Rocket Lab (RKLB.US) Q2 conference call: Neutron's first flight time window is “narrowing”, and the adjusted EBITDA correction quarter depends on the successful test flight

The Zhitong Finance App learned that although Rocket Lab (RKLB.US) announced record revenue and backlog of orders, the second-quarter earnings report itself was mixed. Combined with the profit forecast given by the company at the same time, it fell short of expectations, and hinted that its Neutron rocket project might experience a new risk of postponement, causing the stock performance to decline later.

According to financial reports, Rocket Lab's second-quarter revenue increased 62% year-on-year to US$234 million, slightly higher than analysts' general expectations of US$232 million; net loss narrowed from US$66.4 million in the same period last year to US$49.3 million; after dilution, the loss per share was 8 cents, higher than analysts' general expectations of a loss of 6 cents per share. By the end of the quarter, backlog of orders increased 137% year over year to a record $2.36 billion; non-GAAP gross margin reached 41.5%, higher than analysts' expectations of 38%.

Looking ahead, Rocket Lab management expects third-quarter revenue of between US$250 million and US$265 million, which is significantly higher than analysts' general expectations of US$235.9 million. However, profitability is expected to decline. The company expects GAAP gross margin of 29% to 31% in the third quarter compared to 36.1% in the second quarter; non-GAAP gross margin is expected to be 35% to 37%, down from 41.5% in the second quarter. Additionally, the company expects an adjusted EBITDA loss of between $17 million and $23 million, while analysts generally expect a loss of around $10 million.

The following is the Chinese translation of the minutes of Rocket Lab's Q2 2026 earnings call:

Executive speeches

Peter Beck (Peter Beck)

Founder, Chairman, President and CEO

It was another excellent quarter for Rocket Lab, and we had some major wins after the end of the season. We achieved record second-quarter revenue of $234 million, an increase of nearly $90 million over the same period last year, or a 62% increase. This is an increase of $34 million over the previous quarter's record revenue. Demand for launches is extremely strong. In the second quarter and after the end of the quarter, we signed more than $437 million in orders for Electron, Haste, and Neutron. This includes a record $266 million contract to supply SpaceForce (SpaceForce) with up to 18 suborbital missions, the largest launch contract in our history. Additionally, our SpaceSystems (SpaceSystems) contracts have surged significantly, with more than $581 million in contracts signed in the second quarter and after the end of the quarter. At the end of the quarter, our backlog of orders reached $2.36 billion. We signed more than $1 billion in new contracts in the second quarter and after the end of the quarter in the two major business segments of the launch and space systems business.

This quarter was also a milestone quarter for strategic acquisitions. We completed the acquisition of Mynaric and Motiv, and of course announced our intention to acquire Iridium (Iridium), which will accelerate our future development in space applications and turn Rocket Lab into a fully integrated space powerhouse. So welcome to the beginning of our new era of space applications.

Our pending Iridium acquisition is a strategic move that will combine Rocket Lab's launch and satellite manufacturing capabilities with Iridium's global satellite communications network and scarce spectrum. Simply put, Rocket Lab will be a first-class space force that can launch autonomously, providing critical communication capabilities to millions of users around the world.

For years, we've been talking about the three key vertices of the space value chain. The first one is the ability to go into space — we already have it through our launch business. The second is the hardware for missions in space — that is, satellites and their components — that we already have. The third and final vertical field is space applications, which is the root cause of our initial entry into space. It's part of the space economy, providing data services to millions of people on Earth and generating strong recurring revenue. With the acquisition of Iridium, Rocket Lab will have all of the capabilities in these three vertical fields.

I've always said that the most successful space companies will be those that have the keys to space, that is, companies that can build and launch their own satellites. Rocket Lab is currently one of only two companies with this capability. By acquiring Iridium, we will accelerate our entry into the space application market. Building a horoscope from scratch takes ten years or more.

With Iridium, we started out with a constellation of 66 satellites, over 2.5 million subscribers, and generated over $870 million in annual revenue over the past year. It's an extremely solid foundation, and we plan to build on it. We're not just maintaining Iridium's network. We'll expand it, expand its scale to untapped markets, and create new space-based services.

As the deal is yet to be completed, we are still in the consolidation and growth planning phase. There are, however, some obvious areas of focus, which are consistent with Iridium's already shared growth plans. This includes expanding capabilities in areas such as the Internet of Things (IoT), direct-to-device (direct-to-device), advanced PNT (positioning, navigation, and timing), defense and national security, and aviation and maritime security.

We can also increase efficiency and simplify the deployment of new infrastructure by building and launching our own spacecraft, thereby limiting the costs and risks associated with third parties. We'll accelerate our ability to deliver new and advanced features. It is through these areas of growth that Rocket Lab will make more effective use of Iridium's spectrum to extract greater capacity and throughput from the same finite spectrum allocation. We're incredibly excited about Iridium's future as a member of the Rocket Lab family.

Currently, we are steadily advancing regular delivery terms, including Iridium shareholder approval and all regulatory review processes. The deal is expected to close by mid-2027. To the best of our ability, we look forward to sharing updates throughout the process.

OK, so here's an update on some space systems. In the second quarter and weeks that followed, we received a number of important contracts for infrastructure systems, including a $397 million contract to build and launch multiple Flarite spacecraft for the Space Force's Space-based Air Movement Target Indication (SBAMTI) program. The plan is a high priority project of the US Department of War to establish a satellite network to track aircraft, missiles, and air threats globally.

This is yet another example of our end-to-end space strategy bearing fruit. The Neutron rocket will carry out this launch mission. Flatite is our high-performance, low-profile spacecraft, designed for rapid production and optimized for launch, enabling us to deploy a large number of satellites via Neutron and other launch vehicles. Since we first announced Flaxite last year, commercial and government customers have shown strong interest in it. So it's exciting to see it debut with such an important project.

