Rocket Lab USA, Inc.

Q1 2024 Earnings Conference Call

5/6/2024

spk00: 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 day 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 the 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 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.
spk04: Thank you, Marielle, and thank you, everybody, for joining us today. We've got a lot of great achievements and milestones to share on our start to the year, not the least of which is executing a record number of launches and space systems growth that delivered a record total revenue of $93 million in the quarter, up 55% quarter over quarter and 69% year over year. Adam will talk through the rest of the details of our financial results for the first quarter before covering the financial outlook for Q2 2024. After that, we'll take some questions and finish today's call with the near-term conferences we'll be attending. All right, on to what we achieved in the first quarter of the year, starting with Electron. We had a great series of launches in Q1 with four successful missions, three of them for commercial customers from Launch Complex 1 in New Zealand, and a national security mission for the NRO out of our second site in Virginia. We had a launch turnaround of just eight days between our flight for the Japanese Customs Inspector and the NRO launch, which was no small task from two launch sites across the world. In fact, we remain the only company with the capability of orbital launch from both hemispheres. It really demonstrates the capability of the team to turn around launches so quickly and sets us up well to execute against our pact manifest for 2024. We completed our fifth launch of the year less than two weeks ago, a commercial mission for CASE Institute of South Korea, along with a landmark scientific mission for NASA to test our solar sailing technology also on board. No two rideshare missions are the same, and this launch in particular was a tricky and complex one that played into our unique strength. For large launch rides here, normally you have a bunch of satellites that are heading to the exact same orbit, and you deploy them into one location. If the orbit isn't ideal from your spacecraft, then you're kind of tough like. But for CASE and NASA, we had two satellites going to two completely different orbits to each other. First, one to 520 kilometers, and then all the way up to 1,000 kilometers in low orbit for the other. Those kinds of conflicting mission requirements would normally require two separate launches, but with our unique kick-stage capabilities, we're able to drop KAIST off at 520 and NASA up to 1,000, and then complete another series of engine burns to bring the kick-stage back closer to Earth for faster disposal and demisability. It's this kind of precision and flexibility that makes us a really attractive launch service for our customers, which is also inherent in the next two missions we have scheduled to fly in Q2. So coming up in Q2, we have two back-to-back missions scheduled for NASA to deliver their pre-fire mission to space, or missions to space. The mission is focused on understanding how much of Earth's heat loss is lost into space from the Antarctic and Arctic, which will help improve climate change models and
spk03: provide better predictions on sea level rise and weather changes in the future.
spk04: We're sending up two satellites for NASA, one on each launch, that will crisscross the poles to gather accurate readings across the two orbits from one mission. Once pre-fire is in space, pre-fire two must be placed there within three weeks' time, which again plays to our strengths as a responsive launch provider hitting precise orbital deployments. We actually demonstrated a similar capability with the two tropics missions launched last year, so it's great to see NASA take up this capability once again. After that, we are set to launch the first of five missions for a new customer, Kines, a French company backed by private and public investors, including the French government space agency. We'll be deploying their entire satellite constellation into low-earth orbits, some 25 satellites across five electron launchers. There is also a non-forecasted but potential fifth launch for a commercial Constellation customer we're tracking for Q2. Operationally, we'll be ready to launch this mission when the customer is ready, and if there's a chance of that happening before the end of Q2. But like I said, there's also a chance of it slipping out of the quarter, so it's not forecast in the financials for the current quarter. On to the rest of the year, and we remain on track for another record number of Electron launches. across the 22 missions sold for 2024, we are seeing some movement in the manifest, as expected, due to customers being late with their spacecraft or asking to shift later in the year or sometimes even into 2025. This kind of manifest whack-a-mole, as we call it, is nothing new to any launch provider, and it's something we've become very familiar with after seven years of launching Electron. We see the opportunity of those gaps to fill the manifest with new customers who need an urgent ride sometimes within months, or existing ones who want to move to the left rather than wait for their book slot. For customers who also ask for a new launch date later in the schedule, we have typically invoiced and collected the majority of the launch contract value up to that point, and then we recognise the revenue once they've flown. It's why launch revenue forecasting can be so lumpy, but like I said, while we might not get all 2022 flights off this year, Based on customer movement, we're on track for a record year for Electron. And from where we sit today, 2025 is shaping up to be another record year also. One of the really exciting missions for 2025 was one we booked early in Q2, the $32 million Victus-Hays mission for the US Space Force. This one is really a full end-to-end mission solution that will really show off the success of a vertical integration strategy. We'll be designing, building, launching, and operating the spacecraft to demonstrate tactically responsive space for the Department of Defense. The spacecraft will come with all of our own components, including propulsion systems, solar cells, reaction wheels, star trackers, flight ground software, spacecraft, on and on and on it goes. Then we will fly it on Electron, and once it's in space, we'll be operating it too to demonstrate rendezvous with another spacecraft in orbit which is a highly sought-after capability for the DoD. Oh, and I should mention that our task is to launch the spacecraft within 24 hours' notice from the Space Force. It's the first time we've sold a complete end-to-end mission solution and to a prestigious customer as well. It's a super exciting mission that showcases our ability to meet the DoD's growing need for rapid and responsive orbital capabilities. It will also be a fantastic demonstration of what we can do as a full end-to-end mission services provider. We'll be taking care of absolutely everything the DOD needs for assured access to space, which is an important capability for the nation. Another new launch contract we've been awarded post Q1 is the second mission from the US Space Force, this time for the Space Test Program. It's a $14.5 million launch that will fly out of Launch Complex 2 in Virginia, within the next 24 months to carry out research experiments and technology demonstrations for the DoD in space. We've proven ourselves as a trusted and dedicated partner to the DoD across multiple missions now on Electron. In fact, our first mission for the STP program was all the way back in 2019 when Electron launches were still in single digits. And we're looking forward to continued execution with the STP-30 mission. Finally, to round out Electron, we've got an exciting post-quarter update on our recovery program. For the first time, we've returned an Electron stage back to the production line in preparation for refly. This tank is the one that came back to Earth during the recovery mission we launched in January, and it came back in such good condition that we're bringing it back into the production fold. Already it's passed a barrage of qualification tests, but having gone through those additional checks, it's now undergoing its final fit out and another round of the same acceptance testing that will take any brand new tank through that runs off the line. The results of that campaign will determine its suitability for reflight. If all looks good, we could be looking to reflight later in the year. That's just a quick overview of some of the key highlights across Q1 to date for Electron. Now on to some of the exciting progress and achievements for Space Systems. We move quickly this quarter in executing against our largest space systems contract to date. Our debut as a prime spacecraft contractor to the industry with a $515 million constellation of 18 spacecraft we're developing for the Space Development Agency. All of these spacecraft for the agencies tranche to transport layer will be designed, built and managed by us and include the full suite of our space systems products. We officially kicked off the beginning of the program with the SDA in Q1, as well as completed preliminary studies for the spacecraft's design. The contract marks the beginning of our extension of being a prime contractor, a role we've moved into swiftly and comfortably by handpicking a team of experienced subcontractors to support the program across payload sensor supply and ground systems. Another fantastic trick for the space systems group in the quarter was a successful completion of our mission with VARTA, which returned to Earth the world's first space manufacturing mission conducted outside of the International Space Station. This was a mission where we took VARTA's manufacturing capsule that makes pharmaceutical crystals and put it on top of one of our spacecraft, which supplied the capsule with everything it needed to do its work, like power supply and positioning and management in space. The last one is a really important capability we demonstrated on this mission. Our spacecraft and operations team were tasked with setting the capsule on its path back to Earth so it could land safely in a tiny area in the middle of the Utah desert. I liken this to like throwing a ball from low Earth orbit while aiming to hit a bullseye. The rocket lab team pulled off a really incredible feat to just absolutely nail the capsule's re-entry on target. This skill set makes us now one of only two commercial launch companies with spacecraft re-entry capabilities, a rare and valuable thing in the market. And we'll be demonstrating this again soon with our second spacecraft for the next data demonstration already well ahead of production and on track for its expected launch date.
