Rocket Lab USA Q2 FY2025 Earnings Call Transcript

Rocket Lab USA reported its second-quarter financial results after Thursday’s closing bell.

Below is the transcript from the Q2 earnings call.

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OPERATOR

Good day and welcome to the Rocket Lab Corporation Q2 earnings call. Today all participants will be in a listen-only mode. Should you need assistance during today’s call, please signal for a conference specialist. Pressing the star key followed by zero. After today’s presentation, there will be an Opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that today’s event is being recorded at this time. I would like to turn the conference over to Muriel Baker, Senior Communications Manager.

Muriel Baker (Senior Communications Manager)

Please go ahead. Thank you. Hello and welcome to today’s conference call to Discuss Rocket Lab USA’s SECond quarter 2025 financial results. Before we begin the call, I’d like to remind you that our remarks may contain forward looking statements that relate to the future performance of the Company and these statements are intended to qualify for the safe harbour protection from liability established by the Private Securities Litigation Reform Act of 1995. 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. 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 and space systems programs and we will discuss financial highlights and outlook before we finish by taking questions. So with that let me turn the call over to Sir Peter.

Sir Peter Beck (Rocket Lab CEO, founder)

Thanks Marielle, and thanks for everybody joining us today. Look, we have delivered impressive financial results this quarter with another record revenue of $144.5 million above the high end of our prior guidance and up 36% compared to last year. Our GAAP gross margin expansion exceeded expectations this quarter two and the consecutive growth of the company is really exciting to drive. No surprises here that the Electron continues to be the leader of the small launch industry. We had five launches across the quarter, two of them back to Back from Launch Complex one in two days. Demand for its services is also increasing from different countries. With multiple international space agencies signed up for electron launches this year and next. We made rapid progress towards the pad with Neutron this quarter. Launch Complex 3 is ready for its grand opening and we’ve got the first rocket parts on their way to Virginia. More to share across the program in the up and coming slides here. And finally, in Space Systems, our prime contractor status is expanding with our imminent acquisition of GEOSTation. Being able to quickly build and deploy entire satellite systems is the cornerstone of the future US defence strategy. And we’re in a prime position to play within those large opportunities within launch, spacecraft and now payloads added to our end to end capabilities. So let’s get into those details now. We’re very close to finalising acquisition of GEOST, maker of missile tracking satellites for national security missions. Having cleared through the antitrust review, we’re on track for signatures on paper here pretty shortly. I’ll let Adam take you through the financial details later. But if there’s one thing to take away from this deal, it’s adding payloads on top of launch and spacecraft really cements our status as a one stop shop for national security. We’re already a trusted disruptor in the launch and prime contractor for Constellation builds. And this acquisition adds to our competitive advantage. It will bring an extensive inventory of space based missile warning sensors and manufacturing facilities in Arizona and Northern Virginia that secures the domestic supply chain of this critical technology for next generation missile defence initiatives like the Golden Dome and SDA constellations. The $175 billion Golden Dome program could prove to be one of DoD’s largest procurements to date. And we’re in a great position to capitalise on opportunities here as strategic investment. And the way that we’ve scaled the company to uniquely meet its needs positions us strongly to win either as a prime contractor or even as a sub or even as a component supplier. Our pursuit of the Golden Dome extends just beyond payloads across its entire ecosystem. We have the technology and capability ready to serve. We operate the world’s most reliable and responsive small launch vehicle, Electron, operating at the fastest cadence of any small launch vehicle in history. Having just completed its 69th launch with our hypersonic testing Variant Haste, we are revolutionizing the way missile defence technology is tested in a hypersonic environment. A new reusable rocket, Neutron, perfectly answers the call for a diversified launch for national security and can deploy entire constellations of spacecraft at once to build out the Dome’s proliferated architecture. We’ve already won more than half a billion dollar contract with the SDA to build and operate a significant piece of their PWSA network. So there’s a golden opportunity to build upon that here with our existing capability. Look, the list goes on, but I won’t belabour the point. Our advantage is our commercial speed and proven execution. The way programs like this have been built in the past, dominated by the large defence primes, just won’t work this time around. To meet the administration’s urgent timeline, it needs agility and innovation, vertical integration and on time delivery and execution. That’s what we’ve delivered time and time again across our programs to date and what we stand ready to deliver for the Golden Dome. There’s no better mission on the books that demonstrates the full depth of our capabilities than the Victor’s Hayes mission. For the Space Force. Across its tactically responsive space program, we’re the only provider delivering a complete end to end launch plus spacecraft solution. We bring the full stack of offerings across the satellite design component, manufacturing, integration and testing, flight software, ground mission and launch licensing and the launch itself. And on orbit operations, we own the entire mission life cycle and its capability for national security that very, very few others can provide. It’s also a great demonstration of how commercial capability like ours can be leveraged to bring the concept of responsive space into operational reality. Exactly what the US Administration is seeking with Golden Dome. This mission has a 24 hour call up requirement, which quite frankly is business as usual for rocket lab these days. And we recently cleared the program milestone for Victor’s Hayes. That moves us into the final integration and testing phase of our spacecraft for the mission. And launch on Electron later is on track late for later this year. Another program with a major milestone tick is a transport layer Constellation build for the sda. The program has signed off our satellite design and approach for manufacturing, which means we can now move into full scale production of these 18 spacecraft and recognise further revenue from this $515 million program. As this constellation gets underway, we’re also preparing for a much larger opportunity within the SDA and its next tranche of satellite contracts. This is where our strategy of bringing key satellite technologies in house makes us an attractive commercial partner. Our incoming sensor payloads, for example, are also in play for an SDA award. And through other bidders we can control the cost and reduce the schedule risk through our vertical integration in a way that others can’t. And we hold the keys to that technology and components that are foundational to these contracts. And finally, for space Systems. Another strategic area of focus for this past quarter has been in supporting the administration’s plans for Mars exploration. It was great to see a $700 million provided for a Mars telecommunications orbiter in a Senate’s recent but recent budget that the path to Mars for human spaceflight must begin with the ability to communicate there. And this is something that we’ve always strongly pushed for. In fact, we were the only company that proposed an independently launched Mars Telecom orbiter as part of the end to end Mars Sample Return mission. So our ambition is clearly in line with the administration’s vision for Mars. Much of our technology is already across major Mars missions like NASA Insight Lander, the Ingenuity Helicopter, the Cruise Stage, that perseverance to Mars, and of course our escapade spacecraft that are ready for