Rocket Lab Corp Q4 FY2021 Earnings Call

Good afternoon. Thank you for attending today’s Rocket Lab Fourth Quarter 2021 Financial Results Conference Call. My name is Tanya, and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. I would now like to pass the conference over to our host, Gideon Massey, Financial Planning and Analyst Manager. Please go ahead.

Thank you, Operator. Good afternoon, everyone. And thank you for joining us on today’s conference call to discuss Rocket Lab’s fourth quarter and full year 2021 financial results. Today’s call is being hosted by our Founder and CEO, Peter Beck; and our Chief Financial Officer, Adam Spice. After our prepared comments, we will take your questions. Our comments today include forward-looking statements within the meaning of applicable security laws, including statements relating to our guidance for first quarter 2022, including revenue in our principal target markets, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, interest and other expense, and adjusted EBITDA. 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 revenues across our target markets. These forward-looking statements involve substantial risks and uncertainties, 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 risks that may affect the forward-looking statements is outlined in the Risk Factors section of our 2021 10-K filing, which will be filed on or before March 31, 2022, today and the documents incorporated therein. Any forward-looking statements are made as of today and Rocket Lab has no obligations to update or revise any forward-looking statements. The fourth quarter and full year 2021 earnings release is available in the Investor Relations section of our website at rocketlabusa.com. To supplement our unaudited 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 exclude the effects of stock-based compensation expense, amortization of purchased intangible assets, and other non-recurring interest and other income expenses, net attributable to acquisitions, non-cash income tax benefits and expenses and performance reserve escrow amortization. We also supplement our unaudited historical statements and forward-looking guidance with the measure of adjusted EBITDA, where adjustments to EBITDA include share-based compensation, warrant expense related to customers and partners, third-party expenses related to mergers and acquisition activity, foreign exchange gains or losses, performance reserve escrow, and other non-operating income and loss, excluding interest expense related to debt and other non-recurring gains and losses. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in our investors updated presentation 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. And 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 two weeks. And now let me turn the call over to Peter Beck, Founder and CEO.

