Q3 2022 Rocket Lab USA Inc Earnings Call

[music].

Ladies and gentlemen.

Thank you for your patience and welcome to today's rocket Labs third quarter 2022 financial results Conference call. My name is Amber and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you would like to ask a question.

Please press star one on your telephone keypad.

I would now like to pass the conference over to your host Merial Baker Communications manager with rocket Lab Merial. Please proceed.

Thank you Hello, everyone. We're glad to have you join us for today's conference call to discuss Robert Labs third quarter 2022 financial results.

Presenters are rocket <unk>, founder and CEO of <unk>, and Chief Financial Officer, Adam Spice. After our prepared comments, we will take questions.

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.

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.

Such statements are based upon information available to the company as of the date hereof and are subject to change for future development.

Except as required by law the company does not undertake any obligation to update these statements are.

Our remarks and press release today also contains non-GAAP financial measures within the meaning of regulation G enacted by the ACC included in such release is a reconciliation of these non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP.

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

Now, let me turn the call over to Peter <unk> founder and CEO .

Thank you <unk> and welcome everybody to todays review of local level are low.

<unk> financial results for Q3 2022.

Biomarker, and our Chief financial Officer and response.

Today's presentation, where we've gone.

Accomplishments for the fourth quarter, and finally achievements with IGT ends the quarter also include commentary on our market position across <unk> type systems and discuss some of the big contracts, we have underway and moving to walk through our financial results for the third quarter and a financial outlook for Q4.

And we'll take some questions from those listening and subsidized coal with upcoming conferences, we'll be attending.

On to what the company has achieved this quarter.

Yeah.

Dakota strongly for rocket lab.

Sure.

On one side of the business as we equaled our record for the number of strategic solutions to all boats per year quickly surpassing it within the first few days of the fourth quarter. We completed three full months National security launches one after the other from U S government National Securities initial reconnaissance office.

<unk> are a prime customer and the lunch business with stringent emission requirements and science.

Barcelona, and assure that strength is the launch leader as they continue to return to restaurants to deliver the national security missions to orbit.

After admission was the second of our bulk buy of dedicated launches with Japanese constellation Botha from Seaton electronic games are comparatively to deliver highlight to the exact position required to support the constellation growth.

<unk> dedicated offers multiple benefits for small satellite constellation operator. Please include control over their own launch schedule and ability to reach because of the downturn that an achievable if they bought a bunch of machines.

These reasons along with the electrons reliability, our customers are coming to us and booking out multiple mortgages at Barnes Jewish victims bulk five launches will continue into 2023 with another launch scheduled for them along with the group's launches breached constellation operator Kenneth.

Fit for us off right.

<unk> hundred 60, <unk> expected to launch in the first half of next year.

Sticking with Electrum, we statistically powered rocket engine that had been returned from the ocean. During one of this year as early recovery mission.

With that as a metric technical achievement on the path to rapidly usability.

Elektron Farzana neutral on the iron the scope of the Union strength from research contracts awarded to Robert Lane.

This past quarter to examine the potential use for cargo transport and point to point treble.

Speaking of neutron the program achieved some key wins in engineering milestones this quarter, including selection of a new start for regulators to develop neutrons Archimedes engine and the production of full scale hardware, including neutral on paint structures and Archimedes engine privatized.

I will take you through those achievements in more detail later in the presentation.

Almost by system side.

Some of our early ambitions to grow the production capability of HTS systems, how strange really started paying off in particular, we announced today that anticorruption systems Division and <unk>.

<unk>, the largest bulk order, even totaling a record $10 million.

I'd, possibly crushing systems will support the department of Defense Space Development Agency mission to build a constellation that will serve the future nationally.

<unk> and space architecture.

As Mitchell mentioned partners continue to come in to the core.

Sure that production capacity across vertically vertical spy system streams means that we really and able to service. These types of large contracts now and into the future.

Alongside this progression systems women. We also completed the high volume manufacturing line for asset a lot with actuarial that Tom will service, an undisclosed maybe constellation the customer.

This production line is capable of manufacturing up to 2000 units per year and produced its first engineering units this quarter, which keeps us on track to start.

Producing slightly brands early in 2023.

Running at our Q3 highlights. Despite systems. We also were awarded a contract to provide solid path technology for three Lockheed Martin Botha satellites for the Union space Force.

Okay. So our three launches as I mentioned at the top of the call. We had a strong quarter of launches with <unk> will open up questions for Elektron. Two of these were for the <unk> and the third was for a Japanese constellation operators will speak to both repeat customers for dedicated electron launches.

Tycho we've maintained our launch cadence of one per month with 100% efficient success and we're on track to maintain that came out for the rest of the year, including our first launch from our lunch slot in Virginia Wallops Island.

With the assets be permission, we equaled our previous annual record of seven months of the year Army debated in the first week of Q4 with a successful orbital mission and again with our non commission just Bob data.

To deliver a total of 142 satellites and space.

Even without these fourth quarter launches their machines in Q3, we did acquisition and the launch provider choice for small cell a lot of writers and demonstrates our lead as the most frequently flowing and reliable small launcher.

Announced at our gondola rocket reasonable program later in the call, but first I want to point out a key technical milestones we achieved.

Third quarter for the argon.

The first time for the first time was Atypically pod in England with <unk>.

Perhaps from the previous electronic measurement that was recovered from the ocean.

Particular rubber that engine was previously successfully launched a spice and returned to Earth during a recovery machines, there and Becky guideline.

Furnished relevant engine passed all of the same rigorous efficiencies we put in every flight inventory.

And accumulated to undertaken.

Restart of multiple times produce the same amount of customer equipment or the need to build a good appear.

This is very exciting because the fact that we achieved such a high level of performance from an engine.

Women, reaching out and let's see.

Makes me excited.

One other thing about what we can do with a recap of dry engines.

Further validates that we're on exactly what part of bringing Reusability two small launch vehicles.

Onto our response responsive Spice program in Q3, we opened up in AR.

Our responses by scrubbing program to on ramp commercial and government satellite operator to a rapid cooler launch capability and streamline satellite build and operations option.

There's been a lot of talk in the industry and a number of mine audit.

Our budget is about responsive space.

It's a capability that's been sort of declines and enable to enable operators to rapidly call automotive service get them. Despite some short timeframe.

But the reality is our response to space for us already exists for small satellites.

With electronics.

There's a lot of talk about it but we've actually demonstrated it.

Fastest approach Tim Red turnaround time this year with some title of just something which comes down to the maturity of their rocket our infrastructure and maintain.

We introduced this program to formalize, what we already offer to the market and we're seeing strong interest already from repeat in future customers.

Anthony John .

Excuse me.

So as I've described a good quarter for electronic Q3 also saw strong progress for our large rocket neutron and I'll take you through some of those key achievements.

Hi.

Yeah.

Let's start with neutron hit new highs or at least our Canadian region.

It matches historic steaming spacing during in Mississippi.

In late September we selected <unk> as the location of Indian tapes facility equal a reusable rocket engine.

Archimedes, which will power the nutrient market.

Just last week, we cut the ribbon on spinoffs, along with the Mississippi theaters and other senior figures entertainment.

To show, our strong local and digital support that we have for Neutrolin.

Canadian <unk> complex will be located within the allowed to IHS complex at <unk>.

Across our 1 million square foot area itself.

Itself already comes with Oba manner of critical infrastructure projects.

Project system tanks to system instrumentation by building a whole lot more of that how we can we can quickly adapt to support agencies operation.

We can also leverage the wireless didn't see those infrastructure for power systems transportation networks commodities and supply chain all the little things that Mike as you start running into quickly that allows us to get set up quickly and get testing faster than if we had to build.

Agency a start from scratch.

The state of Mississippi has really gotten behind us to bring neutrolin to the area two with sites with respect putting board some significant capital investment for us to develop the facilities back in <unk> and your drug.

Students really fast track development of neutral and already the team on the ground.

Getting to work to modify some of the systems and get the site ready for the very first documented Indian how far.

Speaking of our communities this past quarter saw progress on the development of our new reusable rocket engine.

We made a change in the cycle of the engine from a gas generator to oxidize enrich our cycle to really optimize the performance of the engine.

Not to increase the.