launch here soon. We have got the experience in delivering mission success for Mars exploration and a vertically integrated approach reduces complexity, controls cost and provides schedule certainty all under a firm fixed price. Now on to Electron. Once again, another busy quarter for Electron as demand and launch cadence continues to soar. The beauty of Electron is being able to choose when where you want to fly. Sometimes for us that can mean flying in very close succession, like the four launches in four weeks that we saw in June and two of those flew just days apart, a record turnaround for us at Launch Complex 1. We’ve since racked up launch number 69 and number 70 is scheduled for liftoff next week, keeping us on track for 20 or more launches by this year’s end. These missions are a great showcase of how quickly we can turn around launches as the manifest demands with the infrastructure, production and capability to place and support a launch a week. As the demand for small dedicated launch continues to expand beyond Electron’s proven heritage as America’s most frequently launched small rocket, international space agencies are coming to rely on it for access to orbit as well. We signed our first direct launch contract with the European Space Agency this quarter to launch a pair of satellites for the continent’s future navigation constellation before the end of this year. The mission urgency stems from ESA’s need to meet spectrum requirements by early 26. But with few domestic rides to space available for them, Electron is stepping up to the task of responsive launch. It’s a similar situation faced by another sovereign space agency that came calling for Electron 2. I can’t quite reveal the full details of those missions yet, but it’s fuel on the fire to Electron’s international expansion and leadership in the small lift market globally. Now to cap off the list of space Agency launch contracts. We secured another NASA mission on Electron for launch early 2026. Time and time again, we’ve proven ELECTRON to be the premier small launcher for NASA science missions. And we’re looking forward to delivering the same precise orbital deployments that they’ve come to expect. Now on to our Neutron update for the quarter. Let’s start with a top down view of where things stand. Today. We’re building more than just our first rocket. We’re laying the foundation for long term sustainable program. We know from experience that building the first one is hard, but building the system that gets you to launch number 10 and 20 and beyond is much harder. Most of the capital of any rocket program goes into building out the infrastructure. And we believe we’ve got all the critical elements in place now. Our launch and test sites are substantially complete. Recovery infrastructure is on track. The Archimedes engine manufacturing line is now capable of knocking out an engine every 11 days. And we believe that we’ve scaled our operations to be ready to support to move into multiple flights a year after the first launch gets off the ground. On the launch vehicle side, the teams are working literally day and night to get Neutron to the pad. We’re in a good spot with lots of core elements like the hungry hippo fairing major structures, second stage engine qualification, etc. It’s a green tick for stage two flight hardware and its qualification program. The brains of the rocket like the flight computer and GNC are ready for flight. So lots of green across the vehicle. As you’d expect. There’s been lots of action on the regulatory approvals front as well. We’ve been granted our FCC license for Neutron’s first launch and the FAA has accepted our launch license application. That puts us on track for a launch license to fly From Launch Complex 3 by the end of the year. Well, we’ve also had the critical agreements in place to transport flight hardware to the launch site on Wallops Island. You’ve likely seen a bit of activity on that front around expanding our operations and dredging in the channel. But these improvements are related to increasing operational flexibility as launch cadence ramps up. It’s not a gate to Neutron’s debut. Importantly, the schedule is not sequential. Everything is happening in parallel, and a lot of the progress markers that are underway or still pending are probably going to stay that way up until just before we launch. There are still some risks to retire like propulsion and full integration of stage one testing, which we’re taking our time on to make sure we’re successful and when the rocket is on the launch pad. But over the next few slides, I’ll take you through the latest engineering updates and lay out the current expectations for the next few months ahead. First up, an exciting moment on the path to launch. Neutron’s flight hardware is on its way to the launch site. Over the past couple of months, We’ve put the second stage through many, many tests to validate its readiness for launch. Having completed its critical testing phase, it’s headed to the Launch Complex 3 for final integration in preparation for stage testing at Wallops Island. The large structures that make up the first stage, like propellant tanks and thrust structures, are expected to be on the test stands before they’re shipped out to the launch site shortly. Once they’ve completed in a major structural test, they’ll progress in to final integration and stage testing. As we move out of R and D into production for the next rockets in our fleet, Our factories are all humming. We’ve automated the production of the largest composite rocket structures in history with our 90 tonne AFP machine that we installed there last year. We’re pulling flight parts off the machine now for the stage one barrels and propellant domes and allows us to scale efficiently. And we’ve made long lead commitments for manufacturing equipment. That puts us in good place to build three vehicles next year for Archimedes. Engine testing is accelerating and this is the most crucial and time consuming aspect of any rocket development program and always the longest pole in the tent. We’re running the engine to full mission duration and the operational test cadence is hitting up to three or four hot fires a day now, seven days a week as we work diligently through all. Of the engine qualification process. In between hot fires, the team is making improvements and iterating on the design quickly and then getting right back into the next engine test via an on stand. We expect these tweaks all the way up to Neutron’s debut launch and beyond. For those who are interested, Take a look at the latest mission duration hot fire video we just shared. Moving on to launch Complex 3. I’m pleased to say that we have an official date for the site opening later this month. The team in Virginia is well and truly into launch pad activation While we close out the final construction activities. The water deluge system was activated last quarter and now the team is meticulously making their way through system by system to prepare for static fire operations on the launch mount. Once a flight hardware arrives. Launch Complex 3 is set to be a hugely important national asset. There’s a spaceport bottleneck at the other federal sites right now, and that shows how important launch site diversity really is. National security must take priority, and with Neutron onboarded to the NSSL program earlier this year, a rocket will be the first to fly for NSSL out of Virginia. When we pick up missions under that contract, we’ll be cutting the ribbon for Launch Complex 3 on August 28th. We’re also opening up a limited number of spaces for retail shareholders to join us on Wallops island, so I encourage anybody who is interested to to check out the details on our website. All in all, we continue to push extremely hard for an end of year launch. We continue to run a green light schedule with Neutron, which means every single thing needs to go to plan for the schedule to hold, but also want to stress that we’re not going to rush and take stupid risks to get a launch Neutron before it’s ready. In the context of the life cycle of the vehicle and the program, a couple of months here or there is completely irrelevant. What’s really important is performance, reliability, scalability right from the get go. And there’ll be no cutting corners here to just rush to the pad for an arbitrary deadline. I think everybody has heard me say it before. In fact, I’m a little bit infamous for it now. I’m not built to build shit. So with that I’ll hand it off to Adam. He can run through the financial highlights for the quarter.

