Earnings Call Transcript - MNTS Q4 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Momentus, Inc. Fourth Quarter 2022 Earnings Conference Call. I would now like to turn to call over to Darryl Genovesi, Vice President of Investor Relations. Please go ahead.

Darryl Genovesi, Vice President of Investor Relations

Fourth quarter 2022 and fiscal year 2022 earnings conference call. With me today are John Rood, Chief Executive Officer of the Company and Chairman of its Board of Directors, as well as Dennis Mahoney, Interim Chief Financial Officer. Each will provide prepared remarks. Following these prepared remarks, we will take questions from analysts. We ask that you limit yourself to one question and one brief follow-up. Earlier today, we issued a press release and made a slide presentation available on our Investor Relations website, which provides an overview of our business and financial highlights for the quarter and the year. You can download a copy of the release and presentation slides at investors.momentus.space. During today’s call, we will make certain forward-looking statements related to the Securities Act of 1933 and the Exchange Act of 1934. Forward-looking statements are predictions, projections, and other statements about future events based on current expectations and assumptions, and are thus subject to risks and uncertainties. Many factors could cause actual future events to differ materially from these statements. You should listen to today’s call with the understanding that our actual results may differ materially from the plans, intentions, and expectations we disclose. For more information about factors that may cause actual results to differ from forward-looking statements, please refer to the earnings press release we issued today and the company’s filings with the Securities and Exchange Commission. Readers are cautioned not to rely too heavily on forward-looking statements, and the company disclaims any obligation to update those statements discussed during this call. We will also refer to certain non-GAAP financial information today. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in our earnings press release. With that, I’d like to turn the call over to our Chairman and Chief Executive Officer, John Rood.

