Rocket Lab USA, Inc. (RKLB) Q2 2022 Earnings Report, Transcript and Summary

Hello and welcome to the Rocket Lab’s Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Arjun Kampani, Senior Vice President, General Counsel and Corporate Secretary. Thank you, sir. You may begin.

Thank you. Hello, everyone. We’re glad to have you join us for today’s conference call to discuss Rocket Lab's second quarter 2022 financial results. Our presenters are Rocket Lab Founder and CEO, Peter Beck; and Chief Financial Officer, Adam Spice. After our prepared comments, we will take questions. Before we begin the call, I’d like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the Safe Harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release and others contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release is a reconciliation of these non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. Lastly, this call is also being webcast with a supporting presentation and a replay and a copy of the presentation will be available on our website for two weeks. And now, let me turn the call over to Peter Beck, our Founder and CEO.

Okay. Thanks, Arjun, and welcome everybody to today's review of Rocket Lab’s business highlights and financial results for Q2 2022 presented by myself and our Chief Financial Officer, Adam Spice. So, today's agenda, the presentation outlines our business accomplishments for the second quarter, and it also highlights further achievements we've made since the end of the quarter. Adam will then talk through the financial – through our financial results for the second quarter and our financial outlook for Q3. After that, we'll look forward to taking questions from the sell-side and then we'll finish today’s call with a reminder of upcoming conferences we will be participating. A [clear compliment]. So, today – so with that snapshot of where the company is today, let's look at the specific achievements for this year's second quarter. We won a strong quarter for the company with the successful launch of some really significant, as well as continued progress across our space systems business. We'll go into each of these achievements in more detail in the coming slides, but here is a quick snapshot. We launched three successful Electron missions, more than all other small launch providers combined for the entire year. One of those missions were their most complex and high performance missions to date, the CAPSTONE mission to the to the Moon for NASA. We continue to see strong demand for Electron launches and secured another multi-launch deal. This deal will see us launch 15 spacecraft for commercial constellation operator HawkEye 360. We carried out the first mid-air capture of an Electron booster with a helicopter, advancing our rocket reusability program. We also made significant progress towards the development of our Neutron launch vehicle breaking ground on our major production complex in Virginia. Turning our attention to space systems, we are also selected to build the solar panel array for NASA's GLIDE spacecraft. We also surpassed 50 missions with our MAX Flight Software, and we can commence construction at our Long Beach headquarters on the satellite constellation production line to support the manufacturing of [17x 500 kg] [ph] spacecraft buses for Globalstar’s constellation under $143 million contract. So, going to the next slide. Three successful launches. So, we had a great quarter for launches, successfully launching three missions. The missions included a mission to the moon for NASA, a dedicated launch for Earth-imaging constellation BlackSky and a rideshare mission for a range of U.S. and UK companies. Across the quarter, Electron delivered 37 satellites to precise orbit. The quarter once again submitted Rocket Lab’s position as a launch provider of choice for constellation operators with satellites deployed for four commercial constellation companies. Three out of the four of these were return customers for Electron. One of our missions in the second quarter was particularly significant, however. This was the CAPSTONE mission to the Moon for NASA. It was a monumental and historic mission for Rocket Lab and for NASA. So, I'm going to spend a little bit more time going into some greater detail on this one. For those of you not familiar with CAPSTONE, it's a satellite designed to test the Near Rectilinear Halo Orbit around the Moon. This orbit has never been flown before and is the same orbit NASA hopes to use for Gateway, a Moon-orbiting space station for astronauts will live and work in as part of the Artemis program. As a result, through acquisition of SolAero, Rocket Lab is also providing the solar modules for the Gateway power and propulsion element. Back to CAPSTONE. In a nutshell, Rocket Lab launched the first mission of NASA's Artemis program to return humans to the moon for the first time since [1970] [ph]. So, this mission was significant and monumental for all humankind, not just for Rocket Lab, and a real testament to NASA’s trust in Rocket Lab as a mission partner. Importantly, the mission was much more than just a launch for us. We provided a complete solution. CAPSTONE was launched to an initial lower altitude, a lower orbit on Electron, and from there, our in-house designed and built Lunar Photon spacecraft powered by a HyperCurie engine, provided six days of in-space propulsion, maneuvering, and communications to CAPSTONE. After a flawless launch on June 28 and after six days of 24/7 spacecraft operations, and multiple complex orbit raises, we ignited Lunar Photon’s HyperCurie engine for the final time on the 4th of July to fit CAPSTONE on a ballistic lunar trajectory. I'm immensely proud of the team for delivering flawlessly on this complex mission, initiating a new era of Lunar Exploration. NASA awarded the CAPSTONE contract to Rocket Lab in February 2020. So, in a little over two years, we developed a new in-space propulsion system capable of reaching deep space destinations. We designed and built the highly capable Lunar Photon spacecraft and we increased Electron's performance enabling it to lift over 300 kg. There's generally to be considered in a reasonably short development time, but we do like to take on a challenge and deliver and I'm happy to say we have done just that once again. Beyond developing and operating the launch vehicle and the spacecraft for this mission, we worked with space exploration engineering to develop a unique energy efficient trajectory to the moon. Unlike the [Apollo missions] [ph] in the 60s and 70s, which basically used an enormous rocket filled with a massive amount of fuel to go direct to the moon, we took a different path. After Lunar Photon and CAPSTONE with CAPSTONE integrated on the top was launched to an initial lowest orbit, we used the Lunar Photon spacecraft and its HyperCurie engine to carry several days of orbit raising maneuvers, essentially [indiscernible] engine periodically to raise the higher point in the orbit until we got far enough away from earth to escape its gravity and get close to the moon. This method is exciting because it proved that we can deliver interplanetary missions from a small rocket, making it faster and more affordable to go to places like the Moon, Mars, and Venus. Destinations that used to cost billions or hundreds of millions of dollars and take decades to develop are now within reach for few hundred millions of dollars in a matter of months. Having successfully deployed the CAPSTONE spacecraft on a ballistic lunar trajectory, Lunar Photon is continuing to tour the solar system and is currently around about 1.3 million kilometers or 800,000 miles [indiscernible] people from earth. We've used this extended mission time to push the spacecraft to its limits, learning what we can about communications and propulsion systems to inform our up and coming mission to Mars and Venus using similar high energy photons. As I mentioned, the CAPSTONE mission was far more complete than just the standard Electron launch. It was our first deep space mission, while we have successfully launched and operated two Rocket Lab designed and built Photons spacecraft previously. This mission was the first flight of our high energy deep space variant of the Photon spacecraft. It required the development of new in-space propulsion system in under two years. It was the first time we integrated MAX Flight Software into a Rocket Lab built spacecraft. As you'll remember, the MAX Flight Software is an off-the-shelf flight software solution developed by [ASI] [ph] in Colorado, a Colorado-based company we acquired late last year. The CAPSTONE mission was also our first mission planning and executing Lunar trajectories. This is a complex precision work that often takes years in planning, and in addition to developing CAPSTONE to a perfect trajectory for this mission, which was, of course, the [prime result] [ph], we have developed the team and the skills now to be able to deliver on other up and coming interplanetary missions, including Mars and Venus. We're very conscious of space sustainability. I think as everybody knows, and not leaving large rocket stages in orbit with every launch is important to us, which is why we developed a launch system in such a way that Electron's second stage deal, but within a matter of days. With this mission, we break our own record. The second stage actually deal, but is the same day as launch. We are first time using the FR-lite radio, our satellite radio, which Rocket Lab has exclusive license with Johns Hopkins University Applied Physics Laboratory to manufacture. And last but not least, the CAPSTONE mission was a heaviest lift to date with Electron carrying a whopping 320 kg or 705 pounds. This is almost triple the load capacity demonstrated by any