Rocket Lab USA, Inc.

Good afternoon. Thank you for attending today's Rocket Lab first quarter 2022 financial results conference call. My name is Nate and I will be your moderator for today's call. All 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. So I'd like to now pass the conference over to our host, Gideon Massey with Rocket Lab. Gideon, please go ahead.

Thank you, operator. Hello, everyone. It's good to have you join us on today's conference call to discuss Rocket Lab's first quarter 2022 financial results. Our presenters for today's call are Rocket Lab founder and CEO, Peter Beck, and 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 second quarter 2022, including revenue in our principal target markets, gap and non-gap gross margin, gap and non-gap operating expenses, interest expenses income net, adjusted EBITDA, and basic shares outstanding. 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 export restrictions. The impact of the COVID-19 pandemic, our dependency on a limited number of customers, average selling price trends, and risks that our markets and growth opportunities may not develop as we currently expect, and that our assumptions concerning these opportunities may prove incorrect. More information on these and other factors or other risk factors that may affect the forward-looking statements as outlined in the risk factors section of our 2021 10-K filing, which was filed on March 24, 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 first quarter 2022 earnings release is available in the investor relations section of our website at rocketlabusa.com. To supplement our audited, consolidated financial statements presented on a basis consistent with GAAP, we disclose certain non-GAAP financial measures, including gross margin and operating expenses. These supplemental measures include the effects of stock-based compensation expense, amortization of purchased intangible assets, other non-recurring interest and other income expense net, non-cash income tax benefits and expenses, performance reserve escrow amortization, transaction costs related to mergers and acquisitions, and change in fair value of contingent considerations. 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, depreciation and amortization, warrant expense related to customers and partners, transaction costs related to mergers and acquisitions activity, foreign exchange gains or losses, income tax provisions, change in fair value of contingent considerations, performance reserve escrows, and other non-operating income and loss, excluding interest expense related to debt and other non-recurring gains or losses. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations and our Q1 financial results media release 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 warrant 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 are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business. We believe that these non-GAAP measures have limitations and 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. 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.

Thanks for that, Gideon, and welcome everybody for today's review of Rocket Lab's business highlights and financial results for Q1 2022. Today's presentation includes their business accomplishments for the beginning of the year, as well as further achievements we've made in the days and the weeks after the end of Q1. Adam will then talk through our financial results for the same period and our financial outlook for the second quarter. Before we take Q&A from those listening in and finish today's call with the upcoming conferences we'll be attending. So let's first start with a review of our key accomplishments in Q1. We started off the year with a strong, with the signing of our largest space systems contract Rocket Lab has secured to date. This is our $143 million contract. to design and manufacture 17 spacecraft buses for the Global Star Constellation, which I'll go into more detail shortly. This contract highlights our strength of our increasing levels of vertical integration across space systems, executing on our end-to-end space strategy. We kept up the momentum in space systems with our expansion in Colorado to meet growing consumer demand for our GNC and software services, and of course our completed acquisition of Solero Technologies in the first quarter. We immediately got to work building the team's industry-leading technology and into qualification of what we believe to be the world's highest efficiency space solar cells, which we aim to bring to the market later this year. On the launch side of our business, our first launch of the year was a flawless mission for repeat commercial Japanese earth imaging customer's inspectors. That same mission also marked the first mission from Pad B at Launch Complex 1, the newest of three launch pads. As we continue to ramp up our electron launch cadence, this pad at LC1 really shortens our turnaround time between launches and with extensive facilities at the site already in place, we can now run two launch campaigns simultaneously from LC1 to support back-to-back launches. Later in this presentation, I'll take you through our additional accomplishments post Q1. I'm excited to share what we have to date for our first Electron launch out of Launch Complex 2, scheduled in their manifest this year. Electron was also recognized in selection by NASA as one of a handful of launches to provide the agency launch services under its $300 million VEDA launch program. And finally, we rounded out the first quarter by selecting Wallops Island, Virginia as the home of Neutron's launch