Good day and thank you for standing by. Welcome to the Rocket Lab Corporation Q2 earnings call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker today, Marielle Baker.

Hello and welcome to today's conference call to discuss Rocket Lab's second quarter 2026 financial results, business highlights and other updates. 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 harbour 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 are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC and included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation and a replay and copy of the presentation will be available on our website Our speakers today are Rocket Lab founder and Chief Executive Officer Sir Peter Beck as well as Chief Financial Officer Adam Spice They will be discussing key business highlights including updates on our launch, space systems programs as well as our pending acquisition of Iridium Communications 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.

It's been another exceptional quarter for Rocket Lab, with some great wins after the close. We achieved a record $234 million in Q2 revenue, up almost $90 million, or 62%, versus the same quarter last year. That's a $34 million increase over last quarter's record revenue. The launch demand is extreme. In Q2, and since the end of the quarter closed, we've signed more than $437 million in bookings for Electron, Haste and Neutron. This includes a record $266 million contract for up to 18 suborbital missions for the Space Force, our largest launch contract ever. Also, we've seen a massive surge in space systems contracts, with more than $581 million signed in Q2 and post-quarter. We ended the quarter with a $2.36 billion in backlog, and across launch and space systems, we've signed more than a billion dollars in new contracts across Q2 and the period since the quarter closed. It was also a milestone quarter for strategic acquisitions, having closed Minarik and Motive, and of course announcing our intentions to acquire Iridium, which will accelerate our future in space applications and involve Rocket Lab into a fully integrated space powerhouse. So with that, welcome to the beginning of our new space applications era. Our pending Iridium acquisition is a strategic move that will combine Rocket Lab's launch capability and satellite manufacturing with Iridium's global satellite communications network and rear spectrum. In short, Rocket Lab will become a self-launching Tier 1 space power, delivering critical communications capability to millions of users worldwide. For years, we've talked about the space value chain in three key verticals. The first is access to space, and we have that with launch. The second is the hardware to do things in space once you're there. That's the satellites and their components, and we have this too. The third and final vertical is space applications, the entire reason for going to space in the first place. This is part of the space economy that provides data services to millions of people on Earth and delivers strong reoccurring revenue. With Iridium, Rocket Lab will have all three of these verticals. I've long since said that the most successful space companies will be the ones that have the keys to space, i.e. can build and launch their own satellites. Rocket Lab is one of only two companies capable of this now. By acquiring Iridium, we will accelerate our entrance into the space applications market. It will take a decade or more to build out a constellation from scratch. With Iridium, we are starting with a constellation of 66 satellites relied upon by more than 2.5 million subscribers and delivering more than $870 million in annual revenue this past year. That's an incredibly strong foundation on which we intend to build. We won't simply continue Iridium's network. We will expand upon it and scale it into untapped markets and pioneer new space-based services. Since the transaction is not yet closed, we are still only on the integration and growth planning stages. There are, however, some obvious areas to focus on, and these are aligned with the growth plans that Iridium has already shared. That includes expanding capabilities in IoT, direct-to-device, and advanced PNT. defense and national security, as well as aviation and marine safety. We can also introduce efficiencies and streamline the deployment of new infrastructure by building and launching our own spacecraft, limiting the costs and risks associated with third parties. We will fast-track our ability to deliver new and advanced capabilities. It's through these growth areas that Rocket Lab will put Iridium Spectrum to more effective use, extracting substantially greater capacity and throughput from the same finite spectrum allocation. We are immensely excited at what the future holds once Iridium is part of the Rocket Lab family. For now, we're steadily working through the customary closing conditions, including approval of Iridium stockholders and all the regulatory review processes. The transaction is expected to be completed in mid-2027. To the extent that we are able, we look forward to sharing updates throughout that process. Okay, on to some Space Systems updates. Q2 and the weeks after saw us awarded significant contracts across space systems, including a $397 million contract to build and launch multiple flatulite spacecraft for the Space Force Space-Based Airborne Moving Target Indicator Program. This program is a high priority for the Department of War, and it seeks to establish a satellite network to track aircraft, missiles and airborne threats globally. In another example of our end-to-end space strategy bearing fruit, Neutron will be launching this mission. Flatellite is our high-performance, low-profile spacecraft designed for rapid production and optimised for launch, enabling us to deploy large volumes from Neutron and from other launch vehicles. There has been significant interest in Flatellite from commercial and government customers since we first announced it last year, so it's exciting for it to make its debut with such an important programme. On to the next contract win. We signed two deals totaling more than $160 million to build three geostationary satellites, including a prime contract with the Space Systems Command to build two geosatellites for space domain awareness. What's more, they will incorporate our Heimdall payload from our recently acquired company, Geost, once again highlighting the success of our vertical integration strategy. Rocket Lab is no stranger to building satellites for low Earth orbit and interplanetary missions, but these contracts are our first step into the government geostationary satellite market. It's an exciting expansion. We don't just win contracts, we execute on them. There's no better mission that demonstrates that than our record-breaking results for the Victus Hayes mission in Q2. The mission from Space Force was clear. Launch an electron to orbit in just 24 hours. We did this in 16 hours and 42 minutes, a new record. We also designed and built the satellite that it launched. The Space Force gave us 72 hours to commission that spacecraft on orbit. We did it in 38. Then we had 84 hours to track, chase and photograph a non-cooperative satellite. We did it in less than 59. Victus Hayes was the first time that the Space Force had ever seen a single prime contractor deliver the rocket, the spacecraft and the orbit operations for the same tactically responsive space mission. For Rocket Lab to deliver all three and with record-breaking results demonstrates the advanced capabilities that we're delivering to the Pentagon at a time when space is a key strategic priority. And finally, Rocket Lab is very clearly a space leader in the U.S., but recently we deepened our roots in Europe with the acquisition of Minarik. Whenever Rocket Lab makes an acquisition, we don't just carry on running it. We streamline it, introduce efficiencies, scale production, and in many cases, introduce new capabilities. We're planning to do just that with the official establishment of Rocket Lab Germany. There's a real opportunity here for us to establish a regional hub for Constellation class manufacturing as well as full-scale spacecraft assembly integration and test. This will enable Rocket Lab to serve commercial, civil and defence