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 speakers’ remarks, there will be a question-and-answer session. 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 the 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 had an exceptionally strong second quarter this year, and I'm excited to share the highlights and achievements with you. Before we dive in, I want to take a moment to outline who we are today, where Rocket Lab is heading, and the strategic steps we are taking to reach our goals. A common misconception is that Rocket Lab is solely a launch company. While we excel in the launch sector, with a name that emphasizes rockets, launching is just one part of what we do. I want to break this down into three key components. First, the ride. To accomplish significant tasks in space, you need to get there first. We have tackled this challenge with our small launch vehicle, Electron, and we are challenging the medium launch market with Neutron. Next are the necessary tools for functioning in space once you arrive. This includes spacecraft and their essential components, software, ground systems, and all the other elements that enable missions in orbit. We are currently delivering these reliably to commercial, government, and other clients. With the first two aspects solidly in place, our ultimate goal, and the reason we venture into space, is the data and services that spacecraft offer. This is the most valuable part of the supply chain, with growing demand worldwide, and it will generate long-term recurring revenue and added value for our shareholders. By controlling both launch and spacecraft, we gain a significant advantage in establishing our own space capabilities or constellations. We can produce and launch our own spacecraft cost-effectively without waiting for limited launch capacity. This approach allows us to sidestep the common challenges that many constellation operators face regarding supplier constraints on cost and schedule, which often lead to disruptive delays and hinder large-scale operations. However, we are not yet prepared to disclose details about this capability. This broader company vision is important when reviewing Rocket Lab's accomplishments in this quarter and beyond. Now, turning to specifics for the quarter, Q2 was a significant period for Rocket Lab, particularly regarding revenue. For the first time, our revenue exceeded $100 million in a quarter, reaching a record high of $106 million. This marks a 15% increase from the previous quarter and an impressive 71% year-over-year growth. These results underline the effectiveness of our end-to-end space company strategy, which offers diverse products and services, driven by an increase in launches compared to last year, as well as notable growth in our space systems segment. At the close of Q2, our backlog surpassed $1 billion. Now, let’s discuss some updates specifically related to Electron. Before diving into further Electron developments this quarter, it’s important to revisit the fundamentals of the Electron business model. This is relevant since the most common metric we are measured against is the number of launches per quarter, impacting revenue recognition. While revenue recognition follows established GAAP principles, it may not always reflect the inherent strengths of our business, especially given the cash flow structure of the launch industry, where we often receive payments long before the revenue is recognized. Electron provides what rideshares and larger rockets cannot: a dedicated launch service customized for each client’s specific needs. This flexibility means customers can select and adjust their launch dates, choose their launch sites, and specify their desired deployment locations in orbit. We have consistently demonstrated the ability to take a client from contract signing to orbit in under eight weeks. In contrast, bookings on larger rideshares or vehicles do not offer that level of flexibility, nor can clients expect a dedicated launch on short notice with larger rockets. This adaptability can complicate precise predictions regarding the number of launches we will conduct annually and when they will occur during the year. However, this is anticipated and integral to our model, distinguishing us from other providers. Notably, the fluctuations represented by GAAP revenue recognition do not affect our cash flow, as we collect the majority of payments from customers prior to their launch dates. Even if launches are rescheduled by a few days, weeks, or months, it has minimal impact on us. Regarding Electron contracts, we have signed 17 new launch contracts so far this year, with a total contract value of $141 million. Additionally, Electron has now achieved the status of the third most frequently launched rocket globally, following Falcon 9 and China's Long March. Achieving a 100% increase in launch rate for the first half of this year compared to the same period last year is significant. Doubling our rocket production and launch pace in this timeframe is unusual and sets our team apart in the industry. Presently, Electron is responsible for 64% of all US non-SpaceX launches in 2024, which illustrates the impact it has had and highlights the limited launch options available to customers. Throughout a year marked by launch anomalies and delays globally, Electron has consistently provided trusted and reliable access to space, achieving mission success for all customers. This track record solidifies Electron's position as the most active small rocket globally, ranking third overall this year. While I won't detail all nine launches completed to date, it’s crucial to understand the complexity, customization, and customer orientation of these missions. We have executed dedicated missions spaced just 11 days apart to place climate change monitoring satellites in precise positions to observe the poles. We have conducted a rideshare mission that launched two different customer satellites into distinct orbits and altitudes in one rocket launch and have been able to shift a scheduled mission for a customer within just two weeks when a later launch date was requested. This exactly illustrates why clients choose Electron: it delivers an unprecedented flexible service for small satellites. Moving on to contract wins, our commercial sales team has achieved great success, securing a 10-launch agreement with Synspective, a Japanese Earth observation company, where we have been their exclusive launch provider for five successful missions, a huge accomplishment. We've also finalized a four-launch deal with another commercial constellation operator who wishes to remain confidential at this time. Electron continues to play an essential role for the Department of Defense. We have recently signed three additional launch contracts that reinforce our status as a trusted partner in launch and space systems. These include our selection by the Space Force to demonstrate an end-to-end space mission, meaning Rocket Lab will design, build, launch, and operate a spacecraft with short notice. This clearly validates our comprehensive model as a space company. We have also secured the STP-S30 launch contract, valued at $14.5 million for the Space Force. Furthermore, HASTE remains a highly sought-after capability, with another hypersonic suborbital mission successfully sold. We are proud to have adapted Electron into this new application, unlocking hypersonic test launch capacity for the DoD and alleviating longstanding