Astra Space, Inc. (NASDAQ:ASTR) Q3 2022 Earnings Conference Call November 8, 2022 4:30 PM ET
Company Participants
Andrew Hsiung – VP, Strategic Finance and Capital Markets
Chris Kemp – Founder, President, Chairman & CEO
Axel Martinez – Chief Business Officer
Martin Attiq – Chief Business Officer
Conference Call Participants
Edison Yu – Deutsche Bank
Ronald Epstein – Bank of America Merrill Lynch
Operator
Good afternoon, and welcome to Astra’s Third Quarter 2022 Financial Results Conference Call. [Operator Instructions].
I would now like to turn the call over to Andrew Hsiung, Vice President, Strategic Finance and Capital Markets. Please go ahead.
Andrew Hsiung
Thank you, operator. Good afternoon, everyone, and thank you for joining us for Astra’s third quarter 2022 quarterly results call. After the market closed, we released our financial results. The results release is available on the SEC’s website and our Investor Relations website at investor.astra.com. A supplemental presentation related to our third quarter 2022 results can also be found on the Investor Relations section of our website. This teleconference is also being broadcast over the Internet and will be archived and available on our Investor Relations website.
During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors as our management team uses these non-GAAP financial measures to plan, monitor and evaluate our financial performance. These non-GAAP financial measures exclude certain items and should not be considered as a substitute for comparable GAAP financial measures. Astra’s methods of computing these non-GAAP financial measures may differ from similar non-GAAP financial measures used by other companies. A description of these items along with the reconciliation of our non-GAAP financial measures to the most comparable GAAP financial measures can be found in our results release.
Today’s call will also contain forward-looking statements. These forward-looking statements refer to future events, including Astra’s future financial outlook. When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions, as they relate to Astra are as such, a forward-looking statement. These forward-looking statements are subject to a number of risks and uncertainties, and as a result, Astra’s actual future results and performance may differ materially from those discussed in this call.
We encourage you to review our filings with the SEC in which we describe the factors that could cause actual results to differ materially from our current expectations, including those updated risk factors included in our quarterly report on Form 10-Q.
Finally, I would like to remind everybody that this call will be recorded and will also be made available for replay via link available on the Investor Relations section of our website.
With that, I would now like to turn the call over to Chris Kemp, Astra’s Founder, Chairman and Chief Executive Officer. Chris?
Chris Kemp
Thanks, Andrew. Good afternoon, everyone, and thank you for joining us today. I’m excited to also have our incoming Chief Financial Officer, Axel Martinez; and our Chief Business Officer, Martin Attiq, on the call with us today. During this call, we will review our operational and financial performance during the third quarter, review guidance for Q4 and provide an update on our launch services and spacecraft engine businesses.
Now during the third quarter, we made some difficult but necessary decisions, which will allow us to focus on our near-term priorities with the appropriate level of resources, while also extending our financial runway. Our operating plan is now fully focused on selling and delivering Astra Spacecraft Engines and the successful first flight of our new rocket. We will discuss the progress we’ve made toward achieving each of these goals during this call.
In the past quarter, we’ve announced 237 cumulative committed orders of the Astra Spacecraft Engine as of today, an increase of over 130% last quarter, including orders from Airbus OneWeb Satellites, Maxar and Astroscale, among others. We believe our ongoing conversations with customers and increased order book validating our view that the Astra Spacecraft Engine is one of the leading in-space propulsion systems currently available in the market.
We achieved a positive GAAP gross margin for the first time in the Company’s history. We continue to make progress towards the development of Launch System 2, which I’ll speak about more in a moment. We continue to build out of a new 60,000 square foot facility in Sunnyvale, California, dedicated to the production ofAstra Spacecraft Engines. We plan on moving into this facility this quarter and completing the build-out in Q1 ’23.
We strengthened our core leadership team, including hiring Axel Martinez, as our new Chief Financial Officer; and , as our new General Counsel. And we ended the quarter with approximately $151 million in cash, cash equivalents and marketable securities.
This quarter, with the backdrop of continued macroeconomic and geopolitical uncertainty, increasing inflation and interest rates and equity market volatility, the team has prioritized resources on our core businesses. Specifically, we are focusing investments in delivering reliable spacecraft engines to our customers, which is rapidly becoming an important revenue stream for Astra, while focusing launch system development on reliability and a successful first flight of Rocket 4.
We’ve also decided to reduce our near-term investments in space services to direct resources to support the growth of our core launch services and space products businesses. We continue to explore opportunities to develop or partner in the development of our space services offerings, as it remains a significant part of our long-term business strategy.
