Rocket Lab Q2 2025 Earnings Report

Rocket Lab EPS Results

• Actual EPS: -$0.13
• Consensus EPS: -$0.07
• Beat/Miss: Missed by -$0.06
• One Year Ago EPS: -$0.08

Rocket Lab Revenue Results

• Actual Revenue: $144.50 million
• Expected Revenue: $135.42 million
• Beat/Miss: Beat by +$9.08 million
• YoY Revenue Growth: +35.90%

Rocket Lab Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 5:00PM ET

Rocket Lab (NASDAQ:RKLB) USA, Inc., a space company, provides launch services and space systems solutions for the space and defense industries. The company provides launch services, spacecraft design services, spacecraft components, spacecraft manufacturing, and other spacecraft and on-orbit management solutions; and constellation management services, as well as designs and manufactures small and medium-class rockets. It also designs, manufactures, and sells Electron, a reusable orbital-class small rocket; and the Photon satellite platforms, as well as developing the Neutron 8-ton payload class launch vehicle; conducts remote launch activities; and designs and manufactures a range of components and subsystems for the Photon family of spacecraft and broader merchant spacecraft components. The company serves commercial, aerospace prime contractors, and government customers. Rocket Lab USA, Inc. was founded in 2006 and is headquartered in Long Beach, California.

Rocket Lab Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Record Q2 revenue of $144.5 million (up 36% YoY) and GAAP gross margin of 32.1% topped guidance and drove sequential growth.
• Positive Sentiment: Electron executed five launches this quarter—including a record four launches in four weeks—reached its 69th mission with rising international agency demand, and has its 70th launch slated next week.
• Positive Sentiment: Neutron’s debut remains on track with Launch Complex 3 activation, accelerated Archimedes engine qualification tests, FCC license granted, FAA launch application accepted, and first hardware en route to Virginia.
• Positive Sentiment: The imminent GEOS acquisition adds critical missile-tracking payloads, reinforcing Rocket Lab’s one-stop-shop position and bolstering prime contractor roles for major defense initiatives like SDA’s Golden Dome.
• Negative Sentiment: Heavy R&D and infrastructure investments for Neutron led to GAAP operating cash flow of –$23.2 million and non-GAAP free cash flow use of $55.3 million in Q2, with elevated spending expected into 2026.

Presentation

[Operator]

Please note that today's event is being recorded. At this time, I would like to turn the conference over to Muriel Baker, Senior Communications Manager. Please go ahead.

[Murielle Baker, Senior Communications Manager at Rocket Lab USA]

Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's Second Quarter twenty twenty five Financial Results. 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 our results are highlighted in today's press release, and others are contained in our filings with the Securities 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.

[Murielle Baker, Senior Communications Manager at Rocket Lab USA]

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. 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. This call is also being webcast with a supporting presentation, and a replay and copy of the presentation will be available on our website. Our speakers today are Rocket Lab founder and chief executive officer, Sir Peter Beck, as well as chief financial officer, Adam Spice.

[Murielle Baker, Senior Communications Manager at Rocket Lab USA]

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

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Thanks, Muriel, and thanks for everybody joining us today. Look, we've delivered impressive financial results this quarter with another record revenue of 144,500,000.0 above the high end of our prior guidance and up 36% compared to last year. Our GAAP gross margin expansion exceeded expectations this quarter two and the consecutive growth of the company is really exciting to drive. No surprises here that Electron continues to be the leader of the small launch industry. We had five launches across the quarter, two of them back to back from Launch Complex 1 in two days.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

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 Neutron this quarter. Launch Complex 3 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. And finally, in space systems, our prime contractor status is expanding with our imminent acquisition of GEOST.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Being able to quickly build and deploy entire satellite systems is the cornerstone of the future US defense strategy, 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. We're very close to finalising acquisition of GEOS, a maker of missile tracking satellites for national security missions. Having cleared through the antitrust review, we're on track for signatures on paper here pretty shortly. 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.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

We're already a trusted disruptor in the launch and prime contractor for Constellation builds, and this acquisition adds to our competitive advantage. It will 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, like the Golden Dome and the SDA constellations. The $175,000,000,000 Golden Dome programme could prove to be one of DOD's largest procurements to date, and we're in a great position to capitalise on opportunities here. Our strategic 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 component supplier. Our pursuit of the Golden Dome extends just beyond payloads.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

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 sixty ninth launch. With our hypersonic testing variant, Haste, we are revolutionising the way missile defence technology is tested in a hypersonic environment. A new reusable rocket, Neutron, perfectly answers the call for a diversified launch of the national security and can deploy entire constellations of spacecraft at once to build out the dome's proliferated architecture. 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 opportunity to build upon that here with our existing capability.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

And look, the list goes on, but I won't belabor the point. Our advantage is our commercial speed and proven execution. The way programmes like this have been built in the past, dominated by the large defence primes, just won't work this time around to meet the administration's urgent timeline. It needs agility and innovation, vertical integration and on time delivery and execution. That's what we've delivered time and time again across our programmes to date and what we stand ready to deliver for the Golden Dome.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

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. We're bringing 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 orbit operations. 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, exactly what the US administration is seeking with Golden Dome.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

This mission has a twenty four hour call up requirement, which quite frankly is business as usual for Rocket Lab these days, and we recently cleared the program milestone for Victus Hayes that moves us into the final integration and testing phase of our spacecraft for the mission and launch Electron Electron later is on track later this year. Another program with a major milestone tick is a 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 recognise further revenue from this $515,000,000 programme. As this constellation gets underway, we're also preparing for a much larger opportunity 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 partner.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Our incoming sensor payloads, for example, are also in play for an SDA award and through other bidders. 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. 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. It was great to see a $700,000,000 provided for a Mars telecommunications orbiter in a Senate's recent budget. That the path to Mars for human spaceflight must begin with the ability to communicate there.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

And this is something that we've always strongly pushed for. In fact, we were the only company that proposed an independently launched Mars telecom order or orbiter as part of the end to end Mars sample return mission. So our ambition is clearly in line with the administration's vision for Mars. Much of our technology is already across major Mars missions like NASA Insight Lander, the Ingenuity helicopter, the cruise stage that brought Perseverance to Mars, and of course, the Escapade spacecraft that are ready for launch here soon. We have got the experience in delivering mission success for Mars exploration and a vertically integrated approach reduces complexity, controls cost, and provides schedule certainty, all under a firm fixed price.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Now on to Electron. Once again, another busy quarter for Electron as demand and launch cadence continues to soar. The beauty of Electron is being able to choose when and where you want to fly. Sometimes for us that can mean flying in very close succession, like the four launches in four weeks that we saw in June, and two of those flew just days apart, a record turnaround for us at Launch Complex 1. We've since racked up launch 69, and 70 is scheduled for lift off next week, keeping us on track for 20 or more launches by this year's end.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