Thanks very much, Gideon. And before I get going here, I just want to confirm that Flight 24, which we launched earlier today, those deployed payloads and permissions are expected. Today’s presenters and joining me to review Rocket Lab’s business highlights and financial results for the fourth quarter and 2021 year, joining me on today’s call is Chief Financial Officer, Adam Spice. So the agenda today is that I will be taking you through our key business accomplishments for the fourth quarter and full year 2021, and Adam will be covering our financial highlights and outlook during our upcoming conference schedule, and of course, we will have plenty of time for some Q&A. So, firstly, let’s start with a bit of a review of our key accomplishments in 2021. I think this slide speaks for itself, but I will touch on a key point. Despite all the challenges created by the ongoing pandemic, including stringent border restrictions and picking up operations at our New Zealand launch site in particular, we still managed to launch six electron missions in 2021. As such, electron retains the title of the second most frequently launched U.S. rocket. Beyond launch, the breadth and scope of our achievements across geographic regions, space applications and customers is very encouraging to me, and there’s so much more to come. In Q4 highlights, I am very pleased that we were able to welcome Advanced Solutions and ASI and Planetary Systems Corporation, PSC, into Rocket Lab’s family and portfolio of solutions, and the intent to acquire SolAero Technologies, which ultimately closed in Q1 2022. Not only do these teams provide decades of industry experience and industry-leading technology, but culturally these companies have great leadership teams that will provide value to Rocket Lab for years to come. While all of this was happening, we still had a business to run and we were able to launch civil rockets to complete our third ocean recovery of our electron, inching closer to four reusable Electron launches and signing some significant contracts and achieving some very good project milestones. Backlog, this is the best slide. So in 2021, we saw a significant uptick in our backlog, and that’s continued into 2022. At December 31, 2020, our backlog stood at $82 million and we ended December 31, 2021, at $241 million, and today, our backlog stands at over $0.5 billion at $545 million, representing a $453 million increase in our total backlog since the end of 2020, and this backlog is confirmed customers and contracts won. We have seen bookings strengthen across every major product in the company, including Electron launch contracts, government study contracts, Interplanetary Photon satellites, Orbital Debris Removal programs, massive demonstration missions that include photon satellites and numerous rocket-led satellite components and software sales to a global customer base. I do want to take a moment to state how incredibly proud I am to see all of the use cases we are filing for our technology and high-value missions we are addressing with our suite of products and services. Our vision for Rocket Lab years ago was to become an end-to-end space company, delivering best-in-class technology and services spanning the entire space economy. While Rocket Lab is still in the early stages of this strategy, it’s incredibly exciting to see that strategy start to be approved. As I mentioned in the previous slide, Q4 2021 saw two successful electron launches. So, as mentioned in the prior slide, 2021 saw successful electron launches bringing our total to six missions for 2021. Rocket Lab has now deployed 109 satellites across 23 Electrons launched, including today as well 110 and 24. So we started this part of our strategy after entering the public markets, which is to further expand our vertical integration in Space Systems, manufacturing and creating a special supply chain ecosystem. We have executed on that strategy as evidenced by the acquisition of ASI, PSC and SolAero. With a quick refresher, ASI is based in Littleton, Colorado, the nation’s second-largest aerospace economy, and they develop industry-leading off-the-shelf flight software and guidance, navigation and control systems. ASI’s NEX Flagstar has been operating across more than 45 spacecraft for a cumulative 135 years in space. In Q4, we also acquired PSC, a Maryland-based provider of nickel separation systems and satellite features with 100% mission success heritage to date across more than 100 missions. Moving on to SolAero Technologies based in Albuquerque, New Mexico. SolAero is a premier supplier of space solar power products and precision aerospace structures for the global aerospace market. According to SolAero, both the world’s largest production line of high-performing space solar sales into the Rocket Lab business. SolAero’s power cells, solar panels and composite structural products have supported more than 1,000 successful space missions, with again, 100% reliability and mission success to date. Over the past two decades, SolAero’s products have played key roles in some of the industry’s most ambitious space missions, including supplying power to NASA’s Parker Solar Probe and Mars InSight Lander, the largest solar array ever to be deployed on the surface of Mars, and several Cygnus cargo resupply missions to the International Space Station, to mention just a few. These three strategic acquisitions joined Sinclair Interplanetary, which we acquired in April 2020. Later in this presentation, I will spend some time discussing the positive impact of these acquisitions and capabilities that we have now brought in house. For our acquisition strategy, I love the slide as it highlights the breadth of Rocket Lab’s capabilities that we have rapidly developed over the past few years, spanning nearly the entire space ecosystem and proving that Rocket Lab is a leading provider of end-to-end space solutions. Investments both organically and inorganically allow Rocket Lab to capture value from almost every active mission in whatever phase the mission is in. We are seeing this in our internal business development meetings, as it can be seen in the backlog growth we have experienced in 2021 that has continued into 2022. From the James Webb Space Telescope to ISS Resupply missions, Mega Constellations or cutting-edge defense industry satellites, Rocket Lab’s products and services can be seen almost everywhere. In 2021, our technology was included in 38% of all launches in 2021, and we have over 220 missions in development through the launch and spacecraft programs across almost every sector of the rapidly growing space economy. These missions include NASA, European Space Agency, Japan Aerospace Exploration Agency, or JAXA, Department of Defense, Commercial Constellation