Greetings. And welcome to the Rocket Lab First Half 2021 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Gideon Massey, Finance Planning and Analyst Manager. Thank you, sir. You may begin. .

Thank you, operator. Good afternoon, everyone. And thank you for joining us on today's conference call to discuss Rocket Lab's first half 2021 financial results. Today's call is being hosted by Peter Beck, Founder and CEO; and Adam Spice, Chief Financial Officer. After our prepared comments, we will take questions. .

Our comments today include forward-looking statements within the meaning of applicable security laws, including statements relating to our guidance for the third and fourth quarter 2021 revenue.

Revenue growth expectations in our principal target markets, GAAP and non-GAAP gross margin GAAP and non-GAAP operating expenses, tax expenses and effective tax rate and interest and other expense. .

In addition, we will make forward-looking statements related to trend opportunities and uncertainties in various products and geographic markets, including, without limitation, statements concerning opportunities arising from our launch service and space systems market and opportunities for improved revenue across our target markets. .

These forward-looking statements include substantial risks and uncertainty includes arising from competition, global trade and export restrictions, the impact of the COVID-19 pandemic our dependence on a limited number of customers, average selling price trends and risks that our market and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect.

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More information on these and other risks may affect the forward-looking statements is outlined in the Risk Factors section of our recent SEC filings, including our Form 8-K filed on August 25, 2021, and the documents incorporated therein.

Any forward-looking statements are made as of today, and Rocket Lab has no obligation to update or revise any forward-looking statements. .

The first half 2021 earnings release is available in the Investor Relations section of our website at rocketlabusa.com. .

To supplement our unaudited consolidated financial statements presented on a basis consistent with GAAP, we disclose certain non-GAAP financial measures, including gross margin and operating expenses.

These supplemental measures exclude the effects of stock-based compensation expense, amortization of purchased intangible assets, other nonrecurring interest and other income expense, net attributable to acquisitions and noncash income tax benefits and expenses..

We also supplement our unaudited historical statements and forward-looking guidance with the measure of adjusted EBITDA.

Investments to EBITDA include share-based compensation, warrant expense related to customers and partners foreign exchange gains or losses, other nonoperating income and loss, excluding interest expense related to debt and other nonrecurring gains or losses.

We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in our investor updated presentation available on our website. .

We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges, including stock-based compensation and its associated tax effects and the effects of warrant expense related to customers and partners.

Non-GAAP financial measures discussed today are not in accordance with and do not serve as an alternative for the presentation of Rocket Labs' GAAP financial results. .

We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business. We believe that these non-GAAP measures have location and that they do not reflect all of the amounts associated with our GAAP results of operation.

These non-GAAP measures should only be viewed in conjunction with corresponding GAAP measures. .

Lastly, this call is being webcast with a supporting presentation and a replay and copy of the presentation will be available on our website for 2 weeks. .

Now let me turn the call over to Peter Beck. Founder and CEO. .

Thank you very much, Gideon, and thank you all for joining us today as review Rocket Lab business highlights and financial results for the first half of 2020. I founded Rocket Lab in 2006 with a vision to unlock the potential of space, and it's a pleasure to be joining you today and sharing details on just exactly how we're doing that. .

I'm joined by our Chief Financial Officer, Adam Spice. Adam has served as our CFO since May 2018. Prior to joining the Rocket Lab team, Adam was the Vice President and Chief Financial Officer at MaxLinear, and of experience to the team. .

Today, we'll be talking you through a brief introduction of the Rocket Lab business, followed by our key accomplishments the first half of 2021. We'll be covering our financial highlights and outlook sharing our up-and-coming conference schedule. And of course, we'll leave time for questions and answers. .

So let me first open with a quick overview of Rocket Lab. We're a vertically integrated end-to-end space company spanning launch services and space manufacturing with a vision to move into space applications perhaps better known as providing data services for orbit.

We design, manufacture and launch the Electron rocket, which has been flying since 2017. We've now launched 21x and delivered 105 satellites to orbit for a range of commercial and government customers. .

