 million versus cash consumed from operating activities of $27.8 million in 2020. This increase in cash consumption was driven by operating loss of $117.8 million in 2021 versus an operating loss of $55 million in 2020. In addition, cash consumption was driven by an increase in inventory of $12.7 million and prepaids of other current assets by $10.5 million. These items were offset somewhat by non-cash expense add-backs from stock-based compensation of $32.6 million and non-cash-borne expense of $15.3 million and depreciation and amortization charges of $10.9 million and by an increase in contract liabilities of $27.5 million. Cash flow consumed from investing activities was $80.7 million in the fourth quarter of 2021, compared to cash consumed of $5.7 million in the third quarter of 2021. With its quarter-on-quarter period increase in cash consumption driven by the net cash paid to acquire ASI and PSE, as well as execution on several large capital projects, including expanding our labs and satellite manufacturing facilities at our Long Beach headquarters, on our second launch pad at Launch Complex 1, our new consolidated propulsion test complex in New Zealand, and the acquisition of Electron launch recovery assets. For the full year 2021, our cash flow consumption from investing activities was $92.1 million compared to cash consumed of $37.3 million in 2020, driven largely by the same factors affecting Q4 discussed earlier. In the fourth quarter, cash consumed from financing activities was $1.8 million as compared to $704 million in cash generated in the third quarter. With the cash consumption in the fourth quarter driven by $2.2 million in net reduction of the proceeds from the DSPAC associated with delayed billing activities for professional services related to our merger with Vector Acquisition Corporation and the related pipe financing, which was somewhat offset by collecting $400,000 in proceeds from the exercise of employee stock options. The combination of cash consumed from operating and investing activities during 2021 was more than offset by the $799.9 million net cash generated from financing activities for the year, resulting in $692.1 million in ending cash and cash equivalents. This compares to $21.5 million in net cash generated from financing activities for 2020. The primary source of cash generated from financing activities in 2021 was driven by the $728 million in net proceeds from the merger with Vector Acquisition Corporation and the related pipe financing. In addition to generating $98.9 million in net proceeds from our long-term secured term loan with Hercules Capital, as well as collecting $3.1 million in proceeds from the exercise of employee stock options, which was more than offset by the $30.4 million related to the repurchase of shares and options stemming from management's redemptions related to the D-SPAC transaction and merger with Vector Acquisition Corp in the third quarter of 2021. In 2020, cash generated from financing activities was comprised of $20.5 million in net proceeds from the issuance of preferred stock and $1 million from the exercise of stock options. We believe the liquidity resources of the company enable the execution of our strategic development roadmap, including the development of our neutron launch vehicle and continued investments targeted at expanding our total adjustable market for strategic space system solutions. With that, let's turn to our guidance for Q1 2022. We currently expect revenue in the first quarter of 2022 to range between $42 million and $47 million, which includes two dedicated launches and a near full quarter contribution from Solero, which closed on January 17th, 2022. We expect Q2, sorry, you expect Q1 2022 gap and non-gap gross margins of 17% and 30% respectively. Gap gross margins are driven by product mix, as well as full quarter contribution of purchase intangible amortization expense and stock-based compensation related to PSC, ASI, and Solero. It's important to note the purchase price allocation for Solero has not yet been completed at the time of today's call and therefore is not captured in our Q1 guidance. We expect Q1 2022 GAAP operating expenses to range between $38 million and $40 million, and non-GAAP operating expenses to range between $21 million and $23 million. This quarter-over-quarter step-up is driven by the effects of full quarter contribution from ASI and PSE, as well as near full quarter contribution from Solero. In addition, we continue to fund strategic development programs targeted at delivering strong top-line growth in 2021 and beyond across launch and space systems and our goal of delivering operating leverage in the business. The effects of these investments are already bearing out as proof of our expanding backlog and recent announcements regarding the award from NDA to design, manufacture, and deliver 17 satellites for Global Star. To put this into perspective, our space systems business generated its first revenue only seven quarters ago, and only contributed a little over $2 million in revenue for the full year 2020, to now representing approximately two-thirds of our Q1 guide. We expect Q4 2021 GAAP and non-GAAP interest expense to be $2.7 million. With the completion of our private and public warrant redemption that closed on January 31, 2022, our P&L will no longer be subject to mark-to-market income and expense impacts of e-legacy warrants. We expect Q1 2022 adjusted EBITDA loss to range between $3 million and $5 million. And with that, I'd like to open the call to questions. Operator?
