Rocket Lab (RKLB) Q2 2025 Earnings Call Transcript

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Date

Aug. 7, 2025 at 5:00 p.m. ET

Call participants

Chief Executive Officer — Peter Beck
Chief Financial Officer — Adam Spice
Head of Communications — Murielle Baker

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Takeaways

Total revenue-- $144.5 million (GAAP) for Q2 2025, representing 36% year-over-year growth and 17.9% sequential growth, above prior guidance.
Space systems revenue-- $97.9 million, a 12.5% sequential increase, driven by satellite components businesses.
Launch services revenue-- $66.6 million, a 31.1% sequential increase, with growth from Electron, Neutron, and Haste missions.
GAAP gross margin-- 32.1%, exceeding the 30%-32% guidance range, due to higher Electron average selling price and favorable product mix.
Non-GAAP gross margin-- 36.9%, above the 34%-36% guidance, benefitting from increased component sales.
Total backlog-- Approximately $1 billion, with 41% allocated to launch and 59% to space systems.
Backlog recognition outlook-- 58% of backlog expected to be recognized as revenue within the next twelve months.
Electron launches-- Five launches completed in Q2 2025, including two back-to-back within two days and four in June.
Electron international contracts-- First direct European Space Agency contract for a navigation constellation satellite pair and another sovereign space agency launch deal signed.
Backlog additions-- Three Neutron missions currently in backlog, with further demand expected after a successful test flight.
NASA and ESA contracts-- New NASA mission contract for early 2026 launch and first direct ESA mission confirmed this quarter.
GEOST acquisition status-- Antitrust review cleared; closing expected imminently, adding missile warning sensor manufacturing and vertical integration in payloads.
Adjusted EBITDA loss-- $27.6 million, better than guidance of $28 million-$30 million, due to higher revenues and gross margins, partially offset by increased R&D spend.
GAAP operating expenses-- $106 million, above the $96 million-$98 million guidance, mainly from higher Neutron development and headcount-related expenses.
Non-GAAP operating expenses-- $86.9 million, above guidance, reflecting Neutron-related prototype and production scaling.
Total headcount-- 2,428 at quarter end, up by 85 from the prior quarter, with increases in production, R&D, and SG&A.
Capital expenditures-- $32 million in Q2 2025, up $3.3 million from Q1, supporting Launch Complex 3 construction, engine test facilities, and Neutron development.
GAAP operating cash flow-- Negative $23.2 million, improved from negative $54.2 million in Q1, driven by increased cash receipts from satellite programs.
Non-GAAP free cash flow-- Negative $55.3 million, improved from negative $82.9 million in Q1, with continued usage tied to Neutron development and infrastructure investments.
Liquidity-- $754 million in cash, cash equivalents, restricted cash, and marketable securities, enhanced by a $300.8 million at-the-market equity raise for M&A and corporate purposes.
Neutron development progress-- Flight hardware completed for shipment, Launch Complex 3 site opening scheduled for Aug. 28, production capacity for up to three vehicles in 2026, and first Neutron launch targeted by year-end 2025.
Engine manufacturing capacity-- Archimedes engine production line established with output of one engine every eleven days and ongoing qualification testing with three to four hot fires per day.
Regulatory progress-- FCC license secured for Neutron, FAA launch license application accepted, and all necessary transport and site agreements in place for Wallops Island.
Electron launch outlook-- 20 or more launches expected for full year 2025, including three Haste missions in the second half.
SDA Tranche 2 program-- Satellite production entered full-scale phase, increasing revenue recognition and positioning for future Tranche 3 opportunities.
Golden Dome program opportunity-- Positioned to participate as a prime, sub, or component supplier in the $175 billion Golden Dome next-generation missile defense program.
R&D spending-- GAAP R&D expenses increased by $11 million sequentially; R&D headcount increased by 12 in Q2 2025.
Outlook — Q3 revenue-- Forecast revenue between $145 million and $155 million, with further gross margin improvement anticipated for both GAAP and non-GAAP metrics.
Outlook — Q3 gross margin-- Expected GAAP gross margin of 35%-37% and non-GAAP gross margin of 39%-41%, reflecting improved Electron pricing and overhead absorption.
Outlook — Q3 operating expenses-- GAAP operating expenses estimated at $104 million-$109 million; non-GAAP operating expenses expected at $86 million-$91 million, mainly from continued Neutron development spending.
Outlook — Q3 adjusted EBITDA loss-- Forecast adjusted EBITDA loss to improve to $21 million–$23 million as higher revenue and margins offset ongoing investment.