John Rood, CEO

Thank you, Darryl. I’m delighted to give you an overview of the company’s progress in 2022 and so far in 2023 as well as our plans for the future. I’m also pleased to have Dennis Mahoney here for his first earnings call as our Interim CFO. After I make my comments, Dennis will take you through the financial highlights. Turning to Slide 4. Momentus took great strides in 2022 and so far in 2023 toward our goal of being one of the market leaders in in-space transportation and infrastructure services. We are one of a small number of companies that have launched orbital service vehicles in space to serve this market. We have made significant progress on our technology development, conducting the first launch of our Vigoride Orbital Service Vehicle called Vigoride 3 in May of 2022. Vigoride 3 was launched from Cape Canaveral, Florida into Low Earth Orbit on the SpaceX Transporter-5 mission. In addition to launching Vigoride 3 on the Transporter-5 mission, Momentus used the second port on the launch vehicle for a deployer made by a third-party. Using Vigoride 3 in this deployer, Momentus placed 8 satellites into orbit. These 8 satellites were from FOSSA systems, Orbit NTNU, and California State Polytechnic University at Pomona. We also carried a payload from a fourth customer who prefers not to be publicly named. Our inaugural launch of Vigoride 3 was followed by a second Vigoride launch in early January of this year with our Vigoride 5 vehicle, which is a lead ship in our new Block 2.2 configuration that incorporated lessons learned and improvements from the Vigoride 3 mission. Vigoride 5 is now in low earth orbit, where it is in good health and is undergoing a deliberate commissioning process as we prepare to fire its Microwave Electrothermal Thruster in the coming weeks, maneuver the spacecraft in orbit, place the customer satellite in orbit, and continue to support a cutting-edge hosted payload from Caltech that aims to demonstrate the ability to collect solar energy in space and transmit electricity wirelessly in space and back to earth. During the first two months of 2023, we conducted the assembly, ground-testing, and Flight Readiness Review of the next spacecraft we intend to launch, Vigoride 6. We then shipped Vigoride 6 to its launch site at Vandenberg Space Force Base in California, where it has been integrated onto a SpaceX launch vehicle. I’m pleased to report that we are on track to launch Vigoride 6 on the SpaceX Transporter-7 mission targeted for next month. We’ve really strengthened our engineering and operations capabilities over the past year. We assembled an impressive group of leaders for our technology development, engineering, program management, manufacturing, operations, and supply chain functions composed of industry veterans with decades of experience at leading companies in space and defense industries. We’ve also recruited outstanding talent throughout our organization, which gives us a competitive advantage over our peers. We streamlined our engineering and development organizational structure to support more rapid development of our spacecraft, and enable more mature documented engineering processes to develop, assemble and test our spacecraft and its components. The results are evident, as we encountered far fewer issues during the assembly and testing of Vigoride 6 than we did during the production of Vigoride 5, which already represented a big improvement relative to what we experienced on the earlier vehicle, Vigoride 3. To be specific, our engineers and technicians reported 45% fewer non-conformances on Vigoride 6 relative to Vigoride 5. And not only are we seeing progressively fewer issues as our assembly and test processes mature, we’re also resolving the issues that we do encounter more rapidly. All of this gives us increased confidence in the reliability of our Vigoride Orbital Service Vehicle. Productivity has similarly improved; we completed assembly and testing of Vigoride 6 faster with substantially fewer labor hours than Vigoride 5, and we expect to see continued productivity gains during the production of our next vehicle, Vigoride 7, that is already underway. We’re pleased with how customer interest has been trending. We recently secured follow-on orders from two of our Vigoride 3 customers, as well as contracts with several additional customers including NASA, LuxSpace, CUAVA, and CONTEC. Momentus also signed a Memorandum of Understanding with Sidus Space during 2022 to explore launching its LizzieSat satellites onboard Vigoride in a collaborative effort between our two companies. As I mentioned on our last earnings call, Momentus has started to focus on growing our business with U.S. government departments and agencies like the Defense Department and NASA; we think these customers can ultimately grow to represent a significant part of our business. To lead this effort, we’ve hired Chris Kinman as our new Chief Commercial Officer. Chris comes to us from Northrop Grumman Space Systems, where he led the business development team in capturing satellite and payload opportunities for the Defense Department and Intelligence Community. Chris brings more than three decades of experience driving growth in the defense and civil government in commercial space sectors, and he is already making a big difference for us. During 2022, we improved our IT systems, tools, and processes for better cybersecurity and a better user experience that should enhance workforce productivity. We’ve also improved our finance and accounting tools and processes and hired a new interim CFO, Dennis Mahoney, who is here with us today. Dennis has been the CFO or Senior Financial Executive of six publicly traded companies. He has negotiated and closed four acquisitions and one company sale. He comes to Momentus with deep experience in defining financial strategy, scaling operations, and driving profitable growth at technology companies. We’re really happy to have Dennis on board. You’ll hear from him in just a minute about our Q4 financials. Over just the last few weeks, we’ve made progress in retiring some legacy obligations from before the company was public, including settling a class action lawsuit. We also successfully raised roughly $10 million in gross proceeds from an institutional investor. Momentus has a share repurchase agreement for a final payment of $10 million to the two founders of the company. The former founders were divested from the company in January 2021 due to U.S. Government foreign ownership concerns and the company previously paid $40 million for this purpose. The $10 million investment, which is equivalent to the total specified in the SRA, provided capital to the company to meet the obligations in the