space programs as a domestic European provider. A growing presence there also represents an opportunity to address Europe's launch deficit by bringing a domestic mission-tested launch partner to the region to eliminate space access bottlenecks. Europe faces glaring gaps across both launch and spacecraft manufacturing. Rocket Lab Germany aims to address these directly, providing the region with new domestic strength in a rapidly evolving new space era. That wraps up the space systems for the quarter. Let's move on to launch. There's been huge demand driving record numbers across new contracts and launch backlog. More than $437 million in Q2 and post-quarter, and 26 new launches that grew our backlog to 90-plus launches after the quarter, our highest in history. Operationally, Electron and Haste continue to lead the industry on small launch. We're at 13 launches this year with 100% mission success and on track to beat last year's launch, Tally 2. NASA has signed on for three Electron launches across two missions next year. Commercial Constellation customer QPS has signed on for another three launches. This is the third time they've done a bolt buy in less than a year, taking their total number of launches with us to 18. And we've had a confidential defence prime sign up for a pair of Haste launches in 2027. Haste, rapid, repeatable flight cadence was the clincher for that deal. A sub-ovalor launch capability anchors our largest launch contracts to date, a $266 million contract from the Space Force for up to 18 missile defence launches. We've bid out legacy defence primes for this contract, and it's our second multi-year, multi-launch Department of War deal for suborbital missions in five months. These launches will mostly fly out of our new launch location in Kodiak, Alaska, which opens up Pacific Access for missile defence testing for our government partner. That's now six Rocket Lab launch pads across three launch sites, giving us unmatched geographical flexibility for all mission types. Speaking of our new launch location, it's time to introduce Ghost. We've mastered the art of building launch sites. now we're making them deployable worldwide. Our two new pads in Alaska will be deployed using our Ghost containerized deployable launch site technology. Electron and Haste revolutionized small orbital launch and hypersonic testing. Now we're making it easier to deploy them wherever they're needed most, whether that's for missile defense testing or sovereign orbital launch capability. With Ghost, we deliver the rocket, launch infrastructure, ground support and range control systems and shipping containers, establishing launch capability in new locations on rapid timelines. It's easy to promise mobile or deployed launch systems. It's quite another to have the proven rockets, launch sites and contracts to back them up. Once again, Rocket Lab is not just talking about it. We're delivering the real capability for real missions. Now on to Neutron. It's been another really big quarter of testing and integration for Neutron. Every part of the vehicle has now seen significant testing. As with any complex development program, we've had to tweak a few things along the way. but we're moving now into final checkouts and assembly of all of our flight hardware before integrating them at the pad. First up, Stage 1. We've pulled the new barrels and domes off the AFP for the Stage 1 tank and are moving those into assembly. For the interstage, new panels are also into the flight assembly after qualification load tests were completed recently. Production currently lines up with our target delivery of Neutron to the pad in Q4 2026. While the window for an end-of-year launch is narrowing, the work we're doing now is about risk trading, balancing the timing of our first launch against how quickly and seamlessly we can scale our 10th launch. Our focus is on the bigger picture and making sure that when Neutron flies, it enters service as a system ready for full-scale production and high-cadence launch. For Stage 2, the team is completing the install of flight avionics and fluid systems before it's out the door to launch Complex 3. Once it arrives in Virginia, we'll be doing the integrated fluids testing and running the flight avionics suite to validate Stage 2's end-to-end performance before we add the Archimedes vacuum engine. That way we de-risked some of the elements early and avoided added time to the schedule. The next section of the rocket at LC3 will be Neutron's thrust module. The auxiliary tanks have been installed and the fluid systems and avionics integration is finishing up now. Similar story here as well. After the install of the fluids and the avionics, we'll be taking the thrust module through the integrated systems test on the pad. Because the module is the only physical interface between the launch vehicle and the launch mount, Running these tests before we integrate the thrust module with Stage 1 lets us de-risk how the full vehicle will interact with the pad once everything else arrives. Down at Stennis, we're heading off into the final stretch of Archimedes engine testing. We've completed more than 400 hot fires across both Stage 1 engines and Stage 2 vacuum engines. Where early testing was all about the fundamentals like power level, mixed ratio control and achieving duration, now it's about durability and the stuff that really matters for a reusable engine. We've been intentionally running engines for extended time to prove its margins beyond what they need for its successful flight, as well as repeated cycles to understand how durable the engines are after multiple restarts and uses. With confidence in the engine, we're already into production with the full engine set for Neutron's first launch. Once we formally complete qualification, those flight engines will go straight into an acceptance test program at Stennis before they're sent up to LC3 for integration with a thrust module. And now to Hungry Hippo. The team has been busy integrating control surfaces avionics and fluid systems, and its thermal protection system, and soon we'll be getting into pre-flight testing with the most innovative part of Neutron. Once that's done, Hungry Hippo is essentially finished and ready for launch. The next step will be to mate it to the interstage when it arrives, and then that will bring us one step closer to having a full vehicle at the launch pad. Out of development and into new contracts. As we race closer to first launch, we're seeing huge demand for Neutron's early flights. Like I've mentioned earlier, we've been newly awarded a dedicated Neutron launch contract for the Space Force for their Space-Based Airborne Moving Targets program. This mission is a strong indicator of the trust that the government has in Neutron to support the most critical national security programs. And then on the commercial side, today we announced a dedicated launch for Kepler Communications to deliver their next set of satellites to low Earth orbit. That mission will expand the capacity of their network with on-orbit compute, optical comms and hosted payloads. And it's the first time Kepler has booked an entire rocket for their Constellation rather than ride share. Again, another strong signal of the expectation for Neutron to become the industry's alternate ride to space for medium lift missions. To understand the momentum behind Neutron, you have to look at the broader launch landscape today. Launch has never been so constrained. The Pentagon is accelerating procurement for its top priority programs, like we've seen with the NSSL Lane 1 tripling its ceiling from $5.6 billion to $17 billion. Military spending in Europe has increased and sovereign launch remains a hot topic globally too. The truth is that if you want to book a launch now, or especially after 2029, the options are extremely limited. Rocket Lab is uniquely positioned in this sense. We have a proven track record with Electron and HACE, and customers know we develop and scale reliable launch vehicles, which is why they're coming to us now and locking in Neutron slots early. Neutron is going to help unblock the industry's bottleneck, giving operators a reliable capacity they need for years to come. That wraps up the operational highlights. Now over to Adam for the financial overview and outlook.

