Earnings Call Transcript - RKLB Q1 2024

Operator, Operator

Good day, everyone, and welcome to the Rocket Labs First Quarter 2021 Financial Results Update and Conference Call. At this time, I would like to hand the call over to Murielle Baker, Communications Manager at Rocket Lab. Please go ahead, ma'am.

Murielle Baker, Communications Manager

Thank you. Hello, everyone. We're glad to have you join us for today's conference call to discuss Rocket Lab's First Quarter 2024 financial results. Before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation and a replay and copy of the presentation will be available on our website. Our presenters today are Rocket Lab, Founder and Chief Executive, Peter Beck; and Chief Financial Officer, Adam Spice. After our prepared comments, we will take questions. And now let me turn the call over to Mr. Beck.

Peter Beck, CEO

Thank you, Murielle, and thank you, everybody, for joining us today. We've got a lot of great achievements and milestones to share on our start to the year, not the least of which is executing a record number of launches and Space Systems growth that delivered a record total revenue of $93 million in the quarter, up 55% quarter-over-quarter and 69% year-over-year. Adam will talk through the rest of the details of our financial results for the first quarter before covering the financial outlook for Q2 2024. After that, we'll take some questions and finish today's call with the near-term conferences we'll be attending. All right, on to what we achieved in the first quarter of the year starting with Electron. We had a great series of launches in Q1 with 4 successful missions, 3 of them for commercial customers from Launch Complex 1 in New Zealand and a national security mission for the NRO out of our second site in Virginia. We had a launch turnaround of just 8 days between our flight for the Japanese customers and the NRO launch, which was no small task from 2 launch sites across the world. In fact, we remain the only company with the capability of orbital launch from both hemispheres. It really demonstrates the capability of the team to turn around launches so quickly and sets us up well to execute against our manifest for 2024. We completed our fifth launch of the year less than 2 weeks ago, a commercial mission for KASA Institute of South Korea, along with a landmark scientific mission for NASA to test our solar sailing technology, also on board. No 2 rideshare missions are the same, and this launch, in particular, was a tricky and complex one that played into our unique strengths. For large launch rideshare, normally, you have a bunch of satellites that are heading to the exact same orbit and you deploy them into one location. If the orbit isn't ideal for your spacecraft, then you run into complications. But for KASA and NASA, we had 2 satellites going to 2 completely different orbits. First, one to 520 kilometers, and then all the way up to 1,000 kilometers. Those kinds of conflicting mission requirements would normally require 2 separate launches. But with our unique kick stage capabilities, we're able to drop KASA off at 520 and NASA up to 1,000 and then complete another series of engine burns to bring the kick stage back closer to Earth for faster disposal. It's this kind of precision and flexibility that makes us a really attractive launch service for our customers, which is also inherent in the next 2 missions we have scheduled to fly in Q2. So coming up in Q2, we have 2 back-to-back missions scheduled for NASA to deliver their prefire missions to space. The mission is focused on understanding how much heat loss is occurring in space from the Antarctic, which will help improve climate change models and provide better predictions on sea level rise and weather changes in the future. We're setting up 2 satellites for NASA, one on each launch that will crisscross the poles to get accurate readings across the 2 orbits in one mission. Once the first mission is complete, the second must be launched within 3 weeks' time, which again plays to our strengths as a responsive launch provider delivering precise orbital deployments. We actually demonstrated a similar capability with the 2 Tropic missions launched last year, so it's great to see NASA take advantage of this capability once again. After that, we are set to launch the first of 5 missions for a new customer, Kinéis, a French company backed by private and public investors, including the French government space agency. We'll be deploying their entire satellite constellation into lower orbit, sub-25 satellites across 5 Electron launches. There is also a non-forecasted but potential launch for a commercial constellation customer we're tracking for Q2. Operationally, we'll be ready to launch this mission when the customer is ready. And if there's a chance of that happening before the end of Q2. But like I said, there's also a chance of it slipping out of the quarter, so it's not forecast in the financials for the current quarter. On to the rest of the year, and we remain on track for another record number of Electron launches. Across the 22 missions sold for 2024, we are seeing some movement in the manifest as expected due to customers being late with the spacecraft or asking to shift later in the year or sometimes even into 2025. This kind of manifest shift, as we call it, is nothing new for large providers, and it's something we've become very familiar with after 7 years of launching Electron. We see the opportunity in those gaps to fill the manifest with new customers who need an urgent ride sometimes within months or existing ones who want to move their flights up rather than wait for their scheduled slot. The customers who have asked for a new launch date later in the schedule, we have typically invoiced and collected the majority of the launch contract value up to that point, and then we recognize the revenue once the launch