spk01: Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We'll pause here briefly if questions are registered. The first question is from the line of Edison U. with Deutsche Bank. Your line is open.
spk07: Edison U. Hey, thanks for taking our questions and then congrats on the quarter. I have two topics I wanted to ask about. First is, considering the environment right now in space, obviously a lot has happened within the last week. Have you thought about the potential implications if Soyuz gets sanctioned or, for all practical purposes, cannot fly for Europe? And I guess, is there any way to kind of speed up development of neutron to kind of compensate for that?
spk06: Yeah, thank you. Um, yeah, obviously it's a crazy time in the world right now. And, um, You know, we're working on Neutron as quickly as we can, so I'm not sure we can accelerate that much more than it already is. But needless to say that if things continue this direction, there will be a far more limited launch availability than what normally would have been.
spk07: That's good. And then second topic, clearly the MNA strategy has been bearing quite a bit of fruit. You have all this content on some of the most important satellites. Is there anything you feel that's out there left? Do you think you've kind of completed most of it, or is there anything kind of strategic you still see out there, potentially along the lines of maybe integrated electric propulsion?
spk06: We keep a pretty active pipeline of companies and deals that we might want to do, and I wouldn't feel like saying that we're finished, but I'm not going to go into any details about what particular technology we might be going for next.
spk07: Got it. If I could speak on just one more. On the launch cadence, I know you have two kind of embedded in the first quarter. Without providing, I mean, a number per se, is there any kind of rough indication, assuming, you know, supply chain is fine, no delays, what could be kind of the run rate by the end of the year?
spk06: I'll tell you the first part of it, and then I might want to pick up the second part about common sense. we're always paced by our customers' readiness. You know, you've seen us accelerate one customer because, you know, another customer, you know, wasn't quite ready on time. So the thing that drives our launch cadence the most is our customers' readiness.
spk04: Yeah, and I'll jump onto that and say, Addison, I think that, as Pete mentioned, we're not production constrained at the moment. I think our production resources have really delivered in the last quarter or so. So we're very much on pace to deliver the number of rockets that we were planning to for 2022. So our internal forecast for production this year was we came into the year with some rockets that we're in with, and our plan is to build 15 rockets this year. We'd love to be in a position where we could have some inventory of rockets on the shelf. Sounds funny to say that. you're literally going to have some rockets on the shelf that we could support turns opportunities because every year we see turns opportunities. where a customer comes in and they've got a very short lead time because either they want to squat on some spectrum or they want to have to do a quick tech demo on orbit. So there's no reason to believe that we can't support those kinds of opportunities this year as we progress. So we really think about where we want to be. We want to be exiting the year where we're launching at least monthly on a consistent basis. And then progressing towards our goal where we get to, you know, say two rockets per month on a consistent basis. And I would say, you know, I think, again, from a production perspective, there's nothing that would indicate that we can't get there. I think there's, you know, we're still in the process of the market demand kind of developing into what it ultimately will be as, you know, the small launch, dedicated small launch is a new category. But I would say that, you know, everything looks good at this point, and we feel very comfortable that we won't be a gating item to delivering the revenue after the business. It's really kind of where the customers are. And I think all of us have to get somewhat accustomed to kind of the lumpiness of launch, right? So as Pete mentioned, you know, our customers really kind of gate our launch cadence more than anything else. And I think that will get alleviated over time as demand picks up and you can really have slot and replace opportunities so that you don't lose launch slots and you can kind of maintain your growth aspirations. I think a good example... of that was literally in this quarter where the mission that we launched earlier today, we were able to basically swap, um, we were able to swap missions relatively quickly again, because we have the unique position of having our own, uh, our own launch range. So we can move things around as we need to. Uh, if we were operating off a traditional government range that wouldn't have been the case. So I think that, uh, there's a lot of things that influence launch rate cadence and so forth, but you know, our goal will be again, consistent launching on at least a monthly basis, exiting, uh, 2022. Awesome. Thank you.