Thanks, Pete. Second quarter, 2026 revenue was a record $234 million, which was within our prior guidance range and reflects significant year-over-year growth of 62% and 16.8% sequentially, driven by strong contribution from both business segments. Our Space Systems segment delivered $189.5 million in the quarter, reflecting a sequential increase of 38.6%. This growth was primarily driven by increased contribution from our satellite manufacturing business, along with initial contribution from our minaric acquisition, which closes in the quarter. Our Space Systems business continues to perform exceptionally well and provides comforting diversification alongside our robust, but at times lumpy launch business. Meanwhile, our launch services segment generated revenue of $44.6 million this quarter, representing a 30% decrease compared to the previous quarter, despite completing a similar number of launches. This decline is primarily attributable to a shift in the revenue mix between our point-in-time Electron business and our overtime Haste business. This quarter was somewhat atypical for our launch operations, as we launched haste missions for which a significant portion of revenue had already been recognized in prior periods under the overtime accounting method. In contrast, revenue from electron missions is recognized at the point of time of launch. Now turning to gross margin. Gap gross margin for the second quarter was 36.1%, above our prior guidance range of 33 to 35%. Non-GAAP gross margin for the second quarter was 41.5%, which was also above our prior guidance range of 38 to 40%. Key drivers to gross margin this quarter include a shift mix within our space systems business to our slightly lower gross margin satellite platforms business and initial contributions from our Minaric acquisition, which, similar to prior acquisitions, will need some time to benefit from integration synergies and applying the Rocket Lab operating system and its related scale advantages. Additionally, we recorded a non-recurring benefit from tariff refunds, which was largely offset by an inventory reserve against our Neutron Flight 2 launch vehicle. Relatedly, we ended Q2 with a productionally related headcount of 1,688, up 240 from the prior quarter. Turning to backlog, we ended Q2 2026 with approximately $2.36 billion in total backlog, with launch backlog accounting for approximately 40% and space systems representing 60%. While bookings across space systems and launch can be inherently lumpy due to the timing of increasingly larger high-impact program opportunities, backlog continues to hold at healthy levels despite the step-up in revenue run rate recognition over the past few quarters. We continue to see a strong pipeline that includes multi-launch agreements and large satellite manufacturing contracts across government and commercial programs. Notably, subsequent to the quarter end, we signed a significant volume of contracts within space systems and launch across all vehicles, which will be reflected in our Q3 backlog and further strengthen our momentum across the business. Looking ahead, we expect approximately 45.5% of our current backlog to convert into revenue within the next 12 months. Additionally, we continue to benefit from relatively quick turns business across launch and space systems components businesses that drive incremental top-line contribution beyond the current 12-month backlog conversion. Turning to operating expenses. Gap operating expenses for the second quarter of 2026 were $142.1 million. within our guidance range of $138 to $144 million. Non-GAAP operating expenses for the second quarter were $115.7 million, which was below our guidance range of $120 to $126 million.

In R&D specifically, GAAP expenses increased $1.9 million quarter over quarter, while non-GAAP expenses rose $830,000.

These increases were primarily due to incorporating minoric expenses as that acquisition closes in the quarter. Q2 ending R&D headcount was 1,087, representing an increase of 138 for the prior quarter. In SG&A, gap expenses increased $7.7 million quarter over quarter, while non-gap expenses increased $9.8 million quarter over quarter. The increase in SG&A was primarily due to incorporating monarch expenses, again, as that acquisition closed in the quarter. Q2 ending SG&A headcount was 442, representing an increase of 61 from the prior quarter. In summary, total headcount at the end of the second quarter was 3,217, up 439 heads from the prior quarter. Turning to cash, purchases of property, equipment, and capitalized software licenses were $26 million in the second quarter of 2026, a decrease of $1 million from the $27.1 million in the first quarter. We continue to invest in Neutron, particularly for the return on investment recovery barge, as well as launch and test infrastructure investments. As we progress towards Neutron's first flight, we expect capital expenditures to remain elevated as we invest in testing, production scaling, and infrastructure expansion. GAAP EPS for the second quarter was a loss of $0.08 per share, compared to a loss of $0.07 per share in the first quarter. The sequential decline in GAAP EPS primarily reflects the inclusion of Minorix results after the acquisition closed, including amortization of intangible assets acquired. GAAP operating cash flow was a use of $84.1 million in the second quarter of 2026, compared to a use of $50.3 million in the first quarter. Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to neutron development and neutron tail production as we scale the business beyond the initial test flight and as we procure longer lead items for our SDA programs. Overall, non-GAAP-free cash flow, defined as GAAP operating cash flow, less purchases of property, equipment, and capitalized software, in the second quarter of 2026 was a use of $110.1 million, compared to a use of $77.4 million in the first quarter. The ending balance of cash, cash equivalents, restricted cash, and marketable securities was roughly $2.4 billion at the end of the second quarter. The sequential increase in liquidity was driven by proceeds from sales of our common stock under our at-the-market equity offering program, which generated $1.08 billion during the quarter before it was subsequently terminated. These funds are intended to support acquisitions, such as the recently announced Iridium acquisition, as well as other targets in a robust M&A pipeline, alongside general corporate expenditures and working capital. We elevated Q2 in a strong position to execute on both organic and inorganic growth initiatives and to further vertically integrate our supply chain, expand strategic capabilities, and grow our addressable market, consistent with what we have done successfully in the past. Adjusted EBITDA loss for the second quarter of 2026 was $8.8 million, which was well below our guidance range of $20 to $26 million loss. The sequential improvement of $2.9 million in adjusted EBITDA loss was largely driven by higher revenue and strong gross margin. With that, let's turn to our guidance for the third quarter of 2026. We expect revenue in the second quarter to range between $250 and $265 million, representing 10% quarter-over-quarter revenue growth at the midpoint. We anticipate gap gross margin to range between 29 to 31% and non-gap gross margin to range between 35 to 37%. These forecasted GAAP and non-GAAP gross margins are accounting for a shift in mix within our space systems business, and we expect a beneficial remixing impact on gross margins as we look beyond Q3. We expect third-quarter GAAP operating expenses to range between $143 and $149 million, and non-GAAP operating expenses to range between $121 and $127 million. dollars. The quarter-over-quarter increases are primarily driven by ongoing Neutron development and spending related to Flight 1, including staff costs, prototyping, and materials. However, we expect to see a shift in spending from R&D to Flight 2 inventory, which is an encouraging sign of progress as we move closer to Neutron's first flight. We expect third-quarter net interest income to be $21 million, which is generally a function of higher cash balances. We expect third quarter adjusted EBITDA loss to range between $17 and $23 million, and basic weighted average common shares outstanding to be approximately 641 million shares. Lastly, consistent with prior quarters, we expect negative non-gap-free cash flow in the third quarter to remain at elevated levels, driven by ongoing investments in neutron development and scaling production. This excludes any potential offsetting effects from any financing activities in the quarter. In summary, Q2 was another quarter of strong execution. We continue to see exceptional revenue growth across the business, all while maintaining robust liquidity to fund future growth initiatives. We expect this momentum to continue, guiding to strong revenue growth as our satellite platform's business scales exceptionally and Neutron progresses towards first flight. And last but not least, here are some of the upcoming investor events that we'll be attending in the next few months. And with that, we'll hand the call over to the operator for questions.

