Q1 2022 Rocket Lab USA Inc Earnings Call

Space systems markets and opportunities for improved revenue across our target markets.

These forward looking statements involve substantial risks and uncertainty, including risks arising from competition global trade and export restrictions.

The impact of the COVID-19 pandemic, our dependency on a limited number of customers average selling price trends and risks that our markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect.

More information on these and other factors or.

Our other risk factors that may affect the forward looking statements as outlined in the risk factors section of our 2021 10-K filing which was filed on March 24th 2022, and the documents incorporated therein.

Any forward looking statements are made as of today and rocket lab has no obligation to update or revise any forward looking statements.

The first quarter of 2022 earnings releases available Esther Relations section of our website at rocket lab USA Dot com.

To supplement our unaudited consolidated financial statements presented on a basis consistent with GAAP, we disclose certain non-GAAP financial measures, including gross margin and operating expenses.

These supplemental measures include the effects of stock based compensation expense.

Amortization of purchased intangible assets other nonrecurring interest and other income expense net.

Noncash income tax benefits and expenses.

Performance reserve escrow amortization transaction costs related to mergers and acquisitions and change in fair value of contingent considerations.

We also supplement our unaudited historical statements and forward looking guidance with the measure of adjusted EBITDA were adjustments to EBITDA include share based compensation depreciation and amortization warrant expense related to customers and partners transaction costs related to mergers and acquisitions activity foreign exchange gains.

There are losses income tax provisions change in fair value of contingent considerations performance reserve escrow and other non operating income and loss, excluding interest expense related to debt and other nonrecurring gains or losses.

We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations and our Q1 financial results media release available on our website.

We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges, including stock based compensation and its associated tax effects and the effects of the warrant expense related to customers and partners.

non-GAAP financial measures discussed today are not in accordance with and do not serve as an alternative for the presentation of rocket labs GAAP financial results.

We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business.

We believe that these non-GAAP measures have limitations and that they do not reflect all of the amounts associated with our GAAP results of operations.

These non-GAAP measures should only be viewed in conjunction with corresponding GAAP measures.

Lastly, this call is also being webcast with a supporting presentation and a replay and copy of the presentation will be available on our website for two weeks.

And now let me turn the call over to Peter back founder and CEO .

Thanks for that get in and welcome everybody today for todays review of rocket labs business highlights and financial results for Q1 2022.

Today's presentation include the business accomplishments for the beginning of the year as well as further achievements we've made in the days and the weeks after the end of Q1.

And then moving talk through our financial results for the same period and our financial outlook for the second quarter before we take Q&A from those listening in finish today's call with the upcoming conferences, we'll be attending.

So, let's first start with a review of our key accomplishments in Q1.

We started off.

Year with a strong with the signing of our largest spy systems contract rocket lab had secured to date. This is a $143 million contract to design and manufacture 17 spacecraft buses for the globalstar constellation, which I'll go into more detail. Shortly this contract highlights the strength of our increasing levels of vertical integration across by systems executing on our <unk>.

In space strategy will keep up I mean, we kept up the momentum in space systems with the with our expansion in Colorado to meet growing consumer demand for a GNC and software services and of course completed acquisition of Solera technologies in the first quarter.

Immediately got to work building the teams industry, leading technology and into qualification of what we believe to be the world's highest efficiency space solar cells, which we aim to bring to the market. Later this year on the loan side of our business are first launch of the year with a flawless mission for repeat commercial Japanese Earth imaging customers since victim.

As I mentioned also Mark the first mission from pad at wounds complex one the newest of three launch pads as we continue to ramp up our elektron launch cadence disappeared at LC, one really shortens the turnaround time between launches and with extensive facilities. The THAAD already in place. We can now run to launch campaigns simultaneously from LTE.

To support back to back launches.

Later in this presentation I'll take you through our additional accomplishments post Q1, I am excited to share what we have to date.

To date for our first electron launch out of complex wounds complex two scheduled and benefits this year.