is executed. That's why launch revenue forecasting can be so lumpy. While we may not achieve all 22 flights this year due to customer movements, we are on track for a record year with Electron. From our current perspective, 2025 looks promising for another record year as well. One particularly exciting mission for 2025 is the $32 million mission for the U.S. Space Force that we booked early in the second quarter. This mission will provide a comprehensive mission solution that demonstrates our vertical integration strategy. We'll be designing, building, launching, and operating the spacecraft to demonstrate detectably responsive space for the Department of Defense. The spacecraft will come with all of our own components, including propulsion systems, solar sales, and software. Once it's in space, we'll be operating it to demonstrate coordination with another spacecraft and augur, which is a highly sought-after capability for the DoD. I should mention that our task is to launch a spacecraft within 24 hours' notice from the Space Force. It's the first time we've sold a complete end-to-end mission solution to a prestigious customer. Another new launch contract we've been awarded post-Q1 is the second mission from the U.S. Space Force, this time for the Space Test Program. It's a $14.5 million launch that will fly out of Launch Complex 2 in Virginia within the next 24 months to carry out research experiments and technology demonstrations for the DoD in space. We've proven ourselves as a trusted and dedicated partner to the DoD across multiple missions now on Electron. In fact, our first mission for the STP program was all the way back in 2019 when Electron launches were still in single digits, and we're looking forward to continued execution with the STP 30 mission. Finally, to round out Electron, we've got an exciting update on our recovery program. For the first time, we have returned an Electron stage back to the production line in preparation for reflying. This tank is the one that came back to Earth during the recovery mission we launched in January, and it came back in such good condition that we're bringing it back into the production fold. Already, it's passed qualification tests, and it's now undergoing final fit-out and another round of acceptance testing that will take any brand-new tank through that runs off the line. As a result of that campaign, we will determine its suitability for re-flight. If all looks good, we could be looking at re-flight later in the year. First, just a quick overview of some of the key highlights across Q1 to date for Electron. Now on to some of the exciting progress and achievements for Space Systems. We moved quickly this quarter in executing against our largest Space Systems contract to date, acting as a prime spacecraft contractor to the industry with a $515 million constellation of 18 spacecraft we are developing for the Space Development Agency. All of these spacecraft for the agency's Tranche 2 transport layer will be designed, built, and managed by us and includes a full suite of our Space Systems products. We officially kicked off the beginning of the program with the FDA in Q1, as well as completed preliminary studies for the spacecraft design. The contract marks the beginning of us being a prime contractor, a role we've moved into swiftly and comfortably by forming a team of experienced subcontractors to support the program across payload sensor supply and ground systems. Another fantastic track for the Space Systems group in the quarter was the successful completion of their missions with BARDA, which returned with the world's first space manufacturing mission conducted outside of the International Space Station. This was a mission where we took BARDA's manufacturing capsule that makes pharmaceutical crystals and put it on top of one of our spacecraft, which supplied the capsule everything it needed to do its work, such as power supply, positioning, and management in space. Our spacecraft and operations team were tasked with guiding the capsule back to Earth safely, so it could land in a tiny area in the middle of Utah. The Rocket Lab team accomplished an incredible feat to nail the capsule's re-entry on target. The skill set makes us now one of only 2 commercial launch companies with spacecraft re-entry capabilities, a rare and valuable asset in the market. We'll be demonstrating this again soon with our second spacecraft for the NEXTDATA demonstration, which is already well ahead of production and on track for its expected launch date. Another of our big satellite programs, the 17 spacecraft build for NDA Globalstar has also progressed nicely through Q1. The first of 2 flight frames for the spacecraft were completed, shipped out of Long Beach, and delivered to NDA for the next phase of the program. Once Globalstar's payloads arrive, we'll begin the next step of integrating those into the spacecraft before the complete package enters the acceptance testing campaign. This constellation is slated to launch in 2025, so we're making great progress towards that deadline. Next is our Escape program, which is the mission to Mars with our 2 spacecraft. The first fully assembled spacecraft is currently undergoing rigorous vacuum chamber testing to ensure it can survive the journey from Earth to Mars. The second satellite will go into the vacuum chamber as soon as the first one comes out, and it's right now undergoing similar checks to ensure it's ready for the stress when it's launched later this year. Finally, to wrap up Space Systems, we have a new long-term supply agreement for our space solar solutions with a large space prime worth up to $150 million. This is a multiyear agreement that will see our solar technology support critical missions across civil, defense, and national security. The March 31 ending backlog reflects the initial orders against this long-term agreement. Demand for solar power in