Rocket Lab Corp Q1 FY2022 Earnings Call

Good afternoon. Thank you for joining today's Rocket Lab First Quarter 2022 Financial Results Conference Call. My name is Nathen, and I will be your moderator for the call. All lines will be muted during the presentation, and there will be a chance for questions and answers at the end. I would now like to turn the conference over to our host, Gideon Massey 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 to 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 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 factors, or other risk factors that may affect the forward-looking statements has outlined in the Risk Factors section of our 2021 10-K filing, which was filed on March 24th, 2022 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 first quarter 2022 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 include the effects of stock-based compensation expense, amortization of purchased intangible assets, other non-recurring interest and other income expense net, non-cash income tax benefits and expenses, performance reserve escrow amortization, transaction cost 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, where 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 escrow, and other non-operating income and loss, excluding interest expense related to debt and other non-reoccurring 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 measure 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 two weeks. And now, let me turn the call over to Peter Beck, Founder and CEO.

Thanks, Gideon. Welcome everyone to today's review of Rocket Lab's business highlights and financial results for Q1 2022. We'll cover our business accomplishments for the start of the year and further achievements we've made in the weeks following the end of Q1. Adam will discuss our financial results for the same period and provide an outlook for the second quarter before we open the floor for Q&A and wrap up with details about upcoming conferences. Let’s begin by reviewing our key accomplishments in Q1. We started the year strongly by signing our largest Space Systems contract to date, valued at $143 million, to design and manufacture 17 spacecraft buses for the Globalstar constellation. This contract underscores our increasing levels of vertical integration across space systems and our end-to-end strategy. We’re maintaining momentum in Space Systems with our Colorado expansion to meet rising consumer demand for GNC and software services, and we've completed the acquisition of SolAero Technologies in the first quarter. We've also begun developing their advanced technology to qualify what we believe to be the world's most efficient space solar cells, which we aim to launch later this year. On the launch front, our first mission of the year was a flawless operation for returning commercial Japanese customer Synspective. This marked the first mission from Pad B at Launch Complex 1, where we're ramping up our Electron launch cadence, allowing us to run two launch campaigns simultaneously. Further down the line in this presentation, I'll detail our accomplishments following Q1. I'm enthusiastic about our scheduled first Electron launch out of Launch Complex 2 this year. Additionally, Electron was selected by NASA for its beta launch program, a $300 million initiative for launch services. We capped off Q1 by selecting Virginia's Wallops Island for the Neutron launch site, with construction already underway. Now let's delve into some of these highlights in more detail. In Q1, our backlog rose significantly, growing from $241 million at year-end 2021 to $546 million by March 31, 2022. Currently, our backlog stands at $551 million, indicating a $310 million increase since year-end. We're witnessing strong bookings across all major products, including Electron launch contracts, Photon satellites, and various Rocket Lab satellite components and software sales. Our customer base encompasses the US government, foreign governments, universities, and commercial satellite operators. We are beginning to see financial synergies from our vertical integration strategy, which is already yielding significant benefits. In terms of our launch activities, our Electron mission for Synspective was a notable success, adding another satellite to their Earth Imaging constellation. This was part of a bulk buy contract we signed with them last December, with the first satellite delivered in under three months—demonstrating our rapid turnaround capabilities and reliability, which often lead to mission bulk buys. The mission was expedited to meet specific requirements and successfully launched two days later than planned due to a delay from another customer. From a technical perspective, this mission was also our highest performance to date, with Electron delivering Synspective's payload to the precise target orbit. We also successfully decommissioned the kick stage within a record timeframe of nine days, demonstrating our commitment to responsible space stewardship. Following that, we completed another successful Electron mission just 33 days later. Our first launch from Pad B significantly improved our launch capacity. At Launch Complex 1, we immediately increased our launch capacity without needing extensive new infrastructure or regulatory approvals. Transitioning to Space Systems, Rocket Lab was selected by MDA to design and manufacture 17 spacecraft buses for Globalstar, a leader in mobile satellite services. This contract reflects our vertically integrated capabilities, incorporating components developed internally and from our acquisitions. We are in the early stages of execution but are making strong progress toward our planned satellite manufacturing line in Long Beach. Our acquisition of SolAero Technologies has positioned us to leverage best-in-class solar cell technology, enabling us to push the limits of high-performance space solar cells. We have achieved significant milestones, such as completing production for a major low Earth orbit satellite constellation with OneWeb. Our new facility in Colorado supports our mission operations centers as we anticipate doubling our workforce by early 2023. Our Photon spacecraft is also involved in innovative projects, including a mission with Lockheed to create an orbital fueling depot, designed to facilitate NASA's sustainable presence on the Moon. We successfully completed preliminary design reviews for this mission, aligning perfectly with our vision for Photon. In Q1, Rocket Lab was chosen to provide launch services for NASA's Venture-Class Acquisition of Dedicated and Rideshare Missions, highlighting confidence in Electron's capabilities. Turning to Neutron, we've commenced construction on the Virginia launch site and production complex, expanding our footprint and creating jobs in the local economy. Our Neutron development program is on track, and we’re currently focusing on meeting key requirements for national defense and security missions. As we look to the future, we've had a strong start this year with multiple successful launches and contracts secured, including a bulk buy from Hawkeye360 for multiple Electron launches. Our technology continues to be incorporated across various satellite constellations, showcasing our reliability and growth potential. Now let me hand 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 24th. The updated guidance reflected the delay at 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 lift 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 un-forecasted purchase accounting impacts of SolAero that was still in process at the time we issued our guidance and the delayed launch resulting in lower absorption of overhead and indirect production and launch costs. This compares to fourth quarter 2021 GAAP and non-GAAP gross margins of 24% and 36%, respectively, which benefited from a 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 was 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 was 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 and 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 the 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 was 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 Launch services got off to a slow start in 2022, as Peter mentioned earlier, for a variety of reasons, including easing COVID restrictions in New Zealand and operational status of our second pad at LC1, we've picked up the pace with a monthly launch cadence for the last three 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 two satellite programs, one of which was a study contract and Sinclair component revenue contribution. As Peter covered in the slides earlier, in our space systems business, we now have revenue contribution from almost every US Government defense and civil agency, the majority of large US primes and a diverse 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 cadence 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 was 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 three dedicated launches. We are not including in our guidance, but note the potential for a fourth launch in the quarter for government customers currently manifested with the launch window in the last week of June. Out of prudence, we are excluding this launch from our guidance ranges but 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 vehicle 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?

