Rocket Lab Corp (RKLB) Q2 2026 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Rocket Lab Corporation Q2 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Murielle 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 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 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's 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 and 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. 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 $2.36 billion in backlog and, across Launch and Space Systems, we've signed more than $1 billion in new contracts across Q2 and the period since the quarter closed. It was also a milestone quarter for strategic acquisitions, having closed Mynaric and Motiv and, of course, announcing our intentions to acquire Iridium Communications, which will accelerate our future in space applications and involve Rocket Lab becoming 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 rare 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 the part of the space economy that provides data services to millions of people on earth and delivers strong recurring 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 are accelerating 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 are 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 base systems, including a $397 million contract to build and launch multiple Flatellite spacecraft for the Space Force space-based airborne moving target indicator program. This program is a high priority for the Department of Defense and it seeks to establish a satellite network to track aircraft, missiles and airborne threats globally. 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 optimized 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 program. 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 GEO satellites 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 HAZE 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 HAZE was the first time that the Space Force had ever seen a single prime contractor deliver the rocket, the spacecraft and 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 Mynaric. 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 defense 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 this directly, providing the region with new domestic strength in a rapidly evolving new space era. That wraps up 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. 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 bulk buy in less than a year, taking the total number of launches with us to 18, and we've had a confidential defense prime sign up for a pair of HASTE launches in 2027. HASTE's rapid, repeatable flight cadence was the clincher for that deal. Our suborbital launch capability anchors our largest launch contracts to date, a $266 million contract from the Space Force for up to 18 missile defense launches. We bid alongside our legacy defense primes for this contract, and it's a second multiyear multi-launch Department award deal for suborbital missions in 5 months. These launches will mostly fly out of our new launch location in Kodiak, Alaska, which opens up Pacific access for missile defense testing for our government partner. There'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 at missile defense testing ranges or to provide sovereign orbital launch capability. With GHOST, we deliver the rocket, the launch infrastructure, ground support and range control systems in shipping containers, establishing launch capability at 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 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 checkout and assembly of all of our flight hardware before integrating them at the pad. First up, Stage 1. We pulled the new barrels and domes of 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 the 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 to tenth launch. Our focus is on the bigger picture and making sure that when Neutron flies it's 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 that arrives in Virginia we'll be doing the integrated fluids siting 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-risk some elements early and avoid 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 this test 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 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. While early testing was all about the fundamentals like power level, mixture 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 margins beyond what they need for a 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 a 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 preflight 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 rush 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. It's the first time Kepler has booked an entire rocket for their constellation rather than rideshare. Again, another strong signal of the expectation for Neutron to become the industry's alternative 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 HASTE 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 reliable capacity that 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 and 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 Mynaric acquisition, which closed 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 in time of launch. Now turning to gross margin. GAAP 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 in mix within our Space Systems business to our slightly lower gross margin satellite platforms business and initial contributions from our Mynaric 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 II launch vehicle. Relatedly, we ended Q2 with production-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 base 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-turn businesses across launch and Space Systems components businesses that drive incremental top-line contribution beyond the current 12-month backlog conversion. Turning to operating expenses. GAAP operating expenses for the second quarter of 2026 were $142.1 million, within our guidance range of $138 million to $144 million. Non-GAAP operating expenses for the second quarter were $115.7 million, which was below our guidance range of $120 million 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 minor expenses as that acquisition closed in the quarter. Q2 ending R&D headcount was 1,087, representing an increase of 138 from the prior quarter. In SG&A, GAAP expenses increased $7.7 million quarter-over-quarter, while non-GAAP expenses increased $9.8 million quarter-over-quarter. The increase in SG&A was primarily due to incorporating Mynaric 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 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 Mynaric's 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 exited 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 million to $26 million of 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 third quarter to range between $250 million and $265 million, representing 10% quarter-over-quarter revenue growth at the midpoint. We anticipate GAAP gross margin to range between 29% to 31% and non-GAAP 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 million and $149 million, and non-GAAP operating expenses to range between $121 million and $127 million. 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 to 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 million 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-GAAP 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 platforms business scales 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.

Our first question comes from Andres Sheppard with Cantor Fitzgerald.