Adam Spice (Rocket Lab, Chief Financial Officer)

Great. Thanks Pete. Second quarter 2025 revenue was a record $144.5 million which was above the high end of our prior guidance range and reflects significant year over year growth of 36% driven by strong contribution from both business segments. Second quarter revenue increased 17.9% sequentially. Our Space Systems segment delivered $97.9 million in the quarter, reflecting a sequential increase of 12.5% driven by increased contribution from each of our satellite components businesses. Our launch services segment delivered revenue of $36.6 million reflecting an increase of 31.1% quarter on quarter. Now turning to gross margin, Generally Accepted Accounting Principles (GAAP) gross margin for the SECond quarter was 32.1% above our prior guidance range of 30 to 32%. Non Generally Accepted Accounting Principles (GAAP) gross margin for the SECond quarter was 36.9% which was also above our guidance range of 3034 to 36%. The sequential increase in gross margins is primarily due to an increase in electron average selling price (ASP) paired with favorable mix within our space systems business driven by increased contribution from our higher margin component sales. Relatedly, we ended Q2 with production related headcount of 1,150, up 62 from the prior quarter. Turning to backlog, we ended Q2 2025 with approximately $1 billion of total backlog with launch backlog representing approximately 41% of this and space systems 59% in the quarter. Launch backlog continued to take increasing share with promising underlying trends as we convert a very strong pipeline of Neutron, Electron and haste opportunities. Space Systems bookings remain lumpy given the timing of increasingly larger needle moving customer and program opportunities, but remains at a healthy level despite a step up in revenue run rate for the past few quarters. Upon the anticipated near term closing of the GEOST acquisition and given an increased line of sight to the Minaric acquisition, closing, the composition of backlog will likely skew a bit back in favor of Space Systems and further underpin incremental future growth. We continue to cultivate a healthy pipeline, multi launch deals and large satellite manufacturing contracts that, as mentioned earlier, can create lumpiness in backlog growth. Given the size and complexity of these opportunities, we expect approximately 58% of current backlog to be recognized as revenues within 12 months and we continue to get relatively quick turns business that drive top line growth beyond the current 12 month backlog conversion. Turning to operating expenses, Generally Accepted Accounting Principles (GAAP) operating expenses for the SECond quarter of 2025 were $106 million above our guidance range of 96 to $98 million. Non Generally Accepted Accounting Principles (GAAP) operating expenses for the first quarter were $86.9 million which was also above our guidance range of $82 to $84 million. The sequential increases in both Generally Accepted Accounting Principles (GAAP) and non Generally Accepted Accounting Principles (GAAP) operating expenses were primarily driven by continued growth in prototype and headcount related spending to support our neutron development program. Specifically, investment has increased to support propulsion as we continue to qualify Archimedes as well as production of mechanical and composite structures ahead of Neutron’s anticipated inaugural flight later this year. In RD, specifically, Gap expenses increased $11 million quarter on quarter due to ramping up Archimedes production paired with increased expenses related to mechanical systems and composites that just mentioned, non Generally Accepted Accounting Principles (GAAP) R and D expenses were up $10.2 million quarter on quarter driven similarly to the Generally Accepted Accounting Principles (GAAP) expenses. Q2 ending RD headcount was 935 representing an increase of 12 from the prior quarter. In SGA, Generally Accepted Accounting Principles (GAAP) expenses increased $600,000 quarter on quarter due to an increase in non recurring transaction costs. As we continue to advance a robust pipeline of MA opportunities partially offset by a step down in stock based compensation. In the quarter, non Generally Accepted Accounting Principles (GAAP) SG and A expenses decreased by $200,000 due primarily to a decrease in audit fees partially offset by increased legal expenses. We are encouraged by our ability to constrain SGA spending as we look to scale the business more efficiently. At this point, Q2 ending SG and A headcount was 343, representing an increase of 11 from the prior quarter. In summary, total SECond quarter headcount was 2,428, up 85 heads from the prior quarter. Turning to cash, purchases of property equipment and capitalized Software licenses were $32 million in the SECond quarter of 2025, an increase of $3.3 million from the $28.7 million in the first quarter. As we finalize LC3 construction activities, continue to invest in the engine test facility at Stennis, Mississippi and make initial investments into the fit out of the return on investment barge. As we continue to invest in Neutron development, testing and scaling production, we expect to maintain elevated capital expenditures. Leading up to Neutron’s first flight, Generally Accepted Accounting Principles (GAAP) operating cash flow was a negative $23.2 million in the SECond quarter of 2025 compared to a negative $54.2 million in the first quarter. The sequential decline in negative Generally Accepted Accounting Principles (GAAP) operating cash flow of $31 million was driven primarily by increased cash receipts from our SDA satellite program. Similar to the capex dynamics mentioned earlier, cash consumption will continue to be elevated due to Neutron development. Longer lead procurement for SDA investment in subsequent Neutron tail production and and related infrastructure to scale the business beyond our initial test flight. Overall non Generally Accepted Accounting Principles (GAAP) free cash flow defined as Generally Accepted Accounting Principles (GAAP) operating free cash flow sorry defined as Generally Accepted Accounting Principles (GAAP) operating cash flow less purchases of property, equipment and capitalized Software in the SECond quarter of 2025 was a use of $55.3 million compared to a use of $82.9 million in the first quarter. The ending balance of cash cash equivalents, restricted cash and marketable SECurities was $754 million as of the end of the SECond quarter of 2025. The sequential increase in liquidity is due to the at the market equity offering that we announced earlier in the year, which generated $300.8 million in the SECond quarter, which in part is intended to fund acquisitions such as the announced Minarik acquisition, the GIOS acquisition and other targets in a robust M and A pipeline along with general corporate expenditures and working capital. We exited Q2 in a strong position to execute on our organic expansion opportunities as well as inorganic options to further vertically integrate our supply chain and grow our strategic capabilities and expand our addressable market. Consistent with what we have done successfully in the past, adjusted EBITDA loss was $27.6 million in the SECond quarter of 2025, better than our guidance range of a 28 to $30 million loss. The sequential decrease of $2.4 million of adjusted EBITDA loss was driven by an increase in revenue paired with increased gross margin, partially offset by increased R and D expenses related to Neutron. With that, let’s turn to our guidance. For the third quarter of 2025, we expect revenue in the third quarter to range between 145 and $155 million. We expect a further uptick in both Generally Accepted Accounting Principles (GAAP) and non Generally Accepted Accounting Principles (GAAP) gross margins in the third quarter, with Generally Accepted Accounting Principles (GAAP) gross margin to range between 35 to 37% and non Generally Accepted Accounting Principles (GAAP) gross margin to range between 39 to 41%. These forecasted Generally Accepted Accounting Principles (GAAP) and non Generally Accepted Accounting Principles (GAAP) gross margins reflect improvement in launch average selling price (ASP) and overhead absorption. We expect third quarter Generally Accepted Accounting Principles (GAAP) operating expenses to range between 104 and $109 million and non Generally Accepted Accounting Principles (GAAP) operating expenses to range between $86 million and $91 million. These modest quarter on quarter increases at the midpoint of our guidance are to be driven primarily by continued Neutron development spending across staff costs, prototyping and materials. Though the spend is beginning to shift from R and D to Flight two inventory, I’m encouraged, given the impressive progress made towards Neutron’s first flight, that we’re getting closer to moving beyond the past few years of elevated R and D spend and on the path to generating future meaningful operating leverage and positive cash flow. We expect third quarter Generally Accepted Accounting Principles (GAAP) and non Generally Accepted Accounting Principles (GAAP) net interest expense to be $1.3 million. We expect third quarter adjusted EBITDA loss to range between 21 and $23 million and basic weighted average common shares outstanding to be approximately 528 million shares, which includes convertible preferred shares of approximately 46 million. Lastly, consistent with last quarter, we believe negative non Generally Accepted Accounting Principles (GAAP) free cash flow in the third quarter will remain at an elevated level consistent with the prior couple of quarters, excluding any potential offsetting effects of financing under our existing equipment facility. And with that we’ll hand the call over to the operator for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press Star then one on your telephone keypad.