Now I’d like to provide an update on the progress we’ve made on the development of Launch System 2. As a reminder, last quarter, we announced that we have increased the design point of Rocket 4 and to deliver up to 600 kilograms to mid-inclination low Earth orbit over the course of the product life cycle. Launch System 2 represents an important development for Astra to support satellite operators globally and deploying space-based technologies at scale. We focused our resources on designing and delivering our new launch system with improved reliability and operational excellence, increased payload capacity and an increased launch cadence. We continue to expect test flights for Rocket 4 to begin in the latter part of 2023.
Since our last earnings call, we have completed the first design loop of Launch System 2, including Rocket 4, the ground system and software. We provided an update on this progress, which you can view at astra.com/launchupdate1. We provisioned critical test infrastructure, including upgrades to the first-stage engine test end and commission new launch system, valve test stands and other test infrastructure at our Alameda factory, and we designed and released tooling required to manufacture the Rocket 4 stage propellant tanks. We expect to continue releasing important details and development milestones in the coming weeks and months, including the release of our first payload user guide for Rocket 4, which will allow customers to better understand the capabilities of our rocket and features of our launch service.
I’ll now provide some additional detail on our space products business. As we discussed last quarter, Astra leverages its mass manufacturing capabilities to develop and produce products required for the next-generation satellites and space services. While our launch services will bring customer payloads to space, the Astra Spacecraft Engine is a key space product that delivers satellites into their final orbits, helps them maintain their orbits, avoid collisions and ultimately deorbit them at the end of their life to reduce space debris.
I wanted to discuss the progress we’ve made with the Astra Spacecraft Engine. Since the last earnings call, we’ve announced an additional 134 committed orders for the Astra Spacecraft Engine since June 30th, 2022. This adds up to 237 cumulative committed orders since July 1st, 2021, inclusive of the 14 committed orders acquired at the part — as part of the Apollo Fusion acquisition.
We’ve completed delivery of our second full customer order. And the majority of the spacecraft engines being delivered are for critical national security programs signifying their importance in the space tech ecosystem. We continue to see strong customer demand based on our committed orders and ongoing conversations with customers. As a reminder, orders are delivered to customers over a mutually agreed time line, which is typically 9 months to 12 months from contract signing.
Now I’ll turn it over to Axel to review our financials and guidance. Axel?
Axel Martinez
Thank you, Chris, and good afternoon, everyone. First, I am pleased to join you all on my first earnings call as incoming Chief Financial Officer of Astra. I am excited to bring what I’ve learned from scaling hyper-growth technology companies, including Google and Uber to Astra, as we work to build a sustainable and scalable business.
Let me now review our Q3 results. As a reminder, all non-revenue financial figures we will discuss today are adjusted unless we state them as a GAAP measure. You will find a reconciliation from GAAP to non-GAAP results in today’s press release.
Revenues in Q3 were $2.8 million, driven by the delivery of spacecraft engines, as we now have completed the second Astra Spacecraft Engine program. Cost of revenues related to Astra Spacecraft Engines was $1.1 million. This resulted in our first GAAP quarterly gross profit since Astra’s founding, totaling $1.7 million.
GAAP operating expenses totaled $201.4 million compared to $67.8 million last quarter. The difference was primarily attributed to one-time items that I will discuss shortly. GAAP operating expenses included R&D expenses of $32.8 million, reflecting our continued investments in our core products.
Sales and marketing expenses of $4.1 million, reflecting investments in ongoing sales efforts for launch services and our spacecraft engine. And G&A expenses of $19.2 million, reflecting ongoing investments in key systems and technologies, among others.
Now let’s talk about all of the one-time items during Q3, 2022. During the third quarter, the Company reorganized from 1 to 2 reporting segments. And as a result, assign assets and liabilities to each of the reporting segments based on each segment’s operating activities.
The reorganization, together with a sustained decrease in the Company’s share price, existing of substantial doubt about the Company’s ability to continue as a going concern and macroeconomic factors resulted in the Company’s determination that triggers were present, therefore, indicating that the carrying amount of certain company assets may not be recoverable. As a result, we recorded a non-cash impairment charge on long-lived assets of $70.3 million related to property, plant and equipment, a $58.3 million impairment of goodwill, a $2.1 million impairment of our trademark assets; and a $2.7 million charge related to definite-lived intangible assets. All these one-time items totaled $133.4 million.
Additionally, a loss on change in fair value of contingent consideration was $11.9 million, as a result of higher revenues forecasted in estimating the fair value of contingent consideration. A $1 million inventory adjustment related to Rocket 3 was also included in R&D expenses. Astra also benefited in the third quarter from a one-time $4.3 million employee retention tax credit. We expect to receive the cash payment from this credit in the first half of 2024. As a result, total one-time items for the quarter were $142 million.
Given these one-time non-cash items on a GAAP basis, our third quarter net loss was $199.1 million. On a non-GAAP basis, third quarter adjusted net loss was $45.2 million.