SRA. Retirement of these issues clears the way for Momentus to move forward with its vision to provide backbone infrastructure services for the growing space economy. Turning to Slide 5. In early January of this year, we launched our second Vigoride mission with our Vigoride 5 spacecraft. We call Vigoride 5 our next-generation vehicle from our Block 2.2 configuration, which is much more capable compared to our previous vehicles. Improvements include a modular payload bay that allows us to swap customer payloads for additional propellant, and our next-generation Microwave Electrothermal Thruster, or MET, which is designed to be more capable than its predecessor. Enhanced payload hosting capabilities allow us to host multiple experiments from Caltech onboard Vigoride 5. Turning to Slide 6. Launch and separation of Vigoride 5 from the launch vehicle has been completed. Vigoride 5 is now in Low Earth Orbit undergoing commissioning. As commissioning operations advance, Vigoride 5 remains in good health, and the vehicle's power and thermal systems continue to operate within nominal ranges. The solar arrays are fully deployed and generating power nominally, I might add; both uplink and downlink communications with the vehicle are healthy. Recent activities have included commissioning the attitude determination system and completing the pressurization of the vehicle's propulsion system. As part of the commissioning campaign, a spacecraft camera has now been activated and has been returning images of the spacecraft, which Momentus uses for engineering evaluation. One of the images we’ve collected is displayed now. In the coming weeks, Momentus will prioritize testing the vehicle's innovative Microwave Electrothermal Thruster, or MET. Momentus is a pioneer in commercializing this technology. The MET is designed to use water as a propellant and produce thrust by expelling extremely hot gases through a rocket nozzle. Unlike a conventional rocket engine, which creates thrust through a chemical reaction, the MET is designed to create plasma and thrust using microwave energy. Using the MET, Momentus aims to offer cost-effective, efficient, safe, and environmentally friendly propulsion to meet the demands for in-space transportation and infrastructure services. We plan to operate Vigoride in space through powered flight and test its ability to maneuver to different orbits using the MET. While we plan to deploy Qosmosys satellite in its desired orbit, Vigoride 5 will host Caltech’s payload for the entirety of its mission. As was the case for our inaugural mission, our intention is to perform the planned flight mission, test our technology in space, meet our obligations to our customers, and apply the lessons learned during the mission to improve our technology. This is hard-won knowledge that can only be gained through flight reserves. Turning to Slide 7. Beyond Vigoride 5, we plan to launch Vigoride 6 on the SpaceX Transporter-7 mission targeted for next month. The Vigoride 6 manifest includes two satellites for NASA, payloads for several commercial customers, as well as a prototype of the Momentus Tape Spring Solar Array, or TASSA. We’re delighted that NASA contracted with us to fly two satellites for their LLITED, or Low Latitude Ionosphere/Thermosphere Enhancements in Density mission. We recently completed assembly of Vigoride 5 and a rigorous ground testing campaign including vibration and thermal testing. Those tests simulate the environment that Vigoride 6 will encounter on the launch vehicle and in space. This slide we're showing now illustrates the progress we’ve made in preparing Vigoride 6. The picture at the top left shows the spacecraft in our cleanroom, when we were just beginning to assemble it, and the other photos traced its journey through various stages of testing and launch preparation. Customer satellites have been integrated onto Vigoride 6, and we conducted our Flight Readiness Review about a week ago. Then on February 28, we shipped Vigoride 6 to its launch site at Vandenberg Space Force Base in California, where it has been integrated with the launch vehicle. We’re on track to launch Vigoride 6 on the SpaceX Transporter-7 mission targeted for next month. Turning to Slide 8. One of the key objectives of the Vigoride 6 mission will be to test the Tape Spring Solar Array, or TASSA, in orbit. Our team led by our CTO, Rob Schwarz, has been working on the TASSA concept for several years as a potential means of reducing Vigoride unit manufacturing costs and lead times. We’ve applied the patented technology behind TASSA. You can see the TASSA fully unfurled on the left; it’s about 11 meters or roughly 36 feet long. To build TASSA, the team bonded large sheets of flexible solar cells to tape springs. The 4-inch mandrel is much smaller than those used in competing rollout solar arrays, which provides weight savings. Once development is complete, we estimate that replacing the third-party Vigoride solar array with TASSA could reduce the overall recurring production cost of Vigoride by approximately 10%, while potentially shortening lead time by several months. These are important improvements as we continue to transition from Vigoride development to production at lower unit costs. We’re also seeing interest from commercial and government customers in TASSA. Vigoride 6 will be equipped with its standard fold-up solar arrays, so TASSA will not be its main power source; rather, TASSA will fly as a hosted payload from the upper deck of Vigoride 6. Turning to Slide 9. We have another technology demonstration plan for our next mission with Vigoride 7 scheduled to be launched on the SpaceX Transporter-9 mission targeted for October 2023. On Vigoride 7, we intend to test and demonstrate Vigoride’s ability to rendezvous with other objects in space and maintain close proximity. Vigoride 7 will deploy a satellite and then attempt to maneuver closer and farther away as well as maintain relative distance to it in space using a sensor suite designed for rendezvous and proximity operations, or RPO. Recall that the current version of Vigoride Block 2.2 is expendable. After completing its mission, it moves to a decaying orbit and burns up during re-entry. A reusable Vigoride, after completing its mission, would rendezvous with and provide services to additional customer satellites. To clarify, by reusable Vigoride, we mean one that would stay in space and be refueled and, therefore, reused on later missions. This would allow Momentus to serve customers at lower costs than it can by building and launching an additional Vigoride. We believe transitioning from an expendable to a reusable Vigoride vehicle presents the potential to significantly reduce our manufacturing and launch