Rocket Lab USA Inc

NASDAQ:RKLB

Earnings Call Analysis

Rocket Lab Achieves Record Revenue and Sets Bold Targets for Future

Rocket Lab reported record Q2 2024 revenue of $106 million, a 15% sequential increase and a 71% year-on-year surge. This growth was driven by both the Launch Services and Space Systems segments. Looking ahead, Q3 revenue is projected between $100 million and $105 million, with GAAP gross margins expected to range from 25% to 27% and non-GAAP gross margins from 30% to 32%. The company aims to regain growth momentum in Q4 with expected increases in launches. Rocket Lab’s development of the new Neutron rocket remains on track, promising to break the medium launch monopoly by mid-2025.

Company Overview

Rocket Lab is evolving beyond its initial identity as a launch company. While the company continues to lead in small satellite launches with its Electron rocket, the strategic vision encompasses three key areas: launching (via Electron and the upcoming Neutron), providing necessary tools and technologies for space operations, and leveraging data and services from its spacecraft. This integrated approach positions Rocket Lab for long-term growth and competitive advantage in the space industry.

Record Revenue and Performance

In the second quarter of 2024, Rocket Lab attained a significant milestone by generating $106 million in revenue, marking a 71% increase year-over-year and a 15% quarter-on-quarter rise. This growth is primarily attributed to increased launch operations and an uptick in the Space Systems business segment. With a total backlog exceeding $1 billion, Rocket Lab shows strong promise for continued revenue generation through its diversified offerings.

Launch Services Update

The Launch Services division contributed $29.4 million to total revenue, slightly above the target range of $28 million to $29 million. The company has signed 17 new Electron launch contracts in 2024, amounting to a total value of $141 million. Electron's operational cadence has increased, achieving a total of 9 launches year-to-date, and becoming the third most frequently launched rocket globally. Rocket Lab maintains flexibility in its launch schedule, accommodating customer-specific needs, which has been a pivotal factor in its customer appeal.

Space Systems Growth

The Space Systems segment reached $77 million in revenue this quarter, in line with guidance. This area has grown considerably, driven by contracts with the Space Development Agency (SDA) and Multi-Domain Operations (MDA). Future revenue from the $515 million SDA contract is expected to ramp up gradually over the next six to eight quarters as the program matures.

Gross Margins and Operating Expenses

The GAAP gross margin for Q2 2024 was reported at 25.6%, with non-GAAP margins at 30.7%, both meeting internal expectations. Operating expenses slightly increased but remained below the low end of guidance, indicating efficiency despite the expansion efforts. The company anticipates a rise in operational expenditures as it continues to invest in the Neutron development program and hires additional staff.

Forward Guidance and Expectations

Looking ahead, Rocket Lab expects Q3 2024 revenue to be between $100 million and $105 million, with a contribution of $79 million to $84 million from Space Systems and approximately $21 million from launch services. The gross margin is projected to range between 25% to 27% GAAP and 30% to 32% non-GAAP, indicating robust profitability foundations even as investment in growth continues. Operating expenses for Q3 are expected between $80 million and $82 million under GAAP, reflecting ongoing investments in the company's future capabilities.

Launch Cadence and Customer Readiness

The company noted volatility in its launch timetable, with expectations adjusting to a range of 15 to 18 total launches in 2024, down from an initial goal of 22 due to customer readiness delays. Acknowledging this unpredictability, Rocket Lab has reiterated the strength of its cash flow model, stating that the majority of cash is collected before launch, allowing for resilient financial health despite scheduling changes.

Cash Position and Investment Strategy

As of the end of Q2, Rocket Lab had a robust cash balance of $546.8 million, steering its strategy towards organic and potential inorganic growth opportunities. The company remains confident in its financial footing and does not anticipate needing to return to capital markets unless an attractive acquisition opportunity presents itself.

Neutron Development Progress

Neutron, Rocket Lab's forthcoming medium-lift rocket, is on track to challenge existing market monopolies in satellite launches. The development process has commenced, with significant milestones on the horizon, including completion of infrastructure needed for its launch. The medium-lift market is expected to see explosive growth, validating Rocket Lab's strategic investment in Neutron as a driver for future profitability and cash flow.

Concluding Thoughts

In summary, Rocket Lab showcases an impressive trajectory with significant revenue growth, robust order backlog, and ongoing development of key projects like Neutron. As the company deepens its market presence and expands its capabilities, it appears well-positioned to capitalize on the increasing demand within the rapidly evolving space sector.

Earnings Call Transcript 2024-Q2

[Operator]

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rocket Lab Second Quarter 2024 Financial Results Update and Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]



I would now like to turn the conference over to Morgan Connaughton, Vice President of Communications at Rocket Lab. Please go ahead.

[Morgan Bailey, executive]

Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's Second Quarter 2024 Financial Results. Before we begin the call, I would like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company. And these statements are intended to qualify for the Safe Harbor protection from liability established by the Private Securities Litigation Reform Act.



Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements.



Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation and replay of a copy of the presentation will be available on our website.



Today's speakers are our 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 as well as updates on our Electron, Neutron and Space Systems programs. We will discuss financial highlights and outlook before we finish by taking questions.



So with that, let me turn the call over to sir Peter.

[Peter Beck, executive]

Thanks very much, Morgan, and thank you all for joining us today. We've delivered an exceptionally strong second quarter this year, and I'm looking forward to taking you through all of the highlights and achievements. But before we get there, I wanted to spend some time talking about who we are today, where Rocket Lab is headed in the future and the very deliberate and strategic steps we're taking to get there.



One of the common misconceptions we've faced is that Rocket Lab is a launch company. Yes, launch is something that we're an industry leader in. And of course, Rocket being in the name doesn't help, but it's just part of what we do. I'd like to look at this in 3 clear steps. First, the ride to do important things in space, you first have to get there. We've solved this with a small launch with Electron and we're breaking the medium launch monopoly with Neutron.



Next, the tools to do the things in space once you get there. This is a spacecraft, the critical components that make them function, the software, the ground systems and all the other pieces that make missions possible in orbit. We're reliably delivering this for commercial government and customers today. With the first 2 comfortably under about our future and the whole reason for going to space is in the first place, the data and the services that spacecraft provide.



