Astra Space, Inc.ASTRNASDAQ
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Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to Astra's Second Quarter Fiscal 2023 Financial Results Conference Call. [Operator Instructions] Thank you. And I will now turn the conference over to Andrew Hsiung, Vice President of Strategic Finance and Capital Markets. You may begin.
Andrew Hsiung: Thank you, operator. afternoon, everyone, and thank you for joining us for Astra's second quarter 2023 results call. After the market closed, we released our financial results. The press release is available on the SEC's website and our Investor Relations website at investor.astra.com. A supplemental presentation related to our 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 annual report on Form 10-K. 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'll turn the call over to Chris Kemp, Astra's Founder, Chairman and CEO. Chris?
Chris Kemp: Thanks, Andrew. Good afternoon, everyone, and thank you for joining us. Joining me on today's call is Axel Martinez, our Chief Financial Officer. During today's call, we will review our operational and financial results during the second quarter, review guidance for Q3 and provide an recap of the recent strategic decisions we've announced. For those of you who weren't able to attend our conference call on August 7, I wanted to summarize and provide some color on the announcements related to our integrated strategy around financing, expense reductions and strategic optimization. In early August, we announced a strategic reallocation of a portion of our workforce from our launch services organization to our Astra Spacecraft Engine organization. Our priority is delivering on our commitments to customers which requires ensuring we have sufficient resources and an adequate financial runway to do so. To support this, we reallocated approximately 50 engineering and manufacturing personnel from launch services to the spacecraft engine business. Some of these are permanent reassignments and others are temporary assignments to either support specific customer programs or to increase production and test capacity through the end of the year. In addition to this reallocation, we identified other areas to optimize, our organization and reduced expenses. As a result, we've reduced our overall workforce by approximately 25% since the beginning of Q3 including the recent announcement of reduction of approximately 70 employees. We expect this overall headcount reduction to result in savings of over 4 million per quarter starting in Q4 of 2023. The workforce reduction included employees primarily supporting the launch services, SG&A, and shared services functions within the business. We now have just over 200 employees and aim to continue running a lean organization while maintaining all of the critical capabilities and skills required to achieve our near term goals. These reductions were painful, but necessary to reduce operating expenses which when combined with ongoing reductions in CapEx and additional reductions in OpEx are expected to result in substantial decreases in cash burn over the next few quarters. I want to thank all of the impacted employees for supporting Astra and our mission. Overall, this reorganization is intended to focus the company's resources on serving our Astra Spacecraft Engine customers and delivering our commitments to them in the near term. We remain excited about the Astra Spacecraft Engine business and are committed to resourcing it for growth and success. We also announced the closing of a senior secured note facility. Please see the Form 8-K we filed on August 4 for important details about that transaction. When combined with our existing ATM, the closing of this transaction represents a broad financing strategy and demonstrates our ability to access the capital markets when needed. Now I'll go through some of the highlights of our Space Products business during the quarter. In our Q1 results call, I said we would ship the first couple of spacecraft engines out of our new spacecraft engine production facility in Silicon Valley. I'm happy to report that in Q2, we shipped the first four spacecraft engines out of the new facility, and we remain focused on ramping up spacecraft engine production in the second half of the year. Axel will provide guidance for Q3 Astra Spacecraft Engine shipments in a few minutes. As we've covered before, module shipments are the first step in a nine to 12 month joint development activity between Astra and each customer that involves integrating Astra's proprietary propulsion module, power module, feed system and tank into our customers' unique satellite platform. This joint development activity typically includes milestones such as conceptual, preliminary and critical design reviews, building and testing qualification modules, and production readiness reviews prior to production. Astra typically receives payments for completion of these milestones, and we only recognize revenue upon final delivery of spacecraft engines following shipment delivery and inspection were applicable of the modules. As of today, Astra has completed over 75% of the preproduction nondelivery customer milestones in its current customer programs. Finally, in early July, we completed an organizational change to separate our Astra Spacecraft Engine business into a new legal entity. This effort included the creation of a distinct leadership team for the Astra Spacecraft Engine business and assignment of dedicated employees. This organizational change will enable Astra to evaluate strategic opportunities to efficiently finance each of our businesses, our spacecraft engine and launch businesses on both an individual and combined basis and provides Astra with increased flexibility as we evaluate strategic and