Q4 2023 Rocket Lab USA Inc Earnings Call

Yeah.

Sure.

Good day my name is L. A will be a conference operator for today at this time I would like to welcome everyone to the rocket love, what's going through 2023 financial results update and conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

I'd like to ask a question. During this time, please press star and number one on your telephone keypad. If you would like to withdraw your question. Please press star and number one again. Thank you I'd now like change it used to call Colin Canfield head of investment and relationship calling you may now begin.

Thank you Hello, everyone. We're glad to have you join us for today's conference call to discuss <unk> fourth quarter and full year 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 Securities and Exchange Commission.

Such statements are based upon information available to the company as of the date hereof.

And are subject to change for future developments, except as required by law. The company does not undertake any obligation to update update these statements.

Our remarks in press release today also contain non-GAAP financial measures within the meaning of regulation G enacted by the SEC included in such release and our supplemental supplemental materials a reconciliations of these historical non-GAAP financial measures to comparable financial measures calculated in accordance with GAAP. This call. This call is also being webcast with a supporting presentation and <unk>.

A copy of the presentation will be available on our website.

Our presenters today are rocket led founder and Chief Executive Officer, Peter Beck, and Chief Financial Officer, Adam Spice.

After our prepared comments, we will take questions and now let me turn the call over to Mr. Beck.

Yes, Thanks, Colin So we've got a lot of great achievements and milestones to share across Q4, 2023, and Q1 'twenty 'twenty four.

Adam will then talk through our financial results for the fourth quarter before covering the financial outlook for Q1 2024. After that we'll take questions and finish today's call with near term conferences that we'll be at Tuesday.

Okay onto what we achieved in the fourth quarter for the year, starting with Avalanche business sorry.

Sorry, we had a successful return to flat in Q4, we rounded out 2023.

That flight successfully deploying satellite for Japanese customer IQ piece.

This launch marks the conclusion of an NDS round the clock investigation that got to the bottom of the issue we experienced on the previous launch with mitigation is now in place for future missions, we're starting to pick up the launch pace for this year.

In Q4, we also hit a new annual launch record ended the year with two launches this thing a previous record of non.

Not only did we reached this <unk>, but we also can be influenced.

Launches from a U S folks thought introduced and launched our highest several brutal hypersonic vehicles for the first time and we were the only small launch provider to launch more than one <unk> in 2023 overall, a strong year for elektron team with plenty of first in your record and we look forward to building on that this year.

With the end of the fourth quarter, we wrapped up.

Rick would you have another comment this time for new launch deals, we signed 25, new launch contracts in 2023, including.

With respect.

Sure.

And it's been a big few months for the propulsion team, bringing the Archimedes engine to us.

The single element preparing his campaign was completed all of the engine components that complete or in final production for the first engine and once integrated testing is complete we'll start to see some far it's DNS and can move into production plot engines.

Following successful disc campaigns.

And then on the launch infrastructure most complex III in Virginia is taking shape nicely. The team has completed an initial pause in concrete foundations were awarded.

Watertown locks tank and of course the launch Mt.

And having built three launch pads now, even though I say that I think the bogo another one.

Really starting to get well refined and streamlining the process to build base quickly and efficiently.

One of them one of the ways. We do this is by developing lots of key infrastructure in parallel. So we don't wait in total foundations to be done to stop the cryo tanks, we'd do it all concurrently.

And it sounds like both the launch of Mt.

We fabricate all those large steel structures of thought and bring them to thought and install them just as soon as the foundation work is done.

How we're able to build LC too in a record time of just 10 months.

And now with <unk>, where it substantially.

Why.

About ground infrastructure, the launch meltwater and tanks.

We'll start to be installed across the next couple of months really for final integration testing and then of course in preparation for launch.

Now over to Mississippi, where Archimedes two standards ready for.

<unk>.

All the major concrete and steel construction construction work is complete and commissioning of the Lux co Florida system is underway.

We're on track for the standard support and engine by the end of March after that really start to see some fall out which would be good.

And on the neutral on production infrastructure in Q3, Q4, we announced we are establishing a space structure is complex and Middle River, Maryland in the form of Lockheed Martin Mountain vertical launch building.

This facility will be home to the development and production of a wide range of large composite structures and products for batch won't change spy systems, including neutral.

Just a couple of months after taking over the boating, we've really the facility to accept and.

So the large scale production equipment, including automated.

Dominated by replacement machine, which is really the key to rapid repeatable production of neutrons composite structures.

So across the board we've reached some really critical milestones on that journey to compress neutron launched over the past quarter and a bit now we're at the point at the end of the development program with all the hardware systems and infrastructure start to integrate culminating in neutral and space launch currently scheduled clauses for this by the end of 2024, and we do have a track.

It goes to delivering programs faster than typical industry standard timelines, but we know more about how close to the schedule.

Bottom line, we are and we can hold once our committees.

A bright spot and we completed a couple of other major.

So we'll have an update on this thing.

And then.

Back to small launch we had a strong start to the quarter with two successful electron missions.

<unk> included a dedicated launch thus far global and North star as well as a really complex and unique mission for extra scale.

Which to set a lot designed to run <unk> on all but with an all direct Japanese rocket stage. The purpose was to demonstrate the ability for us to closely follow and monitor non cooperative object in space.

With a view to understanding how satellites might be able to talk with pieces of space junk in the future and dragon back to Earth, and obviously reduce onboard of debris.

The increase in spy sustainability.

No I don't think many people really realize just how wildly ambitious and challenging that mission was for ethane, it's difficult to difficult enough to rendezvous.

Two items in Spice that talk to each other.

Additional capsule in the oses yeah both.

Communicating with each other and I know everybody is each.

Each relevant object.

But in the case of a deliberate Daryl like rocket stage at all because no data on its location speed tumble rights. All of these things you really really need to know to approach something in space.

So it's put us just extra asterisks skylab spacecraft into exactly the right place at the right time to rendezvous with the stage at GNC team demanded high highly accurate orbital insertion with tighter margins than required on just about any emissions.

Zero was R&D I wouldnt be defined a day prior to the launch and required in <unk> accuracy of annually plus or minus 15 chickens.

I should note that the GNC team was able to deliver.

That accuracy to within one point or thoughts you can sorry, 15 times bigger than the speak that was required.

<unk> delivered perfect Bullseye the spacecraft was deployed to exactly the right location and the right way to contact spacecraft.

Commissioning with 90 minutes after minutes after launch.

This level of title admission design and that somebody is just not possible on rod <unk> and why demand for elektron continues to grow.

With two launches down we have to more to complete this quarter, including emission for SUNS Victor from LC. One on March nine UTC, followed by dedicated launch, but the National Reconnaissance office on March 20, UTC from <unk> two in Virginia.

Emissions Testament to the trust and value our customers place in Elektron. Since this will be electrons fourth launch with some <unk> and launch with the MRI.