costs. Part of that process is the need to upgrade Vigoride with a few key technologies, including RPO. RPO capability is also critical to our ability to expand the menu of services that Vigoride can provide, including in-orbit maintenance and refueling of customer satellites, life-extension, and de-orbiting of satellites at the end of their useful life. Turning to Slide 10. This slide shows a few commercial highlights from the fourth quarter and early part of 2023. CONTEC is a Korean company that is a new customer. Momentus plans to provide transportation services for the JINJUSat-1 CubeSat in 2023 in support of a Korean National Space. We have also signed contracts with the Australian Research Council Training Center for the CubeSats, Uncrewed Aerial Vehicles and their Applications, or CUAVA. Our contracts involve the transportation of two CUAVA CubeSats to Low Earth Orbit. CUAVA is a new customer. We also signed contracts with FOSSA Systems in Spain for the transportation of two satellites and one pocketPod deployer carrying eight satellites. As I noted, FOSSA is a previous Momentus customer, who participated in our Vigoride 3 mission, where we deployed six satellites from a FOSSA deployer. Lastly, we signed a contract with another repeat customer who prefers not to be named publicly. Turning to Slide 11. We’re excited about the potential growth in the markets we serve. This chart estimates market segment sizes for last-mile transportation and de-orbiting services, where we expect growth to accelerate given recent regulatory changes from the Federal Communications Commission, or FCC, that we covered in detail in our last earnings call that will require operators to de-orbit their satellites within 5 years after mission conclusion, as well as the potential for harmonization from other global regulatory bodies to closely resemble the new FCC rules. Defense and civil government space budgets are growing. As you can see, they’re measured in the billions of dollars. We believe Momentus has the right team and experience to appeal to these customers, possessing decades of experience in the aerospace and defense industry, including senior positions at the Department of Defense. That’s where we’re focusing our business development efforts. Turning to Slide 12. I would like to conclude my prepared remarks with a summary of the key reasons why Momentus is well-positioned in the space market. First, the markets we serve are rapidly developing. As a result of progressively lower costs, the number of satellite deployments is growing, and these satellites need additional services once they reach space. Both the private and public sectors recognize this need, and the regulatory environment is trending favorably with new FCC de-orbiting rules being an important example. The Space Foundation estimates the size of the space economy at approximately $469 billion today, and Morgan Stanley's space team expects the market to more than double to over $1 trillion by 2040. Bank of America and other groups forecast even faster growth. Second, Momentus is well positioned to capture a portion of this growing market. Momentus has now launched two Vigoride vehicles to space and is well on its way to launching a third. While others have aspirations, we are one of just a select group of companies already flying in space, and we’ve deployed 8 customer satellites. Beyond our in-space transportation service, we offer payload hosting services, and are currently flying a substantial hosted payload for Caltech. We believe our power generation capabilities, and the size and flexibility of our configuration provide a competitive advantage in this segment. We continue to build on our service offering and plan to introduce in-orbit services, such as satellite maintenance and refueling, and orbital debris removal. Our plan for 2023 involving the RPO demonstration should aid us in this effort. Our relationships with launch companies such as SpaceX are strong, and moreover, Vigoride is launch vehicle agnostic. Thus, we should benefit from increasing launch capacity and associated price competition among launch providers over time. Third, we are encouraged by our improvements in reliability and efficiency. We’re confident that we’re on a path to being a profitable business once we gain scale. Our costs exceed our revenue today, as we’re still early on the learning curve and producing and flying Vigorides at a low frequency. As we increase vehicle reliability, we expect capacity utilization and revenue generation per Vigoride mission to increase. Simultaneously, we expect to produce Vigorides more efficiently, as a result of learning economies of scale designed for manufacturing and targeted cost-reduction efforts like our TASSA. As a result, as revenue grows, we plan to achieve profitability and expand margins in the future. Additionally, we expect a disguised margin boost once we introduce the reusable Vigoride and start to save on manufacturing costs. Finally, driving all of this is our highly experienced and capable leadership team, which I believe to be the most credible among new space companies, as evidenced by all the progress the company has made in these last 18 months. Overall, I believe the combination of a growing space economy, a favorable demand outlook for the services we provide, competitive advantages relative to other in-space transportation and service providers, and the potential for margin improvement position Momentus well for the future. I’m pleased with what we were able to accomplish in 2022 and thus far in 2023, including the launch of two orbital service vehicles, the deployment of eight customer satellites, our progress towards conducting the Vigoride 6 launch next month, and recent customer contracts, further advancement on our cost reduction plan, and the retirement of legacy matters through the settlements of the class action lawsuit and raising capital to cover expenses along with the share repurchase agreement with our former founders. As I look back over the last 18 months since we went public, I’m proud of the significant strides Momentus has taken from being a startup to the disciplined public company we are today. This has not been easy by any means. However, witnessing what we’ve successfully achieved over these 18 months gives me great optimism for our future success. Perhaps most significantly, adding new talent at all levels of the company has resulted in a culture that is focused, relentless, and refuses to quit. I’d like to thank our dedicated team for getting us here, and I would also like to thank our customers and investors for their continued support. I’ll now hand the mic off to our interim CFO, Dennis Mahoney, and then we’ll take your questions.

