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spk05: and number one on your telephone keypad. If you would like to withdraw your question, please press star and number one again. Thank you. I'd now like to introduce to the call, Colleen Canfield, Head of Investment and Relations. Colleen, you may now begin.
spk10: Thank you. Hello, everyone. We're glad to have you join us for today's conference call to discuss Rocket Lab's fourth quarter and full year 2023 financial results. Before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the private securities litigation reform act. Any such statements are not guarantees of future performance, and factors that could influence our results are highlighted in today's press release, and others are contained in our filings with the Security and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation and a replay and copy of the presentation will be available on our website. Our presenters today are Rocket Lab founder and chief executive officer, Peter Beck, and chief financial officer, Adam Spice. After our prepared comments, we will take questions. And now let me turn the call over to Mr. Beck.
spk13: Yeah, thanks, Colin. So we've got a lot of great achievements and milestones to share across Q4 2023 and Q1 2024. Adam will then talk through our financial results for the fourth quarter before covering the financial outlook for Q1 2024. After that, we'll take questions and finish today's call with near-term conferences that we'll be attending. Okay, on to what we achieved in the fourth quarter for the year, starting with our launch business. So we had a successful return to flight in Q4. We rounded out 2023 with that flight, successfully deploying a satellite for a Japanese customer, IQPS. This launch marked the conclusion of an in-depth round-the-clock investigation that got to the bottom of the issue we'd experienced on the previous launch. With mitigations now in place for future missions, we're starting to pick up the launch pace for this year. In Q4, we also had a new annual launch record ending the year with 10 launches, besting a previous record of nine. Not only did we reach this record, but we also commenced launches from our US launch site, introduced and launched our HAST suborbital hypersonic vehicle for the first time, And we were the only small launch provider to launch more than one orbital mission in 2023. Overall, a strong year for the Electron team with plenty of firsts and new records, and we look forward to building on that this year. With the end of the fourth quarter, we wrapped up a record year of another kind, this time for new launch deals. We signed 25 new launch contracts in 2023, including 18 Electron missions and seven HAST missions. Contracts were signed across a diverse customer base, including civil, defence and national security and government customers, as well as commercial constellation operators. Clearly, demand for Electron is strong and continues to grow. With two launch sites now up and running, we're well positioned to meaningfully increase our launch cadence this year. We'll dig into some more Electron achievements since the end of Q4 soon, as well as some key Neutron milestones. But first, let's take a look at some of the key highlights from our space systems business. across the final quarter of 2023. Well, you know, we closed out 2023 and we secured a contract that started a new era for Rocket Lab, and that is the era of being a prime contractor. We were selected by the Space Development Agency to design and build 18 spacecraft for the agency's trunch to transport labs. As prime contractor for the approximately half billion dollar contract, we are leading the design, development, production, test, and operations of the satellites, including procurement and integration of the payload and subsystems. It's our largest single contract to date and establishes Rocket Lab's position as a leading satellite prime contractor, providing supply chain diversity to the Department of Defense. All 18 satellites will integrate subsystems and components built in-house by our team, including solar panels, structures, star trackers, reaction wheels, radios, flight software, avionics, and for the first time, a launch dispenser. This is a vertical integration strategy at work, and it gives us a real level of control over supply chain, enabling efficiencies on certainty, on cost, and schedule and quality, of course. Of course, the SDA contract is not the only spacecraft constellation we have in development build. Our space systems team rounded out Q4 and the start of Q1 with some key milestones and development of our constellation for Global Star. We're now officially progressing from the design phase into production with the first flight frames and build for the constellation of 17 spacecraft. Simultaneously, our spacecraft component teams are getting to work on their subsystems, including solar panels, flight software, and so on. This constellation is still in the early phase, but we're making rapid progress ahead of the 2025 launch schedule. Now, onto a mission scheduled to launch much sooner than that, our escapade mission for NASA and the University of California, Berkeley. We're building two spacecraft headed to Mars orbit via Blue Origin launch scheduled for Q3 this year. In recent months, we've completed both propulsion decks, started environmental testing, and getting ready for ground operations at the launch site in preparation for launch. After a successful mission launch, to the moon for NASA in 2022, we're looking forward to pushing the boundaries of even more in this highly ambitious space science mission. That's just a quick overview of some of the key highlights across Q4 and broader 2023. There's plenty more we could have shared, but in the interest of time, let's move on to some of the exciting progress and achievements so far in Q1. Okay, Neutron's path to first flight. So there's more green across the board, which is what we always like to see with Neutron team delivering on some key milestones at the end of last year and early 2024. But let's dive into some of the details. So with Neutron vehicle development, we've hit my favorite part of the development program. Real flight hardware is not only coming off the production line, but it's entering the integration test phase in preparation for first flight. The avionics team has kicked some major goals with successful hardware-in-the-loop testing for simulated flights to orbit as well as landings. This is a process where we integrate real flight software with real flight avionics and hardware to get thousands of simulated flight environments. Hardware-in-the-loop, or HITL testing as we call it, has really been a key part of Electron's success, enabling us to test like we fly on the ground, and it's exciting and great to be entering that phase for Neutron now. We're also well into the test and validation campaign for the canards, which provides stability and steering to Neutron, particularly on re-entry and descent. We've now tested our first complete flight representative canard, drivetrain, including motion controller, software, linear actuator, and all the canard mounting hardware bearings and so on. Now, this is really a big step forward for Neutron, and this represents one of the things we haven't done before, so it's great to get that behind us. On the structures side, development and production of neutrons fairing and stage one and stage two tanks continue. Fairing molds and plugs are completed. These are some of the final steps before carbon composite flight structures start to come out of the factory. Things start to move very quickly in composites from here, so expect to see some more structures resembling a complete neutron in the coming months. And it's been a big few months for the propulsion team bringing the Archimedes engine to life. The single element pre-burner test campaign was completed, All of the engine components are complete or in final production for the first engine. And once integrated, testing is complete, we'll start to see some fire at Stennis and can move into production of those flight engines following successful test campaigns. And then on the launch infrastructure, Launch Complex 3 in Virginia is taking shape nicely. The team has completed initial piles and concrete foundations work for the water tower, LOX tank and, of course, the launch mount. And having built three launch pads now, even though I said I'd never build another one, we're really starting to get well refined and streamlined in the process to build these quickly and efficiently. One of the ways we do this is by developing lots of key infrastructure in parallel. So we don't wait until foundations to be done to start the cryotanks. We do it all concurrently and so on and so forth for launch mounts. We fabricate all those large steel structures off-site and bring them to sites and install them just as soon as that foundation work is done. That's how we're able to build LC2 in the record time of just 10 months. And now with foundation work substantially underway, above ground infrastructure like the launch mount, water tower and tanks will start to be installed across the next couple of months ready for final integration testing and then of course in preparation for launch. Now over to Mississippi, where our committee's test stand is ready for hot fire at NASA's CENIS. All the major concrete and steel construction work is complete, and commissioning of the LOX cold flow systems is underway. We're on track for the stand to support an engine by the end of March. After that, we'll really start to see some fire, which will be good. And on the neutron production infrastructure, In Q4, we announced we were establishing a space structures complex in Middle River, Maryland, in the former Lockheed Martin Vertical Launch Building. This