<unk> was also recognized infliction Vanessa is one of a handful of launches to provide the agency launched services under a $300 million via the launch program and finally, we rounded out the first quarter by Afflicting Wallops Island, Virginia is the home of neutrons launch slot production complex with construction already underway in Q1.

So then.

Through some of these highlights in more detail.

Backlog.

Q1, 2020 saw continued growth in our backlog from year end 2021 at December 31, 2021 backlog stood at $241 million and while we ended March 31, 2022 at $546 million today, our backlog stands at $551 million.

A $310 million increase in total backlog since year end of 2021.

We're seeing continued booking strength across every major product in the company, including electron launch contracts both on satellites and numerous rocket lab satellite components and software sales spanning our global customer base. These.

These customers include the U S government foreign governments universities, and commercial customers and constellation operators.

We are in the early days of recognizing sales synergies from our vertical integration strategy, but the benefits of this strategy are already garnering significant financial benefits.

Since victim.

<unk>, we had a great first launch of the year of our electron for our repeat customers since Victor we succeed.

<unk> delivered another strict satellite to orbit as part of the growing imaging constellation having deployed one of the very first spacecraft back in December 2020 emission is a first of a bulk buy three missions on Boston speak of last year, we signed that contract in December 2021, and successfully delivered the first pilot to orbit on this mission.

Fewer than three months later, which is the rapid and competitive turnaround time.

<unk> to offer customers ultimate scheduled control flexibility and absolute reliability from our long heritage of successful missions is often the driving reason behind why these mission bulk buys which this particular mission was a great representation of that.

This is Victor mission was actually bought forward in the manifest flying earlier than initially planned to meet mission requirements and launching on the first day of the launch period.

Opened on February 28 back filling another customer's launch slot, who experienced a delay with the asset a lot.

From a technical perspective, we also account. This mission is the highest performing mission to date in terms of launch vehicle performance.

Elektron and its upper stage delivered since Victor's highlight to space with pinpoint accuracy accuracy.

Within just 500 meters of its targeted orbit when you consider the speed that we're traveling to get the more than 27000 kilometers now delivering the highlight with that type of accuracy is just incredible.

After pilot deployment deployment, we also successfully lowered the kick stage, which bought it back closer to his statements and guarantee the stage was destroyed on its return to Earth.

Only nine days later EMEA, a fraction of the 25 year accepted standard for lowest Vanessa.

As the second most frequently launch U S rocket with that with that cadence only planned to increase we are determined to be a responsible space too, it's playing a leading role in responsibly, managing and mitigating orbital debris and.

I think in Elektron launch via took place just 33 days later and was another successful mission followed by a third launch of the year again in Q2, just 31 days later.

While we had anticipated a second launch electron with full of electron would fall in Q1 with the delays pushed the mission two days into the second quarter and stayed at that time. This loan shift was announced on the 24th of March. We also updated our financial guidance for Q1 2022, and the revenue from the <unk> launch will instead be reflected in our second quarter financial results.

<unk>.

First <unk> launch so.

In the first quarter. We also conducted the first launch from our newest pad based at launch complex. One in New Zealand. This is the third pad for elektron, joining the existing pad at launch complex one in a pad at <unk> complex to in Virginia.

Standing up an additional pad at launch complex, one we immediately doubled and launch capacity from that thought to meet anticipated future demand.

Having to double all the supporting range infrastructure or seek new regulatory approvals like you would have to we are establishing an entirely new side.

Moving into space systems now in Q1 rocket labor selected by MDI to design and manufacture of 17 spacecraft buses for globalstar, a leading provider of mobile satellite services the.

The contract is a direct reflection upon a highly vertically integrated space systems capabilities. The spacecraft will feature components and sub systems developed organically within rocket lab and also produced by our recently acquired companies, including solar panels and structures from some of our technologies software from ISI and reaction wheels from Sinclair interplanetary.

All 17 of the 500 kg spacecraft will be designed and manufactured at our long Beach production completes where a new high volume spacecraft manufacturing line is under construction to support the growing customer demand for rocket lab satellites.

Keep in mind that these globalstar spacecraft really small satellites. They are big machines offer tonnage and roughly the size of the car with non metered solar panel wings.