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 the demand for small dedicated launch continues to expand. 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. 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. The mission urgency stems from ESA's need to to meet, spectrum requirements by early twenty six. But with few domestic rides to space available for them, Electron is stepping up to the task of responsive launch.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

It's a similar situation faced by another sovereign space agency that came calling for Electron two. I can't quite reveal the full details of those missions yet, but it's fuel on the fire to Electron's international expansion and leadership in the smaller market globally. Now to cap off the list of space agency launch contracts, we secured another NASA mission on Electron for launch early twenty twenty six. 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. Now on to our neutron update for the quarter.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Let's start with a top down view of where things stand today. We're building more than just our first rocket. We're laying the foundation for long term sustainable programme. We know that from experience that building the first one is hard, but building the system that gets you to launch number ten and twenty and beyond is much harder. Most of the capital of any rocket programme goes into building out the infrastructure, and we believe we've got all the critical elements in place now.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

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 eleven 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. 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 fearing, major structures, second stage, engine qualification, etcetera. It's a green tick for stage two flight hardware and its qualification program. The brains of the rocket, like the flight computer in GNC, are ready for flight, so lots of green across the vehicle as you'd expect.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

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 and the FAA has accepted our launch license application that puts us on track for a launch license to fly from Launch Complex 3 by the end of the year. We've also had the critical agreements in place to transport flight hardware to the launch site on Wallops Island. You've likely seen a bit of activity on that front around expanding our operations and dredging in the channel, but these improvements are related to increasing operational flexibility as launch cadence ramps up. It's not a gate to Neutron's debut.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

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 going to stay that way up until just before we launch. There are still 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 and 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. First up, an exciting moment on the path to launch.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

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. Having completed its critical testing phase, it's headed to the Launch Complex 3 for final integration in 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. Once they've completed in a major structural test they'll progress into final integration and stage testing.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

As we move out of R and D into production for the next rockets in our fleet, our factories are all humming. We've automated the production of the largest composite rocket structures in history with our 90 tonne 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 and allows us to scale efficiently. And we've made long lead commitments for manufacturing equipment that puts us in good place to build three vehicles next year. For Archimedes, engine testing is accelerating, and this is the most crucial and time consuming aspect of any rocket development program and always the longest pole in the tent.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

We're running the engine to full mission duration, and the operational test cadence is heading up to three or four hot fires a day now, seven days a week, as we work diligently through all the engine qualification programme. In between hot fires, the team's making improvements and iterating on the design quickly and then getting right back into the next engine test fire and on the stand. We expect these tweaks to all the way up to Neutron's debut launch and beyond. For those who are interested take a look at the latest mission duration hot fire video we just shared. Moving on to Launch Complex 3, I'm pleased to say that we have an official date for the site opening later this month.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

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. Launch Complex 3 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. National security must take priority and with Neutron onboarded to the NSSL program earlier this year, a rocket will be the first to fly for NSSL out of Virginia when we pick up missions under that contract.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

We'll be cutting the ribbon for Launch Complex 3 on August 28. We're also opening up a limited number of spaces for retail shareholders to join us on Wallops Island, so I encourage anybody who is interested to check out the details on our website. All in all, we continue to push extremely hard for end of year launch. We're continuing to run a green light schedule with Neutron, which means every single thing needs to go to plan for the schedule to hold. But I also want to stress that we're not going to rush and take stupid risks to get, you know, launch Neutron before it's ready.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

In the context of the life cycle of the vehicle and the program, a couple of months here or there is completely irrelevant. What's really important is performance, reliability, scalability right from the get go, 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, in fact I'm little bit infamous for it now, I'm not built to build shit. So with that, I'll hand it off to Adam and he can run through the financial highlights for the quarter.

[Adam Spice, CFO at Rocket Lab USA]

Great. Thanks Pete. Second quarter twenty twenty five revenue was a record $144,500,000 which was above the high end of our prior guidance range and reflects significant year over year growth of 36%, driven by strong contribution from both business segments. Second quarter revenue increased 17.9% sequentially. Our Space Systems segment delivered $97,900,000 in the quarter, reflecting a sequential increase of 12.5%, driven by increased contribution from each of our satellite components businesses.

[Adam Spice, CFO at Rocket Lab USA]

Our Launch Services segment delivered revenue of $56,600,000, 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%. Non GAAP gross margin for the second quarter was 36.9%, which was also above our guidance range of 34% to 36%. 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.

[Adam Spice, CFO at Rocket Lab USA]

Relatedly, we ended Q2 with production related headcount of eleven fifty, up 62 from the prior quarter. Turning to backlog, we ended Q2 twenty twenty five with approximately $1,000,000,000 of total backlog, with launch backlog representing approximately 41% of this and space systems 59%. In the quarter, launch backlog continued to take increasing share with promising underlying trends as we convert a very strong pipeline of neutron, electrons, and haste opportunities. 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. Upon the anticipated near term closing of the GEOOST acquisition and given an increased line of sight to the Minarik acquisition closing, the composition of backlog will likely skew a bit back in favor of space systems and further underpin incremental future growth. We continue to cultivate a healthy pipeline, 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. We expect approximately 58% of current backlog to be recognized as revenues within twelve months, and we continue to get relatively quick turns business that drive top line growth beyond the current twelve month backlog conversion. Turning to operating expenses.

[Adam Spice, CFO at Rocket Lab USA]

GAAP operating expenses for the 2025 were $106,000,000 above our guidance range of 96 to $98,000,000. Non GAAP operating expenses for the first quarter were $86,900,000 which was also above our guidance range of 82 to $84,000,000. 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. 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. In RD specifically, GAAP expenses increased $11,000,000 quarter on quarter due to ramping up Archimedes production, paired with increased expenses related to mechanical systems and composites that just mentioned.