facility will be home to the development and production of a wide range of large composite structures and products for both launch and space systems, including Neutron. Just a couple of months after taking over the building, we've ready the facility to accept and install the large-scale production equipment, including our automated fibre placement machine, which is really the key to rapid, repeatable production of neutrons composite structures. So across the board, we've reached some really critical milestones on our journey to first neutron launch over the past quarter and a bit. Now we're at the pointy end of the development programme where all the hardware systems and infrastructure start to integrate, culminating in neutrons first launch. Currently, our schedule closes for this by the end of 2024. And we do have a track record for delivering programs faster than typical industry standard timelines. But we'll know more about how close to the schedule and timeline we are and we can hold once our committees breathe fire and we complete a couple of other major tests. So we'll have an update on that soon. And then now back to small launch. We had a strong start to the quarter. So, so far with two successful electron missions. These included a dedicated launch for Spire Global and North Star, as well as a really complex and unique mission for Astroscale. The mission launched a satellite designed to rendezvous on orbit with an old derelict Japanese rocket stage. The purpose was to demonstrate the ability for a satellite to closely follow and monitor a non-cooperative object in space, with a view to understanding how satellites might be able to dock with pieces of space junk in the future, and drag them back to Earth and obviously reduce orbital debris and increase space sustainability. Now, I don't think many people really realise just how wildly ambitious and challenging that mission was for our team. It's difficult enough to rendezvous two items in space that talk to each other, like an astronaut capsule and the ISS. They're both communicating with each other and they know where each relevant object is. But in the case of a derelict rocket stage, it offers no data on its location, speed, tumble rates, all these things you really, really need to know to approach something in space. So to put astroscale spacecraft into exactly the right place at the right time to rendezvous with the stage, a GNC team demanded highly accurate orbital insertion with tighter margins than required on just about any missions. The exact T0 was only able to be defined a day prior to the launch and required an LTAN accuracy of only plus or minus 15 seconds. I should note that the GNC team was able to deliver that accuracy to within 1.05 seconds, so 15 times better than the spec that was required. The team delivered a perfect bullseye. The spacecraft was deployed to exactly the right location, and they were able to contact the spacecraft and prepare to start commissioning it after minutes after launch. It's this level of tailored mission design that simply is just not possible on rideshare missions and why demand for Electron continues to grow. With two launches down, we have two more to complete this quarter, including a mission for Suspective from LC-1. On March 9, UTC, followed by a dedicated launch for the National Reconnaissance Office. On March 20, UTC from LC2 in Virginia. The missions are a testament to the trust and value of our customers' place in Electron, since this will be Electron's fourth launch for Synspective and fifth launch for the NRO. It will, however, be our first NRO launch from U.S. soil, so we're excited to demonstrate responsive launch capability for the DoD on two continents. Not only did we launch two missions from Q1 so far, but we brought an electron back too. We recovered electrons first stage from the Spire mission in January, bringing it back for an ocean recovery. Electrons recovery process has been iterative, enabling us to make small modifications and improvements to the stage and marine recovery process without causing a slowdown on the rocket production line, enabling us to keep increasing electrons launch cadence. Generally, a program like this would cause a lengthy pause in production to allow for design freezes and production changes. But by taking small steps on each flight, we've been able to continue delivering the launch service to our customers and the one that they rely on. Happily, this process has yielded successful results. The January mission saw Electron come back in the best condition yet. The stage is currently undergoing hydrostatic testing to determine if we're comfortable to put it back on the pad. The next milestone for the recovery program is to fly a mission with nine pre-flying Rutherford engines. You'll remember that we successfully relaunched a single Rutherford engine late last year, so now we're going to put all nine of them through their paces, so keep an eye out for that milestone coming. Right, on to some of the key highlights for our space systems since the end of Q1, and just last week we achieved a world first. Successfully re-entering a capsule from orbit that was used to manufacture pharmaceutical products in space. We designed and built and operated the spacecraft for Varda Systems Industries to host their in-space manufacturing capsule. Launched in June last year, the spacecraft was initially designed to operate in orbit for around four months before being de-orbited into the Utah desert. However, lengthy delays and regulatory approvals to bring the spacecraft home meant that we ended up on orbit for more than eight months and in a testament to both our spacecraft builders and operators that performed flawlessly for that extended duration. Now, operating a spacecraft is one thing, but bringing it home and landing it within a tiny designated area is quite another. Our team managed 24-7 flight operations, conducted multiple engine burns, and carrying out real-time trajectory calculations and adjustments to set the capsule on a course for the UTAR testing and training range. For context, the margin of error is less than 0.05%, and if an engine burn is even a fraction of a second too long or too short, you end up hundreds of miles away from your designated landing zone. This is typically the stuff of huge government programs and decades of development. The only other company to successfully re-enter a capsule from orbit for a purely commercial mission is our friends over at SpaceX. So we've joined a very elite club on our first attempt. This mission was the first of four missions that we have booked for VADA, and the next spacecraft is built and ready for launch in the middle of the year. Sightingly, the lessons we've learned on this program are helping inform future projects, including scientific sample returns, point-to-point cargo delivery, and, of course, human spaceflight capability on neutron in the future. So on that note, before I hand it over to Adam to talk through the financial highlights and outlook, it's fitting time to share an update on our wider spacecraft programs. In 2020, we launched our very first Rocket Lab-built satellite called Photon. It was really a defining moment for the business, a line in the sand where we became an end-to-end space company, not just a launch provider. Since then, we've had the privilege of developing, launching, and operating spacecraft for a broad range of customers, and they've all told us the same thing. They need reliable, highly capable spacecraft, built quickly, affordably, and at scale. And we've done this. We've developed a spacecraft that has delivered a successful mission to the moon for NASA. We've developed a twin spacecraft for a mission to Mars. We're building constellations of half-ton spacecraft for SDA and NDA. And, of course, we've proven spacecraft range capability now, too. As we've delivered more and more successful spacecraft missions, you know, demand for these spacecraft or similar variants on them has grown. So we've expanded beyond Photon to create a full family of standard spacecraft buses. So allow me to formally introduce Lightning, Pioneer, Explorer, and, of course, the original Photon. Lightning is our newest spacecraft bus designed for a 12-year-plus orbital lifespan at LEO. It utilizes electric propulsion, delivers high power and radiation tolerance, and incorporates full redundancy in all critical subsystems. This is a half-ton, three-kilowatt bus, ideal for communications, imaging, and remote sensing. Then there's Pioneer, a highly configurable platform designed to support large payloads and unique mission profiles, including re-entry. For interplanetary missions, there's Explorer, a high-delta-v spacecraft with around about a kilowatt of power, large propellant tanks, and precision orbit determination system, ranging transponder, and all the things you need to go into deep space. Explorer enables small spacecraft missions to planetary destinations, near-Earth objects, and Earth-Moon Lagrange points. And of course, Photon is sticking around as the original spacecraft plus launch option. Thanks to our virtual integration strategy, these spacecraft share many common components and subsystems designed and manufactured in-house by us, enabling us to deliver spacecraft quickly, affordably, and reliably using flight-proven components. Each of the spacecraft are currently on order in a range of quantities with 40 plus satellites currently in air production backlog. So from humble beginnings with one spacecraft just four years ago to a full family of them designed to serve commercial and government partners is certainly an exciting time for our space systems business. So that wraps up the key business highlights from Q4 2023 and Q1 this year so far. So from here, I'll hand over to Adam. to take us through the financial updates. Over to you, Adam.