It would be a first in our own launch from U S. Soil. So we're excited to demonstrate responsive launch capability.

D on two continents.

Not only did we launched emissions from Q1, so far but we bought electron BEC two we recovered electrons per stage from the spa emission and generate bringing it back for an Asian recovery.

Electrons recovery proceeds has been it hurt us, enabling us to make small modifications and improvements to the stage and marine recovery proceeds without causing a slowdown on the rocket production line, enabling us to keep increasingly transparent guidance generally generally a program like this would cause I think the pause in production to allow for design phrases in production changes.

But taking small steps on each but we've been able to continue delivering.

The launch service to our customers and the one that they rely on.

Typically this process has yielded successful results.

January missions or electron come back in the best condition yet.

<unk> is currently undergoing hydrostatic testing to determine if we are comfortable to put it back on the pad.

The next milestone for the recovery program is deploy mission with non pre plant rather than engines. You remember that we successfully re launched our single Rutherford engine late last year. So now we're going to put one out of them.

And through their paces keep keep an eye out for that milestone combined.

Ross onto some of the key highlights for our spy systems since the end of Q1 and just a week.

Just last week, we achieved a world first successfully reentering a capsule for more but that was used to manufacture pharmaceutical products in space.

We designed and built and operated the spacecraft for about our systems industries to house and space manufacturing capsule.

Launched in June last year. The spacecraft was initially designed to operate at all but for around four months before we'll be deal, but it into the Utah desert.

Lengthy delays in regulatory approvals to bring the spacecraft time.

We ended up bringing it.

We ended up on orbit for more than eight months.

Testament to both the spacecraft builders and operators.

<unk> fall asleep for that extended duration.

Now operating a spacecraft is one thing, but bringing in landing it within a tiny designated area is quite another and team managed 24 seven flight operations conducted multiple engine burns and carrying at real time trajectory calculations and adjustments to see the capsule on of course, but the Utah testing and training range.

Context, the margin of error is less than zero point is there a thought to and if an engine burn is even a fraction of a second too long or too short you mean, one hundreds of miles away from me designated landing zone. This is typically the stuff of huge government programs and decades of development. The only other company to successfully reenter a capsule comorbid purely commercial mission.

<unk>. So we have joined a very elite club.

On your first attempt.

This mission was the first of formations that we have booked Nevada and the Knicks spacecraft is built and ready for launch in the middle of the year.

So I think the lessons we've learned on this program are helping inform future projects, including scientific sample returns point to point cargo delivery and of course human spaceflight capability on neutral in the future.

So on that note before I hand, it over to Adam to talk through the financial highlights and outlook.

Putting time to share an update on our wireless vice craft programs in 2020, we launched our very first rocket led built satellite photon. It was really a defining moment for the business aligning the sand we became an <unk> company not just the launch provider. Since then we've had the privilege of developing launching and operating space craft for a broad range of cost.

And they've all told US the same thing.

They need reliable highly capable surprise scrap book quickly affordably and at scale and we've done. This we've developed a spice crop that has delivered emission successful mission to the Moon. Vanessa we've developed twin spacecraft for emission demand, where boating constellations of hopped on spacecraft, the SDI Anda and of course.

We've proven spacecraft Ricci capability now too.

As we've delivered more and more successful spacecraft missions demand for the space craft or similar variance on them has grown so have expanded beyond <unk> to create a full family of standard spacecraft buses. So allow me to formally introduce lightning pioneer explorer and of course, the original photon montney.

<unk> is our newest spacecraft bus design for 12, plus Overlock, Spain and layout that utilizes electric propulsion delivers high powered radiation tolerance and incorporates full redundancy all critical subsystems.

This is a half ton three kilowatt bus deal for communications imaging and remind seed thing.

During this pioneer a highly configurable platform designed to support large pilots and unique motion protocols, including reentry.

Independent Terry missions as explorer hard Delta spacecraft with a roundabout a kilowatt of path logic appellant tanks, and potentially precision orbit determination system, ranging transponder and all the things you need to go into deep space.

Explore enables small spacecraft missions to planetary destinations nearer objects and earthmoving like ranch points.

And of course photo on sticking around as the original spice credits by scrap plus launch option.

Thanks to our vertical integration strategy. These based cough share many common components and subsystems designed and manufactured in house by us, enabling us to deliver spice crop quickly affordably and reliably using slide proven components.

Each of the spacecraft currently on order and a range of quantities with 40 plus satellites currently in our production backlog.

From humble beginnings with bumps spice crop just four years ago to a full family of them designed to serve commercial and government partners is certainly an exciting time for our spy systems business.

So that wraps up the key business highlights from Q4 2023 in Q1 this year.

So from so from here I'll hand over to Adam to take us through the financial updates over to you Adam.

Thanks Pete.

Fourth quarter 2023 revenue was $60 million.

In line with our with our revised guidance provided on January 31, 2023, but below the low end of our original Q4 guidance in November due primarily to the push out of one of our planned fourth quarter launches, which was due to the longer than anticipated September anomaly radiations.

Fourth quarter revenue represented a sequential decline of 11, 3% due to the reduction of launches from three in Q3 to one in Q4, partially offset by continued growth in our space systems business.

On a full year basis, 2023 revenue was $244 $6 million.

With impressive growth of approximately 16% year on year, especially when taking into consideration the effect of september's electron anomaly.

Our <unk> services segment delivered revenue of $8 5 million in the quarter from one launch which is above our targeted average selling price of $7 $5 million and consistent with our revised guidance of $8 $5 million.

Our current aggregate electron backlog reflects an average selling price of $8 $1 million and we are encouraged by our funnel of new business that is consistent with this pricing level.

On a full year basis lots delivered revenue of $71 9 million or an increase of 18, 5% 18, 5% year on year.

Our space systems segment delivered $51 5 million of revenue in the quarter.

Which was up 11, 2% sequentially and in line with our revised guidance of $55 to $52 5 million.

With sequential growth driven by our MDA satellite bus contract as well as growth in our component businesses.

On a full year basis space systems delivered revenue of $172 7 million or an increase of 14, 9% 14, 9% year on year.

Turning to gross margin GAAP gross margin for the fourth quarter was 25, 8% in line with our revised guidance of 24, 8% to 26, 8%.

non-GAAP gross margin for the fourth quarter was 32, 3%.

In line with our revised guidance of 31, 4% to 33, 2%.

GAAP and non-GAAP gross margin performance reflects improved mix in both our merchant component and satellite manufacturing businesses, partially offset by the effect of less overhead absorption and a launch business due to only one electron launch in the quarter.

We ended Q4 with total production related head count of 852.

<unk> 36 from the prior quarter.

Turning backlog, we ended Q4 2023 with just over $1 billion of total backlog with launch backlog of $248 $3 million in space systems backlog of $797 $8 million.

Relative to where we ended 2022 total backlog was up 108% or $542 5 million. Thanks, primarily to the $489 million based portion of decembers $515 million SBA Beta Award.

