Rocket Lab Corp Q2 FY2025 Earnings Call

Good day, and welcome to the Rocket Lab Corporation Q2 Earnings Call. Please note that today's event is being recorded. At this time, I would like to turn the conference over to Murielle Baker, Senior Communications Manager. Please go ahead.

Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's Second Quarter 2025 Financial Results. Before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company. And these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. 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 Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation and a replay and a copy of the presentation will be available on our website. Our speakers today are Rocket Lab's Founder and Chief Executive Officer, Peter Beck, as well as Chief Financial Officer, Adam Spice. They will be discussing key business highlights, including updates on our launch and space systems programs, and we will discuss financial highlights and outlook before we finish by taking questions. So with that, let me turn the call over to Peter.

Thanks, Murielle, and thanks for everybody joining us today. Look, we have delivered impressive financial results this quarter with another record revenue of $144.5 million, above the high end of our prior guidance and up 36% compared to last year. Our GAAP gross margin expansion exceeded expectations this quarter, and the consecutive growth of the company is really exciting to drive. No surprises here that Electron continues to be the leader of the small launch industry. We had 5 launches across the quarter, 2 of them back to back from launch complex 1 in 2 days. Demand for its services is also increasing from different countries with multiple international space agencies signed up for Electron launches this year and next. We made rapid progress towards the pad this quarter. Launch Complex 3 is ready for its grand opening, and we've got the first rocket parts on their way to Virginia. More to share across the program in the upcoming slides here. And finally, in Space Systems, our prime contractor status is expanding with our imminent acquisition of Geost. Being able to quickly build and deploy entire satellite systems is the cornerstone of the future U.S. defense strategy, and we're in a prime position to play within those large opportunities within launched spacecraft and now payloads added to our end-to-end capabilities. So let's get into those details now. We're very close to finalizing our acquisition of Geost, a maker of missile tracking satellites for national security missions. Having cleared through the antitrust review, we're on track for signatures on paper here pretty shortly. I'll let Adam take you through the financial details later. But if there's one thing to take away from this deal, it's adding payloads on top of launch and spacecraft really cements our status as a one-stop shop for national security. We're already a trusted disruptor in the launch and prime contractor for Constellation build, and this acquisition adds to our competitive advantage. It will bring an extensive inventory of space-based missile warning sensors and manufacturing facilities in Arizona and Northern Virginia that secures the domestic supply chain of this critical technology for next-generation missile defense initiatives, like the Golden Dome and the SDA constellations. The $175 billion Golden Dome program could prove to be one of DoD's largest procurements to date, and we're in a great position to capitalize on opportunities here. Our strategic investment and the way that we scale the company to uniquely meet its needs positions us strongly to win either as a prime contractor or even as a sub or even as a component supplier. Our pursuit of the Golden Dome extends just beyond payloads. Across its entire ecosystem, we have the technology and capability ready to serve. We operate the world's most reliable and responsive small launch vehicle, Electron, operating at the fastest cadence of any small launch vehicle in history, having just completed its 69th launch. With our hypersonic testing variant Haste, we are revolutionizing the way missile defense technology is tested in a hypersonic environment. A new reusable rocket Neutron perfectly answers the call for a diversified launch of national security and can deploy entire constellations of spacecraft at once to build out the domes' proliferated architecture. We've already won more than $0.5 billion in contracts with the SDA to build and operate a significant piece of their PSA network. So there's a golden opportunity to build upon that here with our existing capability. The list goes on, but I won't belabor the point. Our advantage is our commercial speed improving execution. The way programs like this have been built in the past, dominated by the large defense primes, just won't work this time around to meet the administration's urgent timeline. This agility and innovation, vertical integration, and on-time delivery and execution are why we've delivered time and time again across our programs to date and what we stand ready to deliver for the Golden Dome. There's no better mission on the box that demonstrates the full depth of our capabilities than the Vector Hays mission for the Space Force. Across its tactical responses space program, we're the only provider delivering a complete end-to-end launch plus spacecraft solution. We're bringing the full stack of offerings across the satellite design, component manufacturing, integration