Rocket Lab USA Inc (RKLB) 2022 Q1 法說會逐字稿

Good afternoon. Thank you for attending today's Rocket Lab First Quarter 2022 Financial Results Conference Call. My name is Nate and I will be your moderator for today's call. (Operator Instructions). So I'd like to pass the conference over to our host, Gideon Matthew with Rocket Lab. Gideon, please go ahead.

Thank you, operator. Hello, everyone. It's good to have you join us on today's conference call to discuss Rocket Lab's first quarter 2022 financial results. Our presenters for today's call are Rocket Lab, Founder and CEO, Peter Beck, and Chief Financial Officer, Adam Spice. After our prepared comments, we will take questions. Our comments today include forward-looking statements within the meaning of applicable security laws, including statements relating to our guidance for the second quarter 2022, including revenue in our principal target markets, GAAP and non-GAAP gross margin, GAAP to non-GAAP operating expenses, interest expenses income net adjusted EBITDA and basic shares outstanding.

In addition, we will make forward-looking statements relating to trends, opportunities and uncertainties in various products and geographic markets, including, without limitation, statements concerning opportunities arising from our launch services and Space Systems markets and opportunities for improved revenue across our target markets. These forward-looking statements involve substantial risks and uncertainty, including risks arising from competition, global trade and export restrictions. The impact of the COVID-19 pandemic, our dependency on a limited number of customers, average selling price trends and risks that our markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect. More information on these and other factors or other risk factors that may affect the forward-looking statements as outlined in the Risk Factors section of our 2021 10-K filing which was filed on March 24, 2022, and the documents incorporated therein.

Any forward-looking statements are made as of today, and Rocket Lab has no obligation to update or revise any forward-looking statements. The first quarter 2022 earnings release is available in the Investor Relations section of our website at rocketlabusa.com. To supplement our audited consolidated financial statements presented on a basis consistent with GAAP, we disclose certain non-GAAP financial measures, including gross margin and operating expenses. These supplemental measures include the effects of stock-based compensation expense, amortization of purchased intangible assets, other nonrecurring interest and other income expense net, noncash income tax benefits and expenses, performance reserve escrow amortization transaction costs related to mergers and acquisitions and change in fair value of contingent considerations.

We also supplement our unaudited historical statements and forward-looking guidance with the measure of adjusted EBITDA, or adjustments to EBITDA include share-based compensation, depreciation and amortization, warrant expense related to customers and partners, transaction costs related to mergers and acquisitions activity, foreign exchange gains or losses, income tax provisions, change in fair value of contingent considerations, performance reserve escrows and other nonoperating income and loss excluding interest expense related to debt and other nonrecurring gains or losses. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in our Q1 financial results media release available on our website.

We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges, including stock-based compensation and its associated tax effects and the effects of warrant expense related to customers and partners. Non-GAAP financial measures discussed today are not in accordance with and do not serve as an alternative for the presentation of Rocket Lab's GAAP financial results. We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business. We believe that these non-GAAP measures have limitations and that they do not reflect all the amounts associated with our GAAP results of operations. These non-GAAP measures should only be viewed in conjunction with corresponding GAAP measures.

Lastly, this call is also being webcast with a supporting presentation and a replay and copy of the presentation will be available on our website for 2 weeks.

And now let me turn the call over to Peter Beck, Founder and CEO.

Thanks, Gideon, and welcome, everybody, today for today's review of Rocket Lab's business highlights and financial results for Q1 2022. Today's presentation includes their business accomplishments for the beginning of the year as well as further achievements we've made in the days and the weeks after the end of Q1. Adam will then talk through our financial results for the same period and our financial outlook for the second quarter, before we take Q&A from those listening in and finish today's call with the upcoming conferences we'll be attending.

So let's first start with a review of our key accomplishments in Q1. We started off the year with a strong -- with the signing of our largest space systems contract Rocket Lab had secured to date. This is our $143 million contract to design and manufacture 17 spacecraft buses for the Globalstar constellation, which I'll go into more detail shortly. This contract highlights our strength of our increasing levels of vertical integration across base systems, executing on our end-to-end space strategy. We kept up the momentum in Space Systems with our expansion in Colorado to meet growing consumer demand for our GNC and software services and of course, our completed acquisition of SolAero Technologies in the first quarter.

We immediately got to work building the team's industry-leading technology and into qualification of what we believe to be the world's highest efficiency space solar cells, which we aim to bring to the market later this year. On the launch side of our business, our first launch of the year was a flawless mission for repeat commercial Japanese earth imaging customers inspector. That same mission also marked the first mission from Pad B at Launch Complex 1, the newest of 3 launch pads, as we continue to ramp up our Electron launch cadence, this pad at LC1 really shortens our turnaround time between launches. And with extensive facilities at the site already in place, we can now run 2 launch campaigns simultaneously from LC-1 to support back-to-back launches.

Later in this presentation, I'll take you through our additional accomplishments post Q1. I'm excited to share what we have to date to date for our first Electron launch out of launch complex 2 scheduled in the manifest this year. Electron was also recognized in selection by NASA as 1 of a handful of launches to provide the agency launch services under its $300 million beta launch program. And finally, we rounded out the first quarter by selecting Wallops Island, Virginia as the home of neutrons launch site production complex with construction already underway in Q1.

So let's now walk through some of these highlights in more detail. Backlog. Q1 2020 saw continued growth in our backlog from year-end 2021. At December 31, 2021, our backlog stood at $241 million and while we ended March 31, 2022, at $546 million. Today, our backlog stands at $551 million, representing a $310 million increase in total backlog since year-end of 2021. We've seen continued booking strength across every major product in the company, including Electron launch contracts, Photon satellites and numerous Rocket Lab satellite components and software sales spending a global customer base. These customers include the U.S. government, foreign governments, universities and commercial customers and constellation operators. We are in the early days of recognizing sales synergies from our vertical integration strategy, but the benefits of this strategy are already garnering significant financial benefits.