The level of ISP or procurement as you as you might think but to maintain the power balance right in the middle that brings the temperatures in China I appreciate them.

Really a super reliable Ian.

That's what you wanted an engine for useable rockers and engine that can be used Arvind I'll begin.

Which has a scope for increased performance, if we need to retool to electrical dam.

Prady reentry and landing pad.

So with that all the major design element of the engine.

Completes this quarter, we moved into producing some early prototypes.

<unk> printed components of trading pump potluck oxidize the volumes and other.

Within our secured an engine development ready and accelerating now we're on the right track with our communities and.

Well positioned to maintain a target to see how far agency.

Continuing on the neutral neutral on it.

Our unique rocket design.

Designed by the materials, we use to constructive it's expected to be the world's first carbon comes at large launch vehicle made up of your specifics.

Actually accumulated carbon composite materials obviously.

Very very strong, but the new element of being able to withstand the heat enforces of repeated reentry and launch now we use common compensate for electronics. In fact, we were the first in the world to build.

All carbon composite over the rocket sorry, we understand these materials and these technologies are really really well.

Now with Kevin commented.

Kevin comes to the rocket one of the best ways to determine the programs progress as we have a structural barriers molds for the rocket are complete or not.

Because most of the build that means that the rocket design is mature enough to invest in the capital and the tumor.

And Thats, where we are today with neutral in Q3, we completed the Mt. Four tanks and have started to develop full scale prototype hardware. So perhaps can be made quickly to speedup neutral on this timeline.

Total advancement of the program updated too flashy, but it's highly important for neutrons early development we're expecting.

The first stage on <unk> to come to life.

But by the end of the at the start of content.

Now to build neutral carbon composite tanks and structures quickly. This way to do that is by automation and this is another area. That's quota that we've completed here in investment into the total number of machinery by using rocket building robots.

It's called automated timeline quite a mature process, we have made as a carbon fiber laid down in the minutes to build construction materials.

The Trump infrastructure it.

It is an advanced composite manufacturing technique, that's really optimized for performance speed and cost.

Carbon composite on our strength to make mass ratio of at least four times.

Sort of a metallic like steel meaning.

Meaning that a quarter of the amount of the material actually needs to be used for the science of extreme.

And using.

Rockabilly robots, we can we can really maintain and minimize labor and still manufacture complete it takes a very short timeframe.

The order date.

Yeah.

But these costs now to Virginia, and we continue to make really good progress on the new joint venture there were 2008.

Eras.

Literally.

That's really greenfield when we started and has now been granted comp report in the first building up within just seven months from groundbreaking in April this year.

We're taking a first stage one neutron tank to completed on the spot.

It is being kicked off in this current quarter.

The thought here for our production complex the neutron that will support its production and assembly and integrated launch.

It's where we build a rocket but it's also some of them will do some of that test.

Some of their system infrastructure will be there as well.

The thing about the slide <unk>.

And the advantage we gained from its location is how close it is to the neutron merge pad in fact, just two miles up the road.

This allows us to unlock all of the constraints that are typical rocket program otherwise spaces.

The reason why most amount of rocket tower about three there's a little bit arbitrate made in diameter and that's because they have to go through some kind of tunnel or bridge somewhere on the way from a production side to them to the Moon shot.

Not going to be the case for neutral it's a unique proposition.

And that means that we have with the launch site and pad production complex of neutrons.

Major.

Functions things like closely located.

Where we can build a rocket Bruce artists and very pleasant position to really help accelerate the advanced development timeline.

Constantly calling us up and flying to it will mean slick and streamlined operations.

In a place where we're not handling the rocket multiple times and transporting it to various parts of the parts of the country to get it to the board.

Brought onto spy systems, moving into spy systems, there and some of our accomplishments here in the quarter.

The lease also their entire spy systems, one has been to enable easier and faster access to supply.

<unk> proven and affordable hardware that was available at scale.

And certainly the pricing system by PFC has been a key offering of a vertically integrated spices business, having come to the table with a 100% mission success irritant across more than 100 missions launched across most major U S and international rockets being.

Being acquired by Rocco, Let me PFC could continue.

Commercial hardware trade.

By tapping into rocket lends resources and manufacturing capability grow the business and so it's fantastic to share today.

Under a year since the acquisition, we recently brought on their highest value mission.

For separation systems to date.

Two orders totaling 14.

$14 million.

Take you through that deal with more detail on the next slide.

They put them in.

$14 million when it's made up of two contracts to supply more than 80 of our Las Vegas, Lockheed Martin and other and another undisclosed customer to a bulk loading satellites for what's called tranche, one checking which is being developed by the US Department of defense Space Development Agency.

These <unk> represent the majority of the separation systems required to deploy the entire tranche one trucking light constellation.

Warning Global systems has taken Lasalle and particularly U S. National Securities. This is a critical capability that relies on our satellite constellation.

Accurately deployed to the precise location.

Not one but two organizations have entrusted us to build these devices that place satellites in orbit tells you just how well regarded as depression system in the market.

Further to the U S government.

Out of the business and our solar power Division, we secured another win with an award to deliver the solar Alex at least three Lockheed Martin built satellites for the United States, a sizable phase III lab space dropped a part of the latest evolution of the U S. It's much missile warning system.

And recently passed the critical design review to become certified for space set to launch in 2025.

This expectation is based on the power reliability uptake and execute the manufacturing capability of some of the reasons behind the latest award, which support satellites production on a really aggressive schedule.

On the main drag.

Over in imaging software department their team and technology have been helping progress of major U S government program called Blackjack. This.

This program is being managed by DARPA and the government space development agency to create a global low licensee high volume data communications constellation is optical using optical interconnect and satellite.

<unk>.

It was carried out in June with a successor from Android transmission, which successfully demonstrated a function optical communications link between two satellites.

A leading role in the success of the Mandrake mission with our software and our mission simulation and test installations have been a part of the mission from the very beginning of the program.

Also run mission operations for Mandrake, where the team is responsible for daily spacecraft top in situs monitoring pilot testing and trajectory control between the two spacecraft to support the optical cross link system.

And while accounting. This mission is a winner for us by systems business, but also an example of a vertical integration strategy and space systems paying off across the board we supply the Star Trek is in reaction to the main drags by scrapped which in Ireland.

With the high precision control it needs to achieve the optical communications link and then separation systems are also used to deploy this and lots described.

Another showcase this quarter of the strength of our interim emission solutions was the award of a new research and development agreement with the United States Transportation Command will you restrict com.

U S. Recon are responsible for all global logistics for the U S military.

These future thinkers and they're looking forward to.

Our rocket cargo transport on point to point travel for its operation in the years to come and see an opportunity across process by systems and lunch offerings.

Our proton recently embarked on a research agreement will explore the use of the spacecraft to establish an order.

But the CAGR depots and deliver reentry capabilities.

While neutral on an electron have been examined for their ability to transport CAGR point to point around the world.

And then coming onto our Q3.

Three key highlights we have completed the construction of a high volume spy systems production line to the juice reaction, we owed at scale that first prototypes for one.

Constellation customers has rolled off the line and it's completing of testing before we began final begin delivering the final products early next year.

This production lines capable of producing up to 2000 units a year, which is an enormous increase in the availability of these critical products to the market.

Components like reaction, we always have been individually built specialized engineers.

I have a long wait times gross production, we have incorporated advanced immuno machining centers optimized for unintended operation.

Automated production towards an automatic environmental testing and were expansions with production line coming along online means we're making the bottleneck of demand for these products the satellite constellation buildup.

Where we see significant growth opportunity in our space systems Division.

First quarter accomplishment, sorry, as you saw there another really good quarter from a business accomplishments in Q3 now I'd like to take you through a few more exciting developments for the company since the quarter end.

So our business launched launch year late year, so starting with electronic we've had an ability to launch here.

Just a week into the fourth quarter, we successfully launched our mission carved out of the government understand not mission and of the NDA.

Passing a record for the calendar year.

We said, we would open up exit to spice of electron with an increased launch cadence and we have.

So overall mission.

<unk> per share.

Michael.

In fact, our electron has launched statistically more times this year alone and every other commercial small launch vehicle vehicle.

Combined across all of the launches to date.

And we're still not finished.