site production complex with construction already underway in Q1. So let's now walk through some of these highlights in more detail. Backlog. Q1 2020 saw continued growth in our backlog from year end 2021. At December 31st, 2021, our backlog stood at $241 million, and while we ended March 31st, 2022, at $546 million. Today, our backlog stands at $551 million, representing a $310 million increase in total backlog since year-end of 2021. We've seen continued booking strength across every major product in the company, including electron launch contracts, photon satellites, and numerous Rocket Lab satellite components and software sales spanning a global customer base. These customers include the US government, foreign governments, universities, and commercial customers and constellation operators. We are in the early days of recognizing sales synergies from our vertical integration strategy, but the benefits of this strategy are already garnering significant financial benefits. So as I mentioned, we had a great first launch of the year of our electron for our repeat customer, Sunspective. We successfully delivered another strict satellite to orbit as part of their growing Earth imaging constellation, having deployed one of the very first spacecraft to orbit back in December 2020. The mission is the first of a bulk buy of three missions signed by Sunspective last year. We signed that contract in December 2021 and successfully delivered the first payload to orbit on this mission fewer than three months later. which is a rapid and competitive turnaround time. Our ability to offer customers ultimate schedule control, flexibility, and absolute reliability from a long heritage of successful missions is often the driving reason behind why these mission bulk buys, which this particular mission was a great representation of. This inspective mission was actually brought forward in the manifest, flying earlier than initially planned to meet mission requirements and launching on the first day of the launch period when it opened in February 28th. backfilling another customer's launch slot who experienced a delay with their satellite. From a technical perspective, we also count this mission as the highest performing mission to date in terms of launch vehicle performance. Electron and its upper stage delivered conspector's payload to space with pinpoint accuracy within just 500 meters of its target orbit. When you consider The speed that we're travelling to get there, more than 27,000 kilometres an hour, delivering the payload with that type of accuracy is just incredible. After payload deployment, we also successfully lowered the kick stage, which brought it back closer to Earth's atmosphere and guaranteed the stage was destroyed on its return to Earth only nine days later, a mere fraction of the 25-year accepted standard for lowest by NASA. As the second most frequently launched US rocket, with that cadence only planned to increase, we are determined to be a responsible space steward playing a leading role in responsibly managing and mitigating orbital debris. A second electron launch of the year took place just 33 days later and was another successful mission, followed by a third launch of the year again in Q2 just 31 days later. While we had anticipated our second launch of electron would fall in Q1, Weather delays pushed the mission two days into the second quarter instead. At that time, this launch shift was announced on the 24th of March. We also updated our financial guidance for Q1 2022, and the revenue from the second launch will instead be reflected in our second quarter financial results. First PAD B launch. So in the first quarter, we also conducted the first launch from our newest PAD based at Launch Complex 1 in New Zealand. This is our third pad for Electron, joining the existing pad at Launch Complex 1 and our pad at Launch Complex 2 in Virginia. By standing up an additional pad at Launch Complex 1, we immediately doubled our launch capacity from that site to meet anticipated future customer demand, without having to double all the supporting range infrastructure or seek new regulatory approvals like you would have to when establishing an entirely new site. Moving into space systems now. In Q1, Rocket Lab was selected by MDA to design and manufacture 17 spacecraft buses for Global Star, a leading provider of mobile satellite services. The contract is a direct reflection upon our highly vertically integrated space systems capabilities. The spacecraft will feature components and subsystems developed organically within Rocket Lab and also produced by our recently acquired companies, including solar panels and structures from Celero Technologies, software from ASI and reaction wheels from Sinclair Interplanetary. All 17 of the 500kg spacecraft will be designed and manufactured at our Long Beach production complex where a new high volume spacecraft manufacturing line is under construction to support the growing customer demand for Rocket Lab satellites. Keep in mind that these Global Star spacecraft aren't really small satellites, they're big machines, half a tonne each and roughly the size of a car with 9m solar panel wings. These are complex spacecraft and this contract was a result of a very detailed and highly competitive bid process that determined that Rocket Lab offered a compelling balance of performance, heritage, schedule reliability and cost. I look at it as this is the fruition of our deliberate strategy and growth in space systems as we expand beyond launch to offer complete end-to-end solutions for our customers. We're executing on this program already with programmatic