What followed was another contract win. We have signed two agreements totaling more than US$160 million to build three geostationary orbit (GEO) satellites, including a master contract with SpaceSystemsCommand (SpaceSystemsCommand) to build two geostationary orbit satellites for space sensing. More importantly, these satellites will integrate the Heimdall payload from our recently acquired GeoST company, which once again highlights the success of our vertical integration strategy. Rocket Lab's construction of satellites for low Earth orbit and interplanetary missions is nothing new, but these contracts are our first step into the government geostationary satellite market. This is an exciting expansion.

Not only do we win contracts, we are able to execute them. The best proof of this is our record breaking results for the VICTUSHAZE mission in the second quarter. The Space Force's mission is clear: to launch an Electron rocket into orbit within 24 hours. We did it in 16 hours and 42 minutes, setting a new record.

We also designed and built the satellite it launched. The Space Force gave us 72 hours to commission the spacecraft in orbit. We did it in 38 hours. We then had 84 hours to track, catch up, and photograph a non-cooperative satellite, and we did it in less than 59 hours. VICTUSHAZE is the first time the Space Force has seen a single main contractor supply rockets, spacecraft, and in-orbit operations for the same tactical response space mission.

Rocket Lab was able to provide all three services and achieved record breaking results, demonstrating the advanced capabilities we are delivering to the Pentagon at a time when space becomes a key strategic priority. Finally, Rocket Lab is clearly an American space leader, but recently, we have deepened our roots in Europe through the acquisition of Mynaric. Whenever Rocket Lab makes an acquisition, we don't just keep running it. We'll streamline processes, introduce efficiency, scale up production, and in many cases introduce new capabilities. We are planning to achieve this goal by officially establishing Rocket Lab Germany.

For us, there is a real opportunity to establish a regional constellation-level manufacturing center, as well as comprehensive spacecraft assembly, integration, and testing capabilities. This will enable Rocket Lab to serve commercial, civil, and defense infrastructure projects as a local European supplier. Growing business in Europe also represents an opportunity to address Europe's launch capacity deficit and eliminate bottlenecks in space by bringing a mission-proven local launch partner to the region. Europe has clear gaps in both launch and spacecraft manufacturing.

Rocket Lab Germany aims to directly solve this problem and provide the region with new local strength in the rapidly evolving new space age.

This is a summary of the space systems section for this quarter. Next, let's talk about the launch business. Huge demand has driven a record backlog of new contracts and launch orders — over $437 million in the second quarter and after the end of the quarter, and 26 new launch missions, increasing our launch backlog to more than 90 times at the end of the quarter, a record high. On the operational side, Electron and Haste continue to lead the industry in the field of small carriers. We have completed 13 launches this year, and our mission success rate is 100%, which is expected to surpass the total number of launches last year.

NASA has signed up for three Electron launches in two missions next year. Commercial Constellation customer QPS has also signed a contract for three more launches. This is their third bulk purchase in less than a year, bringing the total number of launches with us to 18. We've also been contracted by a confidential defense prime contractor to conduct two HASTE launches in 2027.

HASTE's fast and repeatable flight pace was the key to this deal. Our suborbital launch capability underpins our largest launch contract to date — a $266 million contract from the Space Force for up to 18 missile defense launches. We beat out a traditional defense main contractor in this bid. This is the second contract within 5 months for a suborbital mission launched by the Department of Defense several times over the years.

These launches will be carried out mainly from our new launch site in Kodiak (Alaska), which opens up missile defense testing channels in the Pacific direction for our government partners. Currently, Rocket Lab has 6 launch platforms at 3 launch sites, providing us with unparalleled geographical flexibility to meet the needs of all types of missions.

Speaking of our new launch site, it's time to introduce GHOST. We've mastered the art of building launch sites. Now we're making them rapidly deployable around the world. Our two new launchers in Alaska will be deployed using our GHOST containerized deployable launch site technology. Electron and Haste revolutionized small-carrier orbital launch and hypersonic testing. Now we're making it easier to deploy them where they're needed most, whether for missile defense testing or sovereign orbital launch capabilities.

Through GHOST, we provide rocket launch infrastructure, ground support, and range control systems, all packed in containers, capable of establishing new launch capabilities in a very short period of time. It's easy to promise mobile or deployable launch systems, but having proven rockets, launch sites, and contracts to support them is another story. Rocket Lab has proven once again that we're more than just empty talk. We're delivering real capabilities for real tasks.

Now let's look at Neutron. This is yet another very important testing and integration quarter for Neutron. Every component of the rocket has now undergone significant testing. As with any complex development project, we've made a few adjustments along the way, but now we're doing the final inspection and assembly of all flight hardware before integrating it on the launch pad.

First is level 1. We have drawn a new AFP drum section and head for the first stage tank and are in the process of assembling them. For the interstage segment, after recently completing qualified payload tests, the new wall panels have also entered flight assembly. The production schedule is currently in line with the target schedule for delivering Neutron to the launch pad in the fourth quarter of 2026. Although the window of opportunity for launch at the end of the year is shrinking, what we are doing now is about balancing risk — balancing the timing of the first launch with how fast and how seamless it can be scaled up during the tenth launch. Our focus is on the big picture to ensure that when Neutron first flies and is in use, it is a system ready for large-scale production and high-frequency transmission.

For the second stage, the team is completing the installation of flight avionics and fluid systems, which will then be shipped from the factory to launch site 3 (LC3). Once in Virginia, we will conduct integrated fluid testing and run the flight avionics kit to verify second-stage end-to-end performance before installing the Archimedes vacuum engine. In this way, we reduced the risk of certain elements ahead of time and avoided adding extra time to progress.

The next part of the rocket to reach LC3 will be Neutron's thrust module. The auxiliary tanks have been installed, and the integration of the fluid system and avionics is currently being completed. The situation is similar here. After installing the fluid and avionics equipment, we will test the thrust module as an integrated system on the launch pad, as this module is the only physical interface between the launch vehicle and the launch pad. Carrying out this test before we integrate the thrust module with the first stage allows us to reduce the risk of the entire rocket interacting with the launch pad when all other components arrive.