For space systems backlog was up 106% year over year, or 400, $410 4 million again, largely due to the SBA being a contract signing.

And our launch services business backlog was up over 213% on the back of multi launch electron deals with government and commercial partners along with strong bookings.

We expect approximately 41% of current backlog to be recognized as revenues within 12 months as we scale our work in elektron paced MBA and other space systems projects.

Turning to operating expenses in the quarter GAAP operating expenses for the fourth quarter of 2023 were $63 4 million in line with our revised guidance of 62, 5% to $64 5 million.

non-GAAP operating expenses were $53 $5 million again, consistent with our revised guidance of $52 5 million to $54 $5 million.

GAAP operating expenditures grew 63% from the prior year fourth quarter almost entirely within R&D due to increases in staff costs within space systems, and neutron as well as prototyping emitter materials related expenses.

non-GAAP operating expenditures grew 95% year over year, largely due to the same reasons as above plus the effect of stock compensation expenses.

Now focusing on the quarter over quarter changes as mentioned in a prior slide GAAP operating expenses for the fourth quarter of 2023 were $63 4 million and non-GAAP operating expenses were $53 5 million.

The increase in both GAAP and non-GAAP operating expenses versus the third quarter of 2023 were primarily driven by a reduction in contra R&D credit that wrapped up in Q4 related to new front office stage development from our U S government partners as well as the impact of increases in head count and increased depreciation and amortization expenses related to the recent Capex <unk>.

<unk>.

And SG&A Capex GAAP expenses declined $1 $3 million quarter on quarter due to a decrease in performance reserve escrow related to our ASI acquisition.

Partially offset by an increase in change in contingent consideration related to our PSC acquisition.

non-GAAP SG&A expenses increased by $500000, primarily due to increase in head count along with increase in outside services expenses.

Q4, ending SG&A head count was 247, representing an increase of 11 from the prior quarter.

In R&D, specifically GAAP expenses increased $10 9 million quarter on quarter due to the previously mentioned roll off of Contra R&D credits related to nutrient upper stage development as well as an increase in neutral and development spending offset somewhat by a reduction in stock based compensation expense.

non-GAAP expenses increased by $13 3 million during the same underlying factors driving the GAAP spending increases.

Q4, ending R&D head count was 585 million represent an increase of 65 from the prior quarter.

In summary, total fourth quarter head Count was 1684 up 112 heads from prior quarter.

Sure.

Turning to cash purchase of property equipment and capitalized software licenses was $10 4 million in the fourth quarter of 2023, a decrease of $10 $6 million from the $21 million in the third quarter of 2023.

This sequential decrease was due to lumpiness in the timing of our large capex items across both of our launch and space systems businesses.

Cash consumed from operations was $42 $4 million in the fourth quarter of 2023 compared to $25 2 million in the third quarter of 2023.

The sequential increase of $17 million was driven primarily by the timing of receipts and payments related to our satellite manufacturing business and the impact of delayed launch services milestone invoicing due to shifting manifest adjustments post electrons September 19, 2023 anomaly.

Overall, non-GAAP free cash flow defined as GAAP operating cash flow reduced by the purchase of property and equipment and capitalized software in the fourth quarter of 2023 was a use of $52 6 million compared.

Compared to $46 2 million in the third quarter of 2023, or a more apples to apples comparison of $54 $6 million when including the impact of our asset acquisitions, most of which is classified as PP&E.

The material step up in negative non-GAAP free cash flow was as noted in my prior GAAP operating cash flow commentary was result of a lumpy timing of payments and receipts associated with our space systems manufacturing operations and the impact of post anomaly launched services milestones invoice delays for which we expect reversal this negative working in cash.

Working capital cycle through early 2024.

The ending balance of cash cash equivalents restricted cash and marketable securities was $327 9 million as of the end of the fourth quarter of 2023.

Reflecting on the past four quarters, we continue to make meaningful progress towards our long term financial model.

Increased neutral on investment will likely continue to drive EBITDA losses in 2024 as.

As we move through the year, we believe a trend to improving scale and efficiency in our space systems business and electron launch cadence and production efficiencies provide an optimistic outlook towards achieving our long term target business model.

Overall, we expect gross margin trends will continue to improve over time. Thanks to the same factors that helped drive improvement this year.

In terms of when we can get to adjusted EBITDA breakeven neutron investment, especially R&D spend continues to be the pacing item to achieve this critical milestone.

Turning to our recent fund raising of $355 million in convertible senior notes.

With this financing we believe we secured a large quantum of cost effective and shareholder friendly capital.

The roughly $300 million of proceeds net of our capped call and deal fees positions. The company to exercise inorganic options to further improve our vertically integrated supply chain with a critical capabilities that are consistent with what we have done successfully in the past, which has enabled larger and more strategic program wins like the recent $5 billion SBA program.

With that let's turn to our guidance for the first quarter of 2024.

We expect revenue in the first quarter to range between 92 and $98 million Rep.

Representing sequential revenue growth of between 53% and 63%.

This range reflects $60 million to $65 million of contribution from space systems, and 32% to $33 million from launch services, which assumes four launches.

Although modestly lower than what we previously expected for Q4, just a few months ago, we don't want to understand how encouraged we are with the magnitude of this forecasted quarter on quarter growth and how positively it reflects on the capabilities of the team to deliver this level of growth in such a complex and competitive set of businesses.

We expect first quarter GAAP gross margin to range between 24% to 26% and non-GAAP gross margins to range between 29% to 31%.

These forecasted GAAP and non-GAAP gross margins reflect improved projected launch cadence in Q1 offset by mix shifts in our space systems business biased towards the larger and lower margin satellite manufacturing program revenue contribution versus certain of our higher gross margin component offerings.

We expect first quarter GAAP operating expenses to range between $73 million $75 million.

non-GAAP operating expenses to range between $62 million of $64 million.

The quarter over quarter increases were driven primarily by increased neutron investment, including staff cost prototyping and materials as well as the runoff of Contra R&D credits related to our neutral upper stage development agreement with U S space Force.

We expect first quarter, GAAP and non-GAAP net interest expense to be $1 $5 million.

We expect first quarter adjusted EBITDA loss to range between 28, and $30 million and basic shares outstanding to be approximately 490 million shares.

And with that I will hand, the call over to the operator for questions.

And now opening the floor for the question and answer session. If you'd like to ask a question. Please press star and number one on your telephone keypad.

Your first question comes from <unk> <unk> from Cantor Fitzgerald. Your line is now open.

Hello, everyone. Good afternoon, congratulations on the quarter or the launch if the development of a new trend and it sounds like it really was a bit.

A busy quarter. So congrats on all the development and thanks for taking our question.

I was just wondering if maybe you can give us some color as to how we should think about scaling and timing of other opportunities in space systems across both maybe satellite manufacturer and components and maybe.