This has made us the second most frequently launched U.S. rocket for the past 2 years behind only basic is Falcon 9. We have 3 launch pads, including 1 operational pad and another nearing completion in New Zealand. The third Virginia -- the third in Virginia is scheduled to be operational in the coming months pending NASA certification. .

Beyond launch, we design, manufacture and operate spacecraft, two of which have been launched and operating in the orbit right now. Our Photon spacecraft has been selected by NASA permissions to the moon to Mars and has been selected by commercial satellite operators or missions in low Earth orbit. .

Operating as a launch provider and spacecraft manufacturer, we have a unique insight into the industry, particularly across supply chains.

Something that became quickly apparent to us was that while small satellite industry was growing, it was constrained by satellite component supply as typically, these products are being produced in small quantity and are hugely expensive and require ordering sometimes years in advance. .

So we set out to change that by producing what we consider best-in-class space got components at scale, our capability was strengthened with the acquisition of Sinclair Planetary in 2020. .

So with that brief overview of the Rocket Lab story today, and let me take you through some of the achievements for the first half of this year. .

This, we started off strong with 3 Electron launches in the first half, which saw us hit our milestone 20th Electron launch to date. We managed to launch twice in the same period last year. So we've increased our launch cadence by 50% for the first half of 2021. .

Across these missions, we reached another key milestone deploying our 100th satellite to orbit. We've actually now exceeded that and are sitting at 105 satellites deployed to orbit for customers across government and commercial markets, plus 2 of our own Photon spacecraft here as well. .

It was on this 20th launch that we successfully recovered Electron's first stage Bristolia Ocean SplashTown after launch. This is our second successful recovery of the first stage and marked a significant step forward in our usability program, which aims to make Electron the first reusable rocket dedicated to small satellites. .

The first half of this year also registered significant growth in backlog with June 30, 2021 backlog of $141 million. June 30, 2020 backlog of $59.9 million.

This is underpinned by several significant new Electron launch contracts, including a 5-launch deal with BlackSky Global to support their Constellation growth as well as a new launch contract with General Atomics. We continue to see strong growth from government customers to with a new launch contract awarded for a dedicated launch for the U.S.

government. The commercial sensitivity and security reasons, several of our commercial and government customers do wish to remain undisclosed at this point. .

We also saw strong growth on the Space Systems side. We were awarded a contract to design and build 3 photons spacecraft for Vada Space Industries, an in-space manufacturing company. We were awarded a study to develop 2 Photon spacecraft for NASA Escapade mission to Mars.

In addition to Photon's contracts, we secured new deals for satellite components across a number of large undisclosed customers. .

And of course, in the first half of 2021, we had a big milestone by entering into the merger agreement with Vector Acquisition Corporation being a journey to become a publicly-traded company listed on the NASDAQ. .

In anticipation to our public listing, we also welcomed new Board Members, Merline, Jon at Alex. We're proud and excited to have him on the team as we embark on this new chapter. .

On the R&D side, we announced plans to develop a new 8-ton payload class rocket called Neutron, where Electron sold the challenge of dedicated responsive launch for small satellites, Neutron will provide a right-sized solution for launching the constellations of the future.

Since announcing plans in March, we've continued to make great progress, and I look forward to sharing a detailed development update in the coming months. .

So let's provide a brief snapshot of the highlights in the first half, but I'd like to also touch briefly on some of our key achievements since June 30 of this year. .

On July 29, we successfully launched our 21st Electron mission, a dedicated launch for the United States Space Force. This is our second mission under the space test program, the first taking place in May 2019. So we're proud to have delivered a mission success for our government customers once again.

As is often the case with our government customers, pin point accuracy and orbital deployment is highly valued, and this mission delivered the payload with precision, thanks to electronic stage. With more government missions coming up, we look forward to delivering this reliability again and again. .

Beyond launch activity, from June 30 to August 31, we continued to grow our backlog to $174 million. This is underpinned by launch contracts with commercial satellite operators including Aurora Propulsion Technologies, Alba Orbital as well as a number of undisclosed commercial and government customers across launch and space systems. .

