Q2 2025 Rocket Lab Corp Earnings Call
Speaker #1: Good day and welcome to the Rocket Lab Corporation Q2 earnings call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by zero.
Speaker #1: After today's presentation, there will be an opportunity ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two.
Speaker #1: Please note that today's event is being recorded. At this time, I would like to turn the conference over to Murielle Baker, Senior Communications Manager.
Speaker #1: Please go head.
Speaker #2: Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's second quarter 2025 financial results. Before we begin the call, I'd like remind you that our remarks may contain forward-looking statements that relate to the future performance of the company.
Speaker #2: 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 our results are highlighted in today's press release.
Speaker #2: And others are contained in our filings with the Security and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments.
Speaker #2: Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of regulation G enacted by the SEC.
Speaker #2: 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 GAAP.
Speaker #2: This call is also being webcast with a supporting presentation and a replay and copy of presentation will be available on our website. Our speakers today are Rocket Lab's founder and Chief Executive Officer, Sir Peter Beck, as well as Chief Financial Officer, Adam Spice.
Speaker #2: There will be discussing key business highlights, including updates on our launch and space systems programs, and we will discuss financial highlights and outlook before we finish by taking questions.
Speaker #2: So with that, let me turn the call over to Sir Peter.
Speaker #3: Thanks, Murielle. And, thanks for everybody joining us today. look, we've ivered impressive, impressive financial results this quarter with another record revenue of $144.5 million.
Speaker #3: above the high end of our prior guidance and up 36%, compared to last year. A GAAP gross margin expansion exceeded expectations this quarter too, and the consecutive growth of this growth of the company is really exciting to drive.
Speaker #3: no surprises here that Electron continues to be the leader of the small launch industry. We had, h, five launches across the quarter. Two of them back-to-back from launch complex one in two days.
Speaker #3: demand for its services is also increasing from different countries, with multiple international space agencies signed up for Electron launches, this year and next. We made rapid progress towards the pad with neutral in this quarter.
Speaker #3: Launch complex three is ready for its grand opening, and, we've got the first rocket parts on their way to Virginia. More to share across the program in the up-and-coming slides here.
Speaker #3: And finally, in space systems, our prime contractor status is expanding with our imminent acquisition of Geost. Been able to quickly build and deploy entire satellite systems as the cornerstone of future US defense strategy.
Speaker #3: And we're in a prime position to play within those large opportunities within launch, spacecraft, and now payloads added to our end-to-end capabilities. So let's get into those details now.
Speaker #3: we're very close to finalizing acquisition of Geost, a maker of, missile tracking satellites for national security missions. Having cleared through the anti-trust review, we're on track for signatures on paper here pretty shortly.
Speaker #3: I'll let Adam take you through the financial details later, but, if there's one thing to take away from this deal, it's adding payloads on top of launch and spacecraft really cements our status as a one-stop shop for national security.
Speaker #3: We're already a trusted, just, , just we're already a trusted disruptor in the launch and prime contractor for Constellation Builds. And this acquisition, adds to our competitive advantage.
Speaker #3: It will bring, bring an extensive inventory of space-based missile warning sensors and manufacturing facilities in Arizona and Northern Virginia. That secures the domestic supply chain of this critical technology for next-generation missile defense initiatives.
Speaker #3: Like the Golden Dome and the SDA Constellations. The $175 billion Golden Dome program could prove to be one of DOD's largest procurements to date.
Speaker #3: And we're in a great position to capitalize on portunities here. Our egic investment and the way that we've scaled the company to uniquely meet its needs positions us strongly to win either as a prime contractor or even as a sub or even as a com, h, component supplier.
Speaker #3: Our pursuit of the Golden Dome extends just beyond payloads. Across its entire ecosystem, we have the technology and capability ready to serve. We operate the world's most reliable and responsive small launch vehicle, Electron, operating at the fastest cadence of any small launch vehicle in history, having just completed its 69th launch.
Speaker #3: With our hypersonic testing variant haste, we are revolutionizing the way missile defense technology is tested in a hypersonic environment. Our new reusable rocket neutron perfectly answers the call for a diversified launch, for national security and can deploy entire constellations of spacecraft at once to build out the dome's proliferated architecture.
Speaker #3: We've already won more than half a billion dollar contract with the SDA to build and operate a significant piece of their PWSA network. So there's a golden portunity to build upon that here with our existing capability.
Speaker #3: And look, the list goes on, but I won't belabor the point. our advantage is our commercial speed and proven execution. The way programs like this have been built in the past, dominated by the large defense primes, just won't work the same, time this time around to meet the administration's urgent timeline.
Speaker #3: And these agility and innovation, vertical integration, and on-time delivery and execution. That's why we've delivered time and time again across our programs to date and what we stand ready to deliver for the Golden Dome.
Speaker #3: There's no better mission on the books that demonstrates the full depth of our capabilities than the Victor's Hayes mission for the space force. Across its tactically responsive space program, we're the only provider delivering a complete end-to-end launch plus spacecraft solution.
Speaker #3: We bring the full stack of offerings across the satellite design, component manufacturing, integration, and testing, flight software, ground, mission, and launch licensing, and the launch itself, and on all but operations.
Speaker #3: We own the entire mission lifecycle. And its capability for national security that very, very few others can provide. It's also a great demonstration of how commercial capability like ours can be leveraged to bring the concept of responsive space into operational reality.
Speaker #3: Exactly what the US administration is seeking with Golden Dome. This mission has a 24-hour call-up requirement, which, quite frankly, is business as usual for Rocket Lab these days.
Speaker #3: And we recently cleared the program milestone for Victor's Hayes that moves us into the final integration and testing phase of our spacecraft for the mission and launch of Electron Electron later is on track like the this year.
Speaker #3: Another program with, a milestone tick is our transport layer constellation build for the SDA. The program has, signed off our satellite design and approach for manufacturing, which means we can now move into full-scale production of these 18 spacecraft and recognize further revenue from this $515 million program.
Speaker #3: As this constellation gets underway, we're also preparing for a much larger portunity within the SDA. And its next, tranche of satellite contracts. This is where our strategy of bringing key satellite technologies in-house makes us an attractive commercial incoming sensor payloads, for ample, are also in play for an SDA award and through other bidders.
Speaker #3: We can control the cost and reduce the schedule risk through our vertical integration in a way that others can't. And we hold the keys to that technology and components that are foundational to these contracts.
Speaker #3: Excuse me. And finally, for space systems, another strategic area of focus, for this past quarter has been in supporting the administration's plans for Mars exploration.
Speaker #3: It great to see our $700 million dollar, provided for a Mars telecommunications orbiter in a Senate's, recent but recent budget. the path to Mars for human spaceflight must begin with the ability to communicate there.
Speaker #3: And this is something that we've always strongly pushed for. In fact, we were the only company that proposed an partner. Our independently launched Mars telecom orbiter orbiter as part of the end-to-end, Mars sample return mission.
Speaker #3: So our ambition is clearly in line with the administration's vision for Mars. Much of our technology is already across the major Mars missions like NASA Insight Lander, the Ingenuity helicopter, the Crew Stage that will, Perseverance to Mars, and, of course, our escapade, spacecraft that are ready for launch here soon.
Speaker #3: We have got the experience in delivering mission success for Mars exploration and are vertically integrated approach reduces complexity, controls cost, provides schedule certainty, all under a firm fixed price.
Speaker #3: Now onto Electron. once again, another busy quarter for Electron as demand and launch cadence continues to soar. the beauty of Electron has been able to choose when and where you want to fly.
Speaker #3: Sometimes for us, that can mean flying very in very close succession, like the four launches and four weeks that we saw in June. and two of those flew just days apart.
