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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon. Thank you for attending today's Rocket Lab First Quarter 2022 Financial Results Conference Call. My name is Nathen, 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. [Operator Instructions]
I would like to now pass 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 merger 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 for that, Gideon. And welcome everybody today's -- for today's review of Rocket Labs business highlights and financial results for Q1, 2022. Today's presentation includes our business accomplishments for the beginning of the year, as well as further achievements we've made in the days and the weeks after the end of Q1. Adam will then talk through our financial results for the same period and a financial outlook for the second quarter before we take Q&A from those listening in and finish today's call with the upcoming conferences we'll be attending.
So let's first start with a review of our key accomplishments in Q1. We started off the year with a strong -- with the signing of our largest Space Systems contract Rocket Lab has secured to date. This is a $143 million contract to design and manufacture 17 spacecraft buses for the Globalstar constellation, which I'll go into more detail shortly. This contract highlights the strength of our increasing levels of vertical integration across space systems executing on an end-to-end space strategy. We'll keep up the momentum in Space Systems with our expansion in Colorado to meet growing consumer demand for a GNC and software services and, of course, completed acquisition of SolAero Technologies in the first quarter.
We immediately got to work, building the team's industry-leading technology and into qualification of what we believe to be the world's highest efficiency space solar cells, which we aim to bring to the market later this year. On the launch side of our business, our first launch of the year was a flawless mission for repeat commercial Japanese Earth Imaging Customers Synspective. That same mission also marked the first mission from Pad B at Launch Complex 1, the newest of three launch pads as we continue to ramp up our Electron launch cadence at this pad at LC1 really shorten their turnaround time between launches and with extensive facilities that are already in place we can now run two launch campaigns simultaneously from LC1 to support back to back launches.
Later in this presentation, I'll take you through our additional accomplishments post Q1. I'm excited this year of what we have to date for our first Electron launch out of Complex -- Launch Complex 2 scheduled in manifest this year. Electron was also recognized in selection by NASA as one of handful of launches to provide the agency launch services under its $300 million beta launch program. And finally, we rounded out the first quarter by selecting Wallops Island, Virginia as the home of Neutron's launch site production complex with construction already underway in Q1.
So let's now walk through some of these highlights in more detail. Backlog, Q1 2020 saw continued growth in our backlog from year-end 2021 -- stood at $241 million. And while we ended March 31st, 2022 at $546 million. Today, our backlog stands at $551 million representing a $310 million increase in total backlog since year end of 2021. We're seeing continued booking strength across every major product in the company, including Electron launch contracts, Photon satellites and numerous Rocket Lab satellite components and software, sales spanning at global customer base. These customers include the US government, foreign governments, universities and commercial customers and constellation operators. We are in the early days of recognizing sales synergies from our vertical integration strategy, but the benefits of this strategy are already garnering significant financial benefits.
Synspective. So as I mentioned, we had a great first launch of the year of our Electron for our repeat customers Synspective. We successfully delivered another satellite to orbit as part of the growing Earth Imaging constellation. Having deployed one of the very first spacecraft, orbit back in December 2020. The mission is a first of a bulk buy of three missions signed by Synspective last year. We signed that contract in December 2021 and successfully delivered the first satellites to orbit on this mission fewer than three months later, which is a rapid and competitive turnaround time.
Our ability to offer customers ultimate schedule control flexibility and absolute reliability from a long heritage of successful missions is often the driving reason behind why these mission bulk-buys which this particular mission was a great representation of. The Synspective mission was actually brought forward in the manifest, buying earlier than initially planned to meet mission requirements and launching on the first day of the launch period when it opened in February 28th, backfilling another customers launch slot who experienced a delay with their satellite.
From a technical perspective, we also account this mission as the highest performing mission to date in terms of launch vehicle performance. Electron and its upper stage delivered Synspective’s payload to space with pinpoint accuracy, within just 500 meters of its target orbit. When you consider the speed that we're traveling to get there, more than 27,000 kilometers an hour delivering the payload with that type of accuracy is just incredible. After payload deployment, we also successfully lowered the kick stage, which bought it back closer to earth’s atmosphere and guarantee that stage was destroyed on its return to earth in only nine days later, a mere fraction of the 25-year accepted standard for lower [indiscernible] by NASA.
As a second most frequently launched US Rocket with that cadence only planned to increase, we are determined to be a responsible space stewards playing a leading role in responsibly managing and mitigating orbital debris. I think the Electron launch of the year took place just 33 days later and with another successful mission followed by a third launch of the year again in Q2, just 31 days later. What we had anticipated, our second launch Electron would fall -- of Electron would fall in Q1 with the delays pushed the mission two days into the second quarter instead. At that time, this launch shift was announced on the 24th of March, we also updated our financial guidance for Q1 2022 and the revenue from the second launch will instead be reflected in our second quarter financial results.