Operators, and Prime Contractors. In addition to Rocket Lab’s expanding products and services and technologies, Rocket Lab’s footprint is also expanded. With the recent acquisition close, Rocket Lab now has locations across five different states in the United States, as well as three locations in New Zealand and one location in Toronto, Canada. This expanded footprint has enabled Rocket Lab to attract and recruit some of the smartest people in the space industry to help guide and shape our programs, and I see this as a really strategic long-term differentiator from our peers. It seems like years ago that Rocket Lab completed the successful de-spac merger with our partner, Vector Acquisition Corporation, but it was such a watershed moment in Rocket Lab’s history and has and will continue to enable considerable growth into the future. We could not be happier with our relationship with Vector, who really turned out to be the perfect partner for Rocket Lab. This has unlocked a considerable amount of opportunities for Rocket Lab, and we continue to do so, and I could not be happier with how it’s been since the last six months. We have also signed and continue to sign a large number of multi-launch agreements. So electron really continues to distinguish itself in the industry, leading small launch vehicles with multiple multi-launch deals signed across commercial constellation operators. Customers are choosing electron as a reliable, dedicated launch solution that will place their assets exactly where and when they need them to ensure the highest long-term value and the quickest path to revenue of the world-changing technology. In the midst of everything else, Rocket Lab accomplished significant milestones in 2021, and the neutron program remains on track. Rocket Lab remains committed to becoming a launch provider for the national security space launch for the NSSL program, which launches the U.S.’s most critical missions, as well as becoming the constellation building workforce across our border government and commercial sectors. With two electron first stage recoveries successfully completed in 2021, the foundation has been laid for the first media launch recovery attempt, which will occur very soon in 2022. Full stage one recovery is important to enabling greater launch cadence and also lowering electrons cost per mission. In August 2021, our ESCAPADE program passed the key NASA mission review, moving the mission into the next phase with our target launch window date of October 2024. This mission is in partnership with UC Berkeley’s Space Sciences Laboratory, where it will put two photon spacecraft into the atmosphere of Mars to study its magnetosphere. The mission will leverage Sinclair, PSC, ASI, SolAero, and Rocket Lab organic products and services, helping provide a really low-cost solution with considerably less supply chain risk than traditional programs. Lastly, for 2021 accomplishments, it’s important to highlight the diverse and high-quality new and repeat customer base that Rocket Lab is establishing and supporting across our wide variety of products and service offerings. Now I just want to discuss a few additional accomplishments that Rocket Lab has achieved post the end of fiscal year 2021. This week, we announced a collaboration with MDA and Globalstar for a $143 million contract to design and manufacture 17 satellites for Globalstar, with the option for nine more. This contract reflects a deliberate and well-resourced strategy to grow Rocket Lab’s Space Systems business and deepen our value proposition beyond launch and into complete end-to-end space mission solutions. Rocket Lab was awarded this contract over established Tier 1 prime contractors in a highly competitive bidding process. Important to note, these are not cubesats; these are large, complex 500-kilogram spacecraft, meeting the stringent customer requirements for designing and building this constellation required demonstrating that Rocket Lab has the expense facility, expertise, and embedded supply chain capabilities to deliver on such a complex mission. To deliver this spacecraft and establish long-term capabilities for spacecraft manufacturing at scale, we are building out state-of-the-art spacecraft manufacturing facilities at our Long Beach headquarters, and production is complete. Feeding into this are the components and subsystems created by Rocket Lab’s recently acquired companies. This deep level of vertical integration offers our customers reliability and truly attractive pricing. When we first announced plans to become a public company, we envisioned our space strategy with one simple aspiration: Everything that goes to space should have a Rocket Lab logo on it. Today, we have made great progress on that strategy with our organically developed technology and through acquisition. Rocket Lab now delivers multiple parts of the launch and satellite supply chain, enabling us to offer reliability and attractive pricing. We operate state-of-the-art facilities and have a robust global team of 1,200 strong, and a solid supply chain now in place to deliver spacecraft and component manufacturing at scale to meet growing demand. The MDA contract is just one example of the strategy now in play. Since the end of fiscal year 2021, Rocket Lab has also been selected by NASA to be part of the beta program, which unlocks up to $300 million in potential launch services and revenue across 12 different launch providers, of which Rocket Lab is one. We began the development of a new Space Systems complex. Last month, we announced the expansion with our new Space Systems complex in Littleton, Colorado, to support the growing customer demand for flight software, mission simulation, and guidance for navigation and control services. When we made the decision to acquire ASI, the Littleton, Colorado location was viewed as a strategically powerful geographical location and this investment signifies our view. Last week, we announced bringing on our third launch pad to operational status, and today we are well and truly present, representing the second launch pad at our Launch Complex 1. This essentially doubles our launch capacity and allows us to meet the growing demand for Electron launch services. After considerable deliberation, we are excited to have chosen the State of Virginia for our Neutron launch site and production complex. The Commonwealth of Virginia can afford with a very attractive offer that we can leverage, with considerable investment incentives, both in infrastructure and operations at the Mid-Atlantic Regional Spaceport to enable neutron launch and production needs. So neutron is officially basing itself at Wallops out in Virginia. With that, I will hand over the call to Adam Spice, our Chief Financial Officer.

