Q1 2025 Rocket Lab USA Inc Earnings Call

Yes.

Speaker Change: At this time I would like to turn the call over to you Muriel Baker Senior Communications manager Muriel you may begin.

Speaker Change: Thank you Hello, and welcome to today's conference call to discuss brokered labs first quarter 'twenty five financial results.

Speaker Change: 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 liability established by the private Securities Litigation Reform Act any such statements are not guarantees of future performance and factors that could influence.

Speaker Change: Our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission.

Speaker Change: 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.

Speaker Change: and the Meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with gap.

Speaker Change: This call is also being broadcast with a supporting presentation and a replay and copy of the presentation will be available on our website.

Speaker Change: and Chief Executive Officer, Sir Peter Beck, as well as Chief Financial Officer, Adam Spice.

Speaker Change: They will be discussing key business highlights, including updates on our launch systems programs and we will discuss financial highlight and outlook before we finish by taking questions. So with that, let me turn the call over to Superior Peter.

Thank you.

Peter: Thanks, Murielle, and thanks everybody for joining us today. While we had a very strong start for 2025 across the business, I want to provide a bit of an update as we build towards our future as a constellation owner and operator.

Speaker Change: As we take you through our achievements for the quarter, keep this in mind how every milestone and every mission brings us closer to that more lucrative piece of the space value chain.

Speaker Change: We continue to launch and book more and more electron missions proving we hold the keys to space with regular launch access. As neutron rays close to the pad, we also get closer to having a 13-ton reusable launch vehicle that can deploy our own satellites with speed and cost efficiency.

Speaker Change: We're also generating revenue through the missions will fly for our national security and commercial customers.

Speaker Change: Having gone after the full space ecosystem with satellites, launch vehicles, and everything in between, a deep vertical integration is one of our distinct competitive advantages.

Speaker Change: And while it's bringing us closer to our strategic end goal, this quarter it's also served as well against the backdrop of dynamic international trade environments, ensuring that we have the supply chain lock with secure and predominantly US-based manufacturing.

Speaker Change: So with that, let me move on to some more specifics for the quarter.

Speaker Change: We've posted a near record quarterly revenue of $122.6 million, nudging to the top end of our private guidance and 32% up 32% compared to last year.

Speaker Change: We have another strong looking quarter on the horizon, with the midpoint of our guidance range for Q2 pointed to another record-sending quarter for the business, and I'll let Adam go into those details a little bit later.

Speaker Change: On the launch side, demand is soaring. We booked eight new electron and haze missions for Q1, and at the same time launched five missions with 100 per cent mission success.

Speaker Change: Three of those took flight within just 13 days of each other, and there was demand from my customers for more than 20 launches this year.

Speaker Change: The Neutron, our selection to the DOD's high-value launch contract NSSL program, is really the headline for the quarter. I'll go into more detail about what this means and how we plan to deliver against it in the latest slides.

Speaker Change: And in space systems, it only took 15 days to bring back the seconds in space manufacturing mission for Vada before our third spacecraft was launched to space and began its operation. A real demonstration of the speed and capability we've developed to deliver consistently reliable spacecraft for our customers.

Speaker Change: So there's lots to get excited about this past quarter, so without further ado let's dig in.

First up, turning to Small Lunch.

Speaker Change: So, Electron continues to prove why it's the global leader with five missions in the quarter, all across only six and a half weeks.

Speaker Change: Proven that when even when our customers are ready to go with their payloads, they'll be looking ahead next weekend's mission for the multi-launch customer IQPS will be the first of six in a row that are flying back to back out of launch complex one.

Speaker Change: Electron makes frequent and reliable launch look easy, but if we take a look back over a past decade it really shows that Electron has really submitted itself as the the pre-eminence

Speaker Change: Electron really has scale to provide the majority of American commercial small launch. A focus on executions, smart use of capital to scale launch cadence and production, and a solid and reliable product is what it takes to succeed.

Speaker Change: A few others have been able to achieve that in the same way we have with Electron. That really goes to show what an impact Electron has had and continues to have on the industry and delivering trusted and reliable access to space, a small satellite of operators. And Neutron has a set to do exactly the same obviously.

Speaker Change: Moving on to haste and a hypersonic test vehicle continues to be a sought-after capability both domestically and internationally. Both the US and United Kingdom have picked haste to develop sovereign hypersonic technology for their multi-billion dollar defence programmes.

Speaker Change: We've been selected to participate within the US Air Force's EWAAC program, a $46 billion dollars and definite delivery and definite quantity program.

Speaker Change: The second program we've been on ramped to is a $1.3 billion framework by the United Kingdom's Ministry of Defence as it works to shore up its hypersonic capabilities.

Speaker Change: This is Haste's first international call up and a proud moment for the team to be able to contribute to the collective security of the United States and its allies. We've also landed another Haste's contract through Kratos for the Department of Defense Mark TV program.

Speaker Change: So that seven missions now would haste for Mark T.D., making us one of the most prolific commercial launch providers on that flagship DOD program. Regular hypersonic flight tests are critical to developing the technology and infrastructure needed to keep country safe and hasters right at the centre of that effort.

Neon to Neutron,

Speaker Change: Momentum is building the neutron on the back of a really significant progress we made in 2024. The big news item in this quarter has been our on-ramp to the Pentagon's high-value launch contract National Security Space Launch Program. This is the most competitive launch program in the industry to fly the DOD's highest priority and most critical missions.

Speaker Change: Our selection to it is a huge vote of confidence by the Pentagon and neutron and affirms us as one of the most capable American launch providers.

Speaker Change: Once we're clear of Neutron's first launch, we'll be bidding for task orders under the Phase 3 Lane 1 program, which has a total value of $5.6 billion, and an ordering period through to June 20th, 20th, 29th.

Speaker Change: We've already completed a kick-off meeting with the full contingent of future mission partners, including the US Space Force Assured Access to Space, NRO Office of Space Launch, and other stakeholders from across the government. This was part of a $5 million task order for a mission assurance showcase that came with neutron selection.

Speaker Change: A entry into NSSL is the type of disruptive competition the US government and the industry has been asking for missions for defense and intelligence satellites used to be dominated by legacy launch providers and the DOD has been upfront about wanting new partners with innovative approaches that bring increased competition

Speaker Change: That's exactly what we've set out to achieve with Neutron and I'm excited to deliver it once we start flying later this year.

Speaker Change: I'm also pleased to announce our latest contract for Neutron. We've been selected to fly a US Air Force research lab mission that points point to point cargo transportation in a multi-manifest mission.

Speaker Change: It's all part of a programme by the AFRL to create rapid delivery systems for defence cargo using commercial launch vehicles and a multi-year effort. Since the mission is all about bringing things back to Earth, AFRL will fly on a return to Earth neutron no earlier than 2026.

Speaker Change: We know reentry and rocket usability as a critical advancement in space tech that the DOD is highly supportive of, which is why our neutron has been designed from the get-go for reuse and frequency.

Speaker Change: and the lightest contract of the Shah of Conference from the DOD and our ability to deliver that.

Speaker Change: Moving on to some technical updates. It's a big green text for Neutron's Second Stage Qualification campaign, proving out the stages design operations and readiness for launch later this year.

Speaker Change: We ran launch-like operations across its full combination of flight software, hardware, avionics, guidance, navigation, control systems, and we also proved tested it to more than 125% of its design point.

Speaker Change: Some of that including applying more than 1.3 million pounds of force and tension across the carbon composite structure.

Speaker Change: Now the second stage is one of the more novel pieces of Neutron so is important that we retired that risk first.

Speaker Change: The added benefit of that, of course, is that the structure of Stage 2 is largely similar to Stage 1. So by completing this qualification campaign first, we brought down a lot of the same risks that we may have seen in Stage 1.

Speaker Change: Having passed with flying colours, Neutron Stage 2 is now going through final assembly and will be shipped to the launch site in the next few months in preparation for stage testing with the engine.

Speaker Change: Now, Neutron's pointy end, the Stage 1 upper module is also close to completion as well. This is obviously more than what you saw last quarter with just the hungry hippoferings. This is the full module, and it includes all the major stage 1 elements like canards and the stage along with all of its mechanical systems like actuators, locks, avionic systems, and running all the lights off the way.

