Rocket Lab USA Inc

NASDAQ:RKLB

Earnings Call Analysis

Rocket Lab Outlines 2023 and 2024 Growth

Rocket Lab witnessed an increase in negative free cash flow in Q3 2023, mainly due to the timing of payments in Space Systems manufacturing but anticipates this to reverse in early 2024. Total cash, equivalents, and securities were $374 million. Despite Neutron investment exerting pressure, existing businesses are trending towards offsetting these expenses. Q4 2023 revenue is forecasted between $65 million and $69 million with GAAP gross margins of 24-26% and non-GAAP margins of 30-32%. 2023 is expected to see 11 launches and 2024 aims for 22, trending towards a $7.5 million average selling price. The anomaly has not significantly affected Q4 cash flow, but larger space systems contracts will. Globalstar MDA subcontract work is progressing well, and Q1 2024 revenue is estimated between $95 million and $105 million, hinting at Rocket Lab's first $100 million quarter.

Improving Financial Health and Guidance for Upcoming Quarters

Reflecting on the progress over the past year, our company's financial health has demonstrated a positive trend with consistent revenue growth and increasing gross margins. Notably, we have reduced our adjusted EBITDA losses each quarter, even when considering the adjustment for a one-time release of a loss reserve. Looking ahead to the fourth quarter of 2023, we expect revenues to fall between $65 million and $69 million, fueled by contributions from both Space Systems, forecasting $48.5 million to $52.5 million, and Launch Services with an anticipated $16.5 million based on two launches. Projections show 11 launches for the year 2023 and a jump to 22 launches in 2024, as we aim for an average selling price nearing our target of $7.5 million. The fourth quarter's anticipated GAAP gross margin is expected to be in the range of 24% to 26%, with a non-GAAP gross margin projecting between 30% to 32%.

Adjustments to Operating Expenses and Focus on the Neutron Program

The company's operating expenses are expected to rise in the fourth quarter, reaching between $61 and $63 million on a GAAP basis and between $50 and $52 million non-GAAP. This increase is attributed mainly to the recognition of a contra R&D credit from the previous quarter related to our Neutron upper stage development agreement, amplified by hikes in staff costs, prototyping, and material spend due to the ramp-up of our Neutron program. Even with these increases, our clear focus and robust planning put us in a strong position for Q1 2024, where we estimate revenues to hit a milestone range of $95 million to $105 million.

Launch Manifest and Operational Execution

While our launch manifest for the following year is fully booked, immovable factors such as customer readiness, weather, and our manufacturing execution could present challenges. Yet, the full roster indicates substantial demand and provides a solid foundation for execution. As we aim for a launch cadence of 22 for the next year, achieving non-GAAP gross margins close to our long-term goal of 50% hinges on an annual rate of 24 launches, indicating that we're on track to make significant strides towards this target.

Neutron Development Timeline and Strategy

The development of our Neutron launch vehicle follows a measured approach, avoiding overly aggressive expansion. Reflective of our experience with Electron, we are planning initial test flights followed by a gradual increase in launch frequency. This strategy prioritizes incremental revenue generation and continuous improvement over rapid scaling, a fiscally prudent model that averts the need for substantial upfront capital investments.

Earnings Call Transcript 2023-Q3

[Operator]

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rocket Lab Q3, 2023 Earnings Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.I would now like to turn the call over to Colin Canfield, Head of Investor Relations. Please go ahead.

[Colin Canfield, executive]

Thank you, Eric. Hello, everyone. We're glad to have you join us for today's conference call to discuss Rocket Lab's third quarter 2023 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 the liability established by 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 our press release and our supplemental materials are reconciliations of these historical non-GAAP financial measures for the company's comparable financial measures calculated in accordance with GAAP. This call is also being webcast with the supporting presentation and a replay and copy of the presentation will be available on our website.Our presenters today are Rocket Lab's Founder and Chief Executive Officer, 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, executive]