OPERATOR

If you are using a speakerphone, please. Pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time we will pause momentarily. To assemble our roster. And today’s first.

Question comes from Michael Leshock with KeyBanc Capital Markets. Please proceed.

KeyBanc Capital Markets

Good afternoon, Wanted to ask on neutron and specifically the Archimedes engine. I appreciate all the commentary there. And around the hot fire test. Where does Archimedes stand today in terms of performance? Are there any other performance metrics that you could share from what you’re seeing in those tests and how is there a way to frame it, how close you are relative to what is required for performance to power a neutron flight?

Sir Peter Beck

Yeah. Hey, Michael. Yep. So from a performance perspective, we’re very happy. One of the unique things about a reusable launch vehicle is you have a tremendous number of different environments that the engine has to start and operate in. So normally you have an ascent profile where there’s a couple of throttle points, especially on a stage one. And it’s a fairly simple thing. But of course we have. A re. Entry burn and a landing burn. So you have to start the engine at different propellant temperatures, different head pressures and all these kinds of things. So it creates a much enlarged run box or set of conditions that you have to be able to operate the engine in. It’s much more challenging to do. But from a basic performance of the engine, we’re very happy where it is. And yeah, like I say, it’s just a much more complicated qualification program to get through because you’re qualifying ascent and descent at the same time.

KeyBanc Capital Markets

Great. And then shifting to a longer term question. You’ve talked about a satellite constellation potentially being a long term opportunity for the company. How close are you to begin working on a constellation of your own? We saw the release of Flatilite earlier this year and the focus it designed to scale is a rocket lab constellation. Something that is being developed or talked about today or is it more likely a longer term opportunity? Maybe five or more years down the road. Thanks.

Sir Peter Beck

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

KeyBanc Capital Markets

Great. Appreciate all the detail. Thank you.

Operator

And our next question is from Erik Rasmussen with Stifel. Please proceed.

Stifel

Yeah, thanks for taking the questions and great to hear all the progress. And I’m happy to hear the noise around the dredging. Seems like there’s not really an issue in the near term of getting to your schedule. Just wanted to ask about backlog, and I think a lot of this is contingent upon the SBA right now. I know you’ve also talked about the Golden Dome, but looks like Tranche three. Maybe just if you could just update us on what you’re thinking is around potential timing around the RFP process, you know, where Rocket Lab will compete and at what. And I guess in the vein of sort of the backlog, at what point will you start to include Neutron into the backlog?

Sir Peter Beck

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

Adam Spice

Yeah, no, I think you hit it right. I think, look, we’ve got diversity in the things that we’re chasing. It’s easy to focus on something like SDA Tranche three because it’s kind of big shiny object that a lot of people are actually chasing, but we’ve got a lot of diversity in the things that we’re going after. And to your question, on Neutron’s influence on Backlog, we do have Three missions of Neutron in the backlog today, those were added over the last few quarters. And I would say that of course we expect after a successful flight of Neutron, that will start to gain a lot more momentum because as you can imagine, launch customers, they’re betting a lot when they choose a launch vehicle and it’s a long term choice and there are limited choices out there today. So everyone’s being very careful about what they do. So we do expect that demand to be kind of unleashed, if you will, once we have a successful test launch. I would say that if you look across all of our businesses again, we’re starting to see the diversity benefits where if you look at the opportunities we’re chasing across our subsystems business across, across Electron, both commercial government haste variants, we’re seeing strong demand across all of them. So it’s just a matter of kind of converging. And if you look at the trend of backlog over the last year, actually launch has been the bright spot. Right. We had a huge step up when we put the SDA tranche to award into backlog and then basically we’ve working against that as we recognize some of that revenue. And then launches continue to build in the backlog and that’s, that’s going to continue, we believe to be the case once Neutron kind of gets past that next big milestone or achievement of initial launch. Great. Maybe just sticking with Launch and Electron. You already did 11. Sounds like you have the 12th one coming up pretty soon your 70th launch. What would you say the mix between your traditional Electron launches and maybe haste missions in the back half of the year. What does that look like? Yeah, so if you, if you look at, in our backlog right now, if you look at the mix we’re expecting about, I think it’s three of the remaining launches this year will be, will be haste missions. So you know, as Pete talked about, we’re on path to do at least 20, hopefully more than 20 launches this year, which would be nice growth off 20, 24. And so we haven’t had any haste launches yet this year. So we’re looking at roughly three launches and all of them in the back half of the year.

Stifel

Great. Maybe just my final, it’s on Neutron and I’m just trying to parse through some of the words that Peter had mentioned in terms of cadence. You know, I think previously we were expecting, you know, the first test launch, so you have more of the 1, 3, 5 launch cadence for the first few years. But given the strong demand signals, ensure It’s a launch. And then maybe just if I’m reading right, is it possible that that’s something that you can accelerate or what does that look like? Are we still sort of targeting that 135? Thank you.

Sir Peter Beck

Yeah, Erik, I mean, I get ridden every day on that question. The reality is it just takes time to roll in the learnings between flights. So, you know, we proved with Electron that that was the right kind of scale up cadence. And if you look historically across rocket programs, it’s even pretty aggressive. So we’ll stick with that 135 and who knows? But at the moment, from where we are in the program, that feels like the right kind of place to target everything. Thanks.

Operator

Good luck. The next question is from Andres Sheppard with Cantor Fitzgerald. Please proceed.

