Q1 2023 Vector Acquisition Corp Earnings Call
Hello, and thank you for standing by my name is Jessica and I'll be your conference operator today at this time I would like to welcome everyone to the rocket Labs first quarter 2003 financial results update and conference call. All lines have been placed on mute to prevent any back.
Ground noise. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star One again I would now like to turn the conference over to Colin Canfield Investor Relations manager. Please go.
Go ahead Sir.
Hey, Thank you Hello, everyone. We're glad to have you join us today for todays conference call to discuss rocket labs first quarter 2023 financial results before we begin the call I'd like to remind you that our remarks may contain forward looking statements that relate to the future performance of the company.
These statements are intended to qualify for the Safe Harbor protection from liability established by the private Securities Litigation Reform Act.
Any such statements are not guarantees of future performance and factors that could influence. Our results are highlighted in today's press release and others are contained in our filings with the security and Exchange Commission.
Such statements such statements are based upon information available to the company as of the date hereof and are subject to change for our for future developments.
As required by law the company does not undertake any obligation to update these statements our reward remarks and press release. Today also contains non-GAAP financial measures within the meaning of regulation G enacted by the SEC included in such release and our supplemental materials a reconciliations of these historical non-GAAP financial measures to comparable.
Measures calculated in accordance with GAAP.
This call is also being webcast with a supporting presentation and a replay and copy of the presentation will be available.
Available on our website.
Presenters today, Iraqi lab, founder and Chief Executive Officer, Peter Burke, Chief Financial Officer, Adam Spice. After our prepared comments, we will take questions and now let me turn the call over to Mr. Beth.
Thanks, Kevin and welcome everybody and thank you for joining US today's presentation will go over our key business accomplishments for the first quarter of 2023 as well as further achievements we've made since the end of the quarter.
Adam will then take us through our financial results for the first quarter before covering the financial outlook for Q2 2023. After that we'll take some questions and finish today's call with a near term conferences will be attending.
Alright onto what we achieved for the first quarter of the year.
We started the year strong with three successful electron launches matching our expectations for the quarter.
Each of these missing missions achieved an important company milestone in January we launched our first mission from U S. Soil. We quickly followed that up by seeking U S launch from NASA Wallops in March and then just seven days later, we had a successful launch from a healthy one looks at in New Zealand not only was the third fastest turnaround for launch to date, but.
It from two different launch country launch sites in countries really demonstrated the level of flexibility and responsiveness that we're delivering to customers now achieving this hard launch cadence early in the year it hits us up well to hit our <unk>.
15, Elektron missions for 2023 as planned.
At a time when we're seeing many small launch companies about our service the market. We continue to deliver successful missions, Greg customers were experiencing a correlated increase in lunch bookings for electron in 2023 and beyond from our new and returning customers across government and commercial sectors.
Our progress with Neutrolin is strong as well we started off the year with a payment from the EBIT by schools as part of a formal program marked on we meet this was recognized revenue in the first quarter, which is great. Later in the presentation I will delve into some of the key launch vehicle and program development updates for new drugs.
Our spy systems business also picked up some really big wins this quarter with rocket lab satellite components or software featuring on 18 space craft across the eight missions. We're seeing continued booking strength in our solar power Division and we also had some major program milestones and two of them a significant set of liabilities that will take you through as well.
As mentioned, our strong first quarter for elektron launches to emissions for our most complex two in Virginia, and a third from wounds complex one in New Zealand, including that rapid seven day turnaround between the two sides. One of these missions where for commercial constellation operators, all of whom have signed bulk data catheter launch contracts.
Across more than 36 electron launches it has proven itself as a reliable world workhorse for commercial and government provided the like commercial satellite operators need to pinnacle rods to unique all that's in Elektron remains the only school and launch vehicles delivering this consistently in fact, even today electron as the early use small launch vehicle to successfully deliver satellite.
And all that and all of 2023.
One of the latest multi launch deals were signed in February with Capella space. The deal with C. S fly for more dedicated electron missions for Capella.
<unk> promotes complex one with launch conflict now operational we have the flexibility to move any of those missions to the U S. If we need to meet a customer or emission requirements.
Onto the rockets now development of Neutrolin continues at pace with the team hitting some key development milestones in Q1, we're working steadily towards their first full scale neutral based at our U S facilities, while at the same time closing in on a full scale neutral second stage, including all composite parts hit a flight hardware tank test in Q2.