At the Stennis Space Center, we are entering the final stages of testing the Archimedes engine. We have completed more than 400 thermal tests, covering both first stage engines and second stage vacuum engines. Early tests focused on basic elements such as power levels, mixing ratio control, and duration of achievement. Testing is now focused on durability, and what is really important for a reusable engine.

We intend to extend the running time of the engine to prove that it has more margin than is required for a successful flight, and perform repeated cycle tests to see how durable the engine is after multiple restarts and use. Having built confidence in the engines, we have begun to produce a full range of engines for Neutron's first flight. Once we have officially completed the qualification, these flight engines will go directly to the acceptance testing process at Stanis and then sent to LC3 to be integrated with the thrust module.

Now let's watch HungryHippo (HungryHippo). The team has been busy integrating the control of the rudder, avionics, fluid systems and their thermal protection systems. Soon, we'll be pre-flight testing of Neutron's most innovative parts. Once done, HungryHippo is essentially finished and ready to launch. The next step will be docking with the interstage segment when it arrives, which will bring us one step closer to having a full rocket on the launch pad.

From the R&D stage to the new contract stage. As we get closer to the first launch, we're seeing huge demand for early Neutron flights. As I mentioned before, we have recently been awarded a dedicated Neutron launch contract for the Space Force's space-based air movement target program. This mission strongly demonstrated the government's trust in Neutron, believing that it can support the most critical national security projects.

On the commercial side, today we announced a dedicated launch for Kepler Communications to launch their next batch of satellites into low Earth orbit. The mission will expand its network capacity through on-the-planet computing, optical communications, and hosted payloads. This is the first time Kepler has booked an entire rocket for its constellation rather than opting for a carpool launch. This once again sends a strong signal that the market expects Neutron to be an alternative to delivery tasks in the industry.

To understand the momentum behind Neutron, you have to look at today's broader launch landscape. Launching has never been so limited. The Pentagon is speeding up procurement for its highest-priority projects, just like the NSSllane1 project we've seen raised its cap from $5.6 billion to $17 billion. Europe's military spending has increased, and the launch of sovereignty is still a hot topic around the world. The truth is that if you want to book a launch now, especially after 2029, the options are extremely limited.

Rocket Lab has a unique advantage in this regard. We have a proven track record with Electron and Haste, and our customers know we can develop and scale reliable launch vehicles, which is why they are coming to us now and locking in the Neutron launch schedule early. Neutron will help lift bottlenecks in the industry and provide operators with the reliable capacity they need for years to come. This concludes the report on operational highlights.

Now it's up to Adam to do the financial overview and outlook.

Adam Spice (AdamSpice)

Chief Financial Officer and Treasurer

Thanks Pete. Revenue for the second quarter of 2026 hit a record $234 million, reflecting significant year-over-year growth of 62% and 16.8% month-on-month within our previous guidance, thanks to strong contributions from both business divisions. Our space systems division achieved revenue of $189.5 million this quarter, up 38.6% from the previous quarter. This increase was mainly driven by increased contributions from the satellite manufacturing business, as well as initial contributions from Mynaric, which completed the acquisition this quarter.

Our space systems business continues to perform exceptionally well, providing encouraging diversified support for our strong but sometimes unstable launch business. Meanwhile, our launch services division generated $44.6 million in revenue this quarter, which was 30% lower than the previous quarter despite a similar number of completed launches. This decline is mainly due to changes in the revenue mix between our Electron business, which recognizes revenue instantly, and Haste business, which recognizes revenue over time. This quarter was a bit atypical for our launch operations because we carried out HASTE missions, and a large portion of the revenue from these missions was recognized in the early stages based on revenue recognition methods over time. In contrast, revenue from an Electron launch was recognized at the time of launch.

Now let's look at gross profit margin. GAAP gross margin for the second quarter was 36.1%, higher than our previous guidance range of 33% to 35%. The second-quarter non-GAAP gross margin was 41.5%, which is also higher than our previous guidance range of 38% to 40%. Key drivers of gross margin this quarter include a combined shift within our space systems business to a satellite platform business with a slightly lower gross margin, and the initial contribution of the Mynaric acquisition — similar to previous acquisitions, which will take some time to benefit from integrating synergies and applying Rocket Lab's operating system and its associated scale advantages.

Additionally, we recorded a non-recurring revenue from customs tax rebates, which was largely offset by our inventory reserves for NeutronFlightII launch vehicles. Related to this, the number of people involved in production at the end of the second quarter was 1,688, an increase of 240 over the previous quarter.

Let's take a look at the backlog of orders. As of the end of the second quarter of 2026, our total backlog of orders was approximately US$2.36 billion, of which the launch backlog accounted for about 40% and space systems accounted for 60%. Although the number of orders in the infrastructure and launch sector may be inherently unstable due to the timing of increasing opportunities for high-impact projects, the backlog of orders has remained at a healthy level despite an increase in revenue and operation rates over the past few quarters.

We continue to see a strong pipeline, including multiple multi-year launch agreements and large-scale satellite manufacturing contracts for government and commercial projects. Notably, after the quarter ended, we signed a number of contracts in the field of space systems and launches of all models, which will be reflected in our backlog of orders in the third quarter and further strengthen the momentum of our entire business.

Looking ahead, we expect approximately 45.5% of the current backlog of orders to be converted into revenue over the next 12 months. Furthermore, we continue to benefit from the relatively rapid turnaround in the launch and space system component business, which has provided an incremental contribution to revenue growth beyond the current 12-month backlog of orders.

Move to operating expenses. GAAP operating expenses for the second quarter of 2026 were $142.1 million, within our guidance of $138 million to $144 million. Non-GAAP operating expenses for the second quarter were $115.7 million, below our guidance of $120 million to $126 million.

Specifically, in terms of R&D expenses, GAAP expenses increased by 1.9 million US dollars over the previous month, rather than GAAP expenses by 830,000 US dollars. These increases are mainly due to the inclusion of expenses associated with the acquisition of Mynaric completed this quarter. The number of R&D personnel at the end of the second quarter was 1,087, an increase of 138 over the previous quarter.