It's the most valuable part of the supply chain, demand for it is growing worldwide, and it's what will deliver long-term recurring revenue and incremental value for shareholders. By owning launch and spacecraft, we're at a distinct advantage when it comes to establishing our own space capabilities or constellations. We can build and launch our own spacecraft at cost, and we don't have to wait in line for limited launch capacity.



We completely avoid the pain point that most Constellation operators face being at the mercy of suppliers on cost and schedule, often causing deeply disruptive delays and bringing capability online at scale. But that constellation or capability is not quite ready yet for us to disclose, but this overall company vision is useful to bear in mind when reviewing Rocket Labs achievements in this quarter, in the months and the years ahead. So with that, let me move on to more specifics for the quarter.



Q2 was a huge quarter for Rocket Lab in a lot of ways, but especially in terms of revenue. For the first time, Rocket Lab revenue ticked past $100 million in the quarter. Revenue ultimately came at $106 million for Q2, which is a company record. We also achieved a 15% quarter-on-quarter increase and a whopping 71% year-on-year increase. This result demonstrates the continued strength of our end-to-end space company strategy and offering diversified products and services since the growth is driven by an increase in launches on last year as well as significant growth in our Space Systems business. As of Q2 close, our backlog sits at over $1 billion.



Now on to some Electron specific updates. Before I get into some more Electron achievements in the quarter, it's worth spending a moment going back to basics on the Electron business model. I raised this because the most common metric we get held to is number of launches per quarter and the resulting point-in-time revenue recognition. Revenue recognition is guided by a well-established GAAP principles, but can at times failed to reflect the underlying strength in our business, given the constructive cash flow nature of the launch business where we collect cash well in advance of revenue recognition.



Electron delivers what rideshares and other rockets can't. It's a dedicated launch service tailored to each customer's specific needs. What that means in practice is customers get to choose and change their launch date. They can choose their launch site and precisely where they want to be deployed in orbit, and they can and they can launch on incredibly short notice. We have demonstrated getting someone from contract signing to orbit in less than 8 weeks. If you're booked on a large ride share or a bunch of other spacecraft, you simply don't get that flexibility. And you certainly can't expect to get a dedicated ride on a large rocket or a new entrance vehicle in just week's notice.



This flexibility does make it challenging to predict with high certainty exactly how many launches will do each year and exactly where they'll land in each quarter. That's not unexpected, rather, it's baked into our model and what sets us apart. Now fortunately, the surface level volatility represented by GAAP launch revenue recognition is disconnected from the underlying cash flow generation in so much as we collect the vast majority of cash from our launch customers before launch day. So if they shipped out by a few days, weeks or even months, it makes a negligible difference.



On this slide, you can see an example of our billing cycle for Electron. We typically do it 1 or 2 ways, Time Based Billing or Milestone based. Time Based most years for our customers booked a year or more in advance of launch. And as you will see, we build 10% on contract signing, then further installments until we get to the final 10%, which is payable on launch day as soon as we ignite the engines. Milestone Based is more used for our customers who come to us with the [indiscernible] say, or minus 3 months.



Once again, we'll take a 10% on signing and then we move swiftly through the key milestones like spacecraft fit checks and readiness reviews, and then we collect the remaining installments until, again, we charge the final 10% when we ignite the engines. So as you can see, if a customer requires launch, it requires a launch date that pushes into the next quarter, we have likely already collected up to 90% of the contract value. We just don't recognize the revenue until launch day for accounting practices purposes.



Okay. A quick overview of some Electron achievements. We've signed 17 new Electron launch contracts year-to-date with a total contract value of $141 million. We also reached an exciting new place in the global launch rankings. Electron is now the third most frequently launched rocket globally behind only Falcon 9 and the Chinese Long March. Falcon 9 has only been flowing for 7 years, this is a monumental achievement and really highlights Electron significance as a proven sort-after capability.



We've achieved a 100% increase in launch rate for the first half of this year as compared with the first half of 2023, doubling rocket production and launch cadence in this year is far from the norm and really sets our team apart. As of today, Electron accounts for 64% of all non-Space X U.S. launches in 2024 so far. This really shows what an impact Electron has had on the industry and highlights just how constrained customers are right now with respect to launch options.



And of course, in a year plagued by launch anomalies and delays worldwide, Electron has continued to deliver trusted and reliable access to space with mission success throughout the year for all of our customers. Now this approach has been a successful one for Electron retaining its title of "The Most Active Small Rocket Globally" and now, of course, "The Most Frequently Launched in Fly and Rocket" this year.



I won't go into the specifics of all 9 launches we have completed this year-to-date. But if there's something that I'd like you to take away from looking at all of these missions is just how complex and tailored and customer-centric they are. We're taking dedicated missions 11 days apart to place climate change monitoring constellation in precise locations to monitor the poles, a ride share mission that deployed 2 different customer satellites to entirely different orbits and altitudes on the same launch, swapped the customer mission out with the next one in queue within 2 weeks when a customer required a later launch date. All of this is exactly why customers choose Electron. It delivers a flexible service that small Sats have never had before.



Now on to contract wins. There was a few big months with the commercial sales team with team launch deals signed with Synspective, Japanese Earth Observation Constellation Operator. We've been the sole launch provider for Synspective to date with 5 successful missions, which has been a huge honor. We have also signed a 4-launch deal with another commercial constellation operator who has asked to remain confidential at this time.



Electron also continues to be a critical enabler to the Department of Defense. We recently signed 3 new launch deals that further strengthened our position as a trusted partner across launch and space systems. Both contracts include being selected by the Space Systems Command to do and demonstrate an end-to-end space mission. This means Rocket Lab will design, build a spacecraft and launch it and operate it on short notice. This is a clear validation of our model as an end-to-end space company.



We were also awarded the STP-S30 launch contract, a $14.5 million mission for the Space Force. And last but not least, Haste continues to be a sought-after capability with another hypersonic suborbital missions sold. We're immensely proud to have taken a proven product in Electron and adapted it into a new use case. Unlocking hypersonic test launch capability for the DoD, helping open up the bottleneck that has existed for so long, thanks to the limited availability of wind tunnels and [indiscernible] opportunities.