space continues to grow as the world shifts towards new constellations and proliferated LEO architecture. We're now one of the largest suppliers of space-grade solar solutions globally. Space solar power is already one of the most constrained areas in the industrial supply chain, which is why we have invested in expanding and modernizing our space manufacturing capability, including automated processes. These are just some of the steps we've taken to ensure the resiliency of the space solar supply chain beyond current and future missions, and the latest contract is a strong recognition of that. Overall, there's great work and progress across our Space Systems business to date. Now it's time to share how development with Neutron is going. So on to a huge milestone for Neutron that I'm really excited to share. We've completed our first Archimedes engine. The engine you see here has already shipped out the door of our engine development complex in Long Beach and has fitted to the Titan at Neastenes. What we're taking to the stand is very close to a flight-like engine and with all of the production infrastructure stood up alongside the engine development. We believe the team is in the optimum position to make quicker advancements to our design based on what we learned during testing. Our engine has a unique trust class and propellant combination. It's an oxidizer-rich staged combustion cycle powered by liquid oxygen and methane. One of these engines equals the same amount of thrust as roughly 3 Electron rockets. On top of that, we've designed our engine to support a target maximum reusability of 20 flights per engine. The Archimedes engine is designed for 165,000 pounds of thrust for a combined lift-off of 1,450,000 pounds. The turbo pump has an 18,000 shaft horsepower, and we've optimized our operating point for reusability over maximum performance, allowing us to operate this engine at a much lower stress level than others. That said, it positions us well for rapid development and qualification testing integrated within our engine development, using all new 3D printed parts that come off the factory floor in Long Beach. We've got about 4 sets of engines on the go right now. Perhaps the biggest point I want to make is that we haven't taken any huge risks just to make fire for the sake of it. We've been very intentional and methodical with our engine development, refining its design so that we're at a point now where we've got an engine that can be readily produced into the long term. Essentially, our engine marks a major milestone in Neutron's development. Now that our engine development is complete, the real fun begins, and we've started the test campaign in earnest. Having the complete engine means we've navigated through some of the biggest uncertainties in the development program and can update the schedule for its first flight accordingly, which we've adjusted to first launch no earlier than mid-2025. We run highly aggressive schedules at Rocket Lab; we always have. Our programs deliver new capabilities to the market like Haste, Electron, and more industry-leading timelines. Getting Neutron to the pad this year was an ambitious timeline that we had a path to fulfilling. But as we've always said, this is a rocket development program filled with challenges, some known and some not. In this case, we made the call to take additional time not to just bring a minimum viable product engine to the stand, but to very intentionally and methodically set Neutron up for long-term success. This means rigorous component-level testing before the first hot fire and refining a design that can be rapidly produced. We have also scaled up our manufacturing and testing facilities to support full-scale production and built a knowledgeable and experienced team ready to build, test, and fly Neutron at the pace customers are demanding once we bring it to market. All of this takes time to get right. This has driven a schedule that now closes mid-next year. We have a proven track record of delivering technology and capabilities to market at rapid and often record-breaking timelines, and Neutron is still coming to market faster than just about any other program I know. While the propulsion team has made strides with our engine, the structural team and test team are also achieving major wins. We've completed some of Rocket Lab's largest composite panels and tech sections across all of our concept facilities. We have finished the first Neutron panels, with full panels expected to be assembled together soon. These are large, almost 8-meter-long sections that Neutron transcends and carries payloads inside the rocket. Completing the assembly test run for Neutron marks major progress in the vehicle's development. The internal tank structures on Neutron's second stage are also coming together, having completed an assembly test run earlier in the quarter. This is the second stage 2 that we built for Neutron after the development stage completed last year. Integrating all the pieces of Neutron is not the same as assembling Electron, which the team has done regularly by hand. Final assembly, elimination, and integration of the pieces into flight configuration marks significant progress in the vehicle's development. Alongside launch preparations, Launch Complex 3 in Virginia is starting to take shape. Concrete work for the Neutron launch pad has been completed, and the concrete foundations for their liquid propellant and gas storage tanks have been established. Long lead propellant tanks are soon to be delivered to the site, and we'll see our propellant farms being erected in the coming months. We've also installed a 278-foot water tower. Visually, we've changed the skyline of the Wallops Waterfront River. So it’s an exciting new feature for LC-3. So that wraps up the business highlights for 2024 so far. Now I'll hand it over to Adam to take us through the financial updates.