How should we think about our reaction wheel in your backlog versus revenue contract. Thank you.

I'll take the first pass at that Adam.

I wanted to just talk about the.

The revenue thought that I mean, we continue to see.

Lots of.

Scanning across the space systems business, particularly.

From commercial and government. So you have big programs like the SDA program.

The curing.

Hundreds of satellites over extended periods of time that require replenishment and then you have a commercial model that.

It's kind of similar so as we as we.

Those constellations and those those government programs continue to build out and we continue to either supply what we have already won or win more.

The corresponding timing of that revenue.

Scale appropriately done maybe Adam.

Further comment.

Yes, no I think a little more color there. So if you look at the at the mix changes that are going on within our space systems business, specifically between the satellite manufacturing and the components businesses.

I will say that this year, we will have probably a more significant step up in the relative mix of the space systems part of the settling manufacturing part of the business and Thats a function of going into production phase on our.

Our contract with MDA. So I think this year you start to see again, a little more relative contribution from the photon side of the business.

But we are seeing very very significant growth also from the components, it's just coming from a different base.

And when you think specifically you also asked about the reaction wheel business and kind of where that is right I think you're probably referring to the mega constellation win that we've announced some time ago and so that starts to ship in meaningful ways. This year as well. So we see again very encouraging growth across the satellite manufacturing, but also components in this case this year will be.

A very good year for growth in our reaction wheel business, particularly tied to that one may constellation deal that we announced a couple of years ago.

Got it that's super helpful. I appreciate all of that context, maybe one follow up for you Adam.

In regards to the $515 million.

Contract Award with the Space Development Agency I'm wondering if maybe you can give us some color as to.

How we should be thinking about in terms of modeling in terms of revenue recognition I understand theres, a base amount of little less than $490 million and I think contract work for this contract has already begun but just wondering if maybe you can give us some direction as to how we should be thinking about it in terms of recognition for our revenue.

<unk>.

Sure, Yes for this contract in particular.

It is not too dissimilar to other satellite build contracts and the fact that it's more backend loaded its not like we.

Under this contract we will recognize revenue as we expand resources against the program to complete it so under what they call an EAC basis under ASC 606.

So if you think about this year is really all about kind of finalizing the design elements of the program.

And the majority of the revenue ultimately gets gets recognized as you're kind of.

Turning to build hardware and certain pull things to the floor. So this year, we will recognize some revenue against the contract because there is cost to complete the design elements of it but will you really see is the meaning more meaningful contribution of revenue will start up probably more towards the second half of 2025, and then ultimately the satellites begin shipping and ultimately ship in 'twenty.

27, now what we will say is that if you think about the kind of the working capital kind of elements of this deal is revenue revenue revenue recognition is not tied to kind of cash receipts and we will be positive from a from a working capital perspective on this contract because we have to at some point, we receive the payments from the customer.

We have to afford some of those payments, obviously to our long lead vendors. So, but we have modeled this contract to be cash flow positive from its inception. So.

This is one where it's it's both good from a working capital perspective, but also it is going to build nicely from a revenue contribution as we progress through 2024 and into 'twenty five and beyond.

Wonderful that's super helpful. I appreciate that.

Again on the quarter I will pass it on thank you.

Question comes from Erik Rasmussen from Stifel. Your line is now open.

Yes, thanks for taking the questions and congrats on all the progress you guys have been making.

Maybe just on the SBA Award.

When looking at that $115 million.

Basis.

It seems like the value per satellite almost $29 million is meaningfully higher than what we and what we saw that was previously awarded on that beta program.

What's driving this and what is the cost structure of the satellite and are there any fees associated.

Yes, Pete I'll, let you take the first piece of that sure. Yes, yes, yes, I mean, sorry little satellites are created equal Eric.

And.

That particular.

Bus and designers.

It's pretty pretty unique so I wouldn't wouldn't read too much into.

The average satellite prices kind of it's kind of thing.

Average cap price, but does it does it.

Does it Ferrari and Toyota and you don't expect those to be the same.

Ain't processor.

So you have to kind of look at it look at it with respect to what its capabilities.

And what are the quality of the components that have been used and so on and so forth.

And as far as Eric as far as the <unk>.

The NRA piece, yes, I mean, yes, there is an element to this program and Thats really again, what's going to be happening this year and 2024, and that's what will get the beginnings of revenue recognition on.

It certainly won't be a very significant portion of the overall contract value, but it's also not completely immaterial. So as we progress through 2024, we will be able to provide more color on what that Rev. Rec looks like.

It gets a little bit early because the contract is relatively new and we're still going through a lot of program details.

But again as we progress throughout the year, we should have much more kind of ability to provide color on on kind of the timing and the magnitude of the incremental contribution from the <unk> phase of this contract.

Okay, we'll wait for that thanks, and then.

Obviously your backlog continues to grow we added over $500 million with the SBA Award.

Just comment on some of the types and size of potential deals whether on the government or commercial side that you're tracking or maybe.

Maybe some qualitative comments to highlight the opportunities maybe the programs you guys are looking at.

Yes, sure I mean, it's obviously Eric.

<unk> is a is a big one.

As I mentioned previously.

Previous answers.

Space craft that require replenishing.

Give us government is moving from.

Hugh.

So linked assets in Gi to distribute a Leo architecture. So that's.

That's a significant opportunity and change from the government and it's not just SDI. If you look across all of the government agencies.

Transition down to leave us.

So.

We see lots of opportunities.

The U S government and quite frankly from from other governments.

Other governments follow.

Followed that path and then on the commercial side.

This does a number of constellations.

That we.

Continued to continue to track that will always be pretty selective about the work that we take on and I think we've mentioned before that we were only really take on work that we believe is strategic to the longer term vision of the company.

And.

We will continue to.

To follow that process.

Yes, Eric.

Little bit to that too.

We had this big step up as you noted related to the FCA contract and I think it's a very meaningful one for us because again, we're priming that mission, we're not a sub where the prime for it. So I think that opens up other opportunities to take on bigger and bigger prime.

Brian projects, but I think with this big step up I think we can also kind of look forward to really with as we get closer and closer to getting neutron to the pad.

Obviously, that's going to be an opportunity to significantly build our backlog in a very very meaningful way given the estimated average selling price of that vehicle versus electron.

And in addition to basically looking forward to having neutron start adding to the backlog, we're seeing a lot of excitement and appetite towards haste in haste emissions are a great opportunity for US there are recent add to our to our launch capability stack. So across both neutron haste and just kind of if you want to call. The Elektron Classic I think there's really a lot of opportunities.

Continue to build that backlog and kind of hopefully maintain a relatively.

Consistent mix of launch and space systems.

When P&I kind of we're looking at how we want to model. This business going forward, we do like the <unk>.

Predictability that space systems brings with it across components plus large program off.

Opportunities because launch is always going to be a lumpier business.

So kind of but we think theres a large magnitude of opportunity there again, particularly as we mix in more haste and start to see a neutral opportunities feather into the backlog.