spk03: The added bonus is everything we've learned in these re-entry missions is we're able to directly apply to future capsule launches on neutron as well.
spk04: Another of our big satellite programs, the 17 spacecraft built for MDA Global Star, has also progressed nicely through Q1. The first of two flight frames for these spacecraft were completed, shipped out of Long Beach and delivered to MDA for the next phase of the program. Once Global Star's payloads arrive to MDA, we'll begin the next step of integrating those into the spacecraft before the complete package enters the acceptance testing campaign. This constellation is slated for launch in 2025, so we're making great progress towards that deadline. Next is our ESCAPE program, which is the mission to Mars for NASA with our two spacecraft. The first fully assembled spacecraft is currently being put through the ringer in the vacuum chamber, testing, pushing the spacecraft to its limits so we can know with confidence it can survive the journey from Earth to Mars. The second satellite will go into the vacuum chamber as soon as the first one comes out, and it's right now undergoing similar checks to ensure it's ready for the load that it will see when it's launched later this year. And finally, to wrap up space systems, we have a new long-term supply agreement for our space solar solutions with a large space prime worth up to $150 million. This one is a multi-year agreement that will see our solar technology support critical missions across civil, defence and national security. A March 31 ending backlog reflects the initial orders against this long-term agreement. Demand for solar power in space continues to grow as the world moves towards new constellations and proliferated new architecture. We're now one of the largest suppliers of space-grade solar cells globally. Space solar power is already one of the most constrained areas in the industrial supply chain, which is why we've invested in expanding, modernizing our space manufacturing capability, including automated processes and assembly processes. These are just some of the steps we've taken to ensure the resiliency of the space solar supply chain beyond current and future missions, and this latest contract is strong recognition of that. Overall, some great work and progress across our space systems business to date. Now it's time to share how development with Neutron's going. So onto a huge milestone for Neutron that I'm really excited to share. We've completed our first Archimedes engines. The engine you see here is already shipped out the door of our engine development complex in Long Beach and is fitted to the test stand at NASA Stennis. What we're taking to the stand is a very close to a flight-like engine and with all of the production infrastructure stood up alongside the engine's development. We believe the team is in the optimum position to be able to make quick iterations to our committees based on what we learn through testing. Archimedes is a really unique engine, given its thrust class, engine cycle, and propellant combination. It's an oxidizer-rich stage combustion cycle powered by liquid oxygen and methane. One of these engines equals the same amount of thrust as roughly three electron rockets. On top of that, we've designed Archimedes to stand up to a target maximum reusability of 20 flights per engine. Each Archimedes is designed for 165,000 pounds of thrust for a combined liftoff on the first stage of 1,450,000 pounds thrust. The turbo pump has an 18,000 shaft horsepower and we picked an operating point that is optimized for reusability over maximum performance, which will allow us to operate this engine at a much lower stress level as compared to others. And like I said, it positions us well for a rapid development and qualification testing campaign. Integrated within Archimedes 2, all new 3D printed parts have come off their factory floor at Long Beach. Like its turbo pump, pre-burner and main combustion chamber components, valve housings and engine structural components, All of these are the same parts that continue to be printed as we build out more engines to this one in parallel. We've got about four sets of engines on the go right now. Perhaps the biggest point I want to make here too is that we haven't taken any huge concessions just to make fire for the sake of it. We've been very intentional and methodical with Archimedes making sure to refine its design so that now we're at a point that we've got an engine that can be readily productionised long term. Test Ready Archimedes is really the inflection point for Neutron's development. Now that Archimedes is on the stand, the real fun begins and we've started the test campaign in earnest. Having a complete engine, we've gone through some of the biggest unknowns in the development program and can update the schedule for its first flight accordingly, which we've adjusted to first launch no earlier than mid-25. We run highly aggressive schedules at Rocket Lab. We always have in all of our programs, and that's why we've been able to deliver new capability to the market like HAST, Electron, Capstone, and more industry-leading timeframes. Getting Neutron to the pad this year was an ambitious green light schedule that we had a path to closing if every single aspect went exactly according to plan. But as we've always said, this is a rocket development program, and there's always filled with gremlins, some in new control and some not. In this case, we've made the call to take additional time, not only to just bring a minimum viable product engine to the stand, but to be very intentional and methodical about setting Archimedes up for success in the long term. This means rigorous component level testing before the first hot fire and refining a design that can be productionized long term. We've also taken the time to scale up the manufacturing and test facilities to support full scale production. and built a knowledgeable and experienced team ready to build, test, and fly Archimedes at the pace that customers are demanding once we bring Neutron to market. All of this takes time to get ultimately right, so that drove a schedule which now closes mid-next year. We have a proven track record of delivering technology and capabilities to market on rapid and often record-breaking timelines, and Neutron is still coming to market faster than just about any other rocket program that I know. We believe Neutron will be a category-defining launch vehicle serving critical market needs, and we're excited to move into the final phase of development. While the propulsion team has made leaps and bounds on Archimedes, the structural test team is also putting together big wins on the board as well. We've got some of the rocket's largest composite panels and tech sections collecting across all of our composite facilities. We've completed the first neutrons fairing panels with a set of full panels coming out of composites curing and expected to be assembled together in the coming weeks. These are large, almost eight metre long sections that mount neutrons canards and house the payloads inside the rocket, so they're really significant pieces of neutrons build. The internal tank structures on neutrons second stage also come together, having completed an assembly test run earlier in the quarter. This is the second stage two that we built for Neutron after the development stage we built and tested last year. Putting all the pieces of Neutron together is not the same as assembling Electron, which the team obviously regularly does by hand. So completing the assembly test run for Neutron and now moving on to final assembly, elimination and integration of the pieces into flight configuration marks a major progress in the vehicle's development. The size and the scale of the structure and the pieces we're working with here is important to show. So here are some more images of the carbon composite tank builds taking place across our various facilities. And it's fair to say some amazing work from the team here pushing hard to get this all together. Speaking of launch, Launch Complex 3 up in Virginia is really starting to take shape. Concrete works for Neutron's launch mount have been completed and the concrete foundations for the site's liquid propellant and gas storage tanks have gone in. Long-lead propellant tanks are soon to be delivered to site, and we'll see our propellant farm stood up in the coming months. We also installed the 278-foot water tower. Visually, we've changed the skyline of Wallops waterfront forever, so it's an exciting new feature for LC3. We have made good progress on all other neutron facilities in the area as well, including Neutron's assembly and integration test complex just outside the Wallops gate. Another set of concrete foundations have gone down, and we've got the skeleton structure up for our next building on the site. Construction is really moving nicely along in Virginia, which is great to see. So that wraps up the business highlights for 2024 so far. So from here, I'll hand it over to Adam to take us through the financial updates.