Great. Thanks, Pete. I will first review our fourth quarter and full year 2021 results, and then discuss our outlook for Q1 2022. Fourth quarter 2021 revenue was $27.5 million, with $1.7 million of revenue contribution coming from a partial quarter of PSC, which was not included in the guidance for Q4. Net of this, revenue was $25.8 million, slightly above the high end of our prior guidance range. Revenue in the fourth quarter included 2 successful BlackSky Global launches, consistent with prior guidance. Space Systems saw strength across both service contracts and Sinclair components, as well as partial quarter contribution for ASI and the aforementioned PSC acquisition. Full year 2021 revenue was $62.2 million, with 63% or $39 million coming from Launch Services and 37% or $23.2 million coming from Space Systems. Overall, our revenue grew by 77% year-on-year, with Launch Services growing 18% year-on-year and Space Systems growing 14-fold year-on-year. GAAP and non-GAAP gross margins for the fourth quarter of 2021 were 24% and 36%, respectively. This was better than the Q4 guidance on a GAAP and non-GAAP basis, driven by lower than expected launch costs, as well as a positive revenue mix of higher profit Space Systems Products and Services. This compares to GAAP and non-GAAP gross margins of negative 236% and negative 84%, respectively, in the third quarter of 2021, which were significantly impacted by a one-time catch-up related to stock-based compensation charges triggered by the de-spac transaction, as well as COVID restrictions in New Zealand and the related impacts on our launch rate and overhead absorption in the prior Q3 2021 period. Gross margins for the full year 2021 were negative 3% and positive 16%, respectively. Launch Services GAAP and non-GAAP gross margins were 1% and 6% in the fourth quarter, respectively, versus a negative 131% and negative 668% in Q3 of 2021. For the full year 2021, Launch Services GAAP and non-GAAP gross margins were negative 38% and negative 15%, respectively, and showed a positive trend as we exited the year. The improvement in gross margin in the fourth quarter of 2021 was a result of higher electron build rates. Space Systems GAAP and non-GAAP gross margins were 48% and 67% in the fourth quarter, respectively, versus 71% and 73% in Q3 of 2021. For the full year 2021, Space Systems GAAP and non-GAAP gross margins were 56% and 68%, respectively. Turning to operating expenses, GAAP operating expenses for the fourth quarter of 2021 were $31 million, which was approximately $6 million higher than prior guidance, driven by unforecasted purchase price intangible amortization expenses related to the acquisitions of ASI and PSC, with $700,000 related to stock-based compensation related to PSC of $800,000, performance-based escrow revest related to ASI of $1.8 million, a one-time stock-based compensation bonus related to certain R&D and production milestones, as well as costs associated with our employee share purchase plan of $800,000 and $1.8 million in higher-than-anticipated deal-related fees and expenses from acquisition activity in the quarter. Full year 2021 GAAP operating expenses were $100.2 million, compared to $43.1 million in 2020. The step-up in 2021 operating expenses was primarily driven by higher prototyping spend and staff costs targeting the broadening out of our Space Systems Products and Services and the development of our neutron launch vehicle, as well as higher public company spending related to our audit and professional services, staff costs, and directors and officers' insurance premiums. Non-GAAP operating expenses for the fourth quarter of 2021 were $20.4 million, in line with fourth quarter guidance. Full year 2021 non-GAAP operating expenses were $62.3 million versus $38.4 million in 2020. We will continue to aggressively invest in TAM expanding product initiatives that we believe will strengthen our competitive position as an end-to-end space company, as well as in our public company infrastructure. Moving to the consolidated statement of operations and income and adjusted EBITDA, Q4 2021 adjusted EBITDA loss was $8.5 million, which was $1.5 million better than the midpoint of our Q4 guidance range, driven by the previously mentioned outperformance relative to revenue and margin in the quarter. Primary adjustments and reconciling Q4 GAAP net income to adjusted EBITDA included mark-to-market warrant income of $24.1 million related to the outstanding publicly and privately traded warrants, which were subsequently redeemed on January 31, 2022. Income tax provision benefit of $6.1 million, depreciation and amortization of $4.1 million, the full quarter impact of our Hercules loan interest expense of $2.8 million performance-based escrow revest of $1.9 million, acquisition costs of $1.8 million and $0.2 million of FX-related expenses. GAAP R&D expense was $12 million for the fourth quarter, which included stock-based compensation of $3 million and amortization of purchase intangibles of $1 million, yielding $8 million of non-GAAP R&D expense for the fourth quarter of 2021. Growth in R&D spend continues to be driven largely by increased staffing and prototyping expenses related to our Space Systems Products and Services, neutron development, and continued spend on our launch vehicle automated flight termination systems development efforts. GAAP SG&A expense was $19 million for the fourth quarter, which included stock-based compensation of $2.9 million, acquisition costs of $2.1 million, performance-based escrow revest related to ASI of $1.8 million, and amortization of