Rocket Lab USA, Inc.

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Rocket Lab second quarter 2024 financial results update and conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Morgan Connaughton, Vice President of Communications at Rocket Lab. Please go ahead.

Thank you. Hello and welcome to today's conference call to discuss Rocket Lab's second quarter 2024 financial results. Before we begin the call, I would 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 Security and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and 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 replay of a copy of the presentation will be available on our website. Today's speakers are our Rocket Lab Founder and Chief Executive Officer Sir Peter Beck as well as Chief Financial Officer Adam Spice. They will be discussing key business highlights as well as updates on our Electron, Neutron and Space Systems programs. 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.

Thanks very much, Morgan, and thank you all for joining us today. We've delivered an exceptionally strong second quarter this year, and I'm looking forward to taking you through all of the highlights and achievements. But before we get there, I wanted to spend some time talking about who we are today, where Rocket Lab is headed in the future, and the very deliberate and strategic steps we're taking to get there. One of the common misconceptions we've faced is that Rocket Lab is a launch company. Yes, launch is something that we're an industry leader in, and of course, rocket being in the name doesn't help, but it's just part of what we do. I'd like to look at this in three clear steps. First, the ride. To do important things in space, you first have to get there. We've solved this with small launch with Electron, and we're breaking the medium launch monopoly with Neutrons. next the tools to do the things in space once you get there this is spacecraft the critical components that make them function the software the ground systems and all the other pieces that make missions possible in orbit we're reliably delivering this for commercial government and customers today with the first two comfortably under our belt our future in in the whole reason for going to space is in the first place the data and the services that provide that spacecraft provide it's the most valuable part of the supply chain demand for it is growing worldwide and it's what will deliver long-term recurring revenue and incremental value for shareholders. By owning launch and spacecraft, we're at a distinct advantage when it comes to establishing our own space capabilities or constellations. We can build and launch our own spacecraft at cost, and we don't have to wait in line for limited launch capacity. We completely avoid the pain point that most constellation operators face, being at the mercy of suppliers on cost and schedule, often causing deeply disruptive delays and bringing capability online at scale. But that constellation or capability is not quite ready yet for us to disclose. But this overall company vision is useful to bear in mind when reviewing Rocket Lab's achievements in this quarter, in the months, and the years ahead. So with that, let me move on to more specifics for the quarter. Q2 was a huge quarter for Rocket Lab in a lot of ways, but especially in terms of revenue. For the first time, Rocket Lab revenue ticked past $100 million in the quarter. Revenue ultimately came in at $106 million for Q2, which is a company record. We also achieved a 15% quarter-on-quarter increase and a whopping 71% year-on-year increase. This result demonstrates the continued strength of our end-to-end space company strategy in offering diversified products and services since the growth is driven by an increase in launches on last year as well as significant growth in our space systems business. As of Q2 close, our backlog sits at over a billion dollars. Now onto some Electron specific updates. Before I get into some more Electron achievements in the quarter, it's worth spending a moment going back to basics on the Electron business model. I raise this because the most common metric we get held to is number of launches per quarter and the resulting point in time revenue recognition. Revenue recognition is guided by a well-established gap principles, but can at times fail to reflect the underlying strengths in our business given the constructive cash flow nature of the launch business where we collect cash well in advance of revenue recognition. Electron delivers what rideshares and other rockets can't. It's a dedicated launch service tailored to each customer's specific needs. What that means in practice is customers get to choose and change their launch date. They can choose their launch site and precisely where they want to be deployed in orbit, and they can launch on incredibly short notice. We've demonstrated getting someone from contract signing to orbit in less than eight weeks. If you're booked on a large rideshare or a bunch of other spacecraft, you simply don't get that flexibility. And you certainly can't expect to get a dedicated ride on a large rocket or a near-entrance vehicle in just weeks noticed. This flexibility does make it challenging to predict with high certainty exactly how many launches we'll do each year and exactly where they'll land in each quarter. That's not unexpected. Rather, it's baked into our model and what sets us apart. Now, fortunately, the surface-level volatility represented by gap launch revenue recognition, is disconnected from the underlying cash flow generation, in so much as we collect the vast majority of cash from our launch customers before launch day. So if they shift out by a few days, weeks, or even months, it makes a negligible difference. On this slide, you can see an example of our billing cycle for Electron. We typically do it one or two ways, time-based billing or milestone-based. Time-based is most used for our customers booked a year or more in advance of launch. And as you will see, we bill 10% on contract signing, then further installments until we get to the final 10%, which is payable on launch day as soon as we ignite the engines. Milestone-based is more used for our customers who come to us with their hair on fire, say L-3 months. Once again, we'll take a 10% on signing, and then we move swiftly through the key milestones like spacecraft fit checks and readiness reviews, and then we collect the remaining instalments until, again, we charge the final 10% when we ignite the engines. So as you can see, if a customer requires a launch date that pushes into the next quarter, we've likely already collected up to 90% of the contract value. We just don't recognise the revenue until launch day for accounting practices purposes. OK, a quick overview of some Electron achievements. We've signed 17 new Electron launch contracts year to date, with a total contract value of $141 million. We also reached an exciting new place in the global launch rankings. Electron is now the third most frequently launched rocket globally, behind only Falcon 9 and the Chinese Long March. For a rocket that has only been flying for seven years, this is a monumental achievement and really highlights Electron's significance as a proven, sought-after capability. We've achieved 100% increase in launch rate for the first half of this year as compared with the first half of 2023. Doubling rocket production and launch cadence in this year is far from the norm and really sets our team apart. As of today, Electron counts for 64% of all non-SpaceX US launches in 2024 so far. This really shows what an impact Electron has had on the industry and highlights just how constrained customers are right now with respect to launch options. And of course, in a year plagued by launch anomalies and delays worldwide, Electron has continued to deliver trusted and reliable access to space with mission success throughout the year for all of our customers. Now, this approach has been a successful one for