[Adam Spice, CFO at Rocket Lab USA]

Non GAAP R and D expenses were up $10,200,000 quarter on quarter, driven similarly to the GAAP expenses. Q2 ending R and D headcount was $9.35, representing an increase of 12 from the prior quarter. In SG and 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 and A opportunities, partially offset by a step down in stock based compensation in the quarter. Non GAAP SG and 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 and A spending as we look to scale the business more efficiently at this point.

[Adam Spice, CFO at Rocket Lab USA]

Q2 ending SG and A headcount was $3.43, representing an increase of 11 from the prior quarter. In summary, total second quarter headcount was 2,428, up 85 heads from the prior quarter. Turning to cash, purchases of property, equipment, and capitalized software licenses were $32,000,000 in the 2025, an increase of $3,300,000 from the $28,700,000 in the first quarter as we finalize LC3 construction activities, continue to invest in the engine test facility in Stettus, 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. GAAP operating cash flow was a negative $23,200,000 in the 2025, compared to a negative $54,200,000 in the first quarter.

[Adam Spice, CFO at Rocket Lab USA]

The sequential decline in negative GAAP operating cash flow of $31,000,000 was driven primarily by increased cash receipts from our SCA satellite program. Similar to the CapEx dynamics mentioned earlier, cash consumption will continue to be elevated due to Neutron development, longer lead procurement for SDA, investment in subsequent Neutron tail production, and related infrastructure to scale the business beyond our initial test flight. 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 the 2025 was a use of $55,300,000 compared to a use of $82,900,000 in the first quarter. The ending balance cash, cash equivalents, restricted cash, and marketable securities was $754,000,000 as of the end of the 2025. The sequential increase in liquidity is due to the at the market equity offering that we announced earlier in the year, which generated $300,800,000 in the second quarter, which in part is intended to fund acquisitions such as the announced Minarik acquisition, the GEOS acquisition, and other targets in a robust M and A pipeline, along with general corporate expenditures and working capital.

[Adam Spice, CFO at Rocket Lab USA]

We exited q two in a strong position to execute on our organic expansion opportunities as well as inorganic options to further further vertically integrate our supply chain and grow our strategic capabilities and expand our addressable market, consistent with what we have done successfully in the past. Adjusted EBITDA loss was $27,600,000 in the 2025, better than our guidance range of a 28,000,000 to $30,000,000 loss. The sequential decrease of $2,400,000 of adjusted EBITDA loss was driven by an increase in revenue paired with increased gross margin partially offset by increased r and d expenses related to Neutron. With that, let's turn to our guidance for the 2025. We expect revenue in the third quarter to range between 145 and $155,000,000.

[Adam Spice, CFO at Rocket Lab USA]

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%, and non GAAP gross margin to range between 39% to 41%. 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 104,000,000 and $109,000,000 and non GAAP operating expenses to range between $86,000,000 and $91,000,000. These modest quarter on quarter increases at the midpoint of our guidance are to be driven primarily by continued Neutron development spending across staff costs, prototyping, and materials, though the spend is beginning to shift from R and D to flight two inventory. I'm encouraged 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 and d spend and on the path to generating future meaningful operating leverage and positive cash flow.

[Adam Spice, CFO at Rocket Lab USA]

We expect third quarter GAAP and non GAAP net interest expense to be $1,300,000. We expect third quarter adjusted EBITDA loss to range between 21,000,000 and $23,000,000 and basic weighted average common shares outstanding to be approximately $528,000,000 shares, which includes convertible preferred shares of approximately 46,000,000. 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. And with that, we'll hand the call over to the operator for questions.

[Operator]

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. And today's first question comes from Michael Leshock with KeyBanc Capital Markets. Please proceed.

[Michael Leshock, Vice President at KeyBanc Capital Markets]

Hey, good afternoon. Wanted to ask on Neutron and specifically the Archimedes engine. I appreciate all the commentary there around the hot fire test. Where does 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?

[Michael Leshock, Vice President at KeyBanc Capital Markets]

Is there a way to frame it, how close you are relative to what is required for performance to power a neutron flight?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah. Hi, Michael. Yep. So from a performance perspective, we're very happy. 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.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

So normally you have an ascent profile where there's a couple of throttle points, especially on a stage one, and it's a fairly simple thing. But of course, we have a re entry burn and a landing burn. So you have to start the engine at different propellant temperatures, different head pressures and all these kinds of things. So it creates a much enlarged run box or set of conditions that you have to be able to operate the engine in. It's much more challenging to do.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

But from a basic performance of the engine, we're very happy where it is. And like I say, it's just a much more complicated qualification programme to get through because you're qualifying Ascent and Ascent at the same time.

[Michael Leshock, Vice President at KeyBanc Capital Markets]

Great. And then shifting to a longer term question, you've talked about a satellite constellation potentially being a long term opportunity for the company. How close are you to begin working on a constellation of your own? We saw the release of Flatellite 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?

[Michael Leshock, Vice President at KeyBanc Capital Markets]

Or is it more likely a longer term opportunity maybe five or more years down the road? Thanks.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah, sure. So we've always, as you point out, we've always made our ambitions clear here, and we think that is the power of being an end to end space company is when you have the ability to build whatever satellite you need and launch it, it will. It's a very powerful position to be in. However, I'm also very aware of entrepreneurial drift where someone doesn't finish one thing before they start the next. And while we've been methodically building all of the capabilities and vertically integrating all the satellite components and whatnot, need to be able to do exactly what we want to do until neutron is finished in flying.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

That's a key element of being able to deploy a disruptive infrastructure of satellites. So I wouldn't expect any huge announcements from us on constellations until the big piece of the puzzle, which is Neutron, starts to absorb less of their focus.

[Michael Leshock, Vice President at KeyBanc Capital Markets]

Great. Appreciate all the detail. Thank you, guys.

[Operator]

And our next question is from Eric Rasmussen with Stifel. Please proceed.

[Erik Rasmussen, Vice President at Stifel Financial Corp]

Yes, thanks for taking the questions and great to hear all the progress. And I'm happy to hear the noise around the dredging. Seems like there's not really an issue in the near term of getting to your schedule. Just wanted to ask about backlog and I think a lot of this is continued upon the SBA right now. I know you've also talked about the Golden Dome, but it looks like Charge three.