and testing, flight software, ground mission and launch licensing, and the launch itself and on-orbit operations. We own the entire mission life cycle and its capability for national security that very few others can provide. It's also a great demonstration of how commercial capability like ours can leverage to bring the concept of responsive space into operational reality, exactly what the U.S. administration is seeking with Golden Dome. This mission has a 24-hour call-up requirement, which quite frankly, is business as usual for Rocket Lab these days, and we recently cleared the program milestone for Vector Hays that moves us into the final integration and testing phase of our spacecraft for the mission, and the launch on Electron is on track for later this year. Another program with a major milestone is our transport layer constellation build for the SDA. The program has signed off our satellite design and approach for manufacturing, which means we can now move into full-scale production of these 18 spacecraft and recognize further revenue from this $515 million program. As this constellation gets underway, we're also preparing for a much larger opportunity within the SDA and its next tranche of satellite contracts. This is where our strategy of bringing key satellite technologies in-house makes us an attractive commercial partner. Our income in sensor payloads, for example, are also in play for an SDA award and through other bidders. We can control the cost and reduce the schedule risk through our vertical integration in a way that others can't. And we hold the keys to their technology and components that are foundational to these contracts. And finally, for Space Systems. Another strategic area of focus for this past quarter has been in supporting the administration's plans for Mars exploration. It was great to see our $700 million provided for our Mars telecommunications arbiter in its recent budget. The path to Mars for human spaceflight must begin with the ability to communicate there. This is something that we've always strongly pushed for. In fact, we were the only company that proposed an independently launched Mars Telecom arbiter as part of the end-to-end Mars sample return mission. Our ambition is clearly in line with the administration's vision for Mars. Much of our technology is already across major Mars missions, like NASA InSight Lander, the Engineered helicopter, the cruise stage that brought perseverance to Mars, and of course, our ESCAPADE spacecraft that are ready for launch here soon. We have the experience in delivering mission success for Mars exploration, and a vertically integrated approach reduces complexity, controls cost, and provides schedule certainty, all under a firm fixed price. Now onto Electron. Once again, another busy quarter for Electron as demand and launch cadence continue to soar. The beauty of Electron has been that we can choose when we want to fly. Sometimes for us, that can mean flying in very close succession like the 4 launches in 4 weeks that we saw in June, and 2 of those just days apart, a record turnaround for us at Launch Complex 1. We since racked up launched #69, and #7 is scheduled for lift-off next week, keeping us on track for 20 or more launches by this year's end. These missions are a great showcase of how quickly we can turn around launches as a manifest demands, with the infrastructure, production, and capability to place and support a launch a week as demand for small dedicated launch continues to expand. Beyond Electron's proven heritage as America's most frequently launched small rocket, international space agencies are coming to rely on us for access to orbit as well. We signed our first direct launch contract with the European Space Agency this quarter to launch a pair of satellites for the continent's future navigation constellation before the end of this year. The mission urgency stems from the need to meet spectrum requirements by early '26. But with few domestic rides to space available for them, Electron is stepping up to the task of responsive launch. It's a similar situation faced by another sovereign space agency that came calling for Electron too. I can't quite reveal the full details of those missions yet, but it's fuel on the fire for Electron's international expansion and leadership in the smaller market globally. Finally, to cap off the list of Space Agency launch contracts, we secured another NASA mission on Electron, scheduled for early 2026. Time and time again, we've proven Electron to be the premier small launch option for NASA science missions and we're looking forward to delivering the same precise orbital deployments that they've come to expect. Now onto our Neutron update for the quarter. Let's start with a top-down view of where things stand today. We're building more than just the first rocket. We're laying the foundation for a long-term sustainable program. We know that from experience building the first one is hard, but building the system that gets you to launch #10 and 20 and beyond is much harder. Most of the capital of any rocket program goes into building out the infrastructure, and we've got all the critical elements in place now. Our launch and test sites are substantially complete, recovery infrastructure is on track. The Archimedes engine manufacturing line is now capable of knocking out an engine every 11 days, and we believe that we've scaled our operations to be ready to support multiple flights a year after