First Pad B launch. So in the first quarter we also conducted the first launch from our newest pad based at Launch Complex 1 in New Zealand. This is our third pad for Electron joining the existing pad at Launch Complex 1 and a pad at Launch Complex 2 in Virginia. By standing up an additional pad at Launch Complex 1, we immediately doubled our launch capacity from that sites to meet anticipated future customer demand, without having to double all the supporting range infrastructure or seek new regulatory approvals like you'd have to when establishing an entirely new site.
Moving into Space Systems now. In Q1, Rocket Lab was selected by MDA to design and manufacture 17 spacecraft buses for Globalstar, a leading provider of mobile satellite services. The contract is a direct reflection upon our highly vertically integrated Space Systems capabilities. The spacecraft will feature components and subsystems developed organically within Rocket Lab and also produced by our recently acquired companies, including solar panels and structures from SolAero Technologies, software from ASI and reaction wheels from Sinclair Interplanetary. All 17 of the 500 kg spacecraft will be designed and manufactured at our Long Beach production complex where a new high-volume spacecraft manufacturing line is under construction to support the growing customer demand for Rocket Lab satellites.
Keep in mind that these Globalstar spacecraft aren't really small satellites, they are big machines, half a ton each and roughly the size of a car with nine meter solar panel wings. These are complete spacecraft and this contract was a result of a very detailed and highly competitive bid process that determined that Rocket Lab offered a compelling balance of performance heritage, schedule reliability and cost. I look at it as, this is the fruition of our deliberate strategy and growth in Space Systems as we expand beyond launch to offer complete end-to-end solutions for our customers. We're executing on this program already with programmatic planning successfully completed with MDA in Q1 and the review of the system's requirements for these spacecraft is scheduled to take place actually this week. It's really exciting to see this program off to a great start already.
Now, of course, a contract like MDA or the MDA 1 is only possible. Thanks to the capabilities with both developed and brought in house. We closed three Space Systems related acquisitions over these past few months since coming public in August 2021 with SolAero technology has been the latest closed deal, which was completed this past quarter. Within the space industry, SolAero Technologies really needs no introduction. They are the best in the game with their space solar cell technology and run the world's largest production line of high performing space solar cells, and manufacturing solar cells -- solar panels and composite structural products.
I'm proud that they are now part of the Rocket Lab family and continuing to offer premier capability and value across civil, space exploration, defense and intelligence, science and commercial space markets.
Already we are reaping the benefits of SolAero’s innovative drive as we move forward with qualification of our next-generation solar cell technology. [indiscernible] once qualified is expected to be the highest efficiency space solar cell of its kind in high volume production worldwide. The latest product is more than 40% lighter than typical space solar cells. We make this technology leap with Rocket Lab's resources and manufacturing capability to scale to meet the growing demand for these products. The qualification process is on track and these new sales should be ready for commercial use later this year.
Another fantastic product milestone to come out of our solar business this quarter was the completion of the solar panel production for one of the world's largest low earth orbit satellite constellation with OneWeb. SolAero's solar panels will power the majority of the plan constellation with early investment in this facilities to vertically integrate solar cell, constant substrate and final panel assembly in-house, creating the world's only one-stop-shop for fully assembled solar panels. The successful completion of this contract sets up SolAero nicely for mass manufacturing on future projects and to capitalize on the growing small satellite constellation market.
Moving on to other areas of our Space Systems business, we began our expansion in Colorado with the new Space Systems complex. This new facility will support two mission operations centers and more space for team growth with our Colorado headcount expected to more than double by early 2023 as demand for our flight software, mission simulation and guidance navigation control or GNC services continues to grow. To give some insight into the team's work, they are currently supporting more than 33 missions, including lunar landers and spacecraft distant for Earth orbit, Mars and beyond. As satellite separation system business in Maryland also continues to go from strength to strength, having recently completed both the delivery of its 500 product into commercial satellite operator and finished the build of its 1,000 motor assembly in Q1. Much like our team in Colorado as satellite separations systems team is also experiencing significant headcount growth and we will soon begin the expansion of its facility, which I'll touch on later in this presentation.
Within our Photon spacecraft line, they are also executing on the [Lockheed 1] (ph) mission concept to create a fueling depot, gas station and orbit. Partnered with Eta Space, we are bringing together a launch plus satellite mission solution to conduct an innovative tech demonstration that supports NASA's mission to establish a sustainable presence on the Moon. The mission involves a Photon spacecraft to support the testing of cryogenic fluid management in space and the electron rocket to get it the space in the first place. The team completed the mission's preliminary design review in Q1 and lock in the next step in the mission timeline.