bottlenecks caused by limited wind tunnel access and test flight opportunities. In Q2, we reached a significant milestone by launching our 50th Electron mission, achieving this faster than any other commercially developed rocket, and we are on track to become the fastest to reach 100 missions as well. This illustrates our team's remarkable execution speed. On our 50th mission, we successfully deployed a customer spacecraft within eight meters of the intended target, significantly exceeding the typical industry tolerance of 1,500 meters or 15 kilometers. Deploying a spacecraft within mere meters highlights Electron’s clear advantages for complex missions and unique capabilities increasingly sought after, such as rendezvous and proximity operations and constellation replenishment. Now, turning to updates on Neutron development, I often get asked how Neutron will compete and the rationale behind investing in a medium launch vehicle. There is currently a practical monopoly in medium launch, and demand in this segment is robust and growing, especially for constellations. With over 10,000 satellites needing launch by the decade's end, Neutron is poised to disrupt this monopoly. Our successful experience building and launching reliable vehicles has paved the way for us to work closely with customers and design a new rocket tailored to their needs, resulting in a customer-led development process with a rapid timeline to market. Across all our launch and space systems, we have effectively assessed demand and opportunities, directing resources where they can yield the highest returns. This approach has yielded undeniable results, and we anticipate Neutron will follow suit. Currently, I can confirm we have largely moved beyond the design phase for Neutron and are swiftly advancing into the production and qualification of flight hardware for the entire vehicle. With flight articles now in development, we are on track for our first launch by mid-next year. As I’ve mentioned before, developing a rocket is a major task, accounting for only about a third of the overall effort needed. The remainder involves creating the launch and production infrastructures—such as launch pads, test cells, production facilities, and all the necessary processes to support them. Many companies focus primarily on their initial rocket, but we recognized the importance of establishing the infrastructure needed for sustainable production, testing, and launches right from the start, and we have successfully pursued this in parallel. I am extremely proud of the rapid progress the team has made on Neutron. We have conducted hundreds of tests of the Archimedes engine in recent months, validating its design with Spin Primes, Ignition Tests, and analyzing all operational transitions. This effort culminated in a successful hot fire test of the Archimedes engine, progressing from low power hot fires to a main stage hot fire at 102% power. Achieving the hot fire of a new stage combustion liquid rocket engine from initial design to flight-ready status in just a few years is truly remarkable. The next Archimedes engine is currently being assembled, and more engines are in production. We've also scaled the avionics production lines to support both Electron and Neutron, ensuring we can achieve an efficient launch cadence after our first flight. The composite production team has also been making excellent progress—flight hardware, including Neutron’s fixed fairing panels, is being produced. Notably, this fairing will remain attached during launch and landing, enabling reuse across multiple missions. Our composite production efforts are about to accelerate further with the installation of our automated fiber placement machine in Baltimore. This advanced machine will enhance our ability to rapidly scale production for Neutron structures, while reducing labor time significantly. Progress continues smoothly at Launch Complex 3 in Virginia, with fluid systems now installed and critical long lead items like cryogenic systems and tanks arriving. We have made significant strides in preparing Neutron's launch pad. A nearby assembly and integration facility is under construction, where Neutron will be finalized and readied for transport to the pad, with completion on track for early next year ahead of launch. Now, shifting to the other side of our business, space systems. Before delving into specific achievements within space systems, it's important to note the scope of our current programs, with over $720 million worth of spacecraft contracts in development, including projects for the Space Development Agency, Globalstar, and customized spacecraft for NASA, the DoD, and commercial entities. Day-to-day, our team works on design reviews, qualification campaigns, analysis, and production. Much of this work remains behind the scenes, with hardware build occurring at the later stages, often accompanied by requests for confidentiality from customers. Despite this, our team has established a reputation for delivering high-quality spacecraft in rapid timelines, and these projects are proceeding without delay. We recently completed production and testing of two identical spacecraft for NASA's Mars mission, a significant accomplishment. It typically takes years for an interplanetary mission from design to flight readiness, so designing, building, and testing two Mars spacecraft in under three years is commendable. This achievement is partly due to our vertical integration strategy, minimizing supplier reliance and allowing us to control schedules and costs. The twin spacecraft are now ready for shipping and will launch during the upcoming Mars transit window. In Albuquerque, we have signed preliminary terms for $49.4 million in federal, state, and local funding under the CHIPS Act. This funding will support the expansion of our solar cell production for national defense and security satellites, creating around 100 new jobs. We are also advancing production on satellites for Varda Space Industries, with in-space manufacturing capsules. Following our successful mission with Varda last year, these spacecraft are nearing completion and scheduled for launch in the near future. Recently, we completed a successful systems requirements review for our $500 million contract with the SDA, where we will design and build a beta transport layer constellation. We are on track to progress through early design milestones ahead of hardware development. Our Thunder constellation program for MDA and Globalstar is also moving rapidly, with hardware production underway and anticipated completion by late 2025. While our spacecraft programs receive significant attention, our Merchant Components business is also thriving, with innovations like our advanced satellite dispenser introduced this week at a small satellite conference. To summarize our updates, we are managing a robust pipeline of potential acquisition targets to enhance our capabilities in line with market demand while being strategic about our selection for future growth. Finally, before addressing financial highlights, I want to mention the recently released documentary about Rocket Lab, titled Wild Space, available on HBO Max. Based on the best-selling book by Ashlee Vance, this film offers insights into our history and what drives our mission. Highly recommended for anyone interested in our story. That concludes the overview of our business achievements. Now, I’ll pass it over to Adam to discuss our financial highlights and outlook.