capital markets opportunities. In addition, as our spacecraft engine business scales, it was important for us to demonstrate to our customers distinct resources dedicated to the successful execution of each customer program, which are now currently in place. Overall, we remain confident in our ability to produce world-class propulsion systems for a growing roster of customers across both commercial and government applications. We will continue to take necessary actions to ensure we are delivering on our obligations to our customers, as you have seen in recent weeks. Now I'll review key highlights this quarter from our launch services business. We continue to focus on the development of Rocket 4 and the servicing of our existing launch contracts. Earlier this year, we announced several additional launch services contracts, including with the United States Space Force and the Defense Innovation unit. We've had recent discussions with our launch customers, we've indicated that they are committed to our launch service business and are supportive of recent changes. We remain committed to achieving all milestones stated in our existing launch contracts. In Q2, we commissioned our Rocket production line, unveiled the first fit check of Rocket 4 at our annual Space Tech Day and prepared the material for the service readiness review, SRR, for Astra's Space Force STP-29B mission, which we successfully completed last month. For the rest of Q3, we intend to prepare the materials for our first mission design review for STP-29B and continue development and testing of various Rocket 4 and Launch System 2 components. The reduction and reallocation of launch services resources is expected to delay the timing of our first test launches into 2024. The timing of paid commercial launches currently scheduled in 2024 will continue to depend on the results of these test flights. Before handing the call over to Axel, I wanted to provide some final thoughts on Astra's long-term strategy. We made some very difficult decisions in the recent weeks to part with some incredible team members focused on launch, SG&A and shared services. This was an incredibly difficult decision for me and Adam, but it was necessary to support a sustainable business plan for Astra going forward as we continue to carefully manage our cash burn and financial runway while still maintaining the flexibility for Astra to pursue growth opportunities as they arise. We are also excited to partner with strategic and financial parties that are supportive of our long-term vision, and we'll continue to evaluate opportunities where it makes sense for our business. I'll now turn the call over to Axel to review our financials and guidance. Axel?
Axel Martinez: Thank you, Chris, and good afternoon, everyone. I will now review our results for the second quarter of 2023. 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. In Q2, our focus was on further refining our expense profile. A proper allocation of our employee resources towards near-term shipments of Astra Spacecraft Engines and extending our financial runway. To reiterate what Chris said earlier, we will report and provide guidance on Astra's Spacecraft Engine shipments going forward. Now let's review our Q2, 2023 financial results. Revenues were $0.7 million in Q2, driven by deliveries of Astra's Spacecraft Engines. We recognize revenue upon the delivery of our spacecraft engines. And once the customer inspection period has expired, as required by the applicable contract. The inspection period varies, but is typically about 10 to 30 days. For that reason, we may not always recognize revenue in the quarter in which the engine is shipped, but rather in the following quarter, after the customer inspection period has expired. This will generally be true for shipments that occurred late in the quarter. For example, in Q2, we shipped four engines, but recognized revenue on three of them for the quarter. The fourth engine will be deemed delivered, and we will recognize revenue on it in Q3. We achieved a gross profit of $0.3 million in Q2, representing a gross margin of 45%. While this level of profitability is very strong, it reflects the initial inefficiencies that come with starting a new manufacturing operation. For that reason, we continue to expect higher levels of profitability as our operation scales over time. GAAP operating expenses totaled $16 million in Q2, compared to $46.5 million last quarter. GAAP operating expenses in Q2, reflect lower compensation expense, and other cost savings initiatives implemented in prior quarters. GAAP operating expenses in Q2, included the following: R&D expenses of $24.4 million, a decrease of $6.7 million quarter-over-quarter, in part due to a reduction in development costs. Sales and marketing expenses of $0.7 million a $1.8 million decrease due in part to lower compensation expense. G&A expenses of $7.6 million an improvement of $8.1 million due to lower compensation, legal and consulting expenses. Finally, during the second quarter, we recorded a $16.6 million gain on change in fair value of contingent consideration, reflecting the current forecast of eligible spacecraft engines revenues and contracts through December 31, 2023. Now let's talk about GAAP to non-GAAP adjustments during Q2. Adjustments during the quarter included a $16.6 million gain on change in fair value of contingent consideration previously mentioned. $2.1 million in stock-based compensation, and $1 million in other special items, which include $1.3 million in R&D income and offset by a $0.3 million inventory adjustment. Given these adjustments on a GAAP basis, our second quarter net loss was $14 million. On a non-GAAP basis, second quarter adjusted net loss was $33.7 million. Q2 adjusted EBITDA was a loss of $33.1 million. Second quarter capital