Q2 2023 Astra Space Inc Earnings Call

Speaker 1: Ladies and gentlemen, thank you for standing by. Today's conference call will begin momentarily. Until that time, your lines will again be placed on Music Hold, and we thank you for your patience.

These reductions were painful but necessary to reduce operating expenses, which when combined with ongoing reductions in capex and additional reductions in opex are expected to result in substantial decreases in cash burn over the next few quarters.

I want to thank all of the impacted employees for supporting Astra and our mission.

Overall this reorganization is intended to focus the company's resources on serving our astral space craft engine customers and delivering our commitments to them in the near term. We remain excited about the Astro spacecraft engine business and are committed to resourcing. It for growth and success. We also announced the closing of a senior secured note facility. Please see the.

A form 8-K, we filed on August 4th for important details about that transaction when combined.

With our existing ATM. The closing of this transaction represents a broad financing strategy and demonstrates our ability to access the capital markets when needed.

Now I'll go through some of the highlights of our space products business during the quarter.

In our Q1 results call I said, we would ship the first couple of space craft engines out of our new space craft engine production facility in Silicon Valley I'm happy to report.

And in Q2, we shipped the first four space craft engines out of the new facility and we remain focused on ramping up space craft engine production in the second half of the year.

Actually we'll provide guidance for Q3 Astra space craft engine shipments in a few minutes.

As we've covered before module shipments are the first step in a nine to 12 months joint development activity between Austria, and each customer that involves integrating astra's proprietary propulsion module power module feed system and tank.

Into our customers' unique satellite platform.

This joint development activity typically includes milestones such as conceptual preliminary and critical design reviews building and testing qualification modules and production readiness reviews prior to production <unk>.

<unk> typically received payments for completion of these milestones.

Although we only recognize revenue upon final delivery of space craft engines, following shipment delivery and inspection radical of the modules as of today.

<unk> completed over 75% of the preproduction non delivery customer milestones in its current customer programs.

Finally in early July we completed an organizational change to separate our Astro space craft engine business into a new legal entity. This effort included the creation of a distinct leadership team or the Astro spacecraft engine business and assignment of dedicated employees.

This organizational change will enable asked her to evaluate strategic opportunities to efficiently finance each of our businesses, our spacecraft engine and launch businesses.

On both an individual and combined basis and provides astro with increased flexibility as we evaluate strategic and capital markets opportunities. In addition, as our spacecraft engine business scales. It was important for us to demonstrate to our customers.

Stinker resources dedicated to the successful execution of each customer program, which are now currently in place overall, we remain confident in our ability to produce world class propulsion systems for a growing roster of customers across both commercial and government applications.

We will continue to take necessary actions to ensure we are delivering on our obligations to our customers as you have seen in recent weeks.

Now I'll review key highlights this quarter from our launch services business. We continue to focus on the development of rocket four and the servicing of our existing large contracts.

Earlier this year, we announced several additional launch services contracts, including with United States space for Us and the defense Innovation unit, we've had recent discussions with our launch customers.

We've indicated that they are committed to our launch service business and are supportive of recent changes.

We remain committed to achieving all milestones stated in our existing large contracts in Q2, we commissioned our rocket production line unveiled the first fit checks of rocket four at our annual space Tech day and prepared the material for the service readiness review <unk> for Astro Space Force STP 2019 mission, which we successfully.

Completed last month.

For the rest of Q3, we intend to prepare the materials for our first mission design review <unk> 2019, and continued development and testing of various rocket four and launch system two components, the reduction and reallocation of loss services resources.

He is expected to delay the timing of our first test launches into 2020 for the timing of paid commercial launches currently scheduled in 2024 will continue to depend on the results of these test flights before handing the call over to Axel I wanted to provide some final thoughts on astra's long term strategy.

We made some very difficult decisions in recent weeks to part with some incredible team members focused on launch SG&A and shared services.

This was an incredibly difficult decision for me and Adam, but it was necessary to support a sustainable business plan for Astra going forward as we continue to carefully manage our cash burn and financial runway, while still maintaining the flexibility for astra to pursue growth opportunities as they arise.

We're also excited to partner with strategic and financial parties that are supportive of our long term vision and will continue to evaluate opportunities where it makes sense for our business.