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from Andre Shepard with Canterford Sherald.

You may proceed. hey everyone uh good afternoon congratulations on uh the core and all the great progress and and thanks for taking our questions um maybe one on neutron and and one on uh iridium so um on neutron um it's great to see all the the recent progress i guess i i want to maybe move past the first launch and and talk about scale you know in the past you've given us some cadence on neutron first launches. But I guess my question there is how quickly do we think we could potentially get to 10 launches and an additional scale? Is there a possibility to perhaps accelerate the ramp on process? And then finally, you know, with the space industry still significantly constrained on the launch side, how are you thinking about ASPs going forward? Is there an opportunity perhaps to increase ASPs both of neutron and maybe electron and haste as well? Thank you.

Yeah, Andrew, it's No, good to chat to you. So thanks for the question. So with respect to Neutron, I guess one of the questions that I think people should be asking us is, obviously the first flight is extremely important, but what about flight 10? Because that's probably, apart from first flight, the second most important thing. And how quickly we can scale into cadence is absolutely critical. So I think as we're kind of working forward with the vehicle right now and the way we're thinking about things is it's not just to get to the pad quickly for flight one. Of course, we all want that one, no one more than I, but it's really about how do we get to flight 10 in the shortest time possible. So for us, that's really all about reusability. And we're constantly trading, you know, the timelines and the qualification criteria for the various systems and subsystems, you know, to get to the pad on for flight one. But also making sure that when it comes to flight 10, that we don't have to go back and requalify things. So, you know, there's a constant kind of assessment along that way. and I think you know a ramp that we've we've sort of explained to everyone is a 135 ramp and that's been kind of you know educated from what we did with Electron but for Neutron it really is all about reusability and you know that the more robust we can fall into reusability then the faster we can scale it and you know clearly you've seen the strain in the launch industry right now and the need not just for new vehicles, but new vehicles at cadence. So I guess that's, you know, that's how we're sort of balancing all those things. And, you know, I'll let Adam comment on the ASP.

Yeah, no, look, I think on the ASPs, it's really a function of what's going on in the broader kind of launch market. You know, we brought Neutron to market, you know, with a $50 to $55 million ASP with a commitment really not to do any significant discounting for early launches. We've stuck to that. We feel very good, though, about where the market is from a, you know, supply versus demand perspective. And, you know, I think right now the, you know, the view is that we see more upside to ASPs and certainly anything that are down or sideways. So I think we feel good. I think it's left us room to move pricing as demand continues to firm up. And again, I think there's probably more upside in that mix than the downside. done.

Excellent. Thank you both. Really appreciate all that color. And maybe just a quick one on Iridium. So, you know, Peter, you touched on it a little bit in our prepared remarks, but just wondering if you can maybe elaborate a bit further on the overall combined strategy. You know, what new opportunities does Iridium unlock, both through vertical integration and with their 60-plus constellation? What new awards and opportunities can you now pursue? And maybe separately, how will you ultimately think about assigning neutron launches to Iridium's new constellation and new customers? Thank you.

Yeah, thanks. So, I mean, obviously, we're very excited about it. I think there's a lot of obvious synergies. I think, you know, I've always been very clear that the large space companies of the future are going to have the ability to launch their own satellites that they've built themselves on their own rocket. I think that that's very clearly demonstrated as being superior so that's obviously really exciting. We've got a lot of areas that we think we can grow that business and you know if you look at the cost of what it cost Iridium to put up the initial constellation and we sit here on the back of an envelope and what we could do it for now it's pretty stark so you know and obviously a good way. So we think there's lots of opportunities there. And then, no, I think your point is right. We also, you know, as we're thinking about Neutron's capacity and in this environment where demand is extreme, we need to obviously serve the commercial market. We need to make sure that we have some launches left for our government customer as we've been onboarded onto the NSSL program. And we also need to make sure we have capacity for ourselves because, you know, ultimately our intention here will be to improve that constellation. So it's all a bit of a juggling act for sure.

Wonderful. Thank you so much. Congrats again on the quarter. Looking forward to Neutron. We'll pass it on.

Thank you. Our next question goes from Jeff Henry with Craig Hallam Capital Group. You may proceed.

Great. Thanks. Thanks for taking that question. So Peter, Sure. On Iridium for a second, just, you know, obviously they come in, they bring some real nice profitability and a presence in the applications market, which you want. They bring slower growth. And I know you've been pretty impressive with previous acquisitions, particularly on margins. But here you're going to have to really try to reaccelerate or accelerate that top line. Like what are the lowest hanging fruit, so to speak, in terms of things that you can do over the shorter to intermediate term to accelerate their top line?