Thanks, Colin, and welcome, everybody, for joining us. Today's presentation, we will go over our key business accomplishments for the third quarter of 2023, as well as further achievements we've made since the end of the quarter. Adam will then talk through our financial results for the third quarter before covering the financial outlook for Q4, 2023. After that, we'll take questions and finish today's call with the near-term conferences we'll be attending.All right, on to what we achieved in the third quarter for the year. Starting with Electron. In July, we launched a mission with [ 7 ] satellites with NASA and others, which was the first of 2 back-to-back reusability-focused missions. After successfully deploying the first Mission 7 spacecraft, Electron's first stage was bought back to earth and recovered from the ocean. Then we followed that up with our 40th Electron launch and even more recovery milestones, including the return first stage and the first to launch a reflowing Rutherford engine previously flown on our 26th mission there and back again. The engine performed flawlessly, like a new one, completely validating our pursuit of reusability for Electron and setting us up well to refly an entire engine set as our next major reusability goal.So next, I'll provide a bit of an update for Electron. Following those 2 successful flights, as you know, we unfortunately experienced an anomaly on our 41st mission. It's important to remember that up until this launch, we have had 37 successful orbital missions to place 171 satellites in orbit. And the past 2 years have been flawless with a record of 20 successful missions one after the other. For Flight 41, as soon as the issue occurred, our team jumped into action in the week since the team has been scaring through thousands of channels of flight data and manufacturing data to determine what was the probable root cause. I'll take you through their investigation in detail over the next couple of slides.Working in parallel with the FAA, the FAA has conducted its own review of the mission safety processes, plans and procedures, which concluded that they all worked as they should to keep the public safe and I am pleased to confirm that the FAA has since given us approval to resume launching from Launch Complex 1. With our investigation in its final stages and our launch license remaining active, we are fully anticipating to return to flight within the next few weeks. Following updates and changes to our testing and manufacturing process, we'll be returning to the pad with an even more reliable vehicle to meet our busy launch manifest for the remainder of '23 and into '24.Now, let me take you through what happened and what we've learned. So, here's a slide on the anomaly time line. The anomaly that ended the mission happened incredibly quickly. From the first action in the chain of events when Electron cut off its data relay, the team only had 1.6 seconds of a nominally flight data to work with. This was always going to be a highly complex issue to figure out, but with deep diligence and analysis, here's what we've been able to determine.On a 41st mission launched September 19 from LC1, it completed all the usual launch milestones through lift-off, next queue, stage separations. And at 151 seconds, the second stage engine tried to ignite, which is confirmed by flight telemetry that showed the igniter pressures building and the locks and kerosene pump speed rising to pump propellents into the combustion chamber. The voltage levels from the battery packs that power the engine and the motor controllers are nominal at this point and normal at that point of ignition, but within milliseconds, in fact, 151.7 seconds, we get our first indication of the anomaly. The system's high-level voltage levels take a sudden dip and rise of about 100 volts within 30 milliseconds, indicating an energy escape from the system that then led to a full loss of power to the second stage lower avionics cutting off telemetry and communication with the second stage. And with that, it was all over.So, move on to the issues. So, you have to bear with me on this, there's a little bit to talk about here. But with good visual evidence with the onboarded cameras and over 12,000 channels of data and this high-level time line to draw from the investigation narrowed in on the issue. More than 200 sub- investigations were launched to rule out hypothetical causes of the anomaly. After more than 7 weeks of extensive analysis of the mission's manufacturing test and flight data, the findings of the Rocket Lab investigation team overwhelmingly indicate an unexpected electrical arc occurred within the power system.Shown in the image on the top right, the team did some tricky optical triangulation and image processing of a small shadow on the engine bowel caused by the arc. From that, they are able to pinpoint and retriangulate the failures point's origin to an area where the 2 battery packs connect known as the fixed pack to supply the high-voltage power. So, now we're all going to take a little lesson in Paschen law and Paschen curves. So, Paschen law describes how in partial pressure environments, the likelihood of an arc to occur changes in high-voltage systems depending on the environmental composition.An approximate guide can then be applied across different situations called the Paschen curve, which uses the relationship between voltage, pressure multiplied by distance to indicate what the range of danger is for an arc to form through various gases like helium, argon, nitrogen, et cetera. So, the graph on the bottom right is what's known as a highly simplified Paschen curve. So basically, the easiest way to think about this is if you have a positive and a negative terminal of a battery at 500-volts down here on earth, you could place those 2 terminals of the battery about 0.03 millimeters or 1/3 of the thickness of a human hair beside each other and they would not create an arc or jump a spark between them.Now, take the same 500-volt battery in terminals and put them in the worst part of the Paschen curve, which just happens to be just after stage separation and Stage 2 ignition of Electron. And the same 500-volt battery and terminals will now arc to each other when they are nearly 1 meter apart. So different gases, different pressures affect the distance. And there's also other things like AC ripple that can have a huge negative fix. But for now, let's just keep it simple. For Electron with its high-voltage 500-volt power supply, we have to ensure that every connection is essentially [ thematically ] sealed.A tiny pinprick or insulation failure, will result in arcs given that they can travel over large distances in the Paschen curve. All of this is in flux and very transient because as we assumed higher during the second stage burn and go into the hard vacuum of space, the arcing distance goes back the other way, and it becomes hard to arc again. It's really just at stage separation where things are the worst and we bottom out the Paschen curve. As you can imagine, this is extremely difficult to test for down on Earth. We actually, currently put the whole rear engine CVM in a vacuum chamber, pull it down and inject gases like argon to try and aggravate the phenomenon. But even the smallest installation compromise cannot always be detected, especially when you compile that with other factors like AC ripple and trace gases.So, now that everybody understands Paschen curves. During the second stage ignition, we're at the worst part of the curve and we had a small concentration of helium in the vicinity of the [ open ] stage, which is normal, and a high-voltage AC ripple that lowers the spark threshold even lower and a tiny undetectable fault in the HV move insulation, all of which combined allowed for an arc to briefly occur. If any of these things were not present, then the failure would not have occurred. All 4 had to be there. And to be honest, with all the testing we do before flight, you would also have to be incredibly unlucky to have the insulation failure point also line up with an electrical path to be able to arc the chassis.And look, I don't generally believe in luck as an engineer, but this -- but in this instance, I would say that so many things had to line up that most people would say that this probability of this occurring would be largely improbable. So with that, now that we kind of understand and we've explained the failure, what are we going to do to get back to flight. So, the failure is obviously a highly complete set of conditions that are extremely difficult to predict. Our team's top priority through the investigation has been to find a way to make sure that this never happens again. And as a result, there's a couple of key corrective measures.The first is to increase the fidelity of the stage level vacuum testing. We now have a much more sensitive instruments implemented in the pre-flight tests both at the component level and the stage level that consents partial discharge all the way down to a [indiscernible]. This gives us much more confidence in the testing. However, I was not happy to stop there. And so we've implemented a rather brute-force solution. What we've done is seal up the battery frame that contains all the high-voltage connections and equipment and then pressurize it to about 0.5 of PSI.I'll draw your attention to the graph on the top right, surprise, surprise, it's another Paschen curve that shows that by pressurizing the high-voltage area, we shift the Paschen curve to the left out of the red zone and into the green zone, meaning, basically, we're back to what it's like on Earth where it's not really possible for big arc distances to occur. Now this has been a lot of work to implement by the team and as a fairly extreme solution. But really, I thought it was the only way we could put the Paschen law well back in its box. So, the best way to solve a problem, in my opinion, is always to eliminate the problem and that's what we've done.Getting to the bottom of the issue and back to the pad for our customers has been the team's #1 priority. It's been incredible to witness their perseverance dedication over these past few weeks, not only on the anomaly investigation, but in the work that they've completed in parallel to make sure that we're good to go as soon as we