In terms of sales, general and administrative expenses (SG&A), GAAP expenses increased by $7.7 million month-on-month, rather than GAAP expenses by $9.8 million month-on-month. The increase in SG&A was mainly due to the re-inclusion of Mynaric's fees as the acquisition was completed this quarter. The number of SG&A personnel at the end of the second quarter was 442, an increase of 61 over the previous quarter. Overall, the total number of employees at the end of the second quarter was 3,217, an increase of 439 over the previous quarter.

Switch to cash. Purchases of property, equipment, and capitalized software licenses in the second quarter of 2026 were $26 million, a decrease of $1 million from $27.1 million in the first quarter. We continue to invest in Neutron, particularly for returnable investment recovery barges and launch and test infrastructure investments.

As we approach Neutron's first flight, we expect capital expenditure to remain high as we invest in testing, production scaling, and infrastructure expansion. GAAP lost $0.08 per share in the second quarter compared to $0.07 per share in the first quarter. The month-on-month decline in GAAP loss per share mainly reflects Mynaric's performance after the completion of the acquisition, including amortization of acquired intangible assets. GAAP operating cash flow for the second quarter of 2026 was $84.1 million, compared to an outflow of $50.3 million for the first quarter.

Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain at a high level due to the development of Neutron and large-scale production after Neutron test flights, and our procurement of long-term materials for SDA projects. Overall, non-GAAP free cash flow (defined as GAAP operating cash flow minus purchases of property, equipment, and capitalized software) for the second quarter of 2026 was an outflow of $111 million, compared to an outflow of $77.4 million in the first quarter.

Cash, cash equivalents, restricted cash, and marketable securities balances at the end of the second quarter were approximately $2.4 billion. The month-on-month increase in liquidity was supported by the proceeds from the sale of common shares under our market share issuance plan, which generated $1.08 billion during the quarter and then terminated. These funds are intended to support acquisitions, such as the recently announced Iridium Star acquisition and targets in other strong merger and acquisition pipelines, as well as general corporate expenses and working capital.

We ended the second quarter in a strong position to execute organic and inorganic growth plans, further vertically integrate our supply chain, expand our strategic capabilities, and expand our addressable market. This is in line with what we have successfully done in the past. The adjusted EBITDA loss for the second quarter of 2026 was $8.8 million, far below our guideline for losses of $20 million to $26 million. Adjusted EBITDA losses improved by $2.9 million month-on-month, mainly due to higher revenue and strong gross profit margins.

Next, let's move on to guidance for the third quarter of 2026. We expect third-quarter revenue of between $250 million and $265 million, up 10% month-on-month at midpoint. We expect GAAP gross margins to be between 29% and 31%, and non-GAAP gross margins between 35% and 37%. These projected GAAP and non-GAAP gross margins take into account combined changes within the space systems business, and we expect gross margin to benefit from favorable combination changes after the third quarter.

We expect GAAP operating expenses to be between $143 million and $149 million and non-GAAP operating expenses between $121 million and $127 million for the third quarter. The month-on-month growth was mainly driven by continued Neutron development and Flight1 related expenses, including staff costs, prototyping, and materials. However, we expect spending to shift from R&D to flight inventory, which is an encouraging sign of progress that shows that we are getting closer to Neutron's first flight.

We expect net interest income of $21 million for the third quarter, which is usually a function of higher cash balances. We expect an adjusted EBITDA loss of between $17 million and $23 million for the third quarter, with a basic weighted average tradable share of approximately 641 million shares.

Finally, consistent with previous quarters, we expect non-GAAP free cash flow to remain at a high negative level in the third quarter due to continued investment in Neutron development and large-scale production. This rules out the potential offsetting effects of any funding activity this quarter.

Overall, the second quarter was yet another strong quarter for execution. We continue to see excellent revenue growth across the business while maintaining strong liquidity to fund future growth plans. We expect this trend to continue, and we expect strong revenue growth as our satellite platform business becomes unusually large and Neutron moves towards its first flight. Last but not least, here are a few upcoming investor events we'll be attending in the coming months.

Here is the full Chinese translation of the Q&A session of Rocket Lab's Q2 2026 earnings conference call:

Analyst Q&A Summary

Andres Shepard-Slinger from Cantor Fitzgerald

Andres Shepherd-Slinger: Congratulations on your results and all the great progress you've made this quarter. Maybe ask a question about Neutron and a question about Iridium. It's great to see all of the recent developments regarding Neutron. I think maybe skip the first launch and talk about scaling up. In the past, you've given the rhythm for the first few Neutron launches. But my question is, how long do we think it will take to reach 10 launches and further scale up? Is it possible to speed up this climbing process? Finally, since the transmitter is still severely limited, what do you think of the future average selling price (ASP)? Are there any opportunities to improve ASP, including Neutron and possibly Electron and HASTE?

Peter Beck: Regarding Neutron, I think one of the questions people should ask us is: Obviously the first flight is extremely important, but what about the 10th flight? Because in my opinion, apart from the first flight, this is probably the second most important thing. How fast we can achieve a steady launch rhythm is absolutely critical. So I think that as we advance rocket research and development, the way we think about the problem is not just sending the rocket to the launch pad as soon as possible to complete its first flight. Of course, we all want that, and nobody wants it more than me. But the key is how to get to the 10th flight in the shortest time.

For us, it's all about reusability. We have been weighing the progress and certification standards of each system and subsystem, not only to get the first flight onto the shelves as soon as possible, but also to ensure that by the time of the 10th flight, we don't have to go back and re-evaluate. Therefore, continuous evaluations were carried out along the way. The climbing curve we've explained to you is a rhythm of 1, 3, and 5. This was learned from Electron's experience.

But with Neutron, it's all about reusability. The more solid we do in terms of reusability, the faster we can scale up. Obviously, you have seen the current tense situation in the launch industry and the demand for new rockets, not only new types of rockets, but also rockets with high-frequency launch capabilities. So that's how we balance all of these things. Let Adam talk about ASP.