Lockheed is exactly the kind of mission we set out to enable the Photon. Their experience and capability across launch, satellite and mission control Eta Space can focus entirely and primarily on their emission without the worry of dedicating resources to the infrastructure to support it. Imagine if you -- Imagine if anytime you want to create an app, you first had to build a phone and then the network that it lived on. This is a problem we sit out to solve with Photon and Electron in their entire space systems ecosystem and it's great to see our end-to-end solution being utilized for such innovated tasks like Lockheed 1 mission for NASA.
Speaking of NASA, and if I can bring you back to launch for a moment. We were proud to be selected by the agency in Q1 along with others to provide launch services to their program for Venture-Class Acquisition of Dedicated and Rideshare Missions, VADR. The program is a five-year $300 million program and the latest sign of confidence from the agency in Electron's ability to deliver the nation science and technology payload into space.
And then into Neutron. And finally, wrapping up our Q1 achievements we selected the State of Virginia for our Neutron launch site and production complex and almost immediately begin construction. The 250,000 square feet Neutron production complex has been built on a 28 acre site adjacent to the NASA Wallops Flight Facility and Mid-Atlantic regional Spaceport on Virginia's Eastern Shore. The production of Neutron here includes up to $45 million in support from the state in infrastructure and operational improvements. We are excited to grow Rocket Lab's presence in Wallops, add up to 250 highly skilled jobs to the local economy and bring resilient and a short access to space for the nation through Neutron in the years to come.
The Neutron development program remains deadly on track. In the first quarter we also completed -- this first quarter we also completed a systems requirements review for the launch vehicle with the US Space Force's Space Systems Command as part of the $24 million contract they awarded us late last year. The upper stage development contract with SSC's launch enterprise recognizes Neutron's design to maximize master orbit capability, orbital insertion accuracy and responsive dedicated launch for the US government. Key requirements for the launch provider us -- is the highest priority national defense and security missions awarded through the national security space launch or NSSL program. Existing NSSL launch provided includes SpaceX and ULA and the awarding of this contract recognizes Rocket Lab as a potential NSSL Phase 3 launch provider from 2025.
So as you saw there, we've had a great start to the year with those business accomplishments in the first quarter. And now I'd like to take you through a few more exciting developments for the company since the quarter-end. Two launches. So just two days into our second quarter, we had the successful launch of our dedicated mission for BlackSky, followed just 31 days later by a 26 Electron launch from LC1. Combined these missions bring the total count of satellite successfully deployed by Rocket Lab to up to 146. I'll take you through both of these launches individually across the next few slides, starting with the most recent mission.
But first, I want to use this slide to draw your attention to our progress this year in increasing our Electron launch cadence. Frequent and reliable launch to space is critical for our customers and with all three Electron missions this year launched within a nine-week period, electron has reached an average launch cadence of one every 31 days. At the same time, all three launches have successfully deployed customer satellites to space on the first launch attempt. We are well operationalized and resourced to maintain this momentum throughout the year with a responsive launch demonstration with the US government customer on the horizon in the middle of this year that will include two launches currently scheduled to launch within two weeks of each other.
Now onto our most recent mission, 26 launch which marked a major milestone in our program to make Electron the first reusable orbital small launch vehicle. The [indiscernible] missions for us complete immediate capture of the electron booster with a helicopter for the first time after launching the space, Electron’s first stage returned to Earth under a parachute is before S-92 helicopter swift in, flew along the returning stage along with the returning stage and used a hook on a long line to capture the parachute. After the catch, the helicopter pilot offloaded the first stage as it was quickly recovered and it was quickly recovered by our recovery engineers who are waiting on a nearby sea vessel. They bought it back on board the boat and returned it to land and I'm happy to report that the first stage come back in really good condition. Our ultimate recovery goal is to return the booster directly to land versus the boat and this was a huge step towards that goal. And I feel like we really are about 90% progress was made to that ultimate goal.
Now, the whole point of pursuing reusability for us is to increase launch frequency and reduce production cost per vehicle. With the majority of the cost of building electron tied to the first stage and production overhead cost, anytime we can reuse all or some of the parts instead of starting from scratch will minimize their production costs and maximize their production utilization that's positively impacting our bottom line. Right now, our engineers are picking apart and inspecting the stage inch by inch to determine what can be reused and what can be re-flown from the booster in the near future.
Catching a returning booster on a very [indiscernible] was an incredibly difficult task. Quite frankly, I would have been pretty happy if we had only decided the stage coming back with the helicopter but to actually catch it on the first go with a tremendous feat. I'm incredibly proud of the entire team and it was really great to see them get all the [indiscernible] they deserved with worldwide media coverage across most major news outlets. Don't forget to -- that amongst the recovery noise [indiscernible] mission Electron successfully deployed 34 satellites [Technical Difficulty] mix of new and repeat customers across space junk removal technology demonstrations and earth monitoring. This mission has brought our total count of satellites deployed up to [Technical Difficulty]
Now onto our BlackSky mission. First for the second quarter. This is another mission I'm proud of, by the way, it showcases our responsive launch capability. [Technical Difficulty] launch many months apart, this launch I believe sets the new standard for speed and agility for our customers. A month and a half before this launch around the time conflict with escalating in Eastern Europe, BlackSky came to us with a lite request to change the orbital inclination for this mission so they could better support their customers responding to the Ukraine was process.