Great.

If I could just add.

One more on the <unk>.

Dale you announced.

You arrive at this maybe versus other financing options, you're contemplating and then of the $300 million gross net proceeds.

Obviously, you mentioned M&A, what kind of message could be interesting to bring in house.

For your strategy.

Yeah I'll take the first one then I'll pass over to Pete to kind of maybe provide more color on M&A targets.

Sort of areas, we might be looking at.

Why convert I think when we looked at all the different options and we did kind of exhaust all the different possibilities out there.

It was the right vehicle to provide us the quantum of cash that we were looking to raise because we do see a lot of opportunities out there to grow inorganically.

Continue to exploiting kind of M&A as a growth vehicle for us.

And if you look at the flexibility that provides as well.

But there were no financial covenants related to it it gives us a lot more freedom to run the business the way that we think it needs to be run.

And from a cost of capital perspective, we just think it represented the lowest cost of capital versus some other kind of straight debt options and and so forth. So we really we ran kind of parallel processes looking at different ways to bring capital in the business all the way from doing a straight equity offering to doing straight debt to then the convertible and the convertible just came on top.

In almost every metric that we were looking to raise on so.

For us it became kind of a no brainer as we as we learn more about each of those options as they can.

To be presented to our business. So I would say, we put some competitive tension in the process to make sure that we were picking the right product and ultimately felt comfortable that this indeed was the one.

Yes on the assets.

Potentially even the M&A targets.

Look there's a couple of things that we don't have an equivalent with respect to that system.

System. So there is a potential for some tuck ins.

I would tell you we have.

A reasonable focus on.

Payloads I mean.

As a prime now.

I mentioned, the only thing that we're not really doing.

The extra pilots instances.

So I think that's obviously an area of interest and.

I'll remind you that the.

The end goal here is not just to be a.

Best provider or even a prime midst to ultimately have aaron constellation and all but providing.

Services, because that's where we ultimately think this all goes.

As I mentioned before everything we do is it within that that kind of vision.

And.

The same with with any kind of M&A.

M&A targets, especially in the pilot area.

Great. Thanks for taking the questions and good luck.

Thank you.

Our next question comes from Kristine <unk> from Morgan Stanley. Your line is now open.

Hey, good afternoon, everyone.

Peter with the BARDA mission, you mentioned that your experience with the capsules the entry could inform potentially crewed mission via neutron can you expand on that a bit and how far along are you in developing a reentry capsule for nature that can carry humans.

How are you thinking about that market opportunity there.

Yes, Thanks, Christine So look we.

As we are designing neutron.

To be clear, we don't have any active capsule development programs or anything.

But as we were developing the vehicle we wanted to make sure it was human ratable.

Its a vehicle of significant enough scale in class that it should be capable of human space flight.

It's definitely definitely something we pay close attention to now with respect to the human specified market.

A an unusual one because really there is there any one customer.

Right now the big NASA and the feeling well served so.

Yes.

It's unclear whether or not.

There is a big enough market opportunity.

To go after that is.

As it stands today, especially if you were to self fund all of the development because typically those programs. The development has been paid for by the government so that would be a pretty pretty big quarter Mike.

But.

We will make sure that we are ready and able to take human space flight missions. When we think the market conditions are right and when there's more than probably one customer which.

Obviously needs to be more than one destination. So.

As the space industry continues to evolve and grow and that it becomes clear that there is more destinations and more customers to human space flight.

<unk>.

We are ready with the neutral on vehicle and.

Clearly, we can reenter in inland stuff effectively we need to.

Great. Thanks for the color and maybe on the tranche two.

You talked about near term being in the pad this year, but what do you think about a launch in 2024, given all the work lack on the program.

And also how do you think about the cadence are you still on track for about neutral on launches in 2025.

Yes look I mean at the end of that it's a rocket program right.

And.

Right now we have a schedule that closes for launch by the end of the year.

But.

We've got a lot of testing to get through and if everything goes well then everything goes well.

If we have some issues and some development issues, along the way whether it be <unk>.

<unk>.

The other systems.

That will cause us to reevaluate the schedule, but.

Kind of as it stands today.

It's kind of.

We're looking at it and.

We.

Like I said, we have a schedule that that.

Closes and then.

On cadence will follow a very similar cadence to what we did with electron.

Sorry.

If we get one away this year.

Denise you would look to be two to three and then.

Maybe I'll just step it up to as much as five but it really depends on.

We have a development program goes and it also depends on.

How how much work we have to do after we get past Chris slot as to what cadence we can make it but what I will say is we certainly get up from from an infrastructure perspective to deliver those cadences.

The <unk> machine in the Middle River facility and also the Virgin orbit.

I would say that from an infrastructure standpoint.

We are in a good position to scale.

Great and last question on Neutrolin as.

As you sit here what do you anticipate the mix of customers that is our government versus commercial over the next two years, where do you see the most opportunity for Neutrolin customers and when do you plan to share the details of the initial customers that for the first launch and ultimately do you expect to launch neutron from.

Both walnuts and New Zealand.

Sure.

We certainly hope for a mix of sort of 50 50, we have found it to be.

To be pretty pretty.

That's about right for Elektron I think.

It provides.

Good.

A good mix.

And.

No.

There is a plenty of government customers that are looking forward to the vehicle coming on line and equally so commercial customers sorry, I have no reason to believe that we won't see.

Barry.

Thank you.

A different a different mix and then.

Okay.

With respect to Wallops IND.

<unk>.

It will likely launch from from Wallops.

Your line is not a viable long sought for vehicle of the size to.

To give you a sense of scale. If we took all of the liquid oxygen produced in New Zealand.

Would have neutral on tech once so it's just not the industrial base to be launching a vehicle of this class them down in New Zealand, so it'll be exclusively.

<unk> had to start with for sure.

Great. Thank you for the color.

North.

Yeah.

Our next question comes from Nomura.

Maher from TD Cowen Your line is now open.

Thank you very much.

So.

Your gross margin you've indicated is going to be lower in the first quarter than the fourth.

Yes, if you hit the target Youre going to have four launches versus one and basically made the point.

This is huge leverage in terms of more launches so how come the gross margins down you mentioned system, but is the launch margin up sequentially.

Yes, Okay I'll take that one so yes, the large margin actually does increase sequentially based on those increased number of launches. It's really all consumed though and then some by space systems is again, the result of a disproportionate growth on the system side of things as we move into the production phase of the MTA contract.

So again, it's kind of goodness on the launch side does get consumed by kind of just the mix on the space systems side. So the benefit of these large space system contracts is obviously scale and absolute dollars that flow, but they do come at a lower gross margin.

Versus our components business. So over time, it's really all about managing that mix of these kind of larger lower gross margin.

Programs on the manufacturing side of space systems versus the higher margin component sales and the increase in gross margins that we expect from our launch business as we continue to grow the scale of the cadence of electron throughout the year.