Speaker Change: The full assembly represents some of the most complex mechanical systems that exist on the vehicle and they all perform seamlessly during testing. We're just a few small finishing touches away from another big tick on the road to launch for Neutron for that whole section.

Speaker Change: All of the Rocket puzzle pieces are really starting to come together now, and look, if we can ship them around the country, we can also fly them, and I think everybody knows how much I like helicopters.

Speaker Change: But even at their size, Neutron's carbon composite material makes them light enough to move large pieces around by helicopter, which is what we did earlier this quarter to help bring Neutron stage when hard we're together and place it all at our facility in Baltimore.

Speaker Change: While the majority of the rocket are assembled here, given the size of, you know, the rocket and the road has to travel on to launch Complex 3, neutron shipped in stages before it's fully integrated as an entire rocket.

Speaker Change: Over at Launch Complex 3 in Virginia, we're on schedule and close to finishing a new Translaunch pad. With everything in its place, the team is working around the clock to complete all the integration and activate the pad.

Speaker Change: One of those more recent campaigns was the Water Deluge Test. Turns out there is water on while at silent, because we pumped thousands of gallons of it through our pipes. The flow rate was the equivalent to an Olympic-sized swimming pool every 40 seconds.

Speaker Change: And event planning is underway for the ribbon cutting there soon as well. So because launch complex three, really is an important new addition not just for the state but for the whole nation. With neutrons on ramp 10 SSL, our rock will be the first to fly for the program out of Virginia.

Speaker Change: And that really highlights the importance of the pad as a critical national security asset.

Speaker Change: As the engine test sighted Mississippi, at the engine test sighted Mississippi, the propulsion team is doubling down on our comedies. We're hot firing flat out as you would expect with flight avionics and full software stacks, and the team is busy tuning the engine through a barrage of tests.

Speaker Change: We've also just completed the build of a second engine Tissel that's now up and running to enable testing two engines at the same time.

Speaker Change: So, as you can see, we're steadily making a way along the path to the pad. We've ticked off some big ones recently and every element of the vehicle has been worked simultaneously.

Speaker Change: Yes, it's an aggressive schedule. We have a hit of this, but that's how we've delivered new

Speaker Change: And a reminder that the schedule that you see here is not sequential. Actually, everything is happening at 1 cent in parallel.

Speaker Change: For example, this is the lunch license to fly.

Speaker Change: There's a strong possibility that the paperwork will only come in days before launch, just like it did for our first electron flight from Virginia, but that doesn't mean we stop everything out from taking place that needs to be done before we get that, so with no major issues we're really still targeting the first launch by the second half of this year.

Now let's turn to update across space systems.

Speaker Change: Just before the quarter closed, we announced our intent to acquire Monaric, a German company specializing in laser-based satellite communications.

Speaker Change: This intended acquisition still has to make its way through all the approvals but otherwise is progressing well.

Speaker Change: And so I want to take this opportunity to get into the details behind why we decided to pursue this acquisition and its strategic importance to the growth of our business.

Speaker Change: A key piece of any large constellation is the ability to communicate between spacecraft with high speed and secure connections. Often that's laser-based, and the technology that Manarik has developed is some of the best in the world.

Speaker Change: Beyond the technology, this deal also sees us sit down at first European footprint in Munich with extensive production assets, intellectual property, product inventory and a committed backlog for future constellations.

Speaker Change: There's a clear line of sight to European growth opportunities in this deal. And we'll be looking to expand the existing team of talented engineers and staff to meet international demand.

Speaker Change: Now by bringing them in-house, the Terminals in-house, we will add a new element to our spacecraft supply chain that improves their product line and strengthens their position in commercial national security and defense contracts.

Speaker Change: Minark Terminals are already being supplied for a half a billion dollar contract with the Space Development Agency, along with many other companies, making this even more of a logical integration.

Speaker Change: We've proven across all of our acquisitions to date that we can take a highly sought after product, scale it and make it available in high volume.

Speaker Change: So I'm excited about the potential of this deal and we'll be sure to keep you updated on its progress.

Speaker Change: Turning to our Vada missions, and very soon we'll be bringing the third in space manufacturing capsule back to Earth with our Pioneer spacecraft. This mission launched in Q1 just two weeks after the return of the second capsule.

Speaker Change: And since then, our space craft has been providing power, communications, propulsion, attitude control, and to keep the virus capsule in orbit.

Speaker Change: The process has now begun to position Pioneer and Vada for earth reentry over Australia, so keep an eye out for updates of the mission in the coming weeks.

Speaker Change: Meanwhile, the team is working hard at wrapping up the integration and testing for a fourth and final Pioneer spacecraft in the Vada contract in Long Beach.

Speaker Change: Our suite of space systems, components and mission software is constantly under development, allowing us to consistently produce.

Speaker Change: No. This is this is Adam I think we've had a comp issue with on it is alcohol I'm sorry forgive.

Speaker Change: Let's give it a minute.

Speaker Change: No problem, while we're getting people back on the line again. It went like you asked a question go ahead and hit Star one will get those queued up while they get.

Speaker Change: You.

Speaker Change: Okay.

Speaker Change: Hey, operator.

Speaker Change: Until we can get feedback on the line I'll just pick up where he left off.

Speaker Change: Okay that'll be great. Thank you so much.

Speaker Change: Great. Thank you everybody got to satisfy CFO at rocket lab, So I'll pick up with repeat was discussing our product expansion and our suite of space systems components submission software is constantly under development, allowing us to consistently produce and released new products that really move the needle for the industry and for US I'll quickly take you through a couple of our latest <unk>.

Speaker Change: <unk>.

Speaker Change: With Star Ray we've introduced a line of modular solar arrays for satellites that are customizable to meet all their power needs.

Speaker Change: With multiple different panel dimensions that small sized operators can choose from it's a plug and play solution at a low cost that helps to speed up small satellite development for our customers and we've got contracts already to supply. These customizable wings to calculations under development right now.

Speaker Change: We've also expanded our suite of frontier satellite radios that are compatible with the industry's most important global ground stations.

Speaker Change: And on the software side, we've introduced the Nextgen versions of our highly popular Max software packages for satellite guidance and control.

Speaker Change: The software behind intermission for grounded in space operations, and Max constellation for software control of satellite constellations is the same that help land lubricants commercial lunar lander on the Moon earlier. This year supported Nasa's Capstone mission Dark was blackjack program, and which command our pioneer spacecraft emissions.

Speaker Change: Next we've also had an extremely active quarter pursuing new opportunities for space systems that further scales our vertical integration.

Speaker Change: We are pursuing several large government and commercial contracts that would see us building entire constellation of satellites not just individual space craft.

Speaker Change: These are industry scaling and shaping constellation.

Speaker Change: Have a full space systems value chain and realized significant value that reshaped our business.

Speaker Change: And on the M&A side with the half dozen deals in the pipeline as we continued to expand our vertical integration.

Speaker Change: There's high potential in all of this and we've expanded a lot of the company.

Speaker Change: With our eyes set on Europe, and international expansion as well as the deepening National security work that we're taking on through space systems and launch the time is right for a new company structure that makes it simpler and more efficient to manage the business and our growth, particularly when it comes to U S government classified programs.

Speaker Change: Our new parent company Rocket Lab Corporation will replace Rocco that USA, Inc. As the public company listed on the NASDAQ.

Speaker Change: Existing shares of rocket lab will automatically convert on a one for one basis into the shares of common stock Rock-a-bye Corporation, which will keep the RK L. B ticker symbol.

Speaker Change: Trading is expected to continue uninterrupted on the NASDAQ and there'll be no impact to shareholders ownership or rights.

Speaker Change: We should have a new company structure wrapped up by the end of the month.

Speaker Change: And with that I'll transition over to the review of our financial highlights for the quarter.

Speaker Change: The first quarter of 2025 revenue.

Speaker Change: It was $122 $6 million, which was at the high end of our prior guidance range and reflects significant year on year, but year over year growth of 32, 1%.