Yeah, it's a great question. So, you know, firstly, you know, it's a quintessential Rocket Lab deal in the fact that we're not buying, you know, a big hole in our P&L, as you point out, right? So they bring some nice profitability and the Constellation itself is good into 2035. And you also point out correctly that it's a relatively, you know, slow growing business. But for us, as we think about some of the initiatives that they've already embarked on to grow, I think we can supercharge those, especially in the area of P&T and with a relatively modest tweak to a constellation and a whole bunch more capability. But I also think it puts us in a totally different position from the perspective of some of our government customers because previously we can go along to our government customer and they give us full credit that we can design and build launch vehicles and you jump on a rocket lab launch vehicle and you have no concern about getting to orbit. Also, the same goes for building spacecraft. I think we've demonstrated we can build anything from a low-Earth orbit comms bird through to something that goes to Mars. But where it gets a little bit tricky for us is to put our hand in our heart and say, well, we can do a mission-critical, life-critical constellation and provide services and manage all that. Credibly, before an Iridium acquisition, we couldn't do that. So I think we turn up to a government customer and commercial customers to that sense with just a whole new set of toolkits and capabilities that really set this out from everybody else, really apart from one other provider in the market. So I think, you know, that in itself, you know, provides a lot of opportunity. But, you know, our focus is rightly so with the acquisition from day one will be growth, growth, growth.

Yep, makes sense. One last for me on Ghost. Very interesting. You know, talk a bit more about that. What infrastructure is needed at the site? It sounds like you bring a lot. There's clearly going to be some things that have to be there.

But I'm particularly interested in kind of what business can or will this capture that you couldn't otherwise capture and really what was the genesis of the idea yeah it was really a request from a customer they have you know very important needs for for the HACE program and to be able to service those needs we need to be able to be a little bit more mobile than we are so it's not a it's not a you know maybe we'll build it and someone will be interested in in that capability we're definitely directed to that capability and, you know, we don't need a lot. We've built three pads for Electron to date and the one thing I'll say with Neutron that, you know, what used to feel like big pieces of steel feels, you know, on an Electron scale feels like very small pieces of steel now. So to move launch pad infrastructure around on Electron scale is really quite arbitrary for us at this point.

Yep, fair enough. i'll leave it there thanks so much thank you our next question goes from trevor walsh with citizens you may proceed great hey peter and adam thanks for taking the questions maybe just a follow-up or piggyback on the ghost question should we is there a way we should think about the uh price per launch or the revenue per launch and then maybe the cost structure around those now ghost enabled launches as compared to an electron launch or even a haste launch i know i think haste you were able to charge more. So just curious if, as we, as you do more of these ghost capability launches, if that's going to kind of change the financial profile a little bit of those.

Yeah, look, I think obviously these are, these are Haste missions. They're just happening out of the West Coast. So I think you should look at pricing to be pretty consistent with what we've been showing on Haste. You know, I think overall, again, as this type of mission becomes, you know, more, you know, strategic and important, particularly if certain elements of Golden Dome continue to proliferate the way many think that they will, you know, there'll be more demand for these types of things. So it feels like we could be in the early phases of HACE demand. I think certainly we've seen great demand and great backlog build in the last few quarters. But as that continues, you know, again, we think we're in a very enviable spot with regard to unique capabilities to deliver these kind of missions for the government customer. And we also think there's international opportunities as well. So, you know, if HACE kind of behaves like other parts of the Electron portfolio, where ASPs have gone up pretty significantly over the years, you know, we could be looking at the same kind of opportunity for Hays to cross both our Virginia pad, the new pads in Alaska, and then, of course, you know, even opportunities from New Zealand.

Great. Thanks. Perfect, Adam. And then maybe one quick follow-up, semi-related. For the new Kodiak site, is there going to be a step-up in CapEx kind of associated with that that's maybe not already accounted for? How should we think about that in terms of, like, the comments you've made around CapEx kind of for the balance of the year? Thanks.

Yeah, no, there's some CapEx required for that but again as pete was mentioning you know in the context of what we've been dealing with the neutron it's relatively in the noise and the contracts that we that we engage with have some capex funding in them so yes they'll show up in a capex increase but they're funded under under that uh under that agreement to a large part got it great thanks both appreciate the questions thank you our next question comes from medicine you with deutsche bank you may proceed.

Hi, good afternoon. Thanks for taking our questions. I want to come back on Iridium. And I'm curious, I know you mentioned it technically can run until mid-2030s, but how are you thinking about the timing and sort of the potential synergies you might have with the next-gen constellation? And then obviously the landscape is going to change a lot by 2035. So is the idea to actually deploy the next-gen consolation sooner?

Yeah, hey, Edison. So you're right in the fact that the landscape for direct-to-mobile and to services from Internet and space is going to change a lot. But one of the really nice things that we liked about the Iridium kind of business model is these are L-band, so rain and weather penetrating, indoors penetrating spectrum because not all spectrum is the same as I'm sure you're aware and just the safety critical and stickiness of the current applications. So I guess I'm less concerned about, I'm happy to let the larger players fight over some of those internet from space type markets. Meanwhile, we think what Iridium has in particular with the L-band spectrum is very important today, but actually going to be more important in the future. So I guess the landscape for me doesn't look vastly different. And I think it's also too early to pontificate about a new constellation. Now, clearly the whole point of this is that we are a self-launching machine now. So there will be a constellation, but I don't think we're ready to talk about exactly what that's going to be right just this early.

I understand. I understand. A separate topic. You obviously won several pretty big satellite wars. You have the, you know, the geo award. Maybe it's for Adam. Any sense on the timing of the ramp of these contracts? Are these fairly linear or are these going to be a bit more lumpy? Thank you.

Yeah, no, I think our contracts, again, on the government side are pretty typical. I mean, these programs are ones that last for, call it, four years, and the kind of 10-40-40-10 kind of curve is still looking to be approximately right. Each program is a little bit different, but I think that's a good way to model it going Thank you.

Our next question comes from Jan Engelbrecht with Baird. You may proceed.

Good afternoon, Peter. Adam, congrats. Another set of great results. I think I'll start with the SpaceDraft component supply chain as a whole. Obviously, you guys benefit internally just given your vertical integration. But as other companies and customers of yours start to try and ramp up their satellite constellations and you just look at some of these components, reaction wheels, laser terminals, solar panels, thrusters, where do you guys sort of see the biggest opportunity across those components? and what's the capacity like looking at your factories today versus over the next couple of years as launch cadence picks up and as more satellites go into orbit? Thank you.