spk09: Great. Thanks, Pete. First quarter 2024 revenue was $92.8 million, which was towards the low end of our prior guidance range. reflecting significant year-on-year growth of 69% and sequential growth of 55%, driven by strong contribution from both business segments. Our launch services segment delivered revenue of $32.7 million in the quarter from four launches, in line with guidance of $32 million to $33 million, representing sequential growth of 287%, driven by a return to normal launch operations after Q4 was impacted by our September anomaly. The average selling price per launch was $8.2 million, well above our target average selling price of $7.5 million, the result of a favorable mix of government and complex commercial missions. Our current backlog continues to support our target average revenue per launch with the variability tied to volume purchase commitments, launch location, and mission assurance requirements. Our space system segment delivered just over $60 million in the quarter. which was towards the low end of our prior guidance range of $60 million to $65 million, but reflecting sequential growth of 17%, driven primarily by growth in our MDA contract revenue, albeit slightly less than was expected. Now turning to gross margin. GAAP gross margin for the first quarter was 26.1%, slightly above the high end of our prior guidance range of 24% to 26%. Non-GAAP gross margin for the first quarter was 31.7%, which was also above our prior guidance range of 29 to 31%. Gap and non-gap gross margin improvements relative to our guidance reflect continued efficiencies in both our launch and satellite manufacturing businesses. We ended Q1 with a production-related headcount of 872, up 20 from the prior quarter. Turn to backlog. We ended Q1 2024 with $1.02 billion of total backlog, with launch backlog of $215.6 million and space systems backlog of $799.7 million. Relative to Q4 2023, total backlog was down only 3% sequentially, or $31 million, despite a $93 million quarter of revenue. Strong bookings continued in our space systems business, highlighted by initial orders related to the long-term supply agreement with a Tier 1 prime contractor that Pete alluded to earlier, and a follow-on booking for reaction wheels supporting a mega constellation. For launch, backlog was down 13% sequentially, or $32.7 million, as we drew backlog down against a record number of launches in the quarter. We continue to cultivate a healthy pipeline, including multi-launch deals that can be lumpy, given the size and complexities of these opportunities. We expect approximately 42% of current backlog to be recognized as revenue within 12 months. Turning to operating expenses, GAAP operating expenses for the first quarter of 2024 were $67.3 million, below the low end of our guidance range of $73 million to $75 million. Non-GAAP operating expenses for the first quarter were $56.4 million, which was below the low end of our guidance range of $62 million to $64 million. The increases in both GAAP and non-GAAP operating expenses versus the fourth quarter of 2023 We're primarily driven by continued growth in headcount and prototype spending to support our Neutron development program and related infrastructure to support Neutron and our 18 satellite SDA contract, partially offset by shifting R&D resource to production support for space systems. In SG&A, GAAP expenses increased $2.9 million quarter on quarter, largely due to a $1.6 million increase in stock-based compensation, along with increase in outside services, partially offset by a decrease in the change in contingent consideration related to our PSC acquisition due to a lower average stock price in the quarter. Non-GAAP SG&A expenses increased by $1.9 million, primarily due to the increase in outside services included in year-end audit expenses, legal fees, and corporate IT and security spending that further enable efficient scaling of the business. Q1 ending SG&A headcount was 263, representing an increase of 16 from the prior quarter. In R&D specifically, GAAP expenses were up $1 million quarter-on-quarter due to neutron prototyping, materials, and headcount increases. Meanwhile, we have shifted certain non-neutron R&D resources to support the execution of our MDA contract production ramp. Non-GAAP expenses were up $900,000 quarter-on-quarter, driven similarly to GAAP expenses. Q1 ending R&D headcount was 625, representing an increase of 40 from the prior quarter. In summary, total first quarter headcount was 1,760, up 76 heads from the prior quarter. Turn to cash. Purchases of property, equipment, and capitalized software licenses was $19.2 million in the first quarter of 2024, an increase of $8.8 million from $10.4 million in the fourth quarter of 2023. This sequential increase was due to our continued investment in neutron research, testing, and production infrastructure projects along with the expansion of our satellite production and space solar solutions capacity. Cash consumed from operations was $2.6 million in the first quarter of 2024, compared to $42.2 million in the fourth quarter of 2023. The sequential improvement of almost $40 million was driven by a lesser net income loss and working capital improvements owing to the ramp-up of production in our MDA Global Start program and a step-up in launch cadence, as well as strong cash collections, including initial milestone payments related to our space systems programs. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow reduced by purchases of property, equipment, and capitalized software in the first quarter of 2024, was a use of $21.8 million, compared to $52.6 million in the fourth quarter of 2023. The ending balance of cash, cash equivalents, restricted cash, and marketable securities was $564.9 million as of the end of the first quarter of 2024. As discussed in our February earnings call, we generated $355 million in a convertible senior notes offering, which was coupled with two deployments of $43.2 million supporting our convertible capped call and equipment facility loan repayments, as well as $11.2 million in debt issuance costs, yielding $257.4 million of net financing. We exit Q1 with a strong position to exercise inorganic options to further vertically integrate our supply chain with the critical capabilities consistent with what we've done successfully in the past. Our four-quarter profitability trend demonstrates progress towards adjusted EBITDA breakeven and attaining our long-term financial model. We expect Electron's gross margins to continue to improve over time due to increased scale and production efficiencies. and satellite manufacturing contributions to improve due to increased scale and leverage of growing IP capabilities and infrastructure. With our strong launch manifest and increasing scale driven by Space Systems' contract execution in 2024, we are well-positioned to continue our progression to adjusted EBITDA breakeven following our neutron investment cycle. And with that, let's turn to our guidance for the second quarter of 2024. We expect revenue in the second quarter to range between $105 and $110 million. This range reflects $77 to $81 million of contribution from space systems and $28 to $29 million from launch services, which assumes four launches. As Pete noted, we do have a fifth launch slated for late June, but are taking a cautious approach in terms of guidance setting, given the end-of-quarter timing risk. We expect second quarter GAAP gross margins to range between 24% to 26% and non-GAAP gross margins to range between 30% to 32%. These forecasted GAAP and non-GAAP gross margins reflect mixed shifts in our space system segment towards the larger and lower margin satellite manufacturing program revenue contribution versus certain of our higher gross margin component offerings, as well as a weaker mix within our components businesses. We expect second quarter GAAP operating expenses to range between $74 million and $76 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 our annual merit increases effective April 1st. We expect second quarter GAAP and non-GAAP net interest expense to be $1 million. We expect second quarter adjusted EBITDA loss to range between $23 million and $25 million, and basic shares outstanding to be approximately 494 million shares. And with that, we'll hand the call over to the operator for questions.