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 contributions from both business segments, led by Space Systems. Our Launch Services segment delivered revenue of $29.4 million, slightly above our guidance of $28 million 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 million 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. GAAP gross margin for the second quarter was 25.6%, in line with our prior guidance range of 24% to 26%. Non-GAAP 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 a $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 with Synspective 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 million to $76 million. Non-GAAP operating expenses for the second quarter were $58.5 million, up $2.2 million sequentially, which was also below the low end of our guidance range of $62 million to $64 million. The sequential increases in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in headcount and prototype 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. 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 from the prior quarter. Turning to cash. Purchases of property, equipment, and capitalized software licenses were $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. 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 deposits on our 10-launch agreement with Synspective 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 increases 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 exit Q2 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 million and $105 million. This range reflects $79 million to $84 million of contribution from space systems and approximately $21 million from launch services. We expect in the third quarter GAAP gross margin to range between 25% to 27% and non-GAAP gross margin to range between 30% to 32%. These forecasted GAAP and non-GAAP 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 million 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 the second-quarter adjusted EBITDA loss to range between $31 million and $33 million, and basic shares outstanding to be approximately 498 million shares. Despite Q3's modest revenue step back, we expect a market 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.

Our first question will come from Edison Yu with Deutsche Bank. Please go ahead.

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

Gotcha. And then kind of more of a financial one on Neutron. So, you know, we're 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?

Well, I think firstly, that it needs to be backed up by data and fortunately that analysis did. If you look at the cost and time that it took us to develop Electron, you can see, as you point out, we can do these things at a very fast time and a very low cost. I guess that comes down to our development approach and even if you just look at the example of the Archimedes engine, 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. 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. It's just the way that we've always been. It's the Rocket Lab magic, if you will. Throughout the history of the company, we've always managed to develop these systems at a speed and a cost that pretty much others can't.

All right. And if I could just sneak in one more financial one. I think the implied Q3 guidance 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, 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 is collected through that billing cycle. But launches move around tremendously. I guess we're trying to kind of provide that color for folks so that they can see how the business really operates.

Our next question will come from Erik Rasmussen with Stifel. Please go ahead.

Yeah, thanks for taking the questions. I appreciate all the detail. There's a lot there to unpack. But maybe just to piggyback off that question, I realize that launch has been challenging to predict. I know the manifest seems like it's filling up each quarter, but it's always kind of customer readiness and other things that can push things out. But 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 implied $7 million ASP. I'm just trying to sort of dissect, does that mean if we're back to sort of a $7.5 million ASP for Q4, at three launches, that obviously gets us a higher revenue, but would we also, I guess, see potential to see even more than three launches in Q4?