Summary

Rocket Lab(RKLB 1.09%) reported record quarterly revenue, driven by both launch services and space systems, and advanced its Neutron launch vehicle program with key manufacturing and regulatory milestones. The company secured new contracts with NASA and the European Space Agency, expanded its backlog to $1 billion, and is nearing completion of the GEOST acquisition to enhance its payload and sensor capabilities. Management highlighted operational agility with rapid Electron launch turnaround and noted that positive free cash flow is more likely in 2027 due to ongoing Neutron investments. Liquidity was strengthened by a significant equity raise, supporting both organic and inorganic growth initiatives.

Management stated Electron launches in June 2025 set a "record turnaround," demonstrating infrastructure optimization.
Peter Beck said, "For us, a successful launch of Electron will be a success, you know, successfully getting to orbit. And making sure the vehicle is ready to scale," clarifying high standards for Neutron's first flight.
Management noted that positive free cash flow is "much more likely to be in 2027" given ongoing Neutron scaling investments, even under a success scenario.
Adam Spice reported that in the first half of 2025, Solero solar business gross margin exceeded long-term 30% targets, contributing to normalization of space systems margin profile.
Three Neutron missions are already present in backlog, but management anticipates considerable demand to be "unleashed" post inaugural Neutron launch, particularly from risk-averse commercial and government clients.

Industry glossary

Electron ASP: Average selling price for the Electron small launch vehicle, reflecting contract value per launch excluding ancillary services or bespoke configurations.
Haste: A variant of Rocket Lab's Electron vehicle specialized for hypersonic test payloads and suborbital flight for missile defense applications.
Golden Dome: U.S. Department of Defense's next-generation missile defense program, representing a large, multi-year space and national security procurement.
SDA: Space Development Agency, a U.S. agency overseeing proliferated satellite constellations for national defense.
Tranche: A defined batch or phase of contract awards, often used in reference to satellite constellation deployments and procurement cycles within government space programs.
Archimedes engine: The primary engine under development for the Neutron launch vehicle, designed for reusability and diverse flight profiles.
Solero: Rocket Lab's integrated solar manufacturing business segment, supplying space-grade solar arrays for satellites and spacecraft.
LC III (Launch Complex 3): Rocket Lab's new Virginia-based launch pad dedicated to Neutron missions and NSSL program activities.

Full Conference Call Transcript

Murielle Baker: Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab USA, Inc.'s Second Quarter 2025 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. 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. 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. 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 USA, Inc. founder and chief executive officer, Peter Beck, as well as chief financial officer, Adam Spice. They'll be discussing key business highlights, including updates on our launch and space system 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 Peter Beck.

Peter Beck: Thanks, Murielle, and thanks to everybody joining us today. Look, we've delivered impressive financial results this quarter with another record revenue of $144.5 million, above the high end of our prior guidance and up 36% compared to last year. Our GAAP gross margin expansion exceeded expectations as 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. 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. 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 finalizing the acquisition of GEOST, 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 their status as a one-stop shop for national security. 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 SDA constellations. The $175 billion Golden Dome program could prove to be one of DOD's largest procurements to date, and we're in a great position to capitalize 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, even as a sub, or even as a component supplier. 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 sixty-ninth launch. With our hypersonic testing variant, Haste, we are revolutionizing the way missile defense 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 FDA to build and operate a significant piece of their PWSA network. There's a golden opportunity to build upon that here with our existing capability.

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. 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 programs to date, and what we stand ready to deliver for the Golden Dome. 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 integration and testing, flight software, ground, mission, and launch license and the launch itself and on-orbit operations. We own the entire mission life cycle 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.

This mission has a twenty-four-hour call-up requirement, which quite frankly is business as usual for Rocket Lab USA, Inc. these days, and we recently cleared the program milestone, Victor's Hayes. That moves us into the final integration and testing phase of our spacecraft for the mission and launch of Electron later this year. Another program with major milestone tick is a transport layer constellation bill 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 further revenue from this $515 million program.

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. 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. 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.