expenditures were $3.2 million. And lastly, we ended the quarter with cash, cash equivalents and marketable securities of $26.3 million. The results for adjusted EBITDA loss, basic shares outstanding and capital expenditures are in line with the original Q2 guidance provided on our Q1, 2023 earnings call on May 15, 2023. The result for cash, cash equivalents and marketable securities is lower than the range initially provided on our May 15 earnings call. Primarily due to two factors: delays in collecting on government receivables of approximately $2.9 million, and a delay in the company's receipt of cash proceeds from the employee retention tax credit of approximately $2.1 million. Had these two items being collected during the quarter, we believe, based on our current views, that Astra's cash, cash equivalents and marketable securities would have been within the guidance provided previously. Next, I'll provide an outlook for our third quarter ending September 30. As previously mentioned, we continue to focus our operating plan on scaling deliveries of Astra's Spacecraft Engines throughout 2023. I wanted to provide an update on production of Astra's Spacecraft Engines from our Sunnyvale facility. As we had indicated last quarter, we were only expecting to ship a few initial deliveries out of our new spacecraft engine facility as we spent the majority of the first half of this year on standing up that facility. Installing equipment and completing non-delivery milestones prior to us commencing production activities. We have delivered four units out of our new manufacturing facility, and we expect product deliveries to begin ramping up in Q3 as indicated previously in our guidance. As a reminder, Astra's Spacecraft Engines typically have a lead time of approximately 12 months and often require integration work with the customer. Space products also require extensive testing, qualification, and configuration before they can be delivered. As Chris mentioned, we have allocated additional resources towards the delivery of spacecraft engines going forward through both temporary and permanent reassignments from other parts of our business. As a reminder, our third quarter guidance and all guidance is subject to various important cautionary factors. Including the risks and uncertainties set forth in our annual report on Form 10-K and other security filings. Now we will provide future guidance. In the third quarter of 2023, we currently expect shipments of 8 to 12 Astra's Spacecraft Engines. Adjusted EBITDA loss to be between $25 million and $29 million. Basic shares outstanding to be between 280 million and 290 million shares. These figures are subject to the conversion ratio of 1 to 15 related to the reverse stock split, we intend to execute this quarter. Capital expenditures to be between $1 million and $2 million and cash, cash equivalents and marketable securities of $15 million to $20 million. As indicated in our recent announcements, Astra remains focused on deliveries to customers, prudent expense management, and executing on financing transactions to carefully manage our cash runway and cash burn. We continue to expect cash burn to decline throughout this year. With the initial steps of our financial roadmap announced in early August, including a reduction in our headcount and closing of a senior secured note facility. In addition, based on the foundation we have built for the Astra's Spacecraft Engine business, Astra has engaged PJT Partners, a global advisory-focused investment bank. To act - as the company's financial advisor in connection with the future financing activities, and to explore potential strategic investments in the Astra's Spacecraft Engine business for the purpose of strengthening Astra's balance sheet. Obviously, the outcome of any such process is uncertain, and the structure of any potential investment is subject to ongoing due diligence and other factors. We also remain in active discussions with various capital market participants on debt, and equity financings to continue extending our financial runway, and to evaluate transactions that are accretive to stockholders. We continue to receive indications of interest from financing providers, and will take the actions necessary for Astra to extend its financial runway while taking into consideration dilution, cost of capital, and other related considerations. We will continue to provide future updates on any financing activities as and when appropriate. In conclusion, as we shared last quarter, we continue to believe our cash runway is supported by expected revenue growth, potential conversion pipeline opportunities, careful management of expenses, and thoughtful consideration of financing opportunities. I will now turn the call back over to Chris.
Chris Kemp: Thanks, Axel. To summarize, we remain optimistic on our path forward, including near-term deliveries of Astra's Spacecraft Engines and our leaner, more focused effort on Launch System 2. We will continue to evaluate and execute on strategic opportunities to extend our financial runway where it is in the best interest of stockholders. I want to thank all of you for your continued support. With that, operator, please open the call for questions.
Operator: Thank you. [Operator Instructions] And we will take our first question from Andre Madrid with Bank of America. Your line is open.
Andre Madrid: Hi. Thanks for taking the time to take my call. Yes. I guess just to start, I mean, I understand that certain avenues are being explored. But I guess, what are you guys saying actively like as you seek out investors currently to try to shore up interest? I mean, because just right now, it seems like you guys are in a pretty difficult position. So I just want to know what's the narrative? How should we be looking at the upside here?