spk07: Thank you, and everyone, it is Star 1 if you would like to ask a question. If you're using a speakerphone, please make sure your mute button is turned off to allow your signal to reach our equipment. Again, that's Star 1 to ask a question. And we'll go first to Eric Rasmussen .
spk12: Yeah, thanks for taking the questions. Maybe just on Neutron, you obviously made a lot of significant progress and passed a number of milestones in the Archimedes being the latest, I guess, major one. But you are pushing that out by at least six months. Is it mostly on the engine side, sort of the, the conservatism there and sort of what can pull that timeline in or even push that out further.
spk04: Yeah, hi, Eric. So the engine is always a long pole in the tent, you know, with any launch vehicle development. So, you know, and look, we learned a lot building that engine and getting it to the stand. And, you know, we'll continue to learn more you know, as we go through the, you know, the engine qualification and hot fire programs. But the engine is really the, you know, the primary driver for the move. And, you know, rocket programs are notoriously difficult to, you know, to kind of plan because I think a lot of people see the rocket as but they don't see all of the tremendous amount of infrastructure around it that it takes to bring a rocket to fruition. So there's a lot going on in the program, as you saw in some of the materials there, but really the engine is always, certainly for us, the driver for the program.
spk12: Okay, and then what, you know, what would you say then, so the first, you know, we'll call it a test mission, right, or an R&D mission. Could there be, if you do get it in the middle of the year, could you actually then, you know, what do you think the timeline would be for you to start to, and assuming that's a successful launch, what do you think the timeline could be sort of matching what you previously said of maybe, you know, three following that, you know, R&D? the following year and then, uh, five the other year. Um, is that still the right way of thinking about?
spk04: Yeah, it is. Yeah. Yeah. Yeah. Yeah. It totally, it is. Um, you know, uh, you know, we've played this game before and, and, um, you know, sort of the one, three, five is, is, is, is, is the right way to think about it. And I think that that's certainly, you know, as we're, we're building a capability and, um, and in some cases stock that's, um, That's exactly how we're planning it still.
spk12: Okay. And staying with launch, but going back to Electron, you know, you had 22. It sounds like there's some changes in customers in the manifest, and that obviously is maybe impacting even this quarter. But we would have thought that if you had hit that 22, you would have had to do six in Q2 for each quarter for the remainder of the year, given you did four. Where do you think, you know, that number could wind up and could you actually even hit, you know, 22 for the year still?
spk04: Yeah, look, I mean, we had the solid 22 missions, you know, booked this year. And as I mentioned on the call that it's literally a game of manifest whack-a-mole and people move out. Very rarely people move to the left, but that does occasionally happen. We have a bunch of folks that come in at the last minute. The biggest challenge for launch timelines is not so much vehicles. It's often licensing and sometimes mission design and payload structure development. So although we're in May, certainly not waving the white flag, but as more time goes on, it gets more and more difficult to be able to do that and bring those missions in or add new missions to the manifest. So we're just making sure that we're being transparent here, that it's going to be difficult to... to get those 22 missions off, you know, purely for some of those reasons. So where we actually end up at the end of the year is kind of in the hands of our customers in a lot of respects. But, you know, I'll make the point that, you know, this is just the reality of launch and, you know, none of these missions go away. They just sort of, you know, move around and some will move into other quarters and some will move into next year. Okay.
spk12: Great. Well, and then maybe just last on the MDA contract, seems like this program and revenue recognition is kicking in. Maybe just help us understand the revenue trajectory and contribution or maybe the weighting as we sort of progress through this year.
spk09: Yeah, I can take that one, Pete. So, Eric, you know, yeah, to your point, we are in now the meat of the rev rec underneath this program, and we expect to recognize the majority of the remaining contract value in 2024. And, you know, it will be, I would say, kind of you think about it kind of peaking probably in the kind of in the Q3 period, maybe shifts to Q4. And then, you know, we'll also start to, you know, see more meaningful contribution from the SDA contract that we announced early this year. So, I think we've kind of managed to have things land in such a way where you don't have kind of a risk of a big drop-off as the MDA contract kind of comes to conclusion because we've got a contract that's more than three times larger kind of following it in the wings, if you will. So I think that, again, our plan is to still see almost all of the remaining contract value recognized in the 2024 time period. I mean, there is an operating contract, a SOC, that goes along with this MDA Global Star agreement, but that's relatively small in the grand scheme of things with regards to the total contract value of roughly $150 million. Great. Thanks.
spk12: I'll jump back into the queue. Thanks, Eric.
spk07: And next up is Andres Shepard Cantor Fitzgerald.
spk11: Hey, guys. Good afternoon. Congratulations on the quarter, and thanks for taking our questions. Just a quick one for Pete. You know, obviously, congratulations on the Archimedes engine build. You're now targeting the hot fire test, which, you know, will be a big important milestone there. With now targeting, you know, first launch no earlier than middle of 2025, can you just maybe help us, just remind us, what are the other, big milestones between the hard fire engine and the launch. Thank you.
spk04: Yeah, sure. Thanks, Andre. So, you know, we've always said look for concrete on the ground at wallops and in the test sites. Look for, you know, large stage tanks and things like that and look for fire. And those things remain kind of the you know, the same things that I'd be looking for. So, yeah, getting something, getting a pad built, you know, is a huge, huge program in its own right. Getting the engine test facility built is a huge program that's, you know, that's done. And then, you know, like I say, now it's just working through the, you know, the Archimedes final development and iteration. And then I think the other thing I'd be tracking is, like, making sure that we continue to build components for other launches so not a one and done kind of a thing, it's like making sure that there's a bunch of other engines coming off the production line and more tanks and structures and things like that so that's certainly something that we're focused on is making sure we keep the machine primed with all the components needed to not just get one launch away, but, you know, stand up a commercial service.