Speaker Change: Driven by strong contribution from both business segments led by space systems.

Speaker Change: First quarter revenue declined seven 4% sequentially, primarily due to the mix of lower priced electron missions in the quarter paired with an aggregate reduction in our components businesses with bulk of these headwinds expected to reverse and convert into tailwind in Q2.

Speaker Change: Our large services segment delivered revenue of $35 $6 million, reflecting a slight step down in average selling price.

Speaker Change: However, our current backlog for electron in haste backlog continues to support an increasing asps with some variability quarterly tied to volume purchase commitments launch location and mission assurance requirements.

Speaker Change: Although variable quarter to quarter, we expect asps for the calendar year 2025 to materially expand when compared to 2024 and with that continued gross margin expansion.

Speaker Change: Our space systems segment delivered $87 million in the quarter, reflecting a sequential decline of three 4% driven by your attitude determination and control systems and separation systems businesses.

Speaker Change: Now turning to gross margin.

Speaker Change: GAAP gross margin for the first quarter was 28, 8% above our prior guidance range of 25% to 27%.

Speaker Change: non-GAAP gross margin for the first quarter was 33, 4%, which was also above our prior guidance range of 30% to 32%.

Speaker Change: GAAP gross margin improved sequentially, owing to improved mix and satellite manufacturing, partially offset by a decline in launch margin segment, primarily related primarily to lower average selling price.

Speaker Change: non-GAAP gross margin was down slightly sequentially due to a lower stock based compensation adjustment under our EAC program accounting.

Speaker Change: Relatedly, we ended Q1 with production related head count 1088.

Speaker Change: <unk> 84 from the prior quarter.

Speaker Change: Turning to backlog. We ended Q1 2025 with $1.067 billion of total backlog with large backlog of $422 $2 million and space systems backlog of $644 8 million.

Speaker Change: While overall backlog growth has been modest launch backlog nearly doubled year over year with strong underlying trends as we convert a very strong pipeline of neutron electron in haste opportunities.

Speaker Change: Space systems bookings remained lumpy given the timing of increasingly larger needle moving customer program opportunities, but remain at a healthy level. Despite a step up in revenue run rate over the last few quarters.

Speaker Change: We continue to cultivate a healthy pipeline, including multi launch deal. The large satellite manufacturing contract that was mentioned earlier can create lumpiness in backlog growth given the size and complexity of these opportunities.

Pizza: Relatedly in Pizza earlier comments, he referenced being Onramp recently to some very large and strategic procurement programs, including the very large and exciting and it's the cell program. In addition to a few multibillion dollar hypersonic programs domestically and abroad, which now set the stage for exciting backlog expanding task order bidding.

Pizza: Getting on ramp was the required milestone to unlock this potential so we're very excited about what's to come.

Pizza: We expect approximately 56% of current backlog to be recognized as revenues within months and we continue to get relatively quick turns business that drive top line growth beyond 12 month backlog conversion.

Pizza: Turning to operating expenses.

Pizza: GAAP operating expenses for the first quarter of 2025 were $94 $4 million within our guidance range of $93 million to $95 million.

Pizza: non-GAAP operating expenses for the first quarter were $76 8 million up $2 $3 million sequentially, which was just below our guidance range of $77 million to $79 million.

Pizza: The sequential increases in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in prototype and head count related spending to support our neutron development program.

Pizza: Specifically investment has increased to support neutron propulsion as we continue to qualify Archimedes and mechanical mechanical and composite structures supporting the ferring in tank fabrication ahead of the first flight this year.

Pizza: In R&D, specifically GAAP expenses increased $6 $9 million quarter on quarter due to the ramping up of the Archimedes production paired.

Pizza: Paired with increased expenses related to mechanical systems in composites as just mentioned.

Pizza: non-GAAP R&D expenses were up $4 million quarter on quarter, driven similarly to the GAAP expenses.

Pizza: Q1, ending R&D head count was 923.

Pizza: Renting an increase of 95 from the prior quarter.

Pizza: In SG&A GAAP expenses decreased $800000 quarter on quarter due to a decrease in outside services.

Pizza: Within that GAAP spend we reported nonrecurring transaction costs of $1 $4 million in Q1 due to continued corporate development activities, including advancing our robust pipeline of M&A opportunities.

Pizza: non-GAAP SG&A expenses decreased modestly by $1 $7 million due primarily to a decrease in software licenses.

Pizza: Q1, Q1, ending SG&A head count was 332, representing an increase of three feet from the prior quarter.

Pizza: In summary, total first quarter head count was 2343 up 182 heads from the prior quarter.

Pizza: The cash.

Pizza: Purchases of property equipment, and capitalized software licenses were $28 $7 million in the first quarter of 2025, an increase of $7 $2 million from the $21 $5 million in the fourth quarter of 2024, as we accelerated our LC three construction activities and expanded our additive manufacturing capacity to support Archimedes.

Pizza: Scaling.

Pizza: As we continue to invest in neutron R&D testing and scaling production, we expect increased capital expenditures to continue leading up the neutrals first flight.

Pizza: GAAP operating cash flow was a negative $54 $2 million in the first quarter of 2025 compared to a negative $2 $4 million in the fourth quarter of 2024.

Pizza: The sequential growth and negative GAAP operating cash flow of $51 $8 million was driven primarily by materially lumpy cash receipts from our largest satellite programs.

Pizza: Paired with continued <unk> investment and long lead procurement supporting SBA as well as subsequent neutron vehicle bill of materials and related infrastructure, including the recovery landing barge to scaled neutral cadence beyond its initial test flight.

Pizza: Overall, non-GAAP free cash flow defined as GAAP operating cash flow less purchases of property.

Pizza: Property equate.

Pizza: Where in the first quarter of 2025 was a use of $82 $9 million compared to a use of $23 $9 million in the fourth quarter 2024, again, driven by lumpy cash receipts and disbursements.

Pizza: The ending balance of cash cash equivalents restricted cash and marketable securities was $517 million at the end of the first quarter of 2025.

Pizza: The sequential increase in liquidity is due to the aftermarket equity offering that we announced earlier in the quarter, which generated $92 $8 million in gross proceeds through quarter end, which is intended to fund growth, including future acquisitions, such as the monarch acquisition, along with general corporate purposes.

Pizza: As such we exited Q1 in a strong position to execute on our organic expansion initiatives as well as inorganic options to further vertically integrated supply chain with strategic capabilities and expand our addressable market consistent with what we have done successfully in the past.

Pizza: Adjusted EBITDA loss was $30 million in the first quarter of 2025, better than our guidance range of $33 million to $35 million loss.

Pizza: Sequential increase of $6 $8 million of adjusted EBITDA loss was driven by a slight decline in revenue growth paired with an increase in neutral R&D during the quarter.

Pizza: And with that let's turn to our guidance for the second quarter of 2025.

Pizza: We expect revenue in the second quarter to range between 130, and $140 million, representing slightly greater than 10% quarter over quarter revenue growth at the midpoint.

Pizza: We expect meaningful expansion in both GAAP and non-GAAP gross margins in the second quarter with GAAP gross margins to range between 30% to 32% and non-GAAP gross margins to range between 34% to 36%. These.

Pizza: These forecasted GAAP and non-GAAP gross margins reflect improvements in launch SP and overhead absorption.

Pizza: We expect second quarter GAAP operating expenses to range between 96, and $98 million and non-GAAP operating expenses to range between $80 million to $84 million.

Pizza: The quarter on quarter increases to be driven primarily by continued neutron investment across staff costs prototyping and materials.

Pizza: We expect second quarter, GAAP, and non-GAAP net interest expense to be $3 $1 million.

Pizza: We expect second quarter, adjusted EBITDA loss to range between $28 million and $30 million and basic weighted average common shares outstanding to be approximately 514 million shares.

Pizza: Which includes convertible preferred shares of approximately $51 million.

Pizza: Lastly, consistent with last quarter, we believe negative non-GAAP free cash flow in the second quarter remain at an elevated level in the range of $40 million to $80 million, excluding any potential offsetting effects of financing under our existing equipment lending facility.