Speaker #3: a record turnaround for us at launch complex one. We've since racked up, launch number 69 and number 70 is scheduled for liftoff next week, keeping us on track for 20 or more launches by this year's end.
Speaker #3: These missions are a great showcase of how quickly we can turn around launches as they manifest demands. With the infrastructure, production, and capability to place and support a launch a week, as a demand for small dedicated launch continues to expand.
Speaker #3: Beyond Electron's proven heritage as America's most frequently launched small rocket, international space agencies are coming to rely on it for access to orbit as well.
Speaker #3: We signed our first direct launch contract with the European Space Agency this quarter to launch a pair of satellites for the continent's future navigation constellation before the end of this year.
Speaker #3: The mission urgency stems from ESA's need to meet, spectrum requirements by early '26. But with few domestic rides to space available for them, Electron is stepping up to the task of responsive launch.
Speaker #3: It's a similar situation faced by another sovereign space agency that came calling for Electron too. I can't quite reveal the full details of ose missions yet, but, as fuel on the fire to Electron's international expansion and leadership as a small lift in the small lift market globally.
Speaker #3: Now to cap off the list of space agency launch contracts, we secured another NASA mission on Electron. The launch early 2026, time and time again, we've proven Electron to be the premier small launcher for NASA, science missions, and we're looking forward to delivering the same, precise orbital deployments that they've come to expect.
Speaker #3: Now onto ur Neutron update, for the quarter. let's start with a top-down view of where things stand today. We're building more than just our first rocket.
Speaker #3: We're laying the foundation for long-term sustainable programs. We, we know that from experience that building the first one is hard, but building the system that gets you to launch number 10 and 20 and beyond is much harder.
Speaker #3: Most of the capital of any rocket program goes into building out the infrastructure. And we believe we've got all the critical elements in place now.
Speaker #3: Our launch and test sites are substantially complete, recovery infrastructure is on track, the Archimedes engine manufacturing line is now capable of knocking out an engine every 11 days, and we believe that we've scaled our operations to be ready to support, to move into multiple flights, a year after the first launch gets off the ground.
Speaker #3: On the launch vehicle side, the teams are working literally day and night to get Neutron to the pad. We're in a good spot with, lots of core elements like the Hungry Hippo fairing, major structures, second stage, engine qualification, et cetera.
Speaker #3: It's a green tick for stage two flight hardware and its qualification program, the brains of the rocket like the flight computer and GNC are ready for flight.
Speaker #3: so lots of green across the vehicle as you would expect. there's been lots of action on the regulatory approvals front as well. we've been granted our FCC license for Neutron's first launch.
Speaker #3: And the FAA has accepted our launch license application that puts us on track for a launch license to fly from launch complex three by end of the year.
Speaker #3: Well, we've also had the, h, critical agreements in place to transport flight hardware to launch site, on Wallops Island. You've ely seen a bit of activity on that front around expanding our operations and dredging in the channel.
Speaker #3: But these are improvements, these improvements are ated to increasing operational flexibility as launch cadence wraps up, ramps up. it's not a gate to Neutron's debut.
Speaker #3: Importantly, the schedule is not sequential. Everything is happening in parallel and a lot of the progress markers that are underway or still pending are probably gonna stay that way, up until just before we launch.
Speaker #3: There are still some, some risks to retire like propulsion and full integration of stage one testing, which we're taking our time on to make sure we're successful.
Speaker #3: And, h, when, when the rocket is on the launch pad. But over the next few slides, I'll take you through the latest engineering updates and lay out the current expectations for the next few months ahead.
Speaker #3: First up, an exciting moment on the path to launch, Neutron's flight hardware is on its way to the launch site. Over the past couple of months, we've put the second stage through many, many tests to validate its readiness for launch.
Speaker #3: Having completed its critical testing phase, it's headed to the launch complex three, for final integration and preparation for stage testing at Wallops Island. The large structures that make up the first stage, like propellant tanks and thrust structures, are expected to be on the test stands before they're shipped out to the launch site shortly.
Speaker #3: Once they've completed, and the major structural test, they'll progress and into a final integration and stage testing. As we move out of R&D into production, for the next rockets in our fleet, our factories are all humming.
Speaker #3: we've automated the production of the largest composite, rocket structures in history with our 90-ton AFP machine that we installed, there last year. We're pulling flight parts off the machine now, for the stage one barrels and propellant domes.
Speaker #3: And it allows us to scale efficiently. and 've made long-lead commitments for manufacturing equipment that puts us in good place to build three vehicles next year.
Speaker #3: For Archimedes, engine testing is accelerating. And, this is the most, crucial and, time-consuming aspect of any, any rocket development program. And always the longest pole in the tent.
Speaker #3: we're running the engine to full mission duration and, the operational test cadence is, is heading up to three or four hotfires a day now, seven days a week.
Speaker #3: As we work diligently through all of the engine qualification program. In between hotfires, the team's making rovements and iterating on the design quickly and then getting right back into the next engine test, fire and on the stand.
Speaker #3: We expect these tweaks to, all the way to Neutron's debut launch and, and beyond. For those who are ested, take a look at the latest mission duration hotfire video.
Speaker #3: We, we just shared. Moving on launch complex three, I'm ased to say that we have an official date for the site opening later this month.
Speaker #3: The team in Virginia is, well and truly into launch pad activation while we close out the final construction activities. the water deluge system was activated last quarter and now the team is meticulously making their way through system by system to prepare for static fire operations on the launch mount once the flight hardware arrives.
Speaker #3: Launch complex three is set to be, a hugely important national asset. There's a spaceport bottleneck at the other federal sites right now. And, that shows how important, launch site diversity really is.
Speaker #3: National security must take priority. And, with Neutron onboarded to the NSL program earlier this year, a rocket will be the first to fly, for NSL out of Virginia when we pick up missions under that contract.
Speaker #3: We'll be cutting the ribbon for launch complex three on August the 28th. we're also opening up a limited number of spaces for retail shareholders.
Speaker #3: To join us on Wallops Island, so I encourage anybody who is interested, to check out the details on our site. All in all, we continue to push extremely hard for our end-of-year launch.
Speaker #3: we continue to run a green light schedule with Neutron. Which means every single thing needs to go to plan for the schedule to hold.
Speaker #3: But also want to stress that, we're not gonna rush and take stupid risks to get, you know, a launch, Neutron before it's, it's ready.
Speaker #3: And the context of the lifecycle of the vehicle and program, a couple of months here there is completely irrelevant. What's really important is performance, reliability, scalability right from the get-go.
Speaker #3: And there'll be no cutting corners here to just rush to the pad for an arbitrary deadline. I think everybody has heard me say it before.
Speaker #3: In fact, I'm a little infamous for it now. I'm not built to build shit. So with that, I'll hand it off to Adam. you can run through the financial highlights for the quarter.
Speaker #4: Great. Thanks, Pete. Second quarter 2025 revenue was a record $144.5 million. Which was above the high end of our prior guidance range and reflects significant year-over-year growth of 36%.
Speaker #4: Driven by strong contribution from both business segments. Second quarter revenue increased 17.9% sequentially. Our ace system segment delivered 97.9 million dollars in the quarter, reflecting a sequential increase of 12.5%, driven by increased contribution from each of our satellite components' es.
Speaker #4: Our launch services segment delivered revenue of 36.6 million dollars, reflecting an increase of 31.1% quarter on quarter. Now turning to gross margin. GAAP gross margin for the second quarter was 32.1%, above our prior guidance range of 30 to 32 percent.