spk11: Got it. Okay. That's super helpful. I appreciate all that color. And maybe just a quick follow-up for Adam. Adam, just on the liquidity, sorry if I didn't hear this correctly, but does the 560, let's call it 565 million, does that include the net proceeds off the recent capital raise? Yes, it does. And separately, just to remind us, Okay, the thoughts. Okay, great. And then just remind us, so with that liquidity on hand, what is the run rate expected or how are you thinking about that? Thank you.
spk09: With a run rate or runway, I think that the, you know, we raised a significant amount of capital, obviously, in this most recent transaction. And as we've stated, it was really all about, you know, providing inorganic growth optionality for us. And we do continue to see significant opportunities out there. I would say You know, the deal pipeline that we're managing at this point is probably as full as it's been in really the last couple of years as far as potential actionable targets for us. So I think the timing on raising that, you know, the funds was probably pretty ideal. You know, if you look at the capital required to complete Neutron, you know, we didn't raise the money for that. We had liquidity for that. You know, given where we're at in the program, we feel like we're still very much on track to the $250 to $300 million total spend to get Neutron to the pad. And, you know, fortunately for us, not all of that spend has landed, you know, on our backs. You know, we've had some support from various partners that have brought capital to the table as well. So I think that, again, we feel very good about our ability to scale our space systems business, continue to scale Electron, get Neutron to the pad with the capital we had pre-convertible. and we continue to look for options to deploy that convertible proceeds to inorganic means. And I think that right now we feel really good about where we're at from a liquidity perspective, and we really don't see the need right now to think about anything beyond that.
spk11: Got it. That makes sense. So it sounds like you are potentially interested in continuing to grow inorganically and to that point maybe remain active in the M&A market. But with that liquidity on hand, that's certainly feasible, at least so far. So, okay, that's helpful. Thanks again, guys. Congrats on the quarter. I'll pass it on. Thank you.
spk07: Thank you. Next question comes from Jason Gursky, Citi.
spk08: Hey, good afternoon, guys. Hey, Pete, quick question for you on the engine development. What exactly caused you to need to push by six-plus mods? You mentioned you had some learnings there. Maybe you'd kind of share some of those details with us or at least characterize whether they were issues with the design, issues with the manufacturability. Just kind of give us a flavor of what went wrong here.
spk04: So no major issue. We didn't run up against a wall and had to solve something majorly technically. But I mean, kind of as I mentioned on the call, the point here is not to just make fire. The point here is to roll into production. And there's a number of kind of new processes and actually even new materials that we developed for Archimedes. And those were all intended to support production. At a different time, we go into much more detail about some of the manufacturing methods we've used for combustion chambers and things like that. But really, similar to Rutherford, we were the very first 3D printer chamber there. That was a new technology that hadn't been done before, and we spent a lot of time because we thought that that was going to be a big payoff. So not dissimilar to that, there's some manufacturing techniques that we've employed on Archimedes that in the long term are going to pay off handsomely. So a lot of time was spent on that. And then just, quite frankly, just the time that it takes to stand up the factory and the machine that builds the machine is probably, you know, the biggest learning is, look, we've done this enough. We know that that is difficult and time consuming. But, you know, an engine on this scale is certainly, you know, adds an extra element to that. I mean, you know, you can't just pick up a pump volute and bolt it on the engine. You have to get a crane to put the pump volute on. So, you know, everything is just such a larger scale that it makes it more difficult. So, yeah, not like one big staggering thing, just a whole bunch of stuff that just sort of adds up.
spk08: Yeah. Okay, that makes good sense. And then do you essentially, like, you build buffer or contingency into... the planning? So now you've got this mid-25 date out there. How much kind of contingency do you have in that?
spk04: Well, as I mentioned before, we run green light schedules at Rocket Lab. So in an engineering program, especially one of that scale, it's almost impossible to build sensible engineering buffering because you never really know you know, the elements that are going to cause your problem. You've got some inklings and you'll pad some areas, but, you know, if you walk into a room full of engineers and ask them to add buffer in their schedule, then, you know, come back in 2040. That's just kind of the way it rolls. So we always run green light schedules. So, you know, our schedules are always ambitious and, you know, that's worked really well for us. I mean, if you look across our execution history, you know, the time that it took us to put Electron on the pad was extraordinary. I mean, we started that program in 2014, had our first launch in 2017, and that was from absolutely zero. So, you know, there are some challenges with a vehicle of this scale, but, you know, and I always caution everybody all the time that at the end of the day, this is a rocket program, and it's a very difficult thing to execute. That's why there's only a few of us in the world that have pulled it off. But You know, the way we run our schedules, you know, are informed by experience and what we've learned in the past, but we always run them very aggressively and very ambitiously.
spk08: Okay. And then maybe just a quick update on the demand for Neutron. And you talked earlier on the call about this 135 schedule. um from a from a launch cadence perspective um but maybe you can just kind of give us an update on you know over the last three months what you've been hearing from potential customers there um and whether you know 135 is just going to be scratching the surface or kind of give us an update on what your view of the market is there
spk04: Yeah, sure. Of all the things that I stay awake at night not tossing and turning about, demand for neutrons is not one of them. And we continue to have really good, robust discussions with our customers. But I think, as I've mentioned before, it's kind of you show me yours and I'll show you mine. And we maintain the fact that what we want to do is bring a launch vehicle to market that's ready to go and into a market that is in great need rather than do a whole bunch of early adopter pricing and deals that don't have any teeth. So it's fair to say that the interactions with customers over the last quarter have certainly strengthened and We maintain that we're happy to entertain normal kind of deals where it's 10% down, non-refundable, and normal kind of LSAs. But the reality is that people want to see a real rocket before they make such large commitments. And the same goes for us. We want, you know, if we sell a whole bunch of launch, because most customers aren't looking to buy one, they're looking to buy many, that we don't commit to a customer that ultimately doesn't turn up on the pad because, you know, with Electron, you can see the challenges that also causes is the reality of the space business. So we're looking at them and they're looking at us.
spk08: Right. Yeah, no, that makes good sense. I appreciate that. Then, Adam, just one quick one for you. The comment that you made on backlog burn over the next 12 months, 42%, I think was the number that you threw out there. Was that a reference to all of the backlog or was that just to the launch business? And then as maybe just a quick follow-on to this backlog question, what are your guys' expectations or goals here as far as book the bill is concerned, you know, for 2024 and kind of going forward in any given year? I know These wards can be pretty lumpy, and you've just built up some nice backlog here. But investors are certainly going to be focused on book-to-bill going forward. So just kind of update us on what the overall pipeline looks like and whether we can, year in, year out, off this new base that you've got here, have book-to-bills that exceed one. Thanks.