Our first question is from Suji Desilva with ROTH Capital. Suji, your line is open. Please proceed.

Thanks. Hi, Peter. Hi, Adam. Congratulations on the progress here. Regarding the gross margins you've mentioned, I understand the overhead absorption and launch. For space systems, around the 20%, what should we consider as the target margin? Is there a chance for growth, or will it fluctuate from quarter to quarter around this level?

Yes, I think it’s kind of a near-term, medium-term, and long-term answer to that question. I think in the near term, certainly, the laws of physics are kind of dictating that. The SolAero impact is going to drive margins kind of to be lower than obviously 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'll be in the next several quarters. Certainly, as you kind of move a little bit further out in time, we see a lot of opportunities for improving the gross margins in the SolAero business. The other portions of space systems remain pretty strong from a gross margin perspective. So I think it's really a focus on SolAero and getting some improvement there in that business. We're optimistic that we've got a path to improve the margins there. Overall, we believe that the margin structure for the larger space systems initiatives should be relatively similar to launch, targeting kind of the low to mid-fifties. Now, again, given the size of SolAero’s contribution, it's going to take some time to get that back into focus. We've talked a little before that we see the SolAero growth margins ultimately 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.

Appreciate the detail and laying out the roadmap there, Adam. And then switching over to the launch cadence, you seem to have settled into sort of a one-a-month cadence roughly, which is what you guys had talked about. What happens as maybe two 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 six 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 a little bit difficult to predict, and launch is always a little bit lumpy, but certainly, we see an increase in launch manifest for next year, and we’ve made sure we've made all the investments to take full advantage of that.

