Rocket Lab (RKLB): Takeaways From BofA Global Industrials Conference

On March 18th, Rocket Lab's VP of Finance spoke at the BofA Global Industrials Conference.

After listening to the webcast, I wrote a detailed explanation of each topic addressed, highlighting the most interesting points.

Every article I write is available for free.
If you decide to voluntarily pay for the subscription, I truly appreciate your support!

If you’ve read my previous articles about the company, you may already be familiar with much of this, but there are a few updates worth noting.

Neutron: Key Milestones and Challenges

Rocket Lab is progressing toward the first launch of its Neutron rocket in the second half of 2025. The company is managing three major workstreams:

1. Archimedes Engine: Rocket Lab has been conducting a test campaign for its reusable Archimedes engine since August 2024. The campaign focuses on testing different power levels, propellant mix ratios, and control schemes to qualify the engine for flight. To accelerate progress, Rocket Lab is building a second test stand at its Stennis, Mississippi facility, effectively doubling its testing capacity.

2. Composite Structures: The Neutron rocket's body is made from advanced composite materials, an area where Rocket Lab initially relied on third-party suppliers. Delays from these suppliers contributed to the updated launch schedule. While full vertical integration remains the long-term goal — similar to what the company achieved with Electron — it was never feasible to pursue this approach from the start. The lead times for the specialized equipment required to produce these structures in-house can be one to two years, meaning that waiting for them would have significantly delayed Neutron’s development. Instead, Rocket Lab prioritized rapid prototyping and outsourced production to maintain an aggressive timeline. However, as part of its risk mitigation strategy, the company has already started bringing some composite manufacturing in-house earlier than planned.

3. Infrastructure: Neutron will launch from Launch Complex 3 at Wallops, Virginia. Rocket Lab compared the process to building a house — most of the work happens below ground before visible progress emerges. The launch facility is nearing completion, with a grand opening expected between May and June 2025.

When asked about challenges, Rocket Lab emphasized that composite structures have been the biggest hurdle, not due to technical difficulties but because of supply chain scaling issues. Vertical integration will help control schedules, not just for Neutron but across the company’s space systems and component businesses.

Despite the complexity of rocket development, Rocket Lab remains confident in meeting its second-half 2025 timeline.

Neutron Launch Pricing & Early Orders

Rocket Lab is taking a disciplined approach to pricing Neutron launches, learning from its experience with Electron. When Electron was first introduced, early customers received steep discounts due to the vehicle being unproven. This is a mistake Rocket Lab’s CEO, Peter Beck, has vowed not to repeat with Neutron.

While new rockets typically command discounts due to their untested status, Rocket Lab believes its extensive experience with Electron and its vertically integrated approach provide enough credibility to avoid price cuts. The company is confident in Neutron’s capabilities and sees strong demand for medium-lift launch services, reducing the need for discounted early orders.

Another key factor in pricing strategy is Neutron’s limited launch capacity in the early years. The company reiterated its expectations:

• First test launch in the second half of 2025
• Three commercial launches in 2026
• Five commercial launches in 2027

With only a handful of flights available, Rocket Lab must carefully choose its early customers. There's always a risk that a customer might not be ready when the rocket is, making it crucial to partner with reliable clients who can commit to scheduled launches.

Ultimately, Rocket Lab remains confident that demand for Neutron will be strong enough to sustain healthy pricing without the need for discounts.

Neutron vs. SpaceX: Competing for a Slice of the Falcon 9 Market

Neutron is being developed to directly compete with SpaceX’s Falcon 9, meaning there will be significant overlap in terms of target customers. Rocket Lab believes there is strong demand for an alternative to SpaceX, especially as customers seek more options in the market.

When examining SpaceX’s launch volume, a large portion is attributed to Starlink missions, which won't be directly competing with Neutron. However, when considering the remaining government and commercial launches, this is where Neutron will position itself as a competitive alternative to Falcon 9. Rocket Lab is confident that its offering will be attractive to customers in this segment, providing a competitive option for payloads that don’t require Starlink’s large-scale capacity.

Electron: Strong Backlog & Pricing Power

Rocket Lab’s Electron launch vehicle continues to see strong demand, with a backlog of nearly $400M. Roughly half of this backlog is set to launch over the next 12 months, while the remainder extends beyond that period.

Electron's pricing has remained stable and gradually increasing, with the average price per launch now exceeding $8M. This reflects the premium customers are willing to pay for dedicated small satellite launches that offer precise mission control — something rideshare launches on larger rockets cannot provide.