So elektron and her team have had a stellar year picking up the pace, while also delivering some of the most demanding mission demo.

Leah hottest mission was the Capstone mission opinion, instead, a lot to the main on Elektron and one of their programs described it was the heaviest mission wherever lifted the most technically demanding on a rocket and then only 15 days later obtained turned around and.

For a flawless launch of one of the highest level national security customers, there isn't that thing that being the national reconnaissance office.

We've had we had the statistic because we've adopted technology built the infrastructure upfront set up three launch pads and three operations in the developed world class team of engineers.

One was really hit its stride this year and as well states continued and increasing cadence in 2023.

Before that.

We have another electrical machine to Playa team for 2022. This time flying from rocket launch complex to Wallops Island, Virginia punching from this pad is going to open up a new era and launched a small satellite customers, we have been providing reliable and responsive access to space for more than four Nokia is now and Exxon.

To build on its strong heritage by unlocking a new possible, but from Virginia's eastern shore.

These three pads both of our own stock we can support more than 140, <unk> launch opportunities every year to deliver unmatched flexibility in the market for government and commercial said a lot of others.

On the <unk> front with NASA, we have been encouraged by the recent progress and their expression of confidence that they'll be ready to guide by Virginia electron arrived in Virginia last month and has deepened to processing and already on the ground by the team.

Once rehearsals and integration of the whole country 60 highlights to the record will be taking place in the next few weeks before rollout to the pad at <unk> two per launch I am personally very much looking forward to seeing this elektron fly out of the gym edging cloth imagined.

Finally, I'm also excited to announce today that we have our second launch lineup pronounced feature for an undisclosed commercial constellation customer on Elektron in January meaning that we'll have to back to pay commissions from Virginia in just a matter of weeks.

Even in its early days of flying pronounced between electronically to change the game and see it.

Standard for responsive and reliable small loans from you saw with these two mission is expected to be the fastest launch turnaround by any operational small launcher.

China is already the most frequently launched.

Let's move over to Rocco globally, and with focused complete tools combined with the prices really expected to pick up.

This launch in January from healthy to be rocket labor based electron launch in 2023 is part of a busy launch manifest other launches already announced for 2023 include the first of five <unk> admissions for Internet of things.

Connectivity provider.

Launch of emission to demonstrate space debris removal technology by estrogen.

Style in Japan.

And the continuation of a multi launch contracts with Hawkeye 360 in perspective. This is not an exclusive list of all of our amenities for 'twenty to 'twenty three but it just some of the customers that we've already announced this year.

Turning on to spy systems, now and a contract to NDA for Globalstar has been expanded to include developing a new global satellite operations control Center, what we call the stock.

For the constellation will not be disclosing the terms of this contract, but I can tell you it.

It does represent an expansion to the $143 million contract already in place.

Foundational mission software for the stock will be based off their existing systems. The same one used to manage the DARPA program that I spoke about earlier.

Combination of our software and deep expertise.

Operating demanding and complex mission alongside our existing partnership where we're driving.

We are the driving forces behind the NDA.

Moving.

To extend this opportunity to us.

While the Ghanaian manufacturing global stars spacecraft buses, delivering the plant and Grand Parkway solutions, and developing and supporting the space craft operations into once again, demonstrating that our strategy of going beyond launch and delivering complete sites.

When complete.

Complete device mission solutions basically end to end.

A big part of our growth and acquisition strategy has been the vertical integration of supply chain to mitigate constraints.

The strategically important components needed to build.

Or a function and satellite is part of the constellation the companies we've acquired over the years, we believe based on the business and they are in their own rod, but more importantly, combining them has provided us with.

Organic and organically developed solutions that cover the complete submission into and to deliver an operational platform that is going to be used globally. In this India contract is a perfect example of that.

Building, all 17 of the Constellation's, new spacecraft buses the Sox Globalstar mission.

We'll use our software the satellites themselves will be powered by a solar panels now communicate using air from TSA satellite radio is still maintaining a position in space using a reaction will each satellite will be operated by our software and that will have.

Power distribution systems and term window biomarker led.

It has to also have the option within this contract towards the satellites with us. Additionally, there is an option.

Two prospects corporate ground operations for plug power as well.

Strength of our competitive advantage in vertical integration really shines with those contracts. It helps to reduce the cost of other assistance, but also allows us to monetize that and the diversity of the revenue that you're seeing.

From from US is a combination of that.

Basically speaking the revenue generation and spy systems early in the fourth quarter, we signed a contract with messes jet propulsion laboratory.

To provide some.

The Penguins shoebox sized mobile robot as part of the agency's project program.

Counter acronym stands for.

Corporate autonomous distributed robotic explorers much easier to just like contract, which makes a next generation alternative explores the work with a group to collect data from hard to reach places on the Moon.

And elsewhere.

Again to be powered by a solar cells are superior type of Spice grade solar cell.

We provide for the most innovative encouraging customers mission.

The latest contract with J P. L. It seemed a long history through a sliver of pairing massive satellites and spacecraft, including Mrs ingenuity helicopter.

We'll be using the same solar cells on camera as we did the engineering the helicopter.

Couple that with the with the higher efficiency and lower mix combination and myself being deemed critical a critical factor for an IDE submissions.

Yes.

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

Okay.

Thanks Pete.

I will first review our third quarter 2020 results and then discuss our outlook for the fourth quarter.

Third quarter 'twenty to revenue.

Was 60, $63 1 million exceeding the high end of our guidance range of $60 million to $63 million Rep.

Representing 14% sequential growth over the prior quarter.

Our record revenue performance in the quarter was a result of three successful launches as well as outperformance in our space systems segment led by our separation systems product line.

Large services contributed $23 million, delivering 20% quarter on quarter growth and representing 36% of total revenue in the quarter.

Space systems contributed $40 1 million, delivering 10% quarter quarter growth and representing 64% of total revenue.

Now turning to gross margins GAAP gross margin for the third quarter was 13%, which was within our guidance range of 12% to 15%.

non-GAAP gross margin for the third quarter was 24%, which was within our guidance range of 22% to 25%.

Compared to the second quarter were GAAP and non-GAAP gross margins were 9% and 22% respectively, both GAAP and non-GAAP margins expanded in the quarter.

And a large services segment, specifically GAAP gross margin for the third quarter was negative 4% versus negative 12% in the second quarter.

This expansion of gross margin was the result of higher average selling price per launch vehicle and lower production related stock based compensation expense.

In the space systems segment, GAAP gross margin for the third quarter was 23% versus 20% in the second quarter.

This expansion of gross margin was driven by a greater mix of higher margin satellite component revenue such as separation systems and reaction was delivered in the quarter.

Total production head Count ended September 32022 at 797 up 16 heads from June 32022.

In the face of increased production unit volumes, we continue to focus on constraining production head count and identifying production efficiencies in pursuit of expanding gross margins across the business.

Backlog declined $10 $8 million during the third quarter to $526 million as a recognition of a record revenue outpaced new bookings in the quarter.

Significant portions of our business evolve projects that are many months or years information and as a result, converting opportunities into new bookings as lumpy or.

Our pipeline of opportunities remains robust and we are confident in our ability to build our backlog over the coming months and quarters.

When we compare the third quarter 2022 revenue on a year on year basis, the continued strength evolution and diversity of our business is evident.

Total revenue was up more than 1000% for more than $57 million when compared to the third quarter of 2021.

Acquisitions have contributed meaningfully in this year on year growth reinforcing the strategic importance of our early investments and to expanding our total addressable market.

Specifically revenue contribution from the investments.

Sure.

Specifically revenue contribution from the acquired ASI PSC ancillary businesses added approximately $31 million of revenue in the third quarter of 2022.

The remaining rocket that product lines have experienced significant growth as well has grown more than $27 million over the same time period, representing 514% growth year on year and contributed nearly $32 million in the third quarter of 2022.

Yes.

Now turning to gross margin.

GAAP gross margin for the third quarter was 13% compared to negative 230% in the third quarter of 2021.

non-GAAP gross margin for the third quarter was 24% compared to negative 84% in the third quarter of 2021.

While we mentioned the impact of lower stock based compensation on GAAP cost of goods sold and our GAAP operating expenses in a year on year compares which was a function of the timing of our leaseback and the related onetime catch up of revenue of recognition of stock based compensation related to restricted stock unit vesting performance condition related to achieving a liquidity event.