Adam Spice, CFO

Great. Thanks, Pete. First quarter 2024 revenue was $92.8 million, which was towards the low end of our prior guidance range, reflecting significant year-on-year growth of 69% and sequential growth of 55%, driven by a strong contribution from both business segments. Our Launch Services segment delivered revenue of $32.7 million in the quarter from 4 launches, in line with guidance of $32 million to $33 million, representing sequential growth of 287%, driven by a return to normal launch operations after Q4 was impacted by our September anomaly. The average selling price per launch was $8.2 million, well above our target average selling price of $7.5 million, the result of a favorable mix of government and complex commercial missions. Our current backlog continues to support our target average revenue per launch with some variability tied to volume purchase commitments, launch location, and mission assurance requirements. Our Space Systems segment delivered just over $60 million in the quarter, which was towards the low end of our prior guidance range of $60 million to $65 million but reflecting sequential growth of 17%, driven primarily by growth in our MDA contract revenue, albeit slightly less than expected. Now turning to gross margin. GAAP gross margin for the first quarter was 26.1%, slightly above the high end of our prior guidance range of 24% to 26%. Non-GAAP gross margin for the first quarter was 31.7%, which was also above our prior guidance range of 29% to 31%. GAAP and non-GAAP gross margin improvements relative to our guidance reflect continued efficiencies in both our launch and satellite manufacturing businesses. We ended Q1 with production-related headcount of 872, up 20% from the prior quarter. Turning to backlog. We ended Q1 2024 with $1.02 billion of total backlog, with launch backlog of $215.6 million and Space Systems backlog of $799.7 million. Relative to Q4 2023, total backlog was down only 3% sequentially or $31 million, despite a $93 million quarter in revenue. Strong bookings continued in our Space Systems business, highlighted by initial orders related to a long-term supply agreement with a Tier 1 prime contractor. For launch, the backlog was down 13% sequentially, or $32.7 million, as we drew backlog down against a record number of launches in the quarter. We continue to cultivate a healthy pipeline, including multi-launch deals that can be lumpy given the size and complexities of these opportunities. We expect approximately 42% of current backlog to be recognized as revenue within 12 months. Turning to operating expenses. GAAP operating expenses for the first quarter of 2024 were $67.3 million, below the low end of our guidance range of $73 million to $75 million. Non-GAAP operating expenses for the first quarter were $56.4 million, which was below the low end of our guidance range of $62 million to $64 million. The increases in both GAAP and non-GAAP operating expenses versus the fourth quarter of 2023 were primarily driven by continued growth in headcount and prototype spending to support our Neutron development program and related infrastructure, In SG&A, GAAP expenses increased $2.9 million quarter-on-quarter, largely due to a $1.6 million increase in stock-based compensation, along with an increase in outside services, partially offset by a decrease in the change in contingent consideration related to our PSC acquisition. Non-GAAP SG&A expenses increased by $1.9 million, primarily due to the increase in outside services included in year-end audit expenses, legal fees, and corporate IT and security spending that further enable efficient scaling of the business. Q1 ending SG&A headcount was 263, representing an increase of 16% from the prior quarter. In R&D specifically, GAAP expenses were up $1 million quarter-on-quarter due to Neutron prototyping, materials, and headcount increases. Meanwhile, we have shifted certain non-Neutron R&D resources to support the execution of our MDA contract production ramp. Non-GAAP expenses were up $900,000 quarter-on-quarter driven similarly to GAAP expenses. Q1 ending R&D headcount was 625, representing an