In the second quarter, we reached a significant company milestone but also set a record for the wider launch industry when we launched our 50th Electron mission. We reached this milestone faster than any other commercially developed rocket and history, and we're on track to be the fastest to 100 also. This really just demonstrates our team's ability to execute in record time. We also demonstrated a pretty unique ability on our 50th mission, which was deploying a customer spacecraft within 8 meters of the target.



Now for context, the general accepted industry tolerance is 1,500 meters or 15 kilometers. So to deploy the spacecraft within single-digit meters, not kilometers as a real differentiator. Here's why that matters. It makes Electron the clear launch vehicle of choice for some really complex missions and unique capabilities that are increasingly sought after, like Rendezvous in proximity operations, Constellation replenishment and customized orbits.



Moving on from small launch into updates on the Neutron development. I'm often asked how Neutron plans to compete and why we need to invest in a medium launch vehicle. So I'm going to go back to a little bit of 101 here. There is a practical monopoly and medium launch right now. There's no doubt about that. Demand is strong and growing for launch capability, particularly in the constellation space with more than 10,000 satellites needing launched by the end of the decade, and that's viewed by many as a pretty conservative projection.



Neutron is best placed to be the rocket that disrupts this monopoly. We have a proven track record of building and launching a reliable vehicle that became a market leader. Through this experience, we've been able to work incredibly closely with customers to design a new rocket that meets their needs resulting in a customer-led design, and we're on track to bring that to market at an incredibly rapid time line. Across all of our launch and Space Systems businesses to date, we have astutely assessed demand and opportunities and accurately allocated investment and effort where it makes the most business sense. And that has produced undeniable successful results, and Neutron will be no different.



Now on to overall Neutron development progress, and I'm pleased to confirm, we've largely progressed past the design phase, and we've moved swiftly into production and qualification of flight hardware for 100% of the vehicle. With flight articles now coming together, we're on track to first launch for mid next year. I've said this before, but it's a key point that I think a lot of people tend to miss if they're not familiar with the launch vehicle development programs.



Developing a rocket is certainly a big piece of work, but it's only about 1/3 of what you actually need to do. The remainder is launch and production infrastructure. That's the pad, the test cells, the production lines, the factories and all the processes and procedures to support them. A lot of organizations will focus their attention on their first rocket. But we knew that, that it would be very important to build up all the infrastructure and to support production test and launch in the long term. So that's what we've done in parallel.



I'm really proud of the speed and progress that the team has achieved with Neutron so far in an incredibly short time frame, especially in the update I'm about to share next. Okay. The update you've all been waiting for, the Archimedes Engine Test Campaign. As we've said before, propulsion is always a long pole in the tent when it comes to developing a rocket. But thanks to having successfully designed flowing and built more than 500 Rutherford engines, we have a pretty good chunk of experience how to do this. We use this to fast-track Archimedes development, and this has certainly paid off.



We also made a very conscious and strategic decision right from the outset to design a flight engine and put something on the engine test and that was designed to be flight-ready. It's fairly common to see downscaled engines or early-stage prototypes used for a couple of years before companies actually move into putting something on the stand that could fly. But we didn't do that.



In the past couple of months, we put Archimedes through hundreds of tests to validate the design, including Spin Prime Ignition Tests as well as understanding all the start-up and shutdown transient. All of that work accommodated recently in a successful Archimedes hot fire. We started off with a series of low-power hot fires with great results and crank it up to put the engine through its paces. We've now reached a main stage hot fire at 102% power. Now taking a new staged combustion liquid rocket engine from clean sheet design to hot fire in a flight configuration in just a couple of years is really industry-leading stuff.



From here, it's about dialing the engine and building a bunch more of them and getting them rolling off the production line. Now the team has been pushing hard to get the first flight articles through qualification. But like we've always said, with Electron, building our first rocket is hard, but building the 10th or the 50th it is even harder. That's why we know it's just as important to build the machine behind the rocket and set it up for scale from day 1.



The next Archimedes engine is coming off the production line right now. And while the assembly line for many more is also established. Meanwhile, we have scaled Avionics production line to support both Electron and Neutron and all things that make it easier to roll into a launch cadence after Flight 1. While the propulsion team has been kicking gold, the composite team has been moving at Phase 2.



As you can see here, we have flight hardware and production, including the fairing panels for Neutrons fixed fairing. Remember, this paring is pretty unique in that it remains attached to Neutron throughout the launch and landing enabling us to reuse it across multiple missions. Meanwhile, we have flight hardware and production for all other Neutron composite structures, including stage 1 and stage 2 tanks and the inter stage. Since this picture paints 1,000 words, here's a quick look at some of the composite production going on behind the scenes to bring Neutron to life.



The progress in composites production is just about to accelerate even faster with the installation of our automated fiber placement machine in Middle River Baltimore. This capacity and capability in parallel to a manual layup of Neutron structures enables us to rapidly scale up production for the first flight and full operational cadence to follow on. The custom-built 90-tonne machine will automate the production of all large composite Neutron structures, including the panels that make up the 91-foot inter-stage and fairing as well as the first and second stages.



This machine is one of the largest of its kind in the world and will allow us to save thousands of hours on Stage 1 alone compared with hand labor. Speaking of infrastructure, progress is coming along nicely at launch complex through Virginia with fluid systems installation underway, and we've started receiving some of the critical long-lead items like cryogenic systems and tanks. As you can see from the photo on the screen, we've poured tons of concrete into Neutrons pad and ready to receive the launch mount. This is a huge piece of infrastructure and a big milestone to tick off for the part of the first flight.



Just 10 minutes down the road from the pad is a Neutron assembly and integration facility where Neutron will undergo the final assembly before transportation to the pad. Construction of this is progressing well and on track to receive the first Neutron early next year ahead of launch. Okay, that wraps up launch onto the other half of our business now Space Systems. Before I dig into the achievements on specific space systems, items, I thought it worth a quick reminder of the scale of the programs we have underway.



Right now, we have more than $720 million worth of spacecraft on track and on contract and in development, including constellations to the Space Development Agency, Globalstar as well as Bespoke spacecraft for NASA, the DoD and commercial customers. On any given day, the team is working through design reviews, qualification campaigns, analysis and production for these programs. In many cases, work isn't very visible because the hardware build only comes at the very end. And in some cases, our customers request confidentiality so we can't share images or too much detail on progress.