These latest photos from the factory show the size of those tanks.
In Q1, we also reached a U S space force payment milestone for completing successful development phases of neutral this payment as part of a $24 million contract awarded to us by the space force to develop neutrons upper stage to maximize mester orbit capability orbit insertion accuracy and responsive dedicated launch these are all capo.
That position neutral well to launch the highest priority national defense and security missions awarded through line one of the National Security space launch a phase III program or any CSL phase III.
Meanwhile, we're progressing wealth neutrons reusable engines, the Archimedes Fullscale Archimedes engine components are coming off the three D printed including injectors combustion chambers. This is a great progression in the Archimedes development and it proves out the advanced additive manufacturing techniques that we have planned for these engines.
But as I've always said the rocket is only one third of the puzzle when developing orbital launch capability at scale. You also need advanced launched test and manufacturing facilities and systems, while the vehicle team advances neutrons development at ground systems and manufacturing teams have made significant progress developing test infrastructure progressing the.
<unk> of wounds complex three for neutron and commissioning several new large scale <unk> printing machines and vehicle assembly facilities to enable rapid production.
Last but not least we're well into flight simulation flight software simulations now that the vehicle design has advanced and production is underway.
Software has always been a key differentiator for rocket lab, whether it's electron where I photo on space craft, we develop test and fly our own tailored software, enabling us to drive peak performance out of their vehicles I'm pleased to report that we are flying successful orbital mission simulations to a range of Orbitz and mission profiles with at GNC or gardens navigation control.
And flight cards to the fit to the current vehicles design and configuration.
Thousands of these slots simulations for every single electron mission and this has been a key factor in delivering reliable successful missions for years. So it's important to be achieving this for neutral on this early.
Onto our spy systems now.
This is part of that business just keeps going from strength to strength 2022 was the year that we submitted rocket latest position as a leading spacecraft and space craft component manufacturer and now we've truly moved into large scale manufacturing any execution.
They've been more milestones and achievements then we can probably we won't have time to cover in this presentation. So I'll just hit some highlights.
It launches in Q1 deployed more than 18 spacecraft, featuring rocket lab software or hardware, including missions for commercial constellation customers like flex collar Capella in one way or.
We have more than 25 space craft in development for various customers, including NASA mission to Mars communications constellation for Globalstar and space manufacturing satellites in orbit fueling devoted to achieve this we've scaled our space systems team has expanded their manufacturing and development facilities and of course vertically integrated all of them.
All of that for space systems acquisitions into our proton spacecraft manufacturing programs.
As part of that growth were seeing continued booking strength in our solar solutions division in particular, and several major production milestones hit for up and coming mission.
Production is now under now well underway for twin space craft that we're building for the NASA Escapade mission to Mars at 2024 launch date has now been see it allowing us to move forward with the assembly integration and testing at a satellite production facility in long Beach.
Now onto our key achievements since the end of Q1.
Just two days ago, we successfully launched the first of two dedicated missions Vanessa to deploy the tropics constellation. This is a really critical constellation that will monitor tropical storms with high revisit tonnes than typical rhythm satellites, providing forecast as with more accurate storm data and to provide advanced warning and ultimately to save lives.
With his first mission now complete we will be following up with a second one in about 12 days.
That will complete the constellation in time for the North American Hurricane season.
Speaking of naphtha, we've been awarded another mission by the agency Elektron will launch nurses styling mission, a multi keeps that mission to test and demonstrate autonomous swarm technologies.
We sit to deploy these four satellites tool, but within just three months of contract signing that were previous previously manifested on a different launch vehicles, but due to long delays and continued uncertainty they have remained.
They have been re manifested on elektron for Q3 this year.
We recently saw in multiple dedicated and Roger Lynch contracts on elektron, including many with new customers, who had previously manifested on other small launch vehicles, but a move to electron after facing linked to delight and on the <unk>.
Certainty with other providers.
This migration is a testament to electrons demonstrated position as the reliable dependable rod to OLED for small cells.
<unk>, sorry, hypersonic and Cebu <unk> capabilities are key priorities for the nation. Despite how critical these capabilities are the supply of sustainable and suitable vehicles and wind tunnels is severely constrained and this has proven this is a problem that we can actually solve right now this quarter, we formally introduced hoist.
Hypersonic accelerate us avoid OTC electron.
So overall launch vehicle that is derived from the elektron heightened provides reliable high cadence flight test opportunities needed to advance hypersonic systems.