Electron, retaining its title of the most active small rocket globally, and now, of course, third most frequently launched and flown rocket this year. I won't go into the specifics of all nine launches we've completed this year to date, but if there's something that I'd like you to take away from looking at all of these missions, is just how complex and tailored and customer-centric they are. We're taking dedicated missions 11 days apart to place climate change monitoring constellation in precise locations to monitor the poles, a rideshare mission that deployed two different customer satellites to entirely different orbits and altitudes on the same launch, swapped the customer mission out with the next one in queue within two weeks when a customer required a later launch date, All of this is exactly why customers choose Electron. It delivers a flexible service that small sats have never had before. Now on to contract wins. It was a few big months with the commercial sales team with a 10-launch deal signed with Sunspective, a Japanese Earth observation constellation operator. We've been the sole launch provider for Sunspective to date with five successful missions, which has been a huge honour. We have also signed a for-launch deal with another commercial constellation operator who has asked to remain confidential at this time. Electron also continues to be a critical enabler to the Department of Defence. We recently signed three new launch deals that further strengthen our position as a trusted partner across launch and space systems. Those contracts include being selected by the Space Force Systems Command to demonstrate an end-to-end space mission. This means Rocket Lab will design, build a spacecraft and launch it, and operate it on short notice. This is a clear validation of our model as an end-to-end space company. We were also awarded the STP S-30 launch contract, a $14.5 million mission for the Space Force. And last but not least, HACE continues to be a sought-after capability with another hypersonic suborbital mission sold. We're immensely proud to have taken a proven product in Electron and adapted it into a new use case, unlocking hypersonic test launch capability for the DoD, helping open up the bottleneck that has existed for so long, thanks to the limited availability of wind tunnels and test flight opportunities. In the second quarter, we reached a significant company milestone, but also set a record for the wider launch industry when we launched our 50th Electron mission. We reached this milestone faster than any other commercially developed rocket in history, and we're on track to be the fastest to 100 also. This really just demonstrates our team's ability to execute in record time. We also demonstrated a pretty unique ability on our 50th mission, which was deploying a customer spacecraft within eight meters of the target. Now, for context, the general accepted industry tolerance is 1,500 meters or 15 kilometers. So to deploy the spacecraft within single-digit meters, not kilometers, is a real differentiator. Here's why that matters. It makes Electron the clear launch vehicle of choice for some really complex missions and unique capabilities that are increasingly sought after, like rendezvous and proximity operations, constellation replenishment, and customized orbits. Right, moving on from small launch into updates on the neutron development. I'm often asked how Neutron plans to compete and why we need to invest in a medium launch vehicle. So I'm going to go back to a little bit of 101 here. There is a practical monopoly in medium launch right now. There's no doubt about that. Demand is strong and growing for launch capability, particularly in the constellation space, with more than 10,000 satellites needing launch by the end of the decade. And that's viewed by many as a pretty conservative projection. Neutron is best placed to be the rocket that disrupts this monopoly. We have a proven track record of building and launching a reliable vehicle that became a market leader. Through this experience, we've been able to work incredibly closely with customers to design a new rocket that meets their needs, resulting in a customer-led design. And we're on track to bring that to market at an incredibly rapid timeline. Across all of our launch and space systems businesses to date, we've astutely assessed demand and opportunities and accurately allocated investment and effort where it makes the most business sense. And that has produced undeniable successful results, and Neutron will be no different. Now onto overall Neutron development progress. And I'm pleased to confirm we've largely progressed past the design phase, and we've moved swiftly into production and qualification of flight hardware for 100% of the vehicle. With flight articles now coming together, we're on track to first launch for mid next year. I've said this before, but it's a key point that I think a lot of people tend to miss if they're not familiar with the launch vehicle development programs. Developing a rocket is certainly a big piece of work, but it's only about one third of what you actually need to do. The remainder is launch and production infrastructure. That's the pad, the test cells, the production lines, the factories, and all the processes and procedures to support them. A lot of organisations will focus their attention on their first rocket, but we knew that that would be very important to build up all the infrastructure to support production, test and launch in the long term, so that's what we've done in parallel. I'm really proud of the speed and progress that the team has achieved with Neutron so far in an incredibly short timeframe, especially in the update I'm about to share next. Okay, the update you've all been waiting for, the Archimedes engine test campaign. As we've said before, propulsion is always a long pole in the tent when it comes to developing a rocket, but thanks to having successfully designed, flown and built more than 500 Rutherford engines, we have a pretty good chunk of experience how to do this. We use this to fast track Archimedes development and this has certainly paid off. We also made a very conscious and strategic decision right from the outset to design a flight engine and put something on the engine test stand that was designed to be flight ready. It's fairly common to see downscaled engines or early stage prototypes used for a couple of years before companies actually move into putting something on the stand that could fly. But we didn't do that. In the past couple of months, we put Archimedes through hundreds of tests to validate the design, including spin primes, ignition tests, as well as understanding all the startup and shutdown transients. All of that work cumulated recently in a successful Archimedes hot fire. We started off with a series of low power hot fires with great results, then cranked it up to put the engine through its paces. We've now reached main stage hot fire at 102% power. Now, taking a new stage combustion liquid rocket engine from clean sheet design to hot fire in a flight configuration in just a couple of years is really industry-leading stuff. From here, it's about dialing the engine in, building a bunch more of them, and getting them rolling off the production lines. Now, the team has been pushing hard to get the first flight articles through qualification, but like we've always said with Electron, bringing your first rocket is hard, building your first rocket is hard, but building the 10th or the 50th is even harder. That's why we know it's just as important to build the machine behind the rocket and set it up for scale from day one. The next Archimedes engine is coming off the production line right now, and while the assembly line for many more is also established. Meanwhile, we've scaled avionics production line to support both Electron and Neutron, and all things that make it easier to roll into a launch cadence after flight one. While the propulsion team has been kicking goals, the