Contributing to this as another multi-launch deal. Just today, we announced that Rocket Lab has been awarded a 5 launch contract with Kinéis to deliver 25 satellites to orbit, with the Electron from 2023.

This represents Kinéis entire constellation and really commence Electron's value proposition of putting our customers in control of their emissions by launching on Electron, Kinéis has much more control over their launch schedule, orbital parameters as well as that pinpoint deployment accuracy that is provided by the kick stage. .

On the Space Systems side, we recently announced that construction is underway on a new production line for reaction yields A key component for small satellites. As mentioned earlier, satellite components have typically been produced in small numbers, which has really limited the speed and scale of Constellation development.

The line has been built to solve that, enabling production at scale to meet the growing needs of their customers, the industry at large. .

And of course, one of the key achievements of the year so far has been the successful closure of our merger with Vector Acquisition Corporation. As of 25th August, Rocket Lab is a publicly-traded company on the NASDAQ -- The transaction saw Rocket Lab received $777 million in gross proceeds.

We also saw a tremendously low redemption rate of just 3% on publicly-traded VACQ shares. .

This activity has taken place against a backdrop of COVID-19. Our launch cadence and operations have and continued to be affected by COVID-19 restrictions in the U.S. New Zealand and Canada.

And New Zealand operations have experienced disruptions due to some of the most restrictive COVID-19 measures law, including our current stay at home orders, which convince launch operations taking place. .

In addition, New Zealand -- in addition, New Zealand's strict international border restrictions have created delays. However, we have been successful in securing our customers into New Zealand so far. Indications are that the current lockdown restrictions may ease by the end of September with the Delta cases dropping in New Zealand.

But this, of course, is subject to change. .

So with that, I'll let turn the call over to Adam Spice, our Chief Financial Officer. .

Thanks, Peter. I will first review our first half 2021 results and then further discuss our outlook for Q3 and provide around our Q4 2021 revenue outlook. Our first half 2021 results highlight revenues of $29.5 million, representing a year-on-year growth of 237% and GAAP and non-GAAP gross margins of 13% and 23%, respectively.

Specifically, launch services revenue grew 185% and stood at $24.1 million or 82% of total revenue and Space Systems contributed $5.4 million or 18% of total revenue. .

Space Systems grew dramatically off a small base year-on-year to $5.4 million from approximately $300,000 as the period benefited from the combination of full period contribution from the acquisition of Sinclair Planetary that closed in April 2020, overall strong growth in shipments for reaction wheels and star trackers as well as contributions from our broader spaces initiatives, including spacecraft, engineering and design services.

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As referenced earlier, GAAP and non-GAAP gross margins for the first half of 2021 were approximately 13% and 16% of revenue, respectively. This compares to GAAP and non-GAAP gross margins of negative 67% and negative 59%, respectively, in the first half of 2020.

Expansion both GAAP and non-GAAP gross margins were largely the result of increases in Electron build rate and launch cadence and the related effects on launch and production overhead cost absorption as well as the mix effect of greater relative contribution of Space Systems.

The delta between GAAP and non-GAAP gross margins in the first half of 2021 is primarily driven by $600,000 of stock-based compensation and $100,000 of acquisition-related intangible asset amortization. .

GAAP operating expenses for the first half of 2021 were $29.3 million, up $11.9 million versus the first half of 2020, with 80% of the OpEx increased spending attributable to R&D targeted at further developing TAM expanding technical capabilities. .

GAAP R&D expenses of $15.6 million included stock-based compensation of $1 million and amortization of purchased intangibles of approximately $100,000, yielding $13.9 million of non-GAAP operating expenses for the first half of 2021.

The previously referenced targeted investments in R&D spend that stepped up $9.5 million were driven largely by increased staffing and Photon expenses related to our systems products, launch vehicle automated flight termination system development efforts and the initial spend on our recently announced Neutron launch vehicle. .