The current quarter stock based comp represents a more normalized run rate based stock based comp level.

And the launch services segment, specifically, both GAAP and non-GAAP gross margin for the third quarter 2022 expanded significantly over the third quarter of 2021 as revenue growth led a greater absorption of production overhead as well as lower production related to stock based compensation.

In the space systems segment, both GAAP and non-GAAP gross margin for the third quarter of 2022 declined versus third quarter of 2021 the.

The decline was driven by the acquisitions of ASI PSC and its alero, which adds significant revenue revenue contribution, but at lower gross margin profile versus our much smaller space systems business in the third quarter of 2021.

Yes.

Turning to operating expenses.

GAAP operating expenses for the third quarter were $40 5 million.

Which was approximately $500000 lower than our guidance range of <unk> $41 million to $43 million.

non-GAAP operating expenses for the third quarter were $27 $4 million, which was within our guidance range of 27% to $29 million.

The growth in both GAAP and non-GAAP operating expenses versus the second quarter was primarily driven by an increase in staffing prototyping related to neutral and vehicle development. The elektron booster recovery initiatives and photo on development projects, which were partially offset by the change of fair value of contingent consideration related to the PSC acquisition and deal related amortization.

And of intangibles.

And R&D, specifically GAAP expenses decreased by $1 7 million or 9% in the third quarter driven by lower stock based compensation.

non-GAAP expenses were up $1 1 billion or 10% quarter on quarter.

We anticipate the trend of sequential growth in R&D to continue as we ramp investment in our neutral launch vehicle and then focus our development in particular.

Quarter, ending R&D head count was 348, representing an increase of 40 heads from June 32022.

And SG&A GAAP expenses increased quarter over quarter $4 million or 21% driven primarily by the earlier mentioned change in fair value fair value of contingent consideration related to the PSC acquisition and deal related amortization of intangibles.

non-GAAP SG&A expenses increased by $1 1 million or 8% quarter on quarter, mostly driven by increased staff costs as well as higher travel and marketing costs.

Quarter, ending SG&A head count was 196, representing an increase of 14 14 heads from June 32022.

On a year on year perspective, both GAAP and non-GAAP operating expenses increased as the company continues to invest heavily in neutral development.

Broadening our space systems portfolio of products and services and electron recovery initiatives.

The company is executing and achieving milestones on numerous ambitious projects and look forward to these investments generating shareholder value for years to come.

Year on year, GAAP, R&D increased $3 3 million and non-GAAP R&D increased $4 3 million.

Driven by increased staffing and prototyping expenses for a neutral and photo development projects.

Year on year, GAAP, SG&A was down $2 7 million drill.

Driven by a decrease in stock based compensation, partially offset by an increase in amortization expense related to the ASI PSC ancillary acquisitions.

non-GAAP SG&A was up by $7 $8 million driven.

Driven by higher public company costs, including audit legal and D&O insurance.

Cash consumed from operating activities was $23 million in the third quarter compared to $38 $3 million in the second quarter.

Sequential decline of $15 $3 million was driven primarily by an improvement in working capital as well as lower net loss in the quarter.

Cash consumed from investing activities was $188 7 million for the third quarter compared to $12 3 million in the second quarter.

The sequential increase in cash consumed from investment activities was driven by the purchase of $179 9 million of marketable securities.

Cash generated from financing activities was $2 1 million in the third quarter compared to cash consumption of $50 million in the second quarter.

The sequential increase of $17 $1 million was driven by lower tax withholdings paid on behalf of employees for the vesting of restricted stock units during the third quarter as well as a onetime contingent consideration payment in the second quarter related to the ASI acquisition.

Overall cash consumed in the third quarter was $210 $3 million compared to $61 1 million in the second quarter.

The ending cash balance the ending balance of cash cash equivalents restricted cash and marketable securities was $515 $5 million as of the end of the third quarter, representing a decrease of $31 2 million sequentially.

And with that let's turn our turn our guidance for the fourth quarter of 2022.

We expect revenue in the fourth quarter to range between 51% and $54 million, which reflects 34% to $37 million of contribution from space systems and $17 million contribution.

From off services, which assumes three launches or one remaining launched in the quarter with one of those three launches being the attempted booster recovery R&D mission last week that was only partially filled resulting in lower absolute and per launch contribution in the quarter.

We expect fourth quarter GAAP gross margin to range between 5% and 7% and non-GAAP gross margin to range between 16 and 18%. These.

These forecasted GAAP and non-GAAP gross margins reflect the anticipated lower absorption of overhead expense and launch services segment as well as a higher mix of lower margin products within our space systems segment.

We expect fourth quarter GAAP operating expenses to range between 39% and $41 million and non-GAAP operating expenses to range between $28 million to $30 million.

This quarter on quarter increase was driven primarily by increased R&D staff cost and prototype expense related to continued growth in our investments in the neutral launch vehicle and development and scaling of our <unk> product family.

We expect fourth quarter, GAAP and non-GAAP net interest expense to be $1 million.

And we expect fourth quarter, adjusted EBITDA loss to range between $12 million and $60 million and basic shares outstanding to be approximately $40 474 million shares.

And with that I'd like to open up the call to questions.

Thank you Adam during the Q&A portion of today's call rocket landfill across a selection of questions from retail shareholders post the trial Q&A platform, let's say Jason will be.

Again by answering a selection of shareholder questions from amongst the top players had questions on the platform will pass any questions, which are likely to have been answered already throughout today's presentation. If we migrate together questions that touch on the same things.

But with that the first question is from Daniel dates two asks.

We are beginning to see major multinational corporations partner with space systems providers like Apple with Globalstar and general dynamics with Iridium to provide more integrated services will work at let's say a partnership similar to base in the future.

Okay. Okay. Thanks Maria.

I mean, I guess the answer to this question as you can already see that.

We have a strong partner with.

With global stop building.

Installation, which.

Ultimately supporting some of those names and the answer to the question.

It was actually.

We already have.

Thanks, Tim.

Our next question is from Michael H asks when will the company reach profitability.

Yes, I'll take that memorial while most of the elements of our business have been ramping well, we're still in the early stages of our neutral development and investment so achieving and sustaining profitability can really only happen. Once we got the majority of the R&D spending for Neutrolin in the rearview mirror.

So, yes, I think thats the best way to look at it it's really we've got a couple of things converging we have.

And increased and sustained investment in neutron.

And of course that will come to a crescendo as we are.

We approach the launch, but we still need the rest of the business to grow and perform to overcome that investment and neutral in the short term.

Okay.

Thank you Adam.

Next question is from Kevin <unk>.

Wants to know are there any more potential acquisitions rocket labs is considering underneath him.

Yes, I can take that one as well.

So unfortunately, we can't speak to any specific acquisition opportunities, but we continue to see strategic inorganic growth opportunities in our markets.

But there are no deals currently in advanced stage of discussion, we're very happy with the four strategic acquisitions, we've done and we do believe there are deals to be done both large and small that fit well within our end to end space solutions vision.

Okay.

Okay.

Our next question is from cost of an asks does broker led to see any large military contracts in the EMEA or distant future.

Yes, I can take on rail I mean.

There's some pretty significant defense contracts, we can't really discuss that we're actively working on.

As you can imagine lotteries defense contracts are very long long lead time.

Processes, Jimmy with all I can say, we are seeing a really increased.

Engagement from strategic <unk>.

Program opportunities that we think we can bring in.

New level of stability and scale for that business to invest more and on the spy system.

Thanks, Peter I'm going to summarize now some of the questions. We've had for demand for citizens South Florida and this question here.

What are the impacts on electric launch cadence is it customer readiness level of demand or any other factor that you might like to comment on.

Yes, I can take a swing at this.

Often compete.

A dedicated launch vehicle to look at that.

Between <unk> and <unk> in a box and the LNG is stronger than you think and the fact that.

On the Labor service when you call it.

But when you call it in horizon raws on your timescale and Thats kind of the same with the dedicated small launches.

The value that we offer our customers a one of the bad news is they can call us and we make their timeframe.

For us at all.

<unk>.

Theyre not ready on time.