other small launch provider. So, Rocket Lab satellite are now deep space proven. More than just delivering mission success for NASA, the mission means we have successfully flight-proven our Lunar Photon spacecraft. This positions us extremely well for future complex missions beyond LEO and already with, obviously, a significant amount of interest from new customers in terms of having us develop their mission content, design, and build their spacecraft, launch it, and operate it in orbit. Now, on to another major achievement in the quarter. We signed a multi-launch deal with HawkEye 360, a radio-frequency geospatial analytics company. The company will see us deliver 15 satellites to [indiscernible] across three Electron missions anticipated between late 2022 and 2024. This mission joins the growing list of bulk launch agreements, which are with commercial constellation operators, including those with [indiscernible]. Supporting our vertical integration strategy, Rocket Lab will also supply HawkEye 360 with separation systems produced by Planetary Systems Corporation, the Maryland-based hardware company we acquired in December 2021. Excitingly, the first of the three HawkEye 360 Missions has been scheduled to [lift off] [ph] from Launch Complex 2 in Virginia later this year. It's scheduled to lift off in December, it will be the inaugural flight from LC2 and the third Pad Rocket Lab will have launched from. The key reason we haven't launched from LC2 yet has been delays with NASA certifying the agency's autonomous flight terminations in its software. But NASA officials have advised that they are on track to certify it in time for us to see the launch. In the second quarter, we also had a significant milestone in our program to make Electron reusable. We successfully caught a returning first stage with a helicopter confirming the concept of operations for future aerial capture. This was a key moment in the program that brought us a step closer to recovering stages dry and refueling them. The next step from here is to not only catch a stage, but fly it all the way back to land under the Helicopter. We expect to [attend] [ph] this later this year, but in the meantime, you'll start see more and more [red striped] [ph] electrodes coming down the production line as we build [recovery ready rockets] [ph] into the standard production flow and process. While the Electron launch program continues to go from strength to strength, we're also making somewhat progress on the development of a new large launch vehicle, Neutron. In the second quarter, we broke ground on the Neutron production complex near Launch Complex 2 in Virginia. The 250,000 square foot complex will be home to Neutron's production and assembly and is located at just a few miles from where Neutrons Pad will be located on the Eastern Shore. We won't go into too much detail on Neutron today as we'll be sharing more [fulsome] [ph] program update during our Investor Day on [September 21] [ph]. Onto the Space Systems [side] [ph] business now, I'm pleased to confirm that Rocket Lab has been selected to manufacture the Solar Array Panel for NASA’s GLIDE spacecraft. GLIDE is the first mission dedicated to surveying the changes in the exosphere, the outermost layer of Earth’s atmosphere, which is super important for all of us. The array will be manufactured at our production complex in Albuquerque, New Mexico, which is home to the world's largest production line for space solar cells. Onto [Aerospace software] [ph], as of Q2 this year, Rocket Lab’s MAX Flight Software has successfully flown more than 50 mission. Developed by ASI, which was acquired by Rocket Lab in October 2021, MAX is an off-the-shelf spacecraft software used by leading aerospace prime contractors, the [U.S. Airforce, the U.S. DoD organizations] [ph], NASA, and commercial spacecraft developers and constellation operators. Further supporting Rocket Lab’s vertical integration strategy, MAX software has now been used in 12 spacecrafts launched by Electron. In the first quarter of this year, Rocket Lab was awarded $143 million subcontracts by NDA to build [17x500 kg] [ph] spacecraft buses for the Globalstar constellation. Rocket Lab is also manufacturing spacecraft for Varda Space Industries, Eta Space, and the University of California, Berkeley, NASA for an [indiscernible] mission. In the second quarter, we quickly got construction work underway on the production facility for these spacecraft at our Long Beach headquarters. Construction is now substantially complete and the facility has included a state of the art 10,000 square foot, plus 100,000 [indiscernible]. This is a significant investment by Rocket Labs future – this is a significant investment in Rocket Lab’s future satellite manufacturing capability. Leveraging a vertical integration, the satellites will feature components and subsystems produced by Rocket Lab’s recently acquired companies, including solar panels and structures from SolAero. Technology, software from ASI, reaction wheels from Sinclair Interplanetary. So with that quick recap of some of our major accomplishments in the second quarter, let's delve into some of the additional achievements between the end of the quarter and now. So, since the close of the quarter, we've launched another two successful missions. This time back-to-back launches for the National Reconnaissance Office. These missions took place just over three weeks apart. So, we had prepared the launch vehicles and prepared to be able to support the turnaround in just [two days] [ph]. Ultimately, the NRO required some additional time to complete a software update on their payload. It was a change in the launch schedule that we could easily support since Launch Complex 1 is a private launch range, but we didn't have to go around and work around any other launch providers schedule. The missions were flawless, demonstrating – where flawless demonstration of responsive space and action and I'll talk more about responsive space in some upcoming slides. With these two missions, Rocket Lab has now successfully launched four in our own missions on Electron, reliably serving the national security intelligence and intelligence community. Between the CAPSTONE launch at the end of Q2, and the first in our own mission at the start of Q3, we actually achieved a new record in launch turnaround time. After a successful mission to the Moon for NASA, our team delivered a flawless national security launch in just 15 days later. As you can see, that's the fastest turnaround ever achieved by a small launch provider. Continuing the National Security and Defense theme, I'm pleased to confirm that since Q2, Rocket Lab was also selected by Lockheed Martin to supply solar power for the Space Force's new missile warning satellite. The deal continues to layer its long-term partnership with Lockheed Martin by pairing the next generation of OPIR GEO satellite missile warning system. And it further demonstrates our successful vertical integration strategy. Since the close of the last quarter, we also officially introduced our Responsive Space Program. From day one, everything we've done has been designed to support Responsive Space, from manufacturing processes that use 3D printers to print an engine in 24 hours to operating the first and orbital launch sites to developing our own modular spacecraft that can be quickly customized and integrated with customers instruments. When we talk about responsive space, we're talking about the ability to rapidly replace or replenish new assets on orbit. This is a critical and growing need for government and commercial operators alike, because the unavoidable truth is that satellite do fail. Whether they age out, experience technical failure or are disabled through deliberate actions, all satellites are vulnerable. To a responsible launch on Electron, we can replace these assets in a matter of hours or days, not months or years, but we also know that launch is just one piece of that puzzle, which is why we can also have Rocket Lab designed and build satellites on the ground 24/7 awaiting the call to be integrated with the customers payload and launched rapidly. This is a capability that is increasingly attractive to constellation operators, and we've already seen some customers look at building out their constellations with Rocket Lab’s spacecraft specifically to have this capability at the ready. While there’s a lot talk about Responsive Space, Rocket Lab is in the unique position of having the infrastructure, experienced team, and proven technology in place to enable it today. This includes three launch pads across two hemispheres. Launch Complex 2 in Virginia was purpose built with this capability in mind, proving Rocket’s payload processing facilities personnel launch sites and ground stations capable of supporting 24 hour rapid call up launch. The ability to receive, integrate, and capsulate and launch spacecraft within 24 hours. Proven spacecraft technology already operating in more than 1,700 satellites in orbit, streamlined and integrated manufacturing capability to build rockets and spacecraft quickly, the ability to reach a wide range of orbit and meet a broader range of customer requirements. All of this is not necessarily new or a new Rocket Lab capability, but as I've discussed, in the presentation and in recent media interviews, increasingly our launch cadence was driven by and in fact slowed down by customers readiness. This program is about working closely with customers to understand the emission requirements early and get them in a sighted readiness, so that when the day comes, they can call us up and we'll head them on a orbit in a matter of hours. And with that, I'll hand over to Adam to provide a review of the second quarter financial results.