get back to the pad. The launch window for a return to flight mission will open on November 28 and extend into December. This dedicated mission will be for iQPS, a Japanese-based Earth imaging company with the rocket for that mission going through prelaunch testing on the pad at Launch Complex right now.So, move on to Electron launch manifest. So in 2024, we have a really big year ahead of us. Even with our pause in operations, Electron remains the world's most frequently launched small orbital rocket. Dedicated missions for small satellites continue to experience strong demand, which we've seen in multiple bulk buys by returning customers and constellation operators. In fact, we've booked out Electron launches next year, completely blocked. We see the market for the Electron product being very strong and this manifests validates that. Frequent launch opportunities, flexibility over schedule and control over orbiter deployment are what our customers are looking for and that's what Electron has been providing and will continue to provide in the New Year.And all that, all we have to do really in -- with our 2024 manifest is execute as and with -- within living in the space industry. By ramping Electron production and keeping on top of demand with recent acquisitions as well as continuous improvement in automation across our manufacturing processes, we look to continue improving on our already impressive performance in manufacturing. We also note that the scaling is coming with improved gross margins. In Q3 2023, we achieved a 27% GAAP launch gross margin, which should look to enable to progress our profitability targets for Electron as we drive scale and efficiency into the business.I now want to take you through and highlight some of the accomplishments in -- so far in Q4. So, Neutron structures. We'll start with a Neutron update. Earlier this quarter, we reached a major milestone and had a frosty second stage tank up on the stand structural and cryogenic testing, which is really a key marker for our Neutron program development and invent program. The team's job was to push the tank to its absolute limits by loading it up with cryogenic fluids and test to destruction. Something like 96,000 liters of liquid nitrogen was used for this test campaign and an exploded tank in this instance is very much a good thing and what we wanted to achieve.The team to the tank passed MEOP or Maximum Expected Operation Pressure at more than 7x atmospheric pressure. What they've learned in the campaign has been applied to the next stage to tank and currently under production, really to bake in structural reliability early as we get closer to our date with the launch pad. Speaking of baking, this is quite literally what our carbon composites team has been up to with our next full scale Neutron structures and components. The images on this slide here show you the scale of some of the tank devices being produced, more than 7 feet in diameter for those secular propellent management devices and the Stage 2 dome being eliminated in the bottom section, whilst the Neutron fixed bearing sections are coming together nicely. And of course, we have another second stage Neutron tank being built for our next test tank -- to go on our next test tank in the first half of '24.And then over to Neutron Archimedes engine. Another test we're celebrating was a critical combustion test that the team achieved with Neutron's Archimedes engine. There's plenty of benefits to pursuing methane and LOX propellants, but it does come with some of its own challenges. The critical piece really and one of the challenges was in using methane and liquid oxygen for Archimedes is getting the pre-burner dialed in. Where generally you want a fuel mix ratio in a chamber of something like 3:1 oxygen fuel, we're running an oxygen-rich pre-burner cycle on Archimedes that forces us to flow all of our oxygen through the combustion device. Therefore, our ideal mix is something between [ 100:1 ], which is a challenging thing to achieve without all the excess oxygen extinguished and combustion.Archimedes also has an extremely benign operating point, making it great for reliability and reusability, but it does mean that the pressures are low and ironically harder for the pre-burner. But I'm happy to say that we met all the operating points that we wanted to on those tests. That was a great accomplishment by the team. At the same time, the Archimedes team have been producing and testing full-scale hardware like valves, chambers, injectors, controllers and assemblies in preparation for development and propulsion tests, making for a really impressive site and all the pieces come together, like you see in the photo on the side as well.Over to Neutron infrastructure. So, supporting infrastructure for Neutron has also scaled quickly over the past few months. Groundworks are being completed in Virginia where our Neutron pad will be. Test facilities and support services will be based there as well and we're ready for construction to begin at a launch site located close to our key government customers, which will enjoy the benefits of a less congested launch site than obviously the Cape. In Q4, we opened our new engine development center in Long Beach that will support the development and production of the Archimedes engine. And once the engines are completed at EDC, they'll go to testing at our NASA Stennis Space Center where the Neutron team has been busy with site improvements to accept the engine for hot fires.And then finally, Neutron time line. All of these achievements across Q3 and Q4 that I've mentioned and several others are shown here have been great to tick off along the Neutron time line. We have completed second stage tank testing, printed key Archimedes engine parts and components had success with our combustion testing devices, completed qualification testing of their composite overhead pressure vessel, run through separation lock deployment testing and stage pusher system testing, completed our actuator motor controller testing, finished test on our power management module, confirmed Neutron engine and stage controller functions as it should, completed avionics controller testing, successfully tested the vehicle thermal protection system, stood up the test rig for the incoming Neutron Canard and Canard system testing.The team is obviously working hard to keep our ambitious schedule for the rest of the year and into '24 with the same -- with some of the next year milestones to account for, including first stage qualification tank tests completed, Archimedes engine testing campaign and the first simulated flight orbit with our hardware connected to our flight computers. Now, we will continue to provide updates on how a Neutron is tracking outside our quarterly reviews.Beyond Electron and Neutron, our hypersonic test vehicle, HASTE has seen significant amounts of interest from new and returning government customers, looking to further develop the nation's hypersonic testing capability. We've actually booked 7 launch contracts in the 6 months since our HASTE program was introduced, including our latest mission announced today, a HASTE launch from Virginia from the U.S. Department of Defense Innovation Unit. This mission will demonstrate HASTE direct inject capability by deploying its payload during ascent, while still within the Earth's atmosphere, along sought after capability for the nation's strategic defense and civil needs at a fraction of the cost of the current full-scale tests.On to Space Systems now, and we have a new spacecraft order on the books for a confidential constellation customer that builds on a strong demand for our satellite products. This particular spacecraft will include a full suite of our own satellite components and subsystems, including star trackers, reaction wheels, solar panels, S-band radios, flight software and so on and so forth. This contract, in particular, speaks to the popularity and configurability of our spacecraft bus, but the confidence also in our satellite components in the market and our ability to grow and end-to-end mission -- grow as an end-to-end mission partner for the space industry.Now importantly, we'll also be managing the mission's operations and a further demonstration of our end-to-end business model of building and operating satellites that we build for our customers. Continuous Space Systems to our largest space system contract now, the $143 million contract we have with MDA Globalstar. We're getting close to the delivery of our first of 17 spacecraft for the program by the end of Q1 next year. Having cleared significant milestones in the contract in the past few months, the spacecraft critical design review and delivery of a structural thermal model for the customer. We expect to recognize revenue from those invoice payments to MDA in the fourth quarter of 2023. This sets the stage for a more meaningful revenue contribution from this contract as we enter 2024.We continue to pursue increasingly complex and financially needle-moving space system opportunities and are encouraged by progress being made in this part of our business. And we believe that these pursuits position us to continue scaling as an end-to-end space solutions leader. Lastly, on space systems updates. We're proud to have directly supported the success of NASA's groundbreaking Psyche mission launched in October with our solar panels powering the spacecraft on its 6-year journey into deep space. These solar panels we provided to the mission hold the record for being the largest solar panels ever installed on an NASA JPL satellite, which we're immensely proud of.And then finally, into post-quarter achievements. I'm thrilled to welcome retired U.S. Space Force Lieutenant General Nina Armagno to Rocket Lab's Board of Directors. Lieutenant General Armagno served more than 35 years in leadership positions across the U.S. [ base force ] and U.S. Space Force, including -- U.S. Air Force and U.S. Space Force, including being the first Lieutenant General Officer appointed to and Director of Staff for the Space Force where she established America's first new military branch in 72 years. She's had an accomplished and distinguished career in the military and will be an invaluable asset to the Board.And now over to Adam for the third quarter financial highlights.