And these are completely space craft and this contract was the result of a very detailed and highly competitive bid protests that determined that rocket lab offered a compelling balance of performance here to just schedule reliability reliability and cost.

This is the fruition of a deliberate strategy and growth in space systems as we expand beyond launch to offer complete end to end solutions for our customers.

We're executing on this program already with.

<unk> planning successfully completed with.

With MDI in Q1, and the review of the systems requirements for these spacecraft is scheduled to take place actually this week, it's really exciting to see this program off to a great start already.

Now of course, a contract like MDA MDI.

<unk> is only possible thanks to the capabilities with both developed and brought in house, we closed three spy systems related acquisitions over these past few months since coming public in August 2021, with Soliris technology as being the lightest closed deal, which was completed this past quarter within the space within the space industry Soliris.

Technology is really needs no introduction, but I have the best in the game with the spy solar cell technology and run the worlds largest production line of high performing space solar cells and manufacturing solar cells solar panels and composite structural products.

Proud that they are now part of the rocket life family and continuing to offer premier capability and value across civil space exploration defense and intelligence and commercial space markets.

Already we are reaping the benefits of Soliris innovative drive as we move forward with qualification of our next generation solar cell technology.

<unk> be once qualified is expected to be the highest efficiency space solar cell of its kind in high volume production worldwide. The latest product is more than 40% lighter than typical spice grade solar cells.

Maintenance technology late with rocket Labs' resources and manufacturing capability to scale to meet the growing demand for these products. The qualification process is on track and these new new cell should be ready for commercial use lighter this year.

Another fantastic product milestone to come out of our solar business. This quarter was the completion of the solar panel production for one of the worlds largest lower orbit satellite constellations, one with <unk>.

<unk> solar panels will tell them power the majority of the planned constellation with early investment in its facilities to vertically integrate solar cell competent substrate and final panel assembly in house, creating the world's R&D, one stop shop for fully assembled solar panels.

The successful completion of this contract sits up solera nicely.

Manufacturing on future projects and to capitalize on the growing small satellite constellation market.

Moving on to other areas of our space systems business, we began our expansion in Colorado with the New Spy systems complex. This new facility will support <unk> mission operations centers and more space for team growth with a Colorado head count expected to more than double by early 2023 as demand for our flight software mission.

Simulation and guidance navigation control with GNC services continues to grow.

To give some insight into the team's work.

Currently supporting more than 33 emissions, including Luna lenders and spacecraft distant Earth orbit and beyond.

Our satellite separation system business in Maryland also continues to go from strength to strength, having recently completed both the delivery of its 500 product into commercial satellite operator and finished the build of its 1000 Motor Assembly in Q1 much luck at team in Colorado as satellite separation systems team is also experiencing.

<unk> head count growth and we will soon begin the expansion of its facility, which I will touch on later in this presentation.

Within a photon spice craft line, but also executing on the locks at one mission concept to create a fueling depot gas station in orbit partnered with EDA space, we are bringing to give a launch plus satellite mission solution to conduct an innovative <unk> demonstration that supports <unk> mission to establish a sustainable prisons.

The mission involves a photo on spacecraft to support the testing of cryogenic fluid management and space and the Elektron rocket to get at the space in the first place. The team completed the mission Premier preliminary design review in Q1, unlocking the Nic States and the mission timeline.

Looks at is exactly the kind of mission, we set out to enable with photon their experience and capability across launched satellite in mission control EDA space can focus entirely and primarily on the emission without the worry of dedicating resource to the infrastructure to support it mentioned.

Imagine that mentioned that anytime you want it to create the first had to build a fund is in the network that lived on this is a problem we sit out to solve the photon electron and their entire spy systems ecosystem and it's great to see <unk> solution being utilized for such innovated tasks like locks at one mission for NASA.

Yes.

Speaking of NASA and if I can bring you back to launch for a moment, we were proud to be selected by the agency in Q1, along with others to provide services to the program for Vinci class acquisition of dedicated and Roger broadsheet emission tool data. The program has a five year $300 million program and the lightest sign of confidence from the agency.