A prime example is Kinéis, which just completed its fifth successful launch with Rocket Lab, deploying an entire IoT satellite constellation in just one year. This rapid deployment is nearly impossible with traditional rideshare options, allowing Kinéis to begin generating revenue much sooner.

Why Customers Choose Electron Over Cheaper Rideshares

While SpaceX’s Transporter missions offer a lower-cost alternative, they operate like a city bus — launching on a fixed schedule and dropping payloads off at predetermined orbits. This works for some, but customers with specific timing or orbital requirements need more flexibility.

Electron, on the other hand, functions like an Uber for space, providing tailored solutions for mission-critical deployments. Customers recognize this value and are willing to pay a premium for the precision and control that Electron offers.

Government Opportunities and Partnerships

Rocket Lab is optimistic about the new administration's space policies, which align with its strengths in space, defense, and efficiency. Key initiatives such as the Golden Dome initiative, NSSL on-ramping of new providers, and Mars Sample Return are seen as opportunities where Rocket Lab's capabilities could play a significant role, particularly given the company’s competitive technology and ability to offer innovative solutions at lower cost points.

One of the standout opportunities is the Mars Sample Return (MSR) mission. Initially projected to cost around $11B with sample returns expected in the early 2040s, Rocket Lab has submitted a competitive bid for less than $4B, with the goal of returning samples by the early 2030s. This proposal highlights Rocket Lab’s efficiency in executing complex space missions at a fraction of the cost and within a much shorter timeline, which positions the company as a key player in future NASA missions.

The company has established a strong presence in Washington, DC, with a dedicated team that maintains relationships with key Capitol Hill committees, including Appropriations and Armed Services. Rocket Lab enjoys broad bipartisan support from congressional members across the U.S., which enhances its position as a competitive player in the space industry.

In terms of government opportunities, Rocket Lab is also exploring other avenues, such as hypersonics testing with HASTE and supporting SDA tracking layers.

Regarding partnerships, Rocket Lab is open to different collaboration models depending on the specific situation. For example, it works as a subcontractor for Kratos in the hypersonics space. However, in other areas, such as satellite manufacturing, Rocket Lab prefers to take the lead as the prime contractor, where it can exercise greater control over programs and missions, ensuring cost-effective and timely delivery that the government may not be accustomed to.

Space Systems Business: Organic Development vs. Acquisitions

Rocket Lab's space systems business is divided into two main subsegments: components and satellite manufacturing. The company approaches these areas differently in terms of development strategies.

Components Portfolio: The company has actively acquired key components to vertically integrate supply-constrained subscale technologies. By doing so, Rocket Lab gains more control over the schedule and can drive scalability in production. The first significant acquisition was Sinclair Interplanetary, a company that produced only 100 reaction wheels per year — a volume that was insufficient for scaling in the expanding space economy. Post-acquisition, Rocket Lab scaled the production of these wheels to over 1,000 to 2,000 wheels annually, illustrating the company's ability to significantly expand and optimize production.

Rocket Lab has continued this approach across various critical satellite components:

— Solar Panel Technology: Acquired through the SolAero.
— Flight Software: Acquired through ASI.
— Separation Systems: Acquired through PSC.
— Command or Attitude Termination Control Systems: Acquired from Sinclair.
— Laser Communication Equipment: Recently signed a non-binding term sheet to acquire Mynaric AG. The goal is to scale and bring manufacturing know-how to these technologies.

These acquisitions enable Rocket Lab to control the supply chain, reduce reliance on third-party suppliers, and drive economies of scale that benefit the overall production efficiency and cost-effectiveness.

Profitability and Margins in Component Business

The margins across Rocket Lab’s components business vary significantly based on the type of component. For example, the solar panel business is a lower-margin sector, which the company is actively working to scale. On the other hand, other component areas yield gross margins of over 50%, reflecting the highly profitable nature of certain key technologies.

The company's ability to scale its operations and absorb fixed overhead costs contributes to better margins. Rocket Lab’s heritage and track record of producing components that have already flown in space are critical factors that allow them to charge a premium for certain products. Customers value the reliability and proven performance of Rocket Lab’s components, which further supports its pricing strategy.

Satellite Manufacturing: Balancing Capabilities and Volume

Rocket Lab emphasizes developing new capabilities and technologies in its satellite manufacturing business rather than pursuing low-margin, high-volume satellite production. The company is not interested in just building generic, low-cost satellites but is focused on bringing innovative solutions and cutting-edge technology to its clients.

The company also aims to evolve its satellite manufacturing by progressing from small orders to larger, more complex contracts. Early contracts involved producing one to four satellites, but more recently, Rocket Lab has secured contracts for larger volumes:

— The MDA contract: Aimed at building 17 satellites, marking a step up in production capacity and complexity.