We kind of deal you bet lift outside.

The restaurant waiting for someone to come out fraud.

And this year I think we've done a really good job.

Any way better than previous is managing that bye bye.

And multiple customers at once off one customer has an issue during either at integration will protest and we're even.

Is it getting you said a lot repeated we can kind of jumped in front with another one.

And we joke here it's literally.

We call it manifest whack a mole.

You continually.

Tim any fighting to keep keep the launch cadence.

Sorry.

It takes a large tenant denounced is isn't fixed customer iridium readiness at least listen.

Demand.

When a customer slips.

They go away, they just slipped into a different quarter or slip into some cases.

A different yet so we're seeing we think continued.

Both in demand.

Which is which is pleasing to say if you look at 'twenty three 'twenty four we can see that.

We have line of sight to our model closing.

So that's all good but I mean, the customer readiness is the one thing that always Chan.

Orange to manage.

Thanks, Pete maybe another one for you we've had several questions about electron reusability from shareholders the main points coming Thursday.

What is the progress towards electronic capability and to what extent twill Reusability drive down launch costs.

And then finally, how does this process inform and help guide the design of the trial.

Thanks, Neal I guess the question that most people were asking us what happened on the last launch and what we can say is that.

That.

During during reentry, we need a telemetry lock with the vehicles that we can determine where it is in the space because.

It's not responsible to put a helicopter and designed with us and potentially reentering rockets.

It's very normal for us to lose that telemetry linked through their reentry prices because of the plasma in the heat and the Bbq relatively put the staging.

And then this occasion, we didn't regain the lock.

Tom.

Which was sufficient for us to.

Put the helicopter until an area to be able to successfully catch ups and that was a safety call that we made.

We have very strict flight rolls around.

Around that and.

That was ultimately to coordinate.

But we still pushed out of the ocean.

And.

We continue to be very.

I'm very very confident that we're going to get there with this.

With this capability.

Important to point out that.

Yeah.

Our other friends down the road.

It took many many attempts to successfully.

So.

That's probably the question on most People's mind, but more kind of.

The directly to answer the question that you had.

The majority of the cost of the rocket is in the first stage.

You can get that first stage back in a good condition.

And in services.

Without having to rebuild it completely.

It's a it is a.

A very very strong.

A couple of things driving margins and cost perspective, so that's.

Thats it all goodness.

And then with respect to neutral and I mean man I wouldn't be wanting to develop a reusable rocket without having all of us this knowledge and experience of.

Reentering launch vehicles and controlling them and all of those things that comes along but it is typically a very very challenging thing to do.

Got it.

Really the disposition possible given given all the experience that we're learning for neutral from electrum, sorry, and it's.

It is directly applicable to neutral and making sure that that neutral out of the Guy who has been very successful from a usability standpoint.

Thanks Pete.

I had several questions about rocket labs performance overall, which I'll summarize by asking.

How would you say rocket lap compares to other commercial space companies, particularly in soft launch but also across.

Thanks Felicia.

Yes, I'll take a first pass at this one area.

Yes, I think we've distinguished ourselves a few important ways clearly launched heritage is the most obvious.

As we noted earlier, we successfully launched more times this year, so far than all other small over to large players and we did combined and we did this while establishing our leadership in responsive space launching twice within 15 days. So I think those kind of accomplish kind of speak for themselves and how we kind of view ourselves as being very separate and kind of unique with regards to the rest of the small launch.

<unk>.

Additionally, we think there is a there was a window for paying customers to take a bet on a new small launch provider, but feel like that windows really closed it feels like we're now in a period, where new launch providers are going to have to self fund establishing a launch of a sufficient flight heritage for customers people and take risk. So I think that really goes to kind of future competition and even the people who have kind of already kind of may.

Through the first round, if you will but theres a lot of lot of work to do and there is you have to kind of look at what's the customer incentives are here given kind of the state of development of various players including ourselves.

And related with regard to the end to end space play we were aggressive in acquiring an over heritage with our four acquisitions and were certainly leveraging that that heritage into larger and larger end to end opportunities very reps like the MTA goals. Our program that we've talked a lot about.

So again, I think there's very clear and obvious ways that we differentiate ourselves from the crowd and we are very comfortable with the strategy and the execution against that so far.

Thank you Adam.

And with that we'll be moving on now from shareholder questions. Thank you to everyone for your thoughtful engagement from our shareholders.

Your line now to questions from the analysts on the call over to you operator.

Thank you we will now begin the live Q&A.

I would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question Thats Star one as a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking your question, we will pause here briefly ask.

<unk> registered.

Our first question comes from the line of Matt Akers with Wells Fargo, Matt. Your line is now open.

Yeah, Hey, good afternoon, guys. Thanks for the question.

I Wonder if you could touch it a little bit more detail on the Q4 guidance for for launch revenue you mentioned wireless.

Little bit lower than what you might expect for three launches, but could you go into some more detail there and then how we should sort of think about.

Or is that still sort of ramp up as we get into next year. Thanks.

Yes, sure Matt I'll take that question, if you can chime in.

Is it differently, but yes, so within the Q4 guide.

Probably the perhaps the biggest impact as having one of our customers pushed their scheduled launch from Q4 into next year.

Yes, it's kind of all of those things that you get don't get a lot of notice from from the customer sometimes on these things. So that was kind of a late breaking change that is more of a soft.

Our guide for Q4 and long service side of things. The other thing is we had our recoverability launch that we did last week, which it.

It was really an R&D platform, it's kind of a you can kind of look at it as almost like subsidized R&D. So we take a partially filled rockets.

Otherwise, we could fill if we worked so schedule driven to make sure that we get a certain number of kind of attempted recoveries in place. So I think those were kind of really the primary movers. So that will look like when you look at the revenue contribution from launch in Q4, you might look like while the average selling price is going down to much lower number, but it's really not because of that recovery rideshare again, it was really more.

And R&D mission.

As we look forward into 2023 of your online, we actually see a pretty firm pricing environment for our product.

We're not seeing any big discounts I mean, occasionally we'll we'll do some material discounts when customers are signing up for large bulk buys as is the case with pretty much any other business, but right now we're feeling pretty good about where where our pricing is and again over the last several years, we've actually seen price increases. So yes, I don't if that answers your question or Pete if you have a different view.

Yes.

That answers my question.

Sorry go ahead.

Okay.

No Matt I was just I was violently agree with Adam.

Got it okay.

No. Thanks, that's helpful and then.

If you could talk just how are you thinking about <unk>.

Next year I don't think of any help in terms of how we should think about growth that kind of the two different segments.

Kind of off of the Q4 run rate.

If there's any early thoughts on that.

Yes, I'll take the first half of that as well.

So we're looking at we think will be a.

A pretty impressive growth year for on the Elektron launch cadence. So this year with the manifest as we just kind of closed out or again, one more launch for a closer look at the year at 10 launches, we think theres significant growth.

Right now we pegged.

Right now estimated launches for next year at around 14, so about 40% growth year on year.

And again with fairly firm I would say pricing, we're still going to have a few R&D.

Efforts around boosted recovery. So overall kind of if you want to think about the pricing on average kind of and Thats all factored in of somewhere around 7% to $7 $5 million per prelaunch.

Against that will be higher some with lower particularly on the R&D booster recovery side of things but.

Yeah. So again, we're looking at good growth year on year for the launch business.

And then when we look at the space systems business, we really have five.

If you said vertical if you will within space systems, and we see.

We see solid growth from four of the five areas.

And if you think it is a reminder, for those who aren't as familiar so the areas would be satellite design services.

Satellite manufacturing satellite components.

And then we have.

The sorry the.

The auto resources management and data services portion of the business and really the only part within our mix right now thats looking to be a bit more challenged us on the on the on the solar side of the business and that is primarily a function of the fact that revenue recognition around internal programs. So if we kind of step back and look at the strategic rash.

Now I'll for buying a business like solera was particularly to make sure that we had.

Complete control of our own controls, we can manage our supply chain, so very strategic from that perspective, but as we take that merchant capacity at <unk> and we directed towards internal programs like the MDA Globalstar for rent for example, you end up having delays in revenue recognition. So as for example.

The products that are coming out of <unk> start to ship ultimately.