This is not a trivial thing and requires all new trajectory, safety analysis, licensing and mission planning, it's basically a new mission from scratch, but within 45 days we not only made those changes for the customer, but also delivered the appeared satellites above the region successfully and this kind of capability is an important distinction in today's escalating geopolitical environment.
Agility, flexibility and reliability is paramount for responsive space. I was always been a hot topic in national security circles and the ability to provide responsive space solution continues to generate a huge amount of public and commercial interest. It's the premier small launch Electron has always been well-positioned for future growth in this space. And as I said before, this
launch is the real showcase of our services.
Now beyond launch, on Electron we also had a number of satellites integrated with Rocket Lab technology that are now successfully operating in space. We had motorized lightbands on SpaceX’s Transporter 2 mission that successfully separated the [indiscernible] orbit satellites in space, as well as advanced lightband separation system is on the same launch for the PlanetiQ satellite. Typically, MAX Flight software is being used to help operate two Earth Imaging satellite also launched in April. In 2021, our technology could be found on 38% of all launches, having the Rocket Lab logo on everything that goes to space is part of our long-term strategy and these latest missions supported by Rocket Lab technology is an example of that strategy being executed well in early 2022.
With the expanded products and services offerings now under the Rocket Lab umbrella, both from acquisitions and all our own internal development, the reduced risk of supply chain disruption that we bring to our customers with a vertically integrated manufacturing capability and a reliability to execute increasing -- is increasingly attractive to our customers with the end to end services for their satellite constellations. From satellite build and components all the way through to launch and [indiscernible] operations, our technology is across most of the big low Earth orbit small satellite constellations today. We're involved in constellations across the public and private sectors, because our customers can come to us knowing we can offer them scheduled security and attractive pricing at scale, no matter the mission.
So, let us contract where our end-to-end solution strategy has borne fruit is the launch bulk by from Hawkeye360 which we secured in early Q2. Three Electron launches will deliver 15 satellites to orbit for Virginia-based Hawkeye360, which is building out a constellation to deliver radio-frequency geospatial analytics. Included in this contract is the supply of a separation systems for the satellites as we -- and as we mentioned on the previous slide, we have significant other satellite componentry sold into the platform.
Bulk-buy. So the Hawkeye bulk-buy is just the latest of many multi-launch contracts we have on the books for Electron. Commercial constellation operators look to Rocket Lab and Electron to provide reliability and accuracy in placing their satellite in the right place on orbit. We have precise placement as critical to the build-out of the constellations. Without missing a beat -- Without missing a beat, Launch Complex, we successfully executed. And then in Q2 included the fifth and sixth satellite Rocket Lab delivered to space for BlackSky across a series of missions within three months. And while that mission was due to the final launch in that multi-launch series, an additional six launch for BlackSky and Electron was commissioned in Q2 of last year. And we'll take additional -- six additional place -- and will take place later this year. The dedicated mission will continue BlackSky’s rapid business expansion by deploying another pair of Gen-2 earth imaging satellites to precise location in low Earth orbit for its growing satellite constellation. And again, one of these multi-launch contracts customer's satellite platforms include Rocket Lab spacecraft hardware or flight software to support their mission.
Now, excitingly in the first of multiple Hawkeye missions that has been selected to be as part of the rideshare launch from Launch Complex 2 at the end of this year. We have been encouraged by NASA’s progress in certifying its autonomous flight termination unit and software, which is needed to enable Electron launches from Virginia. And so I have secured the state with confidence. So we can complete our first launch from Launch Complex 2 before the end of the year. With that third party on -- a third pad online, we can offer even greater flexibility over schedule, launch frequency and launch location for our global customers.
Onto our launch to the Moon for the CAPSTONE mission, April and early May saw significant progress and milestones cleared on the pad to launch -- on the path to launch. Just this weekend, the CAPSTONE satellite itself arrived in New Zealand ready to be integrated into a Photon Lunar upper stage that will carried out of Earth orbit and set it on its path to the Moon. A launch reading rehearsal with our electron rocket was also completed over these past few days, further clearing the way ahead of us to launch this mission from LC1 towards the end of the month.
Speaking of Spacecraft, Rocket Lab is supporting to get to the Moon, the Blue Ghost Lunar Lander being developed by Firefly Aerospace, which will be operated by our MAX Flight software supported by our GNC engineers and managed by mission operations, completed a key readiness milestone last month called integration readiness review. Blue Ghost is part of NASA's commercial lunar payload services program, which contracts the private sector to deliver science experiments and other cargo to the Moon.