Great. Thanks, Pete. I'll first review our second quarter 2022 results and then discuss our outlook for the third quarter. Second quarter 2022 revenue was $55.5 million, exceeding the high-end of our guidance range of $51 million to $54 million, representing 36% sequential growth over the prior quarter. Our record revenue performance in the quarter was the result of three successful launches as we guided and outperformance in our Space Systems segment led by our SolAero product line. Launch services contributed $19.1 million or 191% quarter-on-quarter growth, representing 34% of total revenue in the quarter. Space systems contributed $36.4 million yielding [70%] [ph] quarter-on-quarter growth, representing 66% of total revenue. Now, turning to gross margin. GAAP and non-GAAP gross margin for the second quarter of 2022 were 9% and 22%, respectively. This was outside the low-end of our guidance on a GAAP and non-GAAP basis of 11% and 26%, respectively. The lower gross margin versus guidance was a result of two primary factors. An unfavorable product mix within the space systems segment and lower overhead absorption in the Launch Services segment. Compared to the first quarter 2022 where GAAP and non-GAAP gross margin were 9% and 24% respectively, second quarter gross margin trended slightly lower based on a mix shift to lower margin launch services revenue. In the Launch Services segment, specifically, GAAP gross margin was negative 12% in the second quarter, flat with the prior quarter. In the Space Systems segment, GAAP gross margin was 20% in the second quarter versus 13% in the prior quarter. The expansion of gross margin quarter-on-quarter was driven by a favorable mix of higher margin products delivered in the quarter versus the prior quarter, despite the second quarter being negatively impacted by the introduction of stock-based compensation into SolAero production costs, resulting from post acquisition equity award vesting. Total production headcount ended Q2 2022 at 781, up 11 heads from June 30, 2022. In the phase of increased production unit volumes, we continue to focus on constraining production headcount and identifying production efficiencies in pursuit of expanding gross margins across the business. Backlog declined $14.5 million during the second quarter to $831.4 million as the recognition of record revenue outpaced new bookings in the quarter. Significant portions of our business involve projects that are many months or years in formation, and as a result converting opportunities into new bookings is lumpy. A recent example of this was the MDA Constellation Bill contract that resulted in a significant backlog uplift of $143 million, but was a long time in the making. Our pipeline of opportunities remains robust and we look forward to growing our backlog as we progress through the remainder of the year. When we compare the second quarter 2022 revenue on a year-on-year basis, the strength, evolution, and diversity of our business is evident. Total revenue was up 392% or more than $44 million when compared to the second quarter of 2021. Acquisitions have played a major role in this year-on-year growth. Revenue contribution from the recently acquired ASI, PSC, and SolAero businesses added approximately $28 million of revenue in the second quarter of 2022. The organic Rocket Lab product lines have experienced significant growth as well, having grown more than $16 million, representing 144% growth year-on-year and contributed nearly $28 million in the second quarter of 2022. As a [quicker aside] [ph], the growth and execution in our space systems segment is a good example of how our business evolved and diversified. In total, the space systems segment revenue was $36.4 million, reflecting an increase of 893% or more than $32.7 million over the prior year. As Pete covered in the previous slides, in our space systems business, we now have revenue contribution for almost every U.S. government defense and civil agency. The majority of large U.S. primes and a diverse mix of global customers. This is allowing us richer and deeper customer engagement, which can be seen in our financial results, backlog, and forward guidance, which I'll get to shortly. Now, turning to gross margin. GAAP and non-GAAP gross margin in the second quarter of 2022 of 9% and 22% respectively compared to GAAP and non-GAAP gross margin of 22% and 25% respectively in the second quarter of 2021. The decline in gross margin year-on-year for both GAAP and non-GAAP was driven largely by the mix impact of the addition of lower margin revenue from the SolAero acquisition. In the Launch Services segment specifically, GAAP gross margin of negative 12% in the quarter compares to negative 3% in the second quarter of 2021. The decline in gross margin year-on-year was driven by less absorption of overhead, exacerbated by revised overhead rates that were impacted by a range of inflationary and other factors, including staff costs, but specifically stock-based compensation for production staff that factored in much less in the Q2 2021 period prior to Rocket Lab coming public. In the Space Systems segment, GAAP gross margin of 20% in the quarter compares to 73% in the second quarter of 2021. These declines in gross margin year-on-year were driven largely by the mix impact of the addition of lower margin revenue from the SolAero acquisition, as well as previously referenced stock-based compensation for production staff stepped up relative to periods prior to Rocket Lab coming public in August 2021. Turning to operating expenses. GAAP operating expenses for the second quarter 2022 1were $38.1 million, which was approximately $900,000 lower than the low end of guidance. Non-GAAP operating expenses for the second quarter of 2022 were $25.2 million in-line with the high-end of guidance. The quarter-on-quarter step-up in both GAAP and non-GAAP operating expense was primarily driven by an increase in staffing and related stock based compensation expense, prototyping related to Neutron vehicle development, the Electron booster recovery initiatives, and Photon development projects, which were partially offset by the change of fair market of consideration related to the PSC acquisition. In R&D specifically, GAAP expenses were up $5.7 million or 42% quarter-on-quarter. Non-GAAP expenses were up $4.3 million or 63% quarter-on-quarter. We anticipate the trend of sequential growth in R&D to continue as we ramp investment in Neutron launch vehicle development in particular. Quarter ending R&D headcount was 308, representing an increase of 29 heads from June 30, 2022. In SG&A, GAAP expenses declined quarter-on-quarter $4.1 million or 18%, driven primarily by as mentioned earlier, the change in fair market consideration related to the PSC acquisition. Non-GAAP SG&A expenses remained relatively flat between the quarters. Quarter-ending SG&A headcount was 182, representing an increase of 14 heads from June 30, 2022. On a year-on-year perspective, both GAAP and non-GAAP operating expenses were up as the company continues to invest heavily in broadening our space systems portfolio of products and services, Electron recovery initiatives, and Neutron development. The company is executing and achieving milestones on numerous ambitious projects and look forward to these investments generating shareholder value for years to come. Year-on-year GAAP R&D was up by $10.6 million, driven by a one-time $3.1 million increased stock based compensation incentive related to the CAPSTONE mission. Staffing and prototyping expenses directed to Photon and Neutron platform developments. Non-GAAP R&D was up $3.5 million, driven by a combination of higher prototyping and staff costs. Year-on-year GAAP SG&A was up $11.9 million year-on-year, driven by an increase in various public company costs, including initial D&O insurance, legal, and audit and professional services, as well as stock based compensation and acquisition related performance incentives and amortization of purchased intangibles. Non-GAAP SG&A was up by $7.4 million, driven by similar GAAP items referenced earlier. Net cash used in operating activities totaled $38.3 million, driven sequentially higher by $10.7 million in greater net loss in Q2, versus Q1 resulting from higher R&D costs related to investments in Neutron, Photon, and Electron booster recovery activities. Cash consumed from investing activities totaled $12.3 million in Q2, compared to $71.8 million in Q1. The sequential reduction in cash consumed from investing activities was mostly driven by a lack of acquisition outflows in Q2 versus Q1, offset partially by near 2x increase in CapEx investments related to Neutron development, Photon manufacturing infrastructure build-out, and Electron booster recovery initiatives. Cash consumed from financing totaled $15 million, driven primarily by the timing of the tax withholding payment made in Q2 of 2022 for employee performance share units that vested and cash taxes was withheld in Q1 of 2022, and the payment of contingent consideration related to the ASI acquisition. Overall, cash consumed in Q2 was $61.1 million, compared to $84.3 million in Q1 with Q2 ending cash, cash equivalents, and restricted cash balances of $546.6 million. With that, let's turn to our guidance for the third quarter of 2022. We expect revenue in the third quarter to range between $60 million and $63 million, which reflects $37 million to $40 million of contribution from space systems and [$22 million] [ph] of contribution from launch services, which assumes three launches or one remaining launch in the quarter. We expect third quarter GAAP gross margin to range between 12% and 15% and non-GAAP gross margin to range between 22% and 25%. These expected GAAP and non-GAAP gross margin improvements are driven by expected sequential beneficial changes in product mix within our Space Systems segment and a higher average selling price per launch in our Launch Services segment. We expect third quarter GAAP operating expenses to range between $41 million and $43 million, and non-GAAP operating expenses to range between $27 million and $29 million. This quarter-on-quarter step-up is driven primarily by increased R&D staff costs and prototype expenses related to the scaling of our Photon product family and continued growth in our investments in the Neutron launch vehicle development program. We expect third quarter GAAP and non-GAAP net interest expense to be $2 million. And lastly, we expect third quarter adjusted EBITDA loss to range between $8 million and $12 million and basic shares outstanding to be approximately 471 million shares. And with that, I'd like to open up the call for questions. Operator?