Synspective. So as I mentioned, we had a great first launch of the year of our Electron for our repeat customer Synspective. We successfully delivered another strict satellite to orbit as part of their growing earth imaging Constellation, having deployed 1 of the very first spacecraft orbit back in December 2020. Mission is the first of a bulk buyer of 3 missions signed by Synspective last year. We signed that contract in December 2021 and successfully delivered the first (inaudible) orbit on this mission fewer than 3 months later, which is a record and competitive turnaround time. Our ability to offer customers ultimate schedule, control, flexibility and absolute reliability from a long heritage of successful missions is often the driving reason behind why these mission bulk buys, which this particular mission was a great representation of. The Synspective mission was actually brought forward in the Manifest flying earlier than initially planned to meet mission requirements and launching on the first day of the launch period when it opened in February 28, back selling another customer's launch slot who experienced a delay with their satellite. From a technical perspective, we also count this mission as the highest performing mission to date in terms of launch vehicle performance. Electron and its upper stage delivered Synspective's payload to space with pinpoint accuracy within just 500 meters of its target orbit.

When you consider the speed that we're traveling to get there, more than 27,000 kilometers an hour, delivering the payload with that type of accuracy is just incredible. After payload deployment, we also successfully lowered the kick stage, which brought it back closer to Earth atmosphere, And guarantee the stage was destroyed on its return to earth in only 9 days later, a mere fraction of the 25-year accepted standard, the lowest by NASA. As the second most frequently launched U.S. Rocket with that cadence only planned to increase, we are determined to be a responsible space stewards playing a leading role in responsibly managing and mitigating Orbital debris.

Our second Electron launch of the year took place just 33 days later and was another successful mission followed by a third launch of the year again in Q2 just 31 days later. While we had anticipated our second launch Electron (inaudible) in Q1, where the delays pushed the mission 2 days into the second quarter instead. At that time, this launch shift was announced on the 24th of March. We also updated our financial guidance for Q1 2022, and the revenue from the second launch will instead be reflected in our second quarter financial results.

First Pad B launch. So in the first quarter, we also conducted the first launch from our newest pad based at launch complex 1 in New Zealand. This is our third pad for Electron joining the existing pad at Launch Complex 1 and a pad Launch Complex 2 in Virginia. By standing up an additional pad at Launch Complex 1, we immediately doubled our launch capacity from that site to meet anticipated future customer demand without having to double all the supporting range infrastructure or seek new regulatory approvals like you would have to when establishing an entirely new site.

Moving into Space Systems now. In Q1, Rocket Lab was selected by MDA to design and manufacture 17 spacecraft buses for Globalstar, a leading provider of mobile satellite services. The contract is a direct reflection upon our highly vertically integrated space systems capabilities. The spacecraft will feature components and subsystems developed organically within Rocket Lab and also produced by our recently acquired companies, including solar panels and structures from SolAera Technologies, software from ASI and reaction wheels from Sinclair and to planetary. All 17 of the 500 kg spacecraft will be designed and manufactured at our Long Beach production complex where a new high-volume manufacturing line is under construction to support the growing customer demand for Rocket Lab satellites.

Keep in mind that these Globalstar spacecraft aren't really small satellites. They are big machines, 0.5 ton each and roughly the size of the car with 9-meter solar panel wings. These are complete spacecraft, and this contract was a result of a very detailed and highly competitive bid process that determined that Rocket Lab offered a compelling balance of performance heritage schedule reliability and cost. I look at it as this is a profession of our deliberate strategy and growth in Space Systems as we expand beyond launch to offer complete end-to-end solutions for our customers.

We're executing on this program already with programmatic planning completed with MDA in Q1, and the review of the systems requirements for the spacecraft is scheduled to take place actually this week. It's really exciting to see this program off to a great start already.

Now of course, a contract like MDA, while the MDA 1 is only possible thanks to the capabilities we've both developed and bought in-house. We closed 3 Space Systems related acquisitions over these past few months since coming public in August 2021, with SolAero Technologies being the latest closed deal. -- which was completed this past quarter. Within the space industry, SolAero technologies really needs no introduction. They are the best in the game with their space cell technology and run the world's largest production line of high-performing space solar cells and manufacturing solar cells, solar panels and composite structural products. I'm proud that they're now part of the Rocket Lev family and continuing to offer premier capability and value across civil space exploration, defense and intelligence, science and commercial space markets.

Already we're reaping the benefits of SolAera's innovative drive as we move forward with qualification of our next-generation solar cell technology. The IMB, once qualified, is expected to be the highest efficiency space sale of its kind in high-volume production worldwide. The latest product is more than 40% lighter than typical space grade solar cells. We made this technology leap with Rocket Labs resources and manufacturing capability to scale to meet the growing demand for these products. The qualification process is on track and this new sales should be ready for commercial use later this year.

Another fantastic product milestone to come out of our solar business this quarter was the completion of the solar panel production for 1 of the world's largest lower orbit satellite constellation on web. SolAera's solar panels will power the majority of the planned constellation with early investment in its facilities to vertically integrate solar cell, composite substrate and final panel assembly in-house, creating the world's only one-stop shop for fully assembled solar panels. The successful completion of this contract sets up SolAero nicely for manufacturing on future projects and to capitalize on the growing small satellite constellation market.

Moving on to other areas of our Space Systems business. We began our expansion in Colorado with the new Space Systems complex. This new facility will support 2 mission operation centers and more space for team growth with our Colorado headcount expected to more than double by early 2023 as demand for our flight software, mission simulation and guidance navigation control or GNC services continues to grow. To give some insight into the team's work, they're currently supporting more than 33 missions, including Lunar landers and spacecraft distance for Earth Orbit Mars and beyond.

Our satellite separation system business in Maryland also continues to go from strength to strength, having recently completed both the delivery of product into commercial satellite operator and finished the build of its 1,000th motor assembly in Q1. Much like our team in Colorado, our satellite separation systems team is also experiencing significant headcount growth, and we'll soon begin the expansion of its facility, which I'll touch on later in this presentation.