What I will say is our team has earned a reputation for delivering high-quality spacecraft on rapid time lines, and these programs are tracking no differently. Okay. On to the more granular detail. We had a huge milestone recently by completing production and test of 2 identical spacecraft for the NASA Mars Mission. It's not uncommon for an interplanetary mission to take a decade to go from design to flight ready. So to design, build and test not 1 but 2 Mars spacecraft in around 3 years is pretty impressive.



Once again, it has been made possible in part by a vertical integration strategy, which removes a heavy reliance on suppliers since we produce many components in-house, enabling us to control schedule and costs. And in the case of ESCAPADE, the spacecraft featured Rocket Lab solar cells, reaction wheels, star trackers, separation systems, radios, flight software structure on and on to go. The Twin spacecraft are now packed up for shipping out to the Cape and ready for launch during the up-and-coming Mars transit window, which extends through October.



Over to Albuquerque now, where we've signed preliminary terms for $49.4 million in federal state and local funding, including a portion under the CHIPS Act. The funding will enable us to expand production of our solar cells, which are important components for national defense and security satellites.



We expect to create around 100 new manufacturing jobs as a direct result of this funding and expansion at Enables. Another peer of spacecraft, we have rolling down the production line are the next 2 set of satellites for Varda Space Industries. These pioneer class satellites host in space manufacturing capsules, which enable the production of pharmaceuticals and other products that benefit from low gravity environments.



We successfully operated one of the spacecraft for Varda last year, successfully setting it onto a course for reentry and landing it in the Utah desert in February this year. The spacecraft is nearing completion and preparing for launch in the coming months with a 1/3 are following not far behind.



Now on to Constellation spacecraft and development at the moment. Recently, we completed a successful systems requirements review for our $500 million prime contract with the FDA to design and build 18 tranche 2 transport beta satellites. From here, we'll move into a preliminary design review before hardware starts to take shape and clean rooms. This past craft are scheduled to launch in 2027.



So we're on track and kicking some of these critical design milestones off early in the program and 17 spacecraft Thunder constellation for MDA and Globalstar, we have completed integration readiness review and hardware is in production, including the first delivery of a full flight set to the customer. This program is moving at pace with spacecraft scheduled for completion and launch by the end of 2025.



As spacecraft programs tend to get the most of the attention in the Space Systems, but our merchant components business continues to kick goals too, including when it comes to innovating new products. At the Small Sat Conference in Utah this week, the team introduced a new advanced satellite dispenser, giving customers more choice for versatile and reliable spacecraft deployment. The ASD builds on the 11-year heritage of the containerized satellite dispenser, which has successfully deployed more than 60 satellites.



If I allude about the achievements across our other components businesses, we'll be here all evening. So I'll try and keep it brief. Now to round out our business updates, I just want to provide a quick update on our M&A strategy. We've had the privilege of being a launch provider, spacecraft developer and component supplier to scores of companies and organizations across the global space industry.



Increasingly, they want complete mission solutions and a mixed approach of organic and development and M&A aims to serve this. Right now, we're managing a robust pipeline of targets, while being selective and strategic about what we want to bring into our suite of capabilities. The is on targets that would fill gaps in our already extensive suite of solutions, while also enabling meaningful revenue scale and profit. We look forward to sharing more on this in due course.



And last but not least, before we move into the financial highlights, I wanted to share some news about a documentary that recently came out, which covers Rocket Lab in a way that many people may not have seen before. Wild Wild Space was released on HBO Max just a few weeks ago, it's a film version of the New York Times best-selling book, When the Heavens Went On Sale by Ashlee Vance and it's directed by Academy Award-winning Director, Ross Kauffman. If you're interested in the history of Rocket Lab and how we got to where we are today and some insight into what drives us, this is a great place to start, highly recommended if you go and check it out on HBO. That wraps up the top line business achievement.



So with that, I'll hand it over to Adam to discuss our financial highlights and outlook.

[Adam Spice, executive]

Great. Thanks, Pete. Second quarter 2024 revenue was $106 million, which was consistent with our prior guidance range and reflects significant year-on-year growth of 71% and sequential growth of 15%, driven by strong contribution from both business segments, led by Space Systems. Our Launch Services segment delivered revenue of $29.4 million, slightly above our guidance of $28 million to $29 million.



Our current backlog continues to support our current year target average revenue per launch of $7.5 million with some quarterly variability tied to volume purchase discounts, launch location and mission assurance requirements. Our Space Systems segment delivered $77 million in the quarter, again, in line with our prior guidance range of $77 million to $81 million, reflecting sequential growth of over 28% driven primarily by growth in our SDA and MDA contracts revenue.



Now turning to gross margin. GAAP gross margin for the second quarter was 25.6%, in line with our prior guidance range of 24% to 26%. Non-GAAP gross margin for the second quarter was 30.7%, which was also in line with our prior guidance range of 30% to 32%. Relatedly, we ended Q2 with production-related headcount of $914 million up 42% from the prior quarter.



Turning to backlog. We ended Q2 2024 with $1.07 billion of total backlog with launch backlog of $294 million and Space Systems backlog of $772.6 million. Relative to Q1 2024, total backlog was up 5% sequentially or $51 million despite a $106 million revenue quarter as strong bookings continued in our launch and Space Systems businesses.



For launch, backlog was up 36% sequentially or $78.3 million, primarily due to the 10-launch agreement with inspective that Pete mentioned earlier. We continue to cultivate a healthy pipeline, including multi-launch deals and large satellite manufacturing contracts get lumpiness in our backlog growth, given the size and complexity of these opportunities. We expect approximately 44% of current backlog to be recognized as revenues within 12 months.



Turning to operating expenses. GAAP operating expenses for the second quarter of 2024 were $70.4 million, up $3.2 million sequentially, but below the low end of our guidance range of $74 million to $76 million. Non-GAAP operating expenses for the second quarter were $58.5 million, up $2.2 million sequentially, which is also below the low end of our guidance range of $62 million to $64 million.



The sequential increases in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in headcount and prototyping spending to support our neutron development program, related infrastructure IT support for Neutron and our '18 satellite SDA contract and a step-up related to our annual merit cycle. In R&D specifically, GAAP expenses were up $1.4 million quarter-on-quarter due to Neutron prototyping, materials, headcount growth and related merit increases.