ADAM SPACE: OK. Regarding ASP, this is actually a function of the broader launch market situation. We set the ASP at $50 million to $55 million when bringing Neutron to market, and promised not to offer significant discounts on early launches. We've always insisted on that. From a supply and demand perspective, we feel very good about the state of the market. I think at the moment, it seems that ASP has more room to rise, and there is absolutely no possibility that it will go down or stay flat. So we feel good. As demand continues to strengthen, this leaves room for us to adjust our pricing. Again, I think the upside of ASP is more likely than the downside.

Andres Shepherd-Slinger: Great, thank you both so much, this information was very helpful. Maybe ask a quick question about Iridium. Peter, you've mentioned some in your prepared statement, but I was wondering if you could further elaborate on the overall merger strategy. What new opportunities has Iridium unlocked through vertical integration and its constellation of more than 60 satellites? What new contracts and opportunities can you pursue now? Also, how will you guys finally consider allocating Neutron's launch to Iridium's new constellation and new customers?

Peter Beck: OK, thank you. Obviously, we're really excited about this. I think there are a lot of obvious synergy effects. I've always made it very clear that the big space companies of the future will have the ability to launch satellites of their own construction with their own rockets. I think this has clearly proven to be a superior model. So this is obviously very exciting. We think there are lots of areas where we can grow this business. If you look at how much Iridium originally cost to establish its first constellation, and let's roughly estimate the cost that can be achieved now, the gap is huge. Obviously, this is a great direction. So we think there are plenty of opportunities out there.

As for your opinion, I think it's right. In an environment of extreme demand, we clearly need to serve the commercial market when considering Neutron's capacity. We need to ensure that some launch missions are reserved for government customers because we are already included in the NSSL project. We also need to make sure we reserve the power for ourselves, because at the end of the day, our intention is to improve that zodiac sign. So this is definitely an act that requires balance between many parties.

Jeff Van Leigh of Craig-Hallum Capital Group

Jeff Van Leigh: Regarding Iridium, it's clear that their addition brought some good profitability and the impact you want in the app market. They've also brought in slower growth, and I know your performance in previous acquisitions has been impressive, especially in terms of profit margins. But here, you're going to have to really try to re-accelerate or accelerate their revenue growth. In terms of accelerating its revenue in the short to medium term, what is the lowest-hanging fruit?

Peter Beck: OK, that's a great question. First, this is a typical Rocket Lab-style deal, and as you pointed out, we didn't buy a big hole in the profit and loss statement. So they brought some good profitability, and the constellation itself could operate well until 2035. You're also right to point out that this is a relatively slow growing business. But for us, when we think about some of the growth plans they've already launched, I think we can inject strong impetus into these plans, especially in the PNT sector. By making relatively moderate adjustments to the constellation, we can add a large number of new features.

But I think it also puts us in a completely different position from the perspective of some government customers. Because before, we were able to go to government customers, and they fully approved that we can design and build launch vehicles. You can board Rocket Lab's rocket and don't have to worry about getting into orbit at all. Similarly, the same goes for building spacecraft. I think we've proven that we can build all kinds of spacecraft, from low-Earth orbit communication satellites to probes to Mars.

But what's a bit tricky for us is that when we pat ourselves and say “we can be a mission-critical, life-critical constellation, and provide services and manage everything,” we can't convincingly say that until we bought Iridium. So I think we're now presenting a whole new set of tools and capabilities to government and commercial customers, which really sets us apart from almost every other vendor on the market, except one. So I think that in itself provides plenty of opportunities. But from the first day of the acquisition, our focus should be on growing, growing again.

JEFF VAN LAY: Yes, that makes sense. One last question about GHOST. Very interesting. Talking more about this, what kind of infrastructure is needed on site? Sounds like you guys brought a lot of stuff. Obviously there's going to be something that has to be there. But what I'm particularly interested in is, what kind of business can you capture through it that you couldn't capture otherwise? What actually is the origin of this idea?

Peter Beck: Okay, this actually comes from customer needs. They have very important needs for the HASTE project, and in order to meet these needs, we need to be more mobile than we are now. So it's not -- maybe once we've built it, people will be interested in this ability. We definitely developed it for this kind of ability. We don't need much — we've built 3 launchers for Electron so far. What I want to say is that with Neutron, it used to feel like a huge steel structure on the Electron scale, but now it feels like a very small steel structure. So moving the launchpad infrastructure on an Electron scale is really easy for us right now.

Trevor Walsh from Citizens JMP Securities

Trevor Walsh (Citizens JMP): Maybe just to follow up or add to the question about GHOST. How should we view the price of each launch or the revenue per launch, and the current cost structure of these GHOST enabled launches compared to Electron launches or even HAST launches? I know HASTE charges more. So just curious, as you launch more GHOST abilities like this, will this change their financial performance slightly?

ADAM SPACE: OK. I think it's clear these are HASTE missions that will take place on the west coast. So I think you should see that the pricing is pretty consistent with what we're currently showing on HASTE. Overall, as these kinds of tasks become more strategic and important, especially if some elements of Golden Dome continue to proliferate as many people think, there will be a greater demand for these things.

So it feels like we're probably in the early stages of HASTE demand. I think we've really seen a huge increase in demand and backlog orders over the past few quarters. But as this situation continues, we believe we are in a very enviable position to provide these types of tasks to government clients. We also believe there are international opportunities. So if Haste's performance is similar to the rest of Electron's product portfolio—ASP has risen significantly over the years—then we're likely to see the same opportunities at Haste, whether at a launch site in Virginia, a new launch pad in Alaska, and of course from New Zealand.

Trevor Walsh: Great, perfect. Maybe a quick follow-up on a related question. Will there be an associated capital expenditure increase for the new Kodiak launch site that may not have been factored in? Based on your comments on capital spending for the rest of the year, how should we look at this?

ADAM SPACE: Yes, this requires some capital expenditure. But once again, as Pete mentioned, this is relatively insignificant compared to our investment in Neutron, and the contract we signed included some capital expenditure funds. Yes, they will show up as an increase in capital expenditure, but they are largely funded by the agreement.