planning successfully completed with MDA in Q1, and the review of the systems requirements for these spacecraft is scheduled to take place actually this week. It's really exciting to see this program off to a great start already. Now, of course, a contract like the MDA one is only possible thanks to the capabilities we've both developed and bought in-house. We closed three space systems-related acquisitions over these past few months since coming public in August 2021, with Solera Technologies being the latest closed deal. which was completed this past quarter. Within the space industry, Solero Technologies really needs no introduction. They are the best in the game with their space solar cell technology and run the world's largest production line of high-performing space solar cells and manufacturing solar cells, solar panels, and composite structural products. I'm proud that they're now part of the Rocket Lab family and continuing to offer premier capability and value across civil, space exploration, defence, and intelligence, science, and commercial space markets. Already we are reaping the benefits of Solera's innovative drive as we move forward with qualification of our next generation solar cell technology. The IMMB, once qualified, is expected to be the highest efficiency space solar cell of its kind in high volume production worldwide. The latest product is more than 40% lighter than typical space-grade solar cells. We make this technology leap with Rocket Lab's resources and manufacturing capability to scale to meet the growing demand for these products. The qualification process is on track and these new cells should be ready for commercial use later this year. Another fantastic product milestone to come out of our solar business this quarter was the completion of the solar panel production for one of the world's largest low orbit satellite constellations, OneWeb. Solero solar panels will power the majority of the planned constellation. with early investment in its facilities to vertically integrate solar cell, composite substrate and final panel assembly in-house, creating the world's only one-stop shop for fully assembled solar panels. The successful completion of this contract sets up Solero nicely for mass manufacturing on future projects and to capitalise on the growing small satellite constellation market. Moving on to other areas of our space systems business, we began our expansion in Colorado with the new space systems complex. This new facility will support two mission operation centers and more space for team growth. With our Colorado headcount expected to more than double by early 2023, as demand for our flight software, mission simulation, and guidance navigation control, or GNC services, continues to grow. To give some insight into the team's work, they're currently supporting more than 33 missions, including lunar landers, and spacecraft destined for Earth orbit, Mars, and beyond. Our satellite separation system business in Maryland also continues to go from strength to strength, having recently completed both the delivery of its 500th product into a commercial satellite operator and finished the build of its 1,000th motor assembly in Q1. Much like our team in Colorado, our satellite separation systems team is also experiencing significant headcount growth and will soon begin the expansion of its facility which I'll touch on later in this presentation. Within our photon spacecraft line, we're also executing on the LOCSAT-1 mission concept to create a fueling depot gas station in orbit. Partnered with EtaSpace, we're bringing together a launch plus satellite mission solution to conduct an innovative tech demonstration that supports NASA's mission to establish a sustainable presence on the moon. The mission involves a photon spacecraft to support the testing of cryogenic fluid management in space and the Electron rocket to get it to space in the first place. The team completed the mission's preliminary design review in Q1, unlocking the next step in the mission timeline. LOCSAD is exactly the kind of mission we set out to enable with Photon. With their experience and capability across launch, satellite, and mission control, Eta Space can focus entirely and primarily on their mission without the worry of dedicating resource to the infrastructure to support it. Imagine if any time you wanted to create an app, you first had to build a phone and then the network that it lived on. This is a problem we set out to solve with Photon and Electron and our entire space systems ecosystem. And it's great to see our end-to-end solution being utilised for such innovative tasks like LOCSAT-1 mission for NASA. Speaking of NASA, and if I can bring you back to launch for a moment, we were proud to be selected by the agency in Q1, along with others, to provide launch services to their programme for Venture Class, acquisition of dedicated and rideshare missions, or VEDA. The program is a five-year, $300 million program and the latest sign of confidence from the agency in Electron's ability to deliver the nation's science and technology payloads into space. And then into Neutron. And finally, wrapping up our Q1 achievements, we selected the state of Virginia for our Neutron launch site and production complex and almost immediately began construction. The 250,000-square-foot neutron production complex has been built on a 28-acre site adjacent to the NASA Wallops Flight Facility and Mid-Atlantic Regional Spaceport on Virginia's Eastern Shore. The production of neutron here includes up to $45 million in support from the state in infrastructure and operational improvements. We're