Cantor Fitzgerald

Hey guys, Andres here from Cantor Fitzgerald. Not sure what that was. Hey Pete. Hey Adam. And hey Patrick. Congrats on the quarter and all the great success. I’ll limit myself to two questions just to be respectful to all the other analysts. Maybe one on space systems and one on launch systems. On the space systems. Adam, I’m wondering if you can maybe remind us kind of what does the revenue recognition look like for the, for. The FDA Tranche 2 award both for this year and for next year. And I know you mentioned obviously you’re exploring several opportunities, but just to come back to SDA tranche three, if I’m not mistaken. Right. That could potentially be the largest contract in company history. And so how would you characterize maybe. The likelihood of success there? Thank you.

Adam Spice

Yeah, I can comment on kind of the rev rec generally for the SDA program tranche 2 transport layer that we have that we’re executing against. So you know, these programs typically, you know, the award was, I believe in late 2023. And so you get, typically when the program kicks off, you’re doing a lot of the kind of initial finalizing the design and so forth. So where you really experience the meat of the revenue recognition is when you’re actually starting to take possession of the bill of materials to build the satellites with. So right now, as Pete mentioned, you know, that’s where we’re kind of getting in now, to that sort of sweet spot where we’re going full scale production of those vehicles. So we’re going to see a ramp in spending, sorry, a ramp in spending and a ramp in revrec resultantly from that. So, you know, I think that, you know, you should expect that revenue will be pretty, I would say evenly balanced between the second and the third year of the program with 2025 being the second year in reality and next year is kind of the third year and then it’ll tail off. So you have kind of tails on either end with most of the, of the revenue recognition in 25 and 26. I mean just if you want to just think broad strokes, you know, for contribution in 2025, it’s, it’s probably, if you want to think in the order of kind of 150 to 200 million is the right range to be in. And then again that should look somewhat similar in 2026, assuming that we continue to execute like we have. And then if you look at SDA tranche three tracking, should we be fortunate enough to win that program? As you said, it would be the biggest program by a significant margin that the company has earned to date and it would have a similar profile. I mean there’s a chance that there could be some revenue recognized early in the program, even as early as some of it later this year. And then you’d have kind of the buildup, you know, where 2026 would look for that program would look probably like 2024ish looked for SDA. And then you’ll have that again, probably 80% of the revenue being recognized within the middle two years of the four year program. So that’s probably the best guidance I can give to you right now on that. Got it.

Cantor Fitzgerald

That’s super helpful. Thanks, Adam. And just maybe a quick follow up. If I may, maybe one for Pete. On the launch systems. You know, after getting closer and closer to Neutron, I’m curious if you’re seeing perhaps, you know, an uptick from customer. Demand or prospective customer demand for future flights. Obviously you have the, you know, the. Track record, the heritage from the electron and haste. You know, Neutron still coming up. But you know, given the, whatever you. Want to call it, the conflicts between. The administration and SpaceX management team, just curious if you’ve seen perhaps an uptick in interest for future Neutron missions. Any color there, since Neutron essentially will be the only viable alternative to the Falcon 9. Right.

Sir Peter Beck

So just curious on what you’re seeing. Thank you. Yeah, thanks, Andres. Well, I mean look, I think it’s, you know, the market does need competitor to the Falcon 9. I think that was very clear and that was presented to us both from our commercial customers and our government customers. So there’s a lot of anticipation and pent up demand for that vehicle to come to market. And that continues to increase all the time, not just from political events or geopolitical events, but also from just large programs being added, things like the Golden Dome. I mean, that is going to be one of the largest DoD programs in the country’s history. And they’re all spacecraft in space and they all need to get there. So, yep, we’re seeing growing demand and also, I think it’s fair to say, realization that, you know, sorting out from the real players from the players that are less likely to be able to provide. Excellent. Thank you so much both.

Cantor Fitzgerald

Congrats again on the quarter. I’ll pass it on.

Operator

The next question is from Ron Epstein with Bank of America. Please proceed. Yeah. Hey, good afternoon, guys. So, Pete, just maybe broadly, when we think about the first launch of Neutron for you, I mean, just to kind of level set, what would a successful launch be?

Sir Peter Beck

Yeah. Hey, Ron. Well, you’re not going to hear some rubbish about just clearing the pad as a success. That is not for us. A successful launch of Electron will be successfully getting to orbit and making sure the vehicle is ready to scale. I think you saw us come out of the gate with Electron going to orbit and then straight away three missions after that successfully delivering customers to orbit. So that will be the definitions of success. The bit that we’ll be a little bit more flexible on is obviously the re entry and soft landing of the first vehicle. There’s a lot to learn there. We think we’ve got a good head start, but that’s the bit that always requires a bit of iteration. So like I say, we’ll declare success when we’re in orbit if we don’t soft splash down on the first flight. I think there’s a little bit of tolerance there to learning, but apart from. That. Thank you for that.

Bank of America

And then, Adam, maybe what drove the strong Electron average selling price (ASP) in the quarter? And is that a reasonable way to think about Electron pricing going forward? Well, you know, we’ve been. Well, there’s a few things to drive that, but probably the most, I would say, dominant force would be the mix of haste in the manifest. So as we’ve talked about, the haste missions require very unique, I’d say mission assurance and other things. The vehicles are unique and so forth. So that makes sense that the average selling price (ASP) would be significantly higher, but it’s really driven primarily by that. I’d say overall, if you look at commercial haste, so commercial electrons, those trends have been trending up nicely as well. So we really had. We benefited from the fact that we’ve got customers coming back and they’re doing bulk buys of electrons and significantly higher average selling price (ASP)s than we’ve seen in the past, if you were to rewind the clock two or three years ago, we would get customers coming that wanted to buy bulk buys, but they were wanting a significant discount to do that. And so in order for us to build the manifest and be able to kind of continue to drive the market, we did that. And I think now we’re in a position where we really don’t have to accept any significant discounts and we’re getting bulk buys. And I think part of the strength as well is we’re getting a lot of support. As Pete mentioned in his comments from the international community, sovereign countries are coming forward with strong demand. And I think that it’s a testament to the fact that execution in this market is so, so, so difficult. A lot of people can talk about it, they can point to spec sheets on web pages and whatever else and payload user guides, but at the end of the day, we’re the only one that has had 69 launches of a small dedicated launcher. And I think right now we’re benefiting from all that hard work and execution. And so we really don’t have the distraction of people kind of doing some false pricing in the market to put pressure. I mean, now it’s pretty clear that execution is key and you got to pay for execution. Gotcha, gotcha, gotcha. And then that’s actually a nice segue into my last question. When we think about the Monarch acquisition and electron adding the European Space Agency, what do you see as potential? Is there a potential European national security opportunity for you guys in space?