[Adam Spice, executive]

Thanks, Pete. Third quarter 2023 revenue was $67.7 million, which is near the high end of our prior revised guidance of $66 million to $68 million. Third quarter 2023 revenue reflects sequential growth of 9%, the result of 3 launches and continued growth in our Space Systems business.Our Launch Services segment delivered revenue of $21.3 million in the quarter from 3 launches and is in line with post-anomaly revised guidance of $22 million with the slight [ under-ridge ] due to timing of revenue under our launch study contracting. The resulting average revenue per launch came in at $7.1 million, below our target average selling price of $7.5 million for 2023 and the result of less favorable mix in the quarter. Our current backlog continues to reflect our target average revenue per launch with variability tied to LSA volume commitments, launch location and unique mission assurance requirements.Our Space Systems segment delivered $46.3 million in the quarter, which was up 17% sequentially and modestly above the high end of our prior revised guidance range of $44 million to $46 million, driven by a step-up in our MDA contract revenue, offset somewhat by a reduction in our components business, which is poised to rebound in the fourth quarter guide that we'll discuss later.Now, turning to gross margin. GAAP gross margin for the third quarter was 22.1%, above the high end of our prior revised guidance range of 18% to 20%. Non-GAAP gross margin for the third quarter was 29.5%, which was also above our prior revised guidance range of 26% to 28%. GAAP and non-GAAP gross margin improvements relative to our revised Q3, 2023 guidance reflect continued efficiencies in both our launch and satellite manufacturing businesses. We ended Q3 with production-related head count of 816, up 49 from the prior quarter.We also note that non-GAAP gross margins reflect a 430 basis point improvement versus Q2, 2023 when adjusting for Q2's one-time $4.1 million release of the loss reserve related to a legacy launch contract. We're encouraged by the trend in gross margin improvement and expect this trend to continue into 2024, as we return to launch and resume growth Electron's launch cadence against our strong and growing launch backlog.Turning to backlog. We ended Q3, 2023 with $582.4 million of total backlog with launch backlog of $250.7 million and Space Systems backlog of $331.7 million. Relative to Q2, 2023, total backlog was up 9% sequentially or $48.1 million, thanks to healthy bookings in our launch business, partially offset by declines in Space Systems. For launch specifically, backlog was up 55% sequentially or $88.8 million as Electron continues to benefit from return orders of both commercial and HASTE customers.For Space Systems, backlog was down 11% sequentially or $40.7 million as we continue to work through our larger satellite manufacturing contracts and the timing of additions to Space Systems backlog are lumpy to the increasingly complexity and magnitude of these contract opportunities. We expect approximately 57% of current backlog to be recognized as revenues within 12 months and expect continued meaningful growth in our backlog as we exit 2023 and progress through 2024, thanks to continued demand for our Electron platform as well as anticipated orders for significant satellite manufacturing opportunities we've aggressively been considering over the last year or so.Turning to operating expenses. GAAP operating expenses for the third quarter of 2023 were $53.8 million, modestly above the high end of our original and unrevised guidance range of $51 million to $53 million. Non-GAAP operating expenses for the third quarter were $39.8 million, which is at the high end of our original and unrevised guidance range of $38 million to $40 million. The decreases in both GAAP and non-GAAP operating expenses versus the second quarter of 2023 were primarily driven by contra R&D credits related to Neutron upper stage development from our U.S. government partners, partially offset by higher Neutron development spending, increases in head count and higher depreciation and amortization expenses.In SG&A, GAAP expenses decreased $1.5 million quarter-on-quarter due to a change in contingent consideration related to our PSC acquisition due to a lower average stock price in the quarter. Non-GAAP SG&A expenses increased by $700,000, primarily due to increases in head count, along with the step-up in depreciation and amortization, primarily related to additions to corporate IT and security infrastructure to further enable efficient scaling of the business. Q3 ending SG&A head count was 236, representing an increase of 8 from the prior quarter.In R&D specifically, GAAP expenses were down $4.4 million quarter-on-quarter to increased contra R&D credits related to the previously referenced Neutron upper stage development, partially offset by a step-up in Neutron development spending and non-GAAP expenses were down $4.3 million quarter-on-quarter, driven similarly to GAAP expenses by Neutron related contra R&D credit and development spend. Q3 ending R&D head count was 520, representing an increase of 2 from the prior quarter.In summary, total third quarter head count was 1,572, up 59 heads from the prior quarter. Purchase of property, equipment and capitalized software licenses was $21 million in the third quarter of 2023, an increase from $10.6 million in the second quarter of 2023. The 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 $25.2 million in the third quarter of 2023 compared to $6.1 million in the second quarter of 2023. The sequential increase of $19.1 million was driven primarily by timing of receipts and payments associated with our satellite production programs, which for some of our larger programs have significant periods between milestone achievement, invoicing and ultimately, collections, which at the end of the day, are purely timing related. More specifically, Q2 was a quarter that benefited from a working capital dynamic, where we collected on material milestone invoices that were invoiced in the prior quarter where payment terms are more lengthy than our target 30 to 45 days.Cash consumed by asset acquisition and business combinations was $800,000 in the third quarter of 2023, a decrease from $16.1 million in the second quarter of 2023. The sequential decrease of $15.3 million was driven by the majority of our Virgin Orbit select asset acquisitions being realized in the second quarter. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow reduced by purchase of property, equipment and capitalized software in the third quarter of 2023 was a use of $47 million compared to $16.7 million in the second quarter of 2023 or a more apples-to-apples comparison of $32.8 million when including the impact of our acquisition of select Virgin Orbit assets, most of which were classified as PP&E.The material step-up in negative free cash flow was, as noted in my earlier GAAP operating cash flow commentary was a result of lumpy timing of payments and receipts associated with our Space Systems manufacturing operations and we expect the reversal of this negative capital cycle in early 2024. The ending balance of cash, cash equivalents, restricted cash and marketable securities was $374 million at the end of the third quarter of 2023.Reflecting in the past 4 quarters, we have made meaningful progress towards our long-term financial model. We have delivered consistent revenue growth and when adjusting for the one-time release of a loss reserve in Q2, gross margin expansion and shrinking adjusted EBITDA losses each quarter. With our strong launch manifest and greater contribution from Space Systems contract execution in 2024, we expect this trend to continue. Overall, we expect gross margin trends will continue to improve over time, thanks to the same factors that have helped drive improvement we've seen this year. In terms of when we can get to adjusted EBITDA breakeven, while Neutron investment, especially R&D spend continues to be the pacing item to achieving this critical milestone. Although, we view that Rocket Lab has demonstrated that its existing businesses are on a trajectory to offset the weight of this Neutron investment spend.With that, let's turn to our guidance for the fourth quarter of 2023. We expect revenue in the fourth quarter to range between $65 million and $69 million, which reflects $48.5 million to $52.5 million of contribution from Space Systems and $16.5 million from launch services, which assumes 2 launches. As referenced earlier, based on our manifested launch backlog, we now expect 11 launches in 2023 and 22 launches in 2024 with an expectation that our average selling price that continues to trend towards our current target of $7.5 million through the remainder of 2023 and into 2024.We expect fourth 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 margin improvements reflect a favorable mix between Launch and Space Systems, along with a favorable mix within Space Systems. We expect fourth quarter GAAP operating expenses to range between $61 million and $63 million and non-GAAP operating expenses to range between $50 million and $52 million.The quarter-on-quarter increases are driven primarily by having recognized a substantial amount of contra R&D credit related to our Neutron upper stage development agreement with U.S. Space Force in the prior quarter, along with increases in staff costs, prototyping and material spend as we continue ramping our Neutron development program. We expect fourth quarter GAAP and non-GAAP net interest expense to be $2 million. We expect fourth quarter adjusted EBITDA loss to range between $23 million and $27 million and basic shares outstanding to be approximately 487 million shares.Additionally, the unique situation created by the anomaly and related pent-up impacts to the Launch Manifest as we prepare to return to flight and head into 2024, combined with better visibility on Space Systems program execution and revenue recognition as we prepare to ship the first spacecraft against the MDA Globalstar program in the middle of the first half of 2024, provides us with a visibility and confidence to estimate Q1, 2024 revenue to range between $95 million and $105 million, putting inside our first $100 million revenue quarter. This forecast will be the result of 4 to 5 launches in the quarter, yielding between $30 million and $37 million of launch revenue and $65 million to $68 million of contribution from Space Systems. This would represent a significant milestone for the company and we believe a strong endorsement of the end-to-end space solutions business model we're delivering on.And with that, we'll hand the call over to the operator for questions.