So with that, let me turn the call over to Adam Spice, our Chief Financial Officer.
Thanks, Peter. I'll first review our first quarter 2022 results and then discuss our outlook for the second quarter. First quarter 2022 revenue was $40.7 million, slightly above our revised guidance of $40 million, which we issued on March 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 and resulting lower -- 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 higher launch rate and a more favorable product mix.
Launch Services GAAP and non-GAAP gross margins were negative 12% and positive 1% in the first quarter, respectively versus a positive 1% and positive 6% in Q4 of 2021. The decline in gross margins quarter-on-quarter were driven by the lower launch cadence in the first quarter of 2022. Space systems GAAP and non-GAAP gross margins were 13% and 28% in the first quarter, respectively, versus 48% and 67% in Q4 2021. The decline in gross margins quarter-on-quarter were largely driven by a mix shift to lower margin SolAero revenues.
Turning to operating expenses. GAAP operating expenses for the first quarter 2022 were $36.6 million, which was approximately $2.4 million lower than the midpoint of prior guidance. Non-GAAP operating expenses for the first quarter '22 were $21 million, in line with the low end of guidance. The quarter-on-quarter step-up in GAAP operating expenses was primarily driven by a $2 million increase in R&D stock-based compensation and an incremental $700,000 of amortization 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 were driven by higher staff costs and outside services.
When we compare first quarter 2022 revenue on a year-on-year basis, total revenue was up 124%. Within the mix, launch services revenue declined 60% or $9.9 million, largely due to the aforementioned BlackSky global launch delay. Although Launch services got off to a slow start in 2022, as Peter mentioned earlier, for variety of reasons, including easing of 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 -- in 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 you 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 were largely driven by a mix shift to lower gross margin revenue from SolAero.
Turning back to operating expenses. As you can see both R& D and SG&A spend are up year on year as the company continues to invest heavily in broadening our space systems portfolio of products and services, Electron recovery and Neutron development. The company is executing and achieving milestones on numerous ambitious projects and we look forward to these investments generating shareholder value for many years to come. Year on year GAAP R&D was up $6.4 million driven by a $4.6 million increase in stock based compensation and an increase of $1.3 million in amortization of purchased intangible 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 intangible of $800,000. Non GAAP SG&A was up $8 million, driven by similar GAAP items referenced earlier.
With that, let's turn into 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 customer 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 we wanted to note the potential for this upside in advance. We expect Q2 GAAP and non-GAAP gross margins to be between 11% to 13% and 26% to 28%, respectively. GAAP gross margin improvements are anticipated to be driven by a favorable product mix, as well as improved absorption of production and launch indirect and overhead costs as compared to Q1 results.
We expect Q2 GAAP operating expenses to range between $39 million and $41 million, and non GAAP operating expenses to range between $23 million and $25 million. This quarter over quarter step up is driven by increased staff costs, prototype and other professional fees related to the Electron recovery, R&D activities related to the broadening out of space systems products and service offerings and the Neutron launch 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 of the progress here. So the gross margins you've talked about, I understand the overhead absorption and launch. On the space systems around the 20%, what item should we think about as the target margin there for space systems? Is there opportunity for expansion or will it be mixed driven quarter to quarter around this -- roughly 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 kind of the laws of physics are kind of dictating that. The SolAero impact is going to drive margins kind of to be lower than obviously that they were before that acquisition. So I think the margins you're seeing right now are probably, I'd say, reasonably indicative of where they're going to be in the next several quarters. Certainly, I think as you kind of move a little bit further out in time, we see a lot of opportunities for improving the gross margins in that SolAero business. I say that, the other portions of space systems remain pretty strong from a gross margin perspective. So I think it's really a focus on SolAero and getting some improvement there in that business. I think we're already starting to see as contracts turnover and so forth and given kind of some of the tightness that we're seeing in the solar market that we have a little bit more ability to kind of have better gross margins out -- a little bit our in the future.
Longer term for the larger space systems initiatives, we believe that the margin structure for that should be relatively similar to launch in targeting kind of the low to mid fifties. Now, again, given the size of SolAero’s contribution, it's going to take us some time to kind of get that back into focus. But again, we've talked a little bit before that we see the SolAero growth margins ultimately kind of being in the 30% plus range, which I think then becomes much less of a drag on the overall margin structure for that line of business. So we're very optimistic that we've got a path to improve the margins there. And then overall, we think again as the other parts of space systems grow in the mix above and beyond SolAero, then I think things will come back into focus in that low to mid 50s gross margin.