spk01: Thank you, Mr. Yu. The next question is from Christine with Morgan Stanley. Your line is open.
spk00: Hey, good afternoon, guys. Maybe on a... On, you mentioned, you know, Rocket Lab capabilities now span the full space economy with your recent acquisitions, and you've got vertical integration, too. So does that mean you're comfortable with the portfolio as it stands today, and we should expect M&A levels to kind of stop here, or do you continue to see opportunity for bolt-ons?
spk04: Yeah, Pete, if you want, I can kind of take it. Sorry, go ahead.
spk06: Go ahead. No, you go ahead.
spk04: Yeah, Christine, I think, you know, from an appetite perspective, we still have plenty of appetite to go and further accelerate the growth of the business through inorganic means. We've been successful, as you've seen, in doing four acquisitions in a relatively short period of time, three since going public in August. And we continue to see interesting and compelling assets out there. So I would say that, you know, I wouldn't expect the pace to continue as it has been because that was very, very quick to do three acquisitions in series as we've just done. But I still expect that we'll find opportunities that we can execute on. And, you know, that was, again, one of the big reasons for going public was to make sure that we had the capacity and the capital to go out there and do these kinds of TAM-expanding deals. So we think, you know, our strategy so far is bearing, you know, great fruit, and we continue to plan to push that, although I would say just naturally speaking, you know, doing three acquisitions in the first six months of a public company's life, you know, isn't something that is normal or I would necessarily predict would continue into 2022 on that same rate.
spk06: And I would just add, you can see kind of the strategy rolling out here with the win with NDA and GlobalStar. I mean, having such a secure supply chain and scale really, really enabled us to beat out really established suppliers in that satellite manufacturing field.
spk00: Thanks. And then also, can you provide any updates on the planned testing around the first stage retrieval via helicopter? And, you know, if you can't provide any specifics around timing of the upcoming test, can you speak to the testing regime overall and milestones to enable the regular recovery of boosters using a helicopter? I think you guys have said about 50% is eventually where you want to be.
spk06: Yep, absolutely. So the helicopter that's been selected to do this work has had all the modifications completed and it's currently en route to New Zealand. We've completed all of the last of the drop tests last week, so the team's been out there, you know, dropping rockets flat out. The last re-entry test that we did in Splashdown last year really validated the final piece. We actually had helicopters en route and rendezvous, not catch, but rendezvous with the stage, which was really the last big piece. So this next launch coming up, we'll have the helicopter fitted out, ready to go, and we will, in fact, attempt to attach, and you won't have to wait long for that.
spk00: Great. And if I could sneak a third one, you know, the $143 million contract win that you got from MDA is a fairly meaningful win. And you get to showcase this portfolio that you've built with Solero, Sinclair, EPL. So when you think about delivering on this contract, are there additional CapEx that you have to do in order to be able to build a 17 contract? 500 kilogram spacecraft, or do you have the capacity already in place? And can you discuss potential execution risks around this contract?
spk06: Yeah, I mean, we've made significant investments and continue to make significant investments into you know, into the Space Systems Division. I think, you know, we mentioned in the slides here the continued expansion of the satellite manufacturing facility. You've seen this also grow ASI and increase our footprint in Colorado. There's still some expansion required from a facility standpoint, but these were, you know, already all planed before we actually won the contract. And, you know, because Hammers swinging, you know, has been for quite some time. And then, you know, I think with respect to execution, you know, these are complicated spacecraft for sure. But, you know, we have assembled, you know, a team of industry experts that have, as you can see by some of their positions, have executed on these programs in the past many, many times. And, you know, we're feeling very confident in the core team's ability If you look at some of the other missions, we've also been awarded missions to NASA, missions to Mars from NASA, and the like, missions to the moon. These are very, very deeply complete missions, and that's really where our engineering team excels, is on these complicated programs. And just to make sure, in your previous question, Christina, I just want to make sure, correct myself, that the launch is coming soon. I haven't defined a date for that. for recovery.