[Erik Rasmussen, Vice President at Stifel Financial Corp]

Maybe just if you could just update us on what your thinking is around potential timing around the RFP process, where Rocket Lab will compete and at what and I guess then with this in the vein of sort of the backlog, at what point will you start to include Neutron into the backlog?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Hey, Eric. I'll answer some of those and I'll let Adam answer some of them as well. But more generally in backlog, the kind of things that we're chasing now are really large programmes. By nature, these programmes are pretty lumpy. SDA is a great example.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

I think we've put ourselves in a very strong position. We're executing against our current SDA contract very strongly, and you've seen us acquire things like GEOS that put us in a very strong position to provide solutions that are not plagued by delays and things like that. And also our recent penny acquisitions of things like Manaric, which are one of the key elements in the SDA programme. So I believe the timing of the announcement is somewhere between September and October for the tranche three. It's always a little bit opaque as SDA the works through those awards, but that's sort of a similar timeframe.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

But at any one point, we're working very large proposals, both government and commercial, and just by their very nature they take a little bit longer to solidify, but I'll let Adam maybe if he's got any comments on backlog.

[Adam Spice, CFO at Rocket Lab USA]

Yeah. No. Think, Pete, I think you hit it right. I think, look, we've diversity in the things that we're chasing. It's easy to focus on something like SCA tranche three because it's kind of a big shiny object a lot of people are actually chasing.

[Adam Spice, CFO at Rocket Lab USA]

But we've got a lot of diversity in the things that we're that we're going after. And to your question on on Neutron's influence on backlog, we do have, you know, three missions of Neutron in in the backlog today. Those were added, you know, over the last few quarters. And I would say that, you know, of course, we expect after a successful flight of Neutron that we that will start to gain a lot more momentum because as you can imagine, you know, launch customers are, you know, are they're they're they're betting a lot when they choose a launch choose a launch vehicle. It's a long term choice, and there are limited choices out there today.

[Adam Spice, CFO at Rocket Lab USA]

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. I would I would say that the, you know, if you look across all of our businesses, we're starting to see 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. So it's just a matter of kind of converging, and if you look at the at the trend of backlog over the last year, actually launch has been the bright spot, right? We had a huge step up when we when we put the s d a tranche to award into backlog, and then basically, you know, we've working against that as we recognize some of that revenue, and then launches continue to build in the backlog, and, and that is that's that's gonna continue to be we believe to be the case once Neutron kinda gets past that next big, milestone or achievement of of initial launch.

[Erik Rasmussen, Vice President at Stifel Financial Corp]

Great. Maybe just sticking with launch, Electron, you already did 11, sounds like you have the twelfth one coming up pretty soon, your seventieth launch. What would you say the mix between your traditional Electron launches and and maybe haste missions in the back half of the year, what does that look like?

[Adam Spice, CFO at Rocket Lab USA]

Yeah, so if you if you look in our in our backlog right now, there if you look at the mix, we're expecting about I think it's three of the remaining launches this year will be will be haste missions. 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 will be nice growth off 2024, and so we haven't had any haste launches yet this year. So we're we're looking at roughly, you know, three launches and then all of them in the back half of the year.

[Erik Rasmussen, Vice President at Stifel Financial Corp]

Great. Maybe just my final, that's on Neutron, And I'm just trying to sort of parse through some of the words that Peter had mentioned in terms of cadence. Think previously we were expecting the first test launch, so you have more of the 1.35 launch cadence for the first few years. But given the strong demand signals, ensure it's a 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 look like?

[Erik Rasmussen, Vice President at Stifel Financial Corp]

Are we still sort of targeting that 1.35? Thank you.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah, Eric. I mean, get ridden every day on that question. The reality is it just takes time to roll in the learnings between flights. So we proved with Electron that that was the right kind of scale up cadence. And if you look historically across rocket programmes, that's even pretty aggressive.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

So we'll stick with that 135. Look, who knows? But at the moment, from where we are in the programme, that feels like the right kind of place to target everything. Thanks. Good luck.

[Operator]

And the next question is from Andre Shepherd with Credit Suisse. Please proceed.

[Andres Sheppard, MD & Senior Equity Analyst at Cantor Fitzgerald]

Hey, guys. Andres here from Cantor Fitzgerald. I'm not sure what that was. Hey, Pete. Hey, Adam.

[Andres Sheppard, MD & Senior Equity Analyst at Cantor Fitzgerald]

And hey, Patrick. Congrats on the quarter and all the great success. Limit myself to two questions just to be respectful to all the other analysts. Maybe one on space systems and one on launch systems. On the space systems, Adam, I'm wondering if you can maybe remind us kind of what does the revenue recognition look like for the FDA Tranche two award both for this year and for next year?

[Andres Sheppard, MD & Senior Equity Analyst at Cantor Fitzgerald]

And I know you mentioned obviously you're exploring several opportunities, but just to come back to FDA Tranche three, if I'm not mistaken, that could potentially be the largest contract in company history. And so how would you characterize maybe the likelihood of success there? Thank you.

[Adam Spice, CFO at Rocket Lab USA]

Yeah, can comment on kind of the rev rec, know, generally for the SDA program tranche two transport layer that we have we're executing against. So you know these programs typically you know the award was I believe in late twenty twenty three and so you get typically when the program kicks off you're doing a lot of the kind of initial finalizing the design and so forth. So where you really experience the meat of the revenue recognition is when you're actually starting to take possession of the bill materials to build the satellites with. So right now, 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. So we're gonna see a ramp in spending or sorry, a ramp in spending and a ramp in rev rec resultantly from that.

[Adam Spice, CFO at Rocket Lab USA]

So you know, think that, you know, 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 is kind of the third year and then it'll tail off. So you have kind of tails on either end with most of the of the revenue recognition in '25 and '26. I mean just if you want to just think broad strokes you know for contribution in 2025, it's it's probably if you want to think in the order of kind of 150 to 200,000,000 is the right range to be in, and then again that should look somewhat similar in in 2026, assuming that we continue to execute 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, and it would have a similar profile.

[Adam Spice, CFO at Rocket Lab USA]

I mean, there's a chance that there could be some revenue recognized early in the program, even as early as some of it later this year, and then you'd have kind of the buildup, you know, where 2026 would look for that program would look probably like 2024 ish look for SDA, and then you'll have that again probably 80% of the revenue being recognized within the middle two years before your program. So that's probably the the best guidance I can give to you right now on that.

[Andres Sheppard, MD & Senior Equity Analyst at Cantor Fitzgerald]

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. You know, as we're getting closer and closer to Neutron, I'm curious if you're seeing perhaps an uptick from customer demand or prospective customer demand for future flights.