Thank you and then the second one.

Taste, you mentioned, you've got seven orders in 'twenty three.

What percent or how many are they out of your youre manifest of 22. This year roughly when do they go and how does their profitability compare with an electron launch.

Yes. So we have we have two haste emissions on the manifest for for 2024 out of the total 22 manifested.

And if you look at the.

The contribution from a margin perspective is relatively consistent with other launches I mean, we have a higher selling price, but we also have some incremental costs associated with those because they go out of wall up. So we have more variable costs related because we pay the range fees and Virginia, plus we also have kind of incremental youll government.

Mission assurance costs. So you basically have the benefit of higher selling price, but as a gross margin percentage contributor it's about on par with other elektron missions.

Thank you very much.

Okay.

Next question comes from Matt.

Hackers from Wells Fargo. Your line is now open.

Hey, guys. Good afternoon. Thanks for the question.

I think Adam you touched on.

EBITDA breakeven and it sounds like Thats kind of.

Bye.

Sort of how fast neutron.

And then is there any more color you can kind of give there or is there a range, we should sort of think of it again 25, a reasonable outcome.

If everything goes as planned.

Yeah. So.

As we progressed through <unk> through.

Through 2024, we expect obviously growth on the top line to continue we expect gross margin expansion.

All of that really does get consumed by a step up in investment for neutron we're really kind of in the throat of the spend on neutral this year and it's really all about getting getting across the line and getting the vehicle. The pad and then once we start going into production on that vehicle then obviously you've got some obviously.

Contributing revenue to offset the cost and it moves from R&D to cost of sales. So from a from adjusted EBITDA perspective, we really need to get that that initial neutron model to the pad and off.

So.

If you think about our timing again, if we're successful in the greenlight schedule hold as Pete talked about earlier, where we get the launch off by the end of this year, that's really kind of that cresting point and so not too long after that we should really be in the phase where we could be looking down at at line of sight to adjusted EBITDA positivity, but it really can't happen practically.

Without getting that first neutron off.

Got it that's helpful. And then I guess just to go back to the M&A discussion.

I think you highlighted some of the assets you might be looking at are those are those assets.

Coming available for sale are the prices reasonable just any any color on what youre seeing in the market out there.

I'll, let Pete take first stab at that.

Yeah sure. Thanks, Adam Yes, I mean.

Bear in mind that a lot of these.

These potential acquisitions are companies that we work with for many years.

Well, that's kind of been a normal kind of operation.

Sorry, sorry.

So it's less.

What's coming to market.

People are delivering to our client rather than strategically.

Going through in and working up the ones that we really really really need.

It's not about trust, it's not about buying revenue it's about <unk>.

Making sure we have the capability in house and.

With the Gulf of doing around doing the right thing in the future.

I think I think.

Privately funded.

Privately held companies seem to.

I've noticed that seem to kind of have been slightly.

Delighted from some of the value destruction that publicly traded companies that have experience.

We are seeing probably prices and asks that a little bit.

A bit higher than than might be benchmarked against public companies, but.

Yeah, I mean, Adam you might have some more motor side of that but.

That's typically what we're saying.

Yes, Matt I would say that the.

The expectations.

Of sellers remains high I think though we are seeing now maybe we're getting to a breaking point because we've seen processes sale processes that have been broken so where the transaction hasnt been reached by privately held companies. So I think that they're meeting a lot of resistance with their expected price tags, so hopefully that starts to kind of draw.

Five of change and sellers behaviors and expectations I think at some point they have to realize that ultimately the buyers.

If they're not just going to trade amongst kind of private debt private equity players that these public market larger companies that have liquidity and currencies to us that they've got to kind of come in line more with public market valuations and again, hopefully we're getting closer to that.

But I would say that we again, we're seeing some pretty interesting things out there that we think are actionable that.

That fit well within our portfolio that help us to continue vertically integrating our business and again I think the reason for the timing of the convert raise was really to enable us to capitalize on those opportunities. So a combination of kind of sellers getting maybe a little bit more realistic.

Combined with the <unk>.

The dry powder on the balance sheet, we think positions us well to take advantage of deals in the coming periods.

Great. That's very helpful color. Thank you.

Question comes from <unk> Desilva from.

And Ken Your line is now open.

Hi, Peter Hi, Adam I think you said on the call that the deal number of deals in calendar 'twenty. If I heard right. It was 25 I'm wondering what the comparable number was for 'twenty, two and I know that number includes space systems deals, but for the launch deals can you just talk about what youre seeing in terms of incremental deal size and terms.

Versus the prior year and how that's helping visibility.

Yeah.

I don't have the numbers top of my head, but I mean, we saw a pretty.

Mac step up and contract signing.

Last year.

Sure.

And that's due to a number of things I mean, I think electron clearly submitted submitted its position in the industry and theres a lot of customers sort of holding out for new entrants.

And a lot of customers that would really burnt by new entrants.

So.

I think it became obvious that electrons.

Is it kind of the.

The rocket in the sector.

Also I would say that.

We added new capabilities like hoist, which.

Completely new service using the same launch vehicle, which is a big Tam Tam expansion.

And.

And so that.

Certainly certainly help things.

And then I would tell you that.

The number of customers, what we find is that they fly on.

Transport emission, especially ex transport emission to get early kind of all but.

Experience and shutdown the spacecraft, but.

When they when they have when it comes time to actually delivering a spacecraft too.

Particular operational cadence they need.

There is.

Specific orbits and the cost trade trades pretty admirably.

To be able to do that so we see some of those some of that depiction of the transporter and onto electrons and that changed.

And <unk> just to touch.

Come back on that we were able to pull that number so we booked seven.

Elektron launches in 2022, so pretty pretty big step up.

2022 to 2023.

Alright, Thanks, and then I know you talked about it early in the year, Peter but just kind of revisit your being the prime contractor on the SBA I just wonder is that some of the reasons. There in terms of if that's a one off for that as a trend for the future you guys have the integrated space Port rocket launch space craft similar to Spacex Starlink, perhaps and just help us understand the competitor.

Framework for these wins that maybe this can be a continuing trend for you.

Yes, sure I mean look you you want to be the prime contract.

We've been.

Might just stop on another program.

And.

It.

It's very difficult if you're just the middle <unk>.

And in a program sorry.

Prime is we want to be.

<unk>.

As we look forward into the future programs that certainly we are positioning ourselves.

Going forward so.

And I think.

We've kind of reached a critical mass point.

We can be a really effective prime as well like we have enough capability and has enough experience and has enough satellite bus standards in house that that we can we can really effectively prime these missions and it feels like a long time to get here, but.

I think I mentioned in the commentary, it's literally like four years from from going from zero right.

Two promising a major mission.

Sorry, yes.

We will look to continue.

Down this path for sure.

Okay, Alright, thanks, guys.

Next question.

Comes from Marlena Perez Mora.