Non-GAAP R&D expenses were up $400,000 quarter-on-quarter, driven similarly to the GAAP expenses. Q2 ending R&D head count was 673, representing an increase of 48% from the prior quarter. In SG&A, GAAP expenses increased $1.8 million quarter-on-quarter, largely due to an increase in staff costs following our annual merit cycle. Non-GAAP SG&A expenses increased by $1.7 million, driven similarly to GAAP SG&A expenses. And Q2 ending SG&A head count was $273 million, representing an increase of 10% from the prior quarter. In summary, total second quarter headcount was 1,860, up 100 heads from the prior quarter.



Turning to cash. Purchases of property, equipment and capitalized software licenses was $15.3 million in the second quarter of 2024, a decrease of $3.8 million from $19.2 million in the first quarter of 2024. We continue our investment in Neutron research, testing and production infrastructure projects, along with the expansion of our satellite production and Space Solar solutions capacity, and we do expect our capital expenditures to increase in the second half of the year.



Cash consumed from operations was $13 million in the second quarter of 2024 compared to $2.6 million in the first quarter of 2024. The sequential increase of $10.4 million was driven primarily by changes in working capital related to the accounts receivables owing to the Space Systems milestone payments and the deposit owed on our 10-launch agreement with inspective signed late in Q2. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow reduced by purchases of property, equipment and capitalized software in the second quarter of 2024 was a use of $28.3 million compared to $21.8 million in the first quarter of 2024.



Our milestone cash collections have been strong in the first half of 2024, and we are ahead of our targeted cash consumption run rate for the year, but we do expect a pickup in cash consumption in the second half, owing to expected increase in Neutron CapEx and lumpiness in large Space Systems milestone payment collections. The ending balance of cash, cash equivalents, restricted cash and marketable securities was $546.8 million as of the end of the second quarter of 2024.



We exit Q2 in a strong position to execute on our organic expansion initiatives as well as inorganic options to further vertically integrate our supply chain with critical capabilities and expand our addressable market, consistent with what we've done successfully in the past. Adjusted EBITDA loss of $21.2 million in Q2 improved slightly by $500,000 from a loss of $21.7 million in Q1 as the benefit of strong revenue growth was largely offset by increased spending primarily related to Neutron development. With that, let's turn to our guidance for the third quarter of 2024.



We expect revenue in the third quarter to range between $100 million and $105 million. This range reflects $79 million to $84 million of contribution from Space Systems and approximately $21 million from launch services. We expect third quarter GAAP gross margin to range between 25% to 27% and non-GAAP gross margin to range between 30% to 32%. These forecasted GAAP and non-GAAP gross margins reflect improved mix within our Space Systems segment in favor of components and subsystems offset by the impact of lower fixed launch services cost absorption.



We expect third quarter GAAP operating expenses to range between $80 million and $82 million and non-GAAP operating expenses to range between $69 million and $71 million. The quarter-on-quarter increases are driven primarily by continued Neutron investment into staff costs, prototyping and materials. We expect third quarter GAAP and non-GAAP net interest expense to be $1 million.



We expect second quarter adjusted EBITDA loss to range between $31 million and $33 million and basic shares outstanding to be approximately $498 million shares. Despite Q3's modest revenue step back, we expect a market resumption in growth across both segments of our businesses as we exit the year.



And with that, I'd like to hand the call over to the operator for questions.

[Operator]

[Operator Instructions] Our first question will come from the line of Edison Yu with Deutsche Bank.

[Edison Yu, analyst]

First one on Neutron. Obviously, you've made a lot of progress. You've got the hot fire test. What should we look for as the next big milestones as we think about the first launch in the next year?

[Peter Beck, executive]

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

[Edison Yu, analyst]

Got you. And then kind of more of a financial one on Neutron. So we're looking at the cost of several rocket programs. You may have seen this analysis, typically, they cost many times more than what you're allocating for Neutron. What do you think that you guys are doing differently relative to some of these other programs, whether it's legacy or start-ups that's enabling you to actually develop such a robust rocket at a much lower program cost?

[Peter Beck, executive]

Yes. Well, I think, firstly, it needs to be backed up by data and unfortunately, that analysis did. If you look at the cost in time that it took us to develop Electron, you can see, as you point out, we can do these things at a very fast time at a very low cost. And I guess that comes down to our aircraft development approach. And even if you just look at the example of the Archimedes engine, as I mentioned in the call, what a lot of folks do is they'll put together various subscale tests or boilerplate engines that have lots of industrial valves, bolted to them and whatnot.



But especially now that we've been around the block a few times, we're able to confidently build an entirely flight-ready engine and put it on the standard it works. So it comes down to just the experience of the team and also a development approach.



We like to fail fast, but not at the system level. We'll fail quickly at the component level, but the time things get built up into complete systems, we kind of expect them to work. And it's just the way that we've always been. It's the Rocket Lab magic, if you will. And right throughout the history of the company, we've always managed to develop these systems at a speed and the cost that pretty much at this cost.

[Edison Yu, analyst]

Right. And if I could just sneak in one more financial one. I think the implied 3Q guidance is 3 launches. Do we have any updated thoughts on what we could do for the full year for Electron?

[Peter Beck, executive]

Yes. I mean it's really, really difficult to predict as you see, launches move around all the time. And as we tried to explain in the call, that's kind of the value proposition for the business. Internally here, we worry less about that as we kind of pointed out that the majority of the cash is collected through their billing cycle. But launches move around tremendously. And I guess we're trying to kind of provide that color for folks so that they can see how the business really operates.

[Operator]

Our next question will come from the line of Erik Rasmussen with Stifel.

[Erik Rasmussen, analyst]

I appreciate all the detail. There's a lot there to unpack. But maybe just to piggyback off that question, I realize that launch has been always tough to sort of predict. I know the manifest seems like it's filling up each quarter, but it's always sort of customer readiness and other things that can push things out. But Adam had mentioned in Q4, we'll see a resumption of growth in both segments.



If we're sort of assuming 3 launches, and that's about implied $7 million ASP. I'm just trying to sort of dissect does that mean if we're back in sort of a $7.5 million ASP for Q4 and prelaunches that obviously gets us more a higher revenue. But would we also, I guess, see is it potential to see even more than 3 launches in Q4?