This isn't the promise of a future capability in fact, the first rocket is at a healthy two Virginia undergoing its final preparations for launch right now.
<unk> has been selected for a range of government programs, including the Navy Navy cranes, Mark TB project, Dr use high Cat program and missile defense agencies targets and can't images study.
More on hoist or encourage you and refer you to the press release issued on April 17th available on our website.
This quarter. We also completed extensive final qualification and testing on the first Rutherford engine that will be flown into space for a second time. This is an engine that we launched last year as part of ore usability program and now we've brought it back to the factory run it through a gauntlet of tests and it put it back into the production flow to join a rocket launch and.
Q3 later this year.
There is a big step Fortinet Reusability program and one of the few remaining milestones before moving into full stage reuse.
Last week, we shipped our first of four five times base craft for virus based industries, and then space manufacturing company planning or planning to manufacture high value products and pharmaceuticals insights.
Is a big milestone for us by systems team and a great way to start a busy year of satellite production that will see us work on Nasa's ETA, NSA and aegis spaces Lockset.
Photon and also spacecraft bus to support field.
If you want the person space.
Photon spacecraft missions from US also is in development and plus 17, spacecrafts that a lot buses for globalstar.
And last but not least this quarter, we introduced a new star Trek designed specifically for constellations. The latest Star Trek is a new version of our existing high performance Star Trek, but has evolved from mass manufacturing and can be used as a responsive small satellite solution that joins a growing list of spacecraft components that we've recently developed.
And released including reaction wheels satellite radios to make best in class off the shelf space systems hardware available for commercially and also at scale.
So with that I'll hand over to Adam to present, the financial highlights and outlook.
Thanks Pete.
First quarter 2023 revenue was $54 $9 million, which was above the high end of our prior guidance of $51 million to $54 million.
First quarter 2023 revenue reflects sequential growth of 6% and the result of three successful launches and continued strong contribution from our space systems business.
Our large services business delivered revenue of $19 $6 million in the quarter off of three launches, which was modestly above our prior guidance of $19 million.
The resulting average revenue per launch came in below our standard pricing due to a partially filled rideshare mission, where we prioritize getting our first <unk> to launch off.
Versus option to delay the launch to fill out the remaining rideshare capacity.
As we progress through the year, including what is embedded in the current Q2 guide to discuss later are manifest indicates a trend towards higher priced emissions.
Our space systems business delivered $35 3 million in the quarter, which exceeded the high end of our prior guidance range of $32 million to $35 million with strength in key programs across defense civil and commercial customers and despite delayed revenue recognition impacts from vertically integrated supply of components for photon satellite build.
<unk>.
Now I'll turn to gross margin GAAP gross margin for the first quarter was 11, 6% well above the high end of our guidance range of negative five to negative 3%.
non-GAAP gross margin for the first quarter was 17, 9%, which was also well above our guidance range of 7% to 9%.
GAAP and non-GAAP gross margin improvements relative to our Q4 'twenty two results reflect a combination of increased launch cadence and increase in average launch price and a favorable mix within our soliris and PSC businesses as well as improved mix between components and services at the segment level.
Additionally, gross margins benefited from greater electronic production efficiency, which has allowed us to shift will redirect production resources to support neutral and photon R&D programs, thereby moderating incremental R&D head count hiring.
Relatedly, we ended Q1 with production related head count of 757 down 61 from the prior quarter.
Turning to operating expenses.
GAAP operating expenses for the first quarter of 2023 were $52 $4 million above the high end of our guidance range of $44 million to $46 million.
non-GAAP operating expenses for the first quarter were $40 2 million, which was also above our guidance range of $33 million to $35 million.
The increase in both GAAP and non-GAAP total operating expenses versus the fourth quarter of 2022 was primarily driven by a step up in staff cost and material purchases supporting neutron and photon development, partially offset by a $1 7 million employee retention credit recorded in Q1.
And our in R&D, specifically, GAAP and non-GAAP expenses were up $8 $9 million quarter on quarter as we continue to aggressively ramp up our neutral development efforts for.
Both new hires and redeployment of existing production resources.
Q1, R&D Q1, ending R&D head count was 456, representing an increase of 19% from 348 in the prior quarter.
And SG&A GAAP expenses increased $4 4 million quarter on quarter, driven primarily by staff costs, including stock based compensation and outside services in particular, our year end audit and Sox related costs.
non-GAAP SG&A expenses increased by $3 9 million.