spk09: Yeah, yeah. Sorry, Jason. So yeah, I should have been more clear. So the 42% applies to all the backlog. So it's not specific to launch or space systems. So it's a total business. And as far as the book-to-bill target, no, you're right, of course, you know, everybody, we need to see a book-to-bill greater than one just given kind of what our growth aspirations are. I think that, you know, when you see that we've got, you know, backlog, you know, over a billion dollars against, you know, a street, you know, consensus number that's obviously significantly lower than that, we've got quite a bit of ability to grow significantly based off of just the backlog that we have in place. But we continue to chase big deals. I think that's the one thing that's really evolved over the course of the last 12 months, I think, you know, largely, you know, not, I would say, not disconnected at all from what we've seen, like, for example, landing that large SDA contract is that, you know, kind of as we start to get more and more of these, you know, super sophisticated programs, one, we seem to attract, you know, more of those kind of opportunities as well. So I think You'll continue to see us chasing big deals on the space system side. I mean, the component business continues to grow nicely, and that's great because of the margin profile that some of those businesses have by selling components into the merchant market. But I think that what we see are large program opportunities to continue to build the backlog, not too dissimilar to what happened with the SDA beta contract. But also, as Neutron becomes closer and closer to its first launch, But that's where, you know, that's a very chunky opportunity as we kind of, as we sign LSAs for that vehicle. Those are all needle moving, given the average selling price that we expect to realize from a neutron launch. So I think, you know, you'll see, and we talked about this last year as we progressed through 2023, is that when people kind of looked and said, hey, you know, it looks like your backlog growth has stalled a bit. And what does that mean for future growth? We said, look, you know, you have to be patient because the kind of opportunities that we're chasing are just of such a scale and complexity that that they don't come together on a predictable kind of programmatic way. They come in fits and starts. And I think we saw that again late last year with the SDA contract coming into focus. And then I believe you'll see similar things as far as program size and then, again, across not only space systems, but also including neutron. So I think that you're right. It's right for people to expect a book to build greater than one. I have no concerns similar to Pete that that's Of the things that I stay up at night worrying about, that's also not one of them. Awesome. Thanks, Kevin. I appreciate it.
spk07: The next question is from Matt Akers, Wells Fargo.
spk13: Hey, guys. Good afternoon. Thanks for the question. I guess you talked a little bit about reusability and putting the rocket back into the process. Just curious how you think about that ramping up. If that launch is successful, how fast you could start to see some of the cost benefits of doing that on a wider scale.
spk04: Yeah, thanks, Matt. So, I mean, our focus this year has just been on production. And although the reusability programs for Electron has made good kind of strides and milestones, really, you know, just rolling the vehicles off the end of the production line has been our focus. Reusable vehicles, they still have developments in aspects to them that make them kind of distracting to production. But like I say, the vehicle looks great and this is really the first one that's rolling back into production. If this goes well, then it becomes a much more of a standardised thing. We can kind of roll this into being a much more much more usual part of what you see with electron launchers.
spk13: Okay, great. Thanks. And I guess just one more, just thoughts on latest on Solero margins and how you're making progress on, I think, the 30 percent margin target there.
spk02: Yeah, I can take that.
spk09: Yeah, yeah, yeah. So, Matt, on the Solero margins, again, that's something that, you know, we continue to work through the challenges of some pre-acquisition, well, really one pre-acquisition onerous contract, which still has a bit of a ways to go on that. So kind of what we look to is if you kind of exclude that thing, which, you know, unfortunately we weren't able to affect, we had to kind of absorb that upon adoption of the company. the bookings that are coming in now are very strong. So if we look at additions to backlog for the Solero business, I'd have to strain my memory to think of one that was coming in recently that was below our target. Most of the business that we're booking for that is above that 30% gross margin target. And part of that is enabled by the fact that, again, we've been a little bit more, I would say, a little bit more hard-nosed on customer negotiations and holding price. I think when, I mean, the other things that factor into it is some of the investments that we're making in the business as far as putting new reactors in place in Albuquerque that are delivering better production efficiency. I think the business has always been very good at controlling their overhead costs, and it's a very tightly run business. So it's really all about kind of building the backlog in such a way where we have confidence we can deliver that kind of at the margins. I think there's probably more upside than downside to that longer-term target of 30% gross margin. It just takes a little while to get there. You know, when we acquired the business, you know, we said within about two years of acquisition is when we expected to kind of be able to have line of sight to those gross margin targets of more than 30%. And I think what we underestimated was just the challenge in kind of getting that one owner's contract behind us. And we still have a bit of that water to carry. But again, I think I feel very good about kind of everything else that we've been booking. and where the backlog stands right now, I think it's probably going to be, you know, we've got at least through the end of 2024 and probably a little bit beyond that to get that out of the mix.
spk13: That's helpful. Thank you.
spk07: The next question comes from Michael Leshock, KeyBank Capital Market.
spk01: Hey, good afternoon. I wanted to follow up on the backlog question. Very strong right now in just wondering how high you can take your backlog before, you know, maybe having to walk away from business or in the same vein, do you expect to get more pricing power on future contract wins as your backlog grows?
spk04: Yeah. Okay. Sorry. You go ahead.
spk09: I was going to say, I don't think that, you know, It doesn't feel like we're in a position where we necessarily have got a problem because we have kind of too much backlog relative to our ability to produce to that backlog. I think we are seeing some natural pricing support come on the Electron side just because of the fact that a lot of the competition that were really aspirational have not materialized. And so I think that, you know, that's certainly helping on the pricing front because I think now there's more rationalization going on. You can have more rational discussions because, again, you don't have people who don't know how to run a rocket business going out and trying to sell rockets and putting kind of phantom pressure on pricing. So that has really started to evaporate. I think that when you look at some of the things that we're doing, you know, to put more capacity in place with places like Solero, I think that's helping us kind of remove any of those kind of head – kind of, you know, ceilings, if you will, and how big the business can grow to. So I feel pretty good about that, and I think all that is supportive of, again, margin expansion, gross margin expansion as we move forward. We've seen that in the business over the course of the last year. But we do have some interesting mixes, you know, mixed challenges when it comes to kind of just the overall gross margin profile when you have, you know, some lower margin overall, kind of call it photon or satellite manufacturing, you know, skewing. So, for example, we have more of a mix coming from that lower margin space systems manufacturing part of the business. But what's helpful about that business, though, is even though it may not have the same gross margin profile as the higher gross margin merchant component businesses, they can have a lot of operating leverage to them because we're able to basically reuse a lot of the IP that we've created on prior missions and And so we now have a pretty fulsome portfolio of IP, and we've invested in the manufacturing capabilities to the point now where incremental programs that may not have the greatest gross margin perspective can drop quite a bit to the bottom line because of what we've already put in place from an investment perspective. So that's kind of how I look at kind of the overall kind of margin shaping over the course of the next year or so. But maybe, Pete, you can jump in.