excited to grow Rocket Lab's presence in Wallops, add up to 250 highly skilled jobs to the local economy, and bring resilient and assured access to space for the nation through the neutron through Neutron in the years to come. The Neutron development program remains steadily on track. This first quarter we also completed a systems requirements review for the launch vehicle with the US Space Force Space Systems Command as part of the $24 million contract they awarded us late last year. The upper stage development contract with SSC's launch enterprise recognizes Neutron's design to maximize mass-to-orbit capability, orbital insertion accuracy, and responsive dedicated launch for the US government. Key requirements for the launch providers of the highest priority national defense and security mission awarded through the National Security Space Launch, or NSSL, program. Existing NSSL launch providers include SpaceX and ULA, and the awarding of this contract recognizes Rocket Lab as a potential NSSL phase three launch provider from 2025. So as you saw there, we've had a great start to the year with those business accomplishments in the first quarter. And now I'd like to take you through a few more exciting developments for the company since the quarter end. Two launches. So just two days into our second quarter, we had the successful launch of our dedicated mission for Black Sky, followed just 31 days later by a 26th Electron launch from LC1. Combined, these missions bring the total count of satellites successfully deployed by Rocket Lab to up to 146. I'll take you through both these launches individually across the next few slides, starting with the most recent mission. But first, I want to use this slide to draw your attention to our progress this year in increasing our electron launch cadence. Frequent and reliable launch to space is critical for our customers, and with all three electron missions this year launched within a nine-week period, Electron has reached an average launch cadence of one every 31 days. At the same time, all three launches have successfully deployed our customer satellites to space on the first launch attempt. We are well operationalized and resourced to maintain this momentum throughout the year with a responsive launch demonstration with a US government customer on the horizon. In the middle of this year, that will include two launches currently scheduled to launch within two weeks of each other. Now on to our most recent mission, our 26th launch, which marked a major milestone in our program to make Electron the first reusable orbital small launch vehicle. The there and back again mission saw us complete immediate capture of the Electron booster with a helicopter for the first time. After launching to space, Electron's first stage returned to Earth under a parachute before our S92 helicopter swooped in, flew along with the returning stage, and used our hook on a long line to capture the parachute. After the catch, the helicopter pilot offloaded the first stage as it was quickly recovered, and it was quickly recovered by our recovery engineers who were waiting on a nearby sea vessel. They brought it back on board the boat and returned it to land, and I'm happy to report that the first stage come back in really good condition. Our ultimate recovery goal is to return the booster directly to land versus the boat, And this was a huge step towards that goal. And I feel like we really are about 90% progress was made to that ultimate goal. Now, the whole point of pursuing reusability for us is to increase launch frequency and reduce production costs per vehicle. With the majority of the cost of building Electron tied to the first stage and production overhead cost, any time we can reuse all or some of the parts instead of starting from scratch will minimize our production costs and maximize our production utilization thus positively impacting our bottom line. Right now, our engineers are picking apart and inspecting the stage inch by inch to determine what can be reused and what can be reflown from this booster in the near future. Catching a returning booster on our very first attempt was an incredibly difficult task. Quite frankly, I would have been pretty happy if we'd only decided the stage coming back with a helicopter, but to actually catch it on the first go was a tremendous feat. I'm incredibly proud of the entire team, and it was really great to see them get all the kudos they deserve with worldwide media coverage across most major news outlets. Don't forget, too, that amongst the recovery noise for this mission, Electron successfully deployed 34 satellites . A mix of new and repeat customers across space junk removal technology demonstrations and earth monitoring, this mission has brought our total count of satellites deployed up to 100. Now onto our Black Sky mission, our first for the second quarter. This is another mission I'm proud of, by the way. It showcases our responsive launch capability. We launched many months apart. This launch, I believe, sets a new standard for speed and agility for our customers. A month and a half before this launch, around the time conflict was escalating in Eastern Europe, Black Sky came to us with a late request to change the orbital inclination for this mission so they could better support their customers responding to the Ukraine crisis. This is not a trivial thing and requires all new trajectory, safety analysis, licensing, and mission planning. It's basically a new mission from scratch. But within 45 days, we not only made those changes for the customer, but also delivered their pair of satellites above the