In elektron, the ability to deliver the nation science and technology payloads and device.

And then on to neutral and finally wrapping up our Q1 achievements.

We selected the state of Virginia for a neutral spot and production complex in almost immediately began construction. The 250000 square foot neutron production complex is being built on the 28 28 acre site adjacent to the NASA Wallops flight facility and mid Atlantic Regional spaceport on Virginia's eastern shore the.

The production of neutron here includes up to $45 million and support from the state and infrastructure and operational improvements. We are excited to grow rocket labs presence in wallops add up to 250 highly skilled jobs to the local economy and bring resilient and assured access to space for the nation through the neutron.

Neutral in the years to come.

The neutral on development program remains steadily on track the first quarter. We also completed this past quarter. We also completed a systems requirements review to the launch vehicle with the U S Space Force space systems command as part of the $24 million contract. They awarded US late last year.

The upper stage development contract contract with <unk> launch enterprise recognizes neutral design to maximize <unk> capability overland overland insertion accuracy and responsive dedicated launch for the U S government key requirements for the launch providers of the highest priority National Defense and security mission awarded through the <unk>.

National Security space launch or any CSL program <unk>.

Existing initially sell loans provided includes basics and utilized.

And the award awarding of this contract recognizes rocket lab as a potential <unk> phase III launch provider from 2025.

So as you saw there we've had a great start to the year with those business accomplishments in the first quarter and now I'd like to take you through a few more exciting developments for the company since the quarter end.

Two launches so just two days into our second quarter, we had the <unk>.

Successful launch of a dedicated mission for Black Sky.

I would just 31 days later by a 26 electron launch from <unk> combining combined these missions, bringing the total count of satellite successfully deployed by rocket led to up to 146.

I'll take you through both of these launches individually across the next few slides starting with the most recent mission.

But first I want to use this larger draw your attention to the progress this year and increasing in elektron launch cadence frequent and reliable launch to space is critical for our customers and with all three electron missions. This year launched within the nine week period electron has reached an average launch cadence of 1% to 31 days at the same time.

<unk> three launches have successfully deployed a customer's satellites to space on the first launched launch attempt.

Well <unk> operationalized and resource to maintain this momentum throughout the year with a responsive launched demonstration with the U S government customer on the horizon in the middle of this year that will include two launches currently scheduled to launch within two weeks of each other.

Now on to our most recent mission 'twenty six launched which marked a major milestone in a program to make elektron. The first reusable orbital small launch vehicle.

They are they are embedded gain mission soares complete immediate capture of electron electron booster with helicopter for the first time after launching despite electrons first stage returned to Earth under parachute before is 92 helicopter triptan flu along the returning stage along with the returning stage and used.

On a long line to capture the parachute after the catch the helicopter pilot Offloaded. The first stage as it was quickly recovered and it was quickly recovered by a recovery engineers, who are waiting on a nearby Cvs, though they bought it back on board the boat and returned it to land and I'm happy to report that the first stage come back in really good condition. Our ultimate recovery go is to reach.

Turning to booster directly to land versus the boat.

This was a huge step towards that goal and I feel like we really are about 90 <unk>.

Progress was.

Was made to that ultimate goal.

Now the whole point of pursuing Reusability for us is to increase launch frequency and reduced production cost per vehicle with the majority of the cost of building electron tied to the first stage and production overhead cost anytime we can reuse all roll some of the parts.

Starting from scratch will minimize our production costs and maximize our production utilization, thus positively impacting our bottom line right now our engineers are picking apart and inspecting the stage inch by inch to determine what can be reused and what can be re flowing from this booster in the near future catching a returning booster on a very good team was an incredibly difficult.

Quite frankly, I would've been pretty happy if we're only decided the stage coming back with a helicopter but to actually catch it on the first guy with a tremendous fate I'm incredibly proud of the entire team and it was really great to see <unk> get all the kudos they deserve with worldwide immediate worldwide media coverage across most major news outlets.

Don't forget too that amongst the recovering noise submission electron successfully deployed 34 satellites.