GAAP SG&A expense of $13.7 million included stock-based compensation of $800,000 and amortization of purchased intangibles of approximately $50,000, yielding $12.8 million of non-GAAP SG&A expense for the first half of 2021. .

The year-on-year step-up of $2.4 million in SG&A was primarily due to the increased headcount and related labor expenses, software licenses and subscriptions as professional services and audit expenses related to the preparation for our capital markets transaction, partially offset by reductions in facilities and other related overhead expenses. .

Our cash flow consumed from operating activities in the first half of 2021 was $30.6 million, which reflects an increase of cash consumed of $24.5 million versus the first half of 2020.

This increase was largely driven by a $9.1 million larger net loss, combined with a $13.8 million increase in accounts receivable due to the lengthening payment terms extended to a strategic customer undergoing a protracted financing process, which is now nearing conclusion and an increase in inventory of $5.3 million, offset somewhat by $5.5 million in noncash expense associated with preferred stock warrants.

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Cash flow consumed from operating activities was $5.7 million in the first half of 2021 compared to cash consumed of $27.8 million in the first half of 2020, with year-on-year period reduction in cash consumed driven by several large capital projects that were consuming cash in the first half of 2020 being largely completed in 2020. .

Included investments are our new Long Beach headquarters and production facility, investments in LC1B, our second launch pad at Maya, New Zealand, and our newly consolidated propulsion test complex in Auckland as well as nonrecurring $12.12 million cash outflow related to the acquisition of St. Clare planetary in April 2020. .

The combination of cash consumed from operating and investing activities was more than offset by the $97.4 million net cash generated from the finance activities in the period, resulting in $109 million in cash and cash equivalents and restricted cash as of June 30, 2021, an increase of $30.9 million versus the prior ending period June 30, 2020. .

Subsequent to the June 30, 2021 period, we completed the stack transaction Vector Acquisition Corporation on August 25, resulting in $777 million in gross proceeds from a combination of a $467 million pipe and $310 million from Vector Acquisition Corporation's cash and trust.

We believe the liquidity resources of the company enable the execution of our strategic development road map, including the development of our Neutron launch vehicle and continued investments targeted expanding our total addressable market for Strategic Space Systems Solutions. .

With that, let's turn to our guidance for Q3 2021. We currently expect revenue in the third quarter of 2021 to be approximately $4 million to $5 million, which has been significantly impacted by the COVID level 4 alert and lockdown in New Zealand after Delta variant outbreak, resulting in no further no launch activity planned in the quarter..

Q3 2021 GAAP and non-GAAP gross margins of negative 221% and negative 52%, respectively.

These negative gross margins are a product of the significantly lower production launch volumes forecasted in the quarter and related unabsorbed production and launch period costs resulting from the Zealand COVID Level 4 restrictions referenced earlier on the call.

We believe our high degree of vertical integration is very strategic and a key factor enabling future operating leverage. However, in periods such as this, vertical integration can have the asset effect. As production Launch activities resume, we expect gross margins to recover accordingly. .

We expect Q3 2021 GAAP operating expenses of $41 million to $43 million and non-GAAP operating expenses of $18 million to $20 million as we continue to fund strategic development programs targeted at delivering strong top line growth in 2021 and beyond across launch and Space Systems and our goal of delivering operating leverage in the business..

We expect Q3 2021 GAAP and non-GAAP interest expense to be $3.4 million. Given the requirement to fair market value of the Vector Acquisition Corp.

public and private warrants and Rocket Lab customer and partner awards based on the end stock price, we cannot estimate these below-the-line GAAP other income and expense items at this time, nor are we able to forecast foreign exchange gains or losses. We expect Q3 2021 adjusted EBITDA loss to range between $17 million and $20 million. .

Our manifest for the remainder of the year remains strong, which supports demand for more than $40 million of revenue in the fourth quarter. Given the uncertainty of COVID restriction in New Zealand, however, we are judging our fourth quarter revenue forecast to range between $17 million and $20 million.