I'll now turn the call over to Axel to review, our financials and guidance.

Excellent.

Thank you, Chris and good afternoon, everyone.

I will now review our results for the second quarter of 2023.

As a reminder, all non revenue financial figures, we will discuss today alright Justin.

As we see them as a GAAP measured.

You will find a reconciliation from GAAP to non-GAAP results in today's press release.

In Q2.

Our focus was on further refining our expense profile appropriate location of our employee resources towards near term shipments of Astro space growth engines, and extending our financial runway.

To reiterate what Chris said earlier, we will report and provide guidance on the Astros basically of engine shipments going forward now, let's review, our Q2 2023 financial results.

Revenues were zero point $7 million in Q2, driven by deliveries of asterisk Baker of engines.

We recognize revenue upon the delivery of our space with engines and once the customer inspection period has expired.

As required by the applicable contract.

The inspection period varies but is typically about 10% to 30 days.

For that reason, we may not always recognize revenue in the quarter in which the engine is shipped.

But rather in the following quarter after the customer inspection period has expired.

This will generally be true for shipments that occurred late in the quarter for.

For example in Q2, we shipped before engines.

But recognized revenue on three of them for the quarter.

The fourth engine will be deemed delivered and we will recognize revenue on it in Q3.

We achieved a gross profit of <unk> $3 million in Q2, representing a gross margin of 45%.

While this level of profitability is very strong.

It reflects the initial inefficiencies that come with starting a new manufacturing operation.

For that reason, we continue to expect higher levels of profitability as our operations scales over time.

GAAP operating expenses totaled $16 million in Q2 compared to $46 5 million last quarter.

GAAP operating expenses in Q2 reflect lower compensation expense.

Other cost savings initiatives implemented in prior quarters.

GAAP operating expenses in Q2 included the following.

R&D expenses of $24 4 million a.

A decrease of $6 7 million quarter over quarter in part due to a reduction in development cost.

Sales and marketing expenses of <unk> 7 million.

A $1 $8 million decrease due impart to lower compensation expense.

G&A expenses of $7 6 million.

An improvement of $8 1 million due to lower compensation legal and consulting expenses.

Finally during the second quarter, we recorded a $16 $6 million gain on change in fair value of contingent consideration.

Reflecting the current forecast of eligible space growth engine revenues and contracts through December 31, 2023.

Now, let's talk about GAAP to non-GAAP adjustments during Q2.

Adjustments during the quarter included $16 $6 million gain on change in fair value of contingent consideration previously mentioned.

$2 1 million in stock based compensation.

And $1 million and other special items, which include $1 $3 million in R&D income.

And offset by a <unk> 3 million inventory adjustment.

Given these adjustments on a GAAP basis, our second quarter net loss was $14 million.

On a non-GAAP basis second quarter, adjusted net loss was $33 7 million.

Q2, adjusted EBITDA was a loss of $33 1 million second quarter capital expenditures were $3 2 million.

Lastly, we ended the quarter with cash cash equivalents and marketable securities of $26 3 million.

The results were adjusted EBITDA loss basic shares outstanding and capital expenditures are in line with your original Q2 guidance provided on our Q1 2023 earnings call on May 15th 2023.

There is hope for cash cash equivalents and marketable securities is lower than the range. Initially provided on our may 15th earnings call.

Primarily due to two factors.

Delays in collecting on government receivables of approximately $2 9 million and a delay in the companys receipt of cash proceeds from the employee retention tax credit were approximately $2 1 million.

Had these two items being collected during the quarter. We believe based on our current views the astra's cash cash equivalents and marketable securities will have been within the guidance provided previously.

Next I'll provide an outlook for our third quarter ending September 30th.

As previously mentioned, we continue to focus our operating plan on scaling deliveries of Astro space growth engines throughout 2023.

I wanted to provide an update on production of Astro space growth engines from our Sunnyvale facility.

As we had indicated last quarter.

We were only expecting to ship a few initial deliveries out of our new space with Indian facility as we spend the majority of the first half of this year on standing up that facility installing equipment and completing non delivery milestones.

Prior to us commencing production activities.

We have delivered four units out of our new manufacturing facility and we expect product deliveries to begin ramping up in Q3.