spk04: You know, I think you said it well, Adam. The only thing I'd add there is that we are, you know, Rocket Lab's known and our reputation is execution. So we're always kind of, as Adam pointed out, balancing, you know, our growth with our ability to execute because the last thing we want to do is fall behind on that. So, you know, when we look at programs and opportunities, you know, we are selective and kind of, as Adam mentioned before, is, you know, the kind of programs you're looking for and spending your time on are very large ones. So... You know, we have to be kind of always diligent to make sure we don't take on, you know, programs that absorb a lot of resource but, you know, don't have a lot of scale. So we're continually, you know, juggling those opportunities against how we want to grow the business.
spk09: Yeah, and Michael, I would further add to that a little bit saying, like, you know, Pete and I were talking the other day about the fact that it feels like, you know, the demand signal is stronger now than any time I could really remember it in the business. You'd think that it maybe would start to moderate a bit because we've now got a billion-dollar-plus backlog, and the business is kind of hitting a new scale with our Q2 guide above $100 billion per quarter. But it feels like, to a great extent, it feels like we're drinking from a fire hydrant here, and there's a lot of opportunities that we're having to kind of sift through. But there's a very strong demand signal out there as far as the kind of programs that we're being asked to look at.
spk01: Yeah, absolutely. I appreciate that. And then on the launch side, specifically for Haste launches, just wondering if you see opportunities there for more pricing. I think if you look at the customer's alternatives, they could be significantly higher costs versus Rocket Lab's offering. So is there a strategy there to increase pricing or keep it stable where it's at today? Any update on the Haste side would be great. Thank you.
spk04: Yeah, I mean, we see Haste as a really fantastic opportunity for Electron, not only just on price, but also on scale. And I guess the biggest opportunity for us there from a revenue perspective is the additional services from the launch vehicle as well. So, yep, as you point out, Michael, the alternatives are significantly higher But the reason why there's so few launches and so little advancement is because of that. So by coming into the market with a disruptively low price point, we're seeing just such a growth and kind of revitalization of that market that I think ultimately that's the best approach for creating the most amount of value out of it. is to stimulate it rather than suffocate it.
spk01: Got it. Thank you, guys. Thank you.
spk07: And the next question is from Suji De Silva, Roth MKM.
spk10: Hi, Peter. Hi, Adam. Just a little bit maybe following up the last question. The Victus Hayes missions, you talked about it being end-to-end service. I'm trying to understand if there's incremental products or services you're offering there that can be productized and offered more broadly if there's a financial uplift of those incremental elements you're characterizing as part of the end-to-end service offering?
spk04: Yeah, for sure. I guess the biggest one is rendezvous and proximity operations. I mean, that is a very rare capability and something you need to dock spacecraft with ISS, for example. So, you know, kind of aligned with our strategy of only taking on work that we think is strategic to us, that is certainly a good example of that. But, you know, as an end-to-end service, you know, with a spacecraft, you know, we're leveraging the foundations designs from one of our spacecraft already. You know, it certainly does make it, you know, possible to be more productized and You know, we see this is the direction that not just the US government, but the world is heading towards, right? You know, on-demand, rapid call-up, and whoever has the best solution there is in a good position because often, you know, responsive launch is talked about. Well, I mean, that's useless unless you've got something to stick on top of it. So this is really the first demonstration of responsive space where... you know, it's all combined, you know, right down to the data handling and operations of the spacecraft.
spk09: Yeah, I think, Suji, I think along that line, I think one of the, you talk about the financial benefits to the model, I think, you know, when you're able to couple the launch with the spacecraft manufacturer, I mean, you just, you're increasing your odds of, or your P win, you know, for these type of programs when you can go with a turnkey solution Because I think right now what we're seeing is that what the customer probably fears the most, it's not necessarily they fear like, you know, higher pricing or whatever. They fear delay, right? Because I think there's just the supply chain within, you know, the space market, particularly new space, has not yet gotten to the point where, you know, it could deliver, you know, scalable solutions, you know, on time. So I think that, you know, when we can go with a turnkey, say, look, you know, we have the launch capacity. We have the ability to design a spacecraft, a manufacturing spacecraft at a predictable, you know, timeline because we're so vertically integrated. I mean, it just kind of pushes the narrative forward and ultimately allows you to have just a higher overall market share and market, you know, kind of share capture approach. So I think this is really kind of more of a sign of things to come. This is where we really wanted to take the business was being able to do these end-to-end solutions for the customers. And ultimately with that will come just better scaling and more predictable scaling of the business across both segments. So we think this is a huge kind of validation of that strategy, you know, being realized now. And, of course, with an incredibly sophisticated customer as well.
spk10: Sure. Great. Okay, then my second question is you listed out the subcontractors on the SDA contract and the press release. Just trying to understand now, you know, I know you've been targeting M&A to insource, but is there sort of an equilibrium balancing point where, as a prime contractor, you'll leverage external subcontracting and components versus wanting to keep bringing things in-house? How do you balance that going forward as you grow?
spk04: Yeah, it's really two elements. I mean, we don't vertically integrate because we think it's some kind of religion. We do it for either one or two reasons. One, we think we can create more value for the company, or two, we need to control it because suppliers just can't deliver at either the scale or the timelines that we require. So, you know, as we kind of execute on a prime, then as a prime, then the subcontractors that deliver on schedule you know, on budget, there's kind of, to your point, there's no need to kind of religiously suck their capabilities in. It's just that seems to be a relatively rare thing in the space industry. So we end up more often than not having to, you know, having to own it than rely on those parties.
spk10: Okay. Appreciate the balanced answer. Thanks.
spk07: Next up, we'll hear from Kaivan Rumer, TD Cowen.
spk06: Yes, thanks so much. So, you know, it looks like, feels like your schedule has definitely slipped. And I mean, you talk of a manifest of 22, but you have the comment in there that you look for a record year in launches. I mean, you only did 10 last year. That would say 11 would get you home. Can you give us, you know, your best guess as to a realistic range of number of electron launches we could see this year?
spk04: I think if we launched 11, that would not be a record year in our minds. That would be a massive disappointment. And look, look, it's just, you know, we can provide a number, but it's just super hard to kind of predict given, you know, as the customers move around. But, you know, I think it's fairly fair to say that at this point, you know, we'll struggle to achieve 22, but you know, but we have line of sight for, you know, probably a couple of lists than that.