It was great to see a $700 million provided for a Mars telecommunications orbiter in a recent budget. The path to Mars for human spaceflight must begin with the ability to communicate there. 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 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 and Sight 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, and provides schedule certainty, all under a firm fixed price. 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, where you want to fly. Sometimes for us, that can mean flying very 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 number 69, and number 70 is scheduled for lift-off next week, keeping us on track for 20 or more launches by this year's end. These missions are a great showcase of how quickly we can turn around launches as the 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 agents 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 meet spectrum requirements by early 2026. But with few domestic rides to space available for them, Electron is stepping up to the task of responsive launch. 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 those missions yet, but it's fuel on the fire to Electron's international expansion and leadership as a small lift 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 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. Now on to our 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. We're laying the foundation for long sustainable programs. We know that from experience that building the first one is hard, building the system that gets you to launch number ten and twenty and beyond is much harder.

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. 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 faring, 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, the flight computer and GNC, are ready for flight. So lots of green across the vehicle as you'd expect. There's been lots of action on the regulatory approvals front as well. We've been grounded at 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 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 up. It's not a gate to Neutron's debut. 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.

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. 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. 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 a major structural test, they'll progress 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. 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 the pallet domes. And it allows us to scale efficiently. And we've made long lead commitments for manufacturing equipment that puts us in a 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. We're running the engine to full mission duration and the operational test cadence is hitting up to three or four hot fires a day now, seven days a week. As we work diligently through all the engine qualification program.

In between hot fires, the team's making improvements and iterating on the design quickly, then getting right back into the next engine test, fire it 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 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. The team in Virginia is well and truly into Launchpad 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. 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 gonna rush and take stupid risks to get, you know, a launch Neutron before it's ready. 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. 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 a 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: 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%, driven by strong contribution from both business segments. Second quarter revenue increased 17.9% sequentially. Our space system segment delivered $97.9 million in the quarter, reflecting a sequential increase of 12.5%, driven by increased contribution from each of our satellite components businesses. Our launch services segment delivered revenue of $66.6 million, 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. Relatedly, we ended Q2 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, 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, Electron, and Haste opportunities. Space systems bookings remain lumpy given the timing of increasingly larger needle-moving customer and program opportunities 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 GEOST acquisition, and given an increased line of sight to the Minaric 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 months backlog conversion. Turning to operating expenses. GAAP operating expenses for the 2025 $106 million above our guidance range of $96 million to $98 million. Non-GAAP operating expenses for the first quarter were $86.9 million, which was also above our guidance range of $82 million 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. Specifically, investment has increased to support propulsion as we continue to qualify our committees. As well as production of mechanical and composite structures ahead of Neutron's anticipated inaugural flight later this year. In R&D specifically, GAAP expenses increased $11 million quarter on quarter, due to ramping up our committee's production. Paired with increased expenses related to mechanical systems and composites that just mentioned. Non-GAAP R&D expenses were up $10.2 million 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. In SG&A, GAAP expenses increased $600,000 quarter on quarter, due to an increase in nonrecurring transaction costs as we continue to advance a robust pipeline of M&A opportunities, partially offset by a step down in stock-based compensation in the quarter. 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 business more efficiently at this point. Q2 ending SG&A headcount was 343, 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. Purchase of property, equipment, and capitalized software license were $32 million in the 2025, an increase of $3.3 million from the $28.7 million in the first quarter as we finalize LC III 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 $23.2 million in 2025, compared to a negative $54.2 million in the first quarter. The sequential decline in negative GAAP operating cash flow of $31 million was driven primarily by increased cash receipts from our SPA 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 cash flow, sorry.

Defined as GAAP operating cash flow less purchases of property, equipment, and capitalized software in the 2025 was a use of $55.3 million, compared to a use of $82.9 million in the first quarter. The ending balance cash, cash equivalents, restricted cash, and marketable securities was $754 million 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 generated $300.8 million in the second quarter, which in part is intended to fund acquisitions such as the announced Minaric acquisition, GEOST acquisition, and other targets in a robust M&A pipeline, along with general corporate expenditures and working capital.

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 and grow our strategic capabilities and expand our addressable market. Consistent with what we have done successfully in the past. Adjusted EBITDA loss was $27.6 million in the 2025, better than our guidance range, a $28 million to $30 million loss. The sequential decrease of $2.4 million of adjusted EBITDA was driven by an increase in revenue, paired with increased gross margin, partially offset by increased R&D expenses related to 2025. We expect revenue in the third quarter to range between $145 million and $155 million.

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 million and $109 million and non-GAAP operating expenses to range between $86 million and $91 million. 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&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&D spend on the path to generating future meaningful operating leverage and positive cash flow.