composite team has been moving at pace too. As you can see here, we have flight hardware in production, including the fairing panels for Neutron's fixed fairing. Remember, this fairing is pretty unique in that it remains attached to Neutron throughout the launch and landing, enabling us to reuse it across multiple missions. Meanwhile, we have flight hardware in production for all other neutron composite structures, including stage one and stage two tanks and the interstage. Since Pitcher paints a thousand words, here's a quick look at some of the composite production going on behind the scenes to bring neutron to life. The progress in composites production is just about to accelerate even faster with the installation of our automated fiber placement machine in Middle River, Baltimore. Establishing this capacity and capability in parallel to manual lay-up of neutron structures enables us to rapidly scale up production for the first flight and full operational cadence to follow. The custom-built 90-ton machine will automate the production of all large composite neutron structures, including the panels that make up the 91-foot interstage and fairing, as well as the first and second stages. This machine is one of the largest of its kind in the world and will allow us to save thousands of hours on stage one alone, compared with hand labor. Speaking of infrastructure, progress is coming along nicely at Launch Complex 3 Virginia with fluid systems installation underway, and we've started receiving some of the critical long lead items like cryogenic systems and tanks. As you can see from the photo on the screen, we've poured tons of concrete into Neutron's pad and ready to receive the launch mount. This is a huge piece of infrastructure and a big milestone to tick off for the part of the first flight. Just 10 minutes down the road from the pad is a Neutron assembly and integration facility where Neutron will undergo the final assembly before transportation to the pad. Construction of this is progressing well and on track to receive the first neutron early next year ahead of launch. Okay, that wraps up launch. On to the other half of our business now, space systems. Before I dig into the achievements on specific space systems items, I thought it worth a quick reminder of the scale of the programs we have underway. Right now we have more than $720 million worth of spacecraft on contract and in development. including constellations for the Space Development Agency, Global Star, as well as bespoke spacecraft for NASA, the DoD, and commercial customers. On any given day, the team is working through design reviews, qualification campaigns, analysis, and production for these programs. In many cases, work isn't very visible because the hardware build only comes at the very end, and in some cases, our customers request confidentiality, so we can't share images or too much detail in progress. What I will say is our team has earned a reputation for delivering high-quality spacecraft on rapid timelines, and these programs are tracking no differently. Okay, on to the more granular detail. We hit a huge milestone recently by completing production and test of two identical spacecraft for the NASA Mars mission. It's not uncommon for an interplanetary mission to take a decade to go from design to flight-ready, So to design, build, and test not one but two Mars spacecraft in around three years is pretty impressive. Once again, it has been made possible in part by a vertical integration strategy, which removes heavy reliance on suppliers, since we produce many components in-house, enabling us to control schedule and costs. And in the case of Escapade, the spacecraft featured rocket labs, solar cells, reaction wheels, star trackers, separation systems, radio, flight software, structuring, on and on the goes. The twin spacecraft are now packed up for shipping out to the Cape and ready for launch during the up-and-coming Mars transit window, which extends through October. Over to Albuquerque now, where we've signed preliminary terms for $49.4 million in federal, state and local funding, including a portion under the CHIPS Act. The funding will enable us to expand production of our solar cells, which are important components for national defence and security satellites. We expect to create around 100 new manufacturing jobs as a direct result of this funding and expansion it enables. Another pair of spacecraft we have rolling down the production line are the next two set of satellites for VADA Space Industries. These pioneer class satellites host VADA's in-space manufacturing capsules which enable the production of pharmaceuticals and other products that benefit from low gravity environments. We successfully operated one of these spacecraft for VADA last year, successfully setting it onto a course for reentry and landing it in the Utah desert in February this year. The spacecraft is nearing completion and preparing for launch in the coming months with a third following not far behind. Now onto Constellation spacecraft in development at the moment. Recently we completed a successful systems requirements review for our $500 million prime contract with SDA to design and build 18 tranche 2 transport layer beta satellites From here, we'll move into preliminary design review before hardware starts to take shape in clean rooms. These spacecraft are scheduled to launch in 2027, so we're on track and kicking some of these critical design milestones off early in the program. A-17 spacecraft Thunder Constellation for MDA and Global Star. We've completed integration readiness review, and hardware is in production, including the first delivery of a full flatsat to the customer. This program is moving at pace, with spacecraft scheduled for completion and launch by the end of 2025. Our spacecraft programs tend to get the most of the attention in the space systems, but our merchant components business continues to kick goals too, including when it comes to innovating new products. At the Smallsat conference in Utah this week, the team introduced a new advanced satellite dispenser, giving customers more choice for versatile and reliable spacecraft deployment. The ASD builds on the 11-year heritage of the containerised satellite dispenser, which has successfully deployed more than 60 satellites. If I labour on about the achievements across our other components businesses, we'll be here all evening, so I'll try and keep it brief. Now, to round out our business updates, I just want to provide a quick update on our M&A strategy. We've had the privilege of being a launch provider, spacecraft developer, and component supplier to scores of companies and organizations across the global space industry. Increasingly, they want complete mission solutions, and a mixed approach of organic and developed development and M&A aims to serve this. Right now, we're managing a robust pipeline of targets while being selective and strategic about what we want to bring into our suite of capabilities. The focus on targets The focus is on targets that would fill gaps in our already extensive suite of solutions, while also enabling meaningful revenue scale and profit. We look forward to sharing more on this in due course. And last but not least, before we move into the financial highlights, I wanted to share some news about a documentary that recently came out which covers Rocket Lab in a way that many people may not have seen before. Wild Wild Space was released on HBO Max just a few weeks ago, It's a film version of the New York Times best-selling book When the Heavens Went on Sale by Ashley Vance, and it's directed by Academy Award-winning director Ross Koffman. If you're interested in the history of Rocket Lab and how we got to where we are today and some insight into what drives us, this is a great place to start. Highly recommended if you go and check it out on HBO. That wraps up the top-line business achievements. So with that, I'll hand it over to Adam to discuss our financial highlights and outlook.