Deutsche Bank's Edison Yu

Edison Yu: Wanna go back to the Iridium question. I'm curious, I know you mentioned that technically it can run until the mid-2030s, but what do you think about the timing and potential synergies of the next generation of constellations? Obviously, the industry landscape will change a lot by 2035. So are you considering actually deploying the next generation horoscope even earlier?

PETER BECK: Okay, Edison. You're right, the landscape of providing direct-connected mobile devices and internet services from space is going to change a lot. But one thing we love about Iridium's business model is that it uses the L band. It's a spectrum that can penetrate rain, weather, and buildings, because not all spectrums are the same, I'm sure you know. Moreover, current applications are also very safe, critical, and sticky. So I guess I'm not too worried — I'd be happy to let bigger players compete for those space internet type markets.

At the same time, we believe that what Iridium possesses, especially the L-band spectrum, is very important today, but it will actually be even more important in the future. So to me, the pattern didn't look much different. I think it's too early to discuss the new constellations. Obviously, the point of all of this is that we are now a machine capable of firing itself. So there will be a constellation in the future, but I don't think we're ready to talk about exactly what it will look like at such an early stage.

Edison Yu: Understood. Change the subject. You've obviously won a few pretty big satellite contracts, including the GEO contract. Maybe this is a question for Adam about the pace of revenue recognition for these contracts? Are they fairly linear or would they be more unstable?

ADAM SPACE: OK. I think our contract, on the government side, is quite typical. I mean, these projects usually last about 4 years, and the 10, 40, 10 curves are still roughly correct. Every project is a little different, but I think it's a great way to model the future.

Jan-Frans Engelbrecht from Baird

Jan-Frans Engelbrecht: I'd like to start with the overall situation of the spacecraft component supply chain. Obviously, you benefit internally from vertical integration. But as other companies and your customers start trying to expand their satellite constellations, if you only look at a few components, such as reaction wheels, laser terminals, solar panels, thrusters, etc., where are your greatest opportunities to see them? From a production capacity perspective, how does the current state of your factory compare to the next few years as the pace of launches accelerates and more satellites enter orbit?

Peter Baker: Thanks for the question because I think people think the launch is a huge moat. Yes, the launch is indeed a very, very large moat. But again, spacecraft components are a moat, because if you go into the industry and say “I want 1000 reaction wheels,” your chances of getting them are almost zero unless you come to us. So I think we've established a fair sense of scale in all of our component businesses. But I think of it more as a moat. I think some analysts who have been following us for a long time were wondering “what is Pete doing” when we first announced the acquisition of an established Albuquerque solar company. But as you can see now, we've expanded it to the world's largest space-grade solar manufacturer. Every satellite requires solar energy, and it's a large amount of solar energy. So I think the component business continues to grow year after year. This will only continue to grow for us as more constellations and more spacecraft are put into production.

ADAM SPACE: Yes. I'd like to add that being a commercial-level component supplier is very interesting. It's a growing business for us. Most of these products have very good profit margins. But for us, it's more strategic, because what we're actually doing is — when you see our strong backlog growth on projects, this is largely because we're able to eliminate the superposition of profits and thus be more competitive in pursuing these big strategic projects.

So, basically, being able to take advantage of scale as a commercial supplier and further utilize this internally to be more competitive on these larger projects — as you can see we have successfully won these projects — this is where the magic really comes in. It's more than just playing around in a healthy market for commercial components. It's actually about nourishing and empowering the more strategic capacity building part of our platform business.

Jan-Frans Engelbrecht: Back to the HAST contract, that $266 million contract. Will you break down the costs between launching and actually building the launch pad? Because if you only look at 18 launches, that means around $15 million in ASP, which I don't think is true. Perhaps some launch infrastructure was funded as part of the contract. But maybe it's just about HASTE's overall ASP and how do we view negotiations with commercial customers? Because I think in May you signed your first contract with Anduril. But what about the follow-up? What is the specific situation of HAST in terms of commercial customers?

ADAM SPACE: Yes. You're absolutely right. There's a lot included in the total contract value of $266 million. I mentioned before that when someone asked this question, part of it was infrastructure funding. I mean, apparently, these launches will arrive when we confirm revenue based on the independent prices of these launches. There will also be separate revenue associated with ongoing operations, etc. Of course, infrastructure construction will show up as incremental capital expenditure, followed by depreciation and amortization. So, in general, nothing you see in this contract will change the profit margin situation of the HASTE business. If you look at the overall situation of Electron and HAST, this profit margin actually performed quite well. So yeah, I don't think there's any difference there. About the commercial side of HASTE, maybe Pete, would you like to talk about?

PETER BECK: OK. Of course I saw more interest. With the realization of some major defense projects, HASTE has truly proven itself to be the solution of choice. So yeah, there's a lot of interest and conversation going on.

Eric Rasmussen from Stifel

Eric Rasmussen: Maybe my first question is about Iridium. I know it's still early days. You've outlined a few target markets. Initially, they sought to target narrowband IoT services. But when, or is there an opportunity to consider a broadband layer? If so, if this is the route you guys want to take, what do you need?

PETER BECK: Okay, Erik. I mean, this isn't the right type of spectrum for broadband. L-band spectrum has a very unique advantage over some of the wideband spectrums. I've learned to never say never. But I think the two richest people in the world are chasing that market, and it's quite a challenge to compete. But we see value elsewhere — you can have as much S-band spectrum and as many satellites as you want. But if you don't have L-band spectrum, there are some things you just can't do.

ERIC RASMUSSEN: Understood. OK. Then maybe, Adam, you mentioned that Mynaric's gross margin will initially be pressured. What is the current gross margin of this business? What is the target profit margin? How long do you think it will take to reach that target framework?

ADAM SPACE: OK. I think Mynaric's gross margin was always lower when it started. I mean, as people know, this asset has faced some challenges, has had supply chain issues, gone through bankruptcy procedures, so we're rebuilding it. I'd say I really can't comment on its current level of gross margin because we've had this business for less than a quarter. So I don't want to discuss the details of gross margin too much. We're still doing some work.