Speaker #4: Non-GAAP gross margin for the second quarter was 36.9%, which was also above our guidance range of 34 to 36 percent. The sequential increase in gross margins is primarily due to an increase in Electron ASP, paired with favorable mix within our space systems business, driven by increased contribution from our higher margin component sales.
Speaker #4: Relatedly, we ended Q2 with production-related headcount of 1,150, up 62 from the prior quarter. Turning to backlog. We ended Q2 2025 with approximately 1 billion of total backlog.
Speaker #4: With launch backlog representing approximately 41% of this and space systems 59%. In the quarter, launch backlog continued take increasing share with promising underlying trends as we convert a very ong pipeline of Neutron, Electron, and haste opportunities.
Speaker #4: Space systems bookings remain lumpy given the timing of increasingly larger needle-moving customer and program opportunities, but remains at a healthy level despite a step up in revenue run rate for the past few quarters.
Speaker #4: Upon the anticipated near-term closing of the Geost acquisition, and given an increased line of sight to the Minoric acquisition closing, the composition of backlog will likely skew a back in favor of space systems, and further underpin incremental future growth.
Speaker #4: We continue to cultivate a healthy pipeline, including multi-launch deals and large satellite manufacturing contracts that, as mentioned earlier, can create lumpiness in backlog growth given the size and complexity of these opportunities.
Speaker #4: We expect approximately 58% of current backlog to be recognized as revenues within 12 months. And we continue to get relatively quick turns business that drive top-line growth beyond the current 12-month backlog conversion.
Speaker #4: Turning to operating expenses. GAAP operating expenses for the second quarter of 2025 were $106 million. Above our guidance range of 96 to 98 million.
Speaker #4: Non-GAAP operating expenses for first quarter were 86.9 million. Which was also above our guidance range of 82 to 84 million. The sequential increases in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in prototype and headcount-related spending to support our Neutron development program.
Speaker #4: Specifically, investment has increased to support propulsion as we continue to qualify Archimedes. As well as production of mechanical and composite structures ahead of Neutron's anticipated inaugural flight later this year.
Speaker #4: In R&D specifically, GAAP expenses increased $11 million quarter on quarter, due to ramping up Archimedes production, paired with increased expenses related to mechanical systems and composites that just mentioned.
Speaker #4: Non-GAAP R&D expenses were up 10.2 million dollars quarter on quarter, driven similarly to the GAAP expenses. Q2 ending R&D headcount was 935. Representing an increase of 12 from the prior quarter.
Speaker #4: In SG&A, GAAP expenses increased $600,000 quarter on quarter. Due to an increase in non-recurring transaction costs as we continue to advance a robust pipeline of M&A opportunities, partially offset by a step down in stock-based compensation quarter.
Speaker #4: Non-GAAP SG&A expenses decreased by $200,000. Due primarily to a decrease in audit fees, partially offset by increased legal expenses. We are encouraged by our ability to constrain SG&A spending as we look to scale the more efficiently at this point.
Speaker #4: Q2 ending SG&A headcount was $343, representing an increase of 11 from prior quarter. In summary, total second quarter headcount was 2,428 up 85 heads from the prior quarter.
Speaker #4: Turning to cash. Purchases of property, equipment, and capitalized software licenses were $32 million in the second quarter of 2025. An increase of 3.3 million dollars from the 28.7 million dollars in the first quarter, as we finalize LC3 construction activities.
Speaker #4: Continue to invest in the engine test facility at Status Mississippi, and make initial investments into the fit-out of the return on investment barge. As we continue to invest in Neutron development, testing, and scaling production, we expect to maintain elevated capital expenditures leading up to Neutron's first flight.
Speaker #4: GAAP operating cash flow was a negative 23.2 million dollars in the second quarter of 2025. Compared to a negative 54.2 million dollars in the first quarter.
Speaker #4: The sequential decline in negative GAAP operating cash flow of 31 million dollars was driven primarily by increased cash receipts, from our SBA satellite program.
Speaker #4: Similar to the CapEx dynamics mentioned earlier, cash consumption will continue to be elevated due to Neutron development, longer lead procurement for SBA, investment in subsequent Neutron tail production, and related infrastructure to scale the business beyond our initial test flight.
Speaker #4: Overall, non-GAAP free cash flow, defined as GAAP operating free cash flow, sorry, defined as GAAP operating cash flow less purchases of property, equipment, and capitalized software, in second quarter of 2025, was a use of 55.3 million dollars.
Speaker #4: Compared a use of 82.9 million dollars in the first quarter. The ending balance of cash, cash equivalents, restricted cash, marketable securities was $754 million dollars as of the end of the second quarter 2025.
Speaker #4: The sequential increase in liquidity is due to the at-the-market equity offering that we announced earlier in the year, which generated $32.8 million dollars in the second quarter.
Speaker #4: Which in part is intended to fund acquisitions such as the announced Minoric acquisition, the Geost acquisition, and other targets in a robust M&A pipeline, along with general corporate expenditures and working capital.
Speaker #4: We exited Q2 in a strong position to execute on our organic expansion opportunities, as well as inorganic options to further vertically integrate our supply chain, grow our strategic capabilities, and expand our addressable market.
Speaker #4: Consistent with what we have done successfully in the past. Adjusted EBITDA loss was 27.6 million dollars in the second quarter of 2025. Better than our guidance range, of a 28 to 30 million dollar loss.
Speaker #4: The sequential decrease of 2.4 million dollars of adjusted EBITDA loss was driven by an increase in revenue, paired with increased gross margin, partially offset by increased R&D expenses related to Neutron.
Speaker #4: With that, let's turn to our guidance for the third quarter of 2025. We expect revenue in the third quarter to range between $145 and $155 million.
Speaker #4: We expect a further uptick in both GAAP and non-GAAP gross margins in the third quarter, with GAAP gross margin to range between 35 to 37 percent, and non-GAAP gross margin to range between 39 to 41 percent.
Speaker #4: These forecasted GAAP and non-GAAP gross margins reflect improvement in launch ASP and overhead absorption. We expect third quarter GAAP operating expenses to range between $104 and $109 million dollars.
Speaker #4: And non-GAAP operating expenses to range between 86 million and 91 million dollars. These modest quarter on quarter increases at midpoint of our by continued Neutron development, spending across staff costs, prototyping, and materials, though the spend is beginning to shift from R&D to flight two inventory.
Speaker #4: I'm ouraged given the impressive progress made towards Neutron's first flight that we're getting closer to moving beyond the past few years of elevated R&D spend and on the path to generating future meaningful operating leverage and positive cash flow.
Speaker #4: We expect third quarter GAAP and non-GAAP net interest expense to be 1.3 million dollars. We expect third quarter adjusted EBITDA loss to range between 21 and 23 million dollars.
Speaker #4: And basic weighted average common shares outstanding to be approximately 528 million shares, which includes convertible preferred shares of approximately 46 million. Lastly, consistent with last quarter, we believe negative non-GAAP free cash flow in the third quarter will remain at an elevated level, consistent with the prior couple of quarters, excluding any potential offsetting effects of financing under our existing equipment facility.
Speaker #4: And with that, we'll hand the call over to the operator for questions.
Speaker #1: Thank ou. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad.
Speaker #1: If you are using a speaker phone, please pick up your handset before pressing the keys. If you draw your question, please press star then two.
Speaker #1: At this time, we will pause momentarily to assemble our roster. In today's first question comes from Michael Leshak with KeyBank Capital Markets. Please proceed.