Chris Kemp: Well, I think if you look at the spacecraft engine business, we have a huge backlog of orders from some of the largest aerospace, defense primes and commercial constellation operators in the world. We remain focused on delivering on hundreds of spacecraft engines representing tens of millions of dollars of order value over the next couple of quarters, which will bring in cash. There are significant opportunities with new constellations within the FDA tranche two and other commercial constellations that have recently been announced that we're actively bidding on. With our launch services business, we have active contracts with the Space Force, defense innovation unit and other commercial customers. Base force in particular, is paying us for milestones that we are achieving. We are actively focused on finding investors in these two businesses that we're increasingly finding are distinct and at different phases of their development. We have recently announced a transaction that provides some debt financing to the company. We recently put in a $65 million ATM facility. We closed those transactions here in the last couple of weeks. And that gives us some time to look for great strategic investors that understand these businesses and want to invest in these businesses. We announced the completion of the Rocket production line most recently that will allow us to scale production of launch vehicles at a fraction of the cost of many of our competitors. So again, what we have is we have a very compelling business if you're a satellite operator and you need spacecraft engines or if you are a satellite operator and you're looking for the kind of economics that you can only see with large rockets, so with much more dedicated launch services. So we just we explain our focus. We explain our commitment to our customers. We explain the size of these contracts that we have with our customers and Astra has focused with me to ensure that we're reducing our expenses as much as we possibly can, but not so much that we're unable to deliver for our customers.
Andre Madrid: Got you. I guess on cash burn, though, I mean, with launch operations pushed now firmly into '24 with even testing now in '24, I mean aside from - I mean, when could we receive an update as to these conversations that you're having with potential investors? Because at the current rate, it seems like this might not move past 4Q at the current burn, especially with what you guys are targeting for next quarter. And it just also seems kind of concerning because spacecraft is a rather lumpy business. And I feel like it's something that a supply chain pickup could easily push a number of those deliveries out a quarter. And then on top of that, the difficult revenue recognition standards that come along with the spacecraft business. It makes it seem like it's just one small pickup away from one supplier they just can't deliver from some things following inward. How would you put at ease people that are concerned about something of that nature? And when could there be a reasonable update on something that would actually put those concerns at ease?
Chris Kemp: Well, you characterized the spacecraft engine business is lumpy. I think that we have secured a number of orders where we are now delivering spacecraft engines. We noted last quarter that we would deliver the first couple of engines out of our new facility. We did that. We intend to increase the rate at which we ship and recognize revenue for these spacecraft engines next quarter, the following quarter, the quarter after that. And we have pretty good visibility into the supply chain and the amount of inventory that we have on hands. And at least in the near term, the risk associated with the deliveries of the spacecraft engines over the next couple of quarters is something we well understand and due to the fact that we're manufacturing the majority of these components in-house, we have a lot of control over as well. So I would kind of disagree with your characterization of the lumpiness or lack of control we have over the next couple of quarters' deliveries to be sure. And beyond that, I think we're going to continue to focus on refining the business operating as efficiently as possible so that we continue to see the cash we have and we're able to raise in capital markets last well into that ramp of spacecraft engine deliveries and the launch team remains focused on threading that needle between making sure that we have a vehicle that we're very proud of, that will have high margins that will operate reliably before we're not obviously going to take so much time that we don't have the opportunity to do some test lights and show the market how much we've learned from the last six or seven years of building and successfully launching satellites into orbit, something very few companies that actually had the opportunity to do. And that's what - that's management's challenge right now. We understand the challenging capital markets environment. And all we can do is bring in cash and revenue from customers, delivering for our customers and be as efficient as we possibly can be as we bring these products back out to the market.
Axel Martinez: And if I can also, I think, it's not just about revenue recognition when it comes to our business. The cash profile of our business is very friendly as we talked about several times in our last few earnings calls, the significant amount of cash that is paid as we deliver on these co-engineering milestones. And so there's a great opportunity to continue to bring liquidity into our business just from continuing to deliver for our customers both on the, co-engineering phase of each contract, but also as we deliver more engines. And as Chris mentioned, there's great opportunities ahead of us in terms of new contracts and new sales. And so the best thing we can continue to do and this is why we allocated the resources that we did is to focus on deliveries because we want to make sure that our customers are happy with what we're delivering, when we're delivering things for them. And we have the leading system in spacecraft engine in the market. And so we feel that we'll continue to have opportunities to grow the business going forward. And so with that, cash profile that is already embedded in the business, we think that will be - continue to be a great source of liquidity for us. And just to wrap up, I think, on the facility that we put in place about 10 days that we announced 10 days ago, it gives us, I think, it's a financial group that perform due diligence on the company and really is a testament to the fact that this company has access to capital markets, right? Of course, we started with our ATM. Now we put this in place. We're bringing in PJT to help us manage the process going forward, but we feel that we - from a fundamentals perspective, our business is very strong.