Within our Photon spacecraft line, we're also executing on the Lost 1 mission concept to create a fueling depot gas station and Orbit. Partnered with (inaudible) Space, we are bringing together a launch satellite mission solution to conduct an innovative tech demonstration that supports NASA's mission to establish a sustainable presence on the moon. The mission involves a Photon spacecraft to support the testing of cryogenic fluid management and space and the Electron rocket to get it to space in the first place. The team completed the mission's preliminary design review in Q1, unlocking the next step in the mission time line. Load is exactly the kind of mission we set out to enable with Photon their experience and capability across launch, satellite and mission control, (inaudible) can focus entirely and primarily on the mission without the worry of dedicating resource to the infrastructure to support it. Imagine that any time you wanted to create an app, you first had to build a panini the network that are lived on -- this is a problem we set out to vote on in Electron in their entire Space Systems ecosystem. And it's great to see our end-to-end solution being utilized for such innovative tasks like (inaudible) for NASA.

Speaking of NASA and if I can bring you back to launch for a moment, we were proud to be selected by the agency in Q1, along with others to provide launch services to their program for venture class, acquisition of Dedicated and Rideshare missions (inaudible). The program is a 5-year $300 million program and the latest sign of confidence from the agency in Electron's ability to deliver the nation's science and technology payloads in the space. And then into Neutron. And finally, wrapping up our Q1 achievements. We selected the state of Virginia for our Neutron launch site and production complex and almost immediately began construction. The 250,000 square foot Neutron production complex has been built on a 28-acre site adjacent to the NASA Wallops Flight Facility and Mid-Atlantic Regional Spaceport on Virginia's Eastern Shore.

The production of Neutron here includes up to $45 million in support from the state and infrastructure and operational improvements. We're excited to grow Rocket Lab's presence in Wallops, add up to 250 highly skilled jobs to the local economy and bring it resilient and assured access to space for the nation through the trough in the years to come.

The Neutron development program remains steadily on track. The first quarter, we also completed -- this first quarter, we also completed a systems requirements review for the launch vehicle with the U.S. Space Systems Command as part of the $24 million contract they awarded us late last year. The upper stage development contract with SSC's launch enterprise recognized as Neutron's designed to maximize master orbit capability, orbital insertion accuracy and responsive dedicated launch for the U.S. government. Key requirements for the launch providers of the highest priority in national defense and security missions awarded through the national security space launch or NSSL program. Existing NSSL launch providers include SpaceX and ULA and the awarding of this contract recognizes Rocket Lab as a potential NSSL Phase III launch provider from 2025. I -- so as you saw there, we've had a great start to the year with those business accomplishments in the first quarter.

And now I'd like to take you through a few more exciting developments for the company since the quarter end. Two launches. So just 2 days into our second quarter, we had the successful launch of our dedicated mission for BlackSky, followed just 31 days later by a 26 Electron launch from LC1. Combining -- combined these missions bring the total count of satellite successfully deployed by Rocket Lab up to 146.

I'll take you through both these launches individually across the next few slides, starting with the most recent mission. But first, I want to use this like to draw your attention to our progress this year in increasing our Electron launch cadence. Frequent and reliable launch to space is critical for our customers. And with all 3 Electron missions this year launched within a 9-week period, Electron has reached an average launch cadence of 1 every 31 days. At the same time, all 3 launches have successfully deployed our customer satellites to space on the first launch attempt. We are well operationalized and resourced to maintain this momentum throughout the year with a responsive launch demonstration with the U.S. government customer on the horizon in the middle of this year that will include 2 launches currently scheduled to launch within 2 weeks of each other.

Now on to our most recent mission 26th launch, which marked a major milestone in our program to make Electron the first reusable orbital small launch vehicle. The there and better gain mission saw us complete immediate capture of the Electron booster with a helicopter for the first time. After launching the space, Electron's first stage returned to earth under a power shoot before our S92 helicopter Sweden flow along the returning stage, along with the returning stage and used our hook on a long line to capture the parachute.

After the catch, the helicopter pilot offloaded the first stage as it was quickly recovered -- and it was quickly recovered by our recovery engineers who are waiting on a nearby C vessel. They bought it back on board the boat and returned it to land, and I'm happy to report that the first stage come back in really good condition. Our ultimate recovery goal is to return the booster directly to land versus the boat. And this was a huge step towards that goal. And I feel like we really are about 90% progress was made to that ultimate goal.

Now the whole point of pursuing reusability for us is to increase launch frequency and reduce production cost per vehicle. With the majority of the cost of building Electron tied to the first stage and production overhead cost, any time we can reuse are or some of the parts instead of starting from scratch will minimize their production costs and maximize our production utilization, thus positively impacting our bottom line.

Right now, our engineers are picking apart and inspecting the stage inch by inch to determine what can be used and what can be reflying from the booster in the near future. Catching a returning booster on a very first attempt was an incredibly difficult task. Quite frankly, I would have been pretty happy if we only decided the stage coming back with a helicopter, but to actually catch it on the first go with a tremendous feat. I'm incredibly proud of the entire team, and it was really great to see them get all the cutoffs they deserve with worldwide media coverage across most major news outlets.

Don't forget too that amongst the recovery noise emission Electron successfully deployed 34 satellites in a mix of new and repeat customers across space junk remove technology demonstrations and earth monitoring. This mission has brought our total count of satellites deployed up to [100] (technical difficulty).

Now on to our BlackSky mission, first for the second quarter. This is another mission I'm proud of, by the way, it showcases our responsive launch capability. We the launched many months apart. This launch, I believe, set us -- set a new stand for speed and agility for our customers. 1.5 months before this launch around the time conflict was escalating in Eastern Europe BlackSky came to us with a late request to change the orbital inclination for this mission so they could better support their customers responding to the Ukraine crisis. It's not a trivial thing and requires all new trajectory, safety analysis, licensing and mission planning. It's basically a new mission from scratch. But within 45 days, we not only made those changes for the customer but also delivered their peer of satellites above the region successfully. And this kind of capability is an important distinction in today's escalating geopolitical environment.