Absolutely. [Operator Instructions] The first question is from the line of Suji Desilva with ROTH Capital. You may proceed.

Hi, Peter. Hi, Adam. Congratulations on all the progress here. Can you talk about maybe the Responsive Space Program. It sounds like with the lead times there, you may be able to, kind of exceed your launch guidance in a given quarter, just want to understand if that's the case, kind of, you know, Adam's, the terms, kind of concept [indiscernible], or whether, you know, if that's unrealistic and you're able to kind of guide these will be visible, kind of quarter-on-quarter?

Yeah. Hi, Suji, I’ll take that and then Adam will want to pile on. I mean, it's kind of mentioned, you know, the thing that drives that launch cadence is customer readiness. So, that's a single biggest influencer. And the responsive sales program is, kind of those two things for us. One, it enables us to work with a customer even more closely to better judge their customer – their impact readiness. And then the second part of it is, there's a growing focus on Responsive Space. And although we've had all these capabilities, we've never really advertised as such. So that was, kind of the rationale here. And within the quarter, it's completely feasible that there can be a pop-up launch that – We have the Rockets to support that. We would like to carry some inventory there. So, you could easily expect, you know, a pop-up launch within the quarter.

Sure. Okay.

Yes, I think great. Suji, I’ll add a little bit to that. I think that it doesn't really change the way that we're forecasting the business right now, but I think what the rapid responses is really – we know that there's budget that's being added for programs to support this. So, that's helpful as far as a tailwind. I think also as we get a little bit more experience with these types of programs., we'll be able to model, kind of what that looks like going forward. Obviously, the more frequent launch, the better it is across our business and I think that these programs do nothing, but help that, but we just don't have a tremendous amount of visibility as to kind of when they're going to start to pop-up in a meaningful way, but as Pete said, we're doing everything that can to be ready to support those. And I think with these most recent launches, particularly for the NRO, I think we've shown that we've got an ability to call up launch very quickly and we could have done it much faster. We're not for some delays that we were not in control of. So, again, I think it's a great opportunity. I think it's going to be a big focus for us going forward and we're very excited about it.

Yeah. And it sounds highly differentiated too. And also, the second question, I feel compelled to ask is even though, I mean, the backlog came down, but I know that you should read much into that, but I'm just curious with the broader economic and macro concerns right now. If perhaps some of the newer companies trying to put [consolations] [ph] up or maybe being a little more cautious or pushing our plans or if you think your pipeline is more really, kind of not as exposed to that phenomenon, curious what you're seeing there? Thanks.

I mean, I would say that the quality of our pipeline is extremely high. And so far, we haven't seen any impacts from a broader economic standpoint. The typical Rocket Lab customer is – it's a mix, but like I said, the backlog and customer contract quality is really, really high.