Speaker #5: Hey, good noon. wanted to ask on Neutron and specifically the Archimedes engine, I, I appreciate all the commentary there. And, around the hotfire tests, where does the Archimedes stand today in terms of performance, are there any other performance metrics that you could share from what you're seeing in those tests and, you know, how is there a way to frame it, how close you are relative to, what is required for performance to power a Neutron flight?
Speaker #3: Yeah, hi, Michael. Yep. so, so in a from a performance perspective, we're very appy. one of the unique things about, a reusable launch vehicle is you have, a tremendous number of different environments that the engine has to start and operate in.
Speaker #3: So, you know, normally you have, you have a, you know, an ascent, profile where there's a couple of throttle points and especially on a stage one and, it's a, 's a fairly simple thing.
Speaker #3: but of course, we have a, a, a, a reentry burn and a landing burn. so, you know, you have to start the engine at different propellant temperatures, different, head pressures, and all these kinds of things.
Speaker #3: So it creates a, a much, much, enlarged run box or set of, set of, conditions that you have to be able to operate the engine in.
Speaker #3: It's much more challenging to do. but from a, from a, like, a, a basic performance, you know, of the engine where, we're, we're very happy where it is.
Speaker #3: and, yeah, it's, like I say, it's just a, a, a much more complicated, qualification program to get through because you're qualifying, ascent and descent at the same time.
Speaker #5: Great. And then shifting to a, a longer-term, a longer-term question, you've, you've talked , a satellite constellation potentially being a, a long-term opportunity for the company.
Speaker #5: How close are you to begin working on a constellation of your own, we saw the release of satellite earlier this year and the focus of it designed to scale, is a rocket lab constellation something that is being developed or talked about today?
Speaker #5: or is it more likely a longer-term opportunity maybe five or five or more years down the road? Thanks.
Speaker #3: Yeah, sure. So we've, we've always, as you point out, we've always made our, our ambitions clear here and, and, you know, we think that is, that is the power of being an end-to-end space company is when you have the ability to, to build whatever satellite ou need and launch it at will.
Speaker #3: it, it, it, it, you ow, it's a, it's a very powerful, position to be in. However, I'm o, very aware of entrepreneurial drift where someone doesn't finish one thing before they start the next.
Speaker #3: And while we've been methodically building, all of the capabilities and vertically integrating all the satellite components and whatnot we need to be able to do, exactly what we want to do, until Neutron is, is, is finished and flying, that the key element of being able to deploy, a disruptive, you ow, infrastructure of satellites.
Speaker #3: So, you know, I, I wouldn't expect any huge announcements from, from us on, on constellations, until, until, you know, the big piece of the puzzle, which is Neutron, starts to absorb less of our focus.
Speaker #5: Great. Appreciate all the detail. Thank you, guys.
Speaker #1: In our next question is from Eric Rasmussen. With Stifel, please proceed.
Speaker #6: Yes, thanks for taking the estions. And, great to hear all the progress. and I'm, I'm happy hear that, the noise around the dredging, seems like this, not, not really an issue in the near term of getting, to your schedule.
Speaker #6: just wanted to, ask about, backlog and, and I think a lot of this is continued upon, the SBA right now. I'm, I know you've also talked about the Golden Dome, but it looks like, tranche three maybe just, if you could just update us on what you're, what you're thinking is around potential timing around the RFP process, you know, where Rocket Lab will compete, and at what, and, and I guess to, with this, with in the vein of sort of the backlog, at what point will you start to include, Neutron into the backlog?
Speaker #3: Hey, Eric. I'll ask, answer some of those and 'll let Adam, Adam answer some of as well. but, you ow, more, more generally in backlog, the kind things that we're chasing now are, are really large programs.
Speaker #3: so, in, in, you know, by nature these programs, are pretty lumpy. SDA is a, a great example. You know, I ink we've, we've put ourselves in a y strong position where executing against our current, SDA, contract very strongly.
Speaker #3: and, you ow, you've, you've seen us acquire things like Geost that, that put us in a, in a, in a very strong position to, you know, to provide solutions that are, are, not plagued by, delays and, and things like that.
Speaker #3: And also our recent, you know, pending acquisitions of, of things like Minoric, which are, you ow, one of the, the, the key elements, in, in, the SDA program.
Speaker #3: So, I believe the timing, of the announcement is somewhere between September and October, for the tranche three. it's ways a little bit, opaque as, as they work, work, you know, as the SDA works, works through those awards, but that's, that's of a similar timeframe.
Speaker #3: But at any, any one point, you know, we're, we're ing, very large proposals both government and, and, and commercial and just by their very nature, you know, they, they take a little longer to, solidify.
Speaker #3: But, I'll let Adam maybe, if he, we've got any comments on backlog.
Speaker #6: those were added, you know, over the last few Yeah, and I quarters. And I would say that, you ow, of course, we expect after a successful flight of Neutron that we, that we'll start to gain a more momentum because, as you can imagine, you know, launch customers are, you ow, are, are, they're, they're, they've, they're betting a lot when they choose to launch, choose a unch vehicle, and it's a long-term choice.
Speaker #6: and they're a limited choices out there today. So, everyone's being very careful about what they do. So we do expect that, that demand to be, kind of unleashed, if you will, once we have a successful test launch.
Speaker #6: I would, I would say that the, you know, if, if you ok across all of our businesses, and then, again, we're starting to e the diversity benefits where if you look at the opportunities we're chasing, across our subsystems business, across, Electron, both commercial, government, haste variants, we're seeing strong demand across all of them.
Speaker #6: So it's just a matter of kind converging. And if you ok at the, at the trend of backlog over the last year, actually launch has been the bright spot, right?
Speaker #6: We had a huge step up when we, when we put the SDA, tranche two award into backlog, and then basically, you know, we've been working, against that as we recognize some of that revenue, and then launches continue to build in the backlog.
Speaker #6: And, and that is, that's, that's gonna continue to be, we believe, to be the case once Neutron kind of ets past that, next big, milestone or achievement of, of initial launch.
Speaker #5: Great. Maybe just sticking with
Speaker #6: launch, and, and Electron, you already did 11, sounds like, you have, the, the 12th one coming up pretty soon, your 70th launch. what would you say, the, the mix between your traditional Electron launches and, and maybe haste missions in the back half of the year, what es that look like?
Speaker #6: Yeah, so if you, if you look in our, in our, our backlog right now, there was, if you ok at the mix, we're expecting, about through, I think it's three of the remaining launches, this year will be, will be haste missions.
Speaker #6: So, you know, as Pete talked about, we're on path to, to do at least 20, hopefully more than 20 launches this year, which would be nice growth off of 2024.
Speaker #6: And so we haven't had any haste launches yet this year. So we're, we're looking at roughly, you know, three launches in, all of them in the back half of the year.
Speaker #6: Great. Maybe just my final, it, it's on Neutron. And I'm just trying to sort of parse through some of the words that, that Peter had mentioned.
Speaker #6: in terms of cadence, you know, I ink previously we were ecting, you know, the first test launch, so you'd have more of a, a one, three, five launch cadence for the first few years.
Speaker #6: But, given the strong demand signals insured to launch and then maybe just, if I'm reading right, is it possible that that's something that you can accelerate or, what does that, what does that look like?
Speaker #6: Are we still sort of targeting that one, three, five? Thank ou.
Speaker #3: Yeah, Eric. I mean, I, I get, I get ridden, ridden every day on that question. the reality is it just takes time to, to roll in the learnings between flights.
Speaker #3: so, you ow, we, we, we, we proved Electron that that was the right kind of scale-up cadence. and if you look historically across rocket programs, that's, it's even pretty aggressive.
Speaker #3: So, so, you know, we'll, we'll stick with that one, three, five and, but who, o, who, who knows, but, at the moment from where, where we are in the program, that feels like the right kind of place to, to, to, to target everything.