Congratulations on the quarter and all the great progress. Maybe one on Neutron and one on Iridium. So on Neutron, it's great to see all the recent progress. I want to maybe move past the first launch and talk about scale. In the past, you've given us some cadence on Neutron's first launches. My question there is how quickly do you think we could potentially get to 10 launches and additional scale? Is there a possibility to perhaps accelerate the ramp-up process? And then finally, 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 for Neutron and maybe Electron and HASTE as well?

Yes, Andres, good to chat with you. Thanks for the question. With respect to Neutron, one of the questions people should be asking 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. How quickly we can scale into cadence is absolutely critical. As we work forward with the vehicle right now, the way we're thinking about things is it's not just to get to the pad quickly for flight 1. Of course, we all want that, no one more than I. But it's really about how we get to flight 10 in the shortest time possible. For us, that's really all about reusability and we're constantly trading timelines and the qualification criteria for the various systems and subsystems to get to the pad for flight 1, while making sure that when it comes to flight 10 we don't have to go back and requalify things. There's a constant assessment along the way. Our ramp that we've explained to everyone is a 1, 3, 5 ramp, and that's been educated from what we did with Electron. For Neutron, it really is all about reusability. The more robust we can be in reusability, the faster we can scale. 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. That's how we're balancing all those things. I'll let Adam comment on the ASP.

On ASPs, it's really a function of what's going on in the broader launch market. We brought Neutron to market with a $50 million 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 about where the market is from a supply versus demand perspective. Right now, the view is that we see more upside to ASPs than downside. We feel good and that leaves us room to move pricing as demand continues to firm up. I think there's probably more upside in that mix than downside.

Excellent. Thank you both, really appreciate all that color. Maybe just a quick one on Iridium. Peter, you touched on it a little bit in your prepared remarks, but can you elaborate further on the overall combined strategy? 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 separately, how will you ultimately think about assigning Neutron launches to Iridium's new constellation and new customers?

Thanks. We're very excited about it. There are a lot of obvious synergies. I've always been clear that the large space companies of the future will have the ability to launch their own satellites that they've built themselves on their own rocket. That's superior. We've got a lot of areas we can grow the business. If you look at the cost of what it costs Iridium to put up the initial constellation and what we could do it for now, it's pretty stark. We think there's lots of opportunities. As we're thinking about Neutron's capacity in this environment where demand is extreme, we need to serve the commercial market, ensure launches remain available for our government customers as we've been onboarded onto the NSSL program, and also reserve capacity for ourselves because our intention will be to improve that constellation. It's all a bit of a juggling act.

Our next question comes from Jeff Van Rhee with Craig-Hallum Capital Group.

Peter, on Iridium for a second: they bring nice profitability and a presence in the applications market, which you want. They bring slower growth, and I know you've been impressive with previous acquisitions, particularly on margins. Here, you're going to have to reaccelerate that top line. What are the lowest-hanging fruits in the shorter to intermediate term to accelerate their top line?

Great question. It's a quintessential Rocket Lab deal in that we're not buying a big hole in our P&L. The constellation itself is in solid shape into 2035. There are initiatives they've already embarked on to grow, and we think we can supercharge those, especially in PNT. With relatively modest tweaks to the constellation, we can add a lot more capability. Also, being able to demonstrate mission-critical, life-critical services and manage them end-to-end is something Iridium enables that we couldn't credibly do before the acquisition. That turns up to government and commercial customers with a whole new toolkit and sets us apart from nearly everyone else. The focus from day one with the acquisition will be growth.

Makes sense. One last on GHOST. Talk a bit more about that: what infrastructure is needed at the site? It sounds like you bring a lot. There are clearly some things that have to be there. What business can this capture that you couldn't otherwise capture? What was the genesis of the idea?

It was really a request from a customer. They have important needs for the HASTE program and to service those needs we need to be more mobile. We're not building GHOST on speculation; it's customer-directed. We don't need a lot— we've built three pads for Electron to date. With Neutron the relative scale changes, but on Electron scale, moving launch pad infrastructure is quite manageable for us. The genesis was a customer need and our capability to deliver it.

Our next question comes from Trevor Walsh with Citizens.