[Operator]

Thank you. [Operator Instructions] Your first question comes from the line of Edison Yu with Deutsche Bank.

[Xin Yu, analyst]

I appreciate the level of detail you provided on the investigation. First question on the manifest for next year. Can you give us a sense of your confidence level on the 22? Is that sort of your base case? Or in other words, the range is sort of 20 to 24 and the midpoint would be 22? Or do you need kind of everything to go right to hit that 22 target?

[Peter Beck, executive]

Edison, as with any launch contract, right, we are always somewhat susceptible to factors that we can't control, like customer readiness is always a big one. The customers need to turn up with their satellites on time, weather and of course, as I mentioned in my commentary, we have to execute from a manufacturing standpoint. But I think the key takeaway there is we have completely sold out manifest for next year at a number that is really solid. So, I would say that we have to execute and there's always some uncertainty for things that we don't control, but that's certainly what we're targeting.

[Xin Yu, analyst]

And then just a follow-up to that. Can you give us a sense or maybe a bridge on the margin in launch? You had a very good quarter actually in 3Q. How does that margin trajectory look if you can get to that 22 launch cadence?

[Adam Spice, executive]

I'll take it past that, Pete. So Edison, yes, I mean, we've long stated that when we get to our target model for non-GAAP gross margins of around 50%, that requires launching 24 times a year. So, we're going to make significant progress towards that as we launch as we kind of strive to hit that 22 number next year. So -- and if you look at any given quarter, if we have, again, 6 launches in the quarter, that should be at or very close to our long-term 50% non-GAAP gross margin target.

[Xin Yu, analyst]

And if I can just sneak one more in on Neutron. [ Quite a lot of ] milestones, do we feel comfortable with the time line? Should we interpret that as you guys feeling comfortable with the time line on next year?

[Peter Beck, executive]

Well, look, there's still a lot of work to go and the year is not finished yet. So, we're pushing hard. But at this stage, we're not making any adjustments to our predicted time line, but I just highlight there are still some really significant tests to be completed. But right now, we're not making any major changes.

[Operator]

Your next question comes from the line of Matt Akers with Wells Fargo.

[Matthew Akers, analyst]

I wanted to ask on Neutron. After that first launch, what sort of rate do you envision doing Neutron launches? And what rate are you kind of capacitized to support now? At what point would you need to sort of add capacity there?

[Peter Beck, executive]

Matt, it's a good question. So, we're not trying to do anything Herculean on Neutron. We've lived through the pain of creating a launch vehicle and standing it up and bringing it into production. So, it follows a pretty similar cadence profile to what we were able to achieve with Electron. So, we'll do a test flight or a couple of test flights and then move into sort of 3 or 4 a year and then continue to bootstrap and grow that and really follow the same model that we followed with Electron where we launched a little bit, we generate some revenue, and we make improvements to the vehicle and we'll make improvements to the infrastructure. And we found that to be by far the most cost-effective way rather than going out and building a giant factory to do huge volumes from day 1 and just consume a tremendous amount of capital. We've kind of always bootstrapped that way along and increased flight rate and cadence along with that and facilities along with that.

[Matthew Akers, analyst]

And then if I could ask on, I guess, free cash flow. How much sort of additional expense was there around kind of the investigation in Q3 and maybe into Q4? And sort of how are you thinking about free cash flow into 2024?

[Adam Spice, executive]

Matt, we didn't see a tremendous amount of, I would say, resource diversion. A lot of these kind of anomaly investigations take a select group of very capable people to dive in and do the analysis and investigation, there's not a lot of capital spend associated with it. And we continue to keep our foot on the gas when it came to production of Electron. So, the anomaly that gets yourself really won't have any kind of noticeable material effect on cash flow in the fourth quarter.I think the biggest thing for us for cash flow is really around timing for these big Space Systems contracts. I mean if you look at our launch business, people typical model is you get paid -- people pay a 10% deposit at contract signing and then there's milestone payments along the way. And typically, there's only 10% left to collect at the time that we actually launch the mission. So that's always been a good cash flow model. It's just all about that getting that business to scale, which, again, we're making great strides in being able to do.When it comes to Space Systems, there are large contracts. I mentioned lumpy a few times in the prepared commentary and that's really true because you can have the achievement -- you have some delays of achievement of critical design milestones. You got to get through those gates before you can turn that over into the AIT phase of the program where you're doing the assembly, integration and test side of it. And so you can have periods depending what your payment terms are with your customers and on our largest Space Systems contracts, we're dealing with pretty sophisticated organizations that had pretty tough terms. It was -- we were chasing our first large and meaningful Space Systems contracts.So, we weren't necessarily in the best position to negotiate those types of terms to our advantage. But it leads to some, I would say, some -- a little bit of interim to near-term pain on that side. And we've experienced that in 2023. We expect that dynamic from the operating parts of our business to turn around and be much stronger from a cash flow perspective in 2024. Now, we'll continue to see consumption when it comes to Neutron, particularly around prototyping and particularly around infrastructure because we still have infrastructure investments that continue to make to prepare for that first launch at the end of 2024.

[Operator]

Your next question comes from the line of Cai von Rumohr with TD Cowen.