increase of 40% from the prior quarter. In summary, total first quarter headcount was 1,760, up 76 heads from the prior quarter. Turning to cash. Purchases of property, equipment, and capitalized software licenses were $19.2 million in the first quarter of 2024, an increase of $8.8 million from $10.4 million in the fourth quarter of 2023. This sequential increase was due to our continued investment in Neutron research, testing, and production infrastructure projects, along with the expansion of our satellite production and space solar solutions capacity. Cash consumed from operations was $2.6 million in the first quarter of 2024 compared to $42.2 million in the fourth quarter of 2023. The sequential improvement of almost $40 million was driven by a lesser net income loss and working capital improvements owing to the ramp-up of production in our MDA Globalstar program and a step-up in launch cadence, as well as strong cash collections, including initial milestone payments related to our Space Systems programs. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow reduced by purchases of property, equipment, and capitalized software in the first quarter of 2024 was a use of $21.8 million compared to $52.6 million in the fourth quarter of 2023. The ending balance of cash, cash equivalents, restricted cash, and marketable securities was $564.9 million as of the end of the first quarter of 2024. As discussed in our February earnings call, we generated $355 million in a convertible senior notes offering, which was coupled with 2 deployments of $43.2 million supporting our convertible capped call and equipment facility loan repayments, as well as $11.2 million in debt issuance costs, yielding $257.4 million of net financing. We exit Q1 with a strong position to exercise inorganic options to further vertically integrate our supply chain with critical capabilities, consistent with what we've done successfully in the past. Our fourth quarter profitability trend demonstrates progress towards adjusted EBITDA breakeven and attaining our long-term financial model. We expect Electron's gross margins to continue to improve over time due to increased scale and production efficiencies and satellite manufacturing contributions to improve due to increased scale and leverage of growing IP capabilities and infrastructure. With our strong launch manifest and increase in scale driven by Space Systems contract execution in 2024, we are well positioned to continue our progression to adjusted EBITDA breakeven following our neutron investment cycle. And with that, let's turn to our guidance for the second quarter of 2024. We expect revenue in the second quarter to range between $105 million and $110 million. This range reflects $77 million to $81 million of contribution from Space Systems and $28 million to $29 million from launch services, which assumes 4 launches. As Pete noted, we do have a fifth launch slated for late June but are taking a cautious approach in terms of guidance setting given end-of-quarter timing risks. We expect second quarter GAAP gross margin to range between 24% to 26% and non-GAAP gross margin to range between 30% to 32%. These forecasted GAAP and non-GAAP gross margins reflect mix shifts in our Space Systems segment towards a larger and lower-margin satellite manufacturing program revenue contribution versus certain of our higher gross margin component offerings, as well as a weaker mix within our components businesses. We expect second quarter GAAP operating expenses to range between $74 million and $76 million and non-GAAP operating expenses to range between $62 million and $64 million. The quarter-on-quarter increases are driven primarily by increased neutron investment, including staff costs, prototyping, and materials, as well as our annual merit increases effective April 1. We expect second quarter GAAP and non-GAAP net interest expense to be $1 million. We expect second quarter adjusted EBITDA loss to range between $23 million and $25 million and basic shares outstanding to be approximately 494 million shares. And with that, we'll hand the call over to the operator for questions.