purchase intangibles of $100,000, yielding approximately $12.1 million of non-GAAP SG&A expense for the fourth quarter of 2021. The quarter-on-quarter step-up of $5 million was primarily due to higher transaction costs, performance-based escrow revest, and the first full quarter expense of director and officer insurance as a public company. Cash flow from operating activities was a negative $21.9 million for Q4 2021, with $2.8 million generated from operating results. Q4 saw an increase in cash consumed of $8.6 million versus the third quarter of 2021. Cash flow from operating activities in Q4 was impacted by the add-back of non-cash warrant income of $24.1 million, a $8.6 million increase in prepaid and other current assets, mainly derived from prepaid director and officer insurance premiums and ASI acquisition-related performance revesting charges. These offset somewhat by non-cash expense add-backs from stock-based compensation of $8.4 million and depreciation and amortization charges of $3.4 million. For the full year 2021, our cash flow consumed from operating activities was $71.8 million versus $27.8 million in 2020. This increase in cash consumption was driven by operating loss of $170.8 million in 2021 versus an operating loss of $55 million in 2020. In addition, cash consumption was driven by an increase in inventory of $12.7 million and prepaids and other current assets by $10 million. Cash flow consumed from investing activities was $80.7 million in the fourth quarter of 2021, compared to cash consumed of $5.7 million in the third quarter of 2021. With this quarter-on-quarter period increase in cash consumption driven by the net cash paid to acquire ASI and PSC, as well as execution on several large capital projects, including expanding our labs and satellite manufacturing facilities at our Long Beach headquarters, on our second launch pad in Launch Complex 1, our new consolidated propulsion test complex in New Zealand and the acquisition of electron launch recovery assets. For the full year 2021, our cash flow consumption from investing activities was $92.1 million, compared to cash consumed of $37.3 million in 2020, driven largely by the same factors affecting Q4 discussed earlier. In the fourth quarter, cash consumed from financing activities was $1.8 million, as compared to $704 million in cash generated in the third quarter, with the cash consumption in the fourth quarter driven by a $2.2 million net reduction of the proceeds from the leaseback associated with delayed building activities for professional services related to our merger with Vector Acquisition Corporation, and the related PIPE financing, which was somewhat offset by collecting $400,000 in proceeds from the exercise of employee stock options. The combination of cash consumed from operating and investing activities during 2021 was more than offset by the $799.9 million net cash generated from financing activities for the year, resulting in $692.1 million in cash and cash equivalents. This compares to $21.5 million in cash generated from financing activities, comprised of $20.5 million in net proceeds from the issuance of preferred stock and $1 million from the excess of stock options. We believe the liquidity resources of the company enable the execution of our strategic development roadmap, including the development of our neutron launch vehicle and continued investments targeted at expanding our total addressable market for strategic Space Systems solutions. With that, let’s turn to our guidance for Q1 2022. We currently expect revenue in the first quarter of 2022 to range between $42 million and $47 million, which includes two dedicated launches and a near full-quarter contribution from SolAero, which closed on January 17, 2022. We expect Q1 2022 GAAP and non-GAAP gross margins of 17% and 30% respectively. GAAP gross margins are driven by product mix, as well as full-quarter contribution of purchased intangible amortization expense and stock-based compensation related to PSC, ASI and SolAero. It is important to note, the purchase price allocation for SolAero has not yet been completed at the time of today’s call, and therefore is not captured in our Q1 guidance. We expect Q1 2022 GAAP operating expenses to range between $38 million and $40 million and non-GAAP operating expenses to range between $21 million and $23 million. This quarter-over-quarter step-up is driven by the effect of full-quarter contributions from ASI and PSC, as well as near full-quarter contributions from SolAero. In addition, we continue to fund strategic development programs aimed at delivering strong topline growth in 2021 and beyond across Launch and Space Systems and our goal of delivering operating leverage in the business. The effects of these investments are already bearing out in proof of our expanding backlog and recent announcements regarding the award from NDA to design, manufacture and deliver 17 satellites for Globalstar. To put this into perspective, our Space Systems business generated its first revenue seven quarters ago and only contributed a little over $2 million in revenue for the full year 2020, to now representing approximately 2/3 of our Q1 guide. We expect Q4 2021 GAAP and non-GAAP interest expense to be $2.7 million. With the completion of our private and public warrant redemption that closed on January 31, 2022, our P&L will no longer be subject to mark-to-market income and expense impacts of these legacy warrants. We expect Q1 2022 adjusted EBITDA loss to range between $3 million and $5 million. And with that, I’d like to open the call to questions.