the first launch gets off the ground. On the launch vehicle side, the teams are working literally day and night to get Neutron to the pad. We're in a good spot with lots of core elements like the Hungry Hippo, major structures, second stage, engine qualification, etc. It's a green tech Stage 2 flight hardware and its qualification program, the brains of the rocket, like the flight computer and GNC are ready for flight. So lots of green across the vehicle as you'd expect. There's been lots of action on the regulatory approval front as well. We've been granted our FCC license for Neutron's first launch, and the FAA has accepted our launch license application that puts us on track for a launch license to fly from Launch Complex 3 by the end of the year. We've also had the critical agreements in place to transport flight hardware to the launch site on Wallops Island. You've likely seen a bit of activity on that front around expanding our operations and dredging in the channel. But these improvements are related to increasing operational flexibility as launch cadence ramps up; it's not a gate to Neutron's debut. Importantly, the schedule is not sequential. Everything is happening in parallel, and a lot of the progress markers that are underway are still pending and probably going to stay that way up until just before we launch. There are still some risks to retire like propulsion and full integration of Stage 1 testing, which we're taking our time on to make sure we're successful. And when the rocket is on the launch pad. But over the next few slides, I'll take you through the latest engineering updates and lay out the current expectations for the next few months ahead. Next up, an exciting moment on the path to launch. Neutron flight hardware is on its way to the launch site. Over the past couple of months, we've put the second stage through many tests to validate its readiness for launch. Having completed its critical testing phase, it is headed to Launch Complex 3 for final integration in preparation for stage testing at Wallops Island. The large structures that make up the first stage, like propellant tanks and trust structures, are expected to be on the test stands before they ship out to the launch site shortly. Once they've completed major structural tests, they'll progress into final integration and stage testing. As we move out of R&D into production for the next rockets in our fleet, our factories are all coming. We've automated the production of the largest composite rocket structures in history with our 90-ton AFP machine that we installed there last year. We're calling flight parts off the machine now for the Stage 1 barrels and the pellets and allows us to scale efficiently. And we've made long lead commitments for manufacturing equipment that puts us in a good place to build 3 vehicles next year. For our committees, engine testing is accelerating. This is the most crucial aspect of any rocket development program and always the longest pole in the tent. We're running the engine to full mission duration, and the operational test cadence is heading up to 3 or 4 hot fires a day now, 7 days a week as we work diligently through all the engine qualification programs. Between hot fires, the team is making improvements and iterating on the design quickly and getting right back into the next engine test via and on the stand. We expect these tweaks to continue all the way up to Neutron's debut launch and beyond. For those who are interested, take a look at the latest mission duration hot fire video we just shared. Moving on to Launch Complex 3. I'm pleased to say that we have an official date for the site opening later this month. The team in Virginia is well on their way into launch pad activation, having closed out the final construction activities. The water dilute system was activated last quarter, and now the team is meticulously making their way through the final system to prepare for static fire operations on the launch mount once the flight hardware arrives. Launch Complex 3 is set to be a hugely important national asset. There's a space bottleneck at the other federal sites right now, and that shows how important launch site diversity really is. National Security must take priority. And with Neutron onboarded to the CSL program earlier this year, our rocket will be the first to fly for NSSL out of Virginia when we pick up missions under that contract. We'll be cutting the ribbon for Launch Complex 3 on August 28. We're also opening up a limited number of spaces for retail shareholders to join us on Wallops Island. So I encourage anybody who is interested to check out the details on our website. All in all, we continue to push extremely hard for an end-of-year launch. We're continuing to run a green light schedule with Neutron, which means every single thing needs to go to plan, but I also want to stress that we're not going to rush and take foolish risks to get a launch Neutron before it's ready. In the context of the life cycle of the vehicle and the program, a couple of months here or there is completely irrelevant. What's really important is performance, reliability, and scalability right from the get-go, and there'll be no cutting corners here to just rush to the pad for an arbitrary deadline. I think everybody has heard me say it before. In fact, I'm a little bit infamous for it now. I'm not built to build cheap. So with that, I'll hand it off to Adam. He can run through the financial highlights for the quarter.