Driven by the same items, excluding stock based compensation.
Q1, ending SG&A head count was 219, representing an increase of 22 for the prior quarter.
In summary, total head count was 1432 as of March 31, 2023 up 51 heads from the prior quarter.
Cash consumed from operations was $25 4 million in the first quarter of 2023 compared to $18 9 million in the fourth quarter of 2022.
The sequential increase of $6 $4 million was driven primarily by an increase in GAAP loss as working capital was flattish during Q1.
Okay.
Purchases of property equipment and capitalized software licenses decreased from $15 million in Q4 of 2022 to $12 7 million in Q1 of 2023.
This sequential decline is largely related to the timing of goods received in payment terms as we continue our investments in neutral and photon production equipment and facilities enhancements.
Overall, non-GAAP free cash flow defined as GAAP operating cash flow reduced by purchases of property equipment and capitalized software in the first quarter of 2023 was $38 1 million compared to $33 9 million in the fourth quarter of 2022.
The ending balance of cash cash equivalents restricted cash and marketable securities was $450 million as of this quarter of 2023.
And with that.
From 2003.
We expect revenue in the second quarter to range between 60 and $63 million.
Which reflects $37 million to $40 million of contribution from space systems and $23 million from launch services.
Which assumes three launches or two.
Quarter.
One of the three launches forecasted in Q2 was Sunday successful NASA Tropic Commission out of LC, one in New Zealand.
As referenced earlier based on our manifested launch backlog, we continue to expect 15 launches in 2023, and our average selling price to trend towards standard pricing as we progress through the remainder of 2023.
We expect second quarter GAAP gross margin to range between 14% to 16% and non-GAAP gross margin to range between 22% to 24%.
These forecasted GAAP and non-GAAP gross margin improvements reflect continued efficiency improvements.
<unk> average selling price improvement and a modest improvement in mix within our space systems segment.
We expect second quarter, GAAP operating expenses to range between 55% and $57 million and non-GAAP operating expenses to range between 41% and $43 million.
The quarter over quarter increases are driven primarily by continued step up in staff costs, and prototyping and materials spend supporting neutral and photon development programs.
We expect second quarter, GAAP, and non-GAAP net interest expense to be $1 million.
We expect second quarter, adjusted EBITDA loss to range between 22% and $24 million and basic shares outstanding to be approximately 480 million shares.
And with that we'll hand over the call to the operator for questions.
Yes.
And at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Okay.
Your first question comes from the line of Brett Roscoe listen Eric.
Yes. Thanks.
Congratulations on a good Q1.
Wanted to talk about the launch.
Like there's a lot of positives in the quarter and obviously theres. Some wash out if you will with some of the other smaller players.
And obviously, having challenges you mentioned.
The increase in the large bookings given the strong demand.
What would be the limiting factor to maybe not achieving a higher launch cadence into 15 that youre currently targeting.
Yeah Eric.
It will be customer readiness as usual, we continue to see customers moving around in and we are fully booked for the year.
And that will be the.
The determining factor there.
The factory continues to produce rockets that right that's required.
To.
Yeah like I say, that's unusual factor.
Great and maybe just staying with launch.
And SSL opportunity any updates on that you can share on how things are progressing with the RFP process and maybe how big of an opportunity could this be for Aqua lab.
Yes.
Naturally very happy with the approach that <unk> folks have taken.
The two line approach ensures a good balance of ensuring the nation has.
Assured access to space through the two incumbents, but the additional line one gives us the opportunity to onboard and provide.
Extra services.
We're really happy with.
The overall cost.
Strength of the program.
We are advocating to keep the by high which is which is what's happened and the math classes. It's clearly stated fit for neutral and so we think neutral and is very well positioned to play in that line one.
Amongst a very small group of vehicles that will be radiant time to do so.
Great and then maybe just my last question.
You talked and you introduce the haste rocket.
How should we think about these in sort of the context of launch overall.
And what you've sort of guided for 2023% to 15 total launches.
Yes.
The hypersonic flight.
It will be included in that in that 15 number.
Yeah.
Very good thank you.
Yes.
And your next question comes from the line of Roth capital.
Hi, Peter Adam.
Yes.
So congrats on the progress so the seven day turnaround you just had was pretty impressive just curious generally what are the some of the proprietary elements that allow you to.
Turnaround that quickly I know your competitors are having trouble just launching at all but.