Yeah, no, thanks for the question because I think people think of launch as a big moat and launch, yes, launch is a really, really big moat. But equally well, spacecraft components is a big moat because if you just turn up in the industry and say I want a thousand reaction wheels, then your chances of getting them are almost zero. and you know unless you come to perhaps us so I think we've built a you know a decent sense of scale within you know all of the components businesses but I very much look at it as a moat and I think probably when you know some of the analysts that have been on with us here for a long time when we first announced like a you know an old you know solar company in Albuquerque you were thinking what what on earth has peed on but but you can see now that we've you know We've scaled that to being the largest space-grade solar manufacturer in the world, and every single satellite needs solar and tremendous amounts of it. So I think the components element continues to grow year after year, and as more constellations and more spacecraft come into production, that only continues to grow for us.

Yeah, and I would add to that, that being a components provider on a merchant level is interesting. It's a growing business for us that, you know, most of those products have very nice margins associated with them. It's more strategic than that for us, because really what we do is, you know, we're looking to, you know, as you look at the strong backlog growth that we had on the program side of things, that's really enabled to a large part because we're able to eliminate margin stacking and just be that much more competitive in going after these large strategic programs. So, you know, the ability to basically take advantage of the scale as a merchant provider and then further use that internally to be more competitive on these large, bigger programs, as you've seen us be successful in closing on, that's really kind of where the magic all comes together. It's more than just kind of playing in a healthy merchant component market. It's really about kind of feeding and enabling this much more strategic capability building part of our platforms business.

Perfect. Thanks, Peter. Thanks, Adam. And a quick follow-up, if I may, just returning to the HACE contract, the $266 million contract. Are you guys sort of going to break out the cost between sort of launch and, you know, actually building the pad? Because I think if you just look at the 18 launches, then it implies sort of a $50 million sort of ASP, which I don't think is potentially correct. Maybe there's some launch infrastructure that's being funded as part of the contract. but maybe just on Haste as a whole, on ASPs, and then just sort of what's the negotiations looking with commercial customers? Because I think in May, you guys booked your first contract with Andrew, but what's sort of the follow-on, what's that look like on Haste for commercial customers specifically? Thank you.

Yeah, so you're absolutely right. There is a bunch of stuff that's mixed into the overall $266 million contract value. I mentioned earlier, I think when the question was asked, there is some funding in there for infrastructure. So, I mean, obviously these launches will come through when we recognize the revenue based on the standalone price for those launches. There'll be separate revenue with regards to continuing operations and so forth. And of course, the infrastructure build out will show up in incremental CapEx spend and then depreciation and amortization. So I would say overall, nothing that you see in that contract will change the way that the margin profile of that Haste business, which is actually coming along quite nicely if you look in the overall scheme of Electron and Haste. So, yeah, I don't see any difference there. And on the commercial side of Haste, maybe, Pete, you want to speak to that?

Yeah, no, certainly seeing more interest. And as some of these large defense programs come to fruition, Haste has really proven itself as the go-to solution there. So, yeah, plenty of interest in conversations and stuff going on there.

Perfect. Thank you. I appreciate it.

Thank you. Our next question goes from Eric Rasmussen with Stiefel. You may proceed.

Yeah, thanks. Maybe my first on Iridium. I know still early days you outlined a few target markets. Initially, they're looking to go after the narrow band IoT services. but at what point or would it would it be an opportunity maybe to look at the broadband layer and if so what would what would that entail if that's a road that you wanted to go down yeah Eric I mean it's the wrong kind of spectrum for a broadband I mean the L band spectrum has has very unique advantages to it than some of the more broadband spectrum and you know I've learned to never say never.

But I think, you know, the two most wealthiest people in the world are going after that. And that's quite a challenge to go and compete. But, you know, we see value in other places, you know, where, you know, you could have the most amount of S-band spectrum you want and the most amount of satellites you want. But if you don't have an L-band spectrum, there's going to be certain things that you just can't do.

Gotcha. Okay. And then maybe just, Adam, you talked about Monaric gross margins being pressured initially. Where are the margins today in that business? And what's the target margin profile? And when do you think you might get to that framework, that timeframe to get to that target profile?

Yeah, look, I think the gross margins for Monaric coming out of the gate, they're always going to be a little bit lower. I mean, And I think that, as people know, you know, that asset had some challenges, had some supply chain issues, you know, went through an insolvency process. And so we're in the process of building that back up. I would say that, you know, if you think about where, I can't really comment because it's been less than really a quarter that we've owned the business. So I don't want to go into too many details on where gross margins are falling out. We're still doing some work there. But going forward, you know, we think this business, you know, will really kind of look in line with the rest of our space systems, a kind of merchant business. May take us a few quarters to get there. I think you may recall, because you've been along on this journey for quite some time, when we acquired Solero, the margins were quite challenged, called high single digits, and we were able to get that in line with our overall target for the business. This won't take nearly that long. This is one where we've been able to take relatively decisive action on understanding what needs to be done to get the margins up. We're also facing increased volumes in that business over the next several quarters. So we have a combination of revenue growth and some cost efficiencies that are really going to get the business into fighting shape relatively quickly. Great. Thank you.

Thank you. Our next question goes from Alex Potter with Fiber Sandler. You may proceed.

This is Ben Johnson online for Alex Potter. I guess first question is, can you guys just kind of walk through the big milestones that you view as the highest risk to getting Neutron to the pad in 4Q?

Yeah, hey, Ben. Probably the stage testing is always the thing that gets your adrenaline running because you have fully fueled vehicles on the pad and you're igniting the engines for the first time. and I think you can also see for another space company that when that doesn't go well, it really doesn't go well. So I think that's always the last big milestone before flight and then depending on how much granular detail you want to go into, then there's an ever-decreasing series of important milestones but once you see some stuff rolling outside that looks completely finished and doing tests, I think those are good pointers.

Great, thank you. And then my second question is on, so you previously talked about the benefits of establishing a footprint in Europe with the Minaric deal. What are some of the initial green shoots you've seen? Can you elaborate on the interest you've seen from customers in Europe? And is that primarily on the satellite or launch side?