This assumes the COVID-19 restrictions eased prior to the end of September, allowing our launch service to resume. This revenue guidance of $4 million to $5 million for Q3 and $17 million to $20 million for Q4, when combined with our first half in the books would result in fiscal year 2021 revenue of $50 million to $54 million.

We are taking what we believe to be a prudently conservative approach to forecasting in a very uncertain time with regards to COVID restrictions in New Zealand. .

To this end, the estimate for fourth quarter revenue assumes modest sequential growth in Space Systems and contribution from only 2 launches in the quarter versus 5 launches currently manifested.

It is also important to consider that our backlog has been growing despite the current COVID operating restrictions in New Zealand and these contracts are not perishable, but rather just the timing of execution against these binding contractual launch services agreements. .

So in closing, despite near-term challenges presented by COVID restrictions primarily affecting our launch services business, we're very encouraged by the progress made against key strategic programs and expansion initiatives and particularly by continued expansion in our backlog. .

And with that, I'd like to open the call for questions. .

[Operator Instructions].

The first question is from the line of Edison Yu with Deutsche Bank. .

And congratulations on the first quarter out. Just had a couple of things I wanted to ask 1 year near term kind of further out. I realize that you're being a bit conservative on the launch cadence due to COVID. Could you maybe go over what's the potential to maybe make that up in like the first half of 2022? given you clearly have the capacity to.

Is it still possible to kind of get those launches and maybe in the first quarter of 2022, curious about that. .

And then the second thing, a bit more longer term. It seems like the pace of announcements of wins has accelerated, I would say, in the last few months.

Could you maybe go over again the pipeline that you've outlined in the past? Is that also expanding across the various verticals that you're playing in? I'm just curious, it just seems the pace of wind has really accelerated. .

I can kick a couple of these and add any color that you wish to it. With respect to can we make up the manifest. We -- obviously, we are provided -- we can produce launch vehicles and we can push those out to the pad pretty quickly. Operating our own private all range gives us a huge amount of flexibility to manage the manifest.

We're not subject to any other launch vehicles scheduling constraints. So that puts us in a good position to make those up and control that. With respect to the pipeline extending the pipeline does continue to expand, and we continue to see growth in the pipeline and the opportunities thereon. .

Yes. I mean I'll jump in and I think when it comes to the catch up Sorry, go ahead. .

No, go ahead. Go ahead. I had a follow-up. .

Go ahead and ask your follow-up and then I'll answer. .

Yes, I was going to say is, I guess, I assume 4Q doesn't include any launches out of walls, right? I was just going to make sure. .

Okay. I'll take that. So yes, currently, right now, we don't have any launches scheduled on the manifest for Q4 out of wallets. .

As we've discussed in the past, We're really awaiting the final certification of our automated flight termination system. We're waiting on NASA's software to be certified on our hardware. So until that happens, we're able to launch at a wall.

So we've also -- there's a targeted date of having that operational by the end of the year, but whether we could get a launch off within that kind of towards the very end of the year is in question.

Peter, do you want to add?.

That's a factor right in. The launch plan is complete, and it's commissioned. We're just waiting on the sort of complete that final piece of work on the software, which, as Adam said, is scheduled by the end of the year. .

And then I'll jump back on to the question as far as catching up in Q1. I would say that we're certainly not throwing in the towel on Q4 and supporting as many of the launch that we have on the manifest.

It was just really out of, I would say, being prudent and conservative with regards to forecasting for the financial community, what we're willing to sign up for, commit to. This is not at all an indication that we are changing our manifest or not kind of still doing everything we can to execute to that.

I think it was just prudently cautious of us to put a lower financial commitment out there. But again, I want to make sure that people don't confuse that with what actually exists on the manifest and what ultimately the bogey would be. .

And then I would follow on the other question as far as the pipeline pace and so forth. I would agree. I think we're seeing a lot of diversity in the pipeline across launch across government, across commercial.

And then I think more specifically probably on the Space Systems side is where we're seeing a tremendous amount of strength and where we're getting a lot of diversity building in the business. .