Follow-up on GHOST: should we think about price per launch or revenue per launch and then the cost structure around those GHOST-enabled launches compared to an Electron or HASTE launch? I know HASTE can command higher pricing. As you do more GHOST capability launches, will that change the financial profile?

These are HASTE missions happening out of the West Coast, so you should look at pricing to be pretty consistent with what we've been showing on HASTE. As these types of missions become more strategic and important, there could be more demand and pricing pressure to the upside. We feel we are in an early phase of HASTE demand with great backlog build in recent quarters. There are also international opportunities. If HASTE behaves like other parts of the Electron portfolio, where ASPs have gone up over the years, we could see the same opportunity for HASTE across Virginia, Alaska pads and New Zealand.

Great. And then for the Kodiak site, is there going to be a step-up in CapEx not already accounted for? How should we think about that relative to your comments around CapEx for the balance of the year?

There is some CapEx required for that, but in the context of Neutron it's relatively in the noise and many contracts we engage with include some CapEx funding. They'll show up as an incremental CapEx increase, but they're largely funded under those agreements.

Our next question comes from Edison Yu with Deutsche Bank.

Want to come back on Iridium. You mentioned the constellation lasts into the mid-2030s. How are you thinking about timing and potential synergies with the next-gen constellation? The landscape will change a lot by 2035— is the idea to deploy the next-gen constellation sooner?

You're right the landscape for direct-to-device Internet from space will change a lot. One nice thing about the Iridium model is the use of L-band spectrum, which penetrates rain and indoors. That safety, criticality and stickiness of the current applications are important and will remain important. I'm less concerned about disruption from broadband players targeting different spectrum bands. We're focused on where the L-band spectrum gives Iridium distinct advantages. It's too early to talk about a next-gen constellation in detail now. The whole point of this acquisition is that we are now a self-launching machine. There will be a next-generation constellation, but we're not yet ready to provide specifics.

Separate topic: you won several big satellite awards and have the GEO award. Any sense on timing of ramp for these contracts? Are they fairly linear or more lumpy?

On the government side, these programs typically last several years and follow a curve that's roughly 10%, 40%, 40%, 10% over the program life. Each program differs, but that's a reasonable way to model it going forward.

Our next question comes from Jan Engelbrecht with Baird.

Congrats on another set of great results. I'll start with the spacecraft components supply chain as a whole. You benefit internally given vertical integration, but as other companies ramp up satellite constellations, where do you see the biggest opportunity across components—reaction wheels, laser terminals, solar panels, thrusters? What's the capacity like in your factories today versus over the next couple of years as launch cadence picks up and as more satellites go to orbit?

People think launch is a big moat and it is, but spacecraft components are also a big moat. If you turn up and say 'I want 1,000 reaction wheels,' chances are you'll struggle unless you come to us. We've built scale within our components businesses. When we first announced the solar business some wondered why, but we've scaled it to being one of the largest space-grade solar manufacturers in the world. Every satellite needs solar and large amounts of it. Components continue to grow year after year; as more constellations and spacecraft come into production, that only benefits us.

Being a merchant components provider is a growing business with nice margins. More importantly, it enables us to eliminate margin stacking and be more competitive going after large strategic programs. The ability to take advantage of scale as a merchant provider and then use that internally to be more competitive on these larger programs is where the magic comes together. It's more than playing in a healthy merchant component market—it's feeding and enabling our strategic platform business.

Quick follow-up returning to the HASTE contract: on the $266 million contract for up to 18 launches, are you going to break out the cost between launch and building the pad? If you just look at 18 launches, it implies about $15 million ASP, which may not be correct. Maybe there's infrastructure funded as part of the contract. Also, what's the negotiation look like with commercial customers on HASTE—beyond the Anduril contract—how is the commercial pipeline shaping up?

You're absolutely right; there's funding mixed into that $266 million for infrastructure. The launches will be recognized based on their standalone price, and there will be separate revenue for continuing operations. Infrastructure build-out will show up in incremental CapEx and then depreciation and amortization. Overall, I don't see anything in that contract changing the margin profile of the HASTE business, which is coming along nicely relative to Electron and HASTE. On the commercial side, Pete can speak to demand, but we're seeing plenty of commercial interest and ongoing conversations.