Yes, I would just – I would basically add to that. Suji, if you look at the types of customers that we have too, even though we have roughly a 50/50 split between government and commercial, even within our commercial customers, there's – a vast majority of those are – have government support contracts, right. So, we have very little in our backlog say that is – that's pure commercial for where there's a government that's not ultimately, kind of standing behind providing demand for that content. So, I think for the most part, the government spending is much more predictable. Once it's been at, kind of provided or allocated in a budget. So, I think we feel in this environment, yes, I can understand how there's going to be some companies that are going to get to be a little nervous about the ability of some of their customers to continue to finance themselves where I don't think we necessarily have that same risk because quite a few of our customers actually went through going public process last year, which, again, not the greatest conditions, compared to where we were a year ago, but so much better than being in the private markets. And I think the ones that are private actually do have a lot of strategic engagement with U.S. and other government customers, which gives it a little bit more stability as far as kind of being able to raise financing to keep the businesses moving forward.

Okay. That's reassuring color there. Thanks, Peter. Thanks, Adam.

No worries. And just adding on that, I think Adam touch in the presentation that a lot of these programs, [amongst the years] [ph] in information and these contracts are always fairly lumpy. So, it takes a significant amount of work, but what we really didn't show is the pipeline of opportunities, which we think are very, very strong. So, we're not concerned about that.

Okay. Thanks, guys.

Thank you. The next question is from the line of Erik Rasmussen with Stifel. You may proceed.

Yes. Thanks for taking the questions. Wanted to sort of stay on launch, it looks like the pace has obviously picked up, but I appreciate the commentary around the customer readiness, it seems to be a limiting factor. You'll have one more launch for this quarter, how should we be thinking about, sort of the year and maybe the target number of launches and is there anything that could be done or what are some of the things you're doing to, sort of pick up that cadence?

Sure. I think we've previously guided. sort of 12 launches in the year. And we’re really working more closely with our customer is – and we kind of joke it, it feels like [indiscernible] is a game of [whack a mole] [ph]. And, you know, what we had done slightly differently is be a little bit more aggressive with, you know, the booking of the launch slot. So, historically, if someone books a launch slot, then we just carve that slot out and say, well, nothing happens in that slot. So, we are a little bit more aggressive now for the slot there to have two people within that same slot. And we're getting to know which kind of programs or customers seem to move around, so we can manage the benefits more accurately and just communicating with their customers that, you know, to make sure that they don't wait for the last minute to tell us if the spacecraft is going to be delayed, which, you know, is kind of typical within the industry.

Yes. And Erik, I would add then – sorry, Erik, I guess just put a little more color on that one too. I think that as far as adding more launches to the manifest whether it's a little bit later this year or as we head into 2023, I think some of the pretty clear failures and pretty significant delays from our aspirational launch competitors on the small home side are really creating opportunities for payloads to come our way, right? So, I think that we've witnessed a bit of a – we've seen scenarios where the customers are trying to play almost a game of chicken where they're wanting to take advantage of some lower launch prices being off to them based on some either desperation or people who are just really early in the game and trying to build commitments to their platform, but when they don't execute either because the rockets fail or their programs continue to have push outs, and the customer will get nervous about keeping their payloads manifest on those rockets, those will start coming our way I believe. So, I think that as time, you know we've always said that at the end of the day, you actually have to deliver a working product and we've been able to do that while many others have faltered. And so, as that faltering becomes more evident, I think it just pushes these kind of payloads that we're kind of hoping to take advantage of bargain basement, kind of introductory pricing to a more reliable platform such as ours. So, I think it's, kind of hard for when we'll see kind of a more meaningful, kind of effect from that, but I think it's likely.

Great. That's helpful. And then, so it sounds like maybe then there could be some upward pressure in pricing that you could expect from this, sort of dynamic that's playing out given that, you sort of see some separation between yourselves and others who’ve not been successful?

Well, I think we've been pretty steadfast in holding what we think is attractive pricing, but certainly we're not immune to people putting sticker prices out there that are just unrealistic because they don't really understand what it takes or what it costs to run our rocket business. We understand what those costs are. So, we haven't just, kind of thrown in the towel and chased kind of ridiculous pricing down the rabbit hole, but I do think that as options winnow and demand continues to build, I think those that are positioned to supply the market with the quality product are going to benefit from higher prices. So, I think you're exactly right. I would expect that trend to become evident in the future.

Great. And then maybe just last one. This will be for you, Adam. On the margins, obviously, some pressure in Q2, we're seeing a little bit of lift in Q3, but how should we be thinking about margins as we, sort of exit the year and what's a good trend that we should be, sort of modeling?

Yes. I think we're going to stick to our quarter-by-quarter guidance. I think, when we look at margin, there are a few factors that obviously heavily influenced that. And it's becoming a diverse set of factors because of the diversity of our business, but on the launch side, it's really all about – it's about launch cadence, so we've definitely picked up our build rate. So, we pretty much hit our marks on how many vehicles we wanted to build in 2022, which is great. That's an important requirement, but also as Pete mentioned earlier, it's customer readiness, making sure we get those launches off. And really, we talked before about, we hit our target model for Electron from margin perspective when we get to two or more launches per month. So, we're about halfway there. And again, where we see demand in the marketplace, we're confident we're going to get there. And we think it's roughly on the same timelines that we've been communicating all along. So, we feel very good about it. Also, what Pete mentioned earlier, he gave an update on the booster recovery for the Electron. That's going to be a meaningful enabler of seeing some of those rapid improvements in the margin profile of the business because you go from building – every vehicle building being expendable to having a fleet of vehicles that you refurbish and reuse. So, I think from that perspective that's always been part of our plan. And again, the success that we saw in actually [indiscernible] and capturing that rocket was an important step forward improving that that could become reality. So again, I think we feel very confident in the margin profiles that we previously communicated and we – again, we're making progress against those.

Right. And on the space system what will be some of the things that we will see [indiscernible] there, is it really dependent on mix?

Yes, it's really dependent on mix. There's so many different things going on in that space systems business from our design services contracts to the manufacturing of satellite buses themselves, which are just really getting underway. The component businesses that we've developed internally and also the ones we've acquired actually, kind of come out of the [chute] [ph] with attractive gross margins to begin with. So, it's not really a scaling challenge with those businesses. I think the real important focus item for us to achieving and maintaining healthy gross margins in space systems is really around implementing some of the things that we know that we need to do on the SolAero side of the business because that brought with it meaningful revenue run rate that we stated when we acquired the company was in the high single digit gross margins. And we have a path and a target to get to 30 points of gross margin for that business. And when we achieved that, balancing that with the other higher existing higher gross margin, it will land us exactly where we want to be. So, I think we know what we need to do. It's just a matter of time. And when we did the SolAero acquisition, we said it was about 24-month path to get from, kind of where they were to where we want to go. And again, nothing is really pushing off of that view. We remain encouraged by the fact that the new business that we sign up, kind of continues to come in at higher gross margins than what existed in the existing backlog. We closed the deal in January. So, all the indicators are pointing in the right direction that we can achieve the margin targets that we're looking for in space systems and in the Launch side.

Great. Thanks so much.

Thank you. The next question comes from the line of Ronald Epstein with Bank of America. Please go ahead.