spk02: Thanks, Pete. Fourth quarter 2023 revenue was $60 million, in line with our revised guidance provided on January 31st, 2023, but below the low end of our original Q4 guidance in November, due primarily to the push out of one of our planned fourth quarter launches, which was due to the longer than anticipated September anomaly remediations. Fourth quarter revenue represented a sequential decline of 11.3% due to the reduction of launches from three in Q3 to one in Q4, partially offset by continued growth in our space systems business. On a full year basis, 2023 revenue was $244.6 million, with impressive growth of approximately 16% year on year, especially when taking into consideration the effect of September's electron anomaly. Our launch services segment delivered revenue of $8.5 million in the quarter from one launch, which is above our targeted average selling price of $7.5 million and consistent with our revised guidance of $8.5 million. Our current aggregate electron backlog reflects an average selling price of $8.1 million and we're encouraged by a funnel of new business that is consistent with this pricing level. On a full year basis, LAUNCH delivered revenue of $71.9 million, or an increase of 18.5% year on year. Our space system segment delivered $51.5 million of revenue in the quarter, which was up 11.2% sequentially and in line with our revised guidance of $50.5 to $52.5 million, with sequential growth driven by our MDA satellite bus contract, as well as growth in our component businesses, On a full-year basis, space systems delivered revenue of $172.7 million, or an increase of 14.9% year-on-year. Turn to gross margin. Gap gross margin for the fourth quarter was 25.8%, in line with our revised guidance of 24.8% to 26.8%, while non-gap gross margin for the fourth quarter was 32.3%, which was in line with our revised guidance of 31.4% to 33.2%. Gap and non-gap gross margin performance reflects improved mix in both our merchant component and satellite manufacturing businesses, partially offset by the effect of less overhead absorption in our launch business due to only one Electron launch in the quarter. We ended Q4 with total production-related headcount of 852, up 36 from the prior quarter. Turning to backlog, we ended Q4 2023 with just over $1 billion of total backlog, with launch backlog of $248.3 million and space systems backlog of $797.8 million. Related to where we ended 2022, total backlog was up 108%, or $542.5 million, thanks primarily to the $489 million base portion of December's $515 million SDA beta award. For space systems, backlog was up 106% year-over-year, or $410.4 million, again, largely due to the SDA beta contract signing. In our launch services business, backlog was up over 213% on the back of multi-launch Electron deals with government and commercial partners, along with strong HAST bookings. We expect approximately 41% of current backlog to be recognized as revenues within 12 months as we scale our work in Electron, HAST, MDA, and other space systems projects. Turning to operating expenses in the quarter, GAAP operating expenses for the fourth quarter of 2023 were $63.4 million, in line with our revised guidance of $62.5 to $64.5 million. Non-GAAP operating expenses were $53.5 million, again consistent with a revised guidance of $52.5 million to $54.5 million. Gap operating expenditures grew 63% from the prior year fourth quarter, almost entirely within R&D due to increases in staff costs within space systems and neutron, as well as prototyping and materials-related expenses. Non-gap operating expenditures grew 95% year-over-year, largely due to the same reasons as above, less the effect of stock compensation expenses. Now focusing on the quarter-over-quarter changes. As mentioned in the prior slide, GAAP operating expenses for the fourth quarter of 2023 were $63.4 million, and non-GAAP operating expenses were $53.5 million. The increase in both GAAP and non-GAAP operating expenses versus the third quarter of 2023 were primarily driven by a reduction in Contra R&D credit that wrapped up in Q4 related to Neutron upper stage development from our U.S. government partners, as well as the impact of increases in headcount and increased depreciation and amortization expenses related to the recent CapEx additions. In SG&A, GAAP expenses declined $1.3 million quarter-on-quarter due to a decrease in performance reserve escrow related to our ASI acquisition, partially offset by an increase in change in contingent consideration related to our PSC acquisition. Non-GAAP SG&A expenses increased by $500,000, primarily due to increases in headcount along with increase in outside services expenses. Q4 ending STNA headcount was 247, representing an increase of 11 from the prior quarter. In R&D specifically, GAAP expenses increased $10.9 million quarter-on-quarter due to the previously mentioned roll-off of contra-R&D credits related to neutron upper stage development, as well as an increase in neutron development spending, offset somewhat by a reduction in stock-based compensation expense. Non-GAAP expenses increased by $13.3 million due to the same underlying factors driving the GAAP spending increases. Q4 ending R&D headcount was 585, representing an increase of 65 from the prior quarter. In summary, total fourth quarter headcount was 1,684, up 112 heads from the prior quarter. Turn to cash, purchase of property, equipment, and capitalized software licenses was $10.4 million in the fourth quarter of 2023, a decrease of $10.6 million from the $21 million in the third quarter of 2023. This sequential decrease was due to lumpiness in the timing of our large CapEx items across both of our launch and space assistance businesses. Cash consumed from operations was $42.4 million in the fourth quarter of 2023, compared to $25.2 million in the third quarter of 2023. The sequential increase of $17 million was driven primarily by the timing of receipts and payments related to our satellite manufacturing business and the impact of delayed launch services milestone invoicing due to shifting manifest adjustments post-Electron's September 19, 2023 anomaly. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow reduced by the purchase of property, equipment, and capitalized software in the fourth quarter of 2023, was a use of $52.6 million. compared to $46.2 million in the third quarter of 2023, or a more apples-to-apples comparison of $54.6 million when including the impact of our asset acquisitions, most of which is classified as PP&E. The material step-up in negative non-GAAP free cash flow was, as noted in my prior GAAP operating cash flow commentary, was the result of the lumpy timing of payments and receipts associated with our space systems manufacturing operations, and the impact of post-anomaly launch services milestones invoice delays, for which we expect a reversal of this negative working capital cycle through early 2024. The ending balance of cash, cash equivalents, restricted cash, and marketable securities was $327.9 million as of the end of the fourth quarter of 2023. Reflecting on the past four quarters, we continue to make meaningful progress towards our long-term financial model. Increased neutron investment will likely continue to drive EBITDA losses in 2024. As we move through the year, we believe a trend to improving scale and efficiency in our space systems business and electron launch cadence and production efficiencies provide an optimistic outlook towards achieving our long-term target business model. Overall, we expect gross margin trends will continue to improve over time, thanks to the same factors that helped drive improvement this year. In terms of when we can get to adjusted EBITDA breakeven, Neutron investment, especially R&D spend, continues to be the pacing item to achieve its critical milestone. Turning to our recent fundraising of $355 million in convertible senior notes. With this financing, we believe we secured a large quantum of cost-effective and shareholder-friendly capital. The roughly $300 million of proceeds, net of our capped call and deal fees, positions the company to exercise inorganic options to further vertically integrate a supply chain with the critical capabilities that are consistent with what we have done successfully in the past, which has enabled larger and more strategic program wins like the recent half-billion-dollar SDA program. With that, let's turn to our guidance for the first quarter of 2024. We expect revenue in the first quarter to range between $92 and $98 million, representing sequential revenue growth of between 53% and 63%. This range reflects $60 to $65 million of contribution from space systems and $32 to $33 million from launch services, which assumes four launches. Although modestly lower than what we previously expected for Q4 just a few months ago, we don't want to understate how encouraged we are with the magnitude of this forecasted quarter-on-quarter growth and how positively it reflects on the capabilities of the team to deliver this level of growth in such a complex and competitive set of businesses. We expect first quarter GAAP gross margin to range between 24% to 26% and non-GAAP gross margins to range between 29% to 31%. These forecasted GAAP and non-GAAP gross margins reflect improved projected launch cadence in Q1, offset by mixed shifts in our space systems business bias towards the larger and lower margin satellite manufacturing program revenue contribution versus certain of our higher gross margin component offerings. We expect first quarter GAAP operating expenses to range between $73 million and $75 million, and non-GAAP operating expenses to range between $62 million and $64 million. The quarter-on-quarter increases are driven primarily by increased Neutron investment, including staff costs, prototyping and materials, as well as the runoff of Contra R&D credits related to our Neutron Upper Stage Development Agreement with the U.S. Space Force. We expect first quarter GAAP and non-GAAP net interest expense to be $1.5 million. We expect first quarter adjusted EBITDA loss to range between $28 and $30 million, and basic shares outstanding to be approximately 490 million shares. And with that, we'll hand the call over to the operator for questions.