To me that's probably the most encouraging because I think having that diversity of the business allows us to deal with some of the lumpiness of natural in the launch business, right? Launches can be affected by weather.

They can be affected by a lot of things, whereas this diversified portfolio of Space Systems business across components, satellite build, design services on orbit operational management contracts and so forth. And that really does provide a nice kind of diversified and stable base on which you can build your business.

So we're very, very excited about that particular part of the growth in our pipeline. .

Great. That's great color. If I could just sneak one more in. Any sort of updates on Neutron. I know you said that you'll give more details in the coming months. Curious what's maybe some reactions from potential customers.

The progress is everything kind of on track timing-wise, just anything there?.

Yes, sure. Neutron continues to develop really well. And we're just -- we're spending a time getting through a tremendous amount of work. And holding our cards a little bit close to our chest. .

Look, Neutron is a vehicle that is that kind of an increment on electronics. It is something that really sets a new standard within the space industry in our view. So we're going to do a really significant announcement about that here in the coming months, where we'll expose a lot more of its details.

But at the moment, we'd like to just keep a head down and working hard and getting through a large portion of the vehicle design and ops. I don't think anybody will be disappointed with the -- when we reveal more information. .

The next question is from the line of Cai von Rumohr with Cowen. .

Yes. So we raised a lot of money. It looks like you need for Neutron and until you reach cash breakeven. And I think you've talked of sort of inorganic growth. Can you give us a little bit of color of what the M&A pipeline looks like what are you looking for in terms of size of deals when might we see a transaction. .

Sure. I mean your point is exactly correct. We've ensured that we have sufficient dry powder to really expand the TAM. And I would just fair to say that the kind of acquisitions we're looking for and have been pursuing are ones that really grow our position very strategically.

So obviously, you've seen the value of the Sinclair acquisition in what we can provide there. But more things along those lines that really creates an ability to create new technologies and compete in the marketplace -- more aggressively other kinds of things we're after. I think it's a little bit early to announce anything here.

But perhaps, Adam, you want to provide any that you think approach here. .

Okay. Sure. Yes. No, I think that what's interesting about this market right now is it does really feel like it's ripe for consolidation. And not consolidation in the sense of large companies necessarily getting together.

But the fact that the investability of space is a relatively new phenomena is for quite some time, it's very difficult to raise private capital in this market. .

So there's a lot of mom-and-pop or bootstrap companies where their founder controlled, really nice businesses though, businesses that are reasonably integratable they're digestible from that perspective. Also, they tend to have had a focus on profitability. So you're not picking up what are typically kind of venture-funded cash burning operations.

So we're actually seeing quite a bit of opportunity. And we always have seen our pipeline, a half dozen or so deals that we're actively investigating or trying to progress. .

So think that the outlook looks good for us landing transactions. I think as Peter mentioned earlier, the Sinclair acquisition has really emboldened us to lean forward and look at opportunities.

And fortunately, we're also finding that when we have discussions companies, they seem to really want to be part of this platform, right?.

So I think that's -- in my experience, acquiring engineering-oriented companies, that engineers are drawn to other great engineers. And that's one thing that we really have to offer here at Rocket Lab is a great platform with great engineers.

And kind of when you have those engineer-to-engineer conversations, you really start to get a mind meld and you get a sense that people want to be part of the true operating company and one that's got a leading platform that they can ultimately get their products to market. .

So I think that we're not seeing -- and we're really not looking at we would consider to be large deals. We're really looking more for tuck-ins, and they really do range across the breadth of the market, but primarily on the Space Systems side.

Obviously, that's where the majority of the opportunity is because we believe we've got launch pretty well in hand, obviously, with Electron and now with Neutron. And there might be some technologies that we kind of add the portfolio on that side of the house as well.

But the focus is really disproportionately on the Space Systems side and building out that -- our footprint in that ecosystem in a prudent way, but ultimate way that I think just fits the model and we'll kind of deliver the type of business profile that we've been articulating to investors thus far. .