spk00: Great. Thank you, Peter. Thanks, Adam.
spk01: Thank you, Ms. LeWag. The next question is from the line of Eric Rasmussen with Starfold. Your line is open.
spk03: Yeah, thanks for taking the questions, and congratulations. It's been a year for you guys. Maybe just a clarification on the launch and the cadence and everything else. Two in the upcoming quarter or this quarter, Q1, and then exiting the year at least one per month. Just wanted to, and then reconciling that with, you know, 15 builds for the year, is that builds or launches, those two coincide with one another?
spk04: Yeah, no, those are, the 15 are incremental builds in 2015, 2022. So it's not launches. So, you know, we've talked about, you know, kind of a range of launch or missions that would go off this year in 2022. And it's, you know, I'd say that right now, again, I think we're very comfortable kind of where we're at right now and being able to support a manifest that launches, you know, on that rate that I was talking about exiting 22 at. We don't want to provide full year guidance at this point, so we're kind of just providing kind of next quarter. But, again, I think we feel very comfortable where we're at in our ability to support kind of the launch manifest that we've discussed previously.
spk03: Okay. Thanks. And then maybe just the outlook of the Q1. What's behind that? You know, maybe just unpack the revenue outlook. What's the organic piece versus what's coming from recent acquisitions? And then I have another question.
spk04: Sure, Eric. Yeah, you know, we're not going to go into the details of kind of what kind of comprises, you know, space systems in particular at this point because it's becoming a very kind of diverse and intertwined set of businesses. When you think about, you know, the components ranging from components that we've developed organically, ones that we've developed in partnership, like, for example, radios with Johns Hopkins, with the various elements from Sinclair and then the software from ASI and you know, and the solar panels and so forth and cells from, you know, from Solero. It just, it's, there's a lot of interdependencies, and it's kind of hard to really kind of attribute, you know, what's at this point kind of driven by organic versus inorganic. So at this point, we just kind of, again, point to the, we provide the level of detail as far as which components, like as far as launch versus space systems. But I think going below space systems is probably not going to be kind of productive and really be all that meaningful.
spk03: Gotcha. I understand. And then maybe just last on your follow-up on the NDA subcontract award. By the way, congrats on that. You know, what sort of milestones should we be looking out for? And it also seemed that there was an opportunity for Rocket Lab to provide additional services and up to nine additional spacecraft. You know, what could that mean in terms of revenue above the $143 million? initial contract. And then the last thing on that is, you know, they did talk about, you know, Global Star is going to be looking to have a contract for launch of those, you know, satellites separately. Is that something that you can also win? Thanks.
spk04: Yeah, Pete, I'll let you take the opportunities kind of around the satellite build to be on the 17th.
spk06: Yeah, absolutely. Yeah, so there is, as everybody's clear, there is options to build further, and there are a number of other options around other pieces of technology. The launch, the scheduled launch date for these satellites coincides nicely with Neutron's operational readiness and will certainly be bidding on launch for these spacecraft, which you know, if successful, would really round out the strategy and show the power of both being able to build satellites and also being able to launch.