Pizza: And with that we'll hand, the call over to the operator for questions.

Pizza: Great. Thank you so much again, if you'd like to ask a question. Please press star one on your telephone keypad to answer your question. Thank you.

Edison: And our first question comes from the line of Edison you with Deutsche Bank.

Pizza: Your line is open.

Edison: Hey, good afternoon, James Thank you for taking my questions first one wanted to ask about <unk>.

Edison: It's a public company. So we've obviously seen some of the struggles that they've had.

Edison: After you're doing your analysis, just due diligence on it what do you think is kind.

Edison: Kind of the biggest issues they've had and the plan to kind of address that so you can scale it up.

Edison: I can tell you that one if you wanted them and at this point I think it's appropriate to make the statement that we can go to the moon, but cant secure telephone lines and my apologies for that but.

Edison: The biggest issue there is just production.

Edison: And that's an area that that obviously, we are very very strong so.

Edison: It's really as we look at them as a company they got to.

Edison: A great product.

Edison: It's been a tremendous amount of capital invested in the business to scale, but there's just just a few fundamentals there that that we really feel we can we can jump in and fix.

Edison: And would you expect alchemy ultimately to be a quite a high margin product.

Edison: Or at least similar to some of the merchant business that you do now.

Edison: Yes, I would say that we serve.

Edison: Adam you bid on it.

Edison: I think when we look at how it folds into our over our portfolio of sub systems. We think is going to be very consistent.

Edison: Probably you know again I would say that scale is important to that business to the number of terminals that get made so as we ramp up into these programs the ability to absorb the overhead.

Edison: We will improve so I think probably starts kind of I'd say kind.

Edison: I would say, it's more towards the average of our of our program and probably gets to be hopefully one of our better margin programs.

Edison: Product lines in the portfolio, but I don't I don't see it being.

Edison: Different.

Edison: In totality, it's going to be pretty consistent with our overall kind of blended margin for our components business.

Edison: Got you.

Edison: And then kind of in relation to that you mentioned.

Edison: In the slide deck in the remarks that you still have several I think half a dozen potential quite quite large opportunities.

Edison: And the pipeline.

Speaker Change: I'm wondering if you could maybe comment are you considering looking at actual operator assets. So not just kind of tuck in for components.

Speaker Change: Other operators out there given there are some I would say fairly distressed assets and would you kind of consider working with them more or acquiring Devin.

Speaker Change: Okay.

Speaker Change: Yeah listen I mean, we look at everything right.

Speaker Change: And you know.

Speaker Change: Some things like Monacan hospital tuck ins to to kind of bolster entering envision in and then.

Speaker Change: We'll look across in a range of things, including much more needle moving.

Speaker Change: Opportunities and I would say that.

Speaker Change: To your point the.

Speaker Change: The opportunities right now to doing interesting things are quite high. This is there's quite a lot of opportunity out there.

Speaker Change: Hence the reason why we've make sure we're in a strong position to take on some of those opportunities.

Speaker Change: Understood and just a quick housekeeping the space systems margin was quite good in the first.

Speaker Change: Quarter is that a good run rate for going forward.

Speaker Change: Sorry, you broke up a little bit there as it was sorry.

Speaker Change: So he was it was quite what sorry.

Speaker Change: It was quite high it was quite good it was very strong performance in our space systems margin in the quarter gross margin.

Speaker Change: Great.

Speaker Change: I think it is right I think we are kind of now getting to the point and scale in the business, where we're starting to deliver those better gross margins. So we do expect to.

Speaker Change: To continually expand our gross margins for the business in its entirety as we progressed through 2025.

Speaker Change: Probably actually be more pronounced on the launch side than it will be on the on the on the space systems side, that's almost certainly be more pronounced on the launch side, because we just know that given the healthier mix on the ASP side, along with an increase in cadence in the back half of the year sets that part of our business up quite well for significant margin expansion and we think it'll be pretty.

Speaker Change: We're on track to kind of get to where we've been talking about where we wanted to be for last few years.

Speaker Change: As we exit.

Speaker Change: 2025, so good news on the margin front for sure across both space systems and launch.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of Gautam Khanna with TD Securities.

Speaker Change: Your line is now open.

Speaker Change: Yes, thanks, good afternoon guys.

Robert: Thanks Robert.

Speaker Change: Hi, I was wondering.

Speaker Change: Can you just elaborate on the launch margins in the quarter.

Speaker Change: What.

Speaker Change: So that variability down a little bit.

Speaker Change: And.

Speaker Change: As an update on your free cash flow calculation.

Speaker Change: The cadence through the year, Okay very helpful. Thank you.

Speaker Change: Yeah, so yeah.

Speaker Change: So the launch margins are there we've said.

Speaker Change: Certainly that you know our experience in.

Speaker Change: Ramping this launch businesses, it's very there's a lot of fixed overhead and fixed expenses that go along with running this business you have things like you know the standing cost of a launch range in New Zealand, which is incredibly strategic but when its underutilized burdens of the business with a lot of fixed costs that have to be absorbed so cadence really is everything and even though the cadence is relatively consistent.

Speaker Change: <unk> for example, Q Q1 versus where we see the business in Q2, and we do see an uptick in cadence in the back half of the year.

Speaker Change: It's really a combination of cadence, which is the number one driving factor and I'd say second factor would be the ASP.

Speaker Change: Asps can skew quite a bit I mean, we've got volume launch deals you know.

Speaker Change: We price relatively aggressively because people are making long term volume commitments to the business.

Speaker Change: And once and Theres actually some some synergies and efficiencies when you're doing kind of a rinse and repeat for launches because a lot of the GNC work is kind of done and we can reuse things like <unk>.

Speaker Change: <unk> and so forth for the payloads.

Speaker Change: Where.

Speaker Change: You can get efficiency through scale and through cadence, but also the asp's can quite different some of these missions that require more mission assurance and data delivery and so forth. After the launch garner a higher ASP. So really we're looking at the back half of the year to be a combination of both of those positive factors more cadence. So Moreover, absorption in a significantly better asps.

Speaker Change: As a result of some of the higher mission deliverables that we have to to perform so it's all goodness on that on that front and when it comes back to kind of the cash flow.

Speaker Change: Dynamics as we progress through the year again, it's all about getting the first launch of neutron off that's why that's such an important thing that's got all hands to the pump internally to make sure that we hit our our objective of getting that off in the second half.

Speaker Change: And then.

Speaker Change: It's also paired with a lot of the cash flow dynamics are tied to get that first launch off but there's also some things that we're doing in parallel to gain the first launch off which is kind of priming the business to be able to scale efficiently and rapidly after that first launch including things like investing in this return on investment barge.

Speaker Change: And then also kind of purchasing long lead inventory items for the subsequent neutral.

Speaker Change: Uh huh.

Speaker Change: So some of those things you have to buy components, you know 12 months or greater in advance. So we're leaning forward. We're purchasing those long lead items. So it will be ready to kind of scale production quickly. So I would say that you should expect these elevated levels of kind of negative free cash flow that we posted in Q1 to kind of continue in Q2 and.

Speaker Change: Well certainly in Q in the second half of the year until we get that first launch often then we expect things to moderate and we can provide more color on that as we get closer to that milestone.

Speaker Change: I appreciate it and one last one on <unk>.

Speaker Change: Can you size your exposure when you have the exposure at all.

Speaker Change: That would impact the Goldman thank you.

Speaker Change: Yes, we can I will say of course, you know we're in a very dynamic situation, you know who knows what the tariff environment is going to be like tomorrow or two weeks from now or two months from now but based on what we see today, we're pretty fortunate in the fact that if you look at our Elektron launch business.

Speaker Change: Much of the cost for that is really New Zealand born right and where the product is manufactured New Zealand and launches of New Zealand very few of our launches actually take place outside of New Zealand on Elektron.

Speaker Change: And on our space systems business were pretty fortunate that again, we're very I would say that.

Speaker Change: Domestically source intensive so much of what we of what we manufacture on the space systems side are manufactured in the United States, where the non manufacturer in the United States. They involve a high U S content.