Peter Beck: We expect

Adam Spice: third quarter GAAP and non-GAAP net interest expense to be $1.3 million. We expect third quarter adjusted EBITDA loss to range between $21 million and $23 million 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. 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. Star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Michael Leshock with KeyBanc Capital Markets. Please proceed.

Michael Leshock: Hey. Good afternoon. Wanted to ask on Neutron and specifically the Archimedes engine. I appreciate all the commentary there and around the hot fire test. Where does Archimedes stand today in terms of performance? Are there any other performance metrics that you could share 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.

Peter Beck: 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 the engine has to start and operate in. So, you know, normally, you have an ascent profile where there's a couple of throttle points and especially on a stage one, and it's a fairly simple thing. But, of course, we have a reentry burn and a landing burn. So you know, you have to start the engine at different propellant temperatures, different head pressures, all these kinds of things.

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

Michael Leshock: 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 release of earlier this year and the focus of it designed to scale. Is a Rocket Lab USA, Inc. constellation something that is being developed or talked about today? Or is it more likely a longer-term opportunity, maybe five or more years down the road? Thanks.

Peter Beck: Yeah. Sure. So we've always, as you pointed out, we've always made our ambitions clear here, and, you know, 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, launch it at 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.

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

Michael Leshock: Great. Appreciate all the detail. Thank you, guys.

Operator: And our next question is from Erik Rasmussen with Stifel. Please proceed.

Erik Rasmussen: Yeah. 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 SDA right now. 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 your thinking is around potential timing around the RFP process, you know, where Rocket Lab USA, Inc. will compete.

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?

Peter Beck: Hey, Erik. I'll answer some of those, and I'll let Adam answer some of them as well. But, you know, more generally in backlog, the kind of things that we're chasing now are really large programs. So by nature, these programs are pretty lumpy. The SDA is a great example. You know, I think we've put ourselves in a very strong position. We're executing against our current SDA contract very strongly. And, you know, you've seen us acquire things like GEOST 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, you know, penny acquisitions of things like, are, you know, one of the key elements in the SDA program. 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 they work through those awards, but that's sort of a similar time frame. But at any one point, you know, we're working very large proposals, both government and commercial. And just by their very nature, you know, they take a little bit longer to solidify. But I'll let Adam maybe if you've got any comments on backlog.

Adam Spice: Yeah. No. I think, Pete, I think you hit it right. I think, look, we've got diversity in the things that we're chasing. It's easy to focus on something like SDA tranche three because it's kind of a big shiny object that a lot of people are actually chasing. But we've got a lot of diversity in the things that we're going after. To your question on Neutron's influence on backlog, we do have, you know, three missions of Neutron in the backlog today. Those were added, you know, over the last few quarters.

And I would say that, of course, we expect after a successful flight of Neutron that we will start to gain a lot more momentum because as you can imagine, you know, launch customers are, you know, they're betting a lot when they choose a launch vehicle. It's a long-term choice, and there are limited choices out there today. So everyone's being very careful about what they do. So we do expect that demand to be kind of unleashed, if you will, once we have a successful test launch.

I would say that if you look across all of our businesses, again, 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, seeing strong demand across all of them. So it's just a matter of kind of converging. And if you look 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 put the SDA tranche two award in the 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.

And that is that's continue to be we believe to be the case once Neutron kind of gets past that next big milestone or achievement of initial launch.

Erik Rasmussen: Great. Maybe just sticking with launch, and Electron, you already did 11. Sounds like you have the 12 coming up pretty soon, your seventieth launch. What would you say the mix between your traditional Electron launches and maybe Haste missions in the back half of the year, what does that look like?

Adam Spice: Yeah. So if you look in our backlog right now, if you look at the mix, we're expecting about two, I think it's three of the remaining launches this year will be Haste missions. So, you know, as Pete talked about, we're on path to do at least 20, hopefully more than 20 launches this year. We nice growth off 2024. And so we haven't had any Haste launches yet this year. So we're looking at roughly, you know, three launches and then all of them in the back half of the year.

Erik Rasmussen: Great. Maybe just my final question on Neutron. I'm just trying to sort of parse through some of the words that Peter had mentioned. In terms of cadence with, you know, I think previously, we were expecting, you know, the first test launch, so you have more of the one-three-five launch cadence or the first few years. But given the strong demand signals, insurance of launch and then maybe just if I'm reading right, is it possible that's something that you can accelerate? Or what does that look like? Are we still sort of targeting that one-three-five?