And as a follow-on, pricing, I think you've mentioned you have a couple of planet launches that you signed up for in 2015 that basically have prices.

What is the recent trend in pricing, both with respect to what you're able to get now that you're kind of more proven? And what you're seeing from competition given those guys basically have yet to prove themselves, but obviously, they like to have business. .

So at the end of the day, our customers value a couple of things than anything else. So they value reliability and not just reliability of the launch vehicle, but reliability of the schedule and just a proven service. So we haven't seen pricing eroded, and customers understand the value that a reliable, dedicated small launch provides.

So I would -- we really haven't seen really any kind of issues there. .

Yes. I'll add a little more color there. .

Have you seen... .

Sorry, go ahead, Cai. .

No, I was just saying, have you seen any improvement in pricing now that you've kind of done more satellites?.

I would say that we've seen stability in our pricing certainly, since I joined, I joined in May of 2018 and the pricing that we were talking about at that point in time was considerably lower than it is today. So pricing has actually gone up for us.

And I think a lot of people perhaps would have predicted that not to be the case, but certainly has developed to be that. .

And I think what we're seeing, what's helping that stability in pricing is the fact that we're bringing more to the table than just launch. I don't want to minimize launch, launch is incredibly complex, and we believe the key to playing in space overall.

But Photon has really been a huge I would say, complement to our launch business, right, where when you can offer a customer a complete turnkey solution where all they can -- all we need really to focus on is the data, which is really what they want from the asset on orbit, coming to them with a combined launch plus Photon solution is incredibly powerful.

And that allows us to have, again, a lot more, I would say, control over pricing because we're really not dealing with other competitors out there that have that same suite of offerings. So that's really been helpful to provide support for pricing and for this not to really get too affected by others. .

And of course, the other thing on pricing, too, is a lot of people can be out there talking about launches, but we're one of the few that's actually putting assets on orbit on a predictable and frequent basis. So that helps as well. .

And then also what we're seeing, I think, developed is that multi-launch deals have come forward. So we talked about the Kinéis deal early today. I mean you really are starting to see I mean, proof that the new space LEO market has really started to take off and you start to see these multi-launch commitments.

And that's something that's really, let's say, kind of evidence itself in the last let's say 6 to 12 months, and we're starting to see more and more kind of momentum on those ones. So less of the kind of one-off bespoke launchers agreements and more for multi-launch which is very encouraging. .

And I think satellite operators also understand the value of all dedicated launch on a reliable platform, whereas prior -- it was less obvious. But as more and more customers are flying with us and they see the value, then I think that's certainly help that as well. .

Yes. I think one of the things that really helps to on the pricing stability is heritage, right? So as Peter mentioned, having hit the milestones we have as far as the number of launches, 21 launches, that's significant, right? It's differentiated in the marketplace.

And I think people now, as we get really serious about putting their assets in orbit, they want to go with somebody who's proven that they can do it, and they can do it reliably repeatedly. So all of those things have kind of factored in to provide what we see is a pretty stable environment for pricing. .

The next question is from the line of Suji Silva with ROTH Capital. .

Team, congratulations on the progress here. I want to dig into your comments on the component strategy and the gross margin that it can be negatively impacted during times like this. And then rebound.

Is that a strategic difference for you guys versus competitors and financially? And help us understand which components you try to bring in source in-house and which ones you don't.

But how you kind of draw that line?.

Yes. I mean the launch business is always a fairly lumpy business because at the end of the day, as a launch provider, you're always subject to spacecraft readiness and customer readiness. So launch is always a lumpy business.

And our decision to move into display systems wasn't something that we did consciously recently, it was something that was baked into the plan from day 1. If you look at the very second rocket that we launched, the kick stage that we put in Albert had resets for solar panels right back on launch to. .

So our view on really providing end-to-end space company has been foundational from day 1.

And when you're going to be that interim-based company components or satellite components actually form a really fundamental layer and an important differentiator between you and others because as we found out very quickly when we started to order satellite components, lead times were just too long.

Like we don't have 9 to 12 months to wait for a reaction are. .