Operator, Operator

And we'll go first to Erik Rasmussen from Stifel.

Erik Rasmussen, Analyst

Maybe just on Neutron. You obviously made a lot of significant progress, as the number of milestones, the Archimedes being the latest, but you are pushing that out by at least 6 months. Is it mostly on the engine side, sort of the conservatism there? And what can pull that timeline in or even push that out further?

Peter Beck, CEO

Yes. Erik, the engine is always a long pole in the tent with any launch vehicle development. We learned a lot building that engine and getting it to the stand, and we'll continue to learn more as we go through the engine qualification and hot fire programs. But the engine is really the primary driver for the move. Market programs are notoriously difficult to plan. I think a lot of people see the rocket, but they don't see all of the tremendous infrastructure around it that it takes to bring a rocket to fruition.

Erik Rasmussen, Analyst

Okay. What would you say about whether this is an S mission or an R&D mission? If you achieve it by the middle of the year, what timeline do you expect for a successful launch? Could it be something like three years for R&D followed by five years after that? Is that still a reasonable way to think about it?

Peter Beck, CEO

Yes. Yes, that’s totally it. We've played this game before, and the 135 is the right way to think about it. I think that, certainly, as we're building capability, that's exactly how we're still planning it.

Erik Rasmussen, Analyst

Okay. And staying with March, but going back to Electron, you had 22. It sounds like there's some changes in customers in the Manifest, and that is maybe impacting even this quarter. But we would have thought that if you hit that 22, you would have had to do 6 in Q2 and for each quarter for the remainder of the year given you did 4. Where do you think that number could wind up? And could you actually even hit 22 for the year still?

Peter Beck, CEO

Yes. Look, I mean, we had 22 missions booked this year. As I mentioned on the call, it's literally a game of musical chairs and customers moving out. Very rarely do customers move to the left, but that does occasionally happen. The biggest challenge for the launch timelines is not so much the vehicles; it’s often licensing and sometimes mission design and payload structure development. So although we're in May, certainly not waving the white flag, but as more time goes on, it gets more and more difficult to be able to bring those missions in or add new missions to the manifest. So we're just making sure that we're being transparent here that it's going to be difficult to get those 22 missions off purely due to some of those reasons. Where we actually end up at the end of the year is kind of in the hands of our customers in a lot of respects.

Erik Rasmussen, Analyst

Great. Well, and then maybe just last on the MDA contract, it seems like this program and revenue recognition is kicking in. Maybe just help us understand the revenue trajectory and contribution or maybe the weighting as we sort of progress through this year.

Adam Spice, CFO

Yes, I can take that one, Pete. So Erik, yes, to your point, we're now in the core of the revenue recognition under this program, and we expect to recognize the majority of the remaining contract value in 2024. It will likely peak kind of around Q3, maybe shifting to Q4, and we will also start to see more meaningful contributions from the FDA contract that we announced early this year. We've managed to have things land in such a way where you won't have a risk of a big drop off as the MDA contract comes to conclusion because we've got a contract that's more than 3x larger following it. So our plan is to still see that almost all of the remaining contract value recognized in the 2024 timeframe.

Operator, Operator

And next up is Andre Sheppard of Cantor Fitzgerald.

Andre Sheppard, Analyst

Congratulations on the quarter. I want to extend my congratulations to Pete on the Archimedes engine build. You're now aiming for the hot fire test, which will be a significant milestone. With the goal of the first launch set for earlier than mid-2025, could you remind us of the other major milestones we can expect between the hot fire engine test and the launch?