spk04: Yeah, Eric, I would say that around, like, the milestones and so forth, I mean, from a revenue perspective, this is, you know – for the most part, a back-end loaded contract from a revenue perspective. So you can think about, you know, obviously we've done a lot of work up to this point on, you know, designs, you know, doing the design work, but then that's really kind of just to get the award. Now it's all about kind of really kind of doing the next level of NRE work and then ultimately the beginning of shipping the systems to the customer. So, you know, I think as far as, you know, milestones, you probably won't hear a lot, you know, on as far as this is not like, neutron where you'll you know do an engine test for example or you know kind of implement some infrastructure that's visible so you know this is one of those contracts where it's going to be kind of that final execution where we have a we have a very detailed set of milestones you know internally to execute towards but nothing that's really going to be visible uh again to to investors uh until you start to see revenue come off the contract which again is really more back and loaded so You know, you really shouldn't expect, I would say, material revenue contribution in 2022 from this contract. This is really more 2023 and beyond. Got it. Thank you. And as far as the upside to the, you know, if we were to deliver, you know, the incremental nine options on the contract, again, you know, we don't want to speak to that at this point because, again, I think we've, Part of this is to make sure that people's expectations don't get out of whack. So for us, we just want to speak to what's committed, and what's committed is the 17th. That's what went in the backlog. And to the extent that we get notification from the customer that they want to exercise some of those incremental options, we'll be sure to let folks know about that.
spk03: Thanks.
spk01: Good luck with everything. Thank you, Mr. Rasmussen. The next question is from the line of Suji Del Siva with Roth Capital. Your line is open.
spk08: Hi, Peter. Hi, Adam. Congratulations on still unfinished the 2021. Adam, I know you don't want to break the earnings up, but I just want to clarify. Did you say the Solero in 1Q22 was minimal because of the accounting for the merger? Is that what you said?
spk04: No, no, no. No, so basically we'll get most of the quarter's impact from Solero in Q1 because the deal closed on January 17th. So there's going to be a lot of purchase price accounting-related impacts to our GAAP results in Q1. But, no, we will get nearly full operational contribution from Solero in Q1. And what had been mentioned previously when we announced that acquisition is that they were kind of roughly on a $20 million per quarter, $80 million per year revenue run rate. And so you should be thinking along those lines of kind of a prorated amount, assuming that the deal closed on January 17th, just for rough math.
spk08: Okay, I'm glad I caught that. Okay, and then the backlog, clearly a very spunk spike. Congratulations on that. Is there any way to understand how much of the backlog is attributable to launch versus spacecraft versus space system components? Does that break out kind of helpful? Or just to, if not that, just qualitatively, what drove the significant spike since the end of Thomas?
spk04: Yeah, well, obviously, the biggest, you know, contributor to, you know, post year end backlog growth came from the MDA contract. I had $143 million. But we did have continued growth in our backlog across our spacecraft components business, software. All the pieces of space systems are really operating well right now and all contributing to that growth in the backlog number. You know, and we continue to sign up, you know, new launch customers as well. So, you know, it's like there's not necessarily a weak spot in the business. There's not, you know, obviously the disproportionate contribution in the post year was certainly on the space systems side, specifically to, you know, this MDA contract. But I wouldn't want that to kind of obscure the fact there's been a lot of other activity across the portfolio of space systems and across launch as well. So, yeah, we're very encouraged by the backlog growth. I mean, that's one thing we've always been trying to message to investors is just, you know, people can talk about pipeline all day long, but it's really all about backlog. Backlog shows the committed resources behind the platforms, whether it be launch or space systems. So, yeah, we take a lot of comfort in that backlog growth that we've seen, not only in 2021, but as we've progressed so far through 2022.
spk08: Great. No, the MDA contract is certainly a good one for us on that. Just one last quick question. If you do the faculty envelope map, it comes out to about 8.5 million per spacecraft. I'm just wondering if that's a good number to use for going forward spacecraft opportunities. Is it proportional to the size or complexity of the spacecraft? Any color there would be helpful. Thanks.
spk04: Yeah, I wish it was that easy. Unfortunately, each spacecraft is so unique. You know, there's really no kind of metric that really fits at all. Neither mass nor type of platform, they're all very, very different. And you can also think about the fact that, you know, the spacecraft that we designed in this case here, you know, there's quite a bit of NRE, and that's all kind of taken in aggregate when you look at the totality of the contract. So you kind of have also hard to apportion how much of it is like, you know, bomb and assembly and AIT versus NRE. So, again, we'll, you know, to the extent that we get further constellations, we get further constellation volume upticks, we'll be sure to share those metrics as they become available.