Agility, flexibility and reliability is paramount for response space. There's always been a hot topic in national security circles and the ability to provide responsive space solution continues to generate a huge amount of public and commercial interest. As the premier small launch, Electronics has always been well positioned for future growth in this space. And as I said before, this launch is the real showcase of our services. Now beyond launch on Electron, we also had a number of satellites integrated with Rocket Lab technology that are now successfully operating in space. We had motorized light bands on SpaceX's transporter 2 mission that successfully separated the Hawkeye Link and orbit license space as well as advanced light band separation system used on the same launch for the Planet IQ satellite.

Separately, our MAX flight software is being used to help operate 2 Earth imaging satellites also launched in April. In 2021, our technology could be found on 38% of all launches. Having the Rocket Lab logo on everything that goes to space is part of our long-term strategy and these latest missions supported by Rocket Lab technology is an example of that strategy being executed well in early 2022.

With the expanded products and services offerings now under the Rocket Lab umbrella, both from acquisitions and all our own internal development, the reduced risk of supply chain disruption that we bring to our customers with our vertically integrated manufacturing capability and a reliability to execute increasing -- is increasingly attractive to our customers with our end-to-end services for their satellite constellations.

From satellite build and components all the way through to launch and onward operations technology is across most of the big lower orbit small satellite constellations today. We're involved in constellations across the public and private sectors because their customers can come to us knowing we can offer them scheduled security and attractive pricing at scale, no matter the mission. The latest contract where our end-to-end solution strategy has borne fruit is the launch bulk buy from Hawkeye 360, which we secured in early Q2. 3 Electron launches will deliver 15 satellites to orbit for Virginia-based all 360, which is building out a constellation to deliver radiofrequency geospatial analytics. Included in this contract is the supply of our separation systems for the satellites as we -- and as we mentioned on the previous slide, we have significant other satellite componentry sold into the platform.

Bulk buyers. So the Hawkeye bulk buyer is just the latest of many multi-launch contracts we have in the books for Electron. Commercial constellation operators look to Rocket Lab and Electron to provide reliability and accuracy and placing the satellites in the right place on orbit where precise placement is critical to the build-out of their constellations.

Without missing a beat launch for BlackSky, we successfully executed in Q2 included the fifth and sixth satellite Rocket Lab delivered to space for BlackSky across a series of missions within 3 months. And while that mission was due to be the final launch in that multi-launch series, an additional 6 launch for BlackSky and Electron was commissioned in Q2 of last year. And we'll take additional 6 additional place -- sorry, and will take place later this year. The dedicated mission will continue BlackSky's rapid business expansion by deploying another peer of Gen 2 earth imaging satellites to a precise location in lowest orbit for its growing satellite constellation. And again, all but 1 of these multi-launch contracts, customers, satellites, platforms include Rocket Lab, spacecraft hardware or flight software to support their mission.

Now excitingly, in the first of multiple Hawkeye missions that has been selected to be as part of the ride share launch from launch complex 2 at the end of this year. We've been encouraged, we have been encouraged by NASA's progress in certifying its autonomous flight termination unit and software, which is needed to enable Electron launches from Virginia and so have secured the state with confidence so we can complete the first launch from Launch Complex to before the end of the year. with that part third part online, we can offer even greater flexibility over schedule, launch frequency and launch location for our global customers.

On to our launch to the moon for the CAPSTONE Mission April, and early May saw significant progress and milestones cleared on the pad to launch -- on the path to launch. Just this weekend, the CAPSTONE satellite itself arrived in New Zealand, ready to be integrated into our Photon moon upper stage. that will carry it out of its orbit and set it on its path to the moon. Our launch readiness rehearsal with our Electron rocket was also completed over these past few days, further clearing the way ahead of us to launch this mission from LC-1 towards the end of the month.

Speaking of spacecraft Rocket Lab is supporting to get to the moon, the Blue Ghost Luna Lander being developed by Firefly Aerospace, which will be operated by our MAX Flight software, supported by our GNC engineers and managed by mission operations completed a key readiness milestone last month called Integration Readiness Review. Blue Ghost is part of NASA's commercial lunar payload services program which contracts the private sector to deliver science experiments and other cargo to the moon.

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

Thanks, Peter. I'll first review our first quarter 2022 results and then discuss our outlook for the second quarter. First quarter 2022 revenue was $40.7 million, slightly above our revised guidance of $40 million, which we issued on March 24. The updated guidance reflected the delay of the BlackSky global launch that was assumed in the original guidance range of $42 million to $47 million. In the quarter, launch contributed $6.6 million and Space Systems contributed $34.1 million or 84% of revenue and grew 149%. Total revenue for the first quarter was up 48% quarter-over-quarter despite the BlackSky launch slip from Q1 to Q2.

Meanwhile, GAAP and non-GAAP gross margins for the first quarter of 2022 were 9% and 24%, respectively. This is below our original Q1 guidance on a GAAP and non-GAAP basis of 17% and 30%, respectively, driven by the unforecasted purchase accounting impacts of SolAero that was still in process at the time we issued our guidance and the delayed launch and resulting lower -- resulting in lower absorption of overhead and indirect production and launch costs. This compares to fourth quarter 2022 GAAP and non-GAAP gross margins of 24% and 36%, respectively, which benefited from higher launch rate and a more favorable product mix.

Launch services GAAP and non-GAAP gross margins were negative 12% and positive 1% in the first quarter, respectively, versus a positive 1% and positive 6% in Q4 of 2021. The decline in gross margins quarter-on-quarter were driven by the lower launch cadence in the first quarter of 2022.

Space Systems GAAP and non-GAAP gross margins were 13% and 28% in the first quarter, respectively versus 48% and 67% in Q4 2021. The decline in gross margins quarter-on-quarter were largely driven by a mix shift to lower-margin SolAero revenues.