Alright.

Mix of new and repeat customers across space junk removed technology demonstrations and Earth monitoring. This mission has brought our total count of satellites deployed up to 100.

Now onto <unk> first for the second quarter. This was another mission I am proud of by the way it showcases our responsive launch capability.

<unk>.

Launch many months apart. This launch I believe sits us sets, a new standard for speed and agility for our customers.

A month and a half before this launch around the time conflict was escalating in eastern Europe Black Sky came to us with a light requests to change the orbital inclination for the submission so that could be to support the customers responding to the <unk> process.

There is not a trivial thing and requires all new trajectory safety analysis licensing and mission planning, it's basically a new mission from scratch, but within 45 days.

We not only made those changes to the customer but also delivered the appear satellites above the region successfully in this kind of capability is an important distinction in todays escalating geopolitical environment.

The flexibility and reliability is paramount for responses, but because of the way has been a hot topic and national security circles and the ability to provide responsive space solution continues to generate a huge amount of public and commercial interests.

The Premier small launch electron has always been well positioned for future growth in this space and as I said before this launch of the <unk>.

Showcase for their services.

Now beyond launch on Elektron, We also had a number of satellites integrated with rocket led technology that are now successfully operating in space.

Motorized lot veins on basics is transport of tuition that successfully separated the Hawkeye Lincoln deal, but satellites in space as well as advanced lot Vantiv pricing system used on the same launch for the <unk> like you said a lot separately amex slot software is being used to help operate two imaging set a lot also launched in April .

In 2021, a technology could be found on 38% of all launches, having the <unk> and everything that goes to space as part of our long term strategy and these latest missions supported by rocket led technology is an example of that strategy being executed well in early 2022.

With the expanded products and services offerings now on the rocket labor umbrella, both from acquisitions and around internal development, the reduced risk of supply chain disruption that we bring to our customers with a vertically integrated manufacturing capability and our reliability to execute increasing is increasingly attractive to our.

<unk> with their <unk>.

Services for their satellite constellations.

From satellite build and components all the way through to launch in orbit operations at technology is across most of the big low Earth orbit small satellite constellations today.

We're involved in constellations.

Across the public and private sectors because of that because our customers can come to us knowing we can offer them scheduled security and attractive pricing and scale no matter the mission.

The latest contract with our <unk> solution strategy has borne fruit as they launch bulk buy from <unk> hundred 60, which we secured in early Q2, three electron launches will deliver 15 satellites to orbit for Virginia based wholesale 360, which is building out a constellation to deliver.

The geospatial analytics included in this contract as the supply of our separation systems for the satellites as we and as we mentioned on the previous slide we have significant other satellite componentry salt into the platform.

Bulk buys so the Hawkeye bolt baas, just our lightest of many multi launch contracts we have on the books for Elektron commercial constellation operators look to rocket lab in elektron to provide reliability and accuracy in place and the satellite in the right place on all but we are precise placement is critical to the buildout of the constellations.

Without missing a beat.

Without missing a beat launch Black Sky, we successfully executed in Q2 included the fifth and sixth satellite rocket lab delivered to space public Sky across a series of emissions within three months and while that mission was due to be the final launch in that multi loan series and additional six launch for <unk> in Elektron was commissioned in <unk>.

Q2 of last year, and we will take additional.

An additional <unk> <unk>.

And will take place later this year that.

That dedicated mission will continue flex cause rapid business expansion by deploying another pair of jeans imaging satellites to precise location and local but for its growing satellite constellation.

And again, all but one of these multi launch contracts customers satellite platforms include rocket lab space craft hardware or software to support their mission.

Now excitingly in the first of multiple Holdco emissions.

<unk> has been selected to be as part of the rideshare launch from launch complex two at the end of this year.

I'm encouraged we've been we have been encouraged by <unk> progress and certifying its autonomous flight termination unit and software, which is needed to enable electron launches from Virginia.

And so I have secured the site with confidence so we can compete.

The first launch from launch complex two before the end of the year.