Hey, good afternoon, wherever you might be in the world. Just maybe a couple of quick ones. This week we saw an announcement, Northrop has cut a deal with Firefly to get some engines, when we think about Neutron and some of the launch that we might be seeing out of the defense community with some of the big primes there, are there opportunities for you all with the bigger rocket, with bigger payloads, with the big defense front?

Yes. For sure, Ron. If you look at Neutron already, I mean, we really [indiscernible] contract, which – if you look at who is one [indiscernible] contract, it's basically [GLA] [ph] who are large enough. So, we already had very, very strong customer engagement. There's no more negative validation when your customer, actually, you know, investing in the development of the vehicle from the U.S. Government side. And we have a strong relationship with the clients across a wide range of business unit, but we see Neutron as, kind of a fairly, fairly disruptive vehicle within the market. And I'm sure the [clients] [ph] will take advantage of it, but we have no need to partner with the prime to be able to develop that vehicle and bring them to market.

Got it, got it. And then maybe on the M&A front, are you all looking at more potential M&A in the systems business?

Yes, I mean, we like to keep kind of half a dozen to a dozen companies in the [chute] [ph]. What I will say is that we haven't seen the valuation of those private companies come in line with probably the public market. It seems to be a bit of historical there. So, we're not seeing them in a – we're going to pay over the odds for anything there. But, you know, we continue a very active M&A strategy. There's a few things that we would like to add to the quiver, but we've been very disciplined about data in the current market.

Got it, got it. And then maybe just one last quick question. With the Russians out of the market seemingly permanently now, if we look out say three or four years from now, and I know, I mean if you can't answer it, don't obviously, but where could the launch cadence go, now that big provider is effectively out?

I mean, for, you know, it's only gotten one way. You know, there is enough launch demand as it was for, I think we've talked about this in that, sort of 2024 to 2027 timeframe, you have a tremendous number of mega constellations coming to market all requiring launch and there's a massive launch [difference] [ph] in that period of time. And remove, I think Russia was either the second or the third largest launch provided by volume from the market. And all that launch has got to go somewhere. We're also seeing launch becoming acquired pretty rapidly, programs like Amazon public programs that have consumed basically all the remaining launch capacity on a number of vehicles. It's really the – it presents a tremendous opportunity for us and Neutron. And we're being very, very selective with respect to who we partner with on that one because a number of customers aren't looking for one or two launches. They're looking to acquire years of Neutron’s launch abilities. And we're just being very conservative about who we who we provide that to who's going to be at the pad in the right time and who's going to be real. Those are kind of the considerations that we're making as we [indiscernible] with those customers.

Great. Thank you very much.

Thank you. The next question is from the line of Matt Akers with Wells Fargo. You may proceed.

Hi, thanks. Good afternoon. Thanks for the question. Can you talk about, kind of margins and profitability on the responsive launches? And I know you talked about how that will sort of benefit your overhead absorption, but I guess you're the only providers who have demonstrated that capability, is that something you're going to be able to charge, kind of a premium for launch for? And then on the other side, I guess, are there additional costs that need to come with that or is that sort of something you can do mostly out of capacity that you already have online?

Yeah. Hi, Matt. That's a good question. So, I mean, I think it's universally understood that an on demand service demands a premium. And certainly that's been our experience to date when we've had both government and commercial customers come to us with the short-term work. So, those certainly come at a premium because if you have a nice production cadence and flow and launch flow, and then something jumps in the middle of it, then there's certainly additional value that you've provided. And with respect to costs, I mean, Adam will provide you a more fulsome financial answer, but my kind of put here, you know, you're not flexing with a whole bunch of staff to, you know, to meet these. So, you know, your staff cost is relatively flexed. We like to carry inventory anyway. It's just kind of reprioritization of staff and projects to allow the [flex] [ph]. And there will be some additional staff carried in a small number to enable certain things, but generally it's a reprioritization.

Yes, yes. And Matt, I think following on Pete’s point there, on the revenue side, what we've seen is, every year we seem to have customers that come with short-term launch needs. And it's a little bit different with this U.S. government responsive launch because that's much more planned and coordinated, but if you kind of take the range of, kind of a mix of, kind of commercial and government customers who either have planned responsive launch requirements or commercial customers that show up with a very defined short-term launch window, but they need to [indiscernible]. Prices have been on average probably 15% to 30% higher than our sticker price. So, that kind of gives you a bit of an example of what the premium kind of looks like for this kind of responsive type of capability. And our sticker price again being call it $7.5 million is kind of what we advertise the baseline Electron launch to be. On the cost side of things, as Pete mentioned, one of the valuable characteristics of being so vertically integrated and in fact owning our launch facility in New Zealand is the fact that most of what we do is fixed, right? Fixed costs, so the incremental cost of doing a responsive launch is really nothing different than a well-planned-out manifested launch that's out 6, 12 months from now. So, I think it's really all beneficial to margin because you're seeing a significant uptick in average selling price and your cost of goods sold, including your near-term, kind of launch period costs are not really affected by it. So, it's all goodness.

Great. Thanks. That's helpful. And I guess just one more. I just want to ask about labor and just a lot of companies having issues finding people at this point. Is that something that you've seen or you expect to be a bottleneck in the near future or feel like you're already pretty well staffed for this year?

Yes, I mean, talent is always, is always a challenge. I would say that we made some pretty significant changes to the way that we were doing recruiting in the last – the last sort of six months. And those have formed really great results. Also, we are, kind of seeing that engineers want to work on projects that actually launch and within successful companies though. As kind of other folks, kind of [failed] [ph] to execute or had very, very long-term ambitious plans that also, kind of failed to execute on, we don't get an effective cap with the price, we tend to attract the engineers that are really excited to work on real projects and deliver real hardware and the bar to getting into Rocket Lab is extraordinarily high, and people kind of know and respect that. Just kind of a long winded bias thing, I think every company is facing kind of talent issues, but we've been much more successful in the last quarter or so in feeding the machine than we ever had before.

Got it. That's helpful. Thank you.

Thank you. The next question is from the line of Edison Yu with Deutsche Bank. You may proceed.

Thanks and congrats on CAPSTONE, that's quite extraordinary. Wanted to come back to the topic on Neutron and sort of the environment for [May] [ph] constellations. In the context of everything that's sort of going on, obviously, you have one web merging, there's some rumors about some other constellations out there, how are you thinking about the timing of when to decide who the first customers are for launch? And I guess, what could possibly influence that?