What it allows you to kind of be able to turn around that quickly what we're used to further improve that.
Yes, it's a good it's a good question Jade.
The rocket is only one third is a part of the equation here, having both the facilities in order to do that and also cross trained teams that can do that so we can support launch out of out of.
Multiple different thoughts.
And also having having the rockets coming off the production line at a rate that.
And I believe that kind of launch frequency so.
It's not trivial to do.
It requires a lot of coordination and planning but.
Thats kind of where we've got to we build a factory that was capable of a really high production cadence and and that's delivering and the launch teams are a very.
Very well tuned in hiring now and the launch vehicles very well beat and so those are things that will enable us.
To achieve that yes, <unk> I would I would add to that too that really talked about the infrastructure I mean, it really is a key piece. The fact that we have two operational launch locations and one of those where it's in private control right. We control the manifest entirely so.
It gives us a tremendous amount of flexibility I think it would probably be impossible to do this if you didn't one of the two ranges right. So I think that level of flexibility allows us to do things that really nobody else could really could do.
Okay, Great and then my other question is on space systems on the upcoming.
Upcoming in the MDA Globalstar program, which I imagine would start ramping more aggressively in the second half and into calendar 'twenty four.
Is that still timing unchanged and as of yet.
When the initial revenue contribution there expected thanks.
Yeah. So we'll start to see meaningful revenue contribution from that in Q3.
So it will be a fairly significant step up in Q3 from Q2, and then continue on from that into Q4, and obviously into the into the first half of 2024. So yes everything is on schedule looking it looks good.
Consistent with everything that we've.
Particularly in the past.
Okay, great. Thanks, guys.
Okay.
Your next question comes from the line of Morgan Stanley .
Hey, good afternoon, everyone.
Yes.
Following up on <unk>.
Looking at the P&L for Elektron your previous guidance was for 15 launches for the full year, but that was with electron about 300 kilograms per payload. So with having Keith included and you now have some of these launches having 700 kilograms of payload can you talk about the economics.
Are they at the same total price or are you getting paid the same price per kilogram, how do we think about overall economics of elektron versus <unk> in terms of revenue and margin.
Yeah sure. So I mean, when someone comes to us they buy the entire launch vehicle.
When you buy a dedicated rocket you buy the whole rocket. So it's not priced out of that cost per kilogram. In fact, the whole cost per kilogram metric is really only applicable to kind of rideshare missions, where you may you may actually pay cost per kilograms. So whether it's an orbital mission or a sub obdormition someone's coming to us and buying the complete launch vehicle.
<unk>.
The missions like height.
An element of mission.
Mission assurance extra mission assurance, and obviously more fixed trajectories typically will demand demand a higher ASP than then.
Very standard electron orbital mission.
Yes, Kristine is also a.
Theres also a launch premium for launches out of LC two in Virginia.
Because again Thats a range Thats thats operated by NASA versus our range in New Zealand. So there's there's a variety of things that drive in all right now all of the hypersonic.
<unk> opportunities that are going to be flying it or LC too. So for all the reasons Pete mentioned around mission assurance, but also kind of a locational premium drives kind of an upward bias to the ESP.
I see and in terms of margin economics between an electron launch firsthand that Heath launch how do we differentiate between the two.
Well I mean the.
I would say.
Probably the biggest difference would again be launching out of <unk>, we pay range fees to NASA, but again largely those are kind of factored in so from a margin contribution perspective.
They should be kind of equal to.
Your ordinary kind of rocket lab launch.
I see and then following up on the reuse all Rutherford engine in the third quarter.
Do you have an idea of how quickly you can turn around these engines for re flight down the line and also how many times can a single engine do you.
Yes, it's a great question, so answering a question kind of backwards.
Qualification tests, we did on the recovery engines.
A number of them through a total of 16 full duration Havas, that's like go into orbit 16 times and.
No degradation in the performance.
Or in the engine the rule.
Yeah.
The Rutherford engine is a mighty we.
Nugget engine and with <unk>.
Very good margins.
So.
The the kind of limit to reduce would be in excess of probably 10 times.
But the caveat to that is we need to slowly stepping our way through this and.
We are being very conservative here, you'll notice that we've taken the most difficult and critical element and a re flying that kind of independently of a whole new stage first because we believe once we once we build confidence in.
And the <unk> engines.
That's kind of the hardest piece of the whole puzzle complete.