But with that third party on a third pad online we can offer even greater flexibility on schedule launch frequency and launched location for our global customers.

Onto our launch to the Moon for the Capstone mission.

<unk>.

And early May saw significant progress and milestones cleared on the pad to launch on the path to launch just this weekend. The capstone satellite itself arrived in New Zealand really to be integrated into a photo on lunar up a stage that will carried out of orbit and sit it on its path to the moon and launch readiness rehearsal with our Elektron rocket.

Was also completed over these past few days further clearing the way ahead of us to launch this mission from <unk> towards the end of the month.

Speaking of space craft rocket lab is supporting to get to the moon. The glucose lunar lander being developed by Firefly Aerospace, which will be operated by <unk> software supported by a GNC engineered and managed by our mission operations.

<unk> a key reading this.

This milestone last month called integration readiness reviews.

But it goes to as part of <unk> commercial lunar pilot services program, which.

<unk> contracts, the private sector to deliver science experiments and other CAGR to the Moon.

So with that let me turn the call over to Adam Spice, Our Chief Financial Officer.

Alright.

Thanks, Peter I'll first review, our first quarter 2022 results and then discuss our outlook for the second quarter.

First quarter 2022 revenue was $40 7 million slightly above our revised guidance of $40 million, which we issued on March 24th.

The updated guidance reflected the delay at the Blackstone Global launch that was assumed in the original guidance range of $42 million to $47 million.

In the quarter launch contributed $6 6 million and space systems contributed $34 1 million or <unk>, 84% of revenue and grew 149%.

Total revenue for the first quarter was up 48% quarter over quarter. Despite the black Sky launch lift from Q1 to Q2.

Meanwhile, GAAP and non-GAAP gross margins for the first quarter of 2022, or 9% and 24% respectively.

This was below our original Q1 guidance on a GAAP and non-GAAP basis of 17% and 30% respectively driven.

Driven by the forecasted purchase accounting impacts of <unk> that was still in process at the time, we issued our guidance and the delayed launch and resulting lower resulting in lower absorption of overhead and indirect production and launch costs.

This compares to fourth quarter 2020, 'twenty on GAAP, and non-GAAP gross margins of 24% and 36%, respectively, which benefited from higher launch rate and a more favorable product mix.

Large services GAAP and non-GAAP gross margins were negative, 12% and positive 1% in the first quarter, respectively versus a positive 1% and positive 6% in Q4 of 2021.

The decline in gross margins quarter on quarter was driven by the lower launch launch cadence in the first quarter of 2022.

Space systems, GAAP, and non-GAAP gross margins were 13% and 28% in the first quarter, respectively versus 48% at 67% in Q4 2021.

The decline in gross margins quarter on quarter were largely driven by a mix shift to lower margin <unk> revenues.

Turning to operating expenses.

GAAP operating expenses for the first quarter 2022 were $36 $6 million, which was approximately $2 $4 million lower than the midpoint of prior guidance.

non-GAAP operating expenses for the first quarter 'twenty two were $21 million in line with the low end of guidance.

The quarter on quarter step up in GAAP operating expenses was primarily driven by a $2 million increase in R&D stock based compensation and an incremental $700000 of amortization of purchased intangibles stemming from recent acquisitions.

While the decline in non-GAAP R&D was driven by higher R&D credits, which were offset by higher prototype and staff costs.

Worth, noting GAAP R&D spending is up 13% quarter on quarter and we anticipate this trend to continue throughout 2022, as we increased investment in the neutral on launch vehicle development.

The quarter over quarter step up in GAAP SG&A of $4 million was driven by <unk> partial spending contribution in the quarter higher stock based compensation combined with the change in the fair value of contingent consideration related to the PSC acquisition.

These increases were offset by lower deal fees.

The uptick in non-GAAP SG&A expenses of $1 $8 million were driven by higher staff costs and outside services.

When we compare first quarter 2022 revenue on a year on year basis total revenue was up 124%.

Within the mix launch services revenue declined 60% or $9 $9 million.

Largely due to the aforementioned Blackstone global launch delay.

Although large sources got off to a slower.