[Adam Spice, executive]

Yes, Eric, it's Adam. So I think the way to look at that is, yes, I mean we are -- as you pointed to my remarks at the end of my prepared statements, we do see significant growth returning to the business as we exit the year. And it's not off of a small increase of ASP quarter sequentially. So we expect to be able to launch significantly more in Q4 than we are in Q3. Whether that means you go from 3 launches to 4 launches or from 3 launches to, say, 7 launches, I think that's kind of the range that we're kind of operating within, and that's really kind of guided by, again, kind of the customer readiness.



We've done quite a bit of work looking into kind of where these slippages occur, and we can't -- the slippages are always driven by customer readiness. But in this case, we didn't -- when we look at the manifest that we had coming into 2024, there hasn't been a mission on that manifest that we couldn't support from a production perspective. Any volatility we've seen versus kind of that manifest has all been kind of customer delay related. But as Pete said, that's part of the business and why people pay a significant premium to be on a dedicated small launcher versus being on a rideshare. So it's kind of uncomfortable in one respect, but also comforting in the other respect that people see value in that flexibility.

[Erik Rasmussen, analyst]

Got you. That's helpful. And then maybe just -- we're seeing a step-up in non-GAAP OpEx to $69 million to $71 million, which we were around $58 million in Q2. Is this sort of the right range as we should think about the back half of the year? I mean we've gotten guidance for Q3, but just thinking in terms of the look through Q4.

[Adam Spice, executive]

As we've said many times, these rocket programs are challenging like lots of levels, including being able to predict the timing of when certain expenses are going to hit up because you can make your commitments at one point and then you can face delays or actually, in some cases, get things that pull into the left as well.



So I'd say, in general, I think that you should think about Neutron spending continuing to grow sequentially from Q3 into Q4. So that will kind of drive overall OpEx in that same direction. But we're not looking at step function increases. It's more kind of just more kind of, I would say, on a relatively predictable slope of that curve.



We would expect that spending would start to trail off, obviously, as we start to approach the first launch of the vehicle, which we talk about middle of next year. So I think we probably still have I'd say, at least, I'd say, 1 quarter of kind of increased spend kind of velocity and then perhaps it starts to kind of plateau and then trail off as we approach the first launch.

[Erik Rasmussen, analyst]

Great. And maybe if I could just add one more. It looks like for successful test of a hot fire for the Archimedes, I mean, would you say that now this coincides with your timeline to get Neutron on the pad by mid-2025? I think, Peter, you had mentioned that, that's still on track. But does this now give you a lot more comfort in that no earlier than mid-2025?

[Peter Beck, executive]

Yes, Eric, it's certainly on the right side of the equation, yes. So from here on in, there's more kind of testing to be done. But certainly, our approach here was to put the flight engine on the stand and take it to full power.

And that buys down just all the risk really. So there's still obviously qualification of the engine to go, but certainly, that gives us a lot of confidence to move forward.

[Operator]

Our next question will come from the line of Kristine Liwag with Morgan Stanley.

[Kristine Liwag, analyst]

Peter and Adam, on the data and services initiative, can you provide more color on exactly what kind of capabilities and solutions you're providing, areas you're targeting? And maybe it's a little bit early, but any sort of indication of how you think about economics of what a mature data and services capability could provide for you?

[Peter Beck, executive]

Yes, Kristine. So look, if you break up the industry, the launch is about a $10 billion TAM spacecraft is about $20 billion and then the services from orbits about a $320 billion TAM. So if you have the first 2, then your ability to compete in the second one becomes incredibly strong. And I would say that we're not ready to talk about what particular applications that we're pursuing.



Right now, we are focused on building capability to go after some applications that we find interesting. But clearly, getting into a $320 billion TAM, we think you can be pretty disruptive is a great place to be and where we've been anchoring for a long time. But like I said, it's too early to really provide too much color on where we're headed with that.

[Operator]

Our next question will come from the line of Jason Gursky with Citi.

[Jason Gursky, analyst]

Just a quick follow-up on that last one on the services side of it, the $320 billion TAM. Maybe you can just educate us on kind of -- I'll use a baseball analogy, if you'll humor me, kind of what inning you're in on the development of that? What other capabilities do you need? And when do you expect kind of unveiling of what you're up to there from a timing perspective?

[Peter Beck, executive]

Well, I'm going to horrify you, Jason, because I'm from New Zealand, I only know Rugby. So a baseball analogy has lost on me completely. But I would say that. I think you can look at the acquisitions, the kind of spacecraft we're building and the scaling that we're doing to kind of bring some comfort in where we're trying to hit with this.



Like I say, it would be incorrect for me to really provide too much steering. But I mean, it's clearly -- I've been very public in the fact that I think the large space companies of the future are the ones that are going to have the ability to build whatever spacecraft they need to build, the ability to launch them on demand and deploy constellations at cost. And if you have those things, then your ability to provide a service from space is uniquely advantaged compared to anybody else. It doesn't have those things.



So right now, I would say that we're really focused on building that capability, and you'll see Space Systems continue to grow and scale. Neutron is a really, really key part of this puzzle. I mean we need multi-time launch to deploy significant constellations. So Neutron is probably one of the most critical and key elements to that future.

[Jason Gursky, analyst]

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

[Peter Beck, executive]

Bit of both. So we generally like sort of a 50%-50% mix across the business, and you can see that pretty consistent across launch and Space Systems. But there's huge opportunities on both sides of the ledger there. Especially as the U.S. government moves away from kind of singular large assets and to orbit into distributed networks and orbit so there's opportunity on both sides of the scale.

[Jason Gursky, analyst]

Okay. And then Peter, can you just kind of give us a revised view maybe on when you would expect to start signing up customers for Neutron. as your thinking changed at all on when we start booking some?

[Peter Beck, executive]

Not really. I mean, if you bring a rocket that doesn't exist and you start selling contracts against it, there are always discounted contracts. And as I think I've said before, this is exactly what we did with Electron and it took us years to flush those out. So of all the things I worry about at night, demand is just not one of them. And I'd much rather bring a vehicle to the market and prove that it works and provide a capability to kind of unblock the kind of demand a monopoly then kind of preemptively sign a whole bunch of contract that I think would all regret later on.