Peter Beck, CEO

Yes. Sure. Thanks, Andre. So we've always said to look for concrete on the ground at Wallops and at the test sites, look for large stage tanks and things like that, and look for fire. Those remain the same things that I'll be watching for. Getting something on the pad is a huge program, getting the engine test facility built is a huge program as well. Now it's just working through the engine’s final development and iteration.

Andre Sheppard, Analyst

Got it. Okay. That's super helpful. I appreciate all that color. And maybe just a quick follow-up for Adam. Adam, just on liquidity, sorry if I didn't hear this correctly, but does the $560 million, let's call it, $565 million, does that include the net proceeds of the recent capital raise? And definitely remind us... okay. That's okay. Great.

Adam Spice, CFO

With a run rate a runway. We raised a significant amount of capital, obviously, in this most recent transaction. As we've stated, it was really all about providing inorganic growth options for us. We continue to see significant opportunities out there. I would say the deal pipeline that we're managing is probably as full as it's been in the last couple of years as far as potential actionable targets. So the timing on raising those funds was probably ideal. If you look at the capital required to complete Neutron, we didn't raise money for that. We had plenty of liquidity for that. We're tracking to the $250 million to $300 million total spend to get Neutron to the pad. Fortunately for us, not all of that spend has landed on our backs. We have had some support from various partners that have brought capital to the table as well. We feel very good about our ability to scale our Space Systems business and continue to scale Electron, get Neutron on the pad with the capital we had preceding our convertible, and we continue to look for options to deploy that convertible proceeds to inorganic means.

Andre Sheppard, Analyst

Got it. That makes sense. So it sounds though that you are potentially interested in continuing to grow inorganically. And to that point, maybe you remain active in the M&A market. But with that liquidity on hand, that's certainly feasible, at least so far. So... Okay, that's helpful. Congrats on the quarter. I'll pass it on.

Operator, Operator

Next question comes from Jason Gursky of Citi.

Jason Gursky, Analyst

Pete, a quick question for you on the engine development. What exactly caused you to need to push the timeline by 6-plus months? You mentioned you had some learnings there. Hope maybe you could share some of those details or at least characterize whether they were issues with the design or issues with manufacturability.

Peter Beck, CEO

So no major issue; we didn't run into a wall and need to solve a significant technical problem. But, as I mentioned on the call, the point here is not just to make fire. The point here is to roll into production. There are a number of new processes and even new materials we've developed for our engine. Some manufacturing techniques that we've employed will pay off in the long term. So we spent a lot of time on that, along with the time it takes to establish the factory and the machinery that builds the machinery. That is probably one of the biggest lessons learned. We've done this enough to know that it is a difficult and time-consuming process. An engine on the scale we're dealing with adds an extra layer of complexity.

Jason Gursky, Analyst

Do you have a sense of like you build buffer or contingency into the planning, and now you've got this mid-2025 date out there? How much kind of contingency do you have in that?

Peter Beck, CEO

As I mentioned before, we run aggressive schedules at Rocket Lab. In an engineering program of this scale, it’s almost impossible to build a sensible engineering buffer because you can’t predict the elements that are going to cause issues. So we always have ambitious schedules because that’s how we’ve operated historically, and it’s worked well for us.

Jason Gursky, Analyst

Okay. And maybe just a quick update on the demand for Neutron, you talked earlier on the call about this 135 schedule from a launch cadence perspective. Can you provide an update on what you’re hearing from potential customers?

Peter Beck, CEO

Yes, sure. Demand has remained strong, and we're having robust discussions with our customers. But we want to ensure that when we launch a vehicle, it's ready to meet market needs. Customers aren’t looking to book just one launch; they want to sign multi-launch agreements. We're cautious about making commitments without a tangible rocket.