Great. Thanks, Pete. Second quarter 2024 revenue was $106 million, which was consistent with our prior guidance range and reflects significant year-on-year growth of 71% and sequential growth of 15%, driven by strong contribution from both business segments led by Space Systems. Our launch services segment delivered revenue of $29.4 million, slightly above our guidance of $28 to $29 million. Our current backlog continues to support our current year target average revenue per launch of $7.5 million, with some quarterly variability tied to volume purchase discounts, launch location, and mission assurance requirements. Our space system segment delivered $77 million in the quarter, again, in line with our prior guidance range of $77 to $81 million, reflecting sequential growth of over 28%, driven primarily by growth in our SDA and MDA contracts revenue. Now turning to gross margin. Gap gross margin for the second quarter was 25.6%, in line with our prior guidance range of 24 to 26%. Non-gap gross margin for the second quarter was 30.7%, which was also in line with our prior guidance range of 30 to 32%. Relatedly, we ended Q2 with production-related headcount of 914, up 42 from the prior quarter. Turning to backlog. We ended Q2 2024 with $1.07 billion of total backlog, with launch backlog of $294 million and space systems backlog of $772.6 million. Relative to Q1 2024, total backlog was up 5% sequentially, or $51 million, despite $106 million revenue quarter, as strong bookings continued in our launch and space systems businesses. For launch, backlog was up 36% sequentially, or $78.3 million, primarily due to the 10-launch agreement that's inspected that Pete mentioned earlier. We continue to cultivate a healthy pipeline, including multi-launch deals and large satellite manufacturing contracts that can create lumpiness in our backlog growth, given the size and complexity of these opportunities. We expect approximately 44% of current backlog to be recognized as revenues within 12 months. Turning to operating expenses, GAAP operating expenses for the second quarter of 2024 were $70.4 million, up $3.2 million sequentially, but below the low end of our guidance range of $74 to $76 million. Non-GAAP operating expenses for the second quarter were $58.5 million, up $2.2 million sequentially, which is also below the low end of our guidance range of $62 to $64 million. The sequential increases in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in headcount and prototyping spending to support our Neutron development program, related infrastructure IT support for Neutron, and our 18 satellite SDA contract, and a step-up related to our annual merit cycle. In R&D specifically, GAAP expenses were up $1.4 million quarter-on-quarter due to Neutron prototyping, materials, headcount growth, and related merit increases. Non-GAAP R&D expenses were up $400,000 quarter-on-quarter, driven similarly to the GAAP expenses. Q2 ending R&D headcount was 673, representing an increase of 48 from the prior quarter. In SG&A, GAAP expenses increased $1.8 million quarter-on-quarter, largely due to an increase in staff costs following our annual merit cycle. Non-GAAP SG&A expenses increased by $1.7 million, driven similarly to GAAP SG&A expenses. And Q2 ending SG&A headcount was 273, representing an increase of 10 from the prior quarter. In summary, total second quarter headcount was 1,860, up 100 heads from the prior quarter. Turning to cash, purchases of property, equipment, and capitalized software licenses was $15.3 million in the second quarter of 2024, a decrease of $3.8 million from $19.2 million in the first quarter of 2024. We continue our investment in neutron research testing and production infrastructure projects, along with the expansion of our satellite production and space solar solutions capacity and we do expect our capital expenditures to increase in the second half of the year. cash consumed from operations was $13 million in the second quarter of 2024 compared to $2.6 million in the first quarter of 2024. The sequential increase of $10.4 million was driven primarily by changes in working capital related to the accounts receivables owing to the Space Systems milestone payments and the deposit owed on our 10 launch agreement with Suspective signed late in Q2. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow reduced by purchases of property, equipment, and capitalized software in the second quarter of 2024, was a use of $28.3 million, compared to $21.8 million in the first quarter of 2024. Our milestone cash collections have been strong in the first half of 2024, and we are ahead of our targeted cash consumption run rate for the year, but we do expect a pickup in cash consumption in the second half, owing to expected increase in neutron capex and lumpiness in large space systems milestone payment collections. The ending balance of cash, cash equivalents, restricted cash, and marketable securities was $546.8 million as of the end of the second quarter of 2024. We execute, too, in a strong position to execute on our organic expansion initiatives as well as inorganic options to further vertically integrate our supply chain with critical capabilities and expand our addressable market consistent with what we've done successfully in the past. Adjusted EBITDA loss of $21.2 million in Q2 improved slightly by $500,000 from a loss of $21.7 million in Q1, as the benefit of strong revenue growth was largely offset by increased spending primarily related to neutron development. With that, let's turn to our guidance for the third quarter of 2024. We expect revenue in the third quarter to range between $100 and $105 million. This range reflects $79 to $84 million of contribution from space systems and approximately $21 million from launch services. We expect third-quarter gap gross margin to range between 25 to 27 percent and non-gap gross margin to range between 30 to 32 percent. These forecasted gap and non-gap gross margins reflect improved mix within our space system segment in favor of components and subsystems, offset by the impact of lower fixed launch services cost absorption. We expect third quarter GAAP operating expenses to range between $80 million and $82 million, and non-GAAP operating expenses to range between $69 and $71 million. The quarter-on-quarter increases are driven primarily by continued neutron investment into staff costs, prototyping, and materials. We expect third quarter GAAP and non-GAAP net interest expense to be $1 million. We expect second quarter adjusted EBITDA loss to range between $31 and $33 million, And basic shares outstanding to be approximately 498 million shares. Despite Q3's modest revenue step back, we expect a marked resumption in growth across both segments of our businesses as we exit the year. And with that, I'd like to hand the call over to the operator for questions.