With the completed satellites will have that delayed revenue recognition at that time. So it's kind of a near term hit to revenue as you get to your kind of push that revenue recognition now in our case and we will start shipping those satellites in 2024, so it caused a bit of a pause to the business in 2023 for that particular product line.

Again until we get to revenue recognition as we shipped the satellites in the <unk>.

For <unk> in 2024.

But as I said the rest of the business. The other if you look at the other three acquired businesses from Sinclair It's alero.

ASI sorry PSC.

Claire and ASI were seeing.

<unk> growth across our across those acquisitions and our organic space systems business as far as satellite design and manufacturing thats growing as well, so we're really dealing with a bit of a.

Challenges because such a large portion of our space systems revenue was coming from that <unk>, which again is being affected by the kind of revenue recognition or ASC 606 treatment.

Got it that's helpful. Thanks very much.

Okay.

Thank you.

Our next question comes from the line of.

Scott deals with credit Suisse. Scott Your line is now open.

Hey, good afternoon, and thank you for taking my question Pete one of your peers in the launch industry as they are building.

Oxygen rich close cycle engine as well and I think it's fair to say, it's been a bit of a challenge for them.

And I recognize you guys have a great track record for execution, but can you maybe just talk a bit about.

What makes you guys comfortable with the development timeline, you've laid out there for the team on Archimedes.

And how you would give us some comfort about the risk of cost overruns or schedule slippage on that engine architecture. Thank you.

Yes.

Yeah, Hi, Scott it's great question. So just a fundamental difference because generally the reason you guide on Oxford or lifecycle is fulfillment, sorry, youre trying to extract the maximum amount of ISP.

Out of a particular engine and what that means is you end up with.

Trust or chamber pressures and many thousands of tsi and Thats the way the good kind of way to determine like how stressed is in England.

Our rationale for going to the Oxford cycle was not because we are trying to squeeze out a huge amount of ISP and.

And really push China appreciate it and thanks.

China pressures are down at gas generator, China pressures that sort of 50 to 102000, CFR which are.

Got it.

Our rationale for going to the cycle was from our re usability standpoint.

And ultimately.

That cycle provides this comparability reusability.

Sorry.

It's along with West time, we are not trying to push the cycle generally you got to that cycle, because you need the performance, we're not going to that cycle, because they need the performance and we're not trying to extract the performance. So you basically have.

In engine that is very very cold and.

And not not running up against the limits sorry.

That gives us a lot of competence in the development timeline because.

For example.

Yeah.

Pre bearing pressure in some some of our peers engines run run at 11000 for your car.

Or eight to 11000, ESI and we're just down into 2000 and CSR. So what that ultimately means is the temperatures of the turbines, which are the things that that causes a great a very large which means we don't need exotic materials.

And that ultimately that.

The table on stresses.

Stresses and strains of a very low as well so it's really taking an engine that that normally someone chooses for performance.

And the rising it right down to two.

For planning purposes, which is ultimate reliability.

Yes, we don't we don't a rocket engine the rocket engine, there's always development challenges along the way but.

When.

And the team looks at Terrebonne stage, and pushes and temperatures that we need to achieve with the cycle.

The really really.

Boring, which is what we said we wanted to do is make it very boring alright.

Alright.

Wouldn't continue just like the cycle with.

The complexity here.

Okay that makes a lot of sense. Thank you and then Adam you mentioned that some larger potential deals or maybe taking longer to close can you just talk a bit more about that is that the.

Following of the sales cycle is that more on the commercial side or is it more from government customers. Thank you.

Yes, I would say, it's a little bit of both and I think it's also a function of the fact that we're not chasing kind of.

Onesie Twosies small deals anymore, we're chasing needle moving opportunities that just by definition are more complex, it's taking more kind of more of a holistic effort across the product lines in the company. So again all of this is kind of reinforcing this strategy being in it and player and having more to bring to the table.

And going after bigger bigger game.

And in this case I think we've got really good line of sight into into that game that I think we're going to catch but it's just taken a little bit longer.

These things are taking.

Say.

Many quarters longer but in some cases, they're taking <unk> taken a little bit longer and again, our confidence level is very high and we're going to close on some of these bigger material deals.

So again just complexity size is really it's kind of a good thing in this case, but it does take little bit longer than kind of one off smaller kind of.

Kind of individual deals.

Got it thanks, guys and congratulations on the progress.

Thanks.

Thank you.

Next question comes from the line of Erik Rasmussen with Stifel.

Eric Your line is now open.

Yes, thanks for taking the questions.

Wanted to.

Real quick on the pricing.

It seemed like there was a little bit of pressure this quarter because of the R&D.

But you're still thinking.

We're in the seven to $7 5 million for next year, but how is pricing.

If would you sort of exclude that.

RMB.

Programs, where is pricing today is it higher on average than what we're seeing currently and what we've seen throughout 2022.

And that's still the kind of average sticker price or kind of your basic mission is still running around $7 $5 million against some higher some lower.

When we when we're pricing out in time, we've got our pricing table that assumes a certain level of increases per year.

Part of that is just to deal with the inflationary pressures that we're all dealing with.

But again, we're not we're not seeing we're not seeing a lot of dramatic pressure on the pricing side, where I think customers realize the cost and the value of small dedicated launch and they don't really compare us to things like <unk> share on an apples to apples basis, because it's really not a good apples to apples comparison, so again pricing is holding up fine.

Okay, and then on margins.

Yes.

Coming down next quarter.

How do you.

Just trying to get a sense of where the pressure is coming from is it still <unk> is it something else.

And then how should we be thinking about margins for next year.

Or just directionally.

As we've seen seeing a step down here, we've seen some pressure throughout the year.

Should we still be looking at <unk> as potentially having 30% margins at some point and we still on track for that.

Yes.

So I'll take those in a couple different pieces so on.

The overall margin directionality, so with on the launch side whenever you have less revenue contribution from launch then you have less production overhead absorption right. So the fact that we have.

Three launches, but one of them is heavily subsidized R&D.

It just doesn't give you as much air cover for that so I think again I think what we saw in our Q3 results is the positive trend of increasing gross margin. When we have full three full price launches so.

One launch per month kind of Omega.

On discounted normal launches and it gets us on our path with all the cost reduction activities that we have going on for Elektron margin improvement really again gives us confidence that were pointed in the right direction.

So again on the launch side I think again, it's all about having at least one launch per month in the quarter when you've got any anything less than that or a subsidized kind of launch in the quarter that kind of starts to eat into that in a meaningful way and again, we're just kind of getting underway now for some meaningful margin improvement projects on.

And specifically as we've gotten that that product stabilized and we're looking to really turn the crank on profitability.

When you think about the space systems margin side of things, it's kind of got a little bit of a yin and Yang here are you happy with I mentioned earlier.

When Matt asked the question about growth in 2022 notes alero being impacted by revenue recognition for internal programs that they would not have been impacted by if they were just selling into out of the broad merchant market.

That's a bit of a again a bit of a blessing at first because.

We will have less.

Kind of relative contribution from <unk> in at least for the majority of 2023 as they continue to ship into these internal programs and we don't get to recognize the revenue. So that means that the rest of space systems will contribute more relatively speaking and that should be helpful to the overall margin for space systems.

I think when you look at <unk> gross margins in isolation.

We got a lot of work with that team, we think theres great opportunity to pull those gross margins up very much in line with what we had originally been talking about getting 30 points. So I think theres just some distortions that are happening in the near to intermediate term because of the internal programs.

But so you won't really necessarily see all of that margin improvement come through in mortgage of away, but again overall for space systems because of that mix that we talked about and the fact that the rest of our space systems products have very high gross margins. We think overall that should be a positive uplift to space systems margins, we progress forward.

Great. Thank you.

Thank you. Our next question comes from the line of.

Sushi, just silver with Roth capital Sushi. Your line is now open.

Hi, Peter Hi, Adam on the launch.

Count guidance for 23% 2014, whats a realistic expectation for how many of those might be out of Virginia is it kind of one quarter early on I know you said once they come on early in 'twenty, three but and with that progress towards sort of one a month over time.

Okay.

Pete you want take that.

Yes.

That's good.

It's a good question actually.

<unk>.

Let's see where they've kind of space throughout the year, but.