[Andres Sheppard, MD & Senior Equity Analyst at Cantor Fitzgerald]

Obviously, have the track record, the heritage from the electron and haste, Neutron still coming up, given the, do you want to call it, the conflicts between the administration and SpaceX management team, just curious if you've seen perhaps an uptick in interest for future Neutron emissions? Any color there since neutron essentially will be the only viable alternative to the Falcon nine? So just curious on what you're seeing. Thank you.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah. Thanks, Andre. Well, I mean, look, I think it's the market does need a competitor to the Falcon nine. I think that was very clear, and that was presented to us both from our commercial customers and our government customers. So there's a lot of anticipation and pent up demand for that vehicle to come to market, and that continues to increase all the time, not just from sort of political events or geopolitical events but also from just large programmes being added, things like the Golden Dome.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

That is going to be one of the largest DoD programmes in the country's history. And they're all spacecraft in space, and they all need to get there. So we're seeing growing demand and also, I think it's fair to say, realisation that sorting out from the real players, from players that are less likely to be able to provide.

[Andres Sheppard, MD & Senior Equity Analyst at Cantor Fitzgerald]

Excellent. Thank you so much both. Congrats again on the quarter. I'll pass it on.

[Operator]

The next question is from Ron Epstein with Bank of America. Please proceed.

[Ron Epstein, Senior Research Analyst - Aerospace & Defense Electronics at Bank of America]

Yes. Hey, good afternoon, guys. 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?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah. Hey, Ron. Well, you're not going to hear some rubbish about just clearing the pad as a success. That is not. For us, a successful launch of Electron will be successfully getting to orbit and making sure the vehicle is ready to scale.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

I think you saw us come out of the gate with Electron going to orbit and then straight away three missions after that successfully delivering customers to orbit. So that will be the definitions of success. The bit that we'll be a little bit more flexible on is obviously the reentry and soft landing of the first vehicle. There's a lot to learn there. We think we've got a good head start, but that's the bit that always requires a bit of iteration.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

So like I say, we'll declare success when we're in orbit. If we don't soft splash down on the first flight, I think there's a little bit of tolerance there to the learning, but apart from that, Got

[Ron Epstein, Senior Research Analyst - Aerospace & Defense Electronics at Bank of America]

Got you. Thank you for that. And then Adam, maybe what drove the strong electron ASP in the quarter? And is that a reasonable way to think about electron pricing going forward?

[Adam Spice, CFO at Rocket Lab USA]

Well, know, we've been well, there's a few things to drive that but probably the most I would say dominant force would be the mix of haste in the manifest. So as we've talked about, you know, we you know the haste emissions require very unique, know, I'd say mission assurance and other things. The vehicles are unique and so forth, so that makes sense that the ASP would be significantly higher, but it's really driven primarily by that. I'd say overall if you look at, know, commercial haste, so commercial, electrons, those trends have been trending up nicely as well. So we really had we benefited from the fact that we've got customers coming back and they're doing bulk buys of electrons and then significantly higher ASPs than we've seen in the past.

[Adam Spice, CFO at Rocket Lab USA]

If you were to rewind 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 to do that, and so in order for us to build comp, you know, the manifest and be able to, you know, kind of continue to drive the market, know, we we did that, 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 the strength as well is we're getting a lot of support, as Pete mentioned in his comments, from the international community. Sovereign, you know, countries are coming forward with strong demand, and I think that, you know, it's it's it's a testament to the fact that execution in this market is so so so difficult. A lot of people can talk about it. They can put spec sheets on on web pages and whatever else, you know, and and and payload user guides.

[Adam Spice, CFO at Rocket Lab USA]

But at the 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. I mean, now it's pretty clear that, you know, execution is key and you got to pay for execution.

[Ron Epstein, Senior Research Analyst - Aerospace & Defense Electronics at Bank of America]

Gotcha. Gotcha. Gotcha. And then and that's actually a nice segue into my my last question. When we think about the Monarch acquisition Electron adding the European Space Agency, what do you see as potential is there a potential European national security opportunity for you guys in space?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah, Ron, I think if you look outside The US, what is the next biggest market in space? And it's Europe. And you'd be a fool not to be in there. So Manarika's a kind of stepping point in. And as you've seen, obviously, as you point out, the European Space Agency contracts will continue to expand into Europe.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

And we have a lot of unique capabilities that only reside with us, so we'll look to apply those.

[Ron Epstein, Senior Research Analyst - Aerospace & Defense Electronics at Bank of America]

Got it. All right. Thank you.

[Operator]

Our next question comes from Edison Yu with Deutsche Bank. Please proceed.

[Edison Yu, Director at Deutsche Bank]

Hey, good afternoon. Thank you for taking our questions. Wanted 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 away, bigger.

[Edison Yu, Director at Deutsche Bank]

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 directly or more broadly going forward?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah. It's a good question. I've never really understood the business opportunity or the business case for those because you start off with a relatively cheap rideshare and you end up with a really expensive delivery. So as you point out, they've had a couple of starts. So look, if it turns into being a real market, it's completely elementary for us to go after it.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

I mean, we operate a kick stage on the top of Electron essentially, And all the components to be able to do it, we have. So if it turns out to be a real market and a real opportunity, the time that it would take us to deliver a product to market would extremely short. But at the moment, I just don't see it worth investing in.

[Edison Yu, Director at Deutsche Bank]

Understood. And then on Electron, I wanted to ask about the TAM in the context of I have this slide obviously on on Golden Dome, hypersonics. Historically, I think the TAM maybe 30 plus launches. Do we think that the TAM now for electron could be, much, much bigger than that, like fifty, sixty launches going forward or at some point in the future?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Well, you're talking to a conservative engineer by nature, Edison, so it's hard for me to get too bullish. But if you just look at some of the programmes like the Golden Dome, the amount of testing that that's going to require and the amount of suborbital kind of hypersonic missile simulants that you're going to need to deploy to be able to validate that system, there's a pretty significant number there that would be required. So in haste alone, I think we're expecting that to continue to grow. But year upon year, the TAM continues to grow, and the exciting thing is that Electron is helping to create and open up that TAM. We see a lot of satellites these days that are made specifically to just fit on Electron, envelope its environment, and it's enabling a lot of stuff.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

So I think we continue to see the TAM expand, and I think I don't see any sign of that decreasing in the future.