Great. Thanks, Pete. Second quarter 2025 revenue was a record $144.5 million, which was above the high end of our prior guidance range and reflects significant year-over-year growth of 36%, driven by strong contributions from both business segments. Second quarter revenue increased 17.9% sequentially. Our Space Systems segment delivered $97.9 million in the quarter, reflecting a sequential increase of 12.5% driven by increased contribution from each of our satellite component businesses. Our Launch Services segment delivered revenue of $6.6 million, reflecting an increase of 31.1% quarter-on-quarter. Now turning to gross margin. GAAP gross margin for the second quarter was 32.1%, above our prior guidance range of 30% to 32%. Non-GAAP gross margin for the second quarter was 36.9%, which was also above our guidance range of 34% to 36%. The sequential increase in gross margins is primarily due to an increase in Electron ASP paired with a favorable mix within our Space Systems business, driven by increased contribution from our higher-margin component sales. Relatedly, we ended Q2 with production-related headcount of 1,150, up 62% from the prior quarter. Turning to backlog. We ended Q2 2025 with approximately $1 billion of total backlog with launch backlog representing approximately 41% of this and Space Systems 59%. In the quarter, launch backlog continued to take increasing share with promising underlying trends as we convert a very strong pipeline of Neutron, Electron, and HASTE opportunities. Space Systems' bookings remain lumpy given the timing of increasingly larger needle-moving customer and program opportunities but remain at a healthy level despite a step-up in revenue run rate for the past few quarters. Upon the anticipated near-term closing of the Geost acquisition and given an increased line of sight to the Mynaric acquisition closing, the composition of backlog will likely skew a bit back in favor of Space Systems and further underpin incremental future growth. We continue to cultivate a healthy pipeline in multi-launch deals and large satellite manufacturing contracts that, as mentioned earlier, can create lumpiness in backlog growth, given the size and complexity of these opportunities. We expect approximately 58% of current backlog to be recognized as revenue within 12 months. And we continue to get relatively quick-turn business that drives top-line growth beyond the current quant backlog conversion. Turning to operating expenses. GAAP operating expenses for the second quarter of 2025 were $106 million, above our guidance range of $96 million to $98 million. Non-GAAP operating expenses for the first quarter were $86.9 million, which was also above our guidance range of $82 million to $84 million. The sequential increases in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in prototype and headcount-related spending to support our Neutron development program. Specifically, investment has increased to support propulsion as we continue to qualify our components, as well as production mechanical and composite structures ahead of Neutron's anticipated inaugural flight later this year. In R&D specifically, GAAP expenses increased $11 million quarter-on-quarter due to ramping up our components production paired with increased expenses related to mechanical systems and composites I just mentioned. Non-GAAP R&D expenses were up $10.2 million quarter-on-quarter, driven similarly to the GAAP expenses. Q2 ending R&D headcount was 935, representing an increase of 12% from the prior quarter. In SG&A, GAAP expenses increased $600,000 quarter-on-quarter due to an increase in nonrecurring transaction costs as we continue to advance a robust pipeline of M&A opportunities, partially offset by a step down in stock-based compensation in the quarter. Non-GAAP SG&A expenses decreased by $200,000 due primarily to a decrease in audit fees, partially offset by increased legal expenses. We are encouraged by our ability to constrain SG&A spending as we look to scale the business more efficiently at this point. Q2 ending SG&A headcount was 343, representing an increase of 11% from the prior quarter. In summary, total second quarter headcount was 2,420, up 85% from the prior quarter. Turning to cash, purchases of property, equipment and capitalized software licenses were $32 million in the second quarter of 2025, an increase of $3.3 million from the $28.7 million in the first quarter as we finalize LC 3 construction activities, continue to invest in the engine test facility in Mississippi, and make initial investments in the fit-out of the return on investment bars. As we continue to invest in Neutron development, testing, and scaling production, we expect to maintain elevated capital expenditures leading up to Neutron's first flight. GAAP operating cash flow was a negative $23.2 million in the second quarter of 2025, compared to a negative $54.2 million in the first quarter. The sequential decline in negative GAAP operating cash flow of $31 million was driven primarily by increased cash receipts from our SDA satellite program. Similar to the CapEx dynamics mentioned earlier, cash consumption will continue to be elevated due to Neutron development, longer lead procurement for SDA, investment in subsequent Neutron tail production and related infrastructure to scale the business beyond our initial test. Overall, non-GAAP free cash flow, defined as GAAP operating free cash flow less purchases of property, equipment and capitalized software in the second quarter of 2025 was a use of $55.3 million compared to a use of $82.9 million in the first quarter. The ending balance of cash, cash equivalents, restricted cash from marketable securities was $754 million as of the end of the second quarter of 2025. The sequential increase in liquidity is due to the at-the-market equity offering that we announced earlier in the year, which generated $303.8 million in the second quarter, which in part is intended to fund acquisitions, such as the announced Mynaric acquisition, the Geost acquisition, and other targets in a robust M&A pipeline, along with general corporate expenditures and working capital. We exited Q2 in a strong position to execute on our organic expansion opportunities as well as inorganic options to further vertically integrate our supply chain and grow our strategic capabilities and expand our addressable market consistent with what we've done successfully in the past. Adjusted EBITDA loss was $27.6 million in the second quarter of 2025, better than our guidance range of a $28 million to $30 million loss. The sequential decrease of $2.4 million of adjusted EBITDA loss was driven by an increase in revenue paired with increased gross margin, partially offset by increased R&D expenses related to Neutron. With that, let's turn to our guidance for the third quarter of 2025. We expect revenue in the third quarter to range between $145 million and $155 million. We expect a further uptick in both GAAP and non-GAAP gross margins in the third quarter, with GAAP gross margin to range between 35% to 37% and non-GAAP gross margin to range between 39% to 41%. These forecasted GAAP and non-GAAP gross margins reflect improvement in launch ASP and overhead absorption. We expect third quarter GAAP operating expenses to range between $104 million and $109 million and non-GAAP operating expenses to range between $86 million and $91 million. These modest quarter-on-quarter increases at the midpoint of our guidance are to be driven primarily by continued Neutron development, spending across staff costs, prototyping, and materials, though the spend is beginning to shift from R&D to Flight II inventory. I'm encouraged, given the impressive progress made towards Neutron's first flight that we're getting closer to moving beyond the past few years of elevated R&D spend and on the path to generating future meaningful operating leverage and positive cash flow. We expect third quarter GAAP and non-GAAP net interest expense to be $1.3 million. We expect third quarter adjusted EBITDA loss to range between $21 million and $23 million and basic weighted average common shares outstanding to be approximately 528 million shares, which includes convertible preferred shares of approximately 46 million. Lastly, consistent with last quarter, we believe negative non-GAAP free cash flow in the third quarter will remain at an elevated level, consistent with the prior couple of quarters, excluding any potential offsetting effects of financing under our existing equipment facility. And with that, I'll hand the call over to the operator for questions.