Speaker Change: On the materials or bill of materials that go into those non U S. Produced parts you can think of things like our reaction, we able to come out of Toronto. When you actually look at those reaction wheel theres, a significant amount of U S content in the.

Speaker Change: Electronics that go into those things like bearings and so forth.

Speaker Change: So I think overall, we're pretty fortunate in the fact that we've got our manufacturing tensity largely kind of lined up where we don't have a lot of exposure, but again things could change. We don't you know I think we don't have a crystal ball as to where things are going to be in the future, but we think we are.

Speaker Change: Positioned better than most given the current environment.

Speaker Change: I appreciate it guys, thanks and good luck.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Your next question comes from the line of Ryan.

Speaker Change: With Needham your line is open.

Ryan: Great. Thanks wanted to ask a little about the new products and kind of the pipeline of opportunities for that maybe starting with your.

Ryan: Your new solar array products sounds like they are modular and maybe you can expand on kind of target applications for those products.

Speaker Change: Yeah, Hey, Ron.

Ron: Sure. So on the on the Star rise in particular, we had a lot of customers coming to us.

Ron: With quick turn opportunities with where they need to get all that Super quick.

Ron: And as you know the slurry business had built out.

Ron: And a very nice way of building.

Ron: <unk> sells and panels and produce high quality things, but.

Ron: They're like a super quick here's a complete array.

Ron: You know it was it's not really a product that's that's readily available.

Ron: And in the U S right now in the market sorry, we saw that as an opportunity.

Ron: Given given kind of what customers are asking for.

Ron: You know, it's very modular things that you can you can add multiple kind of panels to the awry and it just gets our customers on all that much.

Ron: Much faster.

Ron: The total the total opportunity for that product will have to wait and see if we can kind of go off and on.

Ron: On what we see customers asking for but we were very commercial and these things like we need a certain number of of evidence of inquiry before we make them make those investments, but it also.

Ron: It enables the company as a complete array manufacturer typically cilia are historically solera, just made south and some panels, but.

Ron: You know since integration with rocket lab now, we're able to add all of the other elements deployment mechanisms hinges in and whatnot to produce these these entire arise.

Ron: Got it that's really helpful. Peter Thank you and then you mentioned opportunities in Europe, maybe.

Ron: Summarize those at a high level I assume maybe there is some sovereign government.

Ron: Programs in Roswell commercialized commercial as well, maybe you can expand on Europe.

Ron: Yeah, sorry.

Ron: Europe, we've been we've been thinking about how do we get into Europe for quite some time, because Europe is a very protected market.

Ron: Especially with the government.

Ron: Programs through Isa and.

Ron: Having having a.

Ron: It's a.

Ron: Business Thats able to work in those programs and having a footprint on the ground really does not just hoping us up to be able to provide solutions.

Ron: From the satellite terminals, but communication terminals that basically you know a lot of our products.

Ron: It's actually pretty exciting.

Ron: Tam expansion opportunity for us because it's like I say that it's typically very very difficult to you know.

Ron: Get involved with these larger European programs and unless you have a.

Ron: Our footprint there.

Ron: And Peter is that mostly from the space systems perspective are you thinking launch as well.

Speaker Change: Mostly spy systems I mean.

Ron: Yes, that's the predominant opportunity for us here.

Ron: Perfect. Thanks, so much I appreciate it.

Ron: Okay.

Ron: Interesting.

Ron: And your next question comes from the line of Andre Madrid with Upi P. J. Your line is now open.

Peter Adam: Peter Adam Thanks for the question.

Ron: Real quick.

Ron: Touch on solar Arrow I understand you know maybe an update on the backlog there how are things progressing in terms of working through some of that lower margin work that you guys still had.

Ron: I know it was targeted to be done already and you guys are continuing to work towards that so maybe just a status update.

Ron: Yes, I can take that one so the.

Ron: We actually have done really well in and driving the margin improvement that business when we acquired it.

Ron: Was it maybe two and a half years ago.

Ron: It was about <unk>.

Ron: Three years ago now.

Ron: <unk>.

Ron: It it was about a high single digit gross margin business and if you look at actually the results. This quarter, we've gotten it to pretty much. The model that we said we were going to get it too. So I think we've kind of maybe we were a couple of quarters later than maybe two or three quarters later, but I think overall, we've gotten into where we want it to be.

Ron: And I think more importantly, its been a very strategic addition to the portfolio and lets us be much much more competitive when bidding on these on these these these solutions to be a prime supplier entities.

Ron: These are these growing constellation of opportunities. So, yes, I'm very happy kind of where we've been able to kind of drive the gross margin progression on that business and I think we hope.

Ron: Hopefully we have more upside to come on that but yeah. I think we can kind of check the box that we've that we've gotten into that neighborhood that we had originally promised we would.

Ron: Yeah, Yeah, no I'd agree glad to glad to hear that.

Ron: You guys have achieved that target.

Speaker Change: On minority maybe just touching on the supply chain I think when you guys announced the acquisition you mentioned that.

Speaker Change: We're seeing some key components due to shortages was somewhat difficult you know some semis and that some semi impact there.

Speaker Change: And that was kind of barring your ability to get their ability to get product out of the door.

Speaker Change: Is that still an issue as you know.

Speaker Change: Or are you now.

Speaker Change: Measured looking to be taken to I guess improve things on my problem.

Speaker Change: Yes, I mean, I think some of the supply chain issue was obviously the company's <unk>.

Speaker Change: <unk>.

Speaker Change: If you are a supplier into into that yet.

Speaker Change: That's a that's a kind of a.

Speaker Change: Challenging place to.

Speaker Change: Yeah to supply into it and then make investments against.

Speaker Change: Obviously that goes away with rocket <unk>, sorry, you know at least some of those supply chain issues get resolved.

Speaker Change: Got it got it and then if I could just squeeze in one more I mean, you guys talked at length about a new drum reusability and the value of that which was super helpful. But can we get another update maybe on elektron usability some milestones to look forward to.

Speaker Change: Yes.

Speaker Change: Sorry electron reusability as you know, we've kind of pause that to put.

Speaker Change: All in all if it's an old team on neutral.

Speaker Change: You know we had a extremely talented reusability.

Speaker Change: Reusability team on Elektron, and as we look across the business and where the priorities lie it's really really as we can get a much bigger bang for a buck.

Speaker Change: One of those engineers working neutron and taken their experience over there. So it was just a priority decision that we've made within the company. It's.

Speaker Change: So they are neutral and stick a process 55 million. So if you can give the majority of that back. It's it's it's a it's a it's a much bigger impact than a rocket window sticker price of $9 5 million. So yeah. It was just a priority call within the company that we will put that on pause until we get a neutral to the pad and flying as Adam said before it's you know, it's all hands to the pump.

Speaker Change: Yeah, Yeah, no definitely so some of those those engineers were just moved over from one program to the other no loss there.

Speaker Change: On the head count, but not correct yeah.

Speaker Change: Yeah, No no no I got that.

Speaker Change: Yes.

Speaker Change: Excellent all right I'll leave it there Peter Adam Thanks, so much.

Andre: Thanks Andre.

Speaker Change: Alright. Your next question comes from the line of mob acreage with Wells Fargo. Ma'am. Your line is now open.

Speaker Change: Hey, guys. Good afternoon. Thanks for the question.

Speaker Change: I wanted to ask a couple.

Speaker Change: On the federal budget, I guess I guess one.

Speaker Change: On Golden Dome, just if you guys are involved in some of the discussions there is there may be an opportunity.

Speaker Change: I'm kind of a space layer, there and then I guess I guess the NASA budget.

Speaker Change: What is proposed to be cut pretty substantially I don't think you guys have a ton of.

Speaker Change: Kind of direct exposure to that but just curious if that's a risk if that if that does end up going through to Congress.

Matt: Yeah, Hey, Matt Good question so.

Matt: So firstly on the Golden time, Yes, now we intend to be a significant player in there I mean, we're already established ourselves as a prime contractor as our international security programs and.

Matt: Mentioned part of the reason too.

Matt: Changed the structure of the company into the Corporation Peter enables us to address some of these.

Matt: Very important.

Matt: Important national security programs.