Appreciate the detail and laying out the roadmap there, Adam. And then switching over to the launch, the cadence, you seem to have settled into sort of a one a month kind of cadence roughly which is kind of what you guys had I 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 all investments to take full advantage of that.
I think Suju, I think one other piece of that. So certainly the addition of the pad in New Zealand and the bringing up of Wallops helps kind of increase the number of absolute launches that we can do. But I think more importantly, it really kind of allows us a lot more resilience, right? So you have the ability to launch and quicker succession, right? So you don't have to kind of reposition all your launch assets and so forth and like you're tracking radars and so forth. So I think that -- I wouldn't think so much of it is like is it -- a step increase in the amount of launches that you can do on annual basis, but much more the kind of the timing and sequencing of those. That actually is pretty important for some customers and how they want to basically get their constellation on orbit. Timing is very, very important.
Okay. It’s more flexibility there. Thanks guys. Appreciate. 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 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, I’d say that's a good question Edison. So the CAPSTONE, you're correct, is around a $10 million mission. It's important to note that the -- one of the missions in Q2, in fact the recovery mission that went off earlier in the quarter that was primarily an R& D platform. It had relatively small revenue contribution. We had some cubes sets on the platform. But it wasn't the regular launch at all. So if you think about -- if you trying to back into, hey, how does kind of the guide for the revenue for launch services kind of triangulate to three launch and our average selling price. It's because of that recovery mission was a pretty de minimis revenue contribution and you're absolutely correct on the CAPSTONE revenue estimation.
Understood. --
And probably you're right. [Multiple Speakers] Sorry, Edison, I didn't ask [indiscernible] that one question, part of your question. You're question to revenue recognition, it is a point in time launch, so all the revenue from CAPSTONE does happen in Q2.
Got you. Thanks. And there's -- and then follow on space systems. For -- I know you said you completed the OneWeb. How are we thinking about Gen2? Obviously that's supposed to be a much bigger one. Are we confident -- do we know when that will be kind of determined? What kind of solar panel, solar cells that will be using?
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.
Okay. Thank you.
Operator
Thank you, Edison. Our next question goes to Erik Rasmussen with Stifel. Erik, your line is open, please proceed.
Yes, thanks for taking the questions. Just maybe clarification and it sounds like -- just trying to get a sense of what the value per launch is. Obviously, one of those was an R&D platform. But would you say it's similar to sort of what you had filed in your 10-K, which is a little bit over $8 million and you see that growing in terms of the value per launch? And then with that, because of these bulk-buys, any sort of constraints on the pricing versus maybe similar of the one offs?
Yes. Eric I think that the -- I mean the pricing environment for us has been relatively stable. If you look back at our pricing back, let's say, three or four years ago, we were pricing electron at roughly $5 million per launch. And now the average selling price obviously is much, much higher. At the current time, we're really not seeing any downward pricing pressure. Certainly when a customer comes in and commits to a larger bulk-buy and if it's -- and he also depends on the type of bulk buy, right? If you have a bulk-buy where you're sending the same spacecraft and you're sending it to kind of similar orbit and so forth then it reduces the NRE for us, significantly we'll pass some those savings on to the customer.
But I would say that if you really look across the range of our backlog, it really does kind of fit what we've always been talking about right? So if you think about $7.5 million roughly on average kind of being in the average selling price for kind of an -- kind of the sticker price. That's still accurate and there's exceptions to the high side and a little bit of exception to the low side as well.
Erik and 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 was most important.
Understand. And maybe just on the recapture attempt, obviously, there's some successes there. I think would have loved to seen 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 off loaded it because he didn't like way it felt. We need more practice on the S92. But I mean to put it into context like [indiscernible] with descending rocket stage from space 400 kilometers out in the ocean and then catching it was better than I was hoping for. So we really have confirmed that that's a very completely viable technique to get it on that first time is awesome. We'll make a few tweaks and get back out there, not in the not too distant future for another attempt. But as far as we are concerned, we learned a tremendous amount and the condition of that stage is really fantastic. And I think if we held that on the hook and bought 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 last one on the flight termination software. That's obviously been a hold up, but where -- what is the gating item at this point? Where does that stand? And I know you're going to be – you are hopefully to have a first launch there by December year end, but maybe just help walk through what to expect there?
Yes, sure. So the gating item as it's always been is NASA's completion of their software that they can then provide to us to load on the autonomous flight termination units and then go fly. They've had many, many delays, but the project has a very, very high priority with the NASA currently and they seem to be meeting the milestones. We have more confidence than even before that that 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. Good luck.
Thank you, Erik. Our next question goes to Ron Epstein with Bank of America. Ron, your line is open, please proceed.
Hey, good afternoon guys. It was nice seeing last week. Maybe just a couple of quick ones. With the absence of the Russians in the space market now [indiscernible] and maybe never coming back. How does -- how should we think about what impact that's gonna have on guys? Obviously it's positive, but can you give us maybe another way to think about it with -- give a little more – give a little more color on it?