Look.

Getting getting a couple of way early in the years.

It's helpful.

And then I would I.

I would kind of mentioned them.

Pretty sporadically through the year.

Because we haven't had the the range.

Operational.

For a while we've been kind of cautious in what we book for.

Got it.

I'd say that.

You sort of see the sporadically through the year and then start to increase.

Near the end of the year.

Just just from the natural.

Lifecycle of a of a large contract.

Yes, I mean right now if you look at our when we look at our manifest we would estimate somewhere between four and six launches.

2014, we come out of LC <unk> and wallets.

Great.

And then Adam without going through a full accounting just a question on revenue recognition for these projects kind of maybe what's going into what's kind of coming out kind of recognition for the globalstar MDA agreement I know youre selling certain products and is recognized when satellites are fully manufacturer just give us kind of a thumbnail thats it.

Yes.

We'd have to have a lot more time is allocated on this call certainly set some time, so I talked about Aflac is yes.

The accounting treatment on ASC 606, it's very complicated, but the way you can think about it is there is a nominal amount of revenue that that gets gets realized as youre building up the program, but it's kind of more kind of materials and inventory driven changes.

Realize that the bulk of the revenue from these programs whether it's the NBA globalstar one that's obviously a very large one but other contracts that have like escapade is when you actually shift the hardware. So we also shipped a satellite that's when we get to recognize the majority of the revenue. So I mean, a lot of what that really says is that.

As we disclosed all of these really exciting satellite projects that we're working on that will be made meaningful progress in 2023, and ultimately ship in volume in 2024 that really kind of set the stage well for 2024, when we'll have a lot of spring loaded revenue was a result of not being able to recognize that kind of ratably over.

Time, so yes.

Yes, if you kind of think about the I can't give you a percentage.

Percentage of the total contract value of that gets recognized in kind of 'twenty three versus 24, but I think roughly speaking probably.

Probably 80% of the revenue for <unk> for example that that Globalstar MBA contract won't be recognized until.

Until those until 2024, so probably 20% in 2023 and the remainder of it in 2024.

Very helpful and thank you.

Sure.

Thank you our.

Our next question comes from the line of.

Christine Lueck with Roth with Morgan Stanley .

Christine Your line is now open.

Thanks Peter.

Hey, Adam.

The launch cadence of about one per month for Elektron and you've already done 30 launches. So far when do you anticipate to record positive gross margin in launch.

It'd be around unit 35 units 40, some startup.

Unit guidance would be helpful. And then also you know Adam you mentioned that pricing getting better we saw a spacer.

Great prices. This year is that an opportunity for you to potentially get after that positive gross margin sooner.

I'll take the first part of that question I'll, let Pete talk to the longer term pricing.

Leveraging dynamics, but so so obviously we are a positive gross margin now and a non-GAAP basis, but you are right. It's negative on a non-GAAP sorry on a GAAP basis.

No.

Again, a lot of good things happen when we're launching more than once per month. So.

GAAP profitability.

That's probably when we get maybe our launch cadence up too.

I'd call it.

Five probably.

It's a solid four fully priced launches per quarter is probably where we kind of move into that positive GAAP gross margin level and the margins that we've been targeting all along it's really been when we say, 50% gross margin for our launch business its really a non-GAAP .

Figure.

So again I think that the GAAP numbers get confused by a lot of.

A lot of noncash items error on amortization and so forth depreciation charges. So it does take a little bit more of a step up in a regular cadence of let's call. It four fully priced launches per quarter would get us that solid GAAP gross margin profitability.

And I don't know if you want to speak to the to the pricing with regards to Spacex increasing the pricing originally.

Yes, yes.

Thank you.

The body.

I appreciate the compact.

<unk> China.

The increase in Boston kind of patents point.

Tons pricing has done nothing but go up.

Since we first.

Scott and flooring.

And.

If you look at look forward to it.

Future pricing and certainly more reflective of that environment.

Yes, like I said.

Hum.

The other questions, we don't see the pricing increasing in Thompson.

Thanks, and then maybe Peter following up on retrieval.

Last week, the helicopter, which Giovanni Tom can you explain that the chances for success are much smaller than those for failure because of many complex factors must perfectly aligned.

I just wanted to tackle this a little bit.

How are you thinking about the success rate of each achieve.

Going forward and then also has last week's attempt changed how youre thinking at all on the helicopter approach.

Okay.

<unk> is a good question.

I mean, I think it's important not to throw the baby out with the bias here I mean.

I don't know.

Stephen are right. The teams I think it took specifics I could be wrong, but.

This is that there's a certain copper go at it and we.

We.

Fundamentally quoted on the first the team.

I think I think it is an R&D program the stuff, we're going to land.

It's complex.

But that like if it was easy then everybody would be rocket.

And you have to intuit endure the pain of getting through the R&D.

A portion to operationalize it.

What I would tell you I think.

What started off as something that we weren't even sure we can do.

Is something now that.

The business is just absolutely standard there's reuse.

Reasonable vehicles running down the production line.

<unk>.

Good to be honest with you everybody kind of.

Hopefully expected that we would be this one.

And the teams pulled up.

Sure.

We're ready to receive it and refurbish it.

But the reality is.

We're still learning stuff.

Yes.

Yeah.

So this is catch number two.

We've got we've got a long way to go yet before.

We would we would abandon that.

So what are the reasons.

So no.

I'm happy with where we're at what are we not to catch it.

We learned a lot.

Yes, I would love to see you guys touched on it too.

And maybe if I could do one more.

From the recovery of much on engine from the ocean that you've been recovering.

The wear and tear versus what you expected and then considering the cost of refurbishing those what engine.

How does that track versus expected cost savings when you are able to successfully recover at July one.

Yeah, that's great because it actually went better than we thought.

It always amazes me when we posted up out of the Ocean.

Yes.

But computer for example.

And it literally looks likely to Gabon accrued run in a consistent and horrible and UN plug it in it as far as up not the way to apply while computers.

Bank loans are all about.

But my point being is that.

Why.

The system is designed to be incredibly reliable.

From day, one sorry.

But financially it means that the systems seem to be incredibly robust two very off normal environments and.

And conditions and the engine.

There was Poland and reservists.

There was nothing in that engine that anybody would.

Was kind of surprised or fund out it was remarkably.

Good good shape I think.

Part of it is getting out of the fact that it actually got back from the city rather than anything.

Technically.

Typically wrong with it.

So that's what gives us.

Our confidence in the pursuit of this for Elektron is that with the condition and the service ability that we've been finding stuff that's been really good.

And.

That also.

Directly into.

The neutron neutron team is as well so when we bring neutrolin to market does not going to be.

Learning curve.

To achieve what we need to achieve literally.

March purposefully the recovery team sits in the same building as the neutron star.

They're all sharing experiences and we see the design of neutron.

<unk> been tweak real time with everything we learned from permanent come.

Great. Thanks, Peter.

Okay.

Thank you. Our next question comes from the line of.

Austin <unk> with Canaccord Austin Your line is now open.

Hi, good afternoon, Peter and Adam.

Awesome.

So just my first question here, if we think about the launch recovery is there anything we can do on the on the vehicle itself in terms of an antenna.

To improve the connection and the events.

Just given the trop allometry losses, I mean I know.

No.

Spacex has built some redundancy around that and I was just wondering what your what your thoughts would be just given your you need the helicopter.

Given the mass mass requirements.

Yes, it's quite in every room, so there's a little bit different.

On space between trade that obviously do.

We burn, which slows the velocity through through the through the war, which is that the marketing teams are part of the reentry profile.

For us we aren't we don't do any of that we bring in and strike tourist side, we have caught the buildup of thermal entity at the base that we manage in plasma.

Around the launch vehicles.

Pardon.

From an orbital reentry standpoint that otherwise the communications blackout.

Once you get once you vehicles enveloped in place measures.

A little of any antenna can do to to penetrate.

Kind of RF.

Sorry.

Sorry, we do have a slightly different introducing entry environment quite a significant different engine environment to others in that front.

But obviously we are.

We're not going to.

Yes.

Can take lessons from this and.

Try and improve book.

Improve that I mean, we had statistically.

Regain link.

Pretty pretty rapidly in previous launches.