Sir Peter Beck

Yeah, Ron, I think if you look outside the U.S. what is the next biggest market in space? And it’s Europe, and you’d be a fool not to be in there. So Monarch is a kind of stepping point in. And as, as you’ve seen, obviously as you point out, the European Space Agency contracts will continue to expand into Europe. And we have a lot of unique capabilities that only reside with us. So we’ll look to apply those.

Bank of America

Got it. All right, thank you.

Operator
Our next question comes from Edison Yu with Deutsche Bank.

Deutsche Bank

Please proceed. Hey, good afternoon. Thank you for taking our questions. Wanted to ask, I think probably for Pete, your latest thoughts on orbital transfer vehicles, space tugs. I know there was a bit of a craze several years back in Leo that kind of flamed out a bit. But now it seems there’s a lot of offerings coming to market, maybe trying to go farther away, bigger. And so is that an area of interest to you? I know you have the kick stage, but would you try to tackle that more directly or more broadly going forward?

Sir Peter Beck

Yeah, it’s a good question. I’ve never really understood the business opportunity and the business case for those because you start off with a relatively cheap ride share and you end up with a really expensive delivery. So as you point out, they’ve had a couple of starts. So look, if it turns into being a real market, it’s completely elementary for us to go after it. I mean we operate a kick stage on the top of Electron essentially and all the components to be able to do it, we have. So if it turns out to be a real market and a real opportunity, the time that it would take us to deliver a product to market would be extremely short. But at the moment I just don’t see it worth investing in.

Deutsche Bank

Electron. I want to ask about the TAM in the context of I have this big slide obviously on Golden Dome Hypersonics. Historically I think the TAM maybe 30 plus launches. Do we think that the TAM now for Electron could be much, much bigger than that? 50, 60 launches going forward or at some point in the future?

Sir Peter Beck

Well, you’re talking to a conservative engineer by nature, Edison, so it’s hard for me to get too bullish. But if you just look at some of the programs like the Golden Dome, the amount of, the amount of testing that that’s going to require and the amount of suborbital kind of hypersonic missile simulants that you’re going to need to deploy to be able to validate that system, there’s a pretty significant number there that would be required. So in haste alone, I think we’re expecting that to continue to grow. But year upon year the team continues to grow. And the exciting thing is that Electron is, is helping to create and open up that tam. You know, we see a lot of satellites these days that are made specifically to just fit on electron envelope, its environment and it’s enabling a lot of stuff. So I think we continue to see the TAM expand and I think I don’t see any sign of that decreasing in the future.

Deutsche Bank

Great. If I could just sneak one housekeeping one on, on the geos, any color on how much revenue that could potentially bring in after it closes and what kind of growth profile or backlog that has going forward. Thanks. Yeah, I’ll take that one. Look, we can’t really say too much about it. It’s still a pending acquisition. You know, as Pete mentioned, we got through the antitrust review, which is, which is great and I think close should be imminent, but we’ll hold back any comments on Color on that business until we actually own it. If you don’t mind. Totally, totally understood. Thank you.

Operator

The next question is from Jeff Van Rhee with Craig-Hallam. Please proceed.

Craig-Hallam

Great, thanks for taking the questions. I guess Peter, on space systems, when you kind of flesh it out in your mind what you envision space systems ultimately being. What percent of the way to your vision are we in terms of the capabilities that that segment currently has?

Sir Peter Beck

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

Adam Spice

Yep, helpful. And Adam, on the margins as it relates to space systems, just correct me if I’m wrong, I think 40% was the target there. You’ve made some really good progress. Is 40 still the right number and any sense of a timeline or sense of scope that it might take to get to that 40%? Yeah, you know there’s a pretty wide mix, I would say of margin profiles within our space systems business. You think about the margins on putting together a full turnkey platform solution, they tend to be lower. If you think about those margins, if you want to think about a range is in the 20s to 30s but they have good scale with them because of the size of the contracts that are involved. And actually those are much better margins than most other people would expect expect to achieve. And that’s because we’re so vertically integrated now. When you look at the subsystems, we also have a very wide range there. We have some products where the margins are in the 20s but we have some where margins are well north of 60 points. So if you look up blended average for I would say the overall space systems between the weighting and right now it’s kind of split evenly between subsystems and platforms. And as we start to mix in applications it’ll get even bigger. You know, it’ll get different in a good way. You should think about 40%. We’re not that far actually from that target. So I think our target was probably set a Little bit on the modest side. So. But if you think of 40 to 45 points kind of as the, as the real target for margins, I think that’s, that’s probably a pretty good place to be. And that can be pretty, pretty good, you know, as far as contribution to the bottom line. Because there’s not a lot of R and D that goes into those businesses. Right. A lot of it’s customer funded R and D. So when you look at the contribution margin, it’s very, very healthy. So again, I think that, yeah, we’ve been, we set the bar. We like to kind of set expectations low and kind of over deliver to those. And I think that we’re on the path to do the same thing with our space systems business when it comes to margins. Yep, very helpful. Maybe last for me on Peter, you mentioned production and I missed a little bit of it. But on Neutron, obviously you’re spending a lot of time building scale manufacturing capabilities. Just where are you in terms of Neutrons now, in terms of how many are you initially building and what is the manufacturing capacity that you’re putting up to? Give us a glimpse in terms of how you’re thinking in number of ships this year, next year, year after.

Sir Peter Beck

Yeah, sure, sure. So, you know, some areas are at a high production rate, like engines. We’re pushing for one engine every 11 days. And it’s kind of because it’s a reusable launch vehicle program. The whole production cycle is literally turned upside down. So we need the most number of vehicles in production at the start of the program rather than ramping and scaling as you go along. So as we talked about, there’s multiple vehicles that we’re building even now, and a stage one can be reused 10, 20 times. So actually every year you’re not building that many stage ones. So the most amount of stage ones we’ll ever build is probably year two or three. Of course the stage two is expendable, but that’s been highly refined for a very quick production and low cost. So yeah, I mean, as I said before, you know, sort of three stage ones is next year is the right way to think about it. Three stage ones, got it. Okay, thanks so much.

Operator

Our next question is from Andre Madrid with BTIG. Please proceed.

BTIG

Hey, this is Ned Morgan on for Andre today. Thank you for taking the question. I was just wondering, I’ve seen a lot of partnerships lately in support of. Golden Dome and I was just wondering. If you guys are looking at doing.