[Cai Von Rumohr, analyst]

So first quarter, it looks like you have a target price of $7.5 million. Is that the price likely to be for the entire year? Or given the vigor in demand, are you guys increasing prices as we move forward? And if so, by how much?

[Adam Spice, executive]

Yes, it's a good question, Kai. So, the manifest that we showed in the deck, I mean that is confirmed backlog pricing is not in question, right? So that does drive to our long-term pricing model in 2024 and that's all contracts, of course, that we can continue to add to the backlog. As we move forward, we certainly are seeing an environment that allows us to drive for firmer pricing. As being one of the few truly operational launch providers, we do have -- we do see pricing power coming in our direction. And so we expect that longer term, we'll see upward movement to the ASP for electron launches. But I would say, again, there's really no volatility to the ones that we showed in the manifest, those are all kind of -- they're booked in their firm price.

[Cai Von Rumohr, analyst]

With I guess, not to beat a horse but with Virgin Orbit basically gone, how come you don't increase prices. And when you talk about the longer term, at what point -- what would cause you to raise the price? I mean whether you then raise it, they're all going to go from $7.5 million to $8 million? Or how should I think about how that works? And how does it take into account inflation?

[Adam Spice, executive]

I'll let Pete weigh on this one.

[Peter Beck, executive]

Yes. I mean we have -- we kind of have a standard escalation for that to deal with inflation year-on-year. And certain missions -- not all missions are the same kind of to Adam's point, is when we do some of the very complicated government and hypersonic missions they command a much higher price than a mission where we're flying -- someone's bought 6 rockets from us and we're flying the same satellite again and again. So, there's just kind of variability. And I would say that we test the market pretty fairly on that pricing range, but still try to provide the right price for the products and services that they're expecting from us.

[Cai Von Rumohr, analyst]

I just have one last one. So, out of the 22 launches, how many are from Virginia?

[Adam Spice, executive]

I believe right now, I think there are -- there's at least 2 or maybe 3 launches currently manifested for Virginia.

[Operator]

Your next question comes from the line of Suji Desilva with Roth MKM.

[Sujeeva De Silva, analyst]

My questions are on the Space Systems and thanks for the 1Q guidance there. The increase in 1Q versus 4Q, is that primarily the GSAT MDA program ramping up? Or is that the second customer contributing? Any color there on the increase guided for 1Q would be helpful.

[Adam Spice, executive]

Yes. There's a few things contributing to that, obviously, the higher launch cadence as we kind of get back to the pad, as Pete said, on November 28. So, it's really coming across the board. We've got strength, in Electron that's coming through and contributing. On the Space Systems side, there's a few things that are going on there. But the biggest element is really is the MDA Globalstar vehicles, again, start coming off the production line. We have a much clearer line of sight to the revenue recognition as bill materials are pulled to the production floor to assemble the spacecraft and the testing and so forth. So, it's -- there was a bit of uncertainty as we progress through 2023, because you have milestones for when you get and get through key program reviews like PDRs and CDRs, and you really can't progress and until you get through those.Once you have that, and it's a much more -- nothing is easy in this business, but there's a much more kind of predictable formulaic. You've got almost a day-for-day schedule of how you can kind of start to assemble based on the labor that you have and the BOM that you perceived or ordered and when it's scheduled to arrive. It's a much easier thing to predict once you get past those key defined pieces and you move into AIT. So, I would say that the majority of the step-up in -- the biggest piece of it, say, maybe not the majority of the biggest piece of the step-up in Q1 is coming from the Globalstar MDA contract, but there is contribution from our other satellite programs as well.

[Sujeeva De Silva, analyst]

And then my other question is on the satellite part, manufacturing part of Space Systems as well. With the MDA contract with the 17 satellites and then the second customer coming on, I'm wondering what framework we should think about -- you just think about the capacity per quarter of the number of satellites you can make, if that's the right way to think about how that business can grow over time.

[Peter Beck, executive]

Yes. I mean I wouldn't necessarily just think about capacity because the kind of spacecraft projects we take on they're not just sort of cheap and cheerful easy metal bending kind of jobs. We're going to Mars and we've got the MDA at Globalstar is a great example, is a very deeply complicated mission in a horrible radiation environment. So, I wouldn't be necessarily tracking just the volume of spacecraft, but more so the complexity of the emissions because ultimately that drives a lot of value. And even the latest mission that we announced here today, the latest spacecraft, that is not -- that's not an easy build. So, we tend to be very successful and do very well and create a lot of value in those. There's as much higher fidelity, much, much tricky emissions to do. So, I wouldn't just use a volume kind of metric to kind of measure us.

[Operator]

Your next question comes from the line of Jason Gursky with Citi.

[Jason Gursky, analyst]

Adam, really quickly on the balance sheet. What are the current thoughts or expectations around $100 million that's gone current here? Are we looking to refi that? Or are we going to be taking some cash off the balance sheet to address that? Just want to figure that out from a modeling perspective.

[Adam Spice, executive]

No, we're actively in the process of looking to refinance that. We've got several options. We're pretty far down the path with a few different providers. And they range from doing equipment lines to kind of similar structures to term loans that the Hercules loan represented. But yes, no, that's -- we're looking to refinance that. I think we're hopeful that we'll get that done in hopefully in the next few weeks and again, almost certainly before the end of the year.

[Jason Gursky, analyst]

And then I want to make sure that I fully understand the comments on Electron for next year. Are you, at this point, fully sold out? Or if you had a couple of customers that wanted to quick-turn mission, would you have the launch vehicles available to do that? Or are you just kind of telling customers, okay, we're sold out for '24, got to look to '25?

[Peter Beck, executive]

Well, look, we'll always look for opportunistic opportunities. I mean it's fair to say that production will be at near full capacity next year as we deliver on those. But also as you guys see and we experience customers -- some customers slip out and it's very easy for a customer to have an issue in a [ T-VEC ] cycle and shifted out 6 months, which would create an open opportunity. So, we never say no to customers and although, yes, the manifest is essentially full, it doesn't mean that there's not going to be an opportunity open through the year. So yes, we always keep that in our discretion.

[Jason Gursky, analyst]

And then last one for me. Just on Neutron, can you just spend a few minutes talking about your current views on the demand outlook for that vehicle? And when in its development cycle, would you expect maybe to get your first order or 2 is kind of proving out the concept of what you're doing here? And then demand is as good as you think it might be. I'm just trying to balance that against the comment that we're going to bootstrap capacity there. Why aren't we running out and trying to fulfill as much demand as possible. So, just kind of a general view of the current demand environment for Neutron when we might expect orders? And what kind of levers can you pull to more quickly come in and pull in some of that demand if you think it's really strong.