The first question is from Edison Yu with Deutsche Bank. Your line is open.

Hey. Thanks for taking my questions and congrats on the quarter. So two topics I wanted to ask about. First is considering the environment right now in space, obviously, a lot has happened within the last week. Have you thought about the potential implications, if you get sanctioned or if basic or basic space cannot fly for Europe? And I guess, is there any way to kind of speed up development of neutron to compensate for that?

Yeah. Thank you, Edison. Yeah. Obviously, it’s a crazy time in the world right now and we are working on neutron as quickly as we can. I’m not sure we can accelerate that much more than it already is. But needless to say, that if things continue in this direction, there will be a far more limited launch availability than what normally would have been.

Understood. And then second topic, clearly, the M&A strategy has been bearing quite a bit of fruit. You have all this content on some of the most important satellites. Is there anything you feel that’s out there left? Do you think you have completed most of it or is there anything kind of strategic you still see out there potentially along the lines of maybe integrated electric propulsion?

We keep a pretty active pipeline of companies and deals that we want to pursue, and I wouldn’t say that we have finished out, but I am not going to be answering in detail about what particular technologies we might be going for next.

Got it. If I could sneak in just one more. On the launch cadence, I know you have two kind of embedded in the first quarter. Without providing, I mean, a number per se, is there any kind of rough indication, assuming supply chain is fine in place, what could be kind of the run rate by the end of the year?

I will take the first part and then Adam may want to pick up the second part of that. I mean, we are always paced by our customers’ readiness. You have seen us accelerate one customer because another customer wasn’t quite ready on time. So the thing that drives our launch cadence the most is our customers’ readiness.

We are not currently facing production constraints. Our production capabilities have performed well over the past quarter, allowing us to stay on track for our planned rocket output for 2022. Our internal production forecast indicates that we started the year with some rockets, and our aim is to build 15 rockets this year. Ideally, we would like to have some rockets available in inventory to support immediate opportunities, as we often encounter situations where customers require quick launches for various reasons like spectrum needs or technology demonstrations. We believe we can accommodate such demands this year as we move forward. Our goal is to be consistently launching at least once a month by the end of the year and ultimately progress towards launching two rockets monthly at a steady pace. Everything currently suggests that we can achieve this, and we do not anticipate any production issues hindering our revenue generation. The market demand is still evolving since dedicated small launch is a new category, but we feel optimistic about the situation. Our customers need to adapt to the variability of launch schedules, and that understanding will improve over time as demand increases and we offer more opportunities to slot and replace missions without losing launch slots. For instance, in this quarter, we successfully swapped missions quickly due to our exclusive access to our own launch range, which gives us flexibility not available at traditional government ranges. There are numerous factors that affect launch rates, but our objective remains consistent launches at least once a month by the end of 2022.

Okay. Thank you.

Thank you, Mr. Yu. The next question is from Kristine Liwag with Morgan Stanley. Your line is open.

Hey. Good afternoon, guys. Maybe on…

Good afternoon.

You mentioned that Rocket Lab's capabilities now cover the entire space economy with your recent acquisitions and integration. Does that mean you are satisfied with the current portfolio and we should expect M&A activity to level off, or do you still see opportunities for additional acquisitions?

Yeah. Pete, I can take it. Sorry, go ahead. You go ahead.

No. No. You go ahead. Yes. Yeah.

Yeah. Kristine, I think from an appetite perspective, we still have plenty of appetite to accelerate the growth of the business through inorganic means. We have been successful, as you have seen in doing four acquisitions in a relatively short period of time, three since going public in August, and we continue to see interesting and compelling assets out there. So I would say that, I wouldn’t expect the pace to continue as it has been because that was very quick to do three acquisitions in series as we have just done. But I still expect we will find opportunities that we can execute on. That was, again, one of the big reasons for going public was to ensure we had the capacity and capital to pursue these kinds of TAM expanding deals. We think our strategy so far is bearing great fruit and we continue to plan to push that, although I would say just naturally speaking, doing three acquisitions in the first six months of being public isn’t something that is normal or I would predict would continue into 2022 at that same rate.

And I would just say, you can see kind of the strategy rolling out here with the win with MDA and Globalstar. I mean, having such a secure supply chain and scale really, really enabled us to beat out really established suppliers in that satellite manufacturing field.

Thanks. And then also can you provide any updates on the planned testing around the first stage retrieval via helicopter? And if you can’t provide any specifics around timing, can you speak to the testing regime overall and milestones to enable the regular recovery of boosters using a helicopter? I think you guys have said about 50% is eventually where you want to be?

Yeah. Absolutely. So the helicopter that’s been selected to do this work has had all the modifications completed and it’s currently on route to New Zealand. We have completed all of the last drop tests last week. So the team has been out there dropping rockets flat out. The last test we did last year really validated the final piece. We actually had helicopters on route and rendezvous, but did not catch, but rendezvous at this stage, which was really the last big piece. So this next launch coming up, we will have the helicopter set at ready to go and we will, in fact, attempt to attach, and you won’t have to wait long for that.

Great. And if I could sneak a third one, the $143 million contract win that you got from MDA is a fairly meaningful win and you get to showcase this portfolio you have built with SolAero, Sinclair, and APL. So when you think about delivering on this contract, are there additional CapEx that you have to do in order to build a 17 500-kilogram spacecraft or do you have the capacity already in place? And can you discuss potential execution risks around this contract?