[Edison Yu, Director at Deutsche Bank]

Great. If I could just sneak one housekeeping one on GEOS. Any color on how much revenue that could potentially bring in after it closes and what kind of, you know, growth profile or or backlog that has going forward?

[Adam Spice, CFO at Rocket Lab USA]

Thanks. Yeah, take that one. Look, yes, we can't really say too much about it. It's still a pending acquisition. You know, as Pete mentioned, we we got through the the antitrust review, which is which is great.

[Adam Spice, CFO at Rocket Lab USA]

And I think, you know, close should be imminent, but we'll hold back any comments and color on that business until until we actually own it, if you don't mind.

[Edison Yu, Director at Deutsche Bank]

Okay. Totally understood. Thank you.

[Operator]

The next question is from Jeff Van Rhee with Craig Hallum. Please proceed.

[Jeff Van Rhee, Partner, Equity Research Analyst at Craig-Hallum Capital Group LLC]

Great. Thanks for taking the questions. I guess, Peter, Space Systems, when you kind of flesh it out in your mind what 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?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yes, Geoff, great question. So the toolbox is looking pretty full actually. So from purely like a nuts and bolts component level, the Manaruk optical terminals are an important one, and the vast majority of stuff has kind of come into focus. Where you'll see us spend a lot more time now is on payloads, and GEOS was the first kind of beginning to that. And that really shifts you from being able to provide just a satellite bus to be able to provide a complete thing.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

So yeah, the nuts and bolts, I'd say, we're largely There will still be little add ons we'll want to do, but our focus will be on payloads and really rounding out the system.

[Jeff Van Rhee, Partner, Equity Research Analyst at Craig-Hallum Capital Group LLC]

Yes. Helpful. And Adam, on the margins as it relates to Space Systems, just correct me if I'm wrong, think 40% was the target there. You've made some really good progress. Is 40% still the right number and any sense of a timeline or sense of scope that it might take to get to that 40%?

[Adam Spice, CFO at Rocket Lab USA]

Yeah. You know, there's a there's there's a pretty wide mix, would say, you know, of margin profiles within our space systems business. You know, you think about the margins on putting together a full turnkey, you know, platform solution, they tend to be lower. You know, if you think about those margins, kind of, if you wanna think about a ranges in the in the twenties to thirties, but on we have good scale with them because of the size of the contracts that are involved. And, you know, actually, those are much better margins than most other people would expect to achieve, and that's because we we're so vertically integrated.

[Adam Spice, CFO at Rocket Lab USA]

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 twenties, but we have some where margins are well north of 60 points. If you look a 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, and as we start to mix in applications, we'll get even, it'll get different in good way. You should think about 40%. We're not that far actually from that target, so I think our target was probably set a little bit on the modest side.

[Adam Spice, CFO at Rocket Lab USA]

But if you think of 40 to 45 points of as the as the real target for margins, I think that's that's probably a pretty good place to be, and that can be pretty pretty good, you know, as far as contribution to the bottom line because there's not a lot of r and d that goes into those businesses. Right? A lot of it's customer funded r and 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 set the bar. We like to kind of set expectations low and kind of over deliver to those, and I think that we're we're on the path through the same thing with our space systems business when it comes to margins.

[Jeff Van Rhee, Partner, Equity Research Analyst at Craig-Hallum Capital Group LLC]

Yes. Very helpful. Maybe last for me. Peter, you mentioned production, and I missed a little bit of it. But on Neutron, obviously, you're spending a lot of time building scale manufacturing capabilities.

[Jeff Van Rhee, Partner, Equity Research Analyst at Craig-Hallum Capital Group LLC]

Just where are you in terms of Neutron's now in terms of how many are you initially building? And what is the manufacturing capacity that you're putting up to give us a glimpse in terms of how you're thinking in number of ships this year, next year, year after?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yes, sure, sure. So some areas are at a high production rate, like engines we're pushing for eleven one engine every eleven days. And it's kind of because it's a reusable launch vehicle programme, the whole production cycle is literally turned upside down. So we need the most number of vehicles in production at the start of the programme rather than ramping and scaling as you go along. So as we talked about, there's multiple vehicles that we're building even now. And a stage one can be reused ten, twenty times. So actually every year you're not building that many stage ones. So the most amount of stage ones we'll ever build is probably year two or three.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Of course, the stage two is expendable, but that's been highly refined for a very quick production and low cost rate. So, yeah, I mean, as I said before, sort of three stage ones next year is the right way to think about it.

[Jeff Van Rhee, Partner, Equity Research Analyst at Craig-Hallum Capital Group LLC]

Three stage ones. Got it. Okay. Thanks so much.

[Operator]

Our next question is from Andre Madrid with BTIG. Please proceed.

[Ned Morgan, Equity Research Associate at BTIG]

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 and A.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yes, a good question, Ned. The reality is that we're very, very vertically integrated, and there's still obviously a piece of technology that we partner with, as we've shown on the SDA programme. But I guess there's probably slightly less of a need for us to, given like I say, given our vertical integration and just the breadth of stuff that we've got, we don't need to partner with that many people to deliver a solution.

[Ned Morgan, Equity Research Associate at BTIG]

Okay, makes sense. And 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?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

How do you mean the upside, Ned? What do you mean by that?

[Ned Morgan, Equity Research Associate at BTIG]

You know, if you guys are selected as a prime, I would imagine revenue contribution would be significantly more than as a sub through Jios' prior bid. So I was just wondering how things would look if they run that.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

I can take that one.

[Adam Spice, CFO at Rocket Lab USA]

Yeah.

[Adam Spice, CFO at Rocket Lab USA]

Can take that, Pete. Yeah. Basically, if you look at the value of the of the the subsystem that that Jios provides, you can think of that as being, you kind of somewhere around 30% of the total platform value is in the payload. So obviously it's a much bigger opportunity as the prime that is just as the sub for a subsystem. Now there, you know, there there is the opportunity where you could have a a, you know, goalie lock situation where you you're selected as the prime, but also, you know, Jios was bidding with, you know, with other primes as well for that opportunity.

[Adam Spice, CFO at Rocket Lab USA]

So there's there's a range of outcomes there, but, yeah, certainly, we go our our goal here is to select this prime.

[Ned Morgan, Equity Research Associate at BTIG]

Got it. Thank you very much.

[Operator]

The next question will come from Christine Liwag of Morgan Stanley. Please go ahead.