But looking ahead, we think this business will ultimately be broadly consistent with other commercial businesses in our space systems. It may take a few quarters to reach it. I think you might remember because you've been following us for a long time. When we bought Solaero, the profit margin was quite low, probably in the single digits, and we were able to make it meet the overall goals of our business. It won't take that long this time.

This time, we were able to act relatively decisively to understand what needed to be done to increase profit margins. Over the next few quarters, we are also facing greater production in this business. So we have a combination of revenue growth and some cost efficiency, which will really get this business back to good shape relatively quickly.

Benjamin Johnson by Piper Sandler

Benjamin Johnson: The first question is, can you explain which major milestones do you think are the riskiest to achieve Neutron launch in the fourth quarter?

PETER BECK: Okay, Ben. Probability tests always give you an adrenaline rush as you fill the launch pad with a rocket full of fuel and ignite the engine for the first time. You can also see from another space company that when things don't go well, they really don't go well. So I think that's always the last major milestone before the flight. Then, depending on how much detail you want to know, there will be a series of milestones of diminishing importance later. But once you see some parts that look completely finished being shipped out and tested, I think these are all good signs.

Benjamin Johnson: Great. The second question is about — you've talked about the benefits of establishing a foothold in Europe through the Mynaric deal before. Are you guys seeing some initial positive signs? Can you elaborate on the interest shown by European customers? Is this mainly a satellite aspect or a launch aspect?

Peter Beck: OK, Europe is a very interesting market. It's usually very closed. But with recent geopolitical tensions, all European countries are seeking sovereignty. A good example is that Germany has recently invested more than $40 billion in satellite missile warning systems and other projects. Normally, this would be outsourced to other countries.

So even this alone is an area where Rocket Lab has a wealth of experience and capabilities. The challenge, of course, is that Europe generally lacks these capabilities. So they need a lot of help to reach their goals. As for the launch itself, we'll wait and see. However, it is clear that Europe actually has only a few launch vehicles, and the launch frequency is relatively low. If you're trying to set up an entire system constellation, then you probably need help with the launch too.

Morgan Stanley's Kristin Levager

CHRISTINE LEVAGG: I'd like to follow up on the free cash flow issue. Can you provide more information on the expected increase in cash consumption this quarter? How much of this is driven by higher-than-expected Neutron development costs, and how much is driven by accelerated inventory accumulation to support future launches?

Adam Spice: A large part of this quarter's spending or cash flow consumption was driven by building subsequent batches for Neutron, right? As you can imagine, Pete has also previously talked about the importance of quickly reaching the pace of mass production. So for the parts of the rocket that we think are less likely to need to be changed due to the first test launch later this year (hopefully), we are actually stocking them in advance.

Then I would also like to say that the Mynaric acquisition, which I mentioned before, has some supply chain challenges, etc. So we basically had to supplement that supply chain, which was part of the increase in spending this quarter, but I think we're in good control now. So that should be back to normal. So this is actually a combination of Neutron's subsequent batch construction plus getting Mynaric back on track and running at full capacity.

CHRISTIN LEVAGG: So following up on the Neutron question, given that you guys are able to get orders with target ASP, does that mean we should expect Neutron orders to accelerate, especially as you get closer to test flights? Also, I'd like to follow up on my previous question about free cash flow. How should we look at the pace of free cash flow for the rest of the year? Was the second quarter a peak in free cash outflow?

Peter Baker: When it comes to Neutron, we're very strategic and thoughtful in terms of sales. As we've discussed, we have 1, 3, 5 rhythms. Hope we can do much better than that. But we already have contracted commercial customers. You've seen government customers — NSSL has almost tripled their NSSL launch budget, so we need to make sure capacity is reserved for that customer. As I mentioned before, we have our own ambitions and needs. I personally have never seen a launch market so limited. Other launch providers are also backing down and focusing on their own needs. So the remaining launch capacity in the industry is really, really tight. So for us, choosing which customers to sign up at this stage and in the future is very thoughtful.

ADAM SPACE: Then back to the question of free cash flow. This still largely depends on when Neutron first successfully tested and launched, right? We have been quite consistent in stating that this will be a real turning point. In the quarter after that incident, we will achieve a correction in adjusted EBITDA.

But we've always been aware that after that turning point, it may take 18 to 24 months to achieve positive cash flow, as we will have to continue to invest in a batch of subsequent rockets to prepare for mass production of Neutron. So I think those are really the two main drivers.

Of course, once the Iridium acquisition is complete, things will change dramatically, right? As we mentioned, that business would generate considerable free cash flow. So I think we'll have a lot to update you as soon as we get close to closing that deal. But as far as Rocket Lab is independent, this was indeed driven by Neutron's testing point.

Ryan Koontz of Needham & Company

Ryan Koontz: What information can you share about space systems in terms of product portfolios for the June quarter? And what do we think of Tranche 2 and Tranche 3's timeline for the second half of the year? Maybe talk about gross margin combinations other than Mynaric. That would be great.

ADAM SPACE: OK, Jeff. Combinations are always hard to predict too far in advance. We have revolving businesses as well as these project-based satellite platform businesses. I'd like to say that in the second quarter, the proportion of mature commercial products in the portfolio was slightly lower. In fact, this also pointed to some weakness in profit margins in the third quarter. Our space systems business has a wide range of profit margins.

We have component solutions, such as solar energy, that always lean towards the lower end, probably... then if you look at some product areas, their gross margin is probably over 70%. So the span in the portfolio is quite large. Once again, it is emphasized that the satellite platform business is biased towards the low end but accounts for a relatively large share of the portfolio.

You mentioned that the largest portion of our current backlog is SDA Tranche 2 and Tranche 3. Again, the gross margin of these projects is about 30% or so, right? So I think currently, each quarter will really be driven by the ratio of shipments of high-end component combinations to these project-based projects, which are relatively easy to model. But what you can't easily model is the component business part.