As indicated previously in our guidance.

As a reminder.

Astro space growth engines, typically have a lead time of approximately 12 months and after require integration work with the customer.

Our space products also require extensive testing qualification and configuration before they can be delivered.

As Chris mentioned, we have allocated additional resources towards the delivery of space growth engines going forward.

Through both temporary and permanent reassignments from other parts of our business.

As a reminder.

Our third quarter guidance and all guidance is subject to various important cautionary factors Inc.

Including the risks and uncertainties set forth in our annual report on Form 10-K, and other securities filings.

Now we will provide future guidance.

In the third quarter of 2023, we currently expect shipments of eight to 12 astra's base growth engines.

Adjusted EBITDA loss to be between 25 and $29 million.

Basic shares outstanding to be between 280, and 290 million shares.

These figures are subject to the conversion ratio of 1% to 15 related to the reverse stock split we intend to execute this quarter.

Capital expenditures expenditures to be between one and $2 million in.

<unk> cash cash equivalence and marketable securities of $15 million to $20 million.

As indicated in our recent announcements.

Astro remains focused on deliveries to customers prudent expense management and executing on financing transactions.

To carefully manage our cash runway and cash burn.

We continue to expect cash burn to decline throughout this year.

With the initial steps of our financial roadmap announced in early August .

Including a reduction in our headcount and closing of our senior secured notes facility.

In addition, based on the foundation, we have built for the Astro space growth engine business.

Astra has engaged <unk> partners, a global advisory focused investment bank to.

As the company's financial advisor in connection with the future financing activities and to explore potential strategic investments in the Astro space growth engine business for the purpose of strengthening <unk> balance sheet.

Obviously, the outcome of any such process is uncertain.

The structure of any potential investment is subject to ongoing due diligence and other factors.

We also remain in active discussions with various capital market participants on debt and equity financings to continue extending our financial runway and to evaluate transactions that are accretive to stockholders.

Continue to receive indications of interest from financing providers, and we will take the actions necessary for Astro to extend his financial runway, while taking into consideration dilution cost of capital and other related considerations.

We will continue to provide future updates on any financing activities as and when appropriate.

In conclusion, as we shared last quarter.

We continue to believe our cash runway is supported by expected revenue growth potential conversion of pipeline opportunities.

Careful management of expenses and thoughtful consideration of financing opportunities.

I will now turn the call back over to Chris. Thanks, Axel to summarize we remain optimistic on our path forward, including near term deliveries of Astro space craft engines.

And our leaner more focused effort on launch system too.

We will continue to evaluate and execute on strategic opportunities to extend our financial runway, where it is in the best interest of stockholders I.

I want to thank all of you for your continued support.

With that operator, please open the call for questions.

Yes.

Thank you.

As a reminder, if you would like to ask a question Press Star then the number one on your telephone keypad.

And we will pause for just a moment to compile the Q&A roster.

Okay.

Yes.

And we will take our first question from Andre <unk> with Bank of America. Your line is open.

Hi, Thanks for taking the time, taking my call.

Yeah, I guess just to start I mean I understand that.

Certain areas are being explored but.

Yes.

What are you guys, saying actively as you seek out investors currently.

To try to shore up interest.

I mean, because right now it seems like you guys are in a pretty.

Difficult position. So I just wanted to know what the narrative how should we be looking at the upside here.

Yeah.

Well I think if you look at the.

Stagecraft engine business.

We have.

A huge backlog of orders from some of the largest.

Aerospace.

Defense primes and commercial constellation operators in the world.

We remain focused on delivering on.

Hundreds of space craft engine, representing tens of millions of dollars of order value over the next couple of quarters, which will bring in.

Cash there are significant opportunities with new constellations within the FDA trials too.

In other commercial constellations that have recently been announced that we are actively bidding on.

With our launch services business, we have.

<unk> contracts with the.

Space Force.

<unk> innovation unit and other commercial customers.

Base for us in particular is paying us.

For milestones that we are achieving.

We are actively focused on finding investors in these two businesses that were increasingly finding are distinct and different phases of their development.

We have.

Recently announced a transaction that provide some some debt financing to the company. We recently put in a $65 million ATM facility.