At this time, I'd like to remind everyone in order to ask a question, press star 1 on your telephone keypad. Our first question will come from the line of Edison U with Deutsche Bank. Please go ahead.

Hey, good afternoon. Thank you for taking our questions and all the progress. First one on Neutron, obviously you've made a lot of progress. You've got the hot fire test. What should we look for as the next big milestones as we think about the first launch in the next year?

Yeah, hi, Aston. So, you know, as we've always kind of pointed out, I mean, the things to watch are infrastructure builds, so the launch pad taking shape and becoming ready to receive a rocket. Keep a lookout for tanks and large structures. And, you know, where we're at right now is we're in the qualification phase. So, you know, we're starting to prepare for the really big tests like full-scale stage separation tests, full-scale fairing openings, uh, you know, landing lead deployments and all those kinds of things. So, um, we'll, we'll, we'll, um, we'll provide a, you know, a pretty healthy, uh, you know, update of, of, of all those achievements that come along, but that, that, that's kind of the cycle we're in is kind of, like I said, on the call is, you know, designers is done and, and, uh, you know, every component in the rocket is, is either in production or some form of qualification test.

Gotcha. And, and then kind of more of a financial one on neutron. So, We were looking at the cost of several rocket programs. You may have seen this analysis. Typically, they cost many times more than what you're allocating for Neutron. What do you think that you guys are doing differently relative to some of these other programs, whether it's legacy or startups, that's enabling you to actually develop such a robust rocket at a much lower program cost?

Yeah, well, I think, firstly, you know, it needs to be backed up by data. And, you know, fortunately, that analysis did. If you look at the cost and time that it took us to develop Electron, you know, you can see, as you point out, we can do these things at a very fast time and a very low cost. And I guess that comes down to our development approach. And even if you just look at the example of the Archimedes engine, you know, as I mentioned in the call, What a lot of folks do is they'll put together various subscale tests or boilerplate engines that have lots of industrial valves bolted to them and whatnot. But especially now that we've been around the block a few times, we're able to confidently build an entirely flight-ready engine, put it on the stand, and it works. So it comes down to just the experience of the team and also a development approach. We like to fail fast, but not at the system level. We'll fail quickly at the component level, but by the time things get built up into complete systems, we kind of expect them to work. And it's just the way that we've always been. It's the Rocket Lab magic, if you will. And right throughout the history of the company, we've always... always manage to develop these systems at a speed and a cost that pretty much others can't.

And if I could just sneak in one more financial one. I think the implied 3Q guide is three launches. Do we have any updated thoughts on what we could do for the full year for Electron?

Yeah, I mean, it's really difficult to predict. As you see, you know, launches move around all the time, and as we tried to explain in the call, that's kind of the value proposition for the business. Internally here, we worry less about that, as we kind of pointed out, that the majority of the cash, you know, is collected through that billing cycle. But, you know, launches, you know, move around tremendously, and I guess, you know, we're trying to kind of you know, provide that color for folks so that they can see how the business really operates.

Great. Thank you.

Our next question will come from the line of Eric Rasmussen with Steeple. Please go ahead.

Yeah, thanks for taking the questions and appreciate all the detail. There's a lot there to unpack. To piggyback off that question, I realize that launch has been always tough to sort of predict. I know the manifest seems like it's filling up each quarter, but it's always sort of customer readiness and other things that can push things out. But, you know, Adam had mentioned in Q4, we'll see a resumption of growth in both segments. If we're sort of assuming three launches, and that's about an implied 7 million ASP, I'm just trying to sort of dissect Does that mean if we're back to sort of a seven and a half ASP for Q4 at three launches, that obviously gets us more a higher revenue, but would we also, I guess, see, is it potential to see even more than three launches in Q4?

Yeah, Eric, it's Adam. So I think the way to look at that is, yeah, I mean, we are, as you pointed to my remarks at the end of my prepared statement, we do see significant growth returning to the business as we exit the year. And it's not off of a small increase of ASP, you know, sequentially. So we expect to be able to launch significantly more in Q4 than we are in Q3. You know, whether that means you go from three launches to four launches or from three launches to, say, seven launches, I think that's kind of the range that we're kind of operating within. And that's really kind of guided by, again, kind of the customer readiness. And, you know, we've done quite a bit of work looking into kind of where these slippages occur and, and, you know, we can't, the slip just are always, you know, can driven by customer readiness. But, you know, in this case, we didn't have, when we look at the manifest that we had coming into 2024, there, there hasn't been a mission on that manifest that we couldn't support from a production perspective. Uh, any volatility that we've seen versus kind of that manifest has all been kind of customer delay related. But as Pete said, you know, that's part of the business and why people pay a significant premium to be, you know, on a dedicated small launcher versus being on a rideshare. So it's kind of uncomfortable in one respect, but also comforting in the other respect that people see value in that flexibility. Got you. Thanks.

That's helpful. And then maybe just we're seeing a step up in non-GAAP OpEx to 69 to 71 million, which, you know, we were around 58 in Q2. Is this sort of the right range as we should think about the back half of the year? I mean, we've gotten guidance for Q3, but, you know, just thinking in terms of the look through the Q4.

You know, as we've said many times, you know, these rocket programs are challenging on lots of levels, including being able to predict the timing of when certain expenses are going to hit up because you can make your commitments you know, at one point and then you can face delays or actually in some cases get things that pull into the left as well. So I'd say in general, you know, I think that, you know, you should think about neutron spending continuing to grow sequentially from Q3 into Q4. So that'll kind of drive overall OpEx, you know, in that same direction. But, you know, we're not looking at step function increases. It's more kind of just more, you know, kind of I would say on a relatively predictable slope of that curve. you know, we would expect that spending would start to trail off, you know, obviously as we start to approach the first launch of the vehicle, which, you know, we're talking about middle of next year. So I think we probably still have, you know, I'd say at least, you know, I'd say one quarter of kind of increased spend kind of velocity, and then perhaps it starts to kind of plateau and then trail off as we approach the first launch.