Dennis Mahoney, Interim CFO

Thank you, John. I am pleased to present highlights of the financial results achieved by the Momentus team during our fourth quarter and fiscal year 2022 with comparisons to prior corresponding periods. Turning to Slide 14. Our fourth quarter and fiscal year 2022 results reflect our ongoing progress and investments toward our future launches. We currently have contracts for approximately $33 million in backlog representing potential revenue as of December 31, 2022, compared to $43 million at the end of Q3 2022, and $67 million at the 2021 fiscal year end. The $33 million in contracts had been entered into with 18 companies in 12 countries, similar totals to prior periods. The decline in total backlog at fiscal year-end 2022 compared to Q3 2022 and fiscal 2021 is due to the combination of fulfilling prior contracts, cancellations, and the exploration of option agreements entered into for a fee to participate in Momentus flights at future dates. Typically, our customers have the right to cancel a flight reservation, and when doing so, forego their deposits and milestone payments. If a customer cancels a contract for rescheduling needs or other reasons before all of their payments are made, the resulting revenue will be less than the backlog's full value. Momentus has historically included both firm orders and options in backlog. These options give our customers the flexibility to opt into an available launch slot without requiring a separate agreement. The decline in backlog from prior periods to $33 million at Q4 2022 was due to a combination of these factors, including the expiration of options. Of particular note, our firm contracted order backlog is consistent with levels reported at the end of Q3 2022. We ended Q4 2022 with non-restricted cash and cash equivalents of $61 million, which compares to ending cash balances of $160 million at Q4 2021 and $82 million at Q3 2022. We believe the company has sufficient liquidity to meet its needs for the next 12 months. We ended the year and fourth quarter of 2022 with approximately $15 million in outstanding gross debt consisting of a term loan that we began to repay in March versus $25 million at the year ended 2021. We invested approximately $88 million in operations in 2022 compared to $87 million in 2021. 2022 investments of $88 million include $17 million in Q4 2022; similar amounts compared to Q4 2021 and in line with our plan. We recognized $299,000 in revenue in 2022 compared to $330,000 in 2021. During Q4 2022, we recognized $120,000 in revenue, which included customer deposits forfeited upon the expiration of options. Other 2022 revenue related to Vigoride 3, as it continued to deploy customer satellites, fulfilling performance obligations to our customers. The majority of our Vigoride manufacturing costs and launch costs are accounted for as research and development expense because the Vigoride platform is still under development. We expect gross margins to decline once Vigoride development is completed, and we enter the production phase when costs will be accounted for as cost of revenue and not research and development expenses. In the fourth quarter of 2022, we generated approximately $21 million in losses from operations. On a non-GAAP basis, our adjusted EBITDA was negative $15.5 million, which represents an improvement of approximately $500,000 versus Q3 2022. Please refer to the earnings press release issued today for the reconciliation of EBITDA to GAAP net income. Non-GAAP SG&A expenses for the fourth quarter of 2022 totaled approximately $6 million, approximately $1 million lower than Q3 2022. Non-GAAP R&D expenses for the fourth quarter of 2022 totaled approximately $10 million in line with Q3 2022. We ended Q4 2022 with approximately 84 million shares outstanding. I will now hand the call back to Darryl.