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

Okay. It’s more flexibility there. Thanks, guys. Appreciate it. I’ll pass along.

Thanks, Suji. Our next question goes to Edison Yu with Deutsche Bank. Edison, your line is open, please proceed.

Hi, guys. Thanks for taking questions. First one on the guidance. Just curious what are you sort of embedding in there for CAPSTONE? I think it was disclosed somewhere; it's worth about $10 million. I see we don't recognize all that into Q; just if you can clarify what's kind of being embedded?

Yes, that's a good question, Edison. The CAPSTONE mission is indeed valued at around $10 million. It's essential to highlight that one of the missions in Q2, specifically the recovery mission that occurred earlier in the quarter, was primarily an R&D platform and had relatively small revenue contributions. While we had some cubesats on the platform, it wasn't a standard launch. So if you're looking to understand how our revenue guidance for launch services relates to three launches and our average selling price, it's because the recovery mission generated minimal revenue, and you are correct regarding the CAPSTONE revenue estimation.

Understood. And then a follow-on regarding space systems. I know you mentioned that you completed the OneWeb project. How are we approaching Gen2? Clearly, that is expected to be much larger. Are we confident about when that will be finalized? What type of solar panel or solar cells will be used?

I mean that program is going through its traditional bidding cycle, so we'll have to wait for the customer to make their final selections.

Thank you, Edison. Our next question goes to Erik Rasmussen with Stifel. Erik, your line is open, please proceed.

Thank you for taking the questions. I would like some clarification on the value per launch. One of the launches was an R&D platform. Would you estimate it to be similar to what was reported in your 10-K, which is just over $8 million, and do you expect that value to increase per launch? Additionally, given these bulk purchases, are there any pricing constraints compared to individual one-off transactions?

Yes, Erik, I think that the pricing environment for us has been relatively stable. If you look back at our pricing three or four years ago, we were pricing Electron at roughly $5 million per launch. Now the average selling price is obviously much higher. Currently, we're really not seeing any downward pricing pressure. When a customer comes in and commits to a larger bulk buy, it depends on the type of bulk buy. If you have a bulk buy where you're sending the same spacecraft to a similar orbit, it significantly reduces the non-recurring engineering costs for us, and we'll pass some of those savings on to the customer. Overall, across our backlog, it really aligns with what we've always indicated. If you consider $7.5 million on average as the average selling price, that remains accurate, with some exceptions on the higher and lower sides as well.

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

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

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 to put it into context, rendezvousing with a descending rocket stage from space, 400 kilometers out in the ocean, and then catching it was better than I was hoping for. We really have confirmed that that's a very viable technique to get it on that first time, and it's awesome. We'll make a few tweaks and get back out there, not in the not-too-distant future for another attempt. As far as we’re concerned, we learned a tremendous amount and the condition of that stage is really fantastic. I think if we held that on the hook and brought it home, we would be seriously thinking about putting that thing back on the pad. So we're in super good shape.

Great. Maybe just the 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 hoping to have a first launch there by December year-end, but maybe just help walk through what to expect there?

Yes, sure. 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 the autonomous flight termination units and then go fly. They've had many, many delays, but the project has a very high priority with NASA currently, and they seem to be meeting the milestones. We have more confidence than ever that they will 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.

Great. Thank you.

Thank you, Erik. Our next question goes to Ron Epstein with Bank of America. Ron, your line is open, please proceed.

Good afternoon, everyone. It was nice to see you last week. I have a couple of quick questions. With the Russians no longer participating in the space market, potentially for the long term, how should we assess the impact of that? It seems like it’s a positive situation, but could you provide more insight or a different perspective 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 Soyuz and the Falcon 9. Now with the Soyuz kind of exited the market, and that's not just SolAero out of Russia, that’s also gone from Europe. It really does create a big hole in the 2024 to 2027 timeframe when a tremendous number of both government and commercial media constellations come to market. So the conversations that we are having internally here now are about who to partner with for those first kind of bulk buy Neutrons. Who’s going to be ready, and who's going to actually show up at the pad? So it certainly changed the conversations quite significantly.