And today's first question comes from Michael Leshock with KeyBanc Capital Markets.

Wanted to ask about Neutron and specifically the Archimedes engine. I appreciate all the commentary there and around the hot fire test. Where does the Archimedes stand today in terms of performance? Are there any other performance metrics that you could share from what you're seeing in those tests? And how close are you relative to what is required for performance to power a new launch?

Michael, yes. So from a performance perspective, we're very happy. One of the unique things about a reusable launch vehicle is you have a tremendous number of different environments that the engine has to start and operate in. So normally, you have an ascent profile where there's a couple of throttle points, especially on Stage 1, and it's a fairly simple thing. But of course, we have a reentry burn and a landing burn. So you have to start the engine at different propellant temperatures, different head pressures and all these kinds of things. So it creates a much enlarged runbox or set of conditions that you have to be able to operate the engine, and it's much more challenging to do. But from a basic performance of the engine, we're very happy with where it is. As I said, it's just a much more complicated qualification program to get through because you're qualifying Ascent and descent at the same time.

Great. And then shifting to a longer-term question. You've talked about satellite constellation potentially being a long-term opportunity for the company. How close are you to begin working on a constellation of your own? We saw the release of Flatellite earlier this year and the focus of it is designed to scale. Is a Rocket Lab constellation something that is being developed or talked about today? Or is it more likely a longer-term opportunity, maybe 5 or more years down the road?

Yes, sure. So we've always made our ambitions clear here, and we think that is the power of being an end-to-end space company when you have the ability to build whatever satellite you need and launch it as well, it's a very powerful position to be in. However, I'm also very aware of entrepreneurial drift where someone doesn't finish one thing before they start the next. And while we've been methodically building all of the capabilities and vertically integrating all the satellite components we need to be able to do exactly what we want to do until Neutron is finished and flying, that's a key element of being able to deploy a disruptive infrastructure of satellites. So I wouldn't expect any huge announcements from us on constellations until the big piece of the puzzle, which is Neutron, starts to absorb less of our focus.