spk05: We're now opening the floor for the question and answer session. If you'd like to ask a question, please press star and number one on your telephone keypad. Our first question comes from Andres Shepard from Cantor Fitzgerald. Your line is now open.
spk08: Hello, everyone. Good afternoon. Congratulations on the quarter, all the launches, the development of the neutron. It sounds like it really was a busy quarter. So congrats on all the developments and thanks for taking our question. I was just wondering if maybe you can give us some color as to how we should think about scaling and timing of other opportunities in space systems across both maybe satellite manufacturer and components. And maybe, you know, how should we think about a reaction wheel in your backlog versus revenues of contract? Thank you.
spk13: I'll take the first pass at that, Adam, and you might want to talk about the revenue side. But, I mean, you know, we continue to see, you know, lots of scaling across the space systems business, particularly, you know, from commercial and government. So you have big programs like the SDA program, that are procuring hundreds of satellites over extended periods of time that require replenishment, and then you have a commercial model that's kind of similar. So as those constellations and those government programs continue to build out and we continue to either supply what we've already won or win more, the corresponding timing of that revenue will scale appropriately. But maybe, Adam, you've Yeah, share the comment.
spk02: Yeah, no, I think a little more color there. So if you look at the, at the mixed changes that are going on within our space systems business, specifically between the satellite manufacturing and the components businesses, you know, we'll say that, you know, this year we'll have, you know, probably a more significant step up in the relative mix of the space systems part, like the, sorry, satellite manufacturing part of the business. And that's a function of going into production phase on our contract with MDA. So I think this year you start to see, again, a little more relative contribution from the photon side of the business. But we are seeing very, very significant growth also from the components. It's just coming from a different base. When you think specifically, you also asked about the reaction wheel business and kind of where that is. I think you're probably referring to the mega constellation wind that we've announced some time ago. And so that starts to ship in meaningful ways this year as well. So we see Again, very encouraging growth across the satellite manufacturing, but also components. In this case, this year will be a very good year for growth in our reaction wheel business, particularly tied to that one mega constellation deal that we announced a couple of years ago.
spk08: Got it. That's super helpful. I appreciate all of that context. Maybe one follow-up for you, Adam. In regards to the $515 million contract award with the Space Development Agency, I'm wondering if maybe you can give us some color as to how we should be thinking about in terms of modeling and in terms of revenue recognition. You know, I understand there's a base amount of a little less than $490 million, and I think work for this contract has already begun, but just wondering if maybe you can give us some direction as to how we should be thinking about it in terms of recognition for revenue. Thank you.
spk02: Sure. Yeah, for this contract in particular, it's, you know, it's not too dissimilar to other satellite build contracts in the fact that, You know, it's more back-end loaded. It's not like, you know, under this contract, we will recognize revenue as we expend resources against the program to complete it, so under what they call an EAC basis under AST 606. So if you think about it, this year is really all about kind of finalizing the design elements of the program, and the majority of the revenue ultimately gets recognized as you're kind of starting to build hardware and start to pull things to the floor. So this year, you know, we will recognize some revenue against the contract because there is, you know, cost to complete kind of the design elements of it. But what you really see is the more meaningful contribution of revenue will start up probably more towards the second half of 2025, and then ultimately the satellites begin shipping and ultimately ship in 2027. Now, what we'll say is that if you think about the kind of the working capital kind of elements of this deal is, James Rattling Leafs, Revenue revenue revenue recognition is not tied to kind of cash receipts and will be you know positive from a from a working capital perspective on this contract, because we have to. James Rattling Leafs, You know, at some point, you know we received cat the payments from the customer and then we have to afford some of those payments obviously to our long lead vendors. James Rattling Leafs, So, but we have modeled this contract to be you know cash flow positive from its inception so. You know, this is one where it's both good from a working capital perspective, but also it's going to build nicely from a revenue contribution as we progress through, you know, 2024 and into 2025 and beyond.
spk08: Wonderful. That's super helpful. I appreciate that. Again, on the quarter, I'll pass it on. Thank you.
spk05: question comes from Eric Rasmussen from Stifel. Your line is now open.
spk09: Yeah, thanks for taking the questions, and congrats on all the progress you guys have been making. Maybe just on the SDA award, when looking at that $515 million basis, It seems like the value per satellite of almost $29 million is meaningfully higher than what we saw that was previously awarded on that beta program. What's driving this, and what is the cost structure of the satellite, and are there any NRE fees associated?
spk02: Yeah, Pete, I'll let you take the first piece of that.
spk13: Sure. Yeah, yeah, yeah. Yeah, I mean, so not all satellites are created equal, Eric, and, you know, that particular, you know, bus and design is pretty unique. So I wouldn't read too much into, you know, the average satellite price. It's kind of saying, you know, the average car price, but there's a Ferrari and a Toyota and you don't expect those to be the, you know, the same price. So, So you have to kind of look at it with respect to what its capabilities are and what are the quality of the components that have been used in it and so on and so forth.
spk02: And as far as, Eric, as far as the NRE piece, yeah, I mean, yes, there is an NRE element to this program. And that's really, again, what's going to be happening this year in 2024. And that's what we'll get the beginnings of revenue recognition on. You know, it certainly won't be a a very significant portion of the overall contract value, but it's also, you know, not completely immaterial. So as we progress through 2024, you know, we'll be able to provide more color on what that rev rec looks like. It's a little bit early because the contract is relatively new and we're still going through a lot of program details. But again, as we progress throughout the year, we should have much more, you know, kind of ability to provide color on kind of the timing and the magnitude of the incremental contribution from the NRE phase of this contract.
spk09: Okay, we'll wait for that. Thanks. And then, you know, obviously your backlog continues to grow. You added over $500 million with the SDA award. Can you just comment on some of the types and sizes of potential deals, whether on the government or commercial side that you're tracking or maybe some qualitative comments to highlight the opportunities or maybe the programs you guys are looking at?
spk13: Yeah, sure. I mean, so obviously, Eric, SDA is a – is a big one. I mean, as I mentioned in a previous answer, these are spacecraft that require replenishing. The US government is moving from a few, you know, succinct assets in geo to a distributed LEO architecture. So that's a significant opportunity and change from the government. And it's not just SDA. If you look across all of the government agencies, the transition down to LEO is occurring. So, we see a lot of opportunities from the US government and, quite frankly, from other governments as other governments follow that path. And then on the commercial side, there's a number of constellations that we continue to track. But we'll always be pretty selective about the work that we take on. And I think we've mentioned before that We only really take on work that we believe is strategic to the longer-term vision of the company, and we'll continue to follow that process.