Your line is now open.

Good afternoon, everyone.

So my first question is a follow up on this step up and the bookings that you had on elektron lunches, how should we think about <unk>.

Pricing opportunities from cash profitability of the strategy kind of like how many open slots do you have many or few chart that you could actually price opportunistically.

Yes, we've always been pretty consistent.

Great.

We've always been pretty consistent in what we kind of model for the cadence of.

Elektron I think it tapped out Clinton.

If I'm wrong items.

The high mid to high Thirty's.

Certainly we have production capabilities to support up to 50 52 launches a year. That's that's what we designed all the launch pads and factories around.

So we certainly have.

The infrastructure.

To keep to keep increasing that guidance.

You bet.

But.

That's pretty much and it's pretty much in line with where.

We modeled.

We would be.

Okay. Thank you and then on mealtime.

What are the next milestones that we should look at for example, when do you expect to do the Hotwire Tech accumulates.

Yes sure.

The things the things to be watching out for.

Ah you're pouring concrete on the pad, which.

Because it requires really quite a mature design not just on the launch vehicle, but all of the systems to be able to be put in concrete in the ground.

Your vehicle interfaces and systems have to be very mature.

Concrete in the ground. So that's that's one to watch for and I'm pleased to say that that is happening.

The other one to watch for stage, one tanks and tank testing so.

Appearing components.

All of that all of that coming together, there's a million other things.

Between.

On the road that we can detail and then Archimedes the engine T cell is.

We'll be ready to accept an engine in March. So we will continue to push to get an engine out to that sell in March.

Then does a whole bunch of conditioning and testing that goes on before we before we go on.

Actually actually make thought about.

Subsequent engines rod in behind that.

You won't have to wait long.

To see some fall hopefully.

Okay.

Okay and then.

My last question looks like on your transfer, but like what.

It's out of your control and for example, this morning, there was news regarding the RFP that they're looking at Spaceport authority put forward, a while ups launch equipment fault and the anticipated completion date for that he's like November. So what is out of your control in terms of like I'll tell you.

Able to launch shortly.

Well I mean, we try and we try and keep as much in control as possible. That's why we vertically integrate.

But I think it's a good question.

And.

There are some elements that.

That are out of our control but.

The way in which we develop a lot of this.

This infrastructure is very highly managed in and.

Dairy.

Very very hands on and I wouldn't I wouldn't put too much credence in.

In particular Rfps.

That went out with respect to some of those dates I mean.

I think will stand on their own are on record of developing launch pads.

And in pretty short timeline.

So like I say.

I wouldn't put too much.

Too much weight on an.

Anything like that.

I would.

Whats the concrete guide down and watch us.

Just get us get us there and then even on the equipment volts.

It's nice to have the equipment and the vote, but it doesn't necessarily need to be in a vote.

As an example.

Okay. Thank you very much.

Our next question comes from Jason Gursky from Citi. Your line is now okay.

Great. Thanks, and good afternoon, everybody just maybe I might've missed this so apologies. If this is redundant you can just tell me to go read the transcript, but I did want to just ask on.

New drawn and the timeline of that relative to National Security launch program soon.

<unk>, one and the timeline that's behind all of that can you.

Comment on how you're tracking to your ability to bid on national security launch in those lanes one opportunities in front of us.

Yes, Jason So obviously, we are tracking that that line one.

Pretty closely and we spend a lot of time with the space Force too.

To to advocate for that line one.

And hence the reason why we're pushing so hard to two.

Good to hear.

The vehicle in a launch for this year because that is a is that a.

<unk> on ramp to July one now the good news is that those on ramps will be every year. So it's not like a one off opportunity that.

I think I think this is the reason why.

So many engineers.

Flipping on to their desks.

To just push to try and get that vehicle to the pit.

Okay, well to the extent that they are listening to this.

Read for you guys.

Sure.

Let's see here.

The other press releases you put out today on the bus portfolio it sounds to me.

And reading this that what you are kind of doing here is product guising custom buses that you've built for some customers over time.

Which is it seems like a reasonable thing to do.

But the question here.

Is to to understand whether you go to market strategy with the sponsors is too.

Continue to do what you've done with MTA globalstar or is it the go to market strategy Hey.

We've got these buses and we'd like you were going to go out and sell them as a full spacecraft will integrate whatever payload you need on it because you mentioned in.

Earlier part of the conversation that you wanted to be the prime but now you're out here with the product launch of a bunch of buses. So I just wonder how many square, which youre trying to do here.

Yes, so we're certainly not trying to sell.

Cell buses into a bus merchant market.

We obviously.

As you said, we've strategically chosen which projects that we wanted to undertake and.

And at the end of those those undertakings, we've ended up with a series of buses that neatly fall into the various categories.

One being deep space interplanetary, one being high Delta say high Delta below with a little bit and one being like extreme kind of environment long lifetime com satellites.

If you take the MDA best for example.

And the FDA bus.

I spoke on the on largely the same bus.

So the pilots changed but in the.

The best change.

What I will say as it turns out we're just not that good at naming things and it just became intensely confusing for everybody when we see it it's a fight on bus.

And all the buses were called site on but yet have vastly different capabilities than do vastly different things. So really it was.

The best portfolio <unk> was with just clarifying and making it easier for people to understand that when we say, it's a lightning satellite people understand that this is a large coms bus versus in explorer, which is a deep space interplanetary. So it's not really about.

Particularly.

Marketing.

Thing to try and sell a whole bunch of.

Buses.

It's really about helping people understand the variety and the depth of the capabilities that we've built and then.

Giving given the the products has sort of evolved to the point, where they really deserve the right name.

Okay, Great and then last question for me.

The comment that you made there on the call about.

Skating to where the puck is going and trying to understand what the long term financial model looks like and you mentioned like.

Where you want to eventually D as in the services business.

So I wonder if you could maybe double click on that a little bit more and help us understand.

What you mean by that exactly because because when I think of.

Services I think of.

You build launch and then operate a constellation of various satellites that have different capabilities on them in.

That becomes a bit different.

Capital intensity, I think maybe relative to what youre doing today. So maybe just help us kind of broadly understand what you're trying to get done here.

Yes of course, sorry, I mean look this is this is something we've always talked about from day, one and.

And part of the reason why we are developing neutral and instead that we hit that right and keys to space for.

This particular.

Profile in our business and.

If you look at the value in the space industry like launches at call. It a $15 billion Tam spy systems $20 to $30 billion Tam services and space 320 billion Tam and if you look at.

If you read any of their reports.

Spice industry as the value of the space industry going whether it's a one trillion or two trillion dollars pick your report.

It's always true that the vast majority of all of that Tam is going to reside in the services that you provide.

Being the fright trucks that gets it there or the cabo to that that builds the truck, it's actually the service and.

What we have been very methodically going about doing is building all the infrastructure that we need to be able to ultimately provide a service now that the natural question that always comes after that as well.