spk08: Thanks, Adam. Thank you.
spk01: Thank you, Mr. De Silva. The next question is from the line of Austin Moeller. What can Afford do? Your line is open.
spk10: Hi. Good afternoon, everyone. My first question here is for Peter. Do we have any update on the RAIN software that you're supposed to get from NASA to operate the Wallace Launch Pad?
spk06: Yeah, hi, Austin. So they have released an official version to us, and we are going through our own internal review. There's probably some slight tweaks here that need to be made, but that is progressing. NASA, like I say, have delivered some software products to us, which is very, very promising and giving us much more confidence to be able to schedule something to launch out of LCTs.
spk10: Okay, that's helpful. And then just on the neutron facility that's being built in Virginia, do we have any timing on how long you think it'll take to get that facility set up and start putting out rockets there? And will early neutrons all come from there, or will some come from New Zealand or California?
spk06: Yeah, no, so all neutrons will come from that facility. The land is already being acquired by Mars, the Mid-Atlantic Spaceport, and we'll be digging holes in the ground very, very shortly. The program kind of enables us to have a more relaxed approach to building that infrastructure. There's certain things we need immediately and obviously you don't need a launch pad until you read the launch. So the whole construction part of that is phased quite eloquently across the mission development timeline.
spk10: Got it. And then how comfortable are you guys with the supply chain right now? Are you seeing any potential issues on the horizon, or are you still very confident in this environment?
spk06: I don't think anybody's confident in this environment. I mean, I will say that it's great to have a large part of the supply chain because you can really manage things, but like everybody, we're continuing to to manage chip shortages and all those kinds of things. However, we took an approach earlier of carrying a large amount of WIP. So as of yet, we haven't seen any programs delayed as a result of any supply chain issues.
spk10: Excellent.
spk01: Thanks for calling me in. Thank you, Mr. Moeller. The last question is from . Your line is open.
spk09: So as you know, Layer 1 was awarded, I guess, yesterday. And Lockheed with Tehran basically, I guess, got one of the spots, 42 satellites. They claim they're putting up this huge facility in Florida and are basically going to have you know, volume production, so they will have costs totally unmatched by everyone else. And it looks like your MDA satellites kind of in the same size range. So do they represent a serious competitor to you? Because it looks like they're going predominantly after DoD, and it looks like you're going after more commercial, civil. So, you know, what sort of a threat do they pose, if any?
spk06: Yeah, that's a great question, Kai. I guess we're a little bit different in the respect that, you know, if you look at the supply chain of critical components, whether it be solar, reaction wheel, star trackers, you know, all of those things, we've taken an approach of making sure that, you know, we have those for us and also for others at scale. So really, you know, I think we're in a different kind of place. We're not just focused on commercial. You know, we're happy to do defense work as well. But, I mean, yeah, I think if you look at our acquisition strategy and what we've kind of rolled up, I would hazard to guess that, you know, either way, we'll be a participant in those time zeros at a component level.
spk01: Thank you, Mr. Von Rumus. I will now pass the conference over to Adam Spice for any closing remarks.
spk04: Thanks, Operator. Before we wrap up the call, I'd like to thank everyone who participated in today's call, and we look forward to having you. opportunity to provide further updates in our business, including through our participation at the Roth Conference on March 13th through 15th, the Deutsche Bank 30th Annual Media, Internet, and Telecom Conference on March 14th, and the Bank of America Space, Transport, Aviation, and Autos Research Summit, or STARS Conference, March 20th through 22nd. And again, thanks again, and we look forward to speaking with you again about exciting progress that we're making in our business. Thank you, Operator.
spk01: That concludes the Rocket Lab fourth quarter 2021 financial results conference call. Thank you for your participation. You may now disconnect your line.
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