Got it. And on Neutron, how's that proceeding so far, and when we think about the economics of Neutron for the customer, how much will it reduce the cost to launch for them?

Building a rocket is an incredibly labor-intensive program. We wouldn't even start if we didn't think we could be very competitive from an economic standpoint. All the lessons we learned from the Electron reusability program directly apply to the Neutron program. For us right now, we're not really seeing the need to do early catch-up pricing. The vehicle is in strong demand, but I think right off the street, the economics of that vehicle are going to be pretty good. As reusability is an evolution over a product's life cycle, we'll see more and more advantage from it. So, yes, I think we're in good shape.

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

It's certainly an advantage being highly vertically integrated; all you need is raw materials and parts. We've been able to manage through our supply chain over the last couple of years and never had to delay a launch or 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, especially electronic components. So we haven't seen any major disruptions to our production or ability to execute, primarily because we're so vertically integrated and we've been doing this for a while; we manage our supply chain very carefully.

Got it. And then maybe one last one for me. On the recapture of the electronic stage, did that change 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 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 in the ocean, which is less than ideal, was really extraordinarily good. All the iterations we’ve been making over previous launches paid huge dividends. When it's recovered from a helicopter, the helicopter costs around $5,000 an hour to operate, so if you've got it out there for four hours or more, it's an incredibly cost-effective way to bring a stage back, which represents the vast majority of the cost of a launch vehicle. I mean, the economics are just awesome. Now the true economics will be borne out of how much of the refurbishment cycle that costs. But $20,000 worth of helicopter time to get back full engine sets and whole tanks is really wonderful.

Got it. Thank you, guys.

Thank you, Ron. I've been told that there's a technical delay on the webcast side preventing attendees from watching and listening, but we will continue with the Q&A for people on the call. Our next question goes to Austin Mo with Canaccord. Austin, your line is open. Please proceed.

Good afternoon, Peter and Adam. My first question here is, do you guys have any update on the recent reporting about the company considering having potentially three Neutrons ready by 2024 to try and capture some market share from the Proton and the Soyuz now that they're offline?

No, that's not a report I’d say.

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

Yes, we haven't announced the launch after CAPSTONE; generally that’s our policy to announce within a certain timeframe of launch. But you wanted to wait for an opportunity to see another attempt.

That's great to hear. Finally, can you share if there are any specific areas in hardware or software where you feel Rocket Lab might need to expand in the future? Are you satisfied with your current level of vertical integration and the product offerings available to customers?

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

Thank you, Austin. Our next question goes to Cai von Rumohr. Cai, your line is open, please proceed.

Yes, thank you very much. 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 borrowing; what's your thinking there?

We have an important discussion every day about our opportunities. Currently, we view this as a fantastic chance to expand our portfolio. We need to manage our capital carefully, which I believe we have been doing. There are still many opportunities available, and the deal flow remains relatively strong. However, we do not have any specific deals in the pipeline that we are deeply engaged with at the moment. For the right opportunities, we will likely have capital available. We recognize that the equity environment is quite challenging, as mentioned. If you look at the types of deals we’ve pursued, we've acquired four companies, three of which we took public. These acquisitions are generally not heavy cash consumers after the fact. We've utilized some stock in these transactions to conserve cash, and we plan to continue doing so. We believe that for those who are confident in the long-term growth of this sector, now is an ideal time to establish strategic positions. We feel we've done this effectively and expect more chances to arise, always with a focus on preserving our capital.

So usually, when financial environments get more difficult, it takes a while for ask prices to change. Are you seeing those prices starting to change today, or do you think it might be better to wait a little longer, understanding that you don't want to wait too long if the right opportunity arises?