We closed those transactions here in the last couple of weeks and that gives us some time to look for great strategic investors that understand these businesses and want to invest in these businesses.

We announced the completion of the rocket production line, most recently that we will.

Allow us to scale production of launch vehicles at a fraction of the cost of many of our competitors. So again, what we have is we have a <unk>.

Three compelling business, if you're a satellite operator needs based craft engines or if you are satellite operator, and you are looking for the kind of economics that you can only see with large rockets.

Much more dedicated.

<unk> services.

We just explained we explain our focus we explain our commitment to our customers. We explained the size of these contracts that we have with our customers.

Actual.

His focus with me to ensure that.

We are reducing our expenses as much as we possibly can.

Not so much that we're unable to deliver for our customers.

Gotcha.

Thank you.

Guess on cash burn, though I mean with with launch operations push now firmly into 'twenty four with even testing out in 'twenty four.

Aside from it.

I mean, when can we receive an update at <unk>.

These conversations that youre, having with potential investors because of the current rate it seems like.

This might not move paths for Q at the current burn.

Especially with what you guys are targeting for next quarter.

And it just also seems kind of concerning because spacecraft.

They're lumpy business.

I feel like it's something that supply chain hiccup can easily push.

A number of those delivery out of the quarter and and then on top of that.

Difficult revenue recognition standards.

Come along with the space craft business.

It makes it seem like that.

Just.

One small hiccup away from one supplier they just can't deliver from some things following inward how.

How would you.

But that is people that are concerned about something of that nature and when could there be a reasonable update.

And that would actually put those.

Certain studies.

Well.

You'd characterize the spacecraft engine business is lumpy I think that we have.

Secured a number of orders, where we are now delivering space craft engine. We noted last quarter that we would deliver the first couple of engines out of our new facility, we did that.

We intend to.

Increase the rate at which we ship and recognize revenue for these spacecraft engines next.

Next quarter, the following quarter to quarter after that and we have pretty good visibility into the supply chain and the amount of inventory that we have on hand and.

At least in the near term.

The risks associated with the deliveries of the space craft engines over the next couple of quarters is.

Something we well understand and due to the fact that we're manufacturing the majority of these components in house, we have a lot of control over as well. So I would kind of disagree with your characterization of the lumpiness or lack of control we have over.

The next couple of quarters deliveries to be sure and beyond that.

I think we're going to continue to focus on refining the business operating as efficiently as possible. So that we continue to see.

The cash we have and we're able to raise the capital markets.

Last well into that ramp of spacecraft engine deliveries.

The launch team remains focused on.

Threading that needle between making sure that we had a vehicle that we're very proud of that will have high margins that will operate reliably.

Before.

Sure.

We're not obviously going to take so much time that we don't have the opportunity to do some test flights and show the market.

How much we've learned from the last.

Six or seven years of building and successfully launching satellites into orbit something very few companies that actually had the opportunity to do.

And that's.

That's what management challenge right now we understand we understand the challenging capital markets environment.

All we can do is bring in cash and revenue from customers delivering for our customers and as efficient as we possibly can be as we bring these.

These products back out to the market.

And if I can also I think.

It's not just about revenue recognition when it comes to our business.

The cash profile of our business is very friendly.

As we've talked about several times in the last few earnings call. The significant amount of cash that is as we deliver on this point and any milestones.

Great opportunity to continue to bring liquidity into our business just from continuing to deliver for our customers both on the.

<unk> and nearing phase of each contract, but also as we deliver more in June .

And as Chris mentioned.

Great opportunities ahead of us in terms of.

New contracts and new sales.

And so the best thing to do and this is why we allocated the resources that we did is to focus on deliveries because we want to make sure that our customers are happy with.

With what we're delivering when we're delivering things for them.

We have.

The meeting.

System.

<unk> is prescribed <unk> system in the market.

So we feel that we'll continue to.

Our opportunities to grow the business going forward and so with that cash profile that is really embedded in the business. We think that will be continue to be a great social liquidity growth and.

Just to wrap up I think on the facility that we put in place about 10 days ago announced 10 days ago and it gives us I think.

<unk> is a financial group that unit perform due diligence on the company.

Really is.

That's estimated to the fact that this company has access capital markets first we started with our ATM that we put this in place.

In.