[Jason Gursky, analyst]

Right. Okay. I've got one clarification and then one just for Adam. On the clarification, so the point you're trying to make here on Electron and the cadence of the schedule and the cash flow profile on the rev rec here is that you guys could have done all of these launches this year from a manufacturing perspective. You're getting the cash. There have been -- and this is the part that I really want to confirm, there haven't been any cancellations. And so it's really just a question of when these things go, not if, is that the point you're all trying to make here just so that we all kind of understand all the moving pieces on the financial statements is the point you were trying to clarify?

[Peter Beck, executive]

That's 100% correct, Jason. Yes. No, we're collecting the cash on those as the rocket comes down the production line and as milestones met or time is met, it's just we don't get to recognize the revenue until we have intentional agnation.

[Jason Gursky, analyst]

Yes. Okay. Got it. That's good. And then Adam, one for you. Any updated thoughts on when we get to cash flow breakeven on a sustainable basis?

[Adam Spice, executive]

Yes. No, I think it still looks very much like it had before when along really we can't get to cash flow positivity on a sustained basis until we get first neutron off the pad. And so I've kind of been kind of pointing people towards 2 quarters after the first neutron launch is where I think we kind of turn that corner on a more permanent basis given where the rest of the business is growing, kind of what the P&L starts to look like once you've got that first R&D test launch off and that you've got most of that infrastructure put in place to scale Neutron, which I think we will have by, I would say, the middle of next year.



Again, middle next year kind of represents kind of a minimum viable product and minimum viable infrastructure in this case. So there will be continued investment, but at a very, very different level. So I think my kind of guideposts are roughly 2 quarters after the first Neutron launch.

[Operator]

Our next question comes from the line of Cai von Rumohr of TD Cowen.

[Cai Von Rumohr, analyst]

Yes. So if you do 4 to 7 launches in the fourth quarter, you'll do 15 to 18 for the year with an initial manifest of '22. So you're slipping 20% to 30%. And it looks like quite a big flip in the third quarter. Can you give -- is there any common reason? I mean, these are all customer slips was it the satellites aren't ready? Or is there any common thread you can describe?

[Peter Beck, executive]

Yes, Cai. No, it's 100% customer readiness. And it's the kind of the nature of the business, customer will request a launch date. This spacecraft is generally not complete when they're requesting the launch date. It will go through various tests and sometimes there's rework or customers have other things that they're trying to line up. So yes, that's 100% of the reason.

[Cai Von Rumohr, analyst]

How do you think about your pricing? Because if you get 90% 3 months before -- first of all, is that 3 months before the scheduled launch when you initially signed the contract? And then if you have to go 3 months, but they're slipping by 2 months, which looks like what's been happening, you're still collecting that last 10%. So any thoughts about -- they have the flexibility, but if they slip, you get a penalty for slipping because obviously, it has to cost you more money.

[Peter Beck, executive]

Yes. I mean I would say that, that is one of the reasons to why we can charge a premium for the service that's kind of baked into the premium for the service. And there are -- we do have some penalties in the contracts. We're kind of -- certainly, if agree just things happen. But also, we have customers that have 72% reoccurring customers. So if a customer has an issue with a spacecraft, they're already upset. The last thing they want to do is slip with the penalty.



And if you have a long-standing relationship with the customer that's certainly not ideally there. And I guess that's what we're trying to provide a little bit of color today that is kind of the business model of a Bespoke service like this. And while it's super frustrating for us, this is the service that we provide. And the good news is that as the rocket is coming down the production line, we're collecting the cash and the rocket is essentially funded as it's coming through the facility. But as to when the customer ultimately turns up and is ready to fly, it's just simply out of our control.

[Operator]

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

[Andre Madrid, analyst]

I just wanted to ask for a status update on SolAero. I know it's been kind of what's been dragging down the broader space systems portfolio, and we're not yet at that 30% gross margin point. Just some color as to what's going on there, when we might be able to see that?

[Adam Spice, executive]

Yes, I can jump and take that one, Pete. So the SolAero business actually -- so yes, you're correct, Andre, that we've been kind of been a little bit hamstrung by a legacy contract that was in place prior to us acquiring the business. And we're still working our way through that. I mean, there's still a little -- I would say not little, there's still a bit of the backlog that's representative of that, but it's becoming less and less than the mix.



And so if you -- what we look at is if we step back and say, what's new business being signed up at? Is that being signed up at the target model or less or more. And we can say we, on average, now been kind of getting to a point where the 30-point margin target has really come into focus. So the business that we're signing up now, that those margins are very, I would say, much more assured to be at that target than they ever were before.



I would say that the -- you've probably seen the chips and other state and local incentives that we've received to support that business. And that's going to do nothing but help improve those margins even probably beyond that target because of the fact that we're really replacing an aging reactor fleet of these in our solar fab. So I think everything is poling in the right direction. I think we've made a lot of progress. I think it's just taking a matter of time to get that old contract flushed out through the mix and it's happening.



And what we're finding in that business is kind of meeting all of the strategic objectives that we had set out when we acquired it, which was to provide that kind of much more higher degree of control over kind of delivering programs at cost and performance because SolAero is such an important piece of the overall cost of a spacecraft that we really thought of strategic to bringing in. And it's providing us with confidence not only that we can kind of deliver programs at a certain margin, but it also just confirms the fact that we can actually get the capacity that is sometimes very difficult to get unless you plan very, very far in advance.



So all the different strategic kind of angles are coming into focus. And I think the gross margin one is also, too, it's just going to take a little bit longer. We said our goal was to get there by within 2 years of closing the deal, which would have put that back in Q1 of 2024, so earlier this year. So I'd say it's probably been delayed by a few quarters, but I would say not materially. And certainly, the longer-term kind of indicators all look are very positive for that.

[Andre Madrid, analyst]

That's helpful. And then maybe just general color on PSC and Sinclair and ASI and some of the other businesses in the space system groups?

[Adam Spice, executive]

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

[Operator]

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

[Suji Desilva, analyst]

Congratulations on the progress here. On Neutron, good to see the hot fire test success. I'm just wondering as I look ahead to the first launch of year. I know it's not customer payload dependent, at least I don't believe it is your first launch. And it's largely in Rocket Labs hands. But I just want to know if there's any non-Rocket Lab dependencies, risks that might occur that would otherwise prevent you from having to launch when you're ready to go, things like regulatory pad rate is? Just want to envision those as we get closer to that launch a year from now.