Q3 adjusted EBITDA was a loss of $41.4 million, a $7 million improvement compared to last quarter. Third quarter additions to capital expenditures were $5.5 million and primarily related to the continued investment in the development of our launch services business and delivery of our spacecraft engines.
We ended the quarter with cash, cash equivalents and marketable securities of $150.5 million and no debt outstanding. In addition, we also continue to evaluate various sources of capital, as we carefully manage our financial runway.
On October 6, Astra received a deficiency notice from NASDAQ, as our per share closing bid price remained under $1 for 30 consecutive trading days. While we cannot directly control short-term market volatility, we are taking measures to increase top line growth, decrease expenses and add capital to strengthen our balance sheet, which we believe will ultimately be reflected in our share price.
Next, I’ll provide an outlook for our fourth quarter ending December 31st, 2022. As Chris mentioned, we focus our operating plan on the delivery of spacecraft engines and the successful fresh flight of Rocket 4, allowing us to optimize our operating plan and increase our financial runway amidst market volatility. As a result, as of today, we have reduced our existing headcount by approximately 16%. Payroll savings from this headcount reduction are expected to be realized beginning in Q1 of 2023.
As a reminder, our fourth quarter guidance and guidance is subject to various important cautionary factors referenced in the section below entitled Forward-Looking Statements in our Form 10-K, including risks and uncertainties associated with the ongoing COVID-19 pandemic and the decision to discontinue the product of launch vehicles supported by the Launch System 1.0.
There is also risk associated with elevated levels of inflation in our supply chain, as it relates to geopolitical tensions, a dynamic share across many companies and industries. However, we believe our investment in our factory and vertically integrated manufacturing processes are one of the factors that help mitigate these risks.
Now we will provide future guidance. In the fourth quarter, we currently expect adjusted EBITDA loss to be between USD42 million and USD45 million. Basic shares outstanding to be between 268 and 270 million shares and capital additions to be between USD5 million and USD7 million.
As we shift our near-term priorities to focus on our space products and launch services businesses, our guidance will focus on the metrics that we use to manage our business, thus, we will not be providing guidance on depreciation and amortization, stock-based compensation and cash taxes at this time.
On the Astra’s Spacecraft Engine, you should continue to expect quarterly variability in shipments until we began ramping up production to support committed customer deliveries beginning in Q1, 2023. As of today, we have cumulative committed orders for 237 Astra Spacecraft Engines, including 14 units we acquired with the Apollo Fusion acquisition on July 1st, 2021.
The vast majority of our spacecraft engines have been ordered in 2022, and we continue to see strong customer demand for our spacecraft engines. As a reminder, spacecraft engines are typically delivered 9 months to 12 months from contract signing, and Astra recognizes revenue only upon delivery of the spacecraft engines to our customers.
We continue to expect the remainder of 2022 and 2023 to be transformative periods for Astra, as we further develop our new launch system and scale production for our spacecraft engines.
I will now turn the call back over to Chris.
Chris Kemp
Thanks, Axel, and we’re glad to have you on the team. Before we conclude the call, I’d like to personally thank all of the Astra employees, who have been impacted by the head count reduction. Today, we made a very difficult decision to part ways with some very talented individuals. I always appreciate the contributions and the impact that you’ve had on me and Astra as a whole.
And finally, I’d like to thank Kelyn for her leadership and helping Astra become a public company and our finance organization’s hard work, as we’ve made it through this transition. Astra is now well positioned to focus and execute on shipping and developing our core product offerings. I’m excited to continue to share updates in the coming weeks and months, as we deliver on our mission to improve life on earth from space.
And with that, operator, let’s open the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions]. And our first question comes from Edison Yu from Deutsche Bank.
Edison Yu
Had three, if I may, two more strategic, one financial. On the strategic side, could you remind us about the agreement with OneWeb and provide maybe some color on the potential to get supplied or win on Gen 2 — on the Gen 2 constellation?
Chris Kemp
Sure. So the agreements with Airbus OneWeb Satellites, and I’ve got Martin in the room, so I’m going to let him provide some more color on that.
Martin Attiq
Yes. Edison, the agreement that we announced with Airbus OneWeb Satellites is for their platform. As folks know in the market, Airbus OneWeb Satellites provided the OneWeb Gen 1 satellite buses, and they have not yet made a determination on who’s going to supply the — or has not been announced, who’s going to supply the OneWeb Gen 2 buses. And so we don’t have anything further to add on top of that.
Edison Yu
Do you have any idea when that decision will be made?
Martin Attiq
I don’t.
Edison Yu
Second, strategic. I think in the past, you had mentioned — you did — you submitted something about the spectrum and seeing spectrum, and it sounds like you’re sort of deemphasizing that now. Is there any sort of kind of value that you had there with anything? I don’t recall the details of the original plan, but — because wondering if there’s any sort of like residual value that you can sort of salvage with the spectrum that you had, I think, wanted before.