Just one.

Unfortunately.

Yeah.

So we will obviously get to the bottom of why that why that didnt occur as you just pointed out it is a very it's a non trivial environment in terms of environment, it's quite different to.

So we have to deal with on a reentry.

Right. So I guess from that perspective, it's just to be expected that kind of like during the Apollo program anticipated there would be a communications blackout on the holistic return.

Okay.

It's not it's not the same energy of course.

Marine three or even do you have a time for appropriate similar images that just not not a lot of the time.

Yes.

We expected.

Joining that.

Hi, Pleasant environment.

Yeah.

Okay and then just this might be a question for Adam, but where are we at in terms of the existing contracts within <unk>.

And those.

Progressively being replaced by newer contracts that are working towards higher margins and where are we at in your.

Progress on the integration of that company.

Yeah. So I would say that we're we continue to be on track to kind of your margin targets that we've set up a 30% within two years of the deal close. So we've got we've got some time, we are making progress towards that on a quarterly basis.

I would say as far as turning through the old contracts.

As we've kind of obviously burn through backlog were getting there.

But I would say too that there is there was a non trivial amount of Av busy.

Business that was still to be worked through and some of that came at the relatively low gross margin, albeit reasonable kind of standard margin. So think about these how.

Thinking about the kind of more of a classic semiconductor manufacturing environment, you're covering your fixed costs are obviously important to a certain extent and you have to look at that in the context of how you choose to take certain business.

Because you have a lot of kind of.

Recurring kind of stay in kind of the <unk>.

Fixed cost that flow through the business.

So I think that again nothing is deterring us from the 30% I think that again, we're making progress towards it I think.

It is not just something to where you have to burn through the old contracts because the old contracts can deliver higher gross margin. If you can affect changes in your in your production overheads. So we're looking at everything that we can do to not only bring in new contracts at higher gross margins, but also affect what ultimately we can deliver on the existing backlog as we reduce our overhead costs and again, we're talking to.

From every angle and we are making progress.

I am confident with the numbers that we put out there I don't think there's any reason to shy away from those.

Okay fantastic Thanks for filling me in.

Sure.

Thank you. Our next question comes from the line of Ron Epstein with Bank of America. Ron Your line is now open.

Hey, everyone you actually have Andre imagery on for Ross today.

Yeah.

Quick question looking at this election of both Dennis Space Center.

How do you see that having an impact on capex spend and then with that being said what are you guys kind of projecting in terms of Capex moving forward.

What kind of rate.

Okay.

Yes, I'll talk about both.

Go ahead Peter.

Okay.

And on <unk>.

The reduction of Capex beyond that.

And that was pretty significant right I mean, if you look at the infrastructure that's there.

It's massive.

It really as we kind of mentioned it helps us accelerate the kind of program from being built in just an excellent via bonds.

In <unk> <unk>.

<unk> meeting into something that is really quite significant from from Taiwan, which helps accelerate us through that through the early but also the mid.

Mid and longer point of the of the program.

No.

Really significant piece of infrastructure that.

Obviously, we didn't have to cabinets.

So from that perspective.

But I'll turn it over to you Adam.

Talking about <unk>.

Oh Capex right.

Yes, I mean overall capex has kind of been staying in a certain range of trials like you know I think this quarter was little under $10 million in the quarter I think youre going to see that Capex continue to step up as we continue to put.

Infrastructure in place for for neutral and I think on our on our space systems business. We're we're pretty much there as far as infrastructure required to execute on our plan there will be a little bit of additions here and there.

But on neutral and we're still very much in the early phases of getting that infrastructure put in place. So I think youll start to see that roughly kind of $10 million per quarter, Capex number kind of sequentially increase.

<unk> probably ends up.

Peaking at.

The kind of 25 ish kind of million per quarter right. It will take a few quarters to get there and then it'll start to tail off but when we talked about the neutron program. Initially we said it was.

$200 million to $250 million program.

Split between if you think about the <unk>.

Prototyping and personnel costs as well as Capex Capex, we anticipate it to be kind of in the 80 ish million for Capex for the program with the remainder falling into.

Personnel and prototyping.

The mix on a program like this is always going to be hard to pin down exactly but I would say right now, we're probably trending a little bit more towards higher capex, maybe a little bit less on prototyping and personnel side of things.

So again I think that in order for us to hit our 2024 first flight of neutron.

I'll have to have a pretty significant portion of that infrastructure in place as we exit 2023, So I would expect.

Or I'd say exit 2023, but certainly before the middle of 2024, you will see kind of a gradual increase in our capex from our roughly $10 million per quarter rate.

At some point will peak kind of in that kind of mid Twenty's and then it will be pretty much kind of in place.

So I don't know if that kind of helps you dial in your model at all but that's that.

Roughly what we're looking at today.

Yes, no definitely that's that's very helpful and do you think in any way that.

The selection of Dennis could actually accelerate.

See a launch earlier than expected or.

Are you keeping your timeline kind of at the same as it was before.

That's a key question.

Dorothy the Griffith Donlin.

No im not did not come off that.

This guy is certainly it.

I think it can accelerate in the short but more.

More importantly to make sure alright medium to long term.

Thank you.

Hopefully that.

At this point.

Alright.

That's helpful. That's all I have thanks, thanks, guys.

Okay.

Thank you.

Our next question comes from the line of high von <unk> with Cowen. Your line is now open.

Yes. Thanks, so much I know, it's been a long call ill keep it to one so you mentioned.

More launch recovery attempts in 2024, how many more.

Why the lower price I mean, I can assume I can understand why the costs would be higher but why the lower price and maybe if you can give us kind of a range of where the price would be for one of those R&D launches.

Yes, I'll take a first pass at that SP is for.

Costs in the pricing so I think.

You can think of this as being.

It's much more important for us to get the.

The cash attempt in hand, so what we do is we we set the R&D team and say, hey, youre going to be doing a recovery at this point in time, So again drive all your plans around that.

And then we basically try to subsidize the cost of that recovery mission with.

Whenever payloads will fit into that that defined time timescale right.

It's much more important for us to get the mission off even if we saw the rocket half full which is kind of a decent proxy kind of for what we've been doing for these rideshare. So if you think about it.

Seven $5 million mission.

We've been selling roughly half the capacity and the reason why we.

Haven't done more is because we've chosen to stick to a recovery scheduled and maximize the revenue on that on that recovery flight.

So youre right there is nothing.

That would prevent us from.

Basically filling up that and getting full revenue for that other than the fact that it would result in a delay in our R&D process for establishing the recoverability.

So just a trade that we make we take less revenue cover to get more frequent recovery launches in place.

And then how many more of these R&D launches that youre going to take I mean, just until you get it right or how should we think about that.

Yes.

Yeah, sorry, its already mentioned.

You mentioned the mute button sorry.

So on these.

R&D launches.

Yeah.

Luckily kind of pointed.

Pointed out we are unfairly optimizing them or.

Correct schedule I think.

We had to with some degree of.

Certainly be able to provide data to the team together now the development of the development of the recovery system has slowed.

Right down I mean, obviously, some tweaks, we need to make but it's not like where we were a year ago, where we were fundamentally making block changes to the vehicle now there is just a standard vehicle running down the production production line recovery vehicles. So it's kind of a long winded way.

Saying that we don't anticipate really to be done to many more of these.

Just kind of subsidize R&D emissions at this point.

Pretty pretty much really to stop meeting and divestitures.

Standard.

Excellent. Thank you very much.

Thank you.

Currently no further questions in queue. So again as a reminder to submit for a question Thats Star one on your telephone keypad.

There are currently no further questions in queue. So I will pass the conference back over to Peter for any additional or closing remarks.

Again, thank you everybody for your interest in rocket later than those.

Those who participated in today's call.

<unk> will be speaking at the conference.

Conferences and look forward to the opportunity to share more exciting news and updates.

But we have a great conference.

In the peak and the Deutsche Bank Global expect somewhat on the same day, and then reps Levered Daniel technology event on November the 16.

Thanks, again, and we look forward to speaking with you again soon about the exciting progress we've made in the bids.

Sure.

Thank you. This concludes today's rocket labs third quarter 2022 financial results Conference call. Thank you for your participation you may now disconnect your line.