Turning to operating expenses. GAAP operating expenses for the first quarter 2022 were $36.6 million, which was approximately $2.4 million lower than the midpoint of prior guidance. Non-GAAP operating expenses for the first quarter '22 were $21 million, in line with the low end of guidance. The quarter-on-quarter step-up in GAAP operating expenses was primarily driven by a $2 million increase in R&D stock-based compensation and an incremental $700,000 of amortization of purchase intangibles stemming from recent acquisitions. While the decline in non-GAAP R&D was driven by higher R&D credits, which were offset by higher prototype and staff costs. Worth noting, GAAP R&D spending is up 13% quarter-on-quarter, and we anticipate this trend to continue throughout 2022 as we increase investment in the Neutron launch vehicle development. The quarter-over-quarter step-up in GAAP SG&A of $4 million was driven by SolAero's partial spending contribution in the quarter, higher stock-based compensation, combined with a change in the fair value of contingent consideration related to the PSC acquisition. These increases were offset by lower deal fees. The uptick in non-GAAP SG&A expenses of $1.8 million were driven by higher staff costs and outside services.

When we compare first quarter 2022 revenue on a year-on-year basis, total revenue was up 124%. Within the mix, Launch Services revenue declined 60% or $9.9 million largely due to the aforementioned BlackSky Global launch delay. Although launchers have got off to a slow start in 2022, as Peter mentioned earlier, for variety of reasons, including the easing of poked restrictions in New Zealand and operational status of our second pad at LC-1, we've picked up the pace with a monthly launch cadence for the last 3 launches.

Space Systems revenue was $34.1 million, reflecting an 18-fold increase over the prior year. To provide further context, in the year ago quarter, Space Systems revenue was $1.7 million, driven by 2 satellite programs, one of which was a study contract and Sinclair component revenue contribution.

As Peter covered it in slides earlier, in our Space Systems business, we now have revenue contributions from almost every U.S. government defense and civil agency, the majority of large U.S. primes and adverse mix of global customers. This is allowing us richer and deeper customer engagement, which can be seen in our growing results, backlog and guidance, which I'll get to shortly.

Launch Services GAAP and non-GAAP gross margins in the year ago quarter were positive 4% and positive 5%, respectively. The decline in gross margins year-on-year was driven by the lower launch changes in the first quarter of 2022. Space Systems GAAP and non-GAAP gross margins in the year ago quarter were positive 47% and 50%, respectively. The decline in gross margins year-on-year were largely driven by a mix shift to lower gross margin revenue from SolAero.

Turning back to operating expenses. As you can see, both R&D and SG&A spend are up year-on-year as the company continues to invest heavily in broadening our Space Systems portfolio of products and services, Electron recovery and Neutron development. The company is executing and achieving milestones on numerous ambitious projects, and we look forward to these investments generating shareholder value for many years to come. Year-on-year GAAP R&D was up $6.4 million, driven by a $4.6 million increase in stock-based compensation and an increase of $1.3 million in amortization of purchased intangibles related to recent acquisitions. Non-GAAP R&D was up $0.5 million, driven by a combination of higher prototyping and staff costs.

GAAP SG&A was up $14 million year-on-year, driven by an increase in various public company costs, including initial D&O insurance of approximately $1.5 million; staff costs and outside services of $5.1 million, stock-based compensation of $3.2 million and a $1.8 million expense related to an acquisition performance reserve escrow and amortization of purchased intangibles of $800,000. Non-GAAP SG&A was up $8 million, driven by similar GAAP items referenced earlier.

With that, let's turn to our guidance for Q2 2022. We currently expect revenue in the second quarter of 2022 to range between $51 million and $54 million, which includes 3 dedicated launches. We are not including in our guidance, but note the potential for a fourth launch in the quarter for a government customer currently manifested with a launch window in the last week of June. Out of prudence, we are excluding this launch from our guidance ranges, but we wanted to note the potential for this upside in advance.

We expect Q2 GAAP and non-GAAP gross margins to be between 11% to 13% and 26% to 28%, respectively. GAAP gross margin improvements are anticipated to be driven by a favorable product mix as well as improved absorption of production and launch indirect and overhead costs as compared to Q1 results. We expect Q2 GAAP operating expenses to range between $39 million and $41 million, and non-GAAP operating expenses to range between $23 million and $25 million. This quarter-over-quarter step-up is driven by increased staff costs, prototype and other professional fees related to the Electron recovery, R&D activities related to the broadening out of Space Systems products and service offerings and the Neutron launch development program. We expect Q2 GAAP and non-GAAP interest expense to be $2.5 million. We expect Q2 adjusted EBITDA loss to range between $3.5 million and $5.5 million and basic shares outstanding of 464 million.

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

(Operator Instructions). Our first question here is from Suji Desilva with ROTH Capital.

Peter, Adams, congratulations on the progress here. So the gross margins you've talked about, I understand the overhead (inaudible) launch. On the Space Systems around the 20%, what item should we think about as the target margin there for Space Systems? Is there opportunity for expansion? Or will it be mix-driven quarter-to-quarter around this -- roughly this level?

Yes. I think there's kind of a near-term, medium-term and long-term answer to that question. I think in the near term, certainly kind of the laws of physics are kind of dictating that the SolAero impact is going to drive margins kind of to be lower than obviously than they were before that acquisition. So I think the margins you're seeing right now are probably, I'd say, reasonably indicative of where they're going to be in the next several quarters. Certainly, I think as you kind of move a little bit further out in time, we see a lot of opportunities for improving the gross margins in that SolAero business.

I'd say that the other portions of Space Systems remain pretty strong from a gross margin perspective. So I think it's really a focus on SolAero in getting some improvement there in that business. I think we're already starting to see as contracts turn over and so forth, that given kind of some of the tightness that we're seeing in the solar market, that we have a little bit more ability to kind of have better gross margins up a little bit out in the future. Longer term for the larger space systems initiatives, we believe that the margin structure for that should be relatively similar to launch in targeting kind of the low to mid-50s. Now again, given the size of SolAero's contribution, it's going to take us some time to kind of get that back into focus. But again, we talked a little bit before that we see the SolAero gross margins ultimately kind of being in the 30% plus range, which I think then becomes much less of a drag on the overall margin structure for that line of business. So we're very optimistic that we've got a path to improve the margins there. And then overall, we think, again, as the other parts of the space systems grow in the mix above and beyond SolAero, then I think things will come back and the focus on that low to mid-50s gross margin.