And our next question is from Erik Rasmussen with Stifel.

Great to hear all the progress, and I'm happy to hear the noise around the dredging seems like there's not really an issue in the near term of getting to your schedule. Just wanted to ask about backlog. And I think a lot of this has continued upon the SDA right now. I know you've also talked about the Golden Dome, but it looks like tranche 3. Maybe just if you could just update us on what your thinking is around potential timing around the RFP process, where Rocket Lab will compete? And at what point will you start to include Neutron into the backlog?

Eric, I'll ask answer some of those, and I'll let Adam answer some as well. But more generally, in backlog, the kind of things that we're chasing now are really large programs. By nature, these programs are pretty lumpy. SDA is a great example. I think we put ourselves in a very strong position. We're executing against our current SDA contract very strongly. And you've seen us acquire things like Geost that put us in a strong position to provide solutions that are not plagued by delays and things like that. Also, our recent penny acquisitions of things like Mynaric, which are one of the key elements in the SDA program. I believe the timing of the announcement is somewhere between September and October for the tranche 3. It's always a little bit opaque as the SDA works through those awards, but that's sort of a similar time frame. At any one point, we're working on very large proposals, both government and commercial. And just by their very nature, they take a little bit longer to solidify, but I'll let Adam, maybe if you've got any comments on backlog.

Yes. No, I think Pete, you hit it right. I think we've got diversity in the things that we're chasing. It's easy to focus on something like SDA Tranche 3 because it's kind of a big shiny object that a lot of people are actually chasing. But we've got a lot of diversity in the things that we're going after. To your question on Neutron's influence on backlog, we do have 3 missions of Neutron in the backlog today. Those were added over the last few quarters. I would say that, of course, we expect after a successful flight of Neutron that we'll start to gain a lot more momentum because, as you can imagine, launch customers are betting a lot when they choose a launch vehicle, and it's a long-term choice; there are limited choices out there today, so everyone is being very careful about what they do. We do expect that demand to be unleashed, once we have a successful test launch. If you look across all of our businesses, again, we're starting to see the diversity benefits where if you look at the opportunities we're chasing across our subsystems business, across Electron, both commercial and government, we’re seeing strong demand across all of them. It’s a matter of kind of converging. If you look at the trend of backlog over the last year, actually, launch has been the bright spot. We had a huge step-up when we put the SDA Tranche 2 award into backlog and then basically be working against that as we recognize some of that revenue, and then launches continue to build in the backlog. We believe this will continue to be the case once Neutron gets past that next big milestone or achievement of initial launch.

Great. Maybe just sticking with launch and Electron. You already did 11%. It sounds like you have the 12-point coming up pretty soon your seventh launch. What would you say the mix between your traditional Electron launches and maybe HASTE missions in the back half of the year? What does that look like?

Yes. So if you look in our backlog right now, if you look at the mix, we're expecting about three of the remaining launches this year will be HASTE missions. So as Pete talked about, we're on path to do at least 20, hopefully more than 20 launches this year, which will be nice growth over 2024. We haven't had any HASTE launches yet this year, so we're looking at roughly three launches and all of them in the back half of the year.

Great. Maybe just my final question is on Neutron. And I'm trying to sort of parse through some of the words that Peter had mentioned. In terms of cadence, I think previously, we were expecting the first test launch to have more of a $135 million launch cadence for the first few years. But given the strong demand signals insured a launch and then maybe just if I'm reading right, is it possible that that's something that you can accelerate? Or what does that look like? Are we still sort of targeting that $135 million?

Yes, Eric. I get asked that every day. The reality is it just takes time to roll in the learnings between flights. We proved with Electron that that was the right kind of scale-up cadence. If you look historically across rocket programs, it's even pretty aggressive. So we'll stick with that $135 million, but who knows? At the moment, from where we are in the program, that feels like the right kind of place to target everything.

Next question is from Andres Sheppard with Credit Suisse.