Our next question comes from Erik Rasmussen with Stifel.

On Iridium: they initially target narrowband IoT services, but is there an opportunity to look at a broadband layer? If so, what would that entail?

It's the wrong kind of spectrum for broadband. L-band has unique advantages and is different from broadband spectrum. I've learned to never say never, but the major players pursuing broadband are tackling different spectrum and very large investments. We see value in L-band for safety-critical and sticky applications that will remain important.

And Adam, on Mynaric, you mentioned gross margins are pressured initially—where are margins today and what's the target margin profile? When might you get there?

Gross margins for Mynaric out of the gate are a bit lower. The asset had challenges including supply chain issues and insolvency processes, and we're rebuilding. We've owned the business less than a quarter so I won't go into granular details on current margins. Going forward, we think this business will look in line with the rest of our Space Systems merchant business. It may take a few quarters to get there. When we acquired SolAero, margins were challenged and we were able to bring them in line with our target. This won't take nearly as long. We've taken decisive action to identify what needs to be done to lift margins, and we're facing increased volumes over the next several quarters. The combination of revenue growth and cost efficiencies should get the business into fighting shape relatively quickly.

Our next question comes from Alex Potter with Piper Sandler.

Can you walk through the big milestones you view as the highest risk to getting Neutron to the pad in Q4?

Stage testing is the big adrenaline event because you have fully fueled vehicles on the pad and you're igniting engines for the first time. When it doesn't go well, it can be serious. That's the significant milestone before flight. After that it's a decreasing series of important milestones, but once you see hardware outside that looks finished and doing tests, those are good pointers.

Second question: on the Mynaric/Europe footprint, what initial green shoots have you seen? What interest from customers in Europe and is that primarily on the satellite or launch side?

Europe is an interesting market. With recent geopolitical tensions, European nations are looking for sovereignty. For example, Germany has recently allocated substantial funds for a satellite missile warning system and other programs. Typically, these things were outsourced; now nations want domestic capabilities. Rocket Lab has experience and capabilities to help. On launch, Europe has a limited set of launch vehicles launching infrequently, and if you're building large constellations you may need more launch help. So we see opportunity on both spacecraft manufacturing and potentially launch.

Our next question comes from Kristine Liwag with Morgan Stanley.

Can you provide more color on the higher expected cash burn in the quarter? How much of this was driven by higher-than-expected Neutron development cost versus acceleration of inventory to support future launches?

A significant amount of the cash consumption in the quarter was driven by building out the tails for Neutron. As you can imagine, and as Pete discussed, the importance of getting to rate quickly informs what we're building ahead for parts of the rocket that we think are low risk. Also, the Mynaric acquisition required replenishing supply chain inventory, which contributed to the step-up. We think we have that well in hand now.

Following up on Neutron: with the ASP you're targeting, should we expect more acceleration of Neutron orders as you get closer to test flight? And on free cash flow cadence through the rest of the year, is Q2 the peak in free cash outflow?

We're being strategic about Neutron sales. We have a 1, 3, 5 cadence but hope to do better. We have commercial customers signed, government customers on NSSL, and our own aspirations and needs. Launch supply is extremely constrained; other providers are managing their own capacity. Demand for Neutron is very high, so we're thoughtful about which customers we sign up at this point.

On free cash flow, it's very much a function of the timing of the first successful test launch of Neutron. We've been consistent that the test flight will be a real turning point where we go to adjusted EBITDA positivity in the subsequent quarter. It will probably be 18 to 24 months after that pivot that we get to cash flow positivity, because we will continue to invest in a fleet of tails to build out Neutron. Pending the closing of the Iridium acquisition, the table resets because that business generates significant free cash flow. We'll have more to update folks on as we get closer to that close, but on a stand-alone Rocket Lab basis, it's driven by Neutron test timing.

Our next question comes from Ryan Koontz with Needham & Company.

Adam, any color on product mix for Space Systems in the June quarter and how to think about Tranche 2 and Tranche 3 timing in the second half? And can you reflect on the gross margin mix, apart from Mynaric?