Appreciate the detail on laying out the road map there, Adam. And then switching over to the launch, the cadence, you seem to settle into sort of a one-a-month kind of cadence roughly, which is kind of what you guys have talked about. What happened as maybe 2 launch pads come up in New Zealand or Virginia comes up into calendar '23? How should we expect that cadence to evolve over the next 6 to 12 to 18 months?

Yes. I mean we certainly have invested in the capability there. The things that really drive launch cadence are always for us dominated by customer readiness. So it's always a little bit difficult to predict and launch is always a little bit lumpy. But certainly, we see an increasing launch benefit for next year, and we've made sure we've made all the investments to take full advantage of that.

I think -- Suji, I think one other piece of that. So certainly, the addition of the pad in New Zealand and the bringing up of Wallops helps kind of increase the number of absolute launches that we can do. But I think more importantly, it really kind of allows us a lot more resilience, right? So you have the ability to launch and quicker succession, right? So you don't have to kind of reposition all your launch assets and so forth, and you're tracking radars and so forth. So I think that -- I wouldn't think so much of it is like -- is it a step increase in the amount of launches that you can do on an annual basis but much more the kind of the timing and sequencing of those. And that actually is pretty important for some customers and how they want to basically get their constellations on orbit. Timing is very, very important.

Our next question goes to Edison Yu with Deutsche Bank.

First one on the guidance. Just curious, what are you sort of embedding in there for CAPSTONE? I think it was disclosed somewhere it was worth about $10 million. I assume you don't recognize all that in 2Q. Just you clarify what's kind of being embedded.

Yes. That's a good question, Edison. So the capsule, you're correct, is around a $10 million mission. It's important to note that the -- one of the missions in Q2, in fact, the recovery mission that went off earlier in the quarter, that was primarily an R&D platform. It had relatively small revenue contribution. We had some cube sets on the platform, but it wasn't a regular launch at all. So if you think about you're coming back into, hey, how does kind of the guide for the revenue for launch services kind of triangulate to 3 launches in our average selling price. It's because of that recovery mission was a pretty de minimis reset contribution, and you're absolutely correct on the CAPSTONE revenue estimation.

Understand. Understand...

Sorry, sorry, Edison. I didn't ask kind of analyze that one question -- part of your question. Your question to revenue recognition, it is a point-in-time launch. So all of that -- all the revenue from CAPSTONE does happen in Q2.

Got you. Got you. And then a follow-up on Space Systems. For -- I know you said you completed the OneWeb. How are you thinking about Gen-2? Obviously, that's supposed to be a much bigger one. Are we confident? Do we know when that will be kind of determined what kind of solar panel, solar cells that we'll be using?

In that program is going through its traditional bidding cycle. So we'll have to wait for the customer to make their final selection.

Our next question goes to Erik Rasmussen with Stifel.

Just maybe a clarification. And it sounds like just trying to get a sense of what the value for launch is, obviously, one of those was an R&D platform. But would you say it's similar to sort of what you had filed in the 10-K, which is a little bit over $8 million. And do you see that growing in terms of the value per launch? And then with that, because of the bulk size, any sort of constraints on the pricing versus maybe some of the one-offs?

Yes. No, I think that the -- I mean, the price environment for us has been relatively stable. If you look back at our pricing back, let's say, 3 or 4 years ago, we were pricing Electron at roughly $5 million per launch. And now the average selling price obviously is much, much higher. At the current time, we're really not seeing any downward pricing pressure. Certainly, when a customer comes in and commits to a larger bulk buy. And if it's -- and it also depends on the type of bulk buy, right? If you have a bulk buy where you're sending the same spacecraft, and you're sending it to kind of a similar orbit and so forth, then it reduces the NRE for us to significantly and we'll pass some of those savings out of the customer. But I would say that if you really look across the range of our backlog, it really does kind of fit what we've always been talking about, right? So if you think about $7.5 million roughly on average, kind of being in the average selling price for kind of a sticker price, that's still accurate. And there's exceptions to the high side and a little bit the exception to the low side as well.

Erik, and the fundamental reason people come to us is reliability. I mean they're entrusting -- you deploy someone's entire constellation, you're basically encrusted with their entire business. So reliability of launch vehicle, accuracy and schedule is most important.

Great. Understand. And maybe just on the recapture attempt. Obviously, there's some successes there. I think I would have loved to have seen a fully successful recapture there. But what about the setup that was sort of inconsistent with maybe what you were doing in the practice front? And then when do you anticipate the next mid-year recapture.

So you're a tough customer, Erik, that was an incredible feat to catch it. ultimately the pilot offloaded it because he didn't like the way it felt. We need more practice on the S92. But I mean, to put it into context, like rendezvous with a descending rocket stage on space, 400 kilometers out in the ocean and then being catching it was better than I was hoping for. So we really have confirmed that there's a very completely viable technique to get it on that first time is also -- we'll make a few weeks and get that out there in the not-too-distant future for another attempt. But as far as we're concerned, we learned a tremendous amount. And the condition at that stage is really fantastic. And I think if we held that on the hook and bought at home, we'd be seriously thinking about putting that thing back on the pad. So we're in super good shape.

Great. Maybe just last one on the flight termination software. That's obviously been a hold up, but what is the gating item at this point? Where does that stand? And I know you're going to be -- you hopefully have the first launch there by December at year-end. But maybe just help walk through what to expect there.

Yes, sure. So the gating item, as it's always been, is NASA's completion of their software that they can then provide to us to load on to the autonomous light termination units and then go fly. We've had many delays, but the project has a very, very high priority within Nata currently. And there -- they seem to be meeting the milestones. We have more confidence than ever before that they'll deliver that software and enough confidence that we're able to actually schedule a launch, which is something we haven't been able to do for over a year.