[Kristine Liwag, Executive Director at Morgan Stanley]

Hey, good evening everyone. Peter, you've been very clear about your disciplined approach to pricing regarding Neutron. And considering the tightness of supply of launch, I'm a little surprised that you still haven't built out a sizable backlog for the program.

[Kristine Liwag, Executive Director at Morgan Stanley]

Can you provide more color on how advanced your discussions are with incremental customers for Neutron? What they're waiting for to commit to an order, and how to think about the competitive landscape, especially as you've got a competitor rocket coming into market that's fairly well capitalized too?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah. Hi, Christine. Well, I mean, you know, you can split this into both into commercial and government. I mean, we were onboarded onto the NSSL programme, which obviously is extremely large opportunities, pounds 5 point something 5,600,000,000.0, if I remember. And then on commercial side, we've talked about this before where they want to see a rocket that works before they commit because a lot of people have been burnt signing on vehicles that are either delayed or even in some cases never turned up.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

And we've always talked about it as well is we want to make sure that when we sign one of these customers that consume a large amount of our manifest that they actually turn up on time and all the rest of it. So we maintain that discipline going through. It does nobody any good to fill up a whole bunch of manifests with a bunch of launches or a bunch of payloads that don't turn up in time and you're kind of left hand holding the bag. So the most important thing I think for everybody is we get to the pad and we start launching and we'll make the decision who are the best customers and most reliable customers for us, and the customers will make the same decision back. And on competition, I think I'm not sure I quite view that the same way.

[Kristine Liwag, Executive Director at Morgan Stanley]

Thanks, Peter. And Adam, as a follow-up, you mentioned expectations for elevated cash consumption beyond Neutron's first flight as you scale up. How should we think about the capital intensity following this initial launch? And should we still expect 2026 to be a positive free cash flow year?

[Adam Spice, CFO at Rocket Lab USA]

Yeah. Look. I I think the the cash cons consumption will will continue after the first launch because, as Pete mentioned, we're building, you know, the subsequent tails. And so if you think about the cost to build a booster, and I think we've kind of used this we've we've communicated this term or this figure before, but you assume around $60,000,000 for a a booster, and you're building several of them, you know, in in in series or in peril in some cases here, You know, you could you could consume additional capital from that. You know, the the key thing for us is getting through that first test flight.

[Adam Spice, CFO at Rocket Lab USA]

We've gotten the point where we've gotten the infrastructure largely in place. We do have some incremental invest scaling in, investments need to be made such as this return on investment barge that we've talked about. So, yeah, I mean, think the business could consume continue to consume money through 2026. So I would say more realistically for, you know, I would say, you know, positive free cash flow 2026, you know, again, given how aggressively we're moving forward, given the demand signal that we're getting, I think that's probably not likely. I think it's much more likely to be in 2027, But, you know, it depends.

[Adam Spice, CFO at Rocket Lab USA]

We could we could come across opportunities that generate, you know, enough offsetting, you know, incoming cash flow that it kind of 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, all the other scaling infrastructure in place.

[Kristine Liwag, Executive Director at Morgan Stanley]

Great. Thanks for the color.

[Adam Spice, CFO at Rocket Lab USA]

Yeah. I think it's important that Christine to meant to differentiate though that I I believe that, you know, the the p and l will obviously look much, much better once we get through the initial net, 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 and l optics. Right? Because I think P and L does get much, much, much friendlier much sooner.

[Adam Spice, CFO at Rocket Lab USA]

And then I think like a lot of other growth businesses, you know, we're we're gonna be, you know, continuing to invest to grow, but the P and L should start to look much more attractive, and I think that's we're keeping our eye on both, obviously.

[Kristine Liwag, Executive Director at Morgan Stanley]

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. 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 bull case scenario, how much capital could you potentially consume, but free cash flow in 2026?

[Kristine Liwag, Executive Director at Morgan Stanley]

And when you think about the cash balance today, is that enough? Or would you need to raise capital to meet the demand should you be really successful and have that bull case scenario play out?

[Adam Spice, CFO at Rocket Lab USA]

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 Menarch and GEOS and other things that we have in our funnel. 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 outstripping kind of the what we have today.

[Adam Spice, CFO at Rocket Lab USA]

So again, I think that, you know, you're right. It's a good problem to have. 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 wanna go after and enable inorganic TAM expanding type of type of opportunities.

[Kristine Liwag, Executive Director at Morgan Stanley]

Great. And I'm tempted to ask one more, so I just might. So when you when you look at that opportunity, I mean, it seems like the capital markets are fairly open, your stocks at record high levels. How aggressive do you want to accelerate some of those growth TAM opportunities? And where are those verticals?

[Kristine Liwag, Executive Director at Morgan Stanley]

Where are you most interested in? What does that look like?

[Adam Spice, CFO at Rocket Lab USA]

Yeah. I'll let Pete comment obviously on as well, but I would say, look, we continue to to see opportunities to further vertically integrate our supply chain, so we've done that very successfully in the past. We'll continue to find those types of opportunities. I would say that when you look at, you know, the ultimate, you know, end to end vision obviously has application elements to it, which is, you know, 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, you know, given the focus or and the risk of entrepreneurial drift, we're very, very, very focused on on getting Neutron delivered, establishing, you know, very key fundamental and foundational payload capabilities, And then the rest is, you know, to be kinda to be kind of, you know, put into focus a little bit later. But, Pete, I'll kick it over to you.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah. No. You you you said it you said it very well, Adam. I mean, you know, Christine, we're not we're not finished yet, that's for sure, on on M and A opportunities.

[Kristine Liwag, Executive Director at Morgan Stanley]

Great. Thank you.

[Operator]

The next question is from Ryan Koontz with Needham and Company. Please proceed.

[Ryan Koontz, MD - Research Analyst at Needham & Company]

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 acquired the solar business and some backlog there that was lower margin.

[Ryan Koontz, MD - Research Analyst at Needham & Company]

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 make you comfortable with the trajectory and continuing to see some uplift on space systems?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Thanks.

[Adam Spice, CFO at Rocket Lab USA]

Well, I can take I can take part of the the tactics on that one real quickly. So if you if you actually look at the the progress on gross margin for the Solero business, you know, for support has been very, very strong. You know, when we acquired that business, we were looking at, you know, high single digit gross margins, and, you know, in the 2025, we delivered margins that were above the long term target that we'd set for that business. We'd set a target of 30%. That that business is is subject to the margin volatility is subject to kind of when some of the again that early contract, which still hasn't completely kind of flowed its way through the books yet, that 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.