Peter Beck: Yeah, Erik. I mean, I get ridden every day on that question. The reality is it just takes time to roll in the learnings between flights. So, you know, we proved with Electron that was the right kind of scale-up cadence. And if you look historically across rocket programs, that's it's even pretty aggressive. So, you know, we'll with that one-three-five and but who knows? But the moment, from where we are in the program, that feels like the right kind of place to target everything.

Erik Rasmussen: Thanks. Good luck.

Operator: And the next question is from Andres Sheppard with Credit Suisse. Please proceed.

Andres Sheppard: Hey, guys. Andres here from Cantor Fitzgerald. I'm not sure what that was. Uh-huh. Hey, Pete. Hey, Adam, and hey, Patrick. Congrats on the quarter and all the great success. 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. 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 SDA tranche two award both for this year for next year. And I know you mentioned, obviously, you're exploring several opportunities.

But just to come back to SDA tranche three, if I'm not mistaken, right, 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: Yeah. I can comment on kind of the rev rec, you know, generally for the SDA program tranche two transport layer that we have. That we're executing against. So, you know, these programs typically, you know, the award was, I believe, in late 2023. 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 kind of getting in now for that sweet spot where we're going full-scale production of those vehicles. So gonna see a ramp in spending or sorry. A ramp in spending and a ramp in rev rec resultantly from that. So, you know, I 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. You have kind of tails on either end. With most of the revenue recognition in '25 and '26.

I mean, just if you wanna just think broad strokes, you know, for contribution in 2025, it's probably, if you wanna think in the order of kind of a $150 to $200 million is the right range to be in. And then, again, that should look somewhat similar in 2026, assuming that we continue to like we have. And then 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 earned to date, and it didn't have a similar profile.

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 80% of the revenue being recognized within the middle two years of the four-year program. So that's probably the best guidance I can give to you right now on that.

Andres Sheppard: Got it. That's super helpful. Thanks, Adam. And maybe a quick follow-up, if I may. Maybe one for Pete 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? Obviously, you have the track record, the heritage from the Electron and Haste, you know, Neutron still coming up. But, you know, given the, what do you wanna call it, the conflicts between the administration and SpaceX management team. Just curious if you've seen perhaps, you know, an uptick in interest for Neutron for future Neutron missions?

And any color there since Neutron essentially will be the only viable alternative to the Falcon 9. Right? So just curious on what you're seeing. Thank you.

Peter Beck: Yeah. Thanks, Andres. Well, I mean, look. I think it's, you know, the market does need a competitor to the Falcon 9. I think that was very clear, and that was presented to us both from our commercial customers and our government customers. So, you know, 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, you know, sort political events or geopolitical events, but also from just, you know, large programs being added, things like the Golden Dome. I mean, that is gonna be one of the largest DoD programs in the country's history.

And they're all spacecraft in space, and they all need to get there. So, yep, no. We're seeing, you know, growing demand and also I think it's fair to say, realization that, you know, sorting out from the real players from the players that are less likely to be able to provide.

Andres Sheppard: 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: Yeah. Hey. 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?

Peter Beck: Yeah. Hey, Ron. Well, you're not gonna hear some rubbish about just clearing the pad as a success. That is not. For us, a successful launch of Electron will be a success, you know, successfully getting to orbit. And making sure the vehicle is ready to scale. Think you saw us come out of the gate with Electron, you know, going to orbit and then straight away, you know, 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.

You know, we think we've got a good head start, but that's the bit that is always requires a bit of iteration. So, you know, 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 for learning. But apart from that, yeah.

Ron Epstein: Gotcha. Gotcha. 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: Well, you 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, the Haste missions require very unique, you 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, you know, commercial tastes, so commercial Electrons, those trends have been trending up nicely as well.

So we've really had we benefited from the fact that we've got customers coming back, and they're doing bulk buys of Electrons and the significantly higher ASPs than we've seen in the past. 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, you know, to manifest and be able to, you know, kind of continue to drive the market, you know, 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.

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. Sovereign, you know, countries are coming forward with strong demand, and I think that, you know, 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 web pages and whatever else, you know, and pay with user guides. But at the end of the day, you know, we're the only one that has had 69, you know, launches 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, you know, execution's key. You gotta pay for execution.

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

Peter Beck: Ron, I think if you look out, 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, you know, Minaric is a kind of stepping point in. And as you've seen, obviously, you point out, the European Space Agency contracts, you know, we'll continue to expand into Europe and, you know, we have a lot of unique capabilities that only reside with us. So, you know, we'll look to apply those.