Our next question goes to Ron Epstein with Bank of America.

It's nice seeing you last week. There could be just a couple of quick ones. With the absence of the Russians in the space market now (inaudible) effectively out and maybe never come back, how do -- how should we think about what impact that's going to have on yours. Obviously, it's positive. But can you give us maybe another way to think about it with a little more color on it?

Yes. I mean the way we think about this, Ron, is that prior to the Ukraine and Russia crisis, there was quite a lot of commercial demand for the Neutron product. It was always intended to compete with both the SolAero and the Falcon-9. Now with the SolAero is kind of exited the market, and that's not just SolAero is out of Russia, that's still out of (inaudible). It really does create a big hole in the sort of the 2024 to 2027 time frame. That's when a tremendous number of both government and commercial media constellations come to market. So the conversations that we're having internally here now are about who do we -- who we partner with for that -- for those first kind of bulk buy of Neutrons. Who is going to be ready and who's going to actually turn up at the pad. So it's certainly changed the conversations quite significantly.

Got it. And on Neutron, ultimately, how is that proceeding so far? And when we think about the economics of Neutron as a customer, how much will it reduce the cost to launch for the customer.

I mean building Rocket is an incredibly painful program. So we wouldn't even start it if we didn't think we could be very competitive from an economic standpoint. And all the lessons that we're learning from the Electron reusability program directly applied to the Neutron program. For us right now, it's -- we're not really seeing the need to do early capture pricing. We're certainly -- the vehicle is in strong demand. But I think right out of the shoot, the economics of that vehicle are going to be pretty good. As reusability, it's like -- it's an evolution over a product life cycle. So as we fight more and more, we'll see more and more advantage from the reusability in the nature of that. So yes, I think we're in good shape.

And then maybe switching gears a little bit, a bit more kind of operational focus. We've heard from many, many, many companies in aerospace outside of aerospace manufacturing companies of the issues they've had with the supply chain. How has supply chain issues impacted you, if at all? And how are you addressing the need there is an impact?

I mean it's certainly an advantage to being highly radically integrated. We're all as you need is raw material inputs. We've been able to manage through our supply chain over the last couple of years and never had to delay a launch or a satellite or anything because of it. We actively look after our supply chain incredibly well. We carry safety stock, if we think something is getting a little bit worrisome. Electrical components -- electronic component has always been something we check very, very closely. So we haven't seen any kind of major disruptions to our production or our ability to execute. And I think primarily that's because we're both vertically integrated, and we've been doing this for a while, and we manage our supply chain very carefully.

Got it. And then maybe one last one for me. On the recapture of the year, I'll let on stage. Did that seem your thinking at all in terms of the economic impact of the usability? Is it turning out better than you thought, worse than you thought or about the same as you thought now that you've got a little bit more data and some more experience with it.

Well, at the end of the day, the proof will be in the pudding and the condition that we recovered the stage, even though we recovered out of the ocean, which is less than ideal was really extraordinarily good. All of the kind of iterations that we've been making over previous slides already paid huge dividends. And if you give a sense of when it's recovered from a helicopter, the helicopter costs around about $5,000 an hour to operate. If you've got it out there 4 hours or more, it's an incredibly cost-effective way to go back and bring a stage, which represents the vast majority of the cost of the launch vehicle. I mean, the economics are just awesome. Now the true economics will be borne out of how much of the refurbishment cycle does that cost. But I mean, the $20,000 worth of helicopter time to get back full engine sits and whole tanks, I mean it's -- yes, it really is -- really wonderful.

I've been told that there's a technical delay on the webcast side for innate watching and listening, but we will continue with the Q&A for the people that are on the call.

(technical difficulty)

Our next question goes to Austin Moeller with Canaccord.

Peter and Adam. So my first question here, do you guys have any update on the recent reporting about the company considering having potentially 3 Neutrons ready by 2024 to try and capture some market share from the (inaudible).

No. It's NASA who are going to report up things.

Okay. And then as far as the next recapture hemp for the Electron, do you plan to do that on the next launch after CAPSTONE or you're still evaluating in terms of when might be a good time to try and catch another booster?

Yes. We haven't announced the launch after cap fund generally that our policy is to announce within a certain time frame of launch. But you won't have to wait long often to see another attempt.

Okay. Well, that's good to hear. And then just finally, you -- Rocket Lab is extremely vertically integrated. So is there really any area in terms of hardware or software that you're looking at now where you feel you might need to expand into the future? Do you guys feel pretty good right now in terms of where you are in vertical integration, the product offering that you can offer customers?

I think we've made great progress, but there's still plenty more to go. So if you took a satellite or a spacecraft and took at the bets on the table, you would see that we've garnered a number of really high-value components or areas, whether it be from an economic standpoint or a scheduling and supply chain standpoint, but they're certainly more for us to go..

Our next question goes to Cai von Rumohr with Cowen.

So guys, just to follow up on that, you still have a substantial amount of cash, but we're in a much nastier equity environment. So what's your thinking in terms of cash deployment? Do you want to kind of husband your resources now? And also, you have that $100 million of borrowings. What's your thinking there?

Yes. No, that's definitely a very kind of salient discussion that we have every day here at the company. So I think the challenge right now is that we see this as a phenomenal opportunity to continue to add to the portfolio. Certainly, we need to be judicious with our capital, and I think we have been -- we see a lot of opportunities to go out there. In fact, the deal flow is relatively healthy. But that said, we don't have anything in our sights right now that we're anywhere kind of deep in progress on.

I would say that we think for the right types of opportunities, the capital will always be available. But we also -- yes, absolutely appreciate the fact that it's a pretty nasty equity environment, as you noted. But if you think about the kind of deals that we've done, we've acquired 4 companies, 3 of them coming public. They all have a pretty similar vein to the right where there -- these aren't really kind of cash-consuming deals after the close acquisition. We have been able to use some stock in our deals, and we continue to like to do so to preserve cash. So we're -- but we do think that if people are believers in the longer-term growth of this industry, we really have to -- now is the time to be taking out strategic positions on the monopoly board. And I think we've done that successfully, and I think there will be more opportunities to do that. But certainly, we'll do that with an (inaudible) capital preservation. I hope that answered your question exactly, but we're definitely not taking our foot off the gas and not looking at a lot of things because we do have the benefit of getting a lot of deal flow in front of us.