spk09: Yeah, and Kai, I would add something to that. I mean, one of the benefits of diversification that we've been driving so hard towards and now getting, you know, more than 70% of our revenue coming from space systems is that, you know, we no longer, you know, it's no longer like a push out of a launch, you know, threatens our entire kind of year's annual operating plan, right? So we believe that we've got strength in other parts of the business, particularly on the space system side, where, you know, if we can't deliver those 22 launches, it doesn't really put at risk our ability to deliver a very solid year that's still on target with our internal plan for what we think we can deliver as far as revenue and growth. So, you know, as much as, you know, and we are very, very, very reluctant to wave the white flag on anything here, but to the extent that, you know, things move outside of our control, We do believe that we've got strength in the business more broadly that would make up for any potential shortfall that we'd see from a launch or two that move out.
spk06: Got it. Great comment. So if you look at the rest of your competitors, I mean, particularly in the satellite side, you know, RTX basically said they're throwing in the towel on being a space prime. LHX is there. They bought satellites from Mo. They basically have been late with problems. Terran is basically on ultra life support. It sounds like your competitors are really not doing particularly well. Any thoughts about, you know, A, you know, it sounds like things are actually a little bit more chaotic than they've been. Maybe that's an overread. Do you see that happening? And is there any opportunity to just take a radically different approach and basically raise your prices 25% because the problem I can see of getting your backlog is you don't have the opportunity to kind of do a more profitable launch for someone who might be willing to pay for it.
spk04: Well, Kai, I would say our business model and our strategy is working exactly to your point. You know, the vertical integration and the power that brings to bring these platforms to market at a price point and, as Adam mentioned, the schedule is disruptive and that's what you're seeing. And then, from a launch perspective, I think, as Adam pointed out, there has been a kind of a waning of who's real and who's not. And, you know, there's going to be opportunities for us there, I'm sure.
spk06: Great. And so, I mean, you talk about demand being better, but it doesn't really sound like pricing is a whole lot better. Is that a misread on my part?
spk11: Well, I think it's delicate.
spk04: I was just going to say, I think it's a delicate balance, Kai, because... you know, to the point about the HACE missions before is you want to stimulate the market. And, you know, if you just go and just, you know, all of a sudden whack a big price increase there, then, you know, you can potentially damage those markets that you're trying to grow because some of them are new and some of them are fragile. So I think you have to be very balanced and careful about how you do those sorts of things.
spk08: Thank you very much.
spk09: I would add to that too, Kai, on the pricing side of things. If we look at what's happened with Electron pricing, it's gone nothing but up for us in the last several years. So if you recall, back a few years ago, we were talking about launch prices in the six and a half to seven, now seven to seven and a half, and now in this most recent quarter is 8.2 million. And I think you're going to continue to see that type of trajectory on pricing. as competition, again, as kind of people fail to execute and we bring an increasingly scarce product to market. And the mix of that electron business, as I think was being asked earlier with regards to the impact of things like haste on the overall mix. But I also think that when you look at our photon pricing, if you look at the contracts that we're competing on, the contracts that we're winning, we're not winning on the lowest price. it's quite the opposite. Like we can oftentimes price at a premium to our competition, again, because of the fact that we're bringing that level of vertical integration, which translates into schedule certainty and performance certainty, right? So I think that's really what is kind of playing into the strategy. So I think we're absolutely seeing pricing benefits that are accruing to us as a result of the strategy, not only for diversification, but actually the fact that we're executing, that we're vertically integrated, and that we represent, strangely enough, a lower risk option for customers, despite the fact that we're a very new generation new space company versus some of the legacy players that you mentioned earlier in your commentary.
spk06: Thank you very much.
spk07: Next up is Edison Yu, Deutsche Bank.
spk02: Hey, thanks for squeezing in. Just a couple quick ones. First, on Neutron, did the Baltimore Bridge incident impact the infrastructure timeline at all?
spk04: Not that we can see at this point in time, no.
spk02: Okay. Then on the financials, I think the R&D was a bit low in the first quarter. Is that just a timing thing? Should we expect that to really step up in 2Q?
spk09: Yeah, Edison, yeah, absolutely. It's a timing issue, I think, like, you know, It seems like all things in our business, there's elements of lumpiness, and certainly spend timing is one of those things. So the nature of particularly on Neutron with how things come and kind of fits and starts, we have large, for example, prototyping expenses that you may end up slipping out a little bit relative to maybe where you thought they're going to be. But there will be volatility, and I think you would absolutely expect that over the next few quarters, we'll continue to see a march up in R&D. primarily driven by, if not entirely driven by, Neutron in kind of first flight.
spk02: Understood. And just last one, on the, I guess, the SDA contribution, do we have any sense what that could be this year, next year? I know you said you would get some small amount, but just wondering if there's anything a bit more discreet you can maybe provide on that curve, on the launch curve.
spk09: Yeah, so we're, you know, we're continuing to do our work. I mean, the program is certainly progressing, and with that progression, and, you know, we talked about identifying, you know, subcontractors to work with us on that program. As we kind of brought more people, you know, formally under intent, we've gotten more color as far as kind of their timing and their ability to deliver against, you know, their milestones. So we definitely, you know, are starting to bake some of that into our operating plan for the remainder of this year. You know, earlier we said that we couldn't, we weren't in a position to really say, so the, say, the imp amount that was in the Q1 results was actually, you know, very, very small. I would call that immaterial. It's starting to become more material in the numbers that you're seeing in Q2 that we guided towards, and you'll continue to see kind of building on that as we progress through 2024. You know, and I would say that You know, and part of – and that is also allowing us to kind of, you know, overcome, I'd say, a little bit of the earlier weakness that we talked about as far as progress being made against the MDA contract with regards to RevRec. Some of that, you know, MDA RevRec is being made up for from initial contributions from the SDA contract. But I think, you know, when Eric asked the question earlier about kind of what the timing of RevRec looked like for the remainder of the MDA GlobalStar contract, And that is, you know, just given the delivery schedules, that will, again, continue to build momentum, probably peak sometime in the Q3 time period, maybe it's Q4. But ultimately, as that's kind of peaking out, we've got this building of SDA coming in behind it to prevent a real kind of drop-off, if you will, when that program comes to conclusion. So I don't think we're quite ready yet to give kind of full-year contribution from the SDA program because, again, it's pretty early in its life. But it's, again, part of the reason why we're confident that even if there was a launch or two that moves out of 2024 from that 22 launch manifest, that we have the ability to not really feel that from an overall top-line growth perspective. So we hope to be able to give you more color in a little bit, but right now it's a little too early to provide a lot of color on SDA contribution.
spk02: Great. Thank you.
spk07: And at this time, there are no further questions. I'll hand things back to our speakers for any additional or closing remarks.
spk04: Okay, I think that wraps up today's presentation. Thank you everyone for joining us on the call. Rocket Lab will be participating in these up and coming conferences and look forward to the opportunity to share more exciting news and updates with you then. So thanks again.
spk07: Once again, everyone that does conclude today's conference, thank you all for your participation. You may now disconnect.
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