Andre Madrid: Understood. Thank you.
Operator: And we will take our next question from Suji Desilva with ROTH MKM. Your line is open. Your line is open. Please check you mute button.
Suji Desilva: Apologies. I was muted. Hi Chris. Hi Axel. So I just wanted to kind of follow up on the ASC backlog there. Thanks for guiding the 3Q and the initial shipment units. That's helpful to know, the 8 to 12. What is the shape of the backlog shipping from that point forward? Does it kind of ramp up? Is it linear? What - how should we think about the next few quarters from here on out?
Chris Kemp: Continue to ramp. And we talked before about the facility and the investments we've made supporting up to about 500 spacecraft engines per year. And I think what we'll see is a gradual increase over the next year, it's from first shipments all the way through would be 30 to 40 units per month. And the team is very much focused on that so that we can meet the demands that we see both from our backlog and also from new orders in the pipeline. And that is the primary focus right now. I mean, if you look at what we have on hand is some of the world's leading commercial and government constellation operators relying on Astra, we put a - we put our best people on programs to support our customers in Silicon Valley, and we have deliveries literally happening today. So we're really busy. We're really focused on our customers. And with that focus, in servicing those customers, we see new significant opportunities to create a durable and long-term business in that category. And we're doing everything we can to ensure that the business provides the infrastructure required by the launch team to come back to the patent and demonstrate the most reliable vehicle, the most cost-efficient vehicle that I'm certainly aware of in the industry.
Suji Desilva: Great. And just to understand that initial 8 to 12 shipments you guided for, is that one customer or two customers or multiple just understand the breadth of the initial shipments.
Chris Kemp: Yes. That will be across multiple customers. I don't know the exact number, but couple.
Suji Desilva: Just to understand if it's construed. Great. And then the OpEx and the CapEx you've been guiding, it seems like you've got that kind of - is that - is OpEx at the right level now and it sounds like CapEx is low because the Alameda build is largely behind? Just want to confirm those.
Axel Martinez: Yes. So on the OpEx side, as you can see, when you look at OpEx on a non-adjusted basis for Q2, we reduced it by almost $10 million and as we announced 10 days ago, we made an additional reduction in our headcount focus mostly on SG&A and launch. And so that will get us now, I think, to the right level in terms of headcounts. But the truth is, look, we're always looking at all areas, right? There's other areas besides headcount that we're always looking to optimize as the business going to continue to scale. And on CapEx, as we talked about in the past, right, unlike many folks in our industry that are about to enter the investment base, we've already done, right? So both our facilities are fully built. And this is why you see us guiding CapEx now to the $1 billion to $2 billion in Q3 because it's just a small little expenditures. It's not going to be significant expenditures going forward.
Suji Desilva: Right. That's part of the answer to the last person's question about the value here. A lot of that's in the investments you already made, so that's part of the asset value here. It's good to realize that. And then on launch LSII, the progress here. Obviously, you've changed kind of the approach there? What milestones can we still watch for as you try to move forward there even with the changes in the approach.
Chris Kemp: Absolutely. I think we tried to provide a little bit of guidance on that. There's another deliverable for the Space Force, which, of course, is holding us accountable to the highest standards of rigor in our overall engineering process and operations. So we submitted the service readiness review package and passed that with flying colors. A few weeks ago, we have the next deliverable for that later this quarter, which we intend to package up and get to them this quarter. We also intend to continue to invest heavily in the testing of the hardware that is coming together. You saw a lot of the hardware. As Axel indicated, a lot of the expensive hardware is already here. So the team is frankly, just spending a lot of time integrating and testing components such as the engines, the valves, some of the electronics doing a lot of integrated system-level simulation testing to test the overall software stack. So we'll be - as we have done producing small videos and posting these tests as they occur and you can look forward to us continuing to share the results of those tests as they're completed and continuing to - we'll continue to keep you updated as we make progress towards the Space Force milestones as well. So hopefully, that will be pretty fun to watch over the next couple of quarters here.
Suji Desilva: Great. All right. Thanks Chris. Thanks Axel. Thanks for the updates.
Axel Martinez: Thanks Suji.
Operator: And this concludes today's conference call. We thank you for your participation, and you may now disconnect.