[Adam Spice, CFO at Rocket Lab USA]

But I would say, look, if you if you just kind of look at where where we'll be for the year, we're gonna be pretty much spot on our long term long term target of 30%. And I think longer term, there's upside to that. And I think more importantly, that deal has really or that acquisition has really kind of fulfilled its strategic import of, you know, kind of really taking control of a very critical and tricky component in in in supply chain for being a long term kind of system provider and owner. So I I think on on that front, hopefully, that gives you some color, then, you know, I think 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.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah. No, thanks, Adam. Yeah. So we continue to expand capability in that business. Obviously, you would have seen that we were successful with some chips money, which has enabled us to completely modernise will enable us to completely modernise the reactor fleet in there, and that drives in itself efficiencies.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

But if you look at programmes like the Golden Dome, there is an unprecedented amount of spacecraft and power that's needed to fulfil that. And there's three space grade suppliers in the world, and we're currently one of the largest, if not the largest. So I see a lot of exciting opportunities for that business going forward. We are one of the preeminent providers for national security solar, so that's a pretty exciting future.

[Adam Spice, CFO at Rocket Lab USA]

That's great. Thanks so much, Pete.

[Operator]

Our next question is from Suji Desilva with ROTH Capital. Please proceed.

[Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Hi, Pete. Hi, Adam. Adam, can you just remind us or tell us how the Neutron cost of 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?

[Adam Spice, CFO at Rocket Lab USA]

Yeah. That's gonna be a really challenging thing to model for for you guys. I I think that and that's a function of the fact that the first, you know, the test flight, of course, that's flying through, flowing through, through R and D. Right? And now we're actually starting to for for you know for this subsequent tails, that's now going to flow through through cost of goods sold with revenue cover associated with it.

[Adam Spice, CFO at Rocket Lab USA]

So the P and L is going to fluctuate quite a bit, know, 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 to margins, you can imagine that as we progress through quote unquote hardening Neutron's reusability, you know, how many reuses will, you know, for example, we'll be able to assume for, you know, for for amortizing over, you know, the the kind of future missions, that's gonna be a great influence over gross margin. So you can imagine if the rocket is only kind of assumed initially to do x number of reuses, but it actually surpasses that or comes in underneath that, you're gonna have a lot of volatility because you gotta have a situation where you have a fully, amortized booster with all the revenue going forward on it, or you could have made assumptions where you expect to fly a certain number of times and under under kind of achieves to that, and so you have a lot of, you know, incremental costs for future missions that weren't assumed. So it's gonna be a tough one to manage. I I think that, you know, the only thing that we can really point to, it's 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 electron cost dramatically.

[Adam Spice, CFO at Rocket Lab USA]

Right? And that's without reusability. So, you know, we have a track record of of successfully kind of scaling and bringing down cost. As we've talked about many, many times, another big influencer to gross margins is overhead absorption. So, yeah, I I suspect that Neutron will be a little different but not fundamentally different from the fact that what's going drive its gross margins is going to be cadence.

[Adam Spice, CFO at Rocket Lab USA]

Right? So it's reusing cadence and but, know, cadence is something that we again, we saw, we understand how that works with with Electron, the huge benefits you get when you get the cadence up, and that's gonna 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 possible.

[Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Great, Adam. We'll get my quantum computer out. And the other question I have is on payloads. Is is GEOS kinda your entree here?

[Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Do you have, you know, efforts in house for payloads as well as this inorganic effort, or will that segment be grown through inorganic exclusively? Thanks.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah, Sujit. So a both. Little bit The reality is that often these payloads, especially when you're looking to bring solutions to bear in national security, have very, very long development cycles and a lot of heritage associated with them, which kind of naturally lends itself to acquisition more than organic creation. But there's certainly some elements of payloads internally that we're looking at that we will just go under our own steam. And then some things like Geosta, best in class, it would take decades to recreate that.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

So an acquisition is by far the most efficient way of opening that opportunity up.

[Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Helpful color. Thanks, Pete. Thanks, guys.

[Operator]

And the next question is from Anthony Valentini with Goldman Sachs. Please proceed.

[Anthony Valentini, Vice President at Goldman Sachs]

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 is either larger than Neutron or maybe even in between Electron and Neutron in terms of the capacity that it can take into orbit?

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yes. Good question, Anthony. So certainly not we don't really believe there's really a market between the electron and neutron side. It's a very limited opportunity in that range. Now if we need to go larger, I guess the good news is that the vehicle is very scalable. It's a seven metre diameter Stage one tank, so it's a very short, dumpy vehicle. So typically that's what governs your ability to increase the vehicle size is your tank diameter. Otherwise, you end up with big, long, skinny pencils, and that becomes challenging. So have no intentions at this point in time.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

We think we've got the market accurately sized, and we've proven historically that we're not bad at making those kind of calls. But for whatever reason, the market drastically moved to a larger scale. We have a vehicle architecture that is very easy to scale. Great thank you.

[Operator]

And at this time we are 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 Beck for any closing remarks.

[Sir Peter Beck, Founder, President, CEO & Chairman of The Board at Rocket Lab USA]

Yeah, thanks very much operator. So before we close out today, there should be some slide here of our upcoming events and 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 about the exciting progress we make here at Rocket Lab. Thanks very much.

[Operator]

Thank you for attending today's presentation. You may now disconnect your lines, and have a pleasant day.

Participants

Executives

• Murielle Baker, Senior Communications Manager
• Sir Peter Beck, Founder, President, CEO & Chairman of The Board
• Adam Spice, CFO

Analysts

• Michael Leshock, Vice President at KeyBanc Capital Markets
• Erik Rasmussen, Vice President at Stifel Financial Corp
• Andres Sheppard, MD & Senior Equity Analyst at Cantor Fitzgerald
• Ron Epstein, Senior Research Analyst - Aerospace & Defense Electronics at Bank of America
• Edison Yu, Director at Deutsche Bank
• Jeff Van Rhee, Partner, Equity Research Analyst at Craig-Hallum Capital Group LLC
• Ned Morgan, Equity Research Associate at BTIG
• Kristine Liwag, Executive Director at Morgan Stanley
• Ryan Koontz, MD - Research Analyst at Needham & Company
• Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC
• Anthony Valentini, Vice President at Goldman Sachs