Matt: So I would think we feel feel very good about our golden Diamond the capabilities, we have not just in spy systems, but within launch in an across.

Matt: The full gamut of opportunities there.

Speaker Change: For sure and then on the NASA side, he kind of equal that Rod. We don't we don't have tremendous amount of of NASA work.

Speaker Change: We we always Ah you know I personally have a bit of a soft spot for those planetary mission. So we always like to to go after those and we continue to be a trusted launch provided Vanessa but yeah. So.

Speaker Change: And if it doesn't form a tremendous amount of.

Speaker Change: Pipeline nor in the backlog.

Speaker Change: Got it alright, thank you.

Speaker Change: Your next question comes from the line of Cte de Silva with Roth Capital <unk>. Your line is now open.

Speaker Change: Hi, Peter Hi, Adam Adam maybe on the financial financials, maybe end up picking question, but the percent of backlog. That's a recognizable in the next 12 months seems to be trending up on a secular basis I would have thought if you have more multiyear contracts that would trend down am I thinking about that correctly or maybe you could clarify something.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Backlog is.

Speaker Change: I would say that.

Speaker Change: If you look at the duration of a program like take the big like let's pick the SDA program for example, and be the Globalstar MBA program before that.

Speaker Change: Typically have.

Speaker Change: Call it the meat of the revenue curve three years, a little bit of a tail kind of on the front.

Speaker Change: Front end back end of that but the bulk of the revenue recognition is one of them within a three year window.

Speaker Change: And even more so if you kind of look where the area under the curve even more it's really concentrated in about 18 months and it really comes down to you earn some revenue as you're doing the.

Speaker Change: Work to kind of finalize the.

Speaker Change: The platform design and get through some of the early milestones of design reviews, and so forth, but the real revenue direct bulk comes when you are actually taking possession of materials like bill of materials, because that's where the majority of the cost under the EAC methodology of Rev. Rec. So that's really where we get the majority of the revenue recognition. So you think like it would be right.

Speaker Change: Stretchy little more stretchy than it is but it's really not as much more compressed than you think so kind of when you think about where we are right now on for example, SDA, where we announced that program at the I believe it was the end of Q4 of 2023.

Speaker Change: Like call it almost six quarters into that and now were really kind of heading into the to the real meat that Rev. Rec cycle right. So think of the majority of that revenue recognition is really going to happen now over the next six quarters at most or at least the next four quarters it can be pretty heavy.

Speaker Change: And then they start to trend down which is why we.

Speaker Change: We talked about a lot of focus on backlog, which is appropriate and we have you know.

Speaker Change: All of our focus right now we've talked last few quarters about the importance of putting some the next big piece of backlog into into the books and that's what we're focused on and there is there are several as Pete mentioned that we're chasing including ones that are pretty well known like obviously the next tranche of SDA is due for submission really really soon.

Speaker Change: We think we're well positioned for to participate in that as well as some other programs commercial and government. So.

Speaker Change: Look we are we think we're in really good shape there.

Speaker Change: <unk> system side the components businesses.

Speaker Change: Largely less it's not really a multi year deals it's much more kind of in the near term say 12 to 12 to 18 months.

Speaker Change: And when you look to launch business I mentioned earlier getting through some of these kind of program Omron Gapes gates was really the milestone or that because it's really opening up some really big meaningful opportunities, particularly for neutron right.

Speaker Change: I think youre going to start kind of knocked down the all the barriers to start really kind of building the backlog in a more meaningful way.

Speaker Change: $1 billion nothing to be ashamed of but we think that that has potential to grow significantly now as we've kind of gotten to the next phase of these big satellite programs that we think we're in good shape on and also being on ramp for for neutron exposure.

Speaker Change: Yes, I think it requires a little bit a little bit of patients, but I think people when they look back over history have seen we've been successful in converting opportunities into backlog in the <unk>.

Speaker Change: We're even more confident now than we've ever been on being to do that.

Speaker Change: Okay. That's very helpful. And then just a question somebody a little further out thinking about sort of neutrolin and tailor the landing infrastructure.

Speaker Change: Our strategy longer term I wouldn't have thought about this for a few years, but this <unk> announcement yesterday about being a global logistics provider for them.

Speaker Change: Is it more than one ROI barge globally or what are the elements of kind of reentry and landing for neutral that would require investment.

Speaker Change: Essentially.

Speaker Change: Yeah good questions. So it's.

Speaker Change: Primarily.

Speaker Change: Just to just a badge. It does have returned to launch like capabilities as well and its kind of its cadence increases then that could be for the rest of it.

Speaker Change: It needed to be deployed in the form of additional batches.

Speaker Change: The point to point cargo looked at program is really at the very beginning.

Speaker Change: Of its development within within the U S government. So I think we're very much in the in the experimental phase and it'll be interesting to see if that turns into full requirement for an operational capability.

Speaker Change: But it's good to be on that program and.

Working on early.

Speaker Change: Okay fair enough I appreciate that.

Speaker Change: Okay.

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

Speaker Change: Your line is now open.

Speaker Change: Great. Thanks, Hey, Peter.

Speaker Change: You mentioned in your comments about minority that.

Speaker Change: Got you know quite a bit of a backlog.

Speaker Change: Are struggling with getting shipments out.

Speaker Change: But what I thought was more interesting about your comments.

Speaker Change: Was how you might utilize that technology in future constellations that you plan to build and operate on your own. So I'm just kind of curious.

Speaker Change: The strategic rationale behind purchasing minority or was it more for.

Speaker Change: That purpose and enabling.

Speaker Change: Your future constellation or was it more to be a merchant supplier.

Speaker Change: Yeah, Hey, Jason to be honest, both and you can see that being consistent across all of our components businesses saw a fraction wheels, we build good merchant businesses global merchant businesses, and we're happy to supply to everybody in the world, but but also when it come.

Speaker Change: To building our own thing, we need a reliable scale scaled supply of components for it for an aspiration.

Speaker Change:

Speaker Change: The space industry as you well know is full of.

Speaker Change: Sub scale manufacturing shops, and for the space components in it and as we see many of their customers struggled to to build volume and build quickly because of that so we are really trying to solve two problems. Here. One is is provide b that merchant supplier at scale for the industry and then as you.

Speaker Change: Pointed out when it comes time for us to build around stuffed in we already have that capability at scale.

Speaker Change: And we just methodically going through every element of the satellite that we we kind of need now and in the future and when opportunities present themselves, we take advantage of that.

Speaker Change: Okay, Yeah fair enough. Thank you.

Speaker Change: Another one for you.

Jason Gursky: Peter I'm, just kind of curious on the on.

Speaker Change: On transport.

Speaker Change: Maybe you could you step back and provide some context for us all and what you think the unique features of USDA transport layer.

Speaker Change: And you know kind of envisioned by your customer in the way that you understand it.

Speaker Change: What's unique about it relative to what.

Speaker Change: The customer there might be able to go and buy from.

Speaker Change: The commercial market today, so you've got commercial communications providers out there today, maybe just talk you provide some context on why.

Speaker Change: To continue on and go do SDA tranche.

Speaker Change: Additional tranches on the transport layer versus just going and buying commercial.

Speaker Change: Yeah. Good question so.

Speaker Change: You have to think about what is the I was trying to do.

Speaker Change: It is a holistic thing I'm sorry, as you pointed out it's broken up into transport lies in track layers and costed in layers and a whole bunch of different laws, but when you stand back and you go okay.

Speaker Change: What what is trying to be achieved here and what elements are critical and what elements are not so you have to think about it about it not just as you know.

Speaker Change: A particular satellite, but as a system and that system needs to be interoperable between all of the current existing infrastructure and all of the future infrastructure.

Speaker Change: So Oh look it's a fair question to say well can can transport being down to be done commercially.

Speaker Change: But it but the thing is that it has to be completely inter operative with all of the you know the D O D standards and security.

Speaker Change: All of the space craft that are personal but now and plan to be on orbit in the future and meet all the requirements of the entire program and.

Speaker Change: Often with with a lot of space technology like Everything's a trade. So you end up.