Yes, I mean the way we think about this Ron is that, prior to the Ukraine and Russia crisis there was quite a lot of commercial demand for the Neutron product. It was always intended to compete with both the Soyuz and the Falcon 9. Now with the Soyuz kind of exited the market and that's not just Soyus is out of Russia that Soyuz out of Frence [indiscernible] and Europe. And also Proton gone, it really does create a big hole in the sort of 2024 to 2027 timeframe frame that's when tremendous number of both government and commercial media constellation come to market. So the conversations that we are having internally here now are about who do we -- who partnered with for that -- for those first kind of bulk-buy Neutrons. Who's going to be ready and who's going to actually turn up at the pad. So it certainly changed the conversations quite significantly.
Got it. And on Neutron, ultimately, how's that proceeding so far and when we think about the economics of Neutron, the customer, how much it will reduce the cost to launch for the customer?
I mean, building a Rocket is an incredibly painful program. So we wouldn't even start if we didn't think we could be very competitive from an economic standpoint. And all the listeners that that were learning from the Electron reusability program directly applied to the Neutron program. For us right now, it's -- we're not really seeing the need to do early catch up pricing. We're certainly -- the vehicle was in strong demand. But I think right out of the street the economic to that vehicle are going to be pretty good. As reusability -- it's like a -- it's an evolution over a products life cycle. So as we find more and more, we'll see more and more advantage from the reusability and the nature of that. So yes, I think we're in good shape.
And then maybe switching gears a little bit to something more kind of operational focused. We've heard from many, many, many companies in aerospace outside of aerospace manufacturing company of the issues they've had with the supply chain. How that supply chain issues impacted you, if at all? And how are you addressing is if in deed there is an impact?
I mean, it's certainly an advantage to be being highly vertically integrated, all that you needed is raw material and puts. 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 if we carry safety stock if we think something is getting a little bit worrisome, electrical components, electrical component is always been something we track very, very closely. So we haven't seen any kind of major disruptions to our production or ability to execute. And I think primarily because we're so vertically integrated and we've been doing this for a while, so 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 over of the ocean, which is less than ideal was really extraordinarily good. All of the kind of iterations that we've been making over previous slights at all here really huge dividends. And to give the sense of when it's recovered from a helicopter, the helicopter costs around about $5,000 an hour to top, if you've got it out there is four hours or more, it's an incredibly cost effective way to go back and bring a stage, which represents the vast majority of the cost of 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 does that cost about. But I mean $20,000 worth of helicopter time to get back full engine sets and whole tanks. I mean, it really 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 to the people that are on the call. Our next question goes to Austin Mo with Canaccord. Austin, your line is open. Please proceed.
Good afternoon, Peter and Adam. So my first question here, 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 you're 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 is to announce within a certain timeframe of launch. But you wanted to wait opportunity to see another attempt.
Okay. Well, that's good to hear. And then just finally, can you -- Rocket Lab is extremely vertically integrated. So is there really any area in terms of hardware or software that you're looking at now, where you feel you might need to expand into the future? Do you guys feel pretty good right now in terms of where you are in vertical integration and the product offering that you can offer to customers?
I think we've made great progress, but there's still plenty more to go. So if you took a satellite or a spacecraft and took 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.
Okay. Great. Thank you.
Thank you, Austin. Our next question goes to Cai von Rumohr with -- excuse me, with Cowen. Cai, your line is opne, 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?
Yes. No, that's definitely a very kind of salient discussion that we have every day here at the company. So I think the challenge right now is that, we see this as a phenomenal opportunity to continue to add to the portfolio. Certainly we need to be judicious with our capital and I think we have been. We see a lot of opportunities still out there, in fact the deal flow is relatively healthy. But that said, we don't have anything in our sites right now that we're anywhere kind of deep in progress on.
I would say that we think for the right types of opportunities the capital will almost always be available. But we also -- absolutely appreciate the fact that it's a pretty nasty equity environment as you noted. But if you think about the kind of deals that we've done, we've acquired four companies, three is becoming coming public. They all have a pretty similar vein to them right where these aren't really kind of cash consuming deals after they close the acquisition. We have been able to use some stock in our deals and we continue to like to do so to preserve cash. So we're -- but we do think that if people are believers in the longer term growth of this industry, we really have to -- now is the time to be staking out strategic positions on the monopoly board. And I think we've done that successfully and I think there will be more opportunities to do that. But certainly we'll do that with an eye towards capital preservation. I hope that answer your question exactly, but we're definitely not taking our foot off the gas and not looking at a lot of things. As we do, we do have the benefit of getting a lot of deal flow in front of us.