So after kind of experiencing that in our own satellite program, we kind of understood the rest of the industry and the rest of the market and the satellite industry is kind of bounded by the fact that you have, as Adam mentioned, a number of small shops producing at relatively small volumes.

And when you turn up to a satellite component manufacturer and say you want a couple of thousands or something. Everybody's heads just exploded. So if it's a space industry and satellite constellations are going to scale at the rate that everybody products, then this problem has to be sold. .

And the one thing that we're super good at as a company is producing really complete things of volume and space component of volume. So our strategy here is obviously to provide components into our own platforms, but also into others and really help support and jolly along the growth of the satellite and the large constellations in general.

And you can kind of see that with examples of that, obviously, with the Sinclair deal where we're now supplying not hundreds, but up to thousands of reaction wells into a variety of platforms. .

Okay. And then on the launch cadence and the pushouts here, I'm wondering if that has any impact on the timing of when you expect space services, if you would, revenue to come in? I presume you have some learnings and testing there before you monetize that.

Does the launch push out in New Zealand push that back? Or is already in place to hit your targets for that flowing into revenue in a few years?.

Yes. No, I mean this impact wouldn't affect those future plans. I mean the launch manifest gets moved around all of the time. It's very -- like I said, we're always subject to something whether a customer's readiness of the spacecraft, to customer delivery of this spacecraft and of course, global pandemic. So it all gets thrown in there.

And like I said, the biggest inflect is actually owning our own launch range and being able to move those benefits and manage that manifest so that everybody gets off in this time frame. .

Okay. Again, congratulations on the progress. .

The next question is from the line of Austin Moeller with Canaccord. .

Just to go ahead with my first question here. If we think about the Space Systems segment, where do you foresee in terms of revenue mix the ultimate breakout being in the next few years in terms of the sales of the Photon satellite bus versus the sales of the components. Yes, I mean, I can provide a little bit of color. .

Go ahead, Adam. .

Yes.

So Austin, if you look at the breakout, right now, certainly, components is a little bit larger because it had a bit of a -- I would say, a little bit more of a running start from the acquisition of Sinclair When we look at our -- the overall contribution in 2021, is it gets to be pretty balanced by the time we're getting out into this Q4 period. .

So I would say that they both have the opportunity to scale, although my guess would be that components will outstrip the design services and satellite boss and other related functions in space systems for probably the next 12 to perhaps months.

But then the opportunities on the broader side of space systems outside of components, both at satellite bus level and services get to be pretty, pretty large. We're -- I would say that there's a question earlier about our pipeline. .

We had some very, very large opportunities that we're pursuing in our pipeline that are very needle moving. So right now, I'd say the default is that components will be a little bit larger because those kind of opportunities are a little bit further developed and maybe a little bit easier quantified.

But I think things outside the components more of the full systems things, the satellite bus and services side, I think overall, they have not been a scale much more greatly in the longer term, gain once you get out past the kind of 18- to 20-month period. And with that, I'll let Peter if you do any differently. .

No you've said exactly what I was going say. .

Okay. Great. And so if we think about potential future acquisitions along the same line of Sinclair.

Are you guys envisioning targeting companies that are more within that, that larger space system, either satellite bus or services sort of sphere or more components as you build out this business?.

Well, I mean, I'd say we have to be a little bit careful from -- not showing too much of a hit competitively. But I would say it's a little bit of both. .

There are no additional questions waiting at this time. I would like to pass it back to Peter Beck for any additional remarks. .

Thank you very much.

And before we wrap up the call, I would like to thank everybody who participated in today's call, and we look forward to having the opportunity to provide further updates on their business, including through our participation at Deutsche Bank's Virtual Technology Conference in September 10; TechCrunch Disrupt 2021 on September 22, and the UBS CEO disruptive CEO Conference on October 19.

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Once again, thanks to everybody on the call, and have a great rest of your day. .

That concludes the Rocket Lab First Half 2021 Conference Call. I hope you all enjoy the rest of your day..