Great. Thank you for the color.
Okay Yeah.
And your next question comes from the line of Nigeria.
Hello.
We can hear you.
Hey, how are you sorry about that Andre.
Could you just provide a little bit of color. So it looks like production head count down could you give a little reasoning as to why that happened.
Yes, so again.
Trying to convey on earlier that we've been we've been fortunate that we've been able to repurpose.
Our production resources to support the neutron and photon R&D initiatives. So it's really a case, where we've gotten to be much more efficient building electrons that we have these resources rather than higher incremental R&D heads to support those programs. We can now just basically move a re class those resources from production to support R&D so that.
And it just speaks to the kind of the fungibility and flexibility of the types of resources that we have where again, our our production folks are equally capable performing very complex R&D tasks.
Super helpful for us to be able to have a really fungible workforce that we can kind of move around as need be so that's really what's driving it is as I mentioned earlier total head count increased it's just kind of the mix within changed quite a bit as again, we kind of hit that new stride and production efficiency on elektron.
Gotcha Gotcha that makes sense.
And then I kind of want to touch on maybe just the if you could just quantify the order momentum at space systems, and maybe give a little update on.
Some of that low margin Solaris backlog, where you guys are at burning that down.
Sure.
Yes, so on the space systems side. We are we are getting a lot of increased kind of high value opportunities for not only on the components side, but also on the full space craft side of things. This is the way that we've constructed this space systems businesses that we're not going after kind of small onesie twosies opportunities, we're going after large chunky.
Grams, then when they do close will be meaningful movers to overall backlog, so I would say that we.
We continue to see momentum and kind of progress towards but those deals have taken a little bit longer to close I would say than smaller deals, which kind of makes sense.
And then when you look at the margin profile Solera business I can tell you Pete and I have been incredibly impressed with the way over the last couple of quarters, all the new business that we're closing.
And putting it into backlog is significantly higher gross margin than what came with that.
The <unk> acquisition and really kind of supports this transition to get the business to be north of $30 gross margin business.
We are investing in more capacity, but.
Obviously.
Constraint is helping to drive some of those margins.
It's all very helpful. Thank.
And as a reminder, at this time, if you would like to ask a question. Please press start then the number one on your telephone keypad.
Your next question comes from the line of Jason Gursky.
Hello, everybody.
Uhm.
Peter wanted to give you an offer.
Do you need me to talk about the competitive.
Landscape as you see it today, how things are evolving and maybe talk about the next four or five years and.
Let's see get a sense from you on how you sees the competitive landscape.
Taking out here over the next.
Several years.
Kinda tied to that then maybe out if you can.
I've been here on this particular question.
Just kind of the the pricing environment that you're seeing on the new orders and where they were beginning to see.
Word list in the backlog that you're building relative to the backlog that you're chewing through.
Yeah, Thank Jason I'll I'll get out my Crystal ball here for Ya.
Okay.
On small launch.
I think my personal view is.
<unk> pretty pretty tough to enter that market at this point I mean electronic demonstrated just such great reliability and and a good service that.
That becomes hotter and hotter.
Break into that.
Being as arrogant as to think that nobody can't do that certainly.
It is it will be difficult so.
We've seen a failure of a lot of small launch vehicles or if I need to deliver.
Over the years.
And even more recently and more dramatic ways. So.
So I think on the smaller side it it's a great market. It and also a niche market and electron will probably continue to do well there and I'm not sure if I really see too.
Too many small launch vehicles coming online.
And in the future.
Now on kind of the the medium to large.
I think that's a very very different environment and the fact that.
But there's a launch crunch coming in and that sort of 25 to 20, maybe even up to 30 timeframe.
And I need to be a rocket scientist to figure that out like if you look at all of the spacecraft that are in development and and I'm looking for <unk> you look at.
The likes of of Carter Billboard up most of the launch available available globally kind.
<unk> delayed.
And and other launch vehicles delight as well.
That is that's going to be a really really interesting time and of course at how.
Approach here in philosophy is to bring neutron online right at the peak of that Crunch, sorry, we think that vehicle day well.
If you look at things about the interface LP five three program neutrons ideally situated to to provide could imply a good role in that.
So I think.
I think in a new capital constrained environment, we are real real kind of products and real businesses have to have to survive.
Think that's going to be somewhat of a whittling of the of the wood.
And you know.
Really.
Strong executed to kind of be the ones that are left over to to supply.