[Peter Beck, executive]

Yes. That's a great question, Jason. So look, on the order side, until a vehicle is kind of proven and flying, any launch contract that you can sign is basically worthless. We can go and sign a launch contract tomorrow with a number of customers that will be like some $1,000 dollars down and cancelable any time. But that really doesn't mean anything. And the one thing that you will always get from us is like real backlogs and real numbers. So, it's almost a pointless try to sign something like that now. And then even if you do, we saw this with Electron, right, an unproven vehicle, you just take a massive haircut. So, you have to do really low introductory pricing. And with Electron, we carried some of that introductory pricing on for years and we managed to flush it out this year, but for years, we had some really bad missions. So, I just don't want to go down that road again.But rather, when you have a flight-proven product that in a launch constrained market, then it becomes very valuable. So, I'd much rather arrive to the market with something that works that commands a premium, then fully manifest up with a whole bunch of low-value launches now. And frankly, the customers that we talk to aren't looking to buy 1 or 2 launches, they're looking to buy quite a bit of capacity to fill the constellation or their other needs. So, we also need to see them delivering and being on time at the pad because if you commit to one customer and commit a whole launch of manifest and be late then -- and that's not a happy situation either.So, when we kind of reached a point of critical maturity such that somebody is willing to pay real deposits and write real contracts then that's a good time and you'll see those kind of announcements from us. But until then, I just don't want to put us in a position where we've just got a whole bunch of rubbish, unkind of solidified launch on a manifest that might look good in a slide, but actually isn't that real.And then on the kind of the bootstrapping, why not go out and just prepare for a massive volume. Look, I think I'd love to do that, that would be awesome. But the reality is that the launch vehicles they're easier to build than a small launch vehicle, but the challenges they just consume a huge amount of capital. And we have to be diligent in the fact to use the capital we have wisely and kind of use it methodically to make sure that we actually put a vehicle on the pad and we're able to scale it in a really safe and methodical sense. If you had no constraints on capital, then, of course, you go and build big factories and to pads and where you would go, but it's not really -- it's really an option and nor is it really our style. So, we like to put one on the pad, then we'll work through the block upgrades and improvements that inevitably will happen and then slowly ramp production over the coming years to meet demand.

[Operator]

Your next question comes from the line of Kristine Liwag with Morgan Stanley.

[Kristine Liwag, analyst]

Peter, following up on Jason's question there on the Neutron order. So, it sounds like you don't anticipate orders to occur until after Neutron has its first flight. Is that fair?

[Peter Beck, executive]

Kristine, no, that they could occur earlier. But I guess what I'm saying is that the 2 things need to be true that we need to be -- have confidence that the spacecraft will be delivered and they need to have confidence in us. And at this stage of the development program, as I mentioned before, there's still a number of critical milestones to go through. So, I wouldn't expect anybody to put huge deposits down on a vehicle in this kind of stage development. And I think that's just the reality.

[Kristine Liwag, analyst]

So, I guess another way to think about it is it sounds like you guys are prioritizing better pricing in the long term at the expense of building a backlog now and providing significant discounts, which could take years to offset. So, if you're confident in your product just wait till after launch is better pricing.

[Peter Beck, executive]

Absolutely.

[Kristine Liwag, analyst]

Sorry, go ahead.

[Peter Beck, executive]

Well, I lived through that with Electron, right? And those contracts can just be really painful to flush out of the system. And there's no argument that there's going to be huge demand and there is huge demand, zero argument about that. So as I mentioned before, like the smart thing to do is arrive with a flight-proven product and not have to do kind of crazy things with pricing and destroy the business model over it.

[Kristine Liwag, analyst]

And maybe moving to Space Systems. It sounds like your Globalstar contract through MDA as a subcontractor has been progressing well. MDA recently won a $2 billion Telesat LEO contract. How much of an opportunity is there for you to be a subcontract to that program or similar programs of that size gives us pretty meaningful constellation size?

[Peter Beck, executive]

Look, I can't really comment on that program in particular. But what I will say is we actively are pursuing these -- many of these large programs, both as contractors and also as primes. So yes, I mean, there's a real opportunity for us. There, obviously, the large volume, but also the constraint on some of those critical components like solar is a huge constraint within the space industry right now. And we obviously own 1 of 3 suppliers of that particular technology in the world. So yes, we see a lot of opportunity there and we're actively and aggressively pursuing these large constellations as, like I say, as a supplier and as a prime.

[Kristine Liwag, analyst]

And if I could ask one last one. You mentioned SolAero, with SolAero, where are margins trending in the quarter? And can you provide any update on your tracking towards the 30% gross margin target for that business?

[Adam Spice, executive]

So, we've made very good progress towards our gross margin goals for that business. We said that 2 years post acquisition, we wanted to be at 30 points of non-GAAP gross margin. I think we're going to trail that by -- I think, by maybe a couple of quarters, but the progression has been pretty clear and pretty steady. And we can definitely -- well, we've made improvements to get better margin on the existing backlog that's in place when we acquired the company. But I would say in the course of the last year in particular, we've got a pretty stringent process for improving new customer deals.And I don't believe that we've really seen -- I can't recall the last time that we approved a deal that was below that 30% gross margin target. In fact, we're kind of tying with how to start pushing that target a little bit further north from that because long term, that's not our goal to be at 30 points. We view that as having a great opportunity for really healthy long-term margins. But great progress towards the 30 points. I think we're going to hit that at some point in 2024. And again, all of our kind of building backlog is 100% supportive of that.

[Operator]

Your next question comes from the line of Ronald Epstein with Bank of America.

[Ronald Epstein, analyst]

A lot's been asked. I'm the last guy. So, I'll be quick because I guess we're running over on time. But here's a question for you. I mean a lot of the space start-up companies have been having difficulty. And you guys were able to pick up some interesting assets from Virgin Orbit. When you look at the Space Systems business, is there a talent you can pick up in the satellite world in terms of engineers and other things? I mean some of the small satellite companies, their stocks are trading below the equity is trading below $1 per share. And it's -- I would imagine it must be a pretty good environment to recruit talent in. I don't know if you can speak to that, but as you try to grow that business, are you able to pick up some talent?

[Peter Beck, executive]

Yes, Ron, absolutely, that is true. And great talent attracts great talent as well. And the team that we've built there is, it's simply awesome. So that's been true. What I will say though is I think we mentioned before the bar to get into Rocket Lab is extraordinarily high. I mean it's twice as hard -- we did the metrics and it's twice as hard to get into Rocket Lab than it is to get into Harvard. So we're very, very fussy about the folks that we bring onboard. But certainly, there's opportunities there for new folks as some of those other businesses fail.