So Usually, when financial environments get more difficult, it takes a while for ask prices to change. Are you seeing that those prices are starting to change today? Or is this something where you think if you wait a little bit, and I understand you don't want to weight too long if the right opportunity comes.

Yes. No, you're absolutely right. I think it takes a while for private companies to realize that their valuations fluctuate, just like public company valuations do -- but I would also say that we're not far enough down the path on an individual deal that we could really kind of provide any feedback on kind of how prices have moved or not in the last, say, several months. We've been really focused on integrating the deals that we've done. We think we've got a lot of work to do still on some of the integration efforts, but we're making great progress. But I think we also very cognizant that we -- there's no such thing as a small deal, right? You acquired these companies. They all require integration, they all require effort and management bandwidth. And so we're being very cognizant that we don't get too far over our skis and kind of put the business at debt risk in that, and that kind of applies to integration as well as kind of capital availability.

Right. And then -- so just a green-eyeshade question. Your backlog was $545 million. It looks like it went up, as you mentioned, over $300 million, but obviously, that includes SolAero. So what were your net orders in the quarter?

So if you look at the addition of, for example, the MBA Globalstar deal plus SolAero, we added about -- I think between those 2 deals, it was probably close to $300 million, right, a little under $300 million between those the MDA deals in Tolero. So we all -- and of course, we generated revenue and kind of recognize some of that backlog in the quarter.

Okay. And then you talked about the Ukraine impact on new tram demand in 24 to 27. But are you seeing that, that's yielded any benefits in terms of the pricing for Electron here over the slots that you still have available?

I mean the payload capacity of stores is sort of 8 tons -- 8 metric tons, where Electron is 250 to 300. So the majority of the kind of spacecraft that would fly on stores aren't applicable to necessarily an Electron launch vehicle. But I think the launch market has certainly tightened. But I think it's probably a little bit early to see any direct customer flow on for Electron.

And the one thing I would say, payload, and is related to the situation is the fact that payloads that were always destined for Electron are basically -- are getting firmed up and they're coming at favorable pricing. So I would say what it's done is it's put more emphasis on certain payloads to get up an orbit sooner. And so I'd say from that perspective, the conflict has been a kind of a, I would say, a tailwind to our business. because things that maybe had a little bit more time lease to them or a little bit longer time to get to on-orbit now than want to be pulled in. And so we're actually looking at opportunities to compress the manifest. And again, squeezing in, when you squeeze in launches and you're already relatively full manifest, you can basically charge a higher price for that due to the scarcity of launch slots.

Our next question is Kristine Liwag with Morgan Stanley.

This is Jean on for Kristine. Following up on maybe some of the earlier discussion around helicopter recovery. Any sense you're standing here today of how long before Electron boosters are regularly recovered in this fashion? And is the plan to recover all electronic boosters in this way eventually? Or does helicopter retrieval make sense only under certain conditions?

Yes. No, it's a great question. So we sort of think around about 50% of Electron emissions will be viable for recovery in that. That's not just from a helicopter standpoint operationally, but it's also from a mission standpoint. so One of the challenges with a small rocket is that there's very tight margins. So some missions require all of the performance of Electron, which don't really allow for the addition of extra math for usability hardware. I mean we've got the burden down fairly low, sort of 10% to 15% reduction in a payload, which is extraordinarily low. But nevertheless, a number of missions require that extra performance. So we're sort of thinking around about 50% emissions will be eligible for being reusable and recovered.

Yes, Kristine, ideally, too, you would basically use your reusability feature on missions. And then when the booster is ending, it's kind of its life, you kind of use that as a dispensable one, right, or the disposable one. So again, hopefully, there's ways that we can move things around and get as much -- we'll get as much use of the losers as we possibly can. There's a lot of different ways to achieve that.

Our final question is a follow-up from Edison Yu from Deutsche Bank.

Just one quick follow-up on Neutron. What is the ability -- or what's kind of the -- how realistic is it to potentially speed out development of it? Is it a question of testing, capital? I know it's very complicated. But I think the spirit of, I think, what's going on in the industry, the near term or the medium term demand is quite big. So I'm just wondering if there's ways to speed it up.

Yes. I mean, look, we're looking at every which way a Sunday to try and do that is, but it is an aggressive program as it is. So any opportunity we have, we'll take it, but we're -- there's no -- yes, there is no like magic thing we can do to just all of a sudden accelerate it even it's one of those things, even if you double the amount of spend against it, you wouldn't really shave much time off. It's just you've got to go through that development of hardware qualifier go through iteration and actually build the stuff. And one of the things that drives the time line of Muton availability of production equipment. So although our supply chain is relatively intact when you go and buy CNC mills and giant automated tape players those guys are suffering supply chain issues. So there's no amount of money in the world that can accelerate some of that stuff.

(Operator Instructions). For one more time, just to remind everyone that there was a technical problem on the webcast side that prevented attendees from watching and listening for a little bit. So there will be a full audio and video replay available after the whole is wrapped up.

(technical difficulty)

With that in mind, I would like to turn the call back over to the management team for any closing remarks.

Well, thank you, everyone, for your interest in Rocket Lab and to those who participated in today's call. Adam and I will be speaking at these upcoming conferences and look forward to the opportunity to share more exciting news and updates at the (inaudible) Conference starting June 7 and the Bloomberg Technology Summit on June 8 and the Canaccord Growth Conference in August. Thanks again. We look forward to speaking with you all soon about the exciting progress being made in our business.

That concludes today's Rocket Lab First Quarter 2022 Financial Results Conference Call. Thank you for your participation. You can now disconnect your lines.