And then on the on the really heavy stuff.
I think I think that's an interesting market that's more of a.
The creation of a market rather than the servicing of the market. So I think that will be that will be.
Super interesting over the next four to five years.
So.
Adam.
Yeah that sounds great with regards to pricing dynamics.
I would say certainly things like you're seeing with.
Emissions being re manifested from other providers to us has been very supportive to pricing I think it's going to continue to do so I think it's Pete mentioned, there's just been a lack of execution on delivering payloads from others. So I think people are starting to realize that this is a really difficult thing to do.
Program delays are incredibly costly to customers and so the ability to basically.
Have a high degree of confidence that you're going to deliver their satellite on orbit on time again is is something that we're seeing customers are willing to pay a premium for so again I think that's all very supportive towards launch pricing.
And then on the space system side, it's really we're starting to see some very significant benefits to kind of the end to end strategy that we put in place so.
Unlike some other <unk>.
Settling manufacturers, who have the issue of.
Multiple levels and degrees of margin stacking, we really control. So many of the key subsystems within our platforms that we can have we have a lot of different knobs that we can turn and oftentimes we do that in ways that can deliver very good very attractive margin profiles for the programs and again I don't think that would be doable.
Without the level of vertical integration that we've put together here so.
Right.
I'm as optimistic on pricing for both launch and space systems as I've been.
We just continue to see all the pieces move in the right direction.
And.
I think we don't see doing any kind of change in trend on that front.
Mmk, great Okay by sticking one morning.
Yeah.
Okay, great. So.
Just going back to global Star It sounds like [noise].
The revenue ramp begins.
And the second half.
The year can you, maybe just talk a little bit about technical.
Technical milestones any risks retirement that you will be working on either now or.
As you get going here that we should all be kind of aware of and kind of appreciate as you retire that risk.
Are there.
Any risk to your expectations on margins for that program to the extent of the risk retirement doesn't go as planned.
Well I can talk briefly to the technical milestones and I've decided I'm just incredibly impressed with the team it's a very difficult spacecraft.
Right.
Difficult environment and of course, it needs it needs incredible uptime.
But the continue the team continues to knockdown major milestones like <unk> and <unk>.
And the supply chain team continued to work their magic to make sure.
Everything that is not rocket lab produced is arriving on time. So I think I think we're we're very we're very happy with the way that project is coming together, we've got a big team working super hard to make sure it does but.
Certainly on my Horizon, there's nothing that I can I can <unk>.
See that's that's causing is likely to cause issues, but.
But I can lead Adam talk to to more of the list technical issues. Yeah. So on the margin profile I would say that we've we were very aggressive early on in this program to do to get a lot of the long lead.
Procured items in hand, so long lead purchase contracts that were done like a year or so ago. So we are very good visibility as to what the input costs are for the program.
The third party source elements and then obviously you we have a tremendous amount of vertical integration on this platform particular, and we absolutely know kind of what our costs are there because we've been selling the same solutions in large part into the merchant market for many years. So I would say that the the margin risk on the on the program is actually quite low.
There's always things that come up and bite you on a program, whether it's a rocket or satellite, but right now we're as we as more time gets behind us as we get much closer to actually starting to deliver these these platforms.
We're seeing a lot of the risk get retired and starting to be in the rearview mirror. So yes, I think we we feel pretty good about where we're at as far as again Derisking. The program margin perspective, and no huge technical obstacles has kind of surface that would cause kind of program pays either so I think we're good shape on both timeline and on margin.
Okay, Great I appreciate I appreciate the time.
And your final question comes from the line of fire you.
And it's at a senior from from Deutsche Bank, I think the the named Goofed a little bit.
First question I wanted to come back to the the gross margin.
I I don't I don't think it broke it out yet, but where did you see more upside relative to the expectations Indy and a quarter or was it more on a launch or space systems.
Well there was a bunch of things that were that were moving around obviously, yeah. We the exceeding the former guidance on gross margin was again really go into the quarter.
With as much I would say optimism on being able to kind of repositioned the resources from production into R&D. So a lot of that came into focus kind of kind of a late stage as we were kind of.
In the quarter Merrill Lynch to get a bunch of a bunch of that realized.
I would say there is if you look at margin improvement certainly I think the biggest area for upside is going to beyond launch side of things.
Because if you look at the fact right now we have we're still dealing with the fact that we've got a cadence.
Kind of dining.