Sir Peter Beck

Something similar as opposed to doing any M and A. Yes, good question. Ned, the reality is that we are very, very vertically integrated and there’s still obviously pieces of technology that we partner with, as we’ve shown on the SDA program. But I guess there’s probably slightly less of a need for us to, given, like I say, given our vertical integration and just the breadth of stuff that we’ve got, you know, we don’t need to partner with that many people to deliver a solution. Okay, makes sense.

BTIG

And then maybe one more for me regarding tranche three, how different would the upside look if you guys are selected as a prime versus a sub through, for example? How do you mean the upside, Ned? What do you mean by that? You know, if you guys are selected as a prime, I would imagine revenue. Contribution would be significantly more than as. A sub through GS prior bid. So I was just wondering how things would look if they went there.

Adam Spice

I can take that one. Yeah, I can take that. Pj Basically, if you look at the value of the, the subsystem that GEOS provides, you can think of that as being kind of somewhere around 30% of the total platform value is in the payload. So obviously it’s a much bigger opportunity as the prime than it’s just the sub for a subsystem. Now there is the opportunity where you could have a Goldilocks situation where you’re selected as the prime. But also GEOS was bidding with other primes as well for that opportunity. So there’s a range of outcomes there. But yes, certainly our goal here is to select this prime. Got it.

BTIG

Thank you very much.

Operator

The next question will come from Kristine T. Liwag of Morgan Stanley. Please go ahead.

Morgan Stanley

Hey, good evening everyone. Peter, you’ve been very clear about your disciplined approach to pricing regarding Neutron. And considering the tightness of supply of launch, I’m a little surprised that you still haven’t built out a sizable backlog for the program. Can you provide more color on how advanced your discussions are with incremental customers for Neutron, what they’re waiting for to commit to an order, and how to think about the competitive landscape, especially as you’ve got a competitor on rocket coming into market that’s fairly well capitalized too. Yeah. Hey, Christine. Well, I mean, you know, you can split this into both into commercial and government. I mean, we were onboarded onto the NSSL program, which obviously is an extremely large opportunity. Five point something, 5.6 billion if I remember. And then on the commercial side, you know, we’ve talked about this before where, you know, they want to see a rocket that works before they Commit, because a lot of people have been burnt signing on vehicles that are either delayed or even in some cases, never turned up. And, you know, we’ve always talked about it as well, is we want to make sure that when we sign one of these customers that consume a large amount of our manifest, that they actually turn up on time and all the rest of it. So we maintain that discipline going through. It does nobody any good to fill up a whole bunch of manifests with a bunch of launches or a bunch of payloads that don’t turn up in time. And you’re kind of left hand holding the bag. So the most important thing, I think, for everybody is we get to the pad and we start launching. And then we’ll make the decision who are the best customers and most reliable customers for us. And the customers will make the same decision back and on competition, I think. I’m not sure I quite view that the same way. Thanks, Peter. And, Adam, as a follow up, you mentioned expectations for elevated cash consumption beyond Neutron’s first flight. As you scale up, how should we think about the capital intensity following this initial launch? And should we still expect 2026 to be a positive free cash flow year?

Adam Spice

Yeah, look, I think the cash consumption will continue after the first launch because, as Pete mentioned, we’re building the subsequent tails. And so if you think about the cost to build a booster, and I think we’ve kind of used this. We’ve communicated this term or this figure before, but you assume around $60 million for a booster, and you’re building several of them in series or peril in some cases here, you could consume additional capital from that. The key thing for us is getting through that first test flight. We’ve gotten to the point where we’ve gotten the infrastructure largely in place. We do have some incremental scaling investments that need to be made, such as this return on investment barge that we’ve talked about. So, yeah, I mean, I think the business could continue to consume money through 2026. So I would say more realistically for. I would say positive free cash flow, 2026. Again, given how aggressively we’re moving forward, given the demand signals that we’re getting, I think that’s probably not likely. I think it’s much more likely to be in 2027. But, you know, it depends. We could come across opportunities that generate, you know, enough offsetting, you know, incoming cash flow that it kind of balances that out. But right now, I’d say you should think of Neutron as being continued to, even in success scenario. In particular, in a success scenario, continuing to consume cash as we kind of build out that capability and put the all the other scaling infrastructure in place.

Morgan Stanley

Great, thanks for the color.

Adam Spice (Chief Financial Officer)

I think it’s important, Kristine, to differentiate though that I believe that the P and L will obviously look much, much better once we get through the initial kind of successful test launch of Neutron. So I think it’s important to separate the kind of the free cash flow from the P and L optics.

Morgan Stanley

Right.

Adam Spice

Because I think the P and L does get much, much, much friendlier much sooner. And then I think like a lot of other growth businesses, you know, we’re going to be continuing to invest, to grow, but the P and L should start to look much more attractive. And I think that’s we’re keeping our eye on both obviously.

Morgan Stanley

Great. And as a follow up to that, I mean, look, it’s a good problem to have if you have a product that works and if you can scale up very quickly. Those are all good problems to have as a growth company. But when we think about the capital that you might need if you can build in a bull case scenario, how much capital could you potentially consume with free cash flow in 2026 and when you think about the cash balance today, is that enough or would you need to raise capital to meet the demand should you be really successful and have that bull case scenario play out?

Adam Spice

Yeah, look, I think we have sufficient capital to scale Neutron. So really if you look at where when we’re raising additional capital, it’s really not for Neutron. It’s really all about doing things like Monarch and geos and other things that we have in our funnel. Yes, we could put a lot of money to work to kind of respond to the demand signal as it evolves for Neutron, that could continue to demand cash, but I don’t see it outstripping kind of even what we have today. So again, I think that you’re right. It’s a good problem to have. I don’t think that any liquidity constraints would be driven by Neutron. I think it would really be driven by how aggressively we want to go after and enable inorganic TAM expanding type of opportunities.

Morgan Stanley

I’m tempted to ask one more, so I just might. So when you look at that opportunity, it seems like the capital markets are fairly open, your stocks at record high levels. How aggressive do you want to accelerate some of those growth TAM opportunities and where are those verticals? Where are you most interested and what does that look like?

Adam Spice

Yeah, I’ll let Pete comment obviously as well. But I would say look, we continue to see opportunities to further vertically integrate our supply chain. So we’ve done that very successfully in the past. We’ll continue to find those types of opportunities. I would say that when you look at the ultimate end to end vision obviously has applications elements to it, which is. Pete talked about some of that earlier. But I would say right now it’s probably too early to show a lot of leg on where we’re going there because as Pete said, given the focus and the risk of entrepreneurial drift, we’re very, very, very focused on getting neutron delivered, establishing very key fundamental and foundational payload capabilities and then the rest is to be kind of put into focus a little later. But Pete, I’ll kick it over to you.