region successfully. And this kind of capability is an important distinction in today's escalating geopolitical environment. Agility, flexibility, and reliability is paramount for responsive space. This has always been a hot topic in national security circles, and the ability to provide responsive space solution continues to generate a huge amount of public and commercial interest. As the premier small launcher, Electron has always been well positioned for future growth in this space, and as I said before, this launch is a real showcase of our services. Now beyond launch on Electron, we also had a number of satellites integrated with Rocket Lab technology that are now successfully operating in space. We had motorized light bands on SpaceX's Transporter 2 mission that successfully separated the Hawkeye Link and D-Orbit satellites in space, as well as advanced light band separation system used on the same launch for the Planet IQ satellite. Separately, our MAX flight software is being used to help operate two Earth imaging satellites also launched in April. In 2021, our technology could be found on 38% of all launches. Having the Rocket Lab logo on everything that goes to space is part of our long-term strategy, and these latest missions supported by Rocket Lab technology is an example of that strategy being executed well in early 2022. With the expanded products and services offerings now under the Rocket Lab umbrella, both from acquisitions and all our own internal development, the reduced risk of supply chain disruption that we bring to our customers with our vertically integrated manufacturing capability and our reliability to execute is increasingly attractive to our customers. with our end-to-end services for their satellite constellations. From satellite build and components all the way through to launch and on-orbit operations, our technology is across most of the big low-orbit small satellite constellations today. We're involved in constellations across the public and private sectors because our customers can come to us knowing we can offer them scheduled security and attractive pricing at scale no matter the mission. The latest contract where our end-to-end solution strategy has borne fruit is the launch bulk buy from Hawkeye 360, which we secured in early Q2. Three electron launches will deliver 15 satellites to orbit for Virginia-based Hawkeye 360, which is building out a constellation to deliver radio frequency geospatial analytics. Included in this contract is the supply of our separation systems for the satellites, and as we mentioned on the previous slide, we have significant other satellite componentry sold into the platform. Bulk buys. So the Hawkeye bulk buy is just the latest of many multi-launch contracts we have in the books for Electron. Commercial constellation operators look to Rocket Lab and Electron to provide reliability and accuracy in placing their satellites in the right place on orbit, where precise placement is critical to the build-out of their constellations. Without missing a beat, that the Without Missing a Beat launch for Black Sky we successfully executed in Q2 included the fifth and sixth satellite Rocket Lab delivered to space for Black Sky across a series of missions within three months. And while that mission was due to be the final launch in that multi-launch series, an additional sixth launch for Black Sky and Electron was commissioned in Q2 of last year. And we'll take additional points and will take place later this year. That dedicated mission will continue Black Sky's rapid business expansion by deploying another pair of Gen 2 Earth imaging satellites to a precise location in low Earth orbit for its growing satellite constellation. And again, all but one of these multi-launch contracts, customers, satellites, platforms include Rocket Lab spacecraft hardware or flight software to support their missions. Now, excitingly, in the first of multiple Hawkeye missions that has been selected to be as part of the rideshare launch from Launch Complex 2 at the end of this year, we have been encouraged by NASA's progress in certifying its autonomous flight termination unit and software, which is needed to enable electron launches from Virginia, and so have secured the state with confidence so we can compare complete the first launch from Launch Complex 2 before the end of the year. With that third pad online, we can offer even greater flexibility over schedule, launch frequency, and launch location for our global customers. On to our launch to the moon for the Capstone mission. April and early May saw significant progress and milestones cleared on the path to launch. Just this weekend, the Capstone satellite itself arrived in New Zealand, ready to be integrated into our photon lunar upper stage that will carry it out of Earth's orbit and set it on its path to the moon. Our launch readiness rehearsal with our Electron rocket was also completed over these past few days, further clearing the way ahead of us to launch this mission from LC1 towards the end of the month. Speaking of spacecraft, Rocket Lab is supporting to get to the moon the Blue Ghost lunar lander being developed by Firefly Aerospace. which will be operated by our MAX flight software, supported by our GNC engineers and managed by our mission operations, completed a key readiness milestone last month called Integration Readiness Review. Blue Ghost is part of NASA's Commercial Lunar Payload Services Program, which contracts the private sector to deliver science experiments and other cargo to the moon. So with that, let me turn the call over to Adam Spice, our Chief Financial Officer.