Darryl Genovesi, Vice President of Investor Relations

Thank you, Dennis. In a moment we will move on to the question-and-answer portion of our call. I would like to remind participants that all disclaimers outlined at the outset of this call extend to the question-and-answer session. This includes our disclaimers relating to non-GAAP financial measures and forward-looking statements. Mandeep, would you please remind participants how to enter the queue?

Operator, Operator

The floor is now open for your questions. Our first question comes from Erik Rasmussen from Stifel. Please go ahead.

Erik Rasmussen, Analyst

Yeah, thanks for taking the questions. Maybe just starting with the Vigoride 5, given the success you’ve seen so far and the achievement of certain milestones around, I think, you mentioned that solar arrays deployment the vehicle’s power of communications. Has this changed or improved your timeframe maybe for being able to do precise orbits and transportation services?

John Rood, CEO

Thanks for the question, Erik. The Vigoride 5 mission, of course, is the second mission that we’ve conducted, the first being last year in May of 2022. The Vigoride 5 spacecraft right now is in Low Earth Orbit. Again, the spacecraft is in good health. Its solar arrays are fully deployed and generating power nominally; we’re able to charge and discharge the batteries normally. The telemetry we’re getting back through regular communications and the uplinks are in good health. The key performance requirements that we will aim to meet coming up soon is that we – as I mentioned, attitude determination has been enabled. Our pressurization of the fuel system allows you to move the water propellant around on the spacecraft. So we’ve tested our ability to do that. The key upcoming tests are the completion of commissioning the reaction control system first. The reaction control system uses the same water in the same propellant tank as the Microwave Electrothermal Thruster. With the RCS in place, we can not only reorient and adjust our attitude as necessary but also serve as a redundancy feature. If for some reason the Microwave Electrothermal Thruster should not perform, we can maneuver the vehicle using the water-based reaction control system. Now, we do plan to test this Microwave Electrothermal Thruster soon in just the coming weeks, as we expect to examine its performance. We’ve tested it loads of times in Earth conditions that simulate space. Now we’re looking forward to this next generation of our Microwave Electrothermal Thruster operating in space. These are the keys to space transportation, as we’ve mentioned. Having the ability to maneuver and deliver customers to precise customer orbits, either through space transportation services or through the hosted payload service providing to a customer like Caltech. We think our technology provides a competitive advantage in our ability to service those needs, particularly hosted payloads. And there’s more opportunity in hosted payloads for differentiation and margin expansion.

Erik Rasmussen, Analyst

Great. So it seems like this is just – it’s an ongoing process and we’ll find out more as the coming weeks unfold and with the Vigoride 6 coming up in April. But maybe just my follow-up question. You settled the class action lawsuit that was a material drag on the business, as you continue to scale the business and drive efficiencies, how should we be thinking about the quarterly cash burn rate and your timeframe for achieving breakeven? Thank you.

John Rood, CEO

Sure. Let me mention a couple of things and then turn over to our CFO, Dennis, on that matter. Certainly, it’s something that we’re paying close attention to as we begin to scale the business. You mentioned the settlement, the class action lawsuit. We’re very pleased to have that behind us. It’s been pending for a while. While the settlement provides a near-term cash outflow, it does allow us to reduce our ongoing legal spending now with that issue behind us. So why don’t I turn it over to Dennis to cover some aspects of our cash outlook?

Dennis Mahoney, Interim CFO

Right. Thank you, John. Erik, it’s very nice to meet you on this call. Of course, we do not provide forward-looking guidance. However, I can clarify our achieved results and the progress we made in the year just ended. We are focused on resource utilization, ensuring we allocate appropriately to all the right avenues and managing our cash accordingly. We are also watching markets and opportunities, and I can affirm that we will continue to act opportunistically, while practicing good judgment moving forward. When looking at our cash burn this last year, we have noted significant trends that suggest positive movement. Regarding monthly cash burn for the fourth quarter of this year at $6.8 million, this represents a reduction compared to the burns in the first half of the year that were between $8 million and $9 million. So we noticed a positive trend closing out fiscal year 2022. Cash is king, and we will keep a close watch on it and manage our business tightly.