Speaker #6: Thanks. Good luck.
Speaker #1: In the next estion is from Andre Shepherd with Credit Suisse. Please proceed.
Speaker #7: Hey, guys. Andre's here from, Cancer Fitzgerald. I'm not re what that was. hey, Pete. Hey, Adam, and, and hey, Patrick. congrats on the quarter and all the, the great success.
Speaker #7: I'll limit myself to two questions just to be respectful to all the other analysts. Maybe one on space systems and one on launch systems.
Speaker #7: on the space systems, Adam, I'm wondering if you maybe remind us kind of what does the revenue recognition look like for the SD, for the SDA tranche two award, both for this year, and for next year?
Speaker #7: And I know you ioned, obviously, you're exploring several opportunities, but just to come back to SDA tranche three, if I'm mistaken, right, that could potentially be the largest contract in company history.
Speaker #7: And so how would you characterize maybe the likelihood of success there? Thank you.
Speaker #6: Yeah, I can comment on kind of the, the rev rec conge and, you know, generally for the, for the SDA program tranche two, transport layer that we have, that we're executing against.
Speaker #6: So, you know, these, these programs typically, you, you ow, the, the, the award was, I ieve, in the late 2023. And so you get a, you typically when the program kicks off, you're, you're, you're doing a lot of the kind of initial, finalizing the design and so forth.
Speaker #6: So where you really experience the meat of the revenue recognition is when you're actually starting to take possession of the bill of materials, to build the, the satellites with.
Speaker #6: So right , as Pete mentioned, you know, that's we're, we're kind of getting in now to that sweet spot where we're going to full-scale production of those vehicles.
Speaker #6: So we're gonna see a ramp in spending, or sorry, a ramp in spending and a ramp in, in, in rev rec resultantly from that.
Speaker #6: So, you know, I think that you should expect that revenue will be pretty, I would say, evenly balanced between the second and the third year of the program, with 2025 being the second year in reality, and next year being kind of the third year. Then it'll tail off.
Speaker #6: So you have kind of tails on either end with most of the, of revenue recognition in '25 and '26. I mean, just if you wanna just think broad strokes, you know, for contribution in 2025, it's, it's probably if you wanna think in the order of kind 150 to 200 million is the right range to be in.
Speaker #6: and then, again, that should look somewhat similar in, in 2026. assuming that we continue to ecute like we have. And then if you, if you look at SDA tranche three tracking, should we be fortunate enough to win that program, as you said, it would be the biggest program, by a significant margin, that the company has, has earned to date.
Speaker #6: and it'll have a similar profile. I mean, there's a chance that there could be some revenue recognized early, early in the program, even as early as some of it later this year.
Speaker #6: and then you'd have kind of the buildup, you know, or 2020, '26 would look for that program would look probably like 2024-ish looked for SDA.
Speaker #6: And then ou'll have that, that again, probably 80% of the revenue being recognized within the middle two years before your program. So that's ably the, the, the best guidance I can give to you right now on that.
Speaker #7: Got it. That's super helpful. Thanks, Adam. And, just maybe a quick, follow-up, if I may, maybe one for, for Pete on the, on the launch systems.
Speaker #7: You know, after getting closer and closer to Neutron, I'm curious if you're, seeing perhaps an, ou know, an uptick from customer demand or, or perspective customer demand for, for future flights.
Speaker #7: Obviously, you have the, you know, the track record, the heritage from the Electron and, and haste, you know, Neutron still coming out. But, you know, given the, what, whatever you wanna call it, the conflicts between the administration and, and SpaceX management team, just curious if, if you've seen perhaps a, you know, a, an uptick in, in interest for, for Neutron for future Neutron, missions and, , and any, any, any color there since, since Neutron essentially will be the only viable, alternative to Falcon 9, right?
Speaker #7: So just curious, on what you're eing. Thank ou.
Speaker #3: Yeah, thanks, Andre. Well, I mean, look, I, I think it's, you know, the, the, the market does need, a, a, you know, a itor to the Falcon 9.
Speaker #3: I think that was very clear. And that was presented to us both from our commercial customers and our customers. So, you know, there's a lot of anticipation and, pent-up demand for that vehicle to come, to come to market.
Speaker #3: And that, that continues to increase, all the time. not just from, you know, sort of political events or geopolitical events, but, but, also from, just, you know, large programs being added, things like the Golden Dome.
Speaker #3: I mean, that is, that is gonna be one of the largest DOD programs in the, in the country's history. And, they're all spacecraft and space, and they all need to get there.
Speaker #3: So, yep. No, and we're, we're, we're eing, you know, growing demand and, and also, I think 's fair to say, realization that, that, you ow, sorting out from, from the, the real players from the, the, the players that are, are less likely to be able , to, provide.
Speaker #7: Excellent. Thank you so much, both. Congrats again on the quarter. I'll pass it on.
Speaker #1: The next question is from Ron Epstein with Bank of America. Please proceed.
Speaker #8: Yeah, hey, hey, good afternoon, guys. so, so Pete, just maybe broadly, when we think about the first launch of Neutron, for you, I mean, just to, kind of level set, what would a successful launch be?
Speaker #3: Yeah, hey, Ron. Well, you, you're gonna hear some, some rubbish about just clearing the pad as a success. That is a, that is not.
Speaker #3: for us, a successful launch of Electron, will, will be, a success, you know, successfully getting to orbit. and, making sure the vehicle is, is, is ready to scale, I ink.
Speaker #3: You saw us come out of gate with a, with Electron, you know, going orbit, and then straight away, you know, three missions after that.
Speaker #3: successfully delivering customers to orbit. So that, that will be the definitions of success. the bit that we'll, we'll be a little bit more flexible on is obviously the reentry and soft landing, of the first vehicle.
Speaker #3: There's a lot to learn there. You know, we think we've got a good head start, but that's the bit that always requires a bit of iteration.
Speaker #3: So, you know, like I say, we'll, we'll declare success. we're in, when we're in orbit. if, h, if we don't soft splash down on the first flight, I think there's a little bit of tolerance there.
Speaker #3: to, to, to for learning, but, apart from that.
Speaker #8: Gotcha.
Speaker #3: Yeah.
Speaker #8: Gotcha, gotcha. Thank you for that. And then, and then Adam, maybe what, what drove the strong Electron ASP in the quarter? , and is that a reasonable way to think about Electron pricing going ward?
Speaker #6: Well, you know, we've, we've been, well, there's a few things that drive that, but probably the most, I would say dominant force would be the, the, the mix of haste.
Speaker #6: In, in the, in, in the, in the, in the manifest. So, as we've talked about, you know, we, ou know, and the, the haste missions require very unique, you know, I'd say, mission assurance and other things that vehicles are unique and so forth.
Speaker #6: So that es sense that the ASP would be significantly higher. But it's really driven primarily by that. I'd say overall, you look at even, you know, commercial haste, sorry, commercial, Electrons, those trend have been trending up nicely as well.
Speaker #6: So we've really benefited from the fact that we've got customers coming back, and they're doing bulk buys of Electrons at significantly higher ASPs than we've seen in the past.
Speaker #6: If you were to rewind the, the clock two or three years ago, we would get customers coming that wanted to buy bulk buys, but they were wanting a significant discount.
Speaker #6: to do that. And so, in order for us to build con, you know, the, the manifest and be able , you know, kind of continue to, to drive the market, ou know, we, we, we did that.
Speaker #6: And I think now we're in a position where we really don't have to accept any significant discounts, and we're getting bulk buys. And I think part of the strength as well is we're getting a lot of support, as Pete mentioned in his comments, from the international community.