Great. Maybe if I could just add one more. It looks like you super successful test of a hot fire for the Archimedes. I mean, would you say that now this coincides with your timeline to get neutron to the pad by mid 2025? I think Peter, you had mentioned that that's still on track, but does this now give you a lot more comfort in that no earlier than mid 2025?

Yeah, Eric, it's certainly on the right side of the equation, yep. So, you know, from here on in, there's more kind of testing to be done. But certainly, you know, our approach here was to put the flight engine on the stand and take it to full power. And, you know, that buys down just, you know, all the risk, really. So, you know, there's still obviously... you know, qualification of the engine to go, but certainly that gives us a lot of confidence to move forward.

Great. I'll step back in the queue and congrats on the results and progress.

Our next question will come from the line of Christine Lewag with Morgan Stanley. Please go ahead. Hey, good afternoon, everyone.

Peter and Adam, you know, on the data and services initiative, Can you provide more color and exactly what kind of capabilities and solutions you're providing, areas you're targeting, and maybe it's a little early, but any sort of indication of how you think about economics of what a mature data and services capability could provide for you?

Yeah, hey, Christine. So, look, if you break up the industry, launch is about a $10 billion TAM. Spacecraft or services, spacecraft is about a 20. And then services from orbit is about a $320 billion TAM. So if you have the first two, then your ability to compete in the second one becomes incredibly strong. And I would say that we're not ready to talk about what particular applications that we're pursuing. Right now we are focused on building capability to go after some applications that we find interesting. But clearly getting into a $320 billion TAM where you think you can be pretty disruptive is a great place to be and where we've been anchoring for a long time. But like I say, it's too early to really provide too much colour on where we're headed with that.

Thank you. I'll keep it to one.

Our next question will come from the line of Jason Gursky with Citi. Please go ahead. Jason, your line might be on mute.

Indeed it was. Sorry about that. Hello, everybody. Hey, Peter, just quick follow up on that last one on the services side of it, the $320 billion TAM. Maybe you can just educate us on, you know, kind of I'll use a baseball analogy if you'll humor me, kind of what inning you're in on the development of that. What other capabilities do you need? And when do you expect kind of a unveiling of what you're up to there from a timing perspective?

Well, I'm going to horrify you, Jason, because I'm from New Zealand. I only know rugby. So a baseball analogy is lost on me completely. But I would say that, you know, you can look at the acquisitions, the kind of spacecraft we're building and the scaling that we're doing to kind of bring some comfort in where we're trying to head with this. Like I say, it would be incorrect for me to really provide too much steering, but I've been very public in the fact that I think the large space companies of the future are the ones that are going to have the ability to build whatever spacecraft they need to build, the ability to launch them on demand and deploy constellations at cost. And, you know, if you have those things, then your ability to provide a service from space is uniquely advantaged compared to anybody else who doesn't have those things. So, you know, right now I would say that we're really focused on building that capability and you'll see space systems continue to grow and scale. Neutron is a really, really key part of this puzzle. I mean, we need multi-tonne launch to deploy, you know, significant constellations. So Neutron is probably one of the most critical and key elements to that future.

Right. Okay. So from a technical perspective, that's helpful. And then on this point, though, government versus commercial customers, where do you think you're going to be spending your time on the services, Simon?

A bit of both. So, you know, we generally like sort of a 50-50% mix across the business, and you can see that pretty consistent across launch and space systems. But, you know, there's huge opportunities on both sides of the ledger there, you know, especially as the US government moves away from kind of singular large assets into orbit, into, you know, distributed networks and low Earth orbit. So, you know, there's opportunity on both sides of the scale.

Mm-hmm. Peter, can you just give us a revised view maybe on when you would expect to start signing up customers for Neutron? Is your thinking changed at all on when we start booking some?

Not really. If you bring a rocket that doesn't exist and you start selling contracts against it, they're always discounted contracts. And as I think I've said before, this is exactly what we did with Electron, and it took us years to flush those out. So of all the things I worry about at night, demand is just not one of them. And I'd much rather bring a vehicle to the market and prove that it works and provide a capability to kind of unblock the kind of demand and monopoly than kind of preemptively sign a whole bunch of contract that I think we'd all regret later on.

Right. Okay. I've got one clarification and then one just for Adam. On the clarification, so the point you're trying to make here on Electron and the cadence of the schedule and the cash flow profile and the rev rec here is that you guys could have done all of these launches this year from a manufacturing perspective. You're getting the cash. There have been, and this is the part that I really want to confirm, there haven't been any cancellations. And so it's really just a question of when these things go, not if. Is that the point you're all trying to make here, just so that we all kind of understand all the moving pieces on the financial statements? Is the point you were trying to clarify?

That's 100% correct, Jason. Yep. No, we're collecting the cash on those as the rocket comes down the production line and its milestones are met or whatever. time is met. It's just we don't get to recognize the revenue until we have intentional ignition.

Yeah. Okay. Got it. That's good. And then, Adam, one for you. Any updated thoughts on when we get to cash flow break even on a sustainable basis?

Yeah. No, I think it still looks very much like it had before when – or long, really. We can't get to cash flow positivity on any sustained basis until we get the first neutron off the pad. And so I've kind of been kind of pointing people towards two quarters after the first neutron launch is where I think, you know, we kind of turn that corner on a more permanent basis, given where, you know, the rest of the business is growing, kind of what the P&L starts to look like once you've got that first, you know, R&D test launch off, and that you've got most of that infrastructure, you know, put in place to scale neutrons, which I think, you know, we will have by, I would say, the, you know, middle of next year. Again, middle of next year kind of represents kind of a minimum viable product and minimum viable infrastructure in this case. So there will be continued investment, but at a very, very different level. So I think my kind of guideposts are roughly two quarters after the first Neutron launch.