Andres here from Cantor Fitzgerald. Congrats on the quarter and all the big success. I'll limit myself to two questions just to be respectful to all the other analysts. Maybe one on space systems and one of launch systems. On the Space Systems, Adam, I'm wondering if you can maybe remind us kind of what does the revenue recognition look like for the SDA tranche 2 awards, both for this year and for next year? I know you mentioned, obviously, you're exploring several opportunities. But just to come back to SDA tranche 3 if I'm not mistaken, right, that could potentially be the largest contract in company history. So how would you characterize maybe the likelihood of success there?

I can provide insights on the revenue recognition for the SDA program regarding the tranche 2 transporter we are currently working on. Typically, the award was granted in late 2023, and at the program's start, we focus on finalizing the design. We primarily recognize revenue when we begin taking possession of the materials needed to build the satellites. Currently, we are entering a phase of full-scale production for those vehicles. We anticipate revenue for 2025 to be in the range of $150 million to $200 million. If we secure SDA Tranche 3, it would represent the largest program the company has undertaken by a considerable margin, with a similar profile to the previous tranche. There is a possibility that revenue could be recognized earlier in the program, and 2026 may resemble 2024 in terms of SDA revenue.

Got it. That's super helpful. And just maybe a quick follow-up, if I may. Maybe one for Pete on the launch systems. After getting closer and closer to Neutron, I'm curious if you're seeing perhaps an uptick from customer demand or prospective customer demand for future flights. Obviously, you have the track record, the heritage from the Electron and HASTE, Neutron still coming up. But given the conflicts between the administration and the space management team, just curious if you've seen perhaps an uptick in interest for future Neutron missions. Any color there? Since Neutron essentially will be the only viable alternative to the Falcon 9, right? So just curious on what you're seeing.

Yes. Thanks, Andres. The market does need a competitor to the Falcon 9, and that was very clear, and that was presented to us both from our commercial customers and our government customers. There's a lot of anticipation and pent-up demand for that vehicle to come to market, and that continues to increase all the time not just from political events or geopolitical events, but also from just large programs being added, things like the Golden Dome, which is going to be one of the largest DoD programs in the country's history. They all need spacecraft and space, and they all need to get there. So yes, we're seeing growing demand and also, I think it's fair to say, realization that sorting out from the real players from those that are less likely to provide.

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

So Pete, just maybe broadly, when we think about the first launch of Neutron, for you, I mean, just to kind of level set, what would a successful launch be?

Ron, well, you're not going to hear some rubbish about just clearing the pads as success. That is not. For us, the successful launch of Neutron will be successfully getting to orbit and making sure the vehicle is ready to scale. I think you saw us come out of the gate with Electron going to orbit and then straight away 3 emissions after that, successfully delivering customers to orbit. That will be the definition of success. The bit that we'll be a little bit more flexible on is obviously the reentry and soft landing of the first vehicle. There's a lot to learn there. We think we've got a good head start, but that's the bit that always requires a bit of iteration. So like I said, we'll declare success when we're in orbit. If we don't soft splash down on the first flight, I think there's a little bit of tolerance there for learning, but apart from that...

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

We've identified several factors contributing to this, but the most significant one is the mix of HASTE in the manifest. The HASTE missions necessitate unique mission assurance and specialized vehicles, which justifies the higher average selling price. Overall, commercial Electrons have also been seeing positive trends. We've benefited from customers returning to make bulk purchases of Electrons at much higher prices than in the past. Two or three years ago, customers sought bulk purchases but expected substantial discounts, which we had to accommodate to build our manifest and sustain market momentum. Currently, we find ourselves in a position where we don't need to offer significant discounts and are still receiving bulk orders. As Pete highlighted, there is strong support from the international community, with sovereign nations demonstrating robust demand. Our success in this challenging market is evident; while many can discuss it and present specifications, we are the only company to have achieved 69 launches of a small dedicated launcher. We're reaping the rewards of our hard work and execution, free from the distractions of deceptive pricing pressures. It’s clear that strong execution is crucial, and it comes at a cost.

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

Yes, Ron. If you look outside the U.S., what's the next biggest market in space? It's Europe, and you'll be a fool not to be in there. Mynaric is a kind of stepping point in. As you've seen, obviously, as you point out, the European Space Agency contracts, we'll continue to expand into Europe. We have a lot of unique capabilities that only reside with us. So we'll look to apply those.