Ron Epstein: Got it. Alright. Thank you. Alright. Thank you.

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

Edison Yu: Hey, good afternoon. Thank you for taking our questions. Wanted to ask, I think probably for Pete, latest thoughts on orbital transfer vehicles, space tugs, you know, there was a bit of craze several years back 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. And so is that an area 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?

Peter Beck: Yeah. It's a good question. I've never really seen the business opportunity and the business case for those because, you know, you start off with a relatively cheap ride share, and you end up with a really expensive delivery. So as you point out, they've had a couple of starts. So, look, you know, if it turns into being a real market, it's completely elementary for us to go after it. I mean, you know, we operate a kick stage on the top of Electron essentially. And, you know, all the components to be able to do it, you know, we have.

So if it turns out to be 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. But at the moment, I just don't see it worth us investing in.

Edison Yu: Understood. And then on Electron, want to ask about the TAM. In the context of, you know, have this big slide, obviously, on Golden Dome. Hypersonics, historically, I think the TAM maybe 30 plus launches. Do we think that the TAM now for Electron could be, you know, much, much bigger than that like, 50, 60 launches. Going forward? At some point in the future?

Peter Beck: 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 programs like the Golden Dome, the amount of testing that's gonna require and the amount of suborbital kind of, you know, hypersonic missile simulants that you're going to need to deploy to be able to validate that system. There's, you know, there's a pretty significant number there that would be required. So in Haste alone, you know, I think we're expecting that to continue to grow.

But year upon year, the, you know, the TAM continues to grow, and the exciting thing is that Electron is helping to create and open up that TAM. You know, 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. So I think, you know, we continue to see the TAM expand, and I think, you know, I don't see any sign of that decreasing in the future.

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

Adam Spice: Yeah. I'll take that one. Look, as we can't really say too much about it. It's still a pending acquisition. You know, as Pete mentioned, we got through the antitrust review, which is great. I think, you know, close should be imminent. But we'll hold back any comments and color on that business until we actually own it. If you don't mind.

Edison Yu: Totally. Totally understood. Thank you.

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

Jeff Van Rhee: Great. Thanks for taking the questions. I guess, Peter, on 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 segment currently has?

Peter Beck: Yeah, Jeff. Great question. So the toolbox is looking pretty full, actually. So, you know, from a purely like, a nuts and bolts component level, you know, the Minaric optical terminals are an important one. And, you know, the vast majority of stuff is kind of come into focus. We will see us spend a lot more time now is on payloads, and GEOST was the first kind of beginning to that. And that really shifts you from being able to provide, you know, just a satellite bus to be able to provide a complete thing. So, yeah, the nuts and bolts, I'd say we're largely done.

You know, there'll still be little add-ons we want to do, but our focus will be on payloads and really rounding out the system.

Jeff Van Rhee: 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: Yeah. You know, there's a pretty wide mix, I would say, you know, of margin profiles within our space systems business. You know, if 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 range in the twenties to thirties, but we have good scale with them because of the size of the contract 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're so vertically integrated.

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 more margins are well north of 60 points. So if you look at a blended average, you know, for I would say, the overall space systems between the waiting. And right now, it's kind of split evenly between subsystems and platforms. As we start to mix in applications, we'll get even it'll get different in a good way. 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.

So but if you think of 40 to 45 points, kind of as the real target for margins, I think that's probably a pretty good place to be. That can be pretty good, you know, at the as far as contribution to the bottom line because there's not a lot of R&D that goes into those businesses. Right? 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 set the bar.

We like to kind of set expectations low and kind of over-deliver to those, and I think that we're on the path to the same thing with our space systems business when it comes to margins.

Jeff Van Rhee: Yep. Very helpful. Maybe last for me. Peter, you mentioned production, and I missed a little bit of it. On Neutron, obviously, you're spending a lot of time building scale manufacturing capabilities. 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, you know, this year, next year, year after?

Peter Beck: 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. And it's kind of 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 as you go along. So, you know, as we talked about, there's multiple vehicles that we're building even now. And, you know, 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.

So the most amount of stage ones we'll ever build is probably, you know, year two or three. Of course, the stage two is expendable, but, you know, that's been, you know, highly refined for a very quick production and low-cost rate. So yeah, I mean, as I said before, you know, sort of three stage ones is next year is the right way to think about.

Jeff Van Rhee: Three stage ones. Got it. Okay. Thanks so much.

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

Andre Madrid: 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.