Speaker #6: sovereign, you ow, countries are coming forward with strong demand, and I think that, you know, it's, it's, it's a testament to the fact execution in market is so, so, so difficult.
Speaker #6: A lot people can talk about it. They can point to spec sheets on, on web pages and whatever else, you know, and, , and payload user guides.
Speaker #6: But at end of the day, you know, we're the only one that has had 69, you know, launches of, of a small dedicated launcher, and I think right now we're benefiting from all of that hard work and execution, and so we really don't have the distraction of people kind of doing some false pricing in the market to put pressure.
Speaker #6: I mean, now it's pretty clear that, you know, execution's key. You gotta pay for execution.
Speaker #8: Gotcha, gotcha, gotcha. And then, then that's actually a nice segue into my, my last question. You know, when we, when we think about, you know, the Minoric acquisition and, you know, Electron adding the European space agency, you ow, what do you see as, you ow, potential, you know, is there a potential European national security opportunity for you guys in space?
Speaker #3: Yeah, Ron, I think, I think if you, if you look outside the US, what is the next biggest market in space? And it's Europe.
Speaker #3: And you'd be a fool not to be in there. so, you ow, Minoric is a, a, a kind of stepping point in, and as you, as you've seen, obviously, as you point out, the, the European space agency, contracts, you know, we're, we'll, we'll continue to expand and, and into Europe and, and, you know, we have a lot of unique capabilities that, that are, that only reside with us.
Speaker #3: So, you know, we'll, 'll, we'll look to, to apply those.
Speaker #8: Got it. All right. Thank you.
Speaker #3: All right.
Speaker #1: Our next question comes from Edison Yu with Deutsche Bank. Please proceed.
Speaker #9: Hey, good afternoon. Thank you for, for taking our estions. Wanted to, to ask, I think probably for Pete, your latest thoughts on, on orbital transfer vehicles, space tugs, I know there was a bit of a craze several years back in, in LEO that kind of flamed out a bit, but now it seems there's a lot of offerings coming to market, maybe trying to go farther way.
Speaker #9: bigger, and so is that, is that an area of, of interest to you? I know you have the kick stage, but would you try to kind of tackle that more, more directly or, or more broadly?
Speaker #9: Going forward.
Speaker #3: Yeah, it's a good question. I've never really understood the business opportunity and the little business case for those. Because, you know, you start off with a relatively cheap rideshare; you end up with a really expensive delivery.
Speaker #3: So, so as you point out, they've had a, had a couple of starts. so look, you know, if, it turns in into, into being a real market, it's, it's completely elementary for us to go after it.
Speaker #3: I mean, you know, we operate a kick stage on top of Electron, essentially. And, you know, all the components to be able to do it, you know, we have.
Speaker #3: So, so if, if it turns out to be a, to be a, a real market and a real opportunity, you know, the time that it would take us to deliver a product to market would be extremely short.
Speaker #3: but at the moment, I just, I just don't see it, it, it worth us investing in.
Speaker #6: Understood. And then on Electron, I wanted to ask about the TAM. In the context of, you know, I have this big slide, obviously, on Golden Dome.
Speaker #6: Hypersonics, historically, I think the TAM may be 30-plus launches. Do we think that the TAM now for Electron could be, you know, much bigger than that?
Speaker #6: Like 50, 60 launches going forward? Or at some point in the, in the ure?
Speaker #3: Well, you, you, you're talking to a conservative engineer by nature, Edison, so it's, it's, it's hard for me to get too bullish, but, if you just look at some of the programs like the Golden Dome, the amount of, the amount testing that that's gonna require and the amount of suborbital kind , you know, hypersonic missile simulants that you're going to need to deploy to be able to validate that system that there's, you know, that there's, there's a pretty significant number there that would be required.
Speaker #3: So in haste alone, you know, I think we're, we're expecting that to continue to grow. But, you know, year upon year, the, the, you know, the, the, the TAM continues grow and the exciting thing is that Electron is, is helping to create and open up that TAM.
Speaker #3: You know, it, we, we see a lot of satellites these days that are made specifically to just fit on Electron envelope, its environment, and, and it, and, you know, it's enabling a lot of, a lot of stuff.
Speaker #3: So, so think, you know, we, we, we continue to see the TAM expand and I think, you know, I don't e any, any sign of that decreasing in the ure.
Speaker #9: Great. If I can just sneak, one housekeeping one on, on the, the, on Geost. Any, color on how much revenue that could potentially bring in after it closes and what kind of, you know, growth profile or, or black hole that has going forward?
Speaker #9: Thanks.
Speaker #6: Yeah, I'll, I'll take that one. look, as we, we can't really say too much about it. It's, it's still a pending, pending acquisition. you know, as Pete mentioned, we, we got through the, the, antitrust review, which is, which is great.
Speaker #6: And I think, you know, close should be imminent, but we'll hold back any comments on color in that business until we actually own it.
Speaker #6: if you don't .
Speaker #9: Sounds like, ally understood. Thank you.
Speaker #1: The next question is from Jeff Van Ree with Craig Hallam. Please proceed.
Speaker #10: Great. Thanks for taking the questions. I guess Peter on space systems, when you kind of flesh it out in your mind, what do you envision space systems ultimately being? What percent of the way to your vision are we in terms of the capabilities that that segment currently has?
Speaker #3: Yeah, hi, Jeff. Great question. so, the toolbox is looking pretty full, actually. so, you know, from a, from purely, like a, a nuts and bolts component level, you know, the, the Minoric optical terminals are an important one.
Speaker #3: and, you ow, the, the vast majority of, of stuff is kind of, is kind of coming to focus. We, we will see us spend a lot more time now was on payloads and Geost was the first, first kind of beginning to that.
Speaker #3: And, and that, that, that really shifts you from being able to provide, you know, just a satellite bus to be able provide a, a, you ow, a complete thing.
Speaker #3: So, so yeah, the nuts and bolts, I'd we're largely, largely done. you know, the, there'll still be little add-ons we'll want to do, but our focus will be on, payloads and, and really rounding out the system.
Speaker #10: Yep. helpful. And, Adam on the margins as it relates to space systems, just correct me if I'm wrong. I think 40% was the target there.
Speaker #10: You've made some really good progress. Is 40 still the right number and any sense of a timeline of, , or a sense of scope that it might take to get to that 40%?
Speaker #6: Yeah, you know, there's a, there's, there's a, pretty wide mix, I would say, you ow, a margin profiles within our space systems business. You know, you think the margins on putting together a full turnkey, you know, platform solution, they tend be lower.
Speaker #6: you know, if you think about those margins, kind , if you wanna think about a es in the, in the 20s to 30s, but on, good scale with them because of the size of the contracts that are involved.
Speaker #6: And, you know, actually, those are much better margins than most other people would ex-expect to achieve, and that's because we, 're so vertically integrated.
Speaker #6: Now, when you look at the subsystems, we also have a very wide range there. We have some products where, you know, the margins are in the 20s, but we have some where margins are well north of 60 points.
Speaker #6: So if you look up blended average, you know, for, I would say, the, the overall space systems between the waiting, and right now it's kind of split evenly between subsystems and platforms.
Speaker #6: And as we start to mix in applications, we'll get even, you know, it'll get different, in, in a, in a good way. you should ink about 40%.
Speaker #6: We're not that far, actually, from that target. So I, I, I think our target was probably set a little bit on the modest side.
Speaker #6: So, but if you think 40 to 45 points, kind of as the, as the real target for margins are, I ink that's, that's probably a pretty good place to be.