Thanks, Peter. I'll first review our first quarter 2022 results and then discuss our outlook for the second quarter. First quarter 2022 revenue was $40.7 million, slightly above our revised guidance of $40 million, which we issued on March 24th. The updated guidance reflected the delay at the Black Sky Global launch that was assumed in the original guidance range of $42 million to $47 million. In the quarter, launch contributed $6.6 million and space systems contributed $34.1 million, or 84% of revenue, and grew 149%. Total revenue for the first quarter was up 48% quarter over quarter, despite the black sky launch slip from Q1 to Q2. Meanwhile, gap and non-gap gross margins for the first quarter of 2022 were 9% and 24% respectively. This is below our original Q1 guidance on a gap and non-gap basis of 17% and 30% respectively, driven by the unforecasted purchase accounting impacts of Solero that was still in process at the time we issued our guidance and the delayed launch and resulting in lower absorption of overhead and indirect production and launch costs. This compares to fourth quarter 2021 gap and non-gap gross margins of 24% and 36% respectively, which benefited from higher launch rate and a more favorable product mix. Launch services gap and non-gap gross margins were negative 12% and positive 1% in the first quarter, respectively versus a positive 1% and positive 6% in Q4 of 2021. The decline in gross margins quarter on quarter were driven by the lower launch cadence in the first quarter of 2022. Space systems gap and non-gap gross margins were 13% and 28% in the first quarter, respectively, versus 48% and 67% in Q4 2021. The decline in gross margins quarter on quarter were largely driven by a mixed shift to lower margin Solero revenues. Turning to operating expenses, gap operating expenses for the first quarter 2022 were $36.6 million. which was approximately $2.4 million lower than the midpoint of prior guidance. Non-GAAP operating expenses for the first quarter of 22 were $21 million, in line with the low end of guidance. The quarter-on-quarter step-up in GAAP operating expenses was primarily driven by a $2 million increase in R&D stock-based compensation and an incremental $700,000 of amortization of purchase intangibles stemming from recent acquisitions. while the decline in non-GAAP R&D was driven by higher R&D credits, which were offset by higher prototype and staff costs. Worth noting, GAAP R&D spending is up 13% quarter on quarter, and we anticipate this trend to continue throughout 2022 as we increase investment in the Neutron launch vehicle development. The quarter over quarter step up in GAAP SG&A of $4 million was driven by Solero's partial spending contribution in the quarter, Higher stock-based compensation combined with a change in the fair value of contingent consideration related to the PSC acquisition. These increases were offset by lower deal fees. The uptick in non-GAAP SG&A expenses of $1.8 million were driven by higher staff costs and outside services. When we compare first quarter 2022 revenue on a year-on-year basis, total revenue was up 124%. Within the mix, launch services revenue declined 60% or $9.9 million, largely due to the aforementioned Black Sky Global launch delay. Although launch services got off to a slow start,