Peter Beck: Yeah. It's a good question, Ned. The reality is that, you know, we are very, very vertically integrated. And, you know, there's still obviously a piece of technology that we partner with as we've shown on the SDA program. 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, you know, we don't need to partner with that many people to deliver a solution.

Ned Morgan: 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?

Peter Beck: How do you mean the upside need? What do you mean by that?

Ned Morgan: You know, if you guys are selected as a prime, I would imagine, you know, revenue contribution would be significantly more than as a sub. Through your GEOST prior bids, I was just wondering how things would look if they run that.

Adam Spice: I can take that one. I can take that, Pete. Yeah. Basically, if you look at the value of the subsystem that GEOST provides, you can think of that as being kind of somewhere around the, you know, 30% of the total value is in the payload. So obviously, it's a much bigger opportunity as prime than it's just as the sub for a subsystem. Now there, you know, there is the opportunity where you could have a, you know, goalie lock situation where you select as the prime. But also, you know, GEOST was bidding with other primes as well for that opportunity.

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

Ned Morgan: Got it. Thank you very much.

Operator: The next question will come from Kristine Liwag of Morgan Stanley. Please go ahead.

Kristine Liwag: 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. 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 got a competitor, Rocket, coming into market that's fairly well capitalized too.

Peter Beck: Yeah. Hi, Kristine. Well, I mean, you know, you can split this into both into commercial and government. I mean, we were onboarded onto the NSSL program, which obviously is an extremely large opportunity, $5.6 billion, if I remember. And then on the commercial side, you know, we've talked about this before where, you know, they want to see a rocket that works before they commit because a lot of people have been burnt, signing on vehicles that either delayed or even, you know, some cases never turned up.

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 that they actually turn up on time and all the rest of it. So, you know, we maintain that discipline going through. We, you know, it does nobody any good to fill up a, you know, a whole bunch of manifest with a bunch of launches. That or a bunch of payloads that don't turn up in time, and you kind of lift 10 holding the bag.

So the most important thing, I think, for everybody is, you know, we get to the pad and we start launching it, and then, you know, 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, you know, on competition, you know, I think I'm not sure I quite view that the same way.

Kristine Liwag: 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? Should we still expect 2026 to be a positive free cash flow year?

Adam Spice: Yeah. Look. I think the cash consumption 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 communicated this term or this figure before, but you assume around $60 million for a booster. You're building several of them, you know, in series or in some cases here. You know, you could consume additional capital from that. You know, the key thing for us is getting through that first test flight. We've gotten to the point where we've gotten the infrastructure largely in place.

We do have some incremental scaling investments that need to be made such as this return on investment barge that we've talked about. So, yeah, I mean, I think the business could 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. 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 a scenario, in particular, in a success scenario. Continuing to consume cash as we kind of build out that capability and put all the other scaling infrastructure in place.

Kristine Liwag: Great. Thanks for the color.

Adam Spice: Yeah. I think it's important, Kristine, to differentiate, though, that I believe that, you know, the P&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 separate the kind of the free cash flow from the P&L optics. Right? Because I think P&L does get much, much, much friendlier. Much sooner. And then I think like a lot of other growth businesses, you know, we're gonna be, you know, continuing to invest to grow, but the P&L should start to look much more attractive. And I think that's we're keeping our eye on both, obviously.

Kristine Liwag: 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, like, free cash flow in 2026? 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: Yeah. Look. I think we have sufficient capital to scale Neutron. So really, if you look at where when we're raising additional capital, it's really not for Neutron. It's really all about doing things like, you know, the Minaric and GEOST and other things that we have in our funnel. Yes. We could put a lot of money to work to kind of respond to the demand signal as it evolves for Neutron that continue to demand cash. I don't see it outstripping kind of even what we have today. So, again, I think that, you know, you're right. It's a good problem to have. I don't think that 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 kind of type of opportunities.

Kristine Liwag: Great. And I'm tempted to ask one more, so I just might. So when you look at that opportunity, I mean, it seems like the capital markets are fairly open. Your stock is at record high levels. How aggressive do you want to accelerate some of those growth, TAM opportunities, and where are those verticals? Where are you most interested in? What does that look like?

Adam Spice: I'll let Pete comment obviously on as well. But I would say, look. We continue 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 high types of opportunities. I would say that when you look at, you know, the ultimate, you know, end-to-end vision obviously has applications 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 getting Neutron delivered, establishing, you know, very key fundamental and foundational payload capabilities. And then the rest is, you know, to be kind of put into focus a little bit later. But Pete, I'll kick it over to you.