Speaker #6: And that can be pretty, pretty good, you know, at the, as far as con-contribution to the bottom line because there's not a lot of R&D that goes into those businesses, right?
Speaker #6: A lot of it's customer-funded R&D. So when you look at the contribution margin, it's very, very healthy. so again, I think that, yeah, we've been, we, we've set the bar.
Speaker #6: We like to kind of, set expectations low and kind of over-deliver to those. And I ink that we're, we're on the path to do the same thing with our space systems business when it comes to margins.
Speaker #10: Yep. Very helpful. Maybe this is the last for me. On, on, on, Peter, you mentioned production and I missed a little bit of it, but on Neutron, obviously, you're spending a lot of time building, you know, scale manufacturing capabilities.
Speaker #10: Just where are you in terms of, , of Neutrons now in terms of how many are ou initially building and what is the manufacturing capacity, that you're utting up to give us a glimpse in terms how you're thinking in, in a of ships, you know, this year, next year, year after?
Speaker #3: Yeah, sure, sure. So, you know, some areas are at a high production rate, like, you know, engines. We're pushing for one engine every 11 days.
Speaker #3: and it's, it's kind , because it's a reusable launch vehicle program, the whole production cycle is, literally turned upside down. So, we need the most number of, vehicles in production at the start of the program rather than ramping and scaling.
Speaker #3: And as you go along. So, you know, as we talked about, there's, there's, multiple vehicles, that we're, that we're building even, even now. And, you ow, a stage one can be reused 10, 20 times, so, you know, you're not actually every year, you're not building that many stage ones.
Speaker #3: So the most amount of stage ones that 'll ever build is probably, you know, a two or three. of course, the stage two is, is, expendable, but, you know, that, that's been, you know, highly refined for, for a, for a very, you ow, very quick production and, and low cost.
Speaker #3: rate. So, yeah, I mean, a-as I said, as I said before, you ow, sort of three stage ones is, next year is, is the right, the right way to think about it.
Speaker #10: Three stage ones. Got it. Okay, thanks so much.
Speaker #1: Our next question is from Andre Madrid with BTIG. Please proceed.
Speaker #11: Hey, this is Ned Morgan on for Andre today. Thank you for taking the question. I was just wondering, I've seen a lot of partnerships lately in support of Golden Dome, and I was just wondering if you guys are looking at doing something similar as opposed to doing any M&A.
Speaker #3: Yeah, that's a good question. Ned, the reality is that, you know, we have very, very vertically integrated. And, you know, there's still obviously pieces of technology that we partner with, as we've shown in the SDA program.
Speaker #3: but I guess there's probably slightly less of a, a need, for us to, given, like I say, given our, our vertical integration and just the breadth of stuff that we've got.
Speaker #3: you ow, we don't need to partner with that many people to deliver a solution.
Speaker #11: Okay. Makes sense. Then maybe one more for me. regarding tranche three, how, different would the upside look if you guys are selected as a prime versus a sub through, for example, Geost?
Speaker #3: Hey, how do you, how do you and the upside, Ned? What do you mean by that?
Speaker #11: You know, if you guys are selected as a prime, I would imagine, you know, revenue contribution would be, you know, significantly more than as a sub.
Speaker #11: Through Geost's price, prior bid. So I was just wondering how things would look if, yeah, on that.
Speaker #6: Yeah, I can take that one. Yeah, can take that, Pete.
Speaker #11: Yeah, yeah. Basically, if you look at the value of the, of the, the subsystem, that Geost provides, you can think of that as being, you know, kind of, somewhere around a, you ow, 30% of the total platform value is in the, in the payload.
Speaker #11: So obviously, it's, 's, it's a much bigger opportunity as the prime than it's just as the, the sub for a subsystem. now, there, you know, there, is the opportunity where you could have a, a, you know, Goldilocks situation where.
Speaker #11: You're ected as the prime, but also, you know, Geost was bidding with, you know, with other primes as well for that opportunity. So, there's, there's a range of outcomes there, but yeah, certainly, we, you know, ur, our, our goal here is to select as a prime.
Speaker #11: Got it. Thank you y much.
Speaker #1: The next question will come from Christine Lywag of Morgan Stanley. Please go ahead.
Speaker #12: Hey, good evening, everyone. Peter, you've been very clear about your disciplined approach to pricing regarding Neutron. Considering the tightness of supply at launch, I'm a little surprised that you still haven't built out a sizable backlog for the program.
Speaker #12: Can you provide more color on how advanced your discussions are with incremental customers for Neutron? What are they waiting for to commit to an order, and how should we think about the competitive landscape, especially as you've got a competitor rocket coming into the market that's fairly well-capitalized too?
Speaker #3: Yeah, hey, Christine. well, I mean, you ow, you, you can split this into both, into, commercial and government. I an, we were onboarded, onto the NSL program, which obviously is, is a, is a, extremely large, large opportunity with five point something, five point six billion, if I remember.
Speaker #3: and then, on the, on the commercial side, you know, we've talked about this before, where, you know, they want to see a rocket that, that, that works before they commit because a lot of people have been burnt, signing on vehicles that, that, either delayed or, or even in some cases never turned up.
Speaker #3: And, you know, we've always talked about it as well, as we want to make sure that when we sign one of these customers that consume a large amount of our manifest, they actually turn up on time and all the rest of it.
Speaker #3: So, you know, we, we maintain that discipline, going through. We, you ow, we, it, it does nobody any good to fill up a, you know, a whole bunch of manifests with a bunch of launches, that, or a ch of payloads that, that, don't turn up in time and, and you kind of left-hand holding bag.
Um, but you know it depends we could, we could come across opportunities that generate, you know, enough offsetting, you know, incoming cash flow, that it's kind of a balances that out. But right now I'd say you should think of neutron as being continued to even in in success, scenario, in particular in a success scenario. Continuing to consume cash as we kind of build out that capability and put the uh, all the other scaling infrastructure in place.
Great, thanks for the color.
I think it's important, that Christine to me to, to, to differentiate though that I, I believe that, you know, the, the p&l will obviously look much much better once we get through the initial, uh, kind of successful test launch of neutron. So I think it's important to, to separate the kind of the free cash flow from the p&l Optics, right? Because I think the p&l does get much much much friendlier.
Um, and then I think, like a lot of other growth businesses, you know, we're going to be continuing to invest to grow, but the P&L should start to look much more attractive. And I think that's a, we're keeping our eye on both, obviously.
Great. And as a follow up to that, I mean, look, it's a good problem to have if you have a product that works and if you can scale up very quickly, um, those are all good problems to have as a growth company. But when we think about the capital size that you might need, if you can build like in a in a bulk case scenario, how how much Capital could you potentially consume like free, cash flow in 2026. And when you think about the cash balance today is this is that enough um or would you need to raise Capital to meet? Um, the demand. Should you be really successful and have that bookcase scenario? Play out.
Yeah, look I I think we we have sufficient Capital to scale Neutron so really if you look at where when when we're raising additional Capital, it's really not for Neutron. It's really all about doing things. Like you know the menarche and GEOS and other things that we have in our funnel. Um yes we could put a lot of money to work to to kind of respond to the demand signal as it evolves for Neutron that could continue to demand cash, but I don't see it out. Stripping kind of the, the even what we have today. So, again, I think that, you know, you're right, it's a good problem to have. Uh, I don't think that any
Any liquidity constraints would be driven by Neutron. I think it would really be driven by how aggressively we want to go after and enable inorganic, TAM-expanding type of opportunities.