What I'd say there, you know, from us, like, typically, we don't sign contracts that are kind of [sloppy] [ph]. So, if someone wants, for example, to secure an Electron launch, it's a 10% nonrefundable deposit down before we'll engage. So, it's kind of – there's kind of two sides to this [question] [ph] is that, you know we need to determine who is going to be this partner, especially when we're consuming – looking to consume the tremendous amount of launch from us. And the customer also has to be willing to make that investment and to launch. And the more real the customer is, the more real they expect the launch vehicle to look. And the less real launch vehicle is the less real a contractor [and looks] [ph], there's no formal commitment, there's no cash paid. So, our focus is really on working with all of those customers, determining which one is going to actually be at the pad, and those customers in turn are looking at us and looking to see development milestones and they're asking us the same question, was this vehicle going to be at the Pad when you say, it's going to be. And all the rubber hit the road when [money exchanges] [ph] came to that point.

Yes. And Edison, I would add a little bit more to the fact that that would become a much more diversified company and everyone views us as a launch company, which certainly that's the core, but we're really looking to put more deals together that are multifaceted, right? So, it may not be the first customer that we announced for Neutron is probably going to involve more than just launch, right? We have a lot of things that we bring to market and we're looking for much broader end-to-end customer relationships. So, I think that that's one of the values of having, kind of the breadth that we have now is that, it's rarely becoming just a launch contract. It's usually launch contract, plus other things, kind of in partnership with that, whether it's components for [people satellite] [ph], whether it involves design services, on orbit management and so forth. So, again, we're looking to create much more holistic relationships and package deals. So, it's a little more complex and it also kind of winnows down the field of who kind of you want to [indiscernible] as well. It becomes that much more important that who you're partnering with is going to ultimately deliver their constellation and you're not going to be, kind of left with a kind of vaporware type of contract.

Understood. And just one follow-up. Kind of related, there's certainly a lot of competing or new competition coming to the market and particularly in, sort of call it 1.0 ton to 1.5 ton payload, what's your – I think we discussed this before, but just curious if you could refresh out, what's your sort of view on that kind of sizing versus, kind of a small-end with Electron and then you have Neutron coming, how do you view that segment of size for the market?

Yes. So, there's been emerging competition coming for, as long as we've been flying Electron. And as of yet, it just hasn't materialized. I think it's easy to, kind of talk about disruptive technologies. It's actually super hard to do it and even harder to, you know, to do it reliably and consistently. Not being as arrogant to say that there's not going to be competition at some point arrive, it's just – it's been arriving for in the last decade, but it's not finally got there yet. And with respect to the 1.0 ton class, I mean, we were very, very deliberate in the size of launch vehicle for a small dedicated launch vehicle that we developed. And we really think we've hit the sweet spot. Now, with respect to the, kind of the 1.0 ton class launch vehicles, our view has always been and the fundamental reason why we didn't develop one is you're in a complete no man's land with a 1.0 ton vehicle. So, if you've got a dedicated small satellite that you need launched, Electron and Electrons price point is absolutely ideal. Nobody charges you less for half [indiscernible] rocket. Like if you want to buy a dedicated rocket, then you buy a dedicated rocket. And if you've only got 100 kg or 200 kg or 300 kg payload, then you've just bought a very – much more expensive rocket when you needed. And then on the flip side, from a larger perspective, you're competing directly with a [indiscernible] mine transport emissions. So, it's just the worst of all worlds. It's too small to be an effective rideshare vehicle and too big to be a cost competitive dedicated launch vehicle. And I think as Adam mentioned previously, there's a lot of new entrant pricing out there, a lot of folks really don't have the experience to know what it actually costs to build and operate a launch vehicle and a lot of captured pricing going on that will be completely unsustainable in the future. And so, if without the one-time sweet spot, then we would have built a vehicle, you know, through that and we could certainly, you know, pivot to building one very, very quickly, but we'd honestly think that is the rest of all worlds.

Right. Thanks for that [insight] [ph].

Thank you. The next question is from the line of Austin Muller with Canaccord. You may proceed.

Hi. Good afternoon, Peter and Adam. So, my first question here, earlier this week, Maxar announced that they're moving, sort of up or they're moving into a – the small set mark if you will, with a proliferated LEO bus that's sort of scalable to a 150 kilograms to 500 kilograms. So, are you sort of seeing the same kind of trends right now within the manufacturing market where a lot of companies are, sort of moving their constellations from what had been CubeSats up to slightly more capable systems in that, sort of 150 kilogram to 600 kilogram range that are not quite an exquisite 5,000 kilogram satellite, but do you have, you know, the capacity for bigger batteries, bigger solar panels, and more capability.

Yes, absolutely. Austin, this has been a trend that we haven't seen over many years. And we would – if you roll back a couple of years, we would fly a CubeSats customer and they would do a mission demonstration. They would enable them to raise capital or prove [indiscernible] and then they would move into a more cable platform. And we see this across the board. And this is why we think you know, going back to Edison’s questions, why the class of Electron launched vehicle, and I think this suits this market very, very well. But yes, that is what we continue to see as we, kind of [indiscernible] CubeSat graduate into a more fulsome platform. And then ultimately, typically how it rolls is you're – even on your larger platform as you look for a rideshare cheap launch, you'll get it on orbit, prove out the capability of spacecraft, and then when you actually need to put the spacecraft into the desired orbits to be commercial, that's when we often see those customers coming back again and buying bulk buyers of electrons to deploy their constellation to the exact orbit. And I think you can look across a number of those bulk buyers that we’ve signed and see that evolution is consistently across all of them.

Great. That's very interesting. I just wanted to comment, congratulations on the achievement with the CAPSTONE mission, and now that you've, sort of demonstrated more Interplanetary mission capability, I know the company's talked about doing a mission, a Venus mission soon, is the intent there to monetize some of that data collected from the Venus mission and be able to sell that?

Yes. I mean, the Venus mission is a [indiscernible] and we can do the [old cold hardware] [ph] kind of a mission. And the science team working on that is – they funded themselves, and anybody who wants to be a part of that program has to bring their own funding. But undoubtedly, the data will be of huge scientific value, and there could be opportunities to monetize that. But what I would say is, where the real focus is now that we've proven that we can build and operate a spacecraft that's capable of Interplanetary flight is actually taking that investment we've made in that Lunar Photon platform and the proof points that we now have and developing missions with our end customers, which is the most exciting thing about that whole mission really. I mean, you sit down with the planetary scientists from NASA, and in their entire career, they've expected to do maybe two missions to a planet in their entire professional career. And generally, these missions are measured in decades and billions or hundreds of millions, and just sitting down with the planetary scientists now saying well for some tens of millions of dollars in a few months' time, we can go to Mars or we can go to this asteroid, it's really, really changed the game and changed the way that everybody's thinking about actually having, you know, how you do interplanetary science and what is the out of the possible now. So, we see that platform has been really, really disruptive. And, you know, we're looking forward to doing some really exciting missions in the future [indiscernible].

That sounds super exciting. Just one more if I may. This might be a question for Adam. If you haven't already, can you just, sort of delineate what's specifically in the quarter caused the – within the mix of space system caused the lower gross margin there?