[Peter Beck, executive]

Yes. Suji, great question. So we've definitely front-footed a lot of that. I mean I think a lot of us saw Electron sit on the pad at Wallops for a long time waiting AFT certification and things like that. So we certainly have all those kinds of things well in control. And a lot of that groundwork was done a long time ago, especially with some of the licensing around the launch pad at Wallops and things like that.



So we think we've got that in hand. And certainly, there's nothing that's kind of out of bed at the moment. Suffice to say, though, some of these regulatory time lines can drag on, but we remain -- we have a lot of extended and experience and relationships with the regulators. So it's not [indiscernible] unground for us.

[Suji Desilva, analyst]

Okay. Yes, I guess the second go around a year. And then also you mentioned ultra-accuracy launch capability in the press release. I'm just wondering, is that -- would you consider a niche market opportunity? Or incrementally, is that a meaningful opportunity versus the traditional launches where you can get to that meter, I believe, systems?

[Peter Beck, executive]

Yes, yes. So initially, we didn't think it would be -- given that the industry standard is sort of 15 kilometers long it would be that important to folks. But as we started to really accurately deploy, I guess it opened the aperture for missions that weren't possible before. A good example of that was the mission we did just recently for a Japanese customer, where the Rendezvous with a spin upper stage. And they're able to run Rendezvous directly off the rocket. So normally, you would have required a big ball of delta weight to kind of come off the rocket and clean the orbit up.



So I guess we've created a capability there that has really opened the aperture for a lot of other folks to do much more interesting things, including the DoD. And you can see, we even have a DoD Rendezvous mission now. So it's definitely an emerging space. There's a lot more desire to do kind of these proximity operations and Rendezvous operations. And once again, it's all just muscle building for future on Neutron as well if we ever need to dock with anything in the future, we have all of that capability now created.

[Operator]

Our next question will come from the line of Andres Sheppard with Cantor Fitzgerald.

[Andres Sheppard-Slinger, analyst]

Congrats on the quarter. A lot of our questions have been asked. So I was wondering if you could touch on something from the Space Systems. I wonder if you guys have any updates on that $515 million SDA award. I know you touched on it earlier. So I was wondering how you expect revenue to ramp in the second half of '25 where if you could walk us through again, like how the financial impact of this contract is?

[Adam Spice, executive]

Yes, I'll take that. So we're at the very, very, very beginning of that program execution. We've recognized, I think it's like maybe single-digit millions maybe to maybe as high as $10 million of revenue under that contract under the EAC methodology that gets supplied under the accounting guidance. So I would say that, look, that's going to continue to ramp.



We've got each quarter going forward should be incrementally kind of constructive to driving revenue growth. And so I think you would expect that program to I'd say, probably hit its maximum revenue contribution probably not for another, I would say, probably 6 or 8 quarters is probably the profile I think about how that grow from then it starts to kind of flatten out and then decline.



And of course, it's all about kind of backfilling with the next contract or the other growth vector to kind of make sure you don't hit near pocket. But right now, we're in the very early, early stages. We still have significant revenue recognition off of the MDA Globalstar contract. And then we're, again, just really just kind of not even scratch the surface of revenue contribution from the FDA program of $515 million.

[Andres Sheppard-Slinger, analyst]

Got you. Appreciate the color. And I guess switching gears a little bit. I know this was asked earlier. So I was wondering maybe what's a reasonable number of potential launches that you could expect for this year? Maybe how confident are you at hitting 20 potentially, as I know you're aiming for 22 earlier, there's some shift to the right. Just wanted to see if you could point us in the right direction there.

[Adam Spice, executive]

Yes. Again, we've tried to be a bit more kind of nuanced about this because, again, we always end up getting a bit surprised. We give people the best estimates that we have based on our knowledge of where they are in their program life and so forth. And it's very difficult to handicap where launch is going to actually occur. But right now, it's looking like if you look at the model for Q3, we would have, we think, another opportunity for perhaps many as 4 in Q4 to as many as 7.



So that kind of gives you a range of somewhere between 15 and 18 launches for the year. There's really no upside beyond 18 is kind of again really, I would advise nobody to kind of put that into their model at this point because that's a stretch that's doable, but it's not a layup. And so if you think about like the delta between kind of the 22 and the 18, there is no customer readiness to support a launch beyond 18 for this year. So that's really kind of where things cap out. Again, that's if everything goes perfectly, and things rarely if ever do.

[Operator]

Our final question will come from the line of Anthony Valentini with Goldman Sachs.

[Anthony Valentini, analyst]

I'm curious if you guys anticipate that you'll have to go back to the capital markets in order to fund some of these grander aspirations that you have?

[Adam Spice, executive]

Well, I think it really depends. I think what we have right now, we are in a very -- we're in an indie position of the amount of cash and liquidity that we have to fund the business. I think that can, again, fund some of our M&A ambitions. I think that it really is going to depend on kind of the size of the opportunity that comes into focus.



I think that right now, we don't really say, hey, look, let's not consider things that are outside of our current ability to finance because I think for the right opportunity, the capital markets are available. Again, it has to be for the right opportunity. But right now, we don't see anything that would cause us to go back to capital markets.

[Anthony Valentini, analyst]

Okay. That's helpful. And then in terms of the commentary, it sounds like really Neutron is the enabler to you guys being able to do some of these things. Should we be thinking about that because of the fact that, that will be driving more cash flow that you can then redeploy elsewhere or more so like the actual rails to getting to space?

[Peter Beck, executive]

I would say both, Anthony. For sure.

[Operator]

That will conclude our question-and-answer session. I'll hand the call back to Peter Beck for any closing remarks.

[Peter Beck, executive]

Great. Thanks very much. So before we close out today, I just wanted to draw your attention to some up-and-coming conferences we'll be attending. We look forward to sharing more exciting news and updates with you there. So that wraps up today's call. Once again, thank you very much, and we look forward to speaking with you again about the exciting progress that Rocket Lab has been making next quarter.

[Operator]

That will conclude today's call. Thank you all for joining. You may now disconnect.