Speaker Change: You know, having a pretty tight requirements at that you have to sell for.

Speaker Change: It's not an unreasonable to think that commercial providers may be able to provide a transport or some of the transport layer and I think that's the question that that S. T. I N. The Pentagon are trying to answer right now but.

Speaker Change: The important thing is that just one layer of many lives.

Speaker Change: Aflac is here, although you know we have a transport layer and.

Speaker Change: And we will continue to bid on transport layers are real focuses on things like the <unk> and the other lives that are.

Speaker Change: Four out for tender right now.

Speaker Change: Because we we we think that you know.

Speaker Change: Those are well certainly those are not.

Speaker Change: We've been able to provided from commercial with it.

Speaker Change: And there's a there's a lot more to the STI program. Then then just had one transport layer.

Speaker Change: Right.

Speaker Change: A perfect segue into my final question, which was about the pipeline.

As you look at your pipeline for constellation builds that I would consider your transport layer that youre working on now to be a constellation build.

Speaker Change: Do you think you're more likely to see Gov.

Speaker Change: Government constellation builds like the next announcement comes along or.

Speaker Change: Are we likely to see more government wins.

Speaker Change: Wins from you all are you trying to balance this out and we could very well see a commercial one just kind of curious how you're going to market at this point. Thanks.

Speaker Change: Yeah, Yeah, yeah, well I mean, so I'm not not the central what arrogant, but we have the luxury of Pickering and picking and choosing the kind of work that we want to go after and the things that we think are strategic for us.

Speaker Change: As we think about our future.

Speaker Change: And that is a mix of both government and in commercial.

Speaker Change: And in kind of either smaller numbers of of satellites more small small volume constellations that we think are strategic technologies or things that we want to do but it will start for the line also had a large scale and I would say that the majority of the if it within within the BD team and within the senior management team are really focused on.

Speaker Change: These much much larger constellations, partly because that's where we want to guide, but also we've kind of reached the maturity and the scale now that that we really can competitively go after those.

Speaker Change: As we've talked about on this call we were very very vertically integrated with a lot of the really pinpoint.

Speaker Change: Satellite components at scale.

Speaker Change: And we've demonstrated we can do really really technically difficult missions and we demonstrated that we can be a prime for a net financial security projects.

Speaker Change: You know I'd say that that we've really kind of.

Speaker Change: Moving out to Florida is on all of that and.

Speaker Change: The opportunity to be looking for a much more.

Speaker Change: Roger and needle moving opportunities, but both across commercial and government.

Speaker Change: So is your question.

Great. That's helpful. I appreciate it.

Michael: Your next question comes from the line of Michael <unk> from Keybanc capital markets. Michael Your line is now open.

Michael: Hey, good afternoon, everyone.

Michael: I want to stick with the satellite constellation topic, and you had mentioned the potential for government contracts that could be to build the entire the entire satellite constellation.

Speaker Change: How do you think about prioritizing that type of work versus building your own constellation burst.

Speaker Change: Yeah, well I mean that is a that is a good question and something that we talk about a lot, but the most important thing for us is to build a.

Speaker Change: A large scalable.

Speaker Change: Profitable company so.

Speaker Change: No we are not about to embark on on huge R&D projects that that they kind of wood wood.

Speaker Change: Like that.

Speaker Change: More far out go so the answer to the question is its probably not a very good answers is is that we balance that we look at those opportunities and you know I can say that everything we've done to date.

Speaker Change: It leads us to that point.

Speaker Change: And you know when we when we have a <unk>.

Speaker Change: Conviction and thesis that we can talk about around what kind of constellation that that we intend to go after.

Speaker Change: You really have to have that that extremely well baked because.

Speaker Change: At that point, you are committing significant resources to take.

Speaker Change: To go off and those kinds of things. So yes, I mean like I say the focus is on on on strengthening the company and and.

Speaker Change: We.

Speaker Change: We're moving as rapidly as we can enter into and to constellations and we think is important but we're not going to do that at a cost of.

Speaker Change: The security of the business.

Speaker Change: And then shifting to our communities how long are you targeting that engine to burn for for a full launch.

Speaker Change: And maybe whats the duration of the high fires that youre doing today relative to that full burn expectation.

Speaker Change: Yeah, So I mean, our.

Speaker Change: Full duration seeking stage.

Speaker Change: And a.

Speaker Change: Return profile is is on the order of sort of five minutes and.

Speaker Change: We were targeting the testing right now it's really all about.

Speaker Change: All of the startup and shutdown transients and all of those things once you reach a thermal equilibrium.

Speaker Change: And just running at them weaker librium, you're not learning anything because everything is in a steady state you just burning propellant at that point, so far because it has not been on big long duration. Their focus has been on all the operating conditions that we need to that we need to meet especially when a reusable launch vehicle win when you come in for landing one of the.

The more challenging things are your pet parents are hot.

Speaker Change: And there are different pressures, so that's a far more challenging environment to be able to reignite and engine than than steady state and I've been so that that's really been a focus.

Speaker Change: Alright, Thank you I appreciate the color.

Erik Rasmussen: Our next question comes from the line of Erik Rasmussen with Stifel. Erik Your line is now open.

Erik Rasmussen: Yes, thank you for taking the questions maybe.

Erik Rasmussen: Maybe just circling back with minor I remember.

Speaker Change: Press release or at <unk>.

Erik Rasmussen: Seemed like.

Erik Rasmussen: The deal was.

Erik Rasmussen: Contingent I guess acceptable terms to Ralph.

Erik Rasmussen: It sounds like in your prepared remarks, you seem a lot more comfortable on closing that transaction.

Erik Rasmussen: Are there any sort of sticking point here remaining.

Erik Rasmussen: To closing this deal.

Erik Rasmussen: Great.

Erik Rasmussen: Yeah, you're right.

Erik Rasmussen: I'll make a few coming to knit them, probably have bigger ones, but you know it.

Erik Rasmussen: It is it has to go through a whole process.

Erik Rasmussen: And in Germany, and and <unk>.

Erik Rasmussen: Prices can can take some time and you know that that that's probably the you know the longer the longer pole.

And the team and it's not really a process that we have much.

Erik Rasmussen: Much kind of control over that.

Erik Rasmussen: The bankruptcy laws and stuff are different in Germany than in the states.

Erik Rasmussen: On item you might have.

Erik Rasmussen: Did a comment.

Speaker Change: No you're exactly right. It all comes down to regulatory and Theres, a couple of regulatory processes that you've got to get through but the first one is really get through the bankruptcy.

Speaker Change: The bankruptcy process over there in Germany, which there is a court date as scheduled and so things are progressing I think we've always had confidence where with our deal that we have with the with the.

Speaker Change: The primary lender here and.

Speaker Change: And that's why we have confidence in kind of leaning forward.

Speaker Change: The deal so everything seems to be on track I mean, I think the difficulty I was trying to predict kind of how the regulatory process will now the timeline for that.

Peter Adam: But we feel we feel good about where we're at because our we have a committed plan to as Pete mentioned earlier to invest in that business in Germany.

Peter Adam: It's great technology Theres, great intellectual property, we're going to continue to investment we're going to have what we believe to be a thriving merchant business.

<unk> the broader ecosystem. So yes, we have no reason to be concerned at this point.

Peter Adam: Okay.

Peter Adam: Great and then one.

Peter Adam: Maybe on the side of late.

Peter Adam: So since winning since I guess announcing that spacecraft.

Peter Adam: Feedback or interest that you received.

Peter Adam: And then maybe any updates on progress thus far.

Peter Adam: Maybe timing.

Speaker Change: Good morning.

Speaker Change: Yeah, I mean, we.

Speaker Change: We have.

Speaker Change: Strong interest from from commercial and government.

Speaker Change: Constellation provider, then and the fight a lot really is the.

Speaker Change: The gold standard for <unk>.

Speaker Change: High volume high cadence kind of deployments of of Oh consultations.

Speaker Change: Also useful for ourselves of course, but you know that there was really a product that was there.

Speaker Change: It was developed and driven a vast set of customers.

Speaker Change: Okay.

Maybe switching gears on munis to sell program.