The JV to help us.

Manage that.

The process going forward, but we feel that from a fundamentals perspective, our business is very strong.

Okay.

Understood. Thank you.

Okay.

And we will take our next question from <unk> Desilva with Roth and K M. Your line is open.

Yes.

And.

Your line is open please check your mute button.

Apologies that automated hi, Chris Hi axle so.

Just wanted to kind of follow up on the on the ASC backlog there. Thanks for guiding the <unk> and the initial shipment units thats helpful to know the eight to 12, what is the shape of the backlog shipping from that point forward does it kind of ramp up is it linear or what how should we think about the next few quarters from here on out.

They continue to ramp and we've talked before about the facility.

And the investments we've made supporting up to about 500 spacecraft engines per year.

And I think what we'll see is a.

A gradual increase over the next year.

From first shipments all the way through what will be 30 to 40 units per month and the team is very much focused on that so that we can meet the demand that we see both from our backlog and also from new.

Orders in the pipeline.

That is the.

The primary focus right now and if you look at what we have.

On hand is.

Some of the world's leading commercial and government constellation operators relying on Astra.

We we put it we put our best people and programs to support our customers and Silicon Valley.

We have deliveries literally happening today.

We're really busy we're really focused on our customers and with our focus on servicing those customers, we see new significant opportunities to create.

A durable.

Long term business in that category.

We're doing everything we can to ensure the business provides the infrastructure required by the launch team to come back to the pad and demonstrate.

The most reliable vehicle the most cost efficient vehicle.

At that time.

Im certainly aware of in the industry.

Great.

And just to understand that initially 12 shipments you guided for is that one customer or two customers or multiple just to understand the breadth of the initial ship.

Shipments.

Yes, that'll be across multiple customers.

I don't know the exact number but certainly a couple of thoughts there.

Sorry, your status with the concentrate grade and then the Opex and the Capex <unk> been guiding it seems like you've got that kind of is that the opex at the right level now it sounds like Capex is low because the alameda builds largely behind just wanted to confirm those.

Yes, so on the Opex side as you can see when you look at Opex on a non adjusted basis for Q2, we reduced debt by almost $10 million and as we announced.

10 days ago, we made an additional.

Reduction in our head count focused mostly on SG&A and launch.

So that will get us now I think to the right level in terms of head count, but the truth is look we are always looking at all areas right areas. Besides takeout that we're always looking to optimize the business continues to scale.

And on Capex as we talked about.

In the past right. Unlike.

Many folks in our industry that are about to enter the investment base. We have already done right. So both our facilities are fully built and this is why you see us guiding.

<unk> Capex now to the $1 million to $2 million in Q3, because it's just.

Small little expenditures.

It's not going to be significant expenditures going forward.

Right. That's part of the answer to the last persons question is about the value here a lot of thats in the investments already made so that's part of the asset value here, it's good to realize that and then on.

<unk> launch Ellis to the progress here, obviously, you've changed kind of the approach there what milestones can we still watch for as you try to move forward there even with the changes in the approach.

Absolutely I think we tried to provide a little bit of guidance on that theres. Another deliverable for this phase <unk>, which of course is holding us accountable to the highest.

Centers of rigor in our overall engineering process.

Operation. So we submitted the service readiness review package and passed that with flying colors. A few weeks ago. We have the next deliverable for that.

Later, this quarter, which we intend to package up and get to them. This quarter. We also intend to continue to invest heavily in the.

Testing of of the hardware that is.

Coming together you saw a lot of that hardware.

As <unk> indicated a lot of the expensive hardware is already here. So the team is frankly, just spending a lot of time.

Integrating and testing components such as the engine.

Some of the.

<unk> doing a lot of integrated.

System level simulation testing to test the overall software stack that will be as we have done.

<unk> seen a small.

<unk> and posting these tests as they occur.

And you can look forward to.

Continuing to share the results of those tests as they are completed and I'll.

Continuing to we will continue to keep you updated as we make progress towards the space force milestones as well, so hopefully that will be pretty pretty fun to watch over the next couple of quarters here.

Alright, Thanks, Chris Thanks, Axel Thanks for the update.

Thanks Randy.

And this concludes today's conference call. We thank you for your participation and you may now disconnect.

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