Yeah Erik, it's Adam. So I think the way to look at that is, yes, 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 sequentially. We expect to be able to launch significantly more in Q4 than we are in Q3. 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 operating within and that's really guided by, again, kind of the customer readiness. We've done quite a bit of work looking into kind of where these slippages occur, and we can't, the slippages are always driven by customer readiness. In this case, we didn't have, when we look at the manifest we had coming into 2024, there hasn't been a mission on that manifest that we couldn't support from a production perspective. Any volatility we've seen versus kind of that manifest has all been customer delay-related. But as Pete said, that's part of the business and why people pay us a premium to be on a dedicated small launcher versus being on a rideshare. It's kind of uncomfortable in one respect but also comforting in the other respect that people see value in that flexibility.

Thanks for that information. I wanted to ask about the increase in non-GAAP operating expenses, which have risen from $58 million in Q2 to a range of $69 million to $71 million. Is this an appropriate range to consider for the latter half of the year? We have guidance for Q3, but I’m also curious about what we should expect for Q4.

As we've said many times, these rocket programs are challenging in many ways, including being able to predict when certain expenses are going to hit, because you can make your commitments 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 should think about Neutron spending continuing to grow sequentially from Q3 into Q4. So that'll kind of drive overall OpEx in that same direction. We're not looking at step function increases; it's more just a relatively predictable slope of that curve. We would expect that spending would start to trail off as we start to approach the first launch of the vehicle.

Great. Maybe if I could just add one more. It looks like you served for a successful test of a hot fire for the Archimedes. I mean, would you say that now this coincides with your timeline to get Neutrons 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. So from here on in there's more kind of testing to be done but certainly our approach here was to put the flight engine on the stand and take it to full power. That buys down all the risk really. There's still obviously 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 Kristine Liwag with Morgan Stanley. Please go ahead.

Hey, good afternoon everyone. Peter and Adam, on the data and services initiative, can you provide more color in 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 the economics of what a mature data and services capability could provide for you?

Yeah, hey Kristine. So look, if you break up the industry, launch is about a $10 billion TAM and spacecraft or services spacecraft is about a $20 billion TAM. 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. 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 color on where we're headed with that.

Our next question will cover 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. If you could 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 an 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 has lost on me completely. But I would say, 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 mean, it is clear, 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. If you have those things, then your ability to provide a service from space is uniquely advantageous compared to anybody else who doesn't have those things. So right now, I'd 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 critical part of this puzzle. I mean, we need multi-ton launch to deploy significant constellations, so Neutron is probably one of the most critical elements to that future.

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

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

Okay and then, 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. I mean, if you bring a rocket that doesn't exist and you start selling contracts against it, they're always discounted contracts. As I think I've said before, this is exactly what we did with Electron, and it took us years to flush those out. Of all the things I worry about at night, demand is just not one of them. 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 contracts that I think we'd all regret later on.

I have one clarification and one question for Adam. To clarify, you’re indicating that from a manufacturing standpoint, you could have launched all these products this year. You are receiving the cash, and I want to confirm that there have been no cancellations. So, it’s really a matter of timing for these launches rather than whether they will happen. Is that what you are trying to clarify for us to better understand the financial statements?

That's 100% correct, Jason. Yep. No, we're collecting the cash on those, you know, as the rocket comes down the production line and its milestones are met or time is met. We just 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 breakeven on a sustainable basis?

Yeah, no, I think it still looks very much like it had before. We can't get to cash flow positivity on any sustained basis until we get the first Neutron off the pad. I've been pointing people towards two quarters after the first Neutron launch is where I think we kind of turn that corner on a more permanent basis, given where the rest of the business is growing, kind of what the P&L starts to look like once you've got that first R&D test launch off and that you've got most of that infrastructure put in place to scale Neutron, which I think we will have by the middle of next year. Again, middle of next year kind of represents a minimum viable product and minimum viable infrastructure in this case. There will be continued investment, but at a very, very different level. My 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 Cai von Rumohr with TD Cowen. Please go ahead.

Thank you for taking the question. If you have four to seven launches in the fourth quarter, that would bring your total for the year to 15 to 18, starting from an initial projection of 22. This indicates a reduction of about 20% to 30%. It seems there was a notable decline in the third quarter. Can you share if there is a common reason for this? Are these delays primarily due to satellites not being ready, or is there another underlying issue you can elaborate on?