[Ronald Epstein, analyst]

And then maybe just following up on Neutron because this came up a couple of times in some of your other questions. What are some of the milestones we should be looking for? As we look out into next year as kind of outsiders, not inside the company, what boxes can we check and say, hey, yes, it's trucking right along to feel good about where the program is going.

[Peter Beck, executive]

I presume you're talking about Neutron hereon?

[Ronald Epstein, analyst]

Yes, excuse me, yes, Neutron.

[Peter Beck, executive]

Yes. So, we've kind of laid out a few -- I mean, obviously, engines always a long pole in the tent. So, look for hot fires and kind of completions of all programs and things like that. We achieved probably it's understated, but the second stage tank test was a huge milestone because although it just kind of looks like a big black thing that we filled and made frosty and then blew it up. The reality is that, that validated like so many material properties, so many manufacturing processes, so much of the kind of core underlying materials and technology and designs are all validated by that test and by that milestone.So, it's kind of, sometimes it's kind of a little bit difficult. And then I tried this earnings to give some color about some of the other tests that are going on. And there's just heaps and heaps going on and so many tests and milestones met every day that it's kind of hard to get them all on paper. But I mean, the key ones is fire and then fire reliably out of Archimedes and continued Neutron structures, keep looking for things that get frosty because that's important milestones. And then I would say next year is start to look for stuff coming out of the ground, start to watch us pour concrete and things like that because the vehicle drives the ground of the structure enormously. So, if the vehicle is mature, then the ground infrastructure can start to be built. So, they sort of go hand in hand and one leads the other. So, if they're starting to pour concrete, then I would feel good and stuff like that.

[Operator]

Our next question comes from the line of Andres Sheppard with Cantor Fitzgerald.

[Andres Sheppard-Slinger, analyst]

I appreciate you guys getting us in and congratulations on the quarter. Most of our questions have been asked. So, maybe just one 2-part question. First, with the roughly $400 million in cash and equivalents, would you mind just reminding us what is the expected run rate there? And then secondly, is -- you provided the revenue guidance for Q1 as well as your updated backlog with 57% of that backlog being recognized in the first 12 months. Can you give us any sort of ideas or direction on how we should be thinking about that backlog being recognized in terms of seasonality or second half, first half? Any color there that you might be able to give us?

[Adam Spice, executive]

Andres, I'll take the first one and Pete can kind of chime in, in the second. But with the cash, we talked about the fact that we're -- 2024 from our base systems business should be a much more cash positive story for us. The nature of the biggest program, which was MDA Globalstar, had a bunch of unique and quite honestly, onerous terms when it came to timing about us getting paid. We've now kind of crossed the river on that one, if you will, and we're on the better side of that as we now again, move into the AIT phase.So, we believe we've got sufficient liquidity to do exactly what we said we were going to do when we came public, which is that we want to broaden out our Space Systems business. We've acquired 3 businesses since becoming public. We've also committed to getting -- having up capital get to the Neutron product the pad. That's also well within the scope of what we've called out. But what I would say is that we still have a significant amount of capital to consume in getting Neutron to the pad by the end of next year.Now again, we're well funded to do that. The timing of that is a little bit difficult to predict because as Pete's kind of gone through some of the milestones and these programs, they can be -- they can move around a bit. There's different ways to kind of get there, kind of the -- there's some make versus buy decisions that take place that can affect how much cash flows out the door. So, I would say that it's difficult to predict and also going to be dependent upon other business that we close as we progress through the remainder of 2023 and '24 and what those cash [ metrics ] look like.But right now, I would say that our Q3 cash consumption number was kind of a high point that we've seen thus far, that could hover around in that range for a quarter or so, but then we start to see that significantly trend down as we get past these key milestones and Neutron gets closer and closer and closer to pad. The biggest factor right now in 2024 is really going to be progress towards those Neutron milestones from a developer perspective and also from an infrastructure perspective, as Pete mentioned. But again, we don't have any concerns right now that we -- that we don't have the runway to get to where we need to go.As far as the backlog and how that's going to be realized and seasonality and so forth, we don't really have a lot of view on seasonality. We haven't seen kind of true seasonality in our business. We've seen a lot of volatility, which has really been more a function for what we can tell from some of our smaller customers, it's the access to funding, either through their government partner programs, whether it's through VC cycles and kind of the success in raising funds and so forth. So, we really see more effect on revenue as our customers kind of go through their kind of cash, kind of rich and cash core cycles. But again, I think that what you'll see is we've gone through an elevated quarter, we'll probably have another couple of elevated quarters before it starts to get much better and we start to, again, let's say, not consume as much cash as we have, again, a function of programs where we are in their life cycles and just Neutron developments.

[Andres Sheppard-Slinger, analyst]

Congratulations on the quarter.

[Operator]

Your next question comes from the line of Erik Rasmussen with Stifel.

[Erik Rasmussen, analyst]

Maybe just on the HASTE rocket. You said you secured 7 missions in the past 6 months. Does this change the number of missions that you had previously thought you would do? I mean, you've seen things accelerating?

[Peter Beck, executive]

Yes. I mean, we always knew that there was demand for this product, but I would say that we're pleasantly surprised to see the demand grow the way it's growing. That first flight was an important one to demonstrate the capability. There's a bit of I would say, hysteresis in the way government customers move to new kind of products like this. And that was all kind of dissolved with a very successful flight. So, we're kind of reaping the benefits of that. And the vehicle is just able to do a bunch of stuff that has been inaccessible before being a liquid throttleable vehicle. So, it really opens the aperture for what can be done and development of systems that really in some places, in some respects can't be developed anywhere else in the world. So, it's -- so we're pleasantly surprised to see the pick up on the program.

[Erik Rasmussen, analyst]

And maybe just -- you made an announcement, you opened up the -- an Engine Development Center in the former Virgin Orbit assets facility. What sort of production capacity can you expect to achieve once operational? And what is the time line to maybe hit that, maybe call it an annual run rate?

[Peter Beck, executive]

Yes. Look, the Virgin Orbit facility was a bit of a boon really because there is more equipment and capacity there than we can see in the future for an engine facility. It's gold-plated. So yes, I mean there's no numbers that we're working with at the moment that would see that EDC facility reach capacity.

[Operator]

Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the call back over to Peter Beck for closing remarks. Please go ahead.

[Peter Beck, executive]

Okay. That wraps today's presentation. Thank you, everyone for joining us for the call. Rocket Lab will be participating in some upcoming conferences displayed on the sheet there and look forward to the opportunity to share more exciting news and updates with you then. Thanks again, and we look forward to speaking to you soon.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect your lines.