Chris Kemp
Well, spectrum allocation is a long process. And I think one of the things that we tried to make clear here is that space services is the North Star for the Company, and some of the space technology and the space launch services are enabling of that long-term vision. But given the contracts that we have on hand for both spacecraft engines and for launch services, given the current economic climate, cost of capital, availability of capital, it’s pretty clear, our focus should be on delivering for customers that have purchased spacecraft engines and launches.
And so we’re really just prioritizing the investment of our both capital and human resources in the short-term goals for the Company right now over the next year or so. Now that could change, should we secure additional financing markets change, should we secure funding for any of these programs or projects. But given right now, what we want to do for our shareholders and for our customers is focus, focus, focus. And what you’re seeing is, you’re seeing an emphasis on what’s in front of us.
Edison Yu
And then last one for me, just a quick financial one. I know it’s a tough — it’s a tough restructuring . Any way to quantify the benefit next year in terms of how much you’re saving on OpEx? Any color there, would be appreciated.
Axel Martinez
Yes. Well — so thank you for the question. Well, we’re not providing guidance at this point for 2023. Our plan, as Chris mentioned, right, is to focus our operations in our top 2 priorities, which is the spacecraft engines and the development of the new launch system. At the same time, we want to continue optimizing our cost structure. And our goal is to — our plan is to increase our runway well into 2024.
Operator
[Operator Instructions]. And our next question comes from Ron Epstein from Bank of America.
Ronald Epstein
I guess, a couple of questions. Why assets are being sold? Just kind of curious about that. So what’s — yes, what’s being sold?
Chris Kemp
Actually, no assets are being sold. All we did was just a revaluation. Like as you know, many companies are particularly with capital markets being what they are, what’s happening to the stock market, companies are revaluing their assets. And so the — all the one-time charges is — are related to that for the most part, right? $133 million was just related to that one specific revaluation.
Ronald Epstein
And then are there risks to losing other key people? I mean, typically when rifts happen, I mean it’s not so great for morale. And I mean it looks like what Mike Cassidy left. He was the Apollo CEO. How should we think about that?
Chris Kemp
Well, I mean I think speaking of Apollo, I mean that was a company we acquired in the development stage. They hadn’t tested the product yet. Over the past 1.5 years, we’ve seen — that product becomes space qualified, and that team has been transitioned to a team that’s focused on quality, engineering and production and scale. And so it’s a process that you’ll see with the development stage company being brought into a company, where we have customers like Maxar, Airbus OneWeb Satellites that really demand the level of focus on quality and scale that you’re not going to see it a small early-stage company. So as a result, folks like Mike, who are great at starting companies, I think this is his fifth start-up. Mike’s going to go off and start another company and that was always anticipated by Astra.
To your broader question, I think that we’ve grown really fast. I mean keep in mind that as we announced our intent to go public, we had about 150 people. We now had over 400 people, and we tripled the size of the Company in the time of a year. So I think what we’re doing here is we’re focusing. And we’re through that focus, I think we’re going to give the team here a new level of energy and intensity around flying Rocket 4 and having that flight work and on delivering these spacecraft engines for our customers. And I think, frankly, it’s going to energize the team to have that focus, and we’re pretty excited about it, frankly.
Martin Attiq
And if I can add to it, too, we have an incredible leadership team that goes well beyond the people you see in our website. And all these incredible individuals were very much part of this kind of development of our strategic plan, since [indiscernible] have been working with the incredible people. And I think what you find out at Astra is we have some of the brightest minds working in a really unique opportunity. And so they’re all very much part of this process. And so this is not something that was done at the C suite. It was done something across the organization. And so it really reflects the commitment that we have towards each other. And so this is why we feel like what we’re trying to do.
Chris Kemp
Yes. Finally, I want to add one thing, Ron. When we talk to employees and we talk to customers, frankly, one of the most important things is that we have the time to deliver on the contracts that we have, we have time to come back and fly Rocket 4 successfully. And so when we set out to do this, we looked at what gets us well into 2024 from a runway perspective and it required some tough choices to be made, and I think the team understands that. And the team that we have here, which is over people strong, is an incredibly talented team. They frankly appreciates the fact that they have the runway to deliver for our customers. And so I think it’s going to actually increase our team’s level of confidence in leadership and the commitment to the mission.
Ronald Epstein
And then maybe one, little more detailed accounting question. What’s the contingent consideration in the liabilities?
Axel Martinez
Yes. That’s related to the Apollo acquisition. It’s an earn out related to shareholders, related to number of units that we are able to ship over the next year.
Operator
We have no further questions in queue. This will conclude today’s conference call. Thank you, everyone, for their participation. You may now disconnect.
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