Yeah, Europe is a really interesting market. it's typically been extremely kind of sheltered, but, you know, with the kind of the recent geopolitical tensions, you know, all of the European nations are looking for sovereignty. And, you know, a good example more recently is Germany had put over $40 billion in place for a satellite missile warning system, along with other things. And, you know, typically that would have been outsourced to other nations. So even in that alone, you know, that's an area that Rocket Lab has tremendous experience in now and capability. So the challenge, of course, being that, you know, Europe generally hasn't got a lot of these capabilities, so they sort of need a lot of help to get there. And then, you know, on launch itself, you know, we'll see, but, you know, clearly Europe really only has a couple of launch vehicles that are launching relatively infrequently and, you know, if you're trying to build whole constellations of systems, then you might need some help with launches also.

Great. Thank you.

Thank you. Our next question comes from Christine Lewag with Morgan Stanley. You may proceed.

Hey, good afternoon, everyone. I just wanted to follow up on free cash flow. Can you provide more color on the higher expected cash burden in the quarter? How much of this was driven by higher than expected neutron development cost versus acceleration of inventory to support future launches?

Yeah, well, you've pretty much hit the nail on the head, Christine. So a significant amount of the spend or cash flow consumption in the quarter was driven by building out the subsequent tails for Neutron, right? So as you can imagine, Pete talked earlier about the importance of getting to rate quickly. And so for the parts of the rocket that we think are at low risk to needing some kind of a change as a result of the first test launch later this year, hopefully. That really is kind of informing what we're building ahead on. And then I would say also the Menorik acquisition, I mentioned earlier it had some supply chain challenges and so forth. And so we basically had to replenish that supply chain. And that was part of the step up in the quarter as well. But we think we have that well in hand now. So that should be in a much more normal place. So it's really a combination of the neutron tail build out plus getting Menarik kind of tucked back into shape and firing on all cylinders.

Great. And just following up on neutron then, with the order that you're able to receive with the ASP that you are targeting, does this mean that we should expect more acceleration of neutron orders, especially as you get closer to the test flight? And also, and I just wanted to follow up on my free cash flow question earlier, how should we think about the cadence of free cash flow through the rest of the year? And when, you know, is this too cute at the peak in free cash flow, free cash outflow?

Yeah, I'll let Pete talk to the Neutron question.

Yeah, hi, Christine. I would say with Neutron, we are being very strategic and very thoughtful about our sales there. You know, we have, you know, as we've discussed, we have a 1-3-5 cadence. Hopefully, will do a lot a lot better than that but you know we have commercial customers already signed we have government customers you know so you saw NSSL nearly tripling their budget for NSSL launch so we need to make sure that we've got capacity for that customer and as I talked before we've got our own aspirations and needs so you know I've personally never seen launch so constrained in pretty much ever. You know, other launch providers are backing off and focusing on their own needs as well. So the, you know, the amount of launch that's left in the industry is really, really tight. So, you know, for us, it's been very thoughtful about which customers we sign up to at this point on going forward.

And then coming back to the free cash flow question, You know, it's still very much a function of the timing of the first successful test launch of Neutron, right? We've been pretty consistent in pointing towards, you know, that will be the real turning point where we go to adjust the event of positivity in the quarter after that event happens. But then we've also been pretty clear that, you know, it's going to probably be 18 to 24 months after that pivot that we get to cash flow positivity because we'll have to continue to invest in a fleet of tails to build up for Neutron. So I think that's really, I'd say those are kind of the two most driving factors. Now, of course, you know, pending the closing of the Iridium acquisition, you know, the table gets reset pretty significantly, right? So as we've talked about that, that business generates pretty significant free cash flow. So I think, you know, we'll have a lot of things to update folks on once we get closer to the timing of that, of closing that deal. But on a standalone kind of rocket lab basis, it really is driven by the neutron test timing.

Great. Thank you, guys.

Thank you. Our next question comes from Ryan Kuntz with Needham & Company. You may proceed.

Great, thanks. Question for you, Adam, on space systems in terms of any kind of color and product mix you have for us there in the June quarter, as well as kind of how we think about, you know, tranche two and tranche three timing in the second half, and then maybe reflect on the gross margin mix apart.

Yeah, Jeff. So, you know, mix is always difficult to kind of predict too far in advance. We have, you know, turns businesses, plus we have these programmatics, you know, satellite platform businesses. You know, I would say that, you know, there was a little bit less of the I would say the more mature merchant products within the mix in in kind of, I would say, a little bit in Q2 and actually pointing towards some of the weakness and margin in Q3. You know, we have a pretty wide range of margins in our space systems business. We have, you know, some component solutions such as solar that are always going to be more towards the lower end, call that in the, you know, kind of the 30s. And then if you look towards some of the product areas, they can be more kind of north of 70 points at gross margin. So they're pretty big spread there within the portfolio. And then again, towards the lower end in the mix, but greater in the magnitude of the composition is really the satellite platforms business. And you mentioned, you know, the biggest pieces of our backlog today are for SDA Tranche 2 and Tranche 3. And again, those are more in kind of in the mid-30s, right? So I think right now it's that each quarter is going to be driven really by kind of the mix of how much of that higher end component portfolio ships versus how much we have in these programmatic programs, which, you know, those are relatively straightforward to model. But what you can't model as much is, again, is the components part of the business.

Thank you.

Thank you. Our next question comes from Gautam Khanna with TD Securities. You may proceed.

Yes, good afternoon. Thanks for taking my question. I was curious on the demand side for Nutron, do you still expect kind of a surge of orders once the first test might go successfully? And I was curious, also, just given your large competitor is, you know, launching a much larger vehicle, does that give you any concern on industry capacity maybe three or four years from now and the demand for neutron? If you just comment on that.

Thanks very much. It's a good question. So I think pre-test flight, post-test flight, I would say neutron demand is just not a concern. Now, naturally, I think everybody will be more comfortable with buying Neutrons post-test flight, but we've had absolutely zero issues in selling full-price Neutrons pre-test flights. So I don't see that making a huge difference. Now, with respect to launch capacity going forward, I don't want to sound too negative here, But I don't see that changing anytime soon either, because even as, you know, new capacity comes on market from some competitors, you know, a lot of that capacity is already spoken for for their own internal programs, whether it be internets or, you know, AI data centers or whatever, like it's a little, you know, a fair chunk of that capacity is already spoken So, you know, I see this constrained, you know, launch market persisting for quite some time.