Great. I'm tempted to ask 1 more so I just might. So when, when you look at that opportunity I mean it seems like the capital markets are fairly open your stocks that, you know, record high levels. Um, how aggressive do you want to accelerate? Uh, some of those growth, uh, Tam opportunities and where are those verticals? Where are you, most interested in? Um, what does that look like?
To see opportunities to further vertically integrate our supply chain. So we've done that very successfully in the past we will continue to find those types of opportunities.
I would say that when you look at the ultimate you'll end to end vision, obviously has applications elements to it which as Pete talked about some of that earlier.
But I would say right now, it's probably too early to show a lot of leg on kind of where we're going there because as Pete said, given the focus and the risk of entrepreneurial drift, where very very very focused on getting neutral and delivered <unk>.
Establishing very key fundamental foundational payload capabilities and then the rest is yet to be kind of to be kind of putting a focus over the later, but I'll kick it over to you.
You said, it very well at them I mean.
Christine we're not we're not finished yet that's for sure on M&A opportunities.
Great. Thank you.
The next question is from Ryan Koontz with Needham <unk> Company. Please proceed.
Great. Thanks.
And.
Most of my questions have been answered, but I'll touch on space systems, a bit nice progress on gross margins, obviously I know you had.
Had acquired.
<unk> business and some back some backlog there that was lower margin and can you.
How do you think about that business going forward and have the margins in that business now kind of normalized with new contracts and such that Missy comparable with the generic trajectory and continuing to see some uplift on spy systems. Thanks.
Well I can take I think part of the tactics on that one real quickly. So if you actually look at the progress on gross margin for the <unk> business.
It's been very very strong when we acquired that business, we're looking at high single digit gross margins.
And in the first half of 2025, we delivered margins that were above the long term target that we'd set for that business, we set a target of 30%.
That business is subject to the margin volatility is subject to kind of where the some of the again that early contract, which still hasnt completely kind of float its way through the books, yet there's still some to be delivered on that and so it's the timing of when that kind of comes in and out of deliveries.
But I would say look if you just kind of look at where we'll be for the year, we're going to be pretty much spot on our long term long term target of 30%.
And I think longer term there is upside to that and I think more importantly that deal is really or the acquisition is really kind of fulfilled strategic import of.
Kind of really taking control of a very critical and tricky component in <unk>.
Supply chain for being a long term kind of system provider and owner.
So I think on that for hopefully that gives you some color and then I.
Maybe Pete you can speak to maybe the types of opportunities that we see in that business going forward and kind of where you expect margins to land for those.
Yes, Thanks Adam.
Sorry, sorry.
We continue to expand capability in that business.
You would've seen that we were successful with some chips money, which has enabled us to completely modernized will enable us to completely modernized.
The reactor fleet in there.
And that drives in itself efficiencies and but if you look at programs like the Golden time, there is an unprecedented amount of Av.
Spacecraft and power that's needed to fulfill that and there's three spice Greg suppliers in the world and we are currently.
One of the largest if not the largest.
I'd say a lot of a lot of exciting opportunities for that business.
Going forward I mean, we are one of the preeminent providers for National security solar sorry.
That's pretty pretty exciting future.
That's great. Thanks, so much.
Yeah.
Our next question is from Tsuji de Silva with Roth Capital. Please proceed.
Hi, Pete Hi, Adam Adam can you just.
Remind us or tell us how the neutron cost will flow maybe from Opex to Cogs as the first launch goes and whether that might be material to the gross margin. So we could anticipate that as these first few launches go off.
Yes, that's going to be a really.
Challenging thing to model.
For you guys I think that that's a function of the fact that the first test flight of course, all of that flying through flowing through through.
Through R&D and now we're actually starting to four for the subsequent tails, that's not going to flow through throughout.
Cost of goods sold with revenue cover associated with it. So the P&L is going to fluctuate quite a bit to the positive as I mentioned to an earlier question.
Now when you start talking about the Reusability and what that introduces to the volatility of the margins you can imagine that as we progress through.
Critical hardening neutrons reusability.
Binnie reuse as will.
For example, we will be able to assume for for for amortizing over.
Kind of future missions, that's going to be a great influencer of our gross margin. So you can imagine if the rocket is only kind of assumed initially to do X number of reuse, but it actually surpasses that or it comes in underneath that youre going to have a lot of volatility because you've got a situation we have a fully.
Amortized booster with all the revenue going forward on it or you could have.
It made assumptions, where you expect supply a certain number of times. It is under under kind of achieved for that and so you have a lot of incremental costs for future missions that weren't assumed so it's going to be a tough one to manage I think that the only thing that we can really point to is a bit different because it wasn't designed to be reusable from the from the outset was electron and we've been able to bring down electronic costs.
Dramatically right and Thats without Reusability. So we have a track record of successfully kind of scaling in bringing down costs as we've talked about many many times another big influence for gross margins is overhead absorption. So I suspect that neutral and we'll be a.
A little bit different but not fundamentally different from the fact that what's going to drive its gross margins is going to be cadence right. So it's reusing cadence, but cadence is something that we again, we saw we understand how that works with elektron. The huge benefits you get when you get the cadence up and that's going to be a large driving factor for neutron as well again also coupled with.
Our success in getting this this vehicle to be reasonable as quickly as possible and for as long as market.
Okay, great well good luck, one computer out and the other question I have is on payloads.
As just kind of your entree here do you have.
Efforts in house for payloads as well as the center inorganic effort or will that segment be grown through our inorganic.
Exclusively thanks.
So jade.
So a little bit of a little bit of both the reality is that often these payloads.
Specially when you're looking to two.
Yes.
To bring solutions to be a national security have a very very long development cycles, and a lot of heritage associated with them, which kind of naturally leans itself to.
Acquisition more than organic creation.
But there's certainly certainly some elements of highlights internally that Nick.
We're looking at that we will just.
Gone to our own steam and then.
Some things like for like Geos.
Best in class it would take decades to recreate that an acquisition is by far the most efficient way of of that opportunity.
Okay helpful color. Thanks, Pete Thanks, guys.
Okay.
And the next question is from Anthony <unk> with Goldman Sachs. Please proceed.
Hey, guys. Thanks for the question.
I'm just curious if I recognize you guys are laser focused on neutron here, but.
Is there any reason to think that you guys would introduce a new launch vehicle in the future that these either larger the neutron or maybe even in between.
Elektron and neutron in terms of the capacity that it can take into orbit.
Yes.
Good question Anthony.
Certainly not not we don't really believe it is.
Really a market between the elektron and neutron side does it.
It's.
Very limited opportunity in that in that range.
No.
If we need to go larger I guess the good news is that the vehicle is very scalable.
It's a seven meter.
Diameter stage, one tank so it's very short dumpy vehicle.
Sorry.
Typically.
Thats, what governs your ability to increase the vehicle sizes, you take time it otherwise you end up with big long skinny pencils and that becomes challenging.
We have no intentions at this point in time, we think we've got the market accurately sized and we've proven historically that we have not been making those kind of calls.
But.
For whatever reason the market drastically moved to a larger scale we have.
Vehicle architecture that is.
Very very easy to scale.
Great. Thank you.
Okay.
And at this time, we're showing no further questioners in the queue and this does conclude our question and answer session I would now like to turn the conference back over to Peter Burke for any closing remarks.
Yes, thanks, very much operator, before we probably have that today.
Should be a some slide here.
Becoming Vincent conferences that the team will be attending.
We look forward to sharing more exciting news and updates with you there and otherwise thanks for joining us that wraps up today's call and we look forward to speaking with you all again by the exciting progress we make here at Rockaway, Thanks very much.
Okay.
Thank you for attending today's presentation. You may now disconnect your lines and have a pleasant day.
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