Speaker Change: Obviously, a big opportunity there.

Speaker Change: You received a 5 million task order book at one point.

Speaker Change: I think you've gone through a pretty rigorous process just to be on <unk>.

Speaker Change: But at what point can we expect to see.

Speaker Change: Or are you expecting to be able to book.

Speaker Change: Backlog for that is it contingent on that first flight or or what are the milestones that we can.

Speaker Change: And potentially look for that maybe you get more excited.

Speaker Change: Right.

Speaker Change: Yeah totally so you know the.

Speaker Change: Now works with us for the next two.

Speaker Change: He is on on all of the elements of mission assurance and everything that they need after these critical missions.

Speaker Change: Yes.

Speaker Change: We are eligible for task orders after the first flight.

Speaker Change: And but between now and then as you can see there's already task orders that that did.

Speaker Change: That occur for various elements of I'm getting.

Speaker Change: Kidding mission assurance and mission ready to be Alberta to fly these kinds of pilots, but truly opt for slot. We're eligible for the bid for those task orders the phase III set of task orders go through to 2029.

Speaker Change: Right, so so really getting the.

Speaker Change: Myles.

Speaker Change: And then maybe just finally on elektron.

Speaker Change: I think Adam you talked about.

Speaker Change: Q1, obviously was lower.

Speaker Change: But you expect to see improved cadence.

Would you expect though the year to end at a much higher rate or just slowly pick up from here.

Speaker Change: In terms of an ESP so.

Speaker Change: And then obviously, there's some lumpiness.

Speaker Change: You've talked about with some of these volume deals.

Speaker Change: Yeah, right now the backlog would basically imply.

Speaker Change: Step up in both cadence and AFP progressively as we move through the year. So I would expect the high watermark on Asps.

Speaker Change: Would be in would be in the Q4 period. So we will see a progression better Q2 than it was in Q1, it'll be better again in Q3, and we will kind of hit a high watermark in Q4, and I expect that to be both a case for both the asps and for cadence.

Speaker Change: And that's really what kind of gives us gets us to that target margin that we talked about it I mean, just to be clear you know when we've talked over the past several years like what when we get to a certain point, where we're approaching.

Speaker Change: A couple of launches per month or six per quarter, that's kind of our that's kind of our goal to get to our target margins in the <unk> and I think everything that we're seeing right now is consistently kind of playing getting us towards that I think we're pretty pleased with with how things are progressing pretty much almost exactly to plan.

Speaker Change: Yeah.

Speaker Change: Great.

Speaker Change: [laughter] 20 plus launches.

Speaker Change: Correct.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Andre <unk> with Cantor Fitzgerald Andre Your line is now open.

Andres Sheppard: Hey, everyone. Good afternoon. This is Andres Sheppard sorry about that.

Speaker Change: Hey, Peter Hey, Adam Congratulations on the quarter and all of the accomplishments.

Speaker Change: I think most of our questions have been asked by now wanted to maybe get your thoughts.

Andres Sheppard: The.

Andres Sheppard: International space budgets growing.

Speaker Change: How do you expect this can benefit rocket labs, where do you see the most demand from international coming across launch satellites and components. Thank you.

Speaker Change: Yeah, Hi, Andre Ah sorry, primarily euro.

Speaker Change: Europe and electron.

Speaker Change: Elektron has done incredibly well in Japan so.

Speaker Change: The Japanese market is like a second biggest market for for elektron, but as we think about larger opportunities and programs are at I think it really it really sits with alloys and in Europe.

Speaker Change: Okay.

Speaker Change: Got it Okay. That's helpful and maybe just as a quick follow up and again a lot of our questions have been asked but and I realize I think we touched on this last quarter as well, but as we're getting closer and closer to neutron.

Speaker Change: Do you have a maybe a better sense now how do you foresee your revenue mix shifting as I look at the backlog.

Speaker Change: Theres seems to have been an increase in launch systems over space that tends from the last reported backlog as we're getting closer to neutron how quickly do you foresee that shifting to worst launches over space systems are or how long would that transition take I guess in your opinion. Thank you.

Pete: Yeah, I'll take the asset that Pete.

Pete: If you if you look at our back I mean, we're dealing with such.

Pete: Large opportunities right now, but it's going to be very volatile I don't think youre going to be able to predict a smooth line or extrapolate a smooth line.

Pete: One large constellations and will skew skew everything much more quickly and dramatically back to a balance of maybe more than two thirds of our revenue.

Speaker Change: Space systems.

Speaker Change: But you'll also see as we now have an on ramp to some of these programs.

Speaker Change: Every neutron launch that we book if you look at our target price for Neutrolin in the the <unk>.

<unk> $50 million to $55 million range, that's going to move the needle as well and if you can get some bulk buys going on that that could also skew things. So that we could be more than 50% of our backlog can be launched at some period of time. So it really depends it's so hard to predict and the good thing is we've got multiple irons in the fire.

Speaker Change: And both launch and space systems have almost equal opportunity to kind of really move the needle.

Speaker Change: I think because right now space systems has become a dominant piece of the revenue mix because of the size of those programs have been chasing and the breadth of that business versus today, having electronics is a phenomenal product getting to our target margin. So that's really gone well, but at $8 million in a $5 million 9 million.

Speaker Change: It doesn't take a lot more to kind of skew things and it's in launches favor, but now neutron resets that table. So I think it's hard to hard to call and it's going to be very volatile, but the good thing is we see the trying to I'm trying to see which one is going to grow faster and move the needle. The most is a great problem to have because they both have strong tailwind to them.

Speaker Change: That's very helpful. I am really really appreciate that color and congrats congrats again to the team.

Speaker Change: I'll pass it on.

Speaker Change: Okay.

Speaker Change: And your final question comes from the line of Ron Epstein with Bank of America.

Speaker Change: Rod Your line is now open.

Alex Preston: Hey, guys. This is Alex Preston on for Ron.

Alex Preston: Okay.

Alex Preston: Just one quick one for me to close us out I'm thinking about the NFL on ramp for neutron I'm curious if you think how youre thinking about potentially transitioning to lean to awards in the future of the more demanding launches.

Alex Preston: Is it a matter of just demonstrating flight heritage over a number of emissions or do you see incremental capabilities youll need neutral to demonstrate.

Alex Preston: Yeah.

Alex Preston: Yes. Thanks for the question, Alex I wish it was that easy.

Alex Preston: You know the other line requires you to have a launch sought advice vandenberg and at the Kate it's very explicit about that and be able to meet all of the mission requirements for all of the space launch, meaning that you have to have a vehicle that can lift sort of either 30 tonnes sorry.

The cost of admission to get into that line is extremely high hence the reasons why historically all of those programs have been quite heavily subsidized and R&D contracts and whatnot.

Alex Preston: Sustaining contracts because you have to hold and maintain a tremendous amount of infrastructure, you know, two peds and and and heavy lift vehicles, sorry and.

Alex Preston: At least the rules change you know I don't think the Atlantic will graduate up into that but to be honest with you that this is one of the reasons why.

Alex Preston: You need to down space Force created this extra line as they saw that there's a huge lost opportunity with some medium launch vehicles in development.

Alex Preston: And wanting to make sure they take advantage of all.

Alex Preston: Although I was in and it'll be really interesting to see in time, how many of those missions.

Alex Preston: Full from from the various lines dropped down into the lower lines that are that.

Alex Preston: Foster and much more affordable to deliver.

Speaker Change: Got it thanks, guys really appreciate it.

Alex Preston: Okay.

Speaker Change: Thank you. So much this does conclude our Q&A session for today and with that I will hand, it back over.

Peter Adam: Peter back for closing remarks.

Peter Adam: Yeah, Thanks, very much everybody and before we close out for today here some of the upcoming events and conferences that the team will be attending we look forward to sharing more exciting news and updates with you there otherwise I think it's very very much for joining us that wraps up today's call and we look forward to speaking with you about the exciting project progress we are making it.

Speaker Change: Luckily began soon thanks bye.

Speaker Change: Thank you so much for joining US today. This does conclude our conference call you and ask you to disconnect. Thank you.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change:

Speaker Change: [noise].