Thank you.

Thank you. Our next question comes from Andre Madrid with BTIG. You may proceed.

Hey, thanks for taking the question. This is Ned Morgan for Andre. I was just wondering, could we get an update on the Mars Telecommunications Orbiter program? Just wondering how well you guys are positioned to win there and how we should think about timing and contribution.

Yeah, thanks, Ned. I'd like an update too. So we're waiting for Vanessa to go through their procurement process. So, you know, hopefully, you know, it'd be great to hear this month or thereabouts. But I think we're positioned well. You know, there's very few folks that can demonstrate the level of capability and experience that we have. So we feel strongly positioned. But yeah, we just have to unfortunately wait for NASA to work through their procurement process.

Got it. Thank you. And a follow up, you know, after the successful launch of Neutron, How soon should we expect to see the NSSL task orders come through? I saw the upsized contract.

Yeah, that's sort of out of control as well. I would say that you've seen them add a whole bunch more resources into that contract vehicle. So they have sort of set periods where they release those contracts. But I think the government, along with others, are hotly anticipating Neutron's arrival for sure.

Thank you.

Thank you. Our next question comes from Michael Leshock with KeyBank Capital Markets.

Hey, good afternoon. I wanted to ask maybe a bigger picture. Are you in conversation with customers about potential orbital data center opportunities, whether that's as a merchant supplier or something else? I know higher efficiency solar panels are an important part of generating enough power for some of these plans that are out there. and you have that capacity already. Is data centers in space a real opportunity for Rocket Lab, or is it too early to tell?

No, I think it's a real opportunity. I guess I'm still a little bit cautious on the scale in which they may be a thing. You know, you've certainly seen us release new solar cells that are specifically targeted to that kind of application. So we're taking the opportunity seriously. And, you know, there's obviously where there's a lot of folks that are looking at that fairly deeply. So I think, you know, if they turn out to be a real thing, I think we'll be pretty deeply entrenched and, you know, well positioned to capitalize it. Is Rocket Lab going out and going to build a whole lot of all data centers? Well, I think not yet, that's for sure.

Okay, great. And then just on M&A, do you still expect to be pretty active there going forward? post-Iridium, and if so, are there any specific parts of the business you're targeting? Is that still space systems primarily, or any updated thoughts on the M&A pipeline? Thank you.

Yeah, I mean, I think it's likely that you'll see some tuck-ins from us, I think, as the right things come along, we'll always be active. But I would encourage everybody to think of Iridium as not the end point from our applications play I think it's it's really the starting point we don't want to be known as like the you know the L band tricky communications company we you know we our intentions are much more grander than that but what it does do is it shows an ability for us to go and and you know bite off a big piece and and also use you know in time we'll be able to demonstrate using the full machine where we can build our own satellites and launch them and be a, you know, self-licking ice cream. So I think, yeah, people should not assume that Iridium is a one and done.

Great. Thanks so much.

Thank you. Our next question comes from Suji Da Silva with Roth Capital. You may proceed.

Hi, Pete. Congrats on the progress. Sorry for getting back when I was here. Just, you know, Adam, at this point, or Pete, the Electron order customer base is very, very comfortable ordering. I'm wondering when in the 135 neutron sequence, do you think customers get to that? I mean, I don't know if it's just with the first launch, and you clearly have customers that are ahead of that pre-ordering, but when in the sequence does it start to feel more normal in terms of ordering and comfort? Hey, Suji.

It almost feels like that now, to be honest with you. As I mentioned before, we have a very limited supply of neutrons coming out the gate, and we have to be very, very, careful with where we put those. So I think, you know, the demand for the vehicle is already, you know, very high. So I don't know, they might feel differently, but it doesn't feel like we're a million miles away from there already.

No, actually, I'm actually pleasantly surprised kind of where we are in the cycle right now. I mean, to have the kind of backlog that we have on Neutron for a vehicle that's not flown yet, I think that shows a pretty strong endorsement. And it's certainly I think the market is saying it's from the customer perspective is nothing if it's more when. And I think, you know, Pete's been pretty clear, I think, you know, through the communications today and earlier that, you know, a significant portion of neutron down the road is going to be used to service our own our own demand. Right. So I think we also are being very mindful that we don't want to sell all of the capacity out for many, many years forward, you know, kind of without taking into consideration what we what we need to do, not only for, you know, radium's needs. But as Pete said, this is the first step of many for us in the applications vein. So we need to make sure that we're really leveraging Neutron to its greatest strategic extent, which it's going to be a great vehicle for the market. It's going to be great for adding more capacity in a capacity constrained market. But this is going to be an incredible strategic enabler for us. And so we want to make sure we don't squander that opportunity and give too much of that capacity way too early to other people.

Got it. Great. No, it makes sense. Customers have confidence in your execution given your history there. And then the other question, Pete, is on Flatelite. I'm just curious, can you remind us the unique features of Flatelite and congrats on that government win. Is there opportunities there outside of government commercial or just how to think about Flatelite as a market opportunity?

Oh, thanks, Sujit, for asking that question because that's actually, I mean this last quarter I think there's two kind of really big takeaways. One, we now also build geosatellites and I know that the geomarket is, you know, not particularly an exciting market as compared to what it used to be But actually, it's a very, very unique capability. So to be able to build low-Earth orbit satellites, Mars satellites, geo-satellites, and then have our first Flatellite order, I think, shows a real breadth of skill and ability and capability. But the Flatellite is designed as a high-cadence, large number of satellites per launch vehicle constellation builder. And I'm just so thrilled that their first customer for that is actually a really important U.S. government program. It really speaks to the confidence that the customer has after doing the due diligence of everybody in that Flatterlite product. And that Flatterlite product, once we start building them for that customer, that is a huge advantage for commercial customers as well who want that kind of thing. But, you know, candidly, for us as well, I mean, most of the stuff that I see in the future that Rocket Lab will do for itself will be built on the back of a Flatellite platform. Excellent.

That's helpful, Pete. Thanks.

Thank you. And this concludes the conference. Thank you for your participation. You may now disconnect.