spk02: Yeah, and Eric, I'd add a little bit to that, too. I mean, we had this big step up, as you noted, related to the SDA contract, and I think it's a very meaningful one for us because, again, we're priming that mission. We're not a sub. We're the prime for it, so I think that opens up other opportunities to take on bigger and bigger prime projects. But I think with this big step up, I think we can also kind of look forward to really as we get closer and closer to getting Neutron to the pad, obviously that's going to be an opportunity to significantly build our backlog in a very, very meaningful way given the estimated average selling price of that vehicle versus Electron. And in addition to basically looking forward to having Neutron start adding to the backlog, you know, we're seeing a lot of excitement and appetite towards HAST. And the HAST missions are a great opportunity for us. They're a recent add to our launch capability stack. So, you know, across both, you know, Neutron, HAST, and just kind of, if you want to call it Electron Classic, I think there's really a lot of opportunities to continue to build that backlog and kind of hopefully maintain a relatively consistent mix of, you know, launch and space systems. You know, when Pete and I kind of were looking at how we want to model this business going forward, You know, we do like the predictability that space systems brings with it across components plus large program opportunities because, you know, launch is always going to be a lumpier business. But we think there's a large magnitude of opportunity there, again, particularly as we mix in more haste and start to see neutron opportunities feather into the backlog.
spk09: Great. Maybe I could just ask one more. On the convert deal you announced, how did you arrive at this maybe versus other financing options you were contemplating? And then of the 300 million net proceeds, obviously you mentioned M&A, what kind of assets could be interesting to bring in-house that would drive further your strategy?
spk02: Yeah. I'll take the first one, then I'll pass it off to Pete to kind of maybe provide more color on M&A targets. as far as areas we might be looking at. But why convert? I think, you know, when we looked at all the different options and we did, you know, kind of exhaust all the different possibilities out there, you know, it was the right vehicle to provide us the quantum of cash that we were looking to raise because, you know, we do see a lot of opportunities out there to grow inorganically and continue exploiting kind of M&A as a growth vehicle for us. And if you look at the flexibility that it provides as well, there were no financial covenants related to it. It gives us a lot more freedom to run the business the way that we think it needs to be run. And from a cost of capital perspective, we just think it represented the lowest cost of capital versus some other kind of straight debt options and so forth. So we ran kind of parallel processes looking at different ways to bring capital into business, all the way from doing a straight equity offering to doing straight debt to then the convertible And the convertible just came on top in almost every metric that we were looking to raise on. So to us, it became kind of a no-brainer as we learned more about each of those options as they would be presented to our business. So I would say we put some competitive tension in the process to make sure that we were picking the right product and ultimately felt comfortable that this indeed was the one.
spk13: Yeah, and on the assets, you know, for potential M&A targets. So Look, there's a couple of things that we don't have in our quiver with respect to space systems. So there's a potential for some tuck-ins. I would say we have a reasonable focus on payloads. I mean, as a prime now on the SDA mission, the only thing that we're not really doing are the actual payloads and sensors. So I think that that's obviously an area of interest. And I'll remind you that The end goal here is not just to be a, you know, a bus provider or even a prime. It's to ultimately have our own constellation in orbit providing, you know, services because that's where we ultimately think this all goes. So, you know, as I mentioned before, everything we do is within that kind of vision. And, you know, the same with any kind of M&A targets, especially in the payload area.
spk09: Great, thanks for taking the questions, and good luck.
spk05: Thank you. Our next question comes from Christine Leeuwen from Morgan Stanley. Your line is now open.
spk04: Hey, good afternoon, everyone. Peter, with the Varda mission, you mentioned that your experience with a capsule reentry could inform potentially crewed missions via neutron. Can you expand on that a bit, and how far along are you in developing a reentry capsule for Neutron that can carry humans? And how are you thinking about that market opportunity there?
spk13: Yeah, thanks, Christine. So, look, as we're designing Neutron, to be clear, we don't have any active capsule development programs or anything. But as we're developing the vehicle, we wanted to make sure it was human rateable. because, you know, it's a vehicle of significant enough scale and class that it should be capable of human spaceflight. So, you know, it's definitely something we pay close attention to. Now, with respect to the human spaceflight market, it's kind of an unusual one, because really there's only one customer right now, that being NASA. And, you know, they're fairly well served. So... it's unclear whether or not there's a big enough market opportunity to go after that as it stands today, especially if you were to self-fund all the development, because typically those programs, the development has been paid for by the government. So that would be a pretty big call to make. But we'll make sure that we're ready and able to do human spaceflight missions when we think the market conditions are right, and when there's more than probably one customer, which obviously needs to be more than one destination. So as the space industry continues to evolve and grow and it becomes clear that there's more destinations and more customers for human spaceflight, then we're ready with the neutron vehicle and clearly we can re-enter and land stuff exactly where we need to.
spk04: Great. Thanks for the color. And maybe on Neutron too, you talked about Neutron being on the pad this year, but what do you think about a launch in 2024, given all the work left on the program? And also, how do you think about the cadence? Are you still on track for about three Neutron launches in 2025?
spk13: Yeah, look, I mean, at the end of the day, it's a rocket program, right? And right now we have a schedule that closes for a launch by the end of the year. But, you know, we've got a lot of testing to get through. And if everything goes well, then everything goes well. If we have some issues and some development issues along the way, whether it be, you know, propulsion or, you know, other systems, then, you know, that will cause us to, you know, to reevaluate the schedule. But, you know, kind of as it stands today, you know, that's kind of where we're looking at it. And, you know, we have a, like I said, we have a schedule that closes tomorrow. And then, you know, on cadence, you know, we'll follow a very similar cadence to what we did with Electron. So, you know, if we get one away this year, then next year we'd look to be, you know, to do sort of three. And then, you know, we may be able to step it up to as much as five. But it really depends on, you know, how the development program goes. And it also depends on how much work we have to do after we get past first flight as to what cadence we can meet. But what I will say is we certainly get up from an infrastructure perspective to deliver those cadences. With the AFP machine in the Middle River facility and also the Virgin Orbit asset, I would say that from an infrastructure standpoint, we're in a good position to scale.
spk04: And last question on Neutron. You know, as you sit here, what do you anticipate the mix of customer set is for government versus commercial over the next two years? Where do you see the most opportunity for Neutron customers? And when do you plan to share the details of the initial customer set for the first launch? And ultimately, do you expect to launch Neutron from both Wallops and New Zealand?
spk13: Sure. So we certainly hope for a mix of sort of 50-50. We've found that to be pretty about right for Electron. I think it provides a good mix. And there's plenty of government customers that are looking forward to the vehicle coming online and equally so commercial customers So I have no reason to believe that we won't see a very, you know, a different mix. And then with respect to wallops in New Zealand, so it will only launch from wallops. New Zealand is not a viable launch site for a vehicle of this size. To give you a sense of scale, if we took all of the liquid oxygen produced in New Zealand it would half fill a neutron tech once. So it's just not the industrial base to be launching this vehicle of this class down in New Zealand. So it'll be exclusively a wallops pad to start with for sure.
spk04: Great. Thank you for the call, Eric.
spk13: No worries.
spk05: Our next question comes from Kauvon Rumor from TD Cohen. Your line is now open.
spk01: Thank you very much. And so your growth margin you've indicated is going to be lower in the first quarter than the fourth. And yet, if you hit the target, you're going to have four launches versus one. And you've basically made the point that there's this huge leverage in terms of more launches. So how come the growth margin is down? You mentioned systems, but is the launch margin up sequentially?