Sir Peter Beck

Yeah, you said it very well, Adam. I mean, Kristine, we’re not finished yet, that’s for sure, on M and A opportunities.

Morgan Stanley

Great, thank you.

Operator

The next question is from Ryan Kunz with Needham and Company. Please proceed.

Needham

Great, thanks. And most of my questions have been answered, but I’ll touch on space systems a bit. Nice progress on gross margins. Obviously I know you had acquired the solar business and some backlog there. That was lower margin. How do you think about that business going forward and have the margins in that business now kind of normalized with new contracts and such that make you comfortable with the trajectory and continuing to. See some uplift on space systems?

Adam Spice

Thanks. Well, I can take part of the tactics on that one real quickly. So if you actually look at the progress on gross margin for the Solero business, first and foremost has been very, very strong. When we acquired that business, we were looking at high single digit gross margins. And in the first half of 2025, we delivered margins that were above the long term target that we’d set for that business. We’d set a target of 30, 30%. That business is subject to the margin volatility, is subject to kind of when some of the. Again, that early contract which still hasn’t completely kind of flowed its way through the books yet, there’s still some to be delivered on that. And so it’s the timing of when that kind of comes in and out of deliveries. But I would say, look, if you just kind of look at where we’ll be for the year, we’re going to be pretty much split spot on our long term target of 30%. And I think longer term there’s upside to that. And I think more importantly, that deal has really or that acquisition has really kind of fulfilled its strategic import of kind of really taking control of a very Critical and tricky component in supply chain for being a long term kind of system provider and owner. So I think on that front, hopefully that gives you some color. And then I think maybe Pete, you can speak to maybe the types of opportunities that we see in that business going forward and kind of where you expect margins to land for those.

Sir Peter Beck

Yeah, thanks, Adam. Yeah, so we continue to expand capability in that business. Obviously you would have seen that we were successful with some chips money which has enabled us to completely modernize or will enable us to completely modernize the reactor fleet in their and that drives in itself efficiencies. But if you look at programs like the Golden Dome, there is an unprecedented amount of spacecraft and power that’s needed to fulfill that. And there’s three space grade suppliers in the world and we’re currently one of the largest, if not the largest. So I see a lot of exciting opportunities for that business going forward. We are one of the preeminent providers for national security solar. So that’s pretty exciting future. That’s great.

Needham

Thanks so much, Pete.

Operator

Our next question is from Suji Desilva with Roth Capital. Please proceed.

Hi, Pete. Hi, Adam.

Adam Spice

Adam, can you just remind us or tell us how the neutron cost will flow maybe from OPEX to cogs as the first launch goes and whether that might be material to the gross margin. So we could anticipate that as these first few launches go off. Yeah, that’s going to be a really challenging thing to model for you guys. I think that. And that’s a function of the fact that the first, the test flight, of course, all of that’s flowing through R and D. Right. And now we’re actually starting to for the subsequent tails that’s now going to flow through cost goods sold with revenue cover associated with it. So the P and L is going to fluctuate quite a bit to the positive. As I mentioned to an earlier question now when you start talking about the reusability and what that introduces to the volatility to margins, you can imagine that as we progress through quote unquote hardening neutrons, reusability, how many reuses will, for example, we’ll be able to assume for amortizing over future missions, that’s going to be a great influencer over gross margin. So you can imagine if the rocket is only assumed initially to do X number of reuses, but it actually surpasses that or comes in underneath that, you’re going to have a lot of volatility because you could have a situation where you have a fully amortized booster with all the revenue going forward on it, or you could have made assumptions where you expect to fly a certain number of times and it under, under kind of achieves to that. And so you have a lot of, you know, incremental cost for future missions that weren’t assumed. So it’s going to be a tough one to manage. I think that, you know, the only thing that we can really point to, it’s a bit different because it wasn’t designed to be reusable from the, from the outset was electron. And we’ve been able to bring down electron costs dramatically. And that’s without reusability. So we have a track record of successfully scaling and bringing down cost, as we’ve talked about many, many times. Another big influencer to gross margins is overhead absorption. I suspect that Neutron will be a little bit different, but not fundamentally different from the fact that what’s going to drive its gross margins is going to be cadence. It’s reusing cadence. But cadence is something that we, again, we saw, we understand how that works with Electron. The huge benefits you get when you get the cadence up. And that’s going to be a large driving factor for Neutron as well. Again, Also coupled with our success in getting this vehicle to be reusable as quickly as possible and for as long as possible. Okay, great, Adam, I’ll get my quantum computer out. And the other question I have is on payloads, is GEOS kind of your entree here or do you have efforts in house for payloads as well as this inorganic effort, or will that segment be grown through inorganic exclusively? Thanks.

Sir Peter Beck

Yeah, Suji, so a little bit of both. The reality is that often these payloads, especially when you’re looking to bring solutions to bear national security, have very, very long development cycles and a lot of heritage associated with them, which kind of naturally lends itself to acquisition more than organic creation. But there’s certainly some elements of payloads internally that we’re looking at that we will just go under our own steam. And then some things like geost, Best in class. It would take decades to recreate that. So an acquisition is by far the most efficient way of opening that opportunity up.

Roth Capital

Helpful color. Thanks, Pete. Thanks, guys.

Operator

And the next question is from Anthony Valentini with Goldman Sachs. Please proceed.

Goldman Sachs

Hey guys, thanks for the question. I’m just curious if I recognize you guys are laser focused focused on Neutron. Here, but is there any reason to think that you guys would introduce a. New launch vehicle in the future that is either larger than Neutron or maybe.

Sir Peter Beck

Even in between Electron and Neutron in terms of the capacity that it can take into orbit? Yeah, good question, Anthony. So certainly we don’t really believe there’s really a market between the electron and neutron side. It’s a very limited opportunity in that range. Now, if we need to go larger, I guess the good news is that the vehicle is very scalable. It’s a 7 meter diameter stage one tank. So it’s a very short, dumpy vehicle. So typically that’s what governs your ability to increase the vehicle size is your tank diameter. Otherwise you end up with big, long, skinny pencils and that becomes challenging. So we have no intentions at this point in time. We think we’ve got the market accurately sized and we’ve proven historically that we’re not bad at making those kind of calls. But for whatever reason, the market drastically move to a larger scale. You know, we have a vehicle architecture that is very, very easy to scale.

Goldman Sachs

Great. Thank you.

Operator

And at this time, we are showing no further questioners in the queue. And this does conclude our question and answer session. I would now like to turn the conference back over to Peter Beck for any closing remarks.

Sir Peter Beck

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

OPERATOR

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

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