Obviously, you're going to provide and I think we are.

We're ready to talk about any of that yet, but what I can say is that.

When we look to jump.

Jump into that larger Tam.

We will have.

A very disruptive way of going in there and executing in providing that service because we will be able to build what Eva spacecraft, we require using all of their on components and Florida narrowed rocket.

And I think you've seen one of the real life example of that with styling and with engineered from space and it's very very difficult to compete with that unless you have your own ability to manifest you said lots using your own components and your own ability to launch.

Launched Ais satellites.

Satellites.

<unk>.

Matching very methodically.

Towards that ship after steak.

Right, Okay, but <unk> got Starlink Kuyper, one when I was out there I mean this is on the comm side, it's a pretty crowded.

Market today, and then on the Earth observation side.

Plenty of competitors out there can you help us kind of dream big on what other.

Buckets are out there.

Well I mean, I think I think there's a lot of a lot of businesses business plans that are kind of.

Being put to the test right now like is is insulated from space really.

A large opportunity or not.

Excuse me, but the one thing that I can say is absolutely clear is that if you want to be competitive in there.

You have to own your own rocket and Dow Jones said a lot.

It's way too early for us to be discussing what kind of service. We think we think we can provide but what I am absolutely sure of is that when we when we decided to go into.

Into a particular area.

We will be highly competitive because of because of those things and the large space companies of the future in my opinion.

Not not going to be just to set a lot manufacturer just a launch vehicle provider. If you can do everything into and then you can you can optimize not only the launch but also the spacecraft.

For the service and all of that.

All the other elements that go into the compromises that you have to make and that's what we're setting ourselves up to be.

Okay, great well I look forward to having more conversations with you all about this over time as you are.

Some decisions.

Okay.

Our next question comes from Edison.

Your line is now open.

Hey, Thanks for taking my questions and squeezing me in just one follow up on the last topic on the on the constellation I know you said, it's too early but.

What kind of timeline do you think that trend is that 356 years out from now what would that kind of materializing in your view.

Look at it.

I'd say, it's even too early for that like we have to we have to build the foundations have been able to effectively provide that and really all focus is on neutral all if it's around neutral because neutrolin is critical.

For to execute that business model, but it's also critical to other parts of the business. So really I would say as a strong focus is on getting neutral under the patch because but that return on the pad and it makes it it makes it difficult to be hugely.

And disruptive.

In the services market.

Understood and then separately back to neutral and I know you mentioned the ramp up to.

<unk> identified is that going to be the kind of steady state or do we think we can we can do more than that once we ramp up fully per year.

Well I mean of course, we would love to do more but I mean, I've written as donkey before and its a rough rod and.

Bringing a new vehicle to life is very difficult bring it into production is even more and more difficult much more difficult. So.

It would be great too.

To accelerate that but if you look at the back you look at the history of every rocket program, whether it be government or commercial.

Cadence much larger than that has never been achieved so.

Elektron was the fastest to scale.

Yes.

And in time.

Out of just about every rocket program and.

That is a very very difficult thing to do so we just want to be realistic about what can be achieved.

Got it thanks a lot.

Our next question comes from Michael <unk> from Keybanc.

Capital markets. Your line is now open.

Hey, good afternoon, I, just had one more on neutron spending with the quarter a bit elevated on the spending side and you mentioned that as being the big spending year for neutron.

That going to be lumpy quarter to quarter going forward as you have more visibility surrounding some of these milestones are there pockets, where you see more elevated spending.

In a particular quarter or should we think about it relatively linear.

Yes, so I'll take that one so yes.

Spending is certainly going to be I think you would expect it to be consistently up into the right as we progress through 2024, and then again once we get the first vehicle to the pad, that's where that will be the cresting point now will continue to invest in the vehicles like we've continued to invest but on a much more modest level electron for example, so I think that.

There's no question that we will see a consistent kind of March up into the right. This year with with neutron spend now.

From a from an overall impact on the P&L, we will have some growth in topline and some margin expansion that helps accommodate some of that but.

But.

As I mentioned earlier really kind of growth on the topline and margin expansion gets consumed by kind of the the.

The size and magnitude and timing of Neutrolin.

And then on the overall budget for neutral how do you view that versus your initial expectation there and then maybe secondly is there a portion of the $355 million convert that earmarked to support neutron directly or is that.

More inorganic capital deployment there thanks.

Yes, so yes.

Yes.

I guess the.

On the spend for for neutron related too.

The cap rate so the convert that we just did is really capital that's dedicated towards growing the business Inorganically. So we have plenty of capital prior to the capital raise to do exactly what we said, we're going to do which was bring neutrolin to the pad with a certain time period. So we came public about two and a half years ago, We said end of 2024.

Or a budget of roughly $250 million to $300 million and that was going to be portioned across capex spend plus plus R&D within R&D. It was going to be a mix obviously of people related but also prototyping and so forth. So we are.

I would say remarkably intact on the estimates that were put in place at the time, both and obviously getting the vehicle to pad, but also the spend.

If you look at the amounts that we've spent so far for the neutron program were.

It's a combination of kind of what we've spent plus we've had some partners help spend along the way, including and we've mentioned the the upper stage development partnership with the space Force.

<unk> had strong partnership from Virginia space on the infrastructure side to help kind of accommodate some of those expenses.

So overall, we kind of pull all the cost this year is a year, where we'll probably deploy roughly call. It a half sorry $100 million towards the neutron program again across Capex and R&D spend and then there'll be incremental dollars that are spent on our behalf. So I think ultimately when you kind of pull it altogether.

Across what we spent what we're going to spend this year plus with our partners are put in play for us.

It's going to be remarkably close to that to that $300 million.

And again longer term that gets what we call minimum minimum.

Minimum viable product to the pad as far as the rocket and then also minimum viable infrastructure and infrastructure meeting the pad plus the manufacturing so one of the things that we that we benefited from.

Last year was the opportunity to acquire a bunch of scaling assets in the Virgin orbit.

Bankruptcy process, where we picked up roughly $100 billion worth of stuff for 16 cents on the dollar and a lot of it that allowed us to kind of I would say kind of hold schedule and a lot of important ways and also just to kind of have the ability to scale production of the vehicle without having to put a lot more infrastructure in place.

Certainly from a.

From a propulsion and avionics perspective.

So I think overall I'm actually pretty pleased with kind of again, the adherence to the timelines and the overall budgets and.

Nothing is really kind of stepped away from us at this point.

Knock on wood.

Be that wait till we get the vehicle to pad.

Okay.

Okay, great. Thank you for taking my questions.

We're seeing the Q&A session.

I'd now like to hand back over to the management for their final then Mike.

Okay.

That wraps up todays presentation. Thank you everyone for joining us today for the call broke a label will be participating in these up and coming conferences and we look forward to the opportunity to share more exciting news and updates with you then.

Very much.

Thank you for attending today's session. We hope you have a wonderful day.