spk02: Yes. So, okay, I'll take that one. So, yeah, the launch margin actually does increase sequentially based on those increased number of launches. It's really all consumed, though, and then some by space systems as, again, a result of a disproportionate growth on the system side of things as we move into the production phase of the MDA contract. So, again, it's kind of a goodness on the launch side does get consumed by kind of just the mix on the space system side. So the benefit of these large space system contracts is obviously scale and absolute dollars that flow, but they do come at a lower gross margin versus our components business. So over time, it's really all about managing that mix of these kind of larger, lower gross margin programs on the manufacturing side of space systems versus the higher margin component sales and the increasing gross margins that we expect from our launch business as we continue to grow or scale the cadence of Electron throughout the year.
spk01: Thank you. And then the second one, Haste, you mentioned you got seven orders in 23. What percent are they, you know, how many are they out of your manifest of 22 this year? Roughly when do they go, and how does their profitability compare with an Electron launch?
spk02: Yeah, so we have two haste missions on the manifest for 2024 out of the total 22 manifested. And if you look at the contribution from a margin perspective is relatively consistent with other launches. I mean, we have a higher selling price, but we also have some incremental costs associated with those because they go out of wallop. So we have more kind of variable costs related because we pay the range fees in Virginia, plus we also have kind of incremental, you know, government mission assurance costs. So you basically have the benefit of, you know, the higher selling price, but as a gross margin percentage contributor, it's about on par with other electron missions.
spk01: Thank you very much.
spk05: Next question comes from Matt Eckers from Wells Fargo. Your line is now open.
spk12: Hey, guys. Good afternoon. Thanks for the question. I think, Adam, you touched on EBITDA break even, and it sounds like that's kind of paced by sort of how fast neutrons then goes. Is there any more color you can kind of give there? Is there a range we should sort of think of as, I guess, a 25, a reasonable outcome, kind of if everything goes as planned?
spk02: Yeah. So, you know, As we progress through, you know, through 2024, you know, we expect, you know, obviously growth on the top line to continue. We expect gross margin expansion. All of that really does get consumed by a step up in investment for Neutron. We're really kind of in the throat of the spend on Neutron this year. And it's really all about getting, you know, getting across the line, getting the vehicle to pad. And then once we start kind of going into production on that vehicle, then obviously you've got some, obviously, you know, contributing revenue to offset the cost, and it moves from R&D to cost to sales. So, you know, from a just the EBITDA perspective, we really need to get that initial neutron, you know, model to the pad and off. So, you know, if you think about our timing, again, if we're successful in the green light schedule hold, as Pete talked about earlier, where we get to launch off by the end of this year, you know, that's really kind of that cresting point. And so not too long after that, we should really be in the phase that where we could be, you know, looking down at line of sight to adjusted EBITDA positivity. But it really can't happen practically without getting that first neutron off. Got it. Thanks.
spk12: That's helpful. And then I guess just to go back to the M&A discussion, I think you highlighted some of the assets you might be looking at. Are those assets coming available for sale? Are the prices reasonable? Just any color on what you're seeing in the market out there. I want Pete to take a first stab at that.
spk13: Yeah, sure. Thanks, Adam. Yeah, I mean, bear in mind that a lot of these potential acquisitions are companies that we've worked with for many years and we know well. That's kind of been a normal kind of motors of operation. So it's less what's coming to market and what people are delivering to our plate rather than and strategically going through and working out the ones that we really, really, really need. So, you know, it's not about... For us, it's not about buying revenue. It's about making sure we have the capability in-house and, you know, with the end goal of doing our own thing in the future. I think privately funded... privately held companies seem to have, I've noticed that it seemed to have kind of been slightly insulated from, um, some of the value destruction that, that publicly traded companies may have, may have experienced. So, um, you know, we are, we are seeing probably, uh, prices and, and asks that are, that a little bit, um, a little bit higher than, than might be benchmarked against public companies. But, um, But, yeah, I mean, Adam, you might have some more to say about that, but that's typically what we're seeing.
spk02: Yeah, Matt, I would say that the expectations of sellers remains high. I think, though, we are seeing now maybe we're getting to a breaking point because we've seen processes, sale processes that have been broken. So where a transaction hasn't been reached by privately held companies. So I think that, you know, they're meeting a lot of resistance with their expected price tags. So hopefully that starts to kind of drive a change in sellers' behaviors and expectations. I think at some point they'll have to realize that, you know, ultimately the buyers, you know, if they're not just going to trade amongst, you know, kind of private equity players that, you know, it's these public market larger companies that have liquidity and currencies to use, that they've got to kind of come in line more with public market valuations. And, again, hopefully we're getting closer to that. But I would say that we, again, we're seeing some pretty interesting developments things out there that we think are actionable, that fit well within our portfolio, that help us to continue vertically integrating our business. And again, I think, you know, the reason for the timing of the convert raise was really to enable us to capitalize on those opportunities. So, yeah, a combination of kind of sellers getting maybe a little bit more realistic, combined with the, you know, having to drive how to run the balance sheet, we think positions us well to take advantage of deals in the coming periods.
spk12: Great. That's very helpful, Colin. Thank you.
spk05: Question comes from Suji Da Silva from Roth MKM. Your line is now open.
spk11: Hi, Peter. Hi, Adam. I think you said on the call that the number of deals in calendar 22, if I heard right, was 25. I'm wondering what the comparable number was for 22. And I know that number includes space systems deals, but for the launch deals, Can you just talk about what you're seeing in terms of incremental deal size and terms versus the prior year and how that's helping visibility?
spk13: Yeah. Hey, Sajid. I don't have the numbers off the top of my head, but I mean, we saw a pretty marked step up in contract signing last year. And that's due to a number of things. I think Electron clearly submitted its position in the industry and there's a lot of customers sort of holding out for new entrants and a lot of customers that were really burnt by new entrants. So I think it became obvious that Electron is kind of the rocket in the sector. Also, I would say that we added new capabilities like Haste, which is a completely new service using the same launch vehicle, which is a big TAM expansion. And so that certainly helped things. And then I would say that the number of customers, what we find is they fly on a transport emission a SpaceX transporter mission to get early kind of orbit, you know, experience and shake down their spacecraft. But when they have, when it comes time to actually delivering a spacecraft to, you know, to a particular operational cadence, they need, you know, various bespoken and specific orbits. And the cost trade, you know, pretty admirably to be able to do that. So, you know, we see some of that defection off the transporter and onto Electron in that sense.
spk02: Yeah, and Suji, just to come back on that, we were able to pull that number. So we booked, I believe, seven Electron launches in 2022. So a pretty big step up, you know, 2022 to 2023. All right, thanks.
spk11: And then I know we talked about this earlier in the year, Peter, but just kind of revisit your being the prime contractor on the SBA. I just want to understand, you know, some of the reasons there in terms of if that's a one-off or that's a trend for the future. You guys have the integrated spaceport, rocket launch, spacecraft, similar to SpaceX and Starlink perhaps. And just help us understand the competitive framework for these wins that maybe this can be a continuing trend for you.
spk13: Yeah, sure. I mean, look, you want to be the prime contractor. We've been a major sub on another programme, and it's very difficult if you're just a middle bender in a programme. So prime is where we want to be, and as we look forward into future programmes, that's certainly where we're positioning ourselves going forward. And I think we've kind of reached a critical mass point where we can be a really effective prime as well. Like we have enough capability in-house, enough experience in-house, enough satellite bus standards in-house that we can really effectively prime these missions. And it feels like a long time to get here, but I think I mentioned in the commentary, it's literally like four years from going from zero to priming a major mission, So, yeah, we'll look to continue down this path for sure.