Yeah. I mean, we have made significant investments and continue to make significant investments in the Space Systems division. I think we mentioned in the slides here about the continued expansion of our satellite manufacturing facility. You have seen us also grow ASI and increase our footprint in Colorado. There’s still some extension required from a facility standpoint, but these were already all planned before we actually won the contract and have been swinging for some time. I mean, I think, with respect to execution, these are complicated spacecraft, for sure. But we have assembled a team of industry experts that, as you can see by some of the acquisitions, have executed on these programs in the past, many times, and we are feeling very confident in the core team’s ability. If you look at some of the other missions, we have also been awarded missions to NASA, missions to Mars from NASA, and a large mission to the moon. These are very, very complex missions and that’s really where our engineering team excels is in these complicated programs. And just to clarify in your previous question, Kristine, the launch is coming soon, but they haven’t defined a date for the full recovery.

Yeah. Thank you, Peter. Thanks, Adam.

Thank you, Liwag. The next question is from the line of Erik Rasmussen with Stifel. Your line is open.

Thank you for taking my question and congratulations. It’s a busy year for you. I would like some clarification on the launch and the timing, specifically regarding two in the upcoming quarter and then at least one per month for the rest of the year. I want to understand if the 15 builds for the year refer to builds or launches, and whether those two are the same.

The 15 refer to incremental builds in 2022, not launches. We've mentioned a range of launches or missions planned for this year. Currently, we feel confident in our position to support a launch rate as discussed for the end of 2022. We're not ready to provide full year guidance yet, just focusing on the next quarter. However, we do feel very comfortable with our capacity to support the launch plans we've outlined previously.

Okay. Great. And then maybe just the outlook for Q1, what’s behind that, maybe you just unpack the revenue outlook, what’s the organic piece versus what’s coming from recent acquisitions? And then I have another question.

Sure, Erik. We are not going to go into details about what comprises space systems at this time because it has become a very diverse and interconnected set of businesses. When considering components ranging from those we developed organically to those created through partnerships, such as radios with Johns Hopkins, various elements from Sinclair, as well as software from ASI and solar panels from SolAero, there are many interdependencies. It's challenging to clearly differentiate what is driven by organic growth versus inorganic at this point. Therefore, we will continue to provide details regarding components like Launch versus Space Systems, but going deeper into Space Systems may not be productive or meaningful.

I understand. Regarding the MDA subcontract award, congratulations on that. What milestones should we anticipate? It appears there’s an opportunity for Rocket Lab to offer additional services and potentially up to nine more spacecraft. How would that impact revenue beyond the $143 million initial contract? Also, I heard that Globalstar plans to pursue a contract after the satellite launch; is that something you might also secure? Thank you.

Certainly. There are options for further development, and various alternatives concerning other technologies. The launch date for these satellites aligns well with neutron’s operational readiness, and we will definitely be competing for the launch of this spacecraft. If successful, this will enhance our strategy and demonstrate our capabilities in both satellite construction and launch.

From a revenue perspective, this contract is mainly back-end loaded. We have completed a significant amount of design work to secure the contract, but now we are focused on advancing to the next level of non-recurring engineering work and eventually starting to ship systems to the customer. In terms of milestones, you may not hear much that is visible to investors, unlike other projects where engine tests or visible infrastructure changes occur. This contract involves a detailed set of internal milestones, but substantial revenue won’t be evident until it starts coming in, which will mostly happen in 2023 and beyond. Therefore, you shouldn't expect a significant revenue contribution from this contract in 2022.

Got it.

Regarding the potential for delivering the additional nine options on the contract, we prefer not to comment on that at this time to manage expectations appropriately. Our focus is on what is already committed, which is the 17 options that have been added to the backlog. If we receive any notification from the customer indicating they wish to exercise some of those additional options, we will ensure that we inform everyone accordingly.

Thanks. Good luck to everybody.

Thank you, Mr. Rasmussen. Your next question is from the line of Suji Desilva with ROTH Capital.

Hi, Peter. Hi, Adam. Congratulations on the strong finish for 2021. Adam, I don’t want you to break the earnings up, but I just want to clarify, did you say that SolAero in Q1 2022 was minimal because of the accounting for the merger, is that what you said?

No.

Okay. And then the backlog, clearly a very strong spike. Congratulations on that. Is there any way to understand how much of the backlog is attributable to Launch versus Spacecraft versus Space Agency components? Does that breakdown help or just qualitatively what drove the significant spike since the end of 2021?

Yeah. Well, obviously, the biggest contributor to the post-year-end backlog growth came from the MDA contract, right?

Yeah.