Peter Beck: Yeah. No. You said it very well, Adam. I mean, Kristine, we're not finished yet, that's for sure, on M&A opportunities.

Kristine Liwag: Great. Thank you.

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

Ryan Koontz: Great. Thanks. And, you know, 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. 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 directory and continue to see some uplift on space systems? Thanks.

Adam Spice: Well, I can take part of the tactics on that one real quickly. So if you actually look at 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 high single-digit gross margins. And, you know, in the first half of 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 business 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. But I would say, look, if you just kind of look at where we'll be for the year, we're gonna be pretty much spot on our 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 strategic import of, you know, kind of really taking control of a very critical and tricky component in supply chain for being a long-term kind of system provider and owner. So I think on that front, hopefully, that gives you some color and 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 of where you expect margins to land for those?

Peter Beck: Yeah. No. Thanks, Adam. Yeah. So, you know, we continue to expand capability in that business. And, obviously, you would have seen that we were successful with some chips money, which has enabled us to completely modernize or will enable to completely modernize the reactor fleet in there. And that drives in itself efficiencies. But, you know, if you look at programs like the Golden Dome, there is an unprecedented amount of spacecraft and power that's needed to fulfill that. And there's three space-grade suppliers in the world, and we're currently the, you know, one of the largest, if not the largest. So I see a lot of exciting opportunities for that business going forward.

I mean, we are one of the preeminent providers for national security solar. So that's a pretty exciting future.

Ryan Koontz: That's great. Thanks so much, Pete.

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

Suji Desilva: Hi. 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: Yeah. That's gonna be a really challenging thing to model for you guys. I think that and that's a function of the fact that they had the first, you know, the test flight, of course, all that's flying through, flowing through R&D. Right? And now we're actually starting to for this subsequent tails, that's not gonna flow through cost of goods sold with revenue cover associated with it. So the P&L is gonna fluctuate quite a bit, you 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 amortizing over, you know, the future missions, that's gonna be a great influence over gross margin.

So 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 supply a certain number of times it and it underachieves to that. And so you have a lot of, you know, incremental cost for future missions that weren't assumed. So it's gonna be a tough one to manage.

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 outset with Electron. And we've been able to bring down Electron cost dramatically. Right? And that's without reusability. So, you know, we have a track record 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 suspect that Neutron will be a little bit different, but not fundamentally different from the fact that what's gonna drive gross margins is gonna be cadence. Right?

So it's reusing cadence and but, you know, cadence is something that we, again, we saw we understand how that works 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 vehicle to be reasonable as quickly as possible. And for as long as possible.

Suji Desilva: Okay. Great. I'm gonna get my quantum computer out. And the other question I have is on payloads. Is GEOST kind of your entree here? 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.

Peter Beck: Yeah. So a little bit of both. The reality is that, you know, 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, you know, acquisition more than organic creation. But there's certainly some elements of payloads internally that we're looking at that we will just go, you know, go under our own steam, and then some things, you know, like GEOST, you know, best in class. It would take decades to recreate that. So an acquisition is by far the most efficient way of opening that opportunity up.

Suji Desilva: Okay. Helpful color. Thanks, Pete. Thanks, guys.

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

Anthony Valentini: Hey, guys. Thanks for the question. I'm just curious if, you know, I recognize you guys are, you know, laser-focused on Neutron here. But is there any reason to think that, you know, 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?

Peter Beck: Yeah. Good question, Anthony. So certainly not, we don't really believe there's really a market between the Electron and Neutron side. There's it's a very limited opportunity in that range. Now if we need to go large, I guess, the good news is that, you know, the vehicle is very scalable. You know, it's a seven-meter diameter stage one tank, so it's a very short dumpy vehicle. So, you know, typically, that's what governs your ability to increase the vehicle sizes, your tank diameter. Otherwise, you end up with big, long, skinny pencils. And that becomes challenging. So, you know, 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're not bad at making those kind of calls. But, you know, for whatever reason, the market drastically moved to a larger scale, you know, we have a vehicle architecture that's very, very easy to scale.

Anthony Valentini: 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.

Peter Beck: Yes. Thanks very much, operator. So before we close out today, should be some slide here of our upcoming events 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. We look forward to speaking with you all again about the exciting progress that we make here at Rocket Lab USA, Inc. Thanks very much.

Operator: Thank you for attending today's presentation. You may now disconnect your lines. And have a pleasant day.