Mix is difficult to predict far in advance. We have turn businesses plus programmatic satellite platform businesses. There was a bit less of the more mature merchant products in Q2, which points to some margin weakness in Q3. We have a wide range of margins within Space Systems: components such as solar are toward the lower end, while some product areas can be north of 70% gross margin. The satellite platforms business is relatively larger in magnitude and sits in the mid-30s. Each quarter is driven by the mix between higher-end component shipments and programmatic programs. The largest pieces of our backlog today are for SDA Tranche 2 and Tranche 3, which are more mid-30s margin programs.

Our next question comes from Gautam Khanna with TD Securities.

On the demand side for Neutron, do you still expect a surge of orders once the first test flight goes successfully? Given your large competitor is launching a much larger vehicle, does that give you concern on industry capacity three to four years from now and the demand for Neutron?

Pre-test flight or post-test flight, Neutron demand is not a concern. Everyone will be more comfortable purchasing Neutron post-test flight, but we've had no issues selling full-price Neutrons pre-test flights. Regarding capacity, I don't see constraints easing any time soon. Much of new capacity coming online is already spoken for by internal programs like Internet constellations or other large programs. So I expect a constrained launch market to persist for some time.

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

Could we get an update on the Mars Telecommunications Orbiter program? How well positioned are you to win and how should we think about timing and contribution?

We're waiting for NASA to go through their procurement process. Hopefully we'll hear imminently. We're well positioned—very few firms can demonstrate our level of capability and experience. We feel strongly positioned but must wait for NASA's procurement process.

After a successful launch of Neutron, how soon should we expect to see the NSSL task orders come through? I saw the upsized contract.

That's somewhat out of our control. They have added more resources into that contract vehicle and have set periods where they release those contracts. The government and others are hotly anticipating Neutron's arrival for sure.

Our next question comes from Michael Leshock with KeyBanc Capital Markets.

Are you in conversations with customers about potential orbital data center opportunities, whether as a merchant supplier or something else? Higher-efficiency solar panels are important to power such plans and you have that capacity. Is data centers in space a real opportunity for Rocket Lab or is it too early?

I think it's a real opportunity, though I'm cautious about the scale. We've released new solar cells targeted to that application and are taking the opportunity seriously. Many folks are looking at it deeply; if it becomes real, we'll be well positioned to capitalize. I wouldn't say Rocket Lab is building a large number of data centers yet—it's not time for that yet.

On M&A: do you still expect to be active post-Iridium? Any specific parts of the business you're targeting—still Space Systems primarily? Any updated thoughts on the M&A pipeline?

Yes, you'll likely see tuck-ins. Iridium is not the endpoint for applications; it's the starting point. We don't want to be known only as an L-band communications company. We intend for Iridium to be the first major step in a larger applications strategy. We'll keep pursuing the right opportunities as they arise.

Our next question comes from Suji Desilva with ROTH Capital.

Congrats on the progress. Pete, the Electron customer base grew comfortable ordering; when in the 1, 3, 5 Neutron sequence do you think customers get to that comfort level? I don't know if it's with the first launch, but you clearly have customers preordering—when in the sequence does it start to feel more normal in terms of ordering and comfort?

It almost feels like that now. We have a very limited supply of Neutrons coming out of the gate, and we have to be very, very careful with where we put those. Demand for the vehicle is already very high; it doesn't feel like we're many miles away from a more normal ordering cadence.

I'm pleasantly surprised at where we are in the cycle. To have the kind of backlog we have on Neutron for a vehicle that hasn't flown yet shows a strong endorsement. I think the market is saying it's more a matter of when. Pete has been clear that a significant portion of Neutron down the road will be used to service our own demand. We don't want to sell all capacity out many years forward without considering what we need for Iridium and our own strategic aspirations. We're mindful of preserving strategic capacity.

Got it. One more on Flatellite: remind us the unique features of Flatellite and congrats on the government win. Is there opportunity outside government—commercial—and how should we think about Flatellite as a market opportunity?

Flatellite is designed as a high-cadence, high-volume platform optimized for rapid production and launch, making it ideal for constellation builders. I'm thrilled that the first customer is an important U.S. government program; that speaks to the customer's confidence after due diligence. Once we start building them for that customer, that provides a huge advantage for commercial customers who want that capability. Many future Rocket Lab builds for ourselves will be based on the Flatellite platform.

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