Our next question comes from Edison Yu with Deutsche Bank.

I wanted to ask, I think, probably it's for Pete, your latest thoughts on orbital transfer vehicles, space tugs. I know there was a bit of a craze several years back in that kind of flamed out a bit, but now it seems there's a lot of offerings coming to market, maybe trying to go farther away, bigger. Is that an area of interest to you? I know you have the kick stage, but will you try to tackle that more directly or more broadly going forward?

Yes, it's a good question. I've understood the business opportunity and the business case for that because you start off with a relatively cheap ride-share and you end up with a really expensive delivery. As you pointed out, we had a couple of starts. If it turns into a real market, it's elementary for us to go after it. We operate at kick stage on the top of Electron essentially. We have all the components to be able to do it; we have. If it turns out to be a real market and opportunity, the time it would take us to deliver a product to market would be extremely short. But at the moment, I just don't see it worth us investing in.

Understood. I wanted to ask about the total addressable market for Electron, particularly in light of the significant potential tied to Golden Dome and hypersonics. Historically, the total addressable market was around 30 or more launches. Do we believe that the total addressable market for Electron could significantly increase to 50 or 60 launches in the future?

You're talking to a conservative engineer by nature, so it's hard for me to get too bullish. But if you look at some of the programs like the Golden Dome, the amount of testing required and the amount of suborbital kind of hypersonic missile stimulants, you'll need to deploy to validate that system. There's a pretty significant number there that would be required. In HASTE alone, I think we're expecting that to continue to grow. Year upon year, the TAM continues to grow. The exciting thing is that Electron is helping to create and open up that TAM. We see a lot of satellites these days that are made specifically to just fit in Electron, envelope its environment, enabling a lot of stuff. I think we continue to see the TAM expand, and I don't see any sign of that decreasing in the future.

Great. If I could just sneak one housekeeping one on Geost. Any color on how much revenue that could potentially bring in fit closes? And what kind of growth profile or backlog that has going forward?

Yes, we can't really say too much about it. It's still a pending acquisition. As Pete mentioned, we've cleared the antitrust review, which is great, and I think close should be imminent. We'll hold back any comments and color on that business until we actually own it, if you don't mind.

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

I guess, Peter, on Space Systems, when you flesh it out in your mind what you envision Space Systems ultimately being, what percent of the way your vision are we in terms of the capabilities that that segment currently has?

Yes, Jeff, great question. The toolbox is looking pretty full, actually. From purely a nuts and bolts component level, Mynaric's optical terminals are important. The vast majority of stuff has come into focus. We'll see us spend a lot more time now on payloads, and Geost was the first kind of beginning to that. That really shifts you from being able to provide just a satellite bus to be able to provide a complete thing. The nuts and bolts, I'd say we're largely done. There will still be a little add-ons we want to do, but our focus will be on payloads and rounding out the system.

Yes, there's a pretty wide mix, I would say, of margin profiles within our Space Systems business. If you think about the margins on putting together a full turnkey platform solution, they tend to be lower; if you think about those margins, they can be in the 20s to 30s, but we have some where margins are well north of 60 points. If you look at the blended average for the overall Space Systems between the weighting, it's kind of split evenly between subsystems and platforms. As we start to mix in applications, it will get even better. You should think about 40%. We're not that far actually from that target. If you want to think of 40 to 45 points as the real target for margins, that's probably a good place to be. That can be pretty good for contribution to the bottom line because there’s not a lot of R&D that goes into those businesses; a lot of it is customer-funded R&D.

Yes. We've spent a lot of time building scale manufacturing capabilities. We're building several vehicles in series or in parallel in some cases. The most number of vehicles we'll have being built in the early stages of a program but we expect to go to five vehicles in two-year timespan.

This concludes our question-and-answer session. I would now like to turn the conference back over to Peter Beck for any closing remarks.

Thanks very much, operator. So before we close out today, there should be some slide of our upcoming events and conferences that the team will be attending. We look forward to sharing more exciting news and updates with you there. Otherwise, thanks for joining us. That wraps up today's call, and we look forward to speaking with you all again about the exciting progress we make here at Rocket Lab. Thanks very much.

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