spk11: Okay. All right. Thanks, guys.
spk05: Next question comes from Marlana Perez-Mora from Boca. Your line is now open.
spk07: Good afternoon, everyone. So my first question is a follow-up on this step-up and the bookings that you had on electron launchers. How should we think about pricing opportunities and cash profitability of this strategy? Kind of like how many open slots do you have in the near future that you could actually price opportunistically?
spk13: Yeah, we've always been pretty consistent. Wait, where are you going? Yeah, okay. We've always been pretty consistent in what we kind of modeled for the cadence of Electron. I think it tapped out, correct me if I'm wrong, Adams, in sort of the mid to high 30s. Certainly we have production capabilities to support up to 52 launches a year. That's what we designed all the launch pads and factories around. So we certainly have the infrastructure to support to keep increasing that cadence. But that's pretty much in line with where we modeled we would be.
spk07: Okay, thank you. And then on neutron, what are the next milestones that we should look at? For example, when do you expect to do the hot fire test on Archimedes?
spk13: Yeah, sure. So the things to be watching out for, you know, are you pouring concrete on the pad, which we are, because it requires really quite a mature design, not just on the launch vehicle, but all of the systems to be able to be putting concrete in the ground. You know, all your vehicle interfaces and systems have to be very mature to be able to put concrete in the ground. So that's one to watch for. I'm pleased to see that it's happening. Um, the other, the other one to watch for is stage one, uh, tanks and tank testing. So all the, the fairing components, um, you know, all of that, all of that coming together, there's a million other things, um, you know, between, uh, along the road that we could detail. And then, you know, Archimedes, the engine test cell is, um, is, is, will be ready to accept an engine in March. So, you know, we'll continue to, uh, to push, to get an engine out to that cell on March. Um, And then there's a whole bunch of conditioning and testing that goes on before we go and, you know, actually make fire. But, you know, subsequent engines are, you know, right in behind that. So you won't have to wait long to see some fire, hopefully.
spk07: Okay. And then my last question is, like, on the internal scale, but, like, what – is out of your control. And for example, this morning there was news regarding the RFP that the Virginia Space Port Authority put for the Wallops launch equipment vault. And the anticipated completion date for that is like end of November. So what is out of your control in terms of like actually being able to launch Neutron?
spk13: Well, I mean, we try and keep as much in control as possible. That's why we vertically integrate um, so much, but I think it's, it's, it's a good question. Um, and, uh, you know, that there are, there are some elements that, um, that, that, that are out of our control, but, um, you know, the way in which we develop a lot of this, uh, a lot of this infrastructure is, is very highly managed and, and, you know, very, um, you know, very, very hands-on and, and I wouldn't, I wouldn't put too much credence in, um, in particular RFPs, um, you know, that went out with respect to, you know, some of those dates. I mean, I think we'll stand on our own record of developing launch pads in a pretty short timeline. So, you know, like I say, I wouldn't put too much weight on anything like that. I would watch the concrete go down and watch us get us there. And then even on the equipment vaults, It's nice to have the equipment in a vault, but it doesn't necessarily need to be in a vault as an example.
spk05: Okay. Thank you very much. Our next question comes from Jason Gursky from Citi. Your line is now open.
spk03: Great. Thanks, and good afternoon, everybody. Hey, just maybe I might have missed this. So apologies if this is redundant and you can just tell me to go read the transcripts. But I do want to just ask on Neutron and the timeline of that relative to national security launch programs and lane one and the timeline that's behind all of that. Can you comment on how you're tracking to your ability to, to bid on national security launch and those lane lane one opportunities in front of us.
spk13: Yeah, Jason. So obviously we're tracking that, that lane one, um, pretty closely. And, and, you know, we, we spend a lot of time with the space force to, um, you know, to, to advocate for that lane one. Um, and hence the reason why we're pushing so hard to, to, um, to get the vehicle in a launch for this year because that is a gating on-ramp to lane one. Now, the good news is that those on-ramps will be every year, so it's not like a one-off opportunity. But, you know, I think this is the reason why so many engineers are sleeping under their desks at the moment to just push so hard to try and get that vehicle to the pad.
spk03: Okay, well, to the extent that they're listening to this, you know, I'm rooting for you guys. Let's see here. On the other press release that you put out today on the bus portfolio, it sounds to me, in reading this, that what you're kind of doing here is productizing custom buses that you've built for some customers over time, which is, you know, seems like a reasonable thing to do. But the question here is, is to understand whether the go-to-market strategy with these buses is to continue to do what you've done with MDA on Global Star, or is the go-to-market strategy, hey, we've got these buses and we'd like you, we're going to go out and sell them as a full spacecraft, we'll integrate whatever payload you need on it. Because you mentioned in earlier part of the conversation that you want to be the prime, but now you're out here with a product launch of a bunch of buses. So I just want to Help me square what you're trying to do here.
spk13: Yeah, so we're certainly not trying to sell buses into a bus merchant market. We obviously, as you said, we've very strategically chosen which projects that we want to undertake, and at the end of those undertakings, we've ended up with a series of buses that neatly fall into various categories, one being deep space interplanetary projects, one being high delta V low Earth orbit and one being like extreme kind of environment, long lifetime comms satellites. So if you take the MDA bus, for example, and the SDA bus, you know, they're both built on largely the same bus. So, you know, the payloads changed, but the bus didn't change. What I will say is it turns out we're just, not that good at naming things. And it just became intensely confusing for everybody when we said, it's a photon bus. And all the buses were called photon, but yet they have vastly different capabilities and do vastly different things. So really it was the bus portfolio naming was just clarifying and making it easier for people to understand that when we say it's a lightning satellite, people understand that this is a large comms bus versus an explorer, which is a deep space interplanetary. So it's not really about, you know, about a particularly, you know, a marketing thing to try and, you know, sell a whole bunch of, you know, buses. You know, it's really about helping people understand the variety and the depth of the capabilities that we've built. And then, you know, given the products have sort of evolved to the point where they really deserve their own name.
spk03: Okay, great. And then last question for me. The comment that you made there on the call about, you know, skating to where the puck is going, trying to understand, you know, what the long-term financial model looks like. And you mentioned, like, where you want to eventually be is in the services business. So I wonder if you can maybe double click on that a little bit more and help us understand what you mean by that exactly. Because when I think of services, I think of, you know, you build, launch, and then operate a constellation of various satellites that have different capabilities on them. And, you know, that becomes a bit different capital intensity, I think, maybe relative to what you're doing today. So maybe just help us kind of broadly understand understand what you're trying to get done here.
spk13: Yeah, yeah, of course. So, I mean, look, this is something we've always talked about from day one. And, you know, in part, the reason why we're developing Neutron is so that we have our own keys to space for, you know, this particular, you know, profile of business. And if you look at the value in the space industry, like launch is a, call it a $10, $15 billion TAM. Space systems, $20 to $30 billion TAM. services in space, $320 billion TAM. And if you look at, you know, if you read any of the reports where the space industry is, you know, the value of the space industry going, whether it's a $1 trillion or $2 trillion, you know, pick your report. It's always true that the vast majority of all of that TAM is going to reside in the services that you provide. Not being the freight truck that gets it there, or the car builder that builds the truck, it's actually the service. And what we've been very methodically going about doing is building all the infrastructure that we need to be able to ultimately provide a service. Now, the natural question that always comes after that is, well, what service are you going to provide? And I don't think we're ready to talk about any of that yet. But what I can say is that when we look to jump into that larger TAM, we will have a very disruptive way of going in there and executing and providing that service because we will be able to build whatever spacecraft we require using all of our own components and it will fly in our own rocket. And I think you've seen one other real-life example of that with Starlink and with internet in space. And it's very, very difficult to to compete with that unless you have your own ability to manufacture your satellites using your own components and your own ability to launch, you know, launch those said satellites. So we're just marching very methodically, you know, towards that step after step.
