And the same goes for us. We want — we sell a whole bunch of launch because most customers aren’t looking to buy one, they’re looking to buy many that we don’t commit to a customer that ultimately doesn’t turn up in the pad because with Electron, you can see the challenges that also causes is a reality of the space business. So we’re looking at them and they’re looking at us.
Jason Gursky: Right. Yeah. No, that makes good sense. I appreciate that. Then, Adam, just one quick one for you. The comment that you made on backlog burn over the next 12 months, 42% I think was the number that you threw out there. Was that a reference to all of the backlog, or was that just to the launch business? And then as maybe just a quick follow-on to this backlog question. What are your guys’ expectations or goals here as far as book-to-bill is concerned for 2024, and kind of going forward in any given year? I know these awards can be pretty lumpy and you’ve just built up some nice backlog here, but investors are certainly going to be focused on book-to-bill going forward. So just kind of update us on what the overall pipeline looks like, and whether we can, year in, year out of this new base that you’ve got here, have book-to-bills that exceed 1. Thanks.
Adam Spice: Yeah. Sorry, Jason. So yeah, I should have been more clear. So the 42% applies to all the backlog. So it’s not specific to Launch or Space Systems. So it’s a total business. And as far as the book-to-bill target, no, you’re right. Of course, everybody — we need to see a book-to-bill greater than 1, just given kind of what our growth aspirations are. I think that when you see that we’ve got backlog over $1 billion against a street consensus number, that’s obviously significantly lower than that. We’ve got — quite a bit of ability to grow significantly based off of just the backlog that we have in place. But we continue to chase big deals. I think that’s the one thing that’s really evolved over the course of the last 12 months.
And I think largely, not — I would say not disconnected at all from what we’ve seen like for example, landing that large SDA contract is that kind of as we start to get more and more of these super sophisticated programs, one, we seem to attract more of those kind of opportunities as well. So I think you’ll continue to see us chasing big deals on the Space Systems side. I mean, the component business continues to grow nicely and that’s great because of the margin profile that some of those businesses have by selling components into the merchant market. But I think that, what we see are large program opportunities to continue to build the backlog not too dissimilar to what happened with the SDA beta contract. But also as Neutron becomes closer and closer to its first launch, that’s where — that’s a very chunky opportunity as we kind of — as we sign LSAs for that vehicle, those are all needle moving, given the average selling price that we expect to realize from a Neutron launch.
So I think you’ll see and we talked about this last year as we progressed through 2023 is that when people kind of looked and said, hey, it looks like your backlog growth is stalled a bit. And what does that mean for future growth? We said, look, you have to be patient because the kind of opportunities that we’re chasing are just of such a scale and complexity that they don’t come together on a predictable kind of programmatic way. They come in fits and starts, and I think we saw that again late last year with the SDA contract coming into focus. And then I believe you’ll see similar things as far as program size, and then again across not only Space Systems, but also including Neutron. So I think that you’re right. It’s right for people to expect the book-to-bill greater than 1.
I have no concerns similar to Pete that that’s of the things that I stay up at night worrying about, that’s also not one of them.
Jason Gursky: Awesome. Thanks, guys. I appreciate it.
Operator: The next question is from Matt Akers, Wells Fargo.
Matt Akers: Hey, guys. Good afternoon. Thanks for the question. Thanks for — I guess you talked a little bit about reusability and putting the rocket back into the process. Just curious how you think about that ramping up. If that launch is successful, how fast you could start to see some of the cost benefits of doing that on a wider scale?
Peter Beck: Yeah. Thanks, Matt. So, I mean, our focus this year has just been on production. And although the reusability program for Electron has made good strides and milestones, really just rolling the vehicles off the end of the production line has been our focus. And reusable vehicles, they still have developments in aspects to them that make them kind of distracting to production. But like I say, the vehicle looks great and this is really the first one that’s rolling back into production. If this goes well, then it becomes a much more of a standardized thing. We can kind of roll this into being a much more usual part of what you see with Electron launches.
Matt Akers: Okay. Great. Thanks. And I guess just one more — just thoughts on latest on SolAero margins, and how you’re making progress on, I think, the 30% margin target there.
Adam Spice: Yeah. I can take that.
Peter Beck: Yeah.
Adam Spice: Yeah. So, Matt, on the SolAero margins, again, that’s something that we continue to work through the challenges of some pre-acquisition — well, really one pre-acquisition owner’s contract, which still has a bit of a ways to go on that. So kind of what we look to is if you kind of exclude that thing, which unfortunately we weren’t able to affect, we had to kind of absorb that upon adoption of the company. The bookings that are coming in now are very strong. So if we look at additions to backlog for the SolAero business, it would — I’d have to strain my memory to think of one that was coming in recently that was below our target. Most of the business that we’re booking for that is above that 30% gross margin target.
And part of that is enabled by the fact that, again, we’ve been a little bit more — I would say a little bit more hard-nosed on customer negotiations and holding price. I think when — I mean, the other things that factor into it is some of the investments that we’re making in the business as far as putting new reactors in place in Albuquerque that are more — that are delivering better production efficiency. I think the business has always been very good at controlling their overhead costs and it’s a very tightly run business. So it’s really all about kind of building the backlog in such a way where we have confidence we can deliver that kind of at the margins. I think there’s probably more upside than downside to that longer-term target of 30% gross margin.
It just takes a little while to get there. When we acquired the business, we said within about two years of acquisition is when we expected to be able to have a line of sight to those gross margin targets of north of 30%. And I think what we underestimated was just the challenge in kind of getting that one owner’s contract behind us and we still have a bit of that water to carry. But again, I think I feel very good about kind of everything else that we’ve been booking and where the backlog stands right now, I think it’s probably going to be — we’ve got at least through the end of 2024 and probably a little bit beyond that to get that out of the mix.
Matt Akers: It’s helpful. Thank you.
Operator: The next question comes from Michael Leshock, KeyBanc Capital Market.
Michael Leshock: Hey, good afternoon. I wanted to follow up on the backlog question. Very strong right now, and just wondering how high you can take your backlog before maybe having to walk away from business or in the same vein, do you expect to get more pricing power on future contract wins as your backlog grows?
Adam Spice: Yeah.
Peter Beck: Yeah. I mean…
Adam Spice: Okay. Go ahead, Pete. Sorry.
Peter Beck: You go ahead, Adam. I’ll stay.
Adam Spice: I was going to say, I don’t think that it doesn’t feel like we’re in a position where we necessarily have got a problem because we have too much backlog relative to our ability to produce to that backlog. I think we are seeing some natural pricing support come on the Electron side, just because the fact that a lot of the competition that we’re really aspirational have not materialized, and so I think that — that’s certainly helping on the pricing front because I think now there’s more rationalization going on with. You could have more rational discussions because again, you don’t have people who don’t know how to run a rocket business going out and trying to sell rockets and putting kind of phantom pressure on pricing.
So that’s — that has really started to evaporate. I think that when you look at some of the things that we’re doing to put more capacity in place with places like SolAero, I think that’s helping us kind of remove any of those kind of head kind of ceilings, if you will, and how big the business can grow to. So I feel pretty good about that. And I think all that is supportive of again margin expansion — gross margin expansion as we move forward. We’ve seen that in the business over the course of the last year. But we do have some interesting mixes — mix challenges when it comes to kind of just the overall gross margin profile. When you have some lower margin overall, call it photon or satellite manufacturing skewing. So, for example, we have more of the mix coming from that lower margin space systems manufacturing part of the business.