Okay, great. Thanks. I'll pass the line.

Our next question comes from the line of Kaivon Rumer with TD Cowan. Please go ahead.

Yes. Thank you so much for taking the question. So, you know, if you do four to seven launches in the fourth quarter, you'll do 15 to 18 for the year with an initial manifest of 22. So you're slipping 20 to 30%. And it looks like quite a big slip in the third quarter. Can you give us, is there any common reason? I mean, these are all customer slips and Was it the satellites aren't ready, or is there any common thread you can describe?

Yeah, hey, Kai. Yep, no, it's 100% customer readiness, and it's kind of the nature of the business. A customer will request a launch date. Their spacecraft is generally not complete when they're requesting their launch date. It'll go through various tests, and sometimes there's rework. or customers have other things that they're trying to line up. So, yep, that's 100% of the reason.

How do you think about your pricing? Because if you get 90% three months before, first of all, is that three months before the scheduled launch when you initially signed the contract? And then if you have to go three months, but they're slipping by two months, which looks like what's been happening, you're still collecting that last 10%. So any thoughts about, you know, they have the flexibility, but if they slip, you know, you get a penalty for slipping because obviously it has to cost you more money.

Yeah, I mean, I would say that that is one of the reasons, though, why we can charge a premium for the service. That's kind of baked into the premium for the service. And There are, we do have some penalties in the contracts where kind of certainly if egregious things happen. But also, you know, we have customers that, you know, 72% reoccurring customers. So, you know, if a customer has an issue with a spacecraft, they're already upset. The last thing they want to do is be slapped with a penalty. And if there are, you know, you have a long standing relationship with the customer, that's certainly not ideal either. And And I guess that's what we're trying to provide a little bit of colour today is that is kind of the business model of a bespoke service like this. And while it's super frustrating for us, this is the service that we provide. And the good news is that as the rocket is coming down the production line, we're collecting the cash and the rocket is essentially funded as it's coming through the facility. But as to, you know, when the customer ultimately turns up and is ready to fly, it's just simply out of our control.

Terrific. Thank you very much.

Thanks, Guy.

Our next question comes from the line of Andre Madrid with BTIG. Please go ahead.

Adam, Peter, thank you for the question. I just wanted to ask for a status update on Solero. I know it's been kind of what's been dragging down the broader space systems portfolio, and we're not yet at that 30% gross margin point. Just some color as to what's going on there, when we might be able to see that.

Yeah, I can jump and take that one, Pete. Yeah, the Solero business actually, so yeah, you're correct, Andre, that we've been kind of been a little bit hamstrung by a legacy contract that was in place prior to us acquiring the business. And we're still working our way through that. I mean, there's still a little, I would say not little, there's still a bit of the backlog that's representative of that. But it's becoming less and less in the mix. And so if you, what we look at is if we step back and say, you know, what is what's new business being signed up at? Is that being signed up at the target model or less or more? And we can say we've, on average now, been kind of getting to a point where the 30-point margin target has really come into focus. So the business that we're signing up now, those margins are very, I would say, much more assured to be at that target than they ever were before. I would say that you've probably seen the chips and other state and local incentives that we've received to support that business. And that's going to do nothing but help improve those margins even probably beyond that target because of the fact that, you know, we're really replacing an aging reactor fleet of these in our solar fab. So I think everything is pointing in the right direction. I think we've made a lot of progress. I think, you know, it's just taking a matter of time to get that old contract flushed out through the mix, and it's happening. And what we're finding with that business is kind of meeting all of the strategic objectives that we'd set out when we acquired it, which was, James Meeker- You know, to provide that kind of much more higher degree of control over kind of delivering programs at cost and performance, because solar is such an important piece of the overall cost of a spacecraft James Meeker- that we really thought of a strategy to bring it in. And it's providing us with confidence, not only that we can deliver programs at a certain margin, James Meeker- but it also just confirms the fact that we can actually get the capacity that is sometimes very difficult to get unless you plan very, very far in advance. So All the different strategic kind of angles are coming into focus, and I think the gross margin one is also, too, is just going to take a little bit longer. We said our goal was to get there by within two years of closing the deal, which would have put that back in Q1 of 2024, so earlier this year. So I'd say it's probably been delayed by a few quarters, but I would say not materially, and certainly the longer-term kind of indicators all appear very positive for that.

That's helpful. Thank you. And then maybe just general color on PSC and Sinclair and ASI and some of the other businesses in the space group.

Yeah. I would say that, again, Pete talked about it earlier in his prepared remarks about our M&A strategy. And I would say that, you know, our M&A strategy has worked out very, very well. I think, you know, when you look at the components and subsystems parts of the portfolio, you That's growing almost exactly kind of on our annual CAGR targets that we'd set out and communicated to folks, you know, previously. So you want to think about that components and subsystems business with delivering roughly a 20% kind of CAGR. That's always what we'd kind of targeted, hopefully we'd get to, and that's really what that business has been delivering and continues to do so. Sure, Bob. Well, thank you, Adam.

Our next question comes from the line of Suji De Silva with Roth Capital. Please go ahead.

Hi, Peter. Adam, congratulations on the progress here. On Neutron, you know, good to see the hot fire test success. I'm just wondering, as I look ahead to the first launch a year from now, I know it's not customer payload dependent, at least I don't believe it is, your first launch, and it's largely in Rocket Lab's hands, but I just want to know if there's any non-Rocket Lab dependencies, risks that might occur that would otherwise, you know, prevent you from having the launch when you're ready to go, things like regulatory pad ratings. Just want to envision those as we get closer to that launch a year from now.