Adam Spice, CFO

Yes. Jason, just to add on the backlog front, the 42% I mentioned applies to all backlog, not specific to launch or Space Systems. Regarding our book-to-bill target, we need to see a book-to-bill greater than 1 due to our growth aspirations. We’re pursuing large deals, and we realize the unique opportunities found in sophisticated programs. With our backlog over $1 billion against street consensus numbers significantly lower, we have plenty of potential for growth based on this current backlog.

Operator, Operator

The next question comes from Matt Akers from Wells Fargo.

Matthew Akers, Analyst

Thanks for your insights. You mentioned reusability and integrating the rocket back into the process. How quickly could we start to see cost benefits from implementing that on a larger scale?

Adam Spice, CFO

Yes. Thanks, Matt. Our focus this year has been on production. The reusability program for Electron has made good strides, but rolling the vehicles off the production line has been our main focus. If this reusability goes well, it can become a standardized aspect of Electron launches more broadly. So the Solera margins continue to be tracked, with the target to achieve 30% margins primarily focused on bookings that are strong and negotiations more favorable. The business is tightly managed, and the backlog aligns with our objectives.

Peter Beck, CEO

We believe we have a significant opportunity ahead of us. The demand we are experiencing is robust, which supports future growth.

Operator, Operator

Next question comes from Michael Leshock at KeyBanc Capital Markets.

Michael Leshock, Analyst

I wanted to follow up on the backlog question. It looks very strong right now. Just wondering how high you can take your backlog before having to step away from business?

Peter Beck, CEO

We have to be selective in the programs we choose to pursue, as our reputation is built on execution. We are continually balancing our growth with our ability to maintain quality.

Adam Spice, CFO

We're starting to see natural pricing support for Electron as the competitive landscape evolves. We’re entering more rational discussions with pricing, and we can now ask for more reasonable rates.

Operator, Operator

Next question comes from Suj Desilva at MKM.

Sujeeva De Silva, Analyst

Does the end-to-end service offering include incremental products or services that can be offered more widely for a financial uplift?

Peter Beck, CEO

Yes, one major area is the Rondean proximity operations. It is a rare capability that enhances our strategic market position.

Adam Spice, CFO

The contracting to deliver a responsive service is a massive competitive advantage. Availability matters, especially in timely missions.

Operator, Operator

Next question comes from Cai von Rumohr at TD Cowen.

Cai Von Rumohr, Analyst

It looks like your schedule has definitely slipped and the manifest of 22 seems ambitious. Can you provide a realistic range of Electron launches predicted for the year?

Peter Beck, CEO

If we launch 11, that would not be a record year in our minds; that would be a significant disappointment. It's challenging to predict due to customer movements, but we'll likely struggle to achieve 22. We have visibility for a couple of less than that.

Adam Spice, CFO

The business has matured, and the demand signal is strong. The current pipeline is filled with opportunities that can elevate our performance metrics, including backlog growth.

Operator, Operator

Next question comes from Xin Yu Deutsche Bank.

Xin Yu, Analyst

Did the Baltimore bridge incident impact the infrastructure timeline at all?

Peter Beck, CEO

Not that we can see at this point in time, no.

Xin Yu, Analyst

On the financials, the R&D was a bit low in the first quarter. Is that just a timing thing? Should we expect that to step up in Q2?

Adam Spice, CFO

Yes, it is a timing issue. There will be volatility, and you can expect to see an uptick in R&D over the next few quarters, primarily driven by Neutron's first flight.

Xin Yu, Analyst

Any sense on the FDA contribution?

Adam Spice, CFO

We’re starting to see contributions from the FDA contract, and it’s beginning to materialize in our financials. However, we need to track progress more closely before estimating full-year contributions.

Operator, Operator

And at this time, there are no further questions. I'll hand things back to our speakers for any additional or closing remarks.

Peter Beck, CEO

Okay. I think that wraps up today's presentation. Thank you, everyone, for joining us on the call. Rocket Lab will be participating in these upcoming conferences and looks forward to the opportunity to share more exciting news and updates with you then. So thanks again.

Operator, Operator

Once again, everyone, that does conclude today's conference. Thank you all for your participation. You may now disconnect.