John Rood, CEO

And of course, those were monthly figures that Dennis provided.

Erik Rasmussen, Analyst

Understood. Great. Thanks for the update. Good luck.

John Rood, CEO

Thank you, Erik.

Operator, Operator

Our next question comes from the line of David Strauss from Barclays. Please proceed.

Josh Corn, Analyst

Hi, good afternoon. This is Josh Corn on for David. Just wanted to ask how does the forward sales pipeline look? Thanks.

John Rood, CEO

Sure. One of the things that we’re very pleased about is that as we generate more flight heritage and progress in our development cycle, we’re witnessing growing interest from both commercial and government customers. Regarding the pipeline, we continue to see numerous customer opportunities emerging, and we feel quite good about how our service offering aligns with our customers' go-to-market plans. As we mentioned earlier, we recently announced new customer orders from repeat customers like FOSSA Systems, as well as new customers like CONTEC and CUAVA, where we’re seeing significant opportunities to grow our business. We are actively engaging with the Defense Department and NASA as well. The feedback we are receiving is very encouraging about the capabilities of our Vigoride Orbital Service Vehicle, and its ability to support various military, intelligence, and scientific missions. Some of the differentiators setting us apart in that market include the substantial power of the Vigoride Orbital Service Vehicle relative to competitors. Power is crucial for supporting instruments and payloads onboard our spacecraft. Secondly, our configuration is notably flexible compared to our competitors, and right now we are successfully flying Caltech's payload on Vigoride 5. Several competitors are unable to accommodate payloads of this type due to size constraints. Lastly, we aim to be highly competitive on cost and will strive to compete aggressively. Overall, this makes us optimistic about our future prospects. Additionally, with new external changes, such as government regulators' new FCC rule mandating the deorbiting of satellites after five years post-mission, it's clear we have substantial opportunities ahead. To give you a sense of scale, according to the Government Accountability Office, today there are approximately 5,500 satellites in orbit, but they estimate that by 2030, over 55,000 satellites will be launched. That’s roughly tenfold growth over the next seven years. This will create more need for deorbiting services, aligning perfectly with our capabilities using a flexible orbital service vehicle like Vigoride.

Operator, Operator

Our next question comes from the line of Edison Yu from Deutsche Bank. Please proceed.

Edison Yu, Analyst

Hey, thanks for taking our questions. First, I understand that you’re going to test MET properly in the next few weeks. Do you have some parameters in mind and how you would define success, or are there various levels of success? Curious, how are you thinking about that?

John Rood, CEO

Thanks for the question, Edison. The Microwave Electrothermal Thruster onboard Vigoride 5 is something that we intend to test here in the coming weeks. Some of the evaluation elements will assess if the water onboard Vigoride 5 is vaporized and will monitor a startup sequence, and we will evaluate carefully the telemetry data that we receive. Once that startup sequence begins, we can control the burn duration and modify Vigoride 5’s position using the MET. We’ll also assess its performance, and based on this evaluation, we’ll make any necessary refinements to enhance its operational efficacy. That’s our plan. Once the MET begins operation, we expect to change the altitude and inclination of Vigoride; this is a key benefit of an orbital service vehicle. We look to deliver satellites to specific altitudes rather than just an approximation, thus accommodating customer preferences. Similar to a container ship, which serves as the launch vehicle on Earth, we believe that optimizing payload distribution is the vital role we should meet.

Edison Yu, Analyst

Understood. Separately, on Vigoride 7, the reusable one, how comfortable are you with the tech upgrades that are needed to accomplish this? Also, you mentioned significant savings. Do you have a sense of how much we’re talking about here in terms of the cost?