You're absolutely right. 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 provide any feedback on how prices have moved or not in the last several months. We've been really focused on integrating the deals 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. We also are very cognizant too that there's no such thing as a small deal, right? You acquire these companies; they all require integration, they all require effort and management bandwidth. So we're being very careful that we don't get too far over our skis and kind of put the business at risk. And that kind of applies to integration as well as capital availability.

Right. And then just a green eyeshade question; your backlog was around $545 million, and it looks like it went up as a smidge over $300 million, but obviously that includes SolAero. So what were your net orders in the quarter?

If you look at the addition of, for example, the MDA Global Star deal plus SolAero, we added about, I think between those two deals, it was probably close to $300 million, right? A little under $300 million between those the MDA deal and SolAero. And, of course, we generated revenue and recognized some of that backlog in the quarter.

Okay. And then you talked about the Ukraine impact on Neutron demand in 2024 to 2027, but are you seeing that yield any benefits in terms of the pricing for Electron here over the slots that you still have available?

The payload capacity of a Soyuz is about eight metric tons, whereas Electron is 250 to 300. The majority of the spacecraft that would fly on a Soyuz are applicable to the Electron launch vehicle. The launch market has certainly tightened, but it's probably a little bit early to see any direct customer flow for Electron. I would say that the development of payloads that were always destined for Electron are now getting firmed up and coming at favorable pricing. What this has done is it put more emphasis on certain payloads to get up in orbit sooner. For us, it's been a tailwind to our business because the payloads that may have had a little longer leash to get to orbit are now being pulled in, creating opportunities to compress the manifest.

Excellent. Super. Very helpful. Thank you, gentlemen.

Thank you, Cai. Our next question goes to Kristine Liwag with Morgan Stanley. Kristine, your line is open, please proceed.

This is Justin on for Kristine. Following up on earlier discussions around helicopter recovery. Any sense you are standing here today of how long before Electron boosters are regularly recovered in this fashion? And is the plan to recover all Electron boosters in this way eventually, or does helicopter retrieval make sense only under certain conditions?

Yes, that's a great question. We sort of think around 50% of Electron missions will be viable for recovery, and that’s not just from a helicopter standpoint operationally, but also from a mission standpoint. One of the challenges with a small rocket is that there are very tight margins. Some missions require all of the performance of Electron, which don't allow for the addition of extra hardware for usability. We've gotten that burden down fairly low, sort of 10% to 15% reduction in payload appetite is extraordinarily low, but nevertheless, a number of missions require that extra performance. So we think about 50% of missions will be eligible for reusability.

Yes, Justin, ideally too, you would use your usability feature on missions and then when the booster is ending, it's life, you’d use that as a disposable one, right? So again, hopefully there are ways that we can flex and get as much use of these boosters as possible. There are many different ways to achieve that.

Okay. Thank you, Justin. Our final question is a follow-up from Edison Yu with Deutsche Bank. Edison, your line is open; please proceed.

Thank you for fitting me in. I have a quick follow-up on Neutron. How feasible is it to potentially accelerate its development? Is it primarily a matter of testing funds? I understand it's quite complex, but considering the current industry trends, the immediate to medium-term demand seems significant. I'm curious if there are opportunities to expedite the process.

Yes, we’re looking at every which way a Sunday to try and do that. It is an aggressive program as it is. Any opportunity we have, we'll take it, but there's no magic trick we can do to just speed it up. You have to go through hardware development, iterate, and actually build the stuff. The timeline of Neutron is driven by the availability of production equipment. Although our supply chain is relatively intact, when you go and buy CNC mills and giant automated tape layers, those suppliers are suffering supply chain issues. There’s no amount of money that can accelerate some of that stuff.

Got you. Thanks.

Thank you. Just to remind everyone, there was a technical problem on the webcast side that prevented attendees from watching and listening for a bit. So there will be a full audio and video replay available after the call is wrapped up. With that in mind, I would like to turn the call back over to the management team for any closing remarks.

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 upcoming conferences and look forward to the opportunity to share more exciting news and updates at the Stifel Cross Sector Insight Conference starting June 7, at the Bloomberg Technology Summit on June 8, and at 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.