Yes. So, if you look in the mix, it's really – everything that we're doing in space systems right now is influenced by SolAero, because it came with so much revenue relative to everything else. So, it's really more than anticipated SolAero contributions in the quarter was the primary one. Everything else is, kind of on the margin. I think the other parts of our space systems business have reasonably good margins. They were good when we acquired the assets. I think the stuff that we developed internally has generated good margins. So, it's really just the mix. And I think again, we mentioned, we knew that there were some improvements that we needed to do SolAero where we love the strategic nature of the SolAero business. It proved itself to be incredibly strategic in the MDA Globalstar constellation win. It's proven to be very strategic and others, projects that we're pursuing. So, love the business, tremendous amount of opportunity there. We're relatively early in that process of finding those opportunities and bringing not only, kind of our broad manufacturing capabilities to bear on it, but also capital, right? I think there's – it was a business that wasn't, I would say, fed particularly well by the prior owners. And I think we were looking for ways to put more capital in that business and do things a little bit differently, but yes, it's really that that was – the skewing of the margins in the quarter.

Okay. And so, I guess after we sort of get through that 24-month timeline for transformation in that business and you can get it above the objective 30% gross margin. Then we can think about space systems being back in the 50% to 60% range?

Yes, I think we've always been consistent in talking about, kind of the low to mid-50s. So, there are certainly elements of that business that are 60 points plus, but really when you look at it on a consolidated space systems basis, low to mid-50s is where we kind of set the bar.

Okay. Great. Thanks for all the insights there.

Thank you. The next question is from the line of Cai von Rumohr with Cowen. You may proceed.

Yes. Thank you very much. I know it's been a long call, maybe you could comment on supply chain inflation and FX basically, what impact they're having on your business? I know it's a complex question, so maybe just hit the high points.

Yes. Hi, Cai von. So, from a supply chain perspective, because we're so vertically integrated unless the raw material start flying then we don't see to the [indiscernible] huge impact. No, not saying we haven't had a supply chain challenges, I think we've got a great supply chain team that manages things very, very well, we keep quite a lot of inventory and width and long-lead item, but, you know, you know, we've been able to manage our way through that phase of date. You know, we haven't delayed a launch or a spacecraft delivery or anything that I'm aware of with respect to challenging [supply chain] [ph]. I run it through the biggest thing that we – supply chain challenge that we face is [boring] [ph] stuff like steel and concrete for building Neutron stuff, and CNC machines for the Neutron program. Like that stuff is – the [boring] [ph] stuff is just not available or is it available as it used to be. And then from you’re an inflation and foreign exchange perspective, [indiscernible] comment on some of those [indiscernible] we're all about appealing the impacts of inflation, your costs are going up and you saw that in some of the commentary here in these earnings with more additional costs in stock. And the foreign exchange exposures we have between New Zealand and the U.S. are generally favorable because the New Zealand dollar has performed very, very poorly against the U.S. But Adam, you probably better to answer those most markets.

No, I think you've done a great job. I think really the foreign exchange is real from a P&L perspective has helped us because the cost of New Zealand relatively speaking have gone down and we do have a significant employee base there. I think the point that Pete mentioned earlier that we're very vertically integrated, so, we're less exposed I think in general than most other companies. Again, the exception being wage inflation, which we're all seeing, right. So, I think it for the most part, it doesn't keep me up at night right now, kind of inflation, impacting every part of our business, but a significant portion of our costs are related to human capital and those costs. continue to go up.

And the last one strategically, when you think about taking orders for Neutron, obviously, the longer you wait, the better your visibility of the cost, the visibility of the quality of the clients, but maybe you want to lock up some early on. So, how do you think about that? At what point, are you going to be more aggressive about trying to actually sign those orders?

Yeah. It's a great question. And, you know, there's two elements to that as one is when is the company is looking to acquire the launch, you know ready to commit to significant financial outlay to do so. Look, we can find as many email use and non-financial transactional contracts for Neutron as you wish, but it's kind of not the way we operate. Any contract that you see with Rocket Lab like it's a real contract and there's money down. So, with the press release and [fluffy] [ph] contracts, but that's not really our style or being real. And part of it comes down to as when is the customer willing to commit capital to secure it. And also, as I mentioned before, it's like who's going to actually be on the pad, and I'm not too worried at the moment, Cai von, about that, I mean, we've got [indiscernible] to deliver the vehicle and our customers have got working [indiscernible] to keep their constellations on track and on schedule. And the one thing as an absolute fact is the launch of an [indiscernible] officially around the time that the Neutron comes to market as an absolutely rarity. So, we can afford to be fussy and others have lots of aspirations and lots of much execution history. We're very much of the opinion that we will execute and we watch our customers execute and then the people that execute will come together and that will be there.

Terrific. Thank you very much.

Thank you. The next question is from the line of [Justin Lane] with Morgan Stanley. You may proceed.

Hi, thanks. Maybe just one quick one on the booster you covered, the helicopter back in May, has there been any surprises at this point? Now you had some time to assess the extent of refurbishment required? Thanks.

Yes, hi Justin. I won't tell you any surprises. I mean, we've been happy with the condition that it was even though we don't do [indiscernible]. All of the areas that typically see the most amount of load and work and the areas that we've been iterating on look pretty successful. And we had a battery program, which is just about wrapped up, which will enable 10 recharges of the batteries, which is the largest single element that we were going to have to replace from the launch vehicle. So that program is just ramping up. So, it's all kind of coming together nicely. I think what was – not so much surprising, but very gratifying was that the first time we attempt to actually do this with a helicopter with a brand new helicopter and a brand new process, we pulled it off. And [indiscernible] middle of the Pacific Ocean with something that's been traveling at 7x the speed of sound on a ballistic trajectory and [indiscernible] and doing all that was very gratifying to see that, all that analysis work and if it's paid off. And this is going to be really a viable system for us. So that was a great point to reach.

Great. Thanks.

Thank you. [Operator Instructions] There are no additional questions at this time. I will pass back to the management team for closing remarks.

Thanks very much. And with that, thank you everyone for your interest in Rocket Lab and for those who participated in today's call. Adam and I will be speaking at these upcoming conferences and look forward to the opportunity to share more exciting news and updates at The RBC Global Industrials Conference in Vegas on the 13th of September; The Morgan Stanley Laguna Conference on September 14; The ACG Aerospace & Defense MiddleMarket Conference in Los Angeles, September 15; and The BofA Global Industrial Innovation Summit at Washington DC on September 23. And last but not least, we look forward to welcoming you our invitation only Investor Day and Neutron Development Update to be held on the 21 of September at the Intrepid Museum in New York City. At this event, I'll be joined by Adam and other members of our senior leadership team to host a series of presentations really focused on the company's progress since [indiscernible] in August 2021, as well as pull some updates on the development of the Neutron launch vehicle. Thanks again, and we look forward to speaking with you again about the [indiscernible] progress that we've been providing that business. Thank you.

That concludes today's conference call. Thank you. You may now disconnect your lines.