John Rood, CEO

Vigoride 7 is currently being assembled in our cleanroom here; we are conducting this call from San Jose, California. To clarify, Vigoride 7 is a Block 2.2 vehicle, the same configuration as the expendable Vigoride 5 and the Vigoride 6, which is currently integrated for launch next month. A reusable Vigoride is part of our future product roadmap. The first demonstration of some of the key technologies needed for a reusable version will occur on Vigoride 7, particularly for the remote proximity operations or RPO projects. We thoroughly believe that developing a reusable Vigoride will be critical in reducing our two largest cost items: manufacturing costs and launch costs, as it would also enable new revenue streams like in-space refueling and maintenance. As for the magnitude of cost reductions, the intent is for the reusable or refuelable Vigoride to operate in space. It would travel to space on a launch vehicle, deliver customers, or execute hosted payloads and remain in orbit. On subsequent missions, we would replenish fuel or deliver new payloads, allowing Vigoride to complete multiple missions, thereby realizing significant reductions in launch costs. While this won't completely eliminate the costs, it would improve efficiency significantly by reducing the mass of the vehicle itself, meaning we would only launch fuel and additional payloads.

Edison Yu, Analyst

Thanks. I could just sneak one more in. I think on the last earnings call, you had mentioned bidding for some government contracts, particularly defense contracts. Do we have any updates on the prospects of those?

John Rood, CEO

Yes. That’s a great question. We are indeed focusing on government business, particularly with the Defense Department. The engagement we've received has been positive, indicating strong interest in the capabilities that our platforms can offer. We are currently in active discussions with Defense Department organizations like the Space Force, SDA, DARPA, and we’re also pursuing opportunities with NASA for additional business. While we do not have any contracts to announce today, we are optimistic about the future in that area.

Operator, Operator

Our next question comes from the line of James Ratcliffe from Evercore ISI. Please proceed.

James Ratcliffe, Analyst

Hi, thanks for taking the question. I know that SpaceX recently raised the rideshare prices. What does that mean for you directly, particularly regarding the aggregation business? How protected, if at all, are you against those increases? In the bigger picture, what’s your view on overall trends in cost to orbit now versus what we were observing a year ago? Thanks.

John Rood, CEO

Thanks for the question, James. We currently have launched service agreements signed with SpaceX that cover our planned launches in 2023 and the first one scheduled for January 2024. On those missions with signed launch services agreements, the price adjustments enacted by SpaceX won't affect us. However, after those contracted missions, like others in the market, we will be subject to increases introduced by SpaceX. The new pricing structure is designed to provide increased flexibility for SpaceX customers while pricing across the board might increase. We maintain regular dialogue with SpaceX. I can say that once these new costs take effect, our cost structure will rise under that new pricing framework, but this will impact our competitors as well. We anticipate that once Starship is introduced to the market, which SpaceX plans to launch this year, and considering it is substantially larger, it will significantly reduce per-pound or per-kilogram costs to achieve orbit. Other competitors like Relativity are also completing their rocket systems, and we are seeing continued tests on new vehicles. The recent news of the Japanese Space Agency and the unfortunate failure of the H3 launch underscores how difficult it can be to operate successfully in this industry. Other new systems are being tested as well, and as competition increases, we expect launch costs to be positively impacted in our favor. There’s a growing demand for existing launch vehicle capacity in the industry. As more opportunities arise, our customers will similarly benefit.

Operator, Operator

Our final question comes from Michael Mathison from Singular Research. Please proceed.

Unidentified Analyst, Analyst

Good evening, gentlemen. Coming back to some of the financial figures that we work with. You mentioned that your order backlog stands at $33 million as of the quarter end, with the committed portion of that consistent with prior periods. But do you disclose the figure for the committed amount?

John Rood, CEO

No, we have not disclosed that breakdown.

Unidentified Analyst, Analyst

Okay.

John Rood, CEO

Michael, the backlog at year-end, December 31, was $33 million. The key takeaway is that our fixed component of that amount remains steady from previous quarters. When we announced the recent backlog decline, it was due to the expiration of several options. We structure contracts with our customers in a way that allows them to opt into launch slots for future missions without a separate agreement. This is an advantage for us to potentially secure future new business.

Unidentified Analyst, Analyst

Very good. Thanks for clarifying. So just for modeling revenue going through this year anyway, do we have committed payloads for the October launch?

John Rood, CEO

We have some committed payloads for the October 2023 launch that are presently in backlog, and obviously, our salespeople are out trying to secure more. I, for one, am hoping to get more.

Unidentified Analyst, Analyst

Thank you very much for taking the questions and thank you for a good quarter.

John Rood, CEO

Thank you, Michael.

Operator, Operator

Thank you, ladies and gentlemen, this concludes today’s call. Thank you for your participation. You may now disconnect.