Gautam Kahner of TD Securities

Gautam Khanna: I'm curious about Neutron's demand side, do you still expect a surge in orders after the first successful test flight? I'm also curious, considering that your big competitor is launching a larger rocket, does this make you worried about industry production capacity and demand for Neutron in 3 or 4 years? Can you comment?

Peter Beck: OK, of course. That's a great question. So I don't think Neutron's demand is a problem either before or after the test flight. Of course, I think everyone would feel more at ease buying Neutron after the test flight, but we didn't have any problems selling Neutron at full price before the test flight. So I don't think that would make a huge difference.

As for future launch capacity, I don't want to sound too negative, but I don't think this will change anytime soon. Because even if new production capacity enters the market from some competitors, a large portion of that capacity is already scheduled for their own internal projects. Whether it's the internet, AI data centers, or anything else, quite a bit of production capacity has already been booked. So I think this situation where the launch market is limited will continue for quite some time.

Edward Morgan of BTIG

Edward Morgan I was wondering if I could get an update on the Mars Telecommunications Orbiter (Mars Telecommunications Orbiter) project? Where are you in terms of winning this project? How should we consider timelines and contributions?

Peter Baker: We're waiting for NASA to complete their procurement process. Hope to have some good news this month or so. But I think we're in a great position. Few people can demonstrate our level of competence and experience. So we feel like we have an advantage. Unfortunately, we can only wait for NASA to complete the procurement process.

Edward Morgan: After the successful launch of Neutron, how soon should we see NSSL's mission orders placed? I saw an expanded contract?

Peter Beck: That's also beyond our control. I'd say you've seen them add a lot of resources to this contract tool. They have a fixed time period to publish these contracts. But I think the government, like everyone else, is eagerly awaiting the arrival of Neutron.

Michael Leshock from KeyBanc Capital Markets

Michael Leshock: I'd like to ask a broader question. Are you discussing potential rail data center opportunities with customers, whether as a commercial vendor or otherwise? I know that more efficient solar panels are an important part of generating enough electricity for some of the existing plans. You already have that ability. Are data centers in space a real opportunity for Rocket Lab? Or is it too soon?

Peter Baker: No, I think this is a real opportunity. I think I'm still a bit wary about how big they might be. You've probably seen us launch a new solar cell specifically for this type of application. So we're taking this opportunity seriously. Obviously, there are a lot of people who are deeply studying this field. So I think if they actually become a reality, we'll be deeply rooted in them and capable of profiting from them. Will Rocket Lab go out and build a bunch of data centers? Well, I don't think it's time yet, that's for sure.

Michael Leshock: So with regard to mergers and acquisitions, do you expect them to continue to be active after Iridium? If so, is there a specific section for the business? Is it mostly still a space system? Or any updated ideas for the merger and acquisition pipeline?

Peter Beck: You might see us making some complementary acquisitions. I think we'll be active as the right opportunities arise. But I'd like to encourage everyone not to think of Iridium as the end of the application field. I think it's really a starting point. We don't want to be thought of as just an L-band communications company. Our intentions are far more detailed than that. But what it did was show that we could gnaw a big bone, and over time, show that we could use the whole machine — we could build our own satellites and launch them to become a “self-sufficient ice cream shop.” So I think, yeah, people shouldn't think of Iridium as a one-size-fits-all deal.

Sugiva de Silva of ROTH Capital

Sugiva de Silva: Currently, Electron's customer base is very, very relieved to place orders. I'd like to know when do you think customers will reach that state in Neutron's 1, 3, and 5 sequences? I mean, I don't know if it only takes the first launch to be successful, but apparently you already have customers placing orders in advance, but at what stage in the sequence will customer orders and confidence begin to feel more normal?

Peter Beck: As I mentioned before, our initial supply of Neutron was very limited, and we had to be very, very careful about allocating it. So I think the demand for this rocket is already very high. So I don't know they might feel differently, but it feels like we're not far from that state.

ADAM SPACE: Actually, I'm pleasantly surprised at the stage of the cycle we're in right now. I mean, for a rocket that hasn't flown yet, being able to have a backlog of orders like Neutron, I think this shows quite strong recognition. Of course, I think the market shows that from the customer's point of view, they're not saying “if”, but “when.”

I think Pete made it very clear in today's and previous communication that a large part of Neutron's capacity will be used to meet our own needs in the future, right? So I think we're also paying close attention and don't want to sell all of our capacity for many years to come without considering our own needs. Not only do we need to consider Iridium's needs, but as Pete said, this is just our first step in the field of application. Therefore, we need to ensure that we truly maximize the strategic value of Neutron. It will become an excellent rocket on the market and will add more capacity to this market with limited capacity. But for us, it will also be an incredible strategic enabler. So we want to make sure we don't waste that opportunity and give up too much capacity to others too soon.

SUGIWA DE SILVA: Understood. Great, that makes a lot of sense, and given your historical record, customers are confident in your execution. Another question, Pete, is about FlaLite. I'm just curious, can you remind us what makes FlaLite unique? Congratulations on winning that government contract. Are there opportunities outside of government commerce? Or what do you think of Flatelite as a market opportunity for you?

Peter Baker: Thanks Suji for asking this question because it actually is—I mean, last quarter, I think there were two really important takeaways. First, we are now also building GEO satellites. I know the GEO market isn't particularly exciting compared to the past. But in reality, it's a very, very unique ability. So being able to build low-Earth orbit satellites, Martian satellites, GEO satellites, and then get our first Flaxite order, which I think shows the true breadth of skills and capabilities. However, Flarite was designed to be a constellation builder with a high frequency and each launch vehicle carrying a large number of satellites.

I'm very excited that its first client is actually a very important US government project. This fully illustrates the confidence that customers have built after due diligence on all competitors of Flatelite products. Also, once we start building Flaxite products for that customer, it's also a huge advantage for commercial customers who want this kind of product. But let's be honest, that's true for ourselves too. I mean, I see most of what Rocket Lab does for itself in the future will be built on the FlaLite platform.