So usually when financial environments get more difficult, it takes a while for ask prices to change. Are you seeing that those prices are starting to change today or is this something where you think if you wait a little bit and I understand you don't want to wait too long if the right opportunity comes up?
Yes. No, you're absolutely right. I think it takes a while for private companies to realize that their valuation fluctuate just like public company valuations do. But I would also say that we're not far enough down the path on an individual deal that we could really kind of provide any feedback on kind of how prices have moved or not in the last say several months. We've been really focused on integrating the deals that we've done. We think we've got a lot of work to do still on some of the integration efforts, but we're making great progress. But I think we also are very cognizant too that we -- there's no such things as a small deal, right? You acquired these companies, they all require integration, they all require effort and management bandwidth. And so we're being very cognizant that we don't get too far over our skis and kind of put the business at dead risk and that kind of applies to integration as well as kind of capital availability.
Right. And then -- so just a green eyeshade question, your backlog was five $545 million, it looks like it went up as smidge over $300 million, but obviously that includes SolAero. So what were your net orders in the quarter?
So if you look at the addition of, for example, the 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? So we [Multiple Speakers] And, of course we generated revenue and kind of 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 that yielded any benefits in terms of the pricing for Electron here over the slots that you still have available?
I mean the payload capacity of a Soyuz is sort of eight tons, where -- eight metric tons, whereas Electron is 250 to 300. So the majority of the kind of spacecraft that would fly on a Soyuz is applicable to necessarily an Electron launch vehicle. But I think launch the launch market has certainly tightened, but I think it's probably a little bit early to see any direct customer flow on for Electron. So the one thing I would say Cai and is related to the situation is the fact that payloads that were always destined for Electron are basically are getting firm up and they're coming at favorable pricing. So I would say what it's done is, it put more emphasis on certain payloads to get up in orbit sooner. And so Cai, I'd say from that perspective, the conflict has been us kind of a I'd would say a tailwind to our business. Because things that maybe had a little bit more time leash to them a little bit longer time to get to on orbit now have been want to be pulled in. So we're actually looking at opportunities to compress the manifest and again squeezing in, we squeeze in launches into your already relatively full manifest. You can basically charge a higher price that due to the scarcity of launch slots.
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 maybe some of the earlier discussion 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? Thanks.
Yes, it's a great question. So we sort of think around about 50% of Electron missions will be viable for recovery and that's not just from a helicopter standpoint operationally, but it's also from a mission standpoint. So one of the challenges with the small rocket is that, there is very tight margins. So some missions require all of the performance of Electron, which don't really allow for the addition of extra math for usability hardware. I mean, we've got the burden down fairly low sort of 10% to 15% reduction in a payload, which is extraordinarily low. But nevertheless number of missions require that extra performance. So we sort of thinking around about 50% of missions will be eligible for being reusable and recovered.
Yes, Justin ideally too, you would basically use your usability feature on missions and then when the booster is ending, it's kind of its life, you’d kind of use that as indispensable one, right, or disposable one. So again, hopefully there's ways that we can move things around and get as much -- we'll get as much use of these boosters as we possibly can. There's lots of different ways to achieve that.
Okay. That’s helpful. Thank you.
Thank you, Justin. Our final question is a follow ups from Edison Yu with Deutsche Bank. Edison, your is open, please proceed.
Hey, thanks for squeezing me in . Just one quick follow on Neutron. What is the ability or what's kind of the -- how realistic is it to potentially speed up development of it. Is it a question of testing capital? I know it's very complicated, but I think the spirit of I think what's going on in industry, the near term or the medium demand is quite big. So just wondering is there ways to speed it up? Thanks.
Yes, I mean, look, we're looking at every [indiscernible] to try and do that. It is -- it's an aggressive program as it is. So any opportunity we have, we'll take it, but there's -- there is no like magic thing we can do to just all of a sudden accelerated even -- one of those things even if you double the amount of spend against it, you wouldn't really save much time off. It's just you've got to go through that development of hardware calling -- go through iterations and actually build the stuff and one of the things that drives the timeline of Neutron is the availability of production equipment. So although our supply chain is relatively intact when you go and buy CNC mills and giant automated tape layers, those guys are suffering supply chain issues. So there's no amount of money in the world that can accelerate some of that stuff.
Got you. Thanks.
Thank you, Edison. Just to remind everyone that there was a technical problem on the webcast side that prevented attendees from watching and listening for a little bit. So there will be a full audio and video replay available after the [indiscernible] 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 of these up at upcoming conferences and look forward to the opportunity to share more exciting news and updates at the Stifil Cross Sector Insight Conference starting June 7 and the Bloomberg Technology Summit on June 8 and the Canaccord growth conference in August. Thanks again. We look forward to speaking with you all soon about the exciting progress being made in our business.
That concludes today's Rocket Lab first quarter 2022 financial results conference call. Thank for your participation. You can now disconnect your lines.