We have seen continued growth in our backlog for our spacecraft components business and software, with all aspects of our space systems performing well and contributing to this growth. We're also adding new launch customers. I would say there isn't a weak spot in the business; the significant contribution last year was mainly from the space systems side, particularly related to the MDA contract. However, this shouldn't overshadow the fact that there has been substantial activity across our entire portfolio of space systems and launch services. We are very pleased with the growth in our backlog, which we aim to communicate to investors. Discussions around the pipeline are common, but the focus should be on the backlog, as it represents the committed resources behind our platforms, whether in launch or space systems. We find a lot of reassurance in the backlog growth we've experienced not just in 2021, but also as we move through 2022.

Great. No, the MDA contract is certainly a good one, congrats on that. Just one last quick question, if you do the factory envelope math, it comes out about $8.5 million per spacecraft. I am just wondering if that’s a good number to use for going forward spacecraft opportunities? Is it proportional to the size or complexity of the spacecraft? Any color there would be helpful.

I wish it were that easy. Unfortunately, each spacecraft is unique, and there’s no one metric that really applies, whether it's mass or platform type; they are all very different. Additionally, the spacecraft we designed in this case involves significant non-recurring engineering costs, which are taken into account when considering the overall contract. It's also challenging to determine how much of the costs are attributed to design, assembly, and integration versus non-recurring engineering. As we see further growth in our constellation and increased volume, we will be able to share those metrics as they become available.

Thanks, Adam. That’s it.

Thank you, Mr. Desilva. The next question is from the line of Austin Muller with Canaccord. Your line is open.

Hi. Good afternoon, everyone. My first question here is for Peter. Do we have any update on the rain software that you are supposed to get from NASA to operate the launch?

Yeah. Hi, Austin. So they have released an initial version to us and we are going through our own internal review. There’s probably some slight tweaks here that need to be made, but that is progressing. NASA has delivered some software products to us, which is very promising and giving us much more confidence to be able to schedule something to launch in 2022.

Okay. That’s helpful. And then just on the neutron facility that’s being built in Virginia. Do we have any timing on how long you think it will take to get that facility set up and start putting out rockets there, and will early neutrons all come from there or will some come from New Zealand or California?

Yeah. No. Sorry. All neutrons will come from that facility. The land is already been acquired by NASA, the Mid-Atlantic Spaceport. We will be digging holes in the ground very, very shortly. The program kind of enables us to have a more relaxed approach to building that infrastructure. There are certain things we need immediately, and obviously, you don’t need to launch that until you really need to launch. So the whole construction part of that is phased quite nicely across the submission development timelines.

Got it. And then how comfortable are you guys with the supply chain right now? Are you seeing any potential issues on the horizon or are you still very confident in this environment?

I don’t think anybody is confident in this environment. I mean, I will say that it’s great to have a large part of the supply chain, because you can really manage things. But like everybody, we are continuing to manage the shortages and all those kinds of things. However, we took an early approach of carrying a large amount of work. So we haven’t seen any programs delayed as a result of any supply chain issues.

Excellent. Thanks for filling me in.

Thank you, Mr. Muller. The last question is from Cai von Rumohr with Cowen. Your line is open.

Layer 1 was awarded yesterday, and Lockheed with Terran secured one of the slots for 42 satellites. They claim they are establishing a large facility in Florida and are set to have volume production. This means their costs will be unmatched by competitors, and your MDA satellite appears to be in a similar size category. Do they pose a serious threat to you, considering they seem to be focusing mainly on DoD contracts while you are concentrating more on commercial civil opportunities? What level of threat do they present, if any?

Yeah. That’s a great question, Cai. I guess we are a little bit different in the respect that if you look at the supply chain of critical components, whether it be solar or reaction wheel, star trackers, all of those things. We have taken an approach of making sure that we have those for us and also for holders of scale. So really, I think we are in a different kind of place. We are not just focused on commercial. We are happy to do defense work as well. But, I mean, I think if you look at our acquisition strategy and what was kind of rolled up, I would have to guess that either way we will be a participant in those same bureaus at a component level.

Thank you, Mr. von Rumohr. I will now pass the conference over to Adam Spice for any closing remarks.

Thanks, Operator. Before we wrap up the call, I’d like to thank everyone who participated in today’s call, and we look forward to having the opportunity to provide further updates on our business, including through our participation at the ROTH Conference on March 13th through 15th, the Deutsche Bank 30th Annual Media, Internet and Telecom Conference on March 14th, and the Bank of America Space Transport, Aviation and Auto Research Summit, or STARS conference March 20th through 22nd. Thanks again, and we look forward to speaking with you again about the exciting progress we are making in our business. Thank you, Operator.

That concludes the Rocket Lab fourth quarter 2021 financial results conference call. Thank you for your participation. You may now disconnect your lines.