spk03: Right. Okay. But you've got Starlink, Kuiper, you know, OneWeb's out there. I mean, this is on the comm site. It's a pretty crowded site. market today and then on the earth observation side, um, plenty of competitors out there. Can you help us kind of dream big on what other buckets are out there?
spk13: Well, I mean, I think, I think there's a lot of, uh, a lot of businesses, business plans that are, that are kind of, um, being put to the test right now. Like is, is, is, you know, internet from space really, um, a large opportunity or not? But the one thing that I can say is absolutely clear is that if you want to be competitive in there, then you have to own your own rocket and build your own satellite. So like I say, it's way too early for us to be discussing what kind of service we think we can provide. But what I'm absolutely sure of is that when we decide to go into a particular area, we will be highly competitive because of those things. And the large space companies of the future, in my opinion, are not going to be just a satellite manufacturer or just a launch vehicle provider. If you can do everything end-to-end, then you can optimize not only the launch, but also the spacecraft for the service and all the other elements that go into the compromises that you have to make. And yeah, that's what we're setting ourselves up to be.
spk12: okay great well i look forward to having more conversations with you all about this over time as you uh make some decisions thanks cool our next question comes from edison you from jewish bank your line is now open hey thanks for taking the questions in and squeezing me in just one follow-up on the the last topic on the on the constellation i know you said it's too early but um What kind of timeline do you think that's on? Is that three, five, six years out from now? When would that kind of materialize in your view?
spk13: Look, Edison, I'd say it's even too early for that. We have to build the foundations of being able to effectively provide that. And really, all focus is on Neutron. All efforts are on Neutron because Neutron is critical for to execute that business model, but it's also critical for other parts of the business. So really, I would say our strong focus is on getting Neutron to the pad because without Neutron on the pad, then it makes it difficult to be hugely disruptive in the services market.
spk12: Understood. And then separately, and back to Neutron, I know you mentioned the ramp up being to three and then to five. Is that going to be the kind of steady state or do we think we can We can do more than that once we ramp up fully per year.
spk13: Well, I mean, of course, we'd love to do more, but I mean, I've ridden this donkey before and it's a rough ride. And, you know, bringing a new vehicle to life is very difficult. Bringing it into production is even more, more difficult, much more difficult. So, you know, it would be great to, you know, to accelerate that. But if you look at the back, you look at the history of every rocket program, whether it be government or commercial, you know, a cadence much larger than that has never been achieved. So, you know, Electron was the fastest to scale, you know, in time, just out of just about every rocket program. And that is a very, very difficult thing to do. So we just want to be, you know, realistic about, you know, what can be achieved.
spk12: Got it. Thanks a lot.
spk05: Our next question comes from Michael Leshock from KeyBank Capital Markets. Your line is now open.
spk06: Hey, good afternoon. I just had one more on neutron spending with the quarter a bit elevated on the spending side. And you mentioned this being the big spending year for neutrons. Is that going to be lumpy quarter to quarter going forward as you have more visibility surrounding some of these milestones? Are there pockets where you see more elevated spending in a particular quarter, or should we think about it relatively linear?
spk02: Yeah, so I'll take that one. So, yeah, the spending is certainly going to be, I think, you know, you expect it to be consistently up and to the right as we progress through 2024. And then, again, once we get the first vehicle to the pad, that's where, you know, that'll be the cresting point. Now, we'll continue to invest in the vehicle, just like, you know, we've continued to invest, but on a much more modest level, you know, in Electron, for example. So I think that, you know, there's no question that we'll see a consistent kind of march up and to the right this year with Neutron spend. Now, you know, from an overall impact on the P&L, you know, we'll have, you know, some growth in top line and some margin expansion that helps accommodate some of that. But, you know, as I mentioned earlier, really kind of growth on the top line and margin expansion gets consumed by kind of the size and magnitude and timing of Neutron.
spk06: And then on the overall budget for Neutron, how do you view that versus your initial expectations there? And then maybe secondly, is there a portion of the $355 million convert that earmarked to support Neutron directly, or is that more inorganic capital deployment there? Thanks.
spk02: Yeah, so, you know, we, I guess the, on the spend for Neutron related to, you know, capital raise. So the convert that we just did is really capital that's dedicated towards growing the business, you know, inorganically. So we have plenty of capital prior to the capital raise to do exactly what we said we were going to do, which was bring Neutron to the pad within a certain time period. And so when we came public about two and a half years ago, we said, you know, end of 2024, a budget of, you know, roughly $250 to $300 million, and that was going to be you know, portioned across, you know, CapEx spend plus R&D. With an R&D, it was going to be a mix, obviously, of people-related, but also prototyping and so forth. So we are, I would say, remarkably intact on the estimates that were put in place at the time, both in obviously getting the vehicle to pad, but also the spend. If you look at the amounts that we've spent so far for the Neutron program, you know, we're, you know, It's a combination of kind of what we've spent, plus we've had some partners help spend along the way, including we've mentioned the upper stage development partnership with Space Force. We've had, you know, strong partnership from Virginia Space on the infrastructure side to help, you know, kind of accommodate some of those expenses. And so overall, we kind of pull all the cost in. You know, this year is a year where we'll probably deploy roughly, call it a half, sorry, $100 million towards the Neutron program, again, across CapEx and R&D spend. And then there'll be incremental dollars that are spent on our behalf. So I think ultimately, when you kind of pull it all together across what we've spent, what we're going to spend this year, plus what our partners have put in play for us, it's going to be remarkably close to that $300 million. And again, longer term, that gets what we call minimum viable minimum viable product to the pad as far as the rocket, and then also minimum viable infrastructure, and infrastructure meaning the pad plus the manufacturing. So one of the things that we benefited from last year was the opportunity to acquire a bunch of scaling assets in the Virgin Orbit bankruptcy process, where we picked up roughly $100 million worth of stuff for 16 cents on the dollar. And a lot of that allowed us to kind of, I would say, kind of hold scheduled a lot of important ways and also just to kind of have the ability to scale production of the vehicle, you know, without having to put a lot more infrastructure in place is certainly from a, you know, from a propulsion and avionics perspective. So I think overall, I'm actually pretty pleased with kind of, again, the adherence to the timelines and the overall budgets and nothing is really kind of stepped away from us at this point. You know, knock on wood would be that way till we get the vehicle to the pad.
spk06: Okay, great. Thank you for taking my questions.
spk05: Closing the Q&A session, I'd now like to hand back over to the management for their final remarks.
spk13: Brilliant. Okay. Well, that wraps up today's presentation. Thanks, everyone, for joining us for the call. Rocket Lab will be participating in these up and coming conferences. And we look forward to the opportunity to share more exciting news and updates with you then. Thanks very much.
spk05: Thank you for attending today's session. We hope you have a wonderful day.
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