Yeah, hey, Suji, great question. So, you know, we've definitely front-footed a lot of that. I mean, I think a lot of us saw Electron sit on the pad at Wallops for a long time waiting AFTS certification and things like that. So, you know, we certainly have all those kinds of things well in control. And, you know, a lot of that groundwork was done a long time ago especially with some of the licensing around the launch pad at Wallops and things like that. So, no, we think we've got that in hand, and certainly there's nothing that's kind of out of bed at the moment. Suffice to say, though, some of these regulatory timelines can drag on, but, you know, we remain to... We have a lot of, you know, extended experience and relationships with the regulators, so... you know, it's not untrodden ground for us. Okay.

Yeah, I guess the second go-around is easier. And then also, you mentioned ultra-high accuracy launch capability in the press release. I'm just wondering, is that, would you consider that a niche market opportunity, or incrementally, is that a meaningful opportunity versus the traditional launches where you can get to that meter, I believe, distance?

Yeah. Yeah, so initially we didn't think it would be, you know, given that the industry standard is sort of 15 kilometres, it wouldn't be that important to folks. But, you know, as we started to, you know, really accurately deploy, I guess it opened the aperture for missions that weren't possible before. A good example of that was the mission we did just recently where for a Japanese customer where they rendezvoused with a spent upper stage, and they were able to rendezvous directly off the rocket. So normally you would have required a big ball of Delta V to kind of come off the rocket and clean the orbit up. So I guess we've created a capability there that has really opened the aperture for a lot of other folks to do much more interesting things, including the DoD, and you can see we even have a DoD rendezvous mission now. So, you know, it's definitely an emerging space. There's a lot more desire to do kind of these proximity operations and rendezvous operations. And, you know, once again, it's all just muscle building for future on Neutron as well. If we ever need to dock with anything in the future, we have all of that capability now created. Great. All right. Thanks, Peter.

Our next question will come from the line of Andre Shepherd with Cantor Fitzgerald. Please go ahead.

Hey, guys. Thanks for taking our questions, and congrats on the quarter. A lot of our questions have been asked, so I was wondering if you could touch on something from the space systems. I wonder if you guys have any updates on that. $515 million SDA award. I know you touched on it earlier, so I was wondering how you expect revenue to ramp in the second half of 25, or if you could walk us through again, like how the financial impact of this contract is.

Yeah, I can take one to you, Adam. Yeah, I'll take that. So we're at the very, very, very beginning of that program execution. We've recognized, I think it's like maybe single-digit millions, maybe as high as $10 million of revenue under that contract, under the EAC methodology that gets applied under the accounting guidance. So I would say that, look, that's going to continue to ramp. Each quarter going forward should be incrementally kind of constructive to driving revenue growth. And so I think you would expect that program to, I'd say, probably hit its maximum revenue contribution, probably not for another, I would say, probably six or eight quarters is probably the profile. I think about how that growth, then it starts to kind of flatten out and then decline. And of course, it's all about kind of backfilling with the next contract or the other growth vector to kind of make sure you don't hit an air pocket. But right now, we're in the very early, early stages. We still have significant revenue recognition off of the MDA Global Star contract. And then we're, again, just really just kind of not even scratch the surface of revenue contribution from the SDA program of $515 million.

Gotcha. Appreciate the color. And I guess switching gears a little bit, I know this was asked earlier, so I was wondering maybe what's the reasonable number of potential launches that you could expect for this year? Maybe how confident are you at hitting 20 potentially, as I know you were aiming for 22 earlier. There's some shifts to the right. Just wanted to see if you could point us in the right direction there. Thank you.

Yeah, again, we've tried to be a bit more kind of nuanced about this because, again, we always end up getting a bit surprised. We give people the best estimates that we have based on our knowledge of where they are in their program life and so forth, and it's very difficult to handicap where launch is going to actually occur. But right now it's looking like if you look at the model for Q3, You know, we would, you know, we would have, we think another opportunity for perhaps as many as four in Q4 to, you know, as many as seven. So that kind of gives you a range of somewhere between 15 and 18 launches for the year. There's really no upside beyond, you know, 18 is kind of, again, really I wouldn't, I would advise nobody to kind of put that into their model at this point because that's a stretch that's doable, but it's not a layoff. And so if you think about like the delta between kind of the 22 and the 18, there is no customer readiness to support a launch beyond 18 for this year. So that's really kind of where things cap out. Again, that's if everything goes perfectly and things rarely if ever do.

Gotcha. Appreciate the caller. Thanks for taking our questions. I'll pass it on.

Our final question will come from the line of Anthony Valentini with Goldman Sachs. Please go ahead.

Hey, guys. You got Anthony on for Noah tonight. Thanks for taking my question. I'm curious if you guys anticipate that you'll have to go back to the capital markets in order to fund some of these grander aspirations that you have.

Well, I think it really depends. I think what we have right now, we're in an enviable position of the amount of cash and liquidity that we have. to fund the business. I think that can, you know, again, fund some of our M&A ambitions. I think that, you know, it really is going to depend on kind of the size the opportunity comes into focus. I think we're all, I think that right now we don't really say, hey, look, you know, let's not consider things that are outside of our current ability to finance because I think, you know, for the right opportunity, the capital markets, you know, are available, you know, again, but it has to be for the right opportunity. But right now we don't see anything that would cause us to go back to capital markets.

Okay, that's helpful. And then in terms of the commentary, it sounds like really Neutron is, you know, the enabler to you guys being able to do some of these things. Should we be thinking about that because of the fact that that'll be driving more cash flow that you can then, you know, redeploy elsewhere or more so of like the actual rails to getting to space?

I would say both, Anthony, for sure.

Okay, that's helpful. Thanks so much, guys.

That will conclude our question and answer session. I'll hand the call back to Peter Beck for any closing remarks.

Great, thanks very much. So before we close out today, I just wanted to draw your attention to some up and coming conferences we'll be attending. We look forward to sharing more exciting news and updates with you there. So that wraps up today's call. Once again, thank you very much and we look forward to speaking with you again about the exciting progress that Rocket Lab has been making next quarter. Thanks.

That will conclude today's call. Thank you all for joining. You may now disconnect.