Yeah, hey Cai, no, it's 100% customer readiness and it's kind of the nature of the business. You know, 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. 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 they have the flexibility, but if they slip, 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 why we can charge a premium for the service. That's kind of baked into the premium for the service. There are penalties in the contracts where certainly if egregious things happen. But also we have customers that 72% reoccurring customers. So if a customer has an issue with a spacecraft, they're already upset. The last thing they want to do is be penalized. If you have a long-standing relationship with the customer, that's certainly not ideal either. That's what we're trying to provide a little bit of color today is that is kind of the business model of a bespoke service like this. While it's super frustrating for us, this is the service that we provide. 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 when the customer ultimately turns up and is ready to fly, it's just simply out of our control.

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

Adam, Peter, thank you for taking my 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 are 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. The Solero business actually, so you're correct, Andre, that we've 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. There is still a backlog that's representative of that, but it's becoming less and less in the mix. What we look at is, if we step back and say, what's new business being signed up at? Is that being signed up at the target model or less or more? On average now, we've been getting to a point where that 30-point margin target has come into focus. The business that we're signing up now, those margins are assured to be at that target. 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 improve those margins probably beyond that target because we're really replacing an aging reactor fleet of these in our solar fab. The gross margin one is just going to take a little bit longer. We said our goal was to get there within two years of closing the deal, which would have put that back in Q1 of 2024, so earlier this year. It’s probably been delayed by a few quarters, but not materially, and the longer-term 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 Systems Group.

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

Superb. Well, thank you, Adam.

Our next question comes from the line of Suji Desilva with ROTH Capital. Please go ahead.

Hi, Peter. Adam, congratulations on the progress here. On Neutron, 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; it is largely in Rocket Lab's hands. I just want to know if there's any non-Rocket Lab dependencies, risks that might occur that would otherwise prevent you from having the launch when you're ready to go? Things like regulatory pad rights; just want to envision those as we get closer to that launch a year from now.

Great question, Suji. We've certainly anticipated many of these factors. Many of us observed Electron sitting on the launch pad at Wallops for an extended period while we waited for AFTS certification. We have all those aspects managed, and much of the foundational work has been completed well in advance, particularly regarding the licensing for the launch pad at Wallops. We believe we have everything under control, and there are currently no issues. However, it's worth noting that certain regulatory timelines can be lengthy, but we have considerable experience and established relationships with the regulators, so we're comfortable navigating this terrain.

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, would you consider that a niche market opportunity or is that incrementally a meaningful opportunity versus the traditional launches where you can get to that meter I believe?

Initially, we didn't think it would be, given that the industry standard is sort of 15 kilometers; it wouldn't be that important to folks. But as we started to 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 recently for a Japanese customer where they rendezvoused with a spin-up stage and were able to rendezvous directly off the rocket. Normally you would have required a big ball of Delta V to kind of come off the rocket and clean the orbit up. I guess we've created a capability 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. It's definitely an emerging space. There's a lot more desire to do kind of these proximity operations and rendezvous operations. This is all just muscle building for future on Neutron as well. If we need to dock with anything in the future, we have all of that capability now created.

Our next question comes from the line of Andres Sheppard 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 2025 or if you could walk us through again how the financial impact of this contract is.

We are in the very early stages of executing that program. We have recognized around $10 million of revenue from that contract following the EAC methodology as per accounting standards. This revenue is expected to grow each quarter going forward, contributing positively to revenue growth. You can anticipate that the program will reach its maximum revenue contribution in about six to eight quarters, after which the growth will begin to slow and eventually decline. The key will be to secure the next contract or growth opportunity to avoid any drop in revenue. Currently, we are still at the initial phase, and we have significant revenue recognition from the MDA Global Star contract. We're only beginning to tap into the revenue potential from the $515 million SDA program.

Gotcha. Appreciate the color. And I guess switching gears a little bit, I know this was asked earlier, so I was wondering 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.

We have tried to provide a detailed perspective on this matter, as we often encounter surprises. We offer our best estimates based on our understanding of the current stage of programs. It is quite challenging to predict the exact timing of launches. Currently, for Q3, we are estimating another opportunity for up to four launches in Q4, possibly totaling between 15 and 18 launches for the year. However, we don't anticipate any outcomes beyond 18, which I would recommend against including in any projections at this time, as that would be ambitious, but achievable. Considering the difference between 22 and 18, we do not have customer readiness to support more than 18 launches this year. This is essentially where our estimates conclude.

Again, that's if everything goes really perfectly and things rarely if ever do.

Our final question comes 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. 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 fund some of our M&A ambitions. It really is going to depend on kind of the size, the opportunity that comes into focus. I think we're all, 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 are available, but it has to be for the right opportunity. 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 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 redeploy elsewhere or more so like the actual rails to getting to space?

I would say both, Anthony, for sure. Great thanks very much, so before we close out today, I just wanted to draw your attention to some upcoming 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.