Dynamic that's driving overhead absorption. So now we have to launch ranges that we have to kind of support one we obviously owned so if you look at <unk> in New Zealand.
Relatively high fixed cost so very dependent upon cadence out of that type.
And with the NASA range in Virginia, we have kind of a variable cost that drive that plus a little bit of fixed costs that go along with it so.
It really really get our business on the long side is very very <unk>.
Leveraged to the number of launches per quarter, and even now increasingly where those launches are coming out so theoretically like in Q1, where you had to have our three launches came out of Virginia.
I think that left a lot of unallocated cost to be absorbed over those over the one mission that did come out of out of <unk> in New Zealand now in queue to that mix is going to be different where the launches are coming out of you'll have two out of Elsie one in New Zealand wanted a LC too so you'll be able to absorb more those fixed costs over the two launches coming out of zeal.
And you'll have one variable cost intensive mission coming out of our wallets. So.
I really do think as we scale to the 15 launches this year and as we've talked in the past so shooting.
Shooting for 20 launches next year with six in the fourth quarter kind of establishing that exit right out of out of 2024 to get to our target model for margin.
Cadence as a overwhelming driver of getting to those margin targets and again, there's a tremendous about of room to go from where we're at right now to where we're going to get to.
And any other piece of course is recovery of the first stage booster. So Pete mentioned the progress that we've been making on that quickly with the engine that's going to fly a little bit later this year, but space systems is.
It's Scott.
Pockets of that business that had very nice gross margins, there's others like to talk about the past.
That suffer from a little bit lower gross margins that are kind of being upgraded as we churn through that lower lower kind of historical backlog.
But really if you look at where the rock biggest increase can come from it really can come from electron scaling through the cadence.
And recovery.
The color and just wanted to follow up on I guess based systems.
Specifically outperformed and a quarter any specific product lines, you would call out and I think he also you announced.
New went on until arrows. So just curious kind of the trajectory going forward is there is there is all products to starve outperforming.
Well, yeah. So I mean, the big grower really from a percentage perspective has really been the photon business right. So the satellite manufacturing peace and so is Pete mentioned earlier, we were able to ship. The first of artist spacecraft and really it's Q3 Regan. It starts here are very meaningful uptake in revenue recognition on the MTA globalstar satellites. So that is.
By far going to be kind of the biggest percentage grower in the second half of the year again continued.
Again from programs that we've identified previously.
Great. Thank you.
And you do have a final question from the line of Mcgee here.
Hello.
Yes.
Yeah, Okay. Yeah, just one more to follow up uhm given that you guys are pretty certain of the manifest going through 2023 I mean.
When can we start to see some more long term targets being outlines.
Well I think of the manifest we've been pretty clear this year growing to 15 launches next year. We've we've set a target for 20, but exiting the year at a rate of 24, and that's very consistent with a longterm model that we've had.
We think there's.
Enough market opportunity to drive up to in our model, we had over 30 launches per year.
And that remains pretty pretty consistent.
That's of course separate and distinct from neutrons opportunity.
But I think that.
There is again.
I would say nothing that's going to.
Caused us to revisit what the kind of volume opportunities for electron the small dedicated launch market continues to be pretty strong we continue to be outperforming relative to to our peer peer groups. So.
Yeah, I don't think we're going to give kind of longer term outlook for launches beyond what we've already tick later, which I think is pretty far out basically telling you. What you can expect for launches through the end of next year.
Once we get it in 2025, it's kind of kind of anybody's guess at this point, we do have some booking in some visibility obviously into 25% in some cases even longer than that.
But we're also.
Kind of recognize a pattern here, where we've got great visibility within 12 months. Once you get outside of 12 months. It starts to get a little bit more kind of unclear, we kind of track with all the opportunities are out there and then it just becomes a question of what percentage capture do we have given the market or what our market share is going to be an obviously right now we have a tremendously high market share.
We believe that will will be able to maintain pretty high market share but.
I would say again, we're on track to 15. This year 20 next year on exiting of 2024, and then we'll see if it goes from there.
Gotcha. Thanks.
And there are no further questions at this time.
Well that wraps up today's presentation in and thank you everyone joining us on the call and.
Adam and I'll be speaking of these upcoming conferences and look forward to the opportunity to share more exciting news and updates with you then.
Thanks, again, and we look forward to seeing you and speaking to you about the exciting progress being made at rocket later.
The essentials like today's conference call you may now disconnect.
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