— The SDA Tranche 2 contract: A follow-up contract for 18 satellites, which further expands Rocket Lab's production scale.

Flatellite: Rocket Lab's New Satellite Designed for Mass Manufacture and Tailored for Large Constellations

Rocket Lab introduced Flatellite, a new satellite that represents a significant innovation in satellite design.

Key Advantages

Unlike traditional ones, Flatellite adopts a pancake-like shape, allowing for much more compact storage in a rocket's fairing. This form factor is designed to maximize the number of satellites that can fit within a single launch, which is critical for reducing cost-per-satellite for operators.

For instance, while a traditional satellite configuration might only allow seven satellites to fit in the fairing, the Flatellite form factor enables the launch of 20 satellites in the same space. This drastically reduces the cost-per-satellite for launches, which is especially valuable for satellite operators with larger constellations.

Applications and Limitations of Flatellite Satellites

Flatellite is optimized for communications-based applications, such as IoT or low-cost communication constellations. These types of satellites benefit from the compact, efficient design of the Flatellite form factor, which maximizes the number of satellites launched per mission.

While the Flatellite design offers clear benefits for communications applications, it is less suited for Earth observation or high-resolution imaging. For satellites that require large telescopes, cameras, or other equipment that needs significant volume or specialized configurations, the pancake form factor may not be ideal. For these missions, the need for larger, more complex equipment could negate the benefits of the Flatellite’s compact shape.

Rocket Lab's End-to-End Vision and Future Applications

Rocket Lab is focused on building an end-to-end space ecosystem, integrating launch and spacecraft capabilities with the potential to expand into various space applications and services. Once Neutron is operational, the company will be able to deploy large constellations more quickly and cost-effectively than other space companies, giving it a competitive edge in pursuing high-margin services from orbit.

While Rocket Lab has not yet determined (or revealed) which end application it will focus on, the company is exploring opportunities and waiting for the right moment to enter a promising sector. The team is actively identifying which space applications — whether commercial, defense, or scientific — make the most sense for Rocket Lab’s capabilities and where they can create the most value.

Management doesn’t feel pressured to be the first mover in a given sector. Instead, the company is positioning itself to capitalize on emerging opportunities once the market for a particular application becomes more apparent. This approach gives Rocket Lab the flexibility to enter at the right time, armed with a significant competitive advantage derived from its technological capabilities. Although the company has not yet pinpointed its “killer app”, it is confident that its diverse capabilities will allow it to dominate once the right opportunity arises.

Rocket Lab's Path to Profitability: Neutron's Reusability and Electron's Launch Cadence

Neutron will undergo an R&D test flight for its first launch, with the mission designed to simulate a commercial flight. The flight will involve reaching orbit, reentering, gliding back to Earth, and performing a soft splashdown in the ocean at a specific location, replicating the process of landing on a barge. If this test is successful, the company will then aim to recover the vehicle during the subsequent launch.

In terms of profitability and margin targets for Neutron, the key factor is reusability. Once Rocket Lab achieves the recovery and reuse of the Neutron vehicles, the company expects to reach a target gross margin of 45-50%, which is consistent with the margins seen on the Electron rocket.

For Electron, Rocket Lab has already implemented a recovery and reuse initiative. The company has successfully recovered 10 Electron vehicles, with one sitting in the factory in New Zealand, although this project is currently deprioritized to focus on Neutron. However, even without full reusability, Electron's path to profitability depends on launch cadence. Rocket Lab believes that reaching a target of two launches per month (24 launches per year) will enable the company to hit its target margins of 45-50%, driven by the scale and efficiency of operations at that volume.

Rocket Lab acknowledges that Neutron’s design diverges significantly from Electron’s, with the main distinction being the engine, which is a completely new architecture. However, the company highlights that much of the avionics, guidance, navigation, and control systems, as well as hot fire tests, are similar to those used in Electron. This overlap allows Rocket Lab to mitigate execution risks and remain confident in its aggressive development schedule. The company is also able to apply lessons learned from Electron’s reusability tests, especially with reentry, to Neutron’s recovery process. This knowledge transfer from Electron is a key factor in Rocket Lab’s confidence in Neutron’s successful execution.

Neutron's Role in Profitability and Cash Flows

Rocket Lab's profitability largely hinges on the success and ramp-up of Neutron. While the company is already profitable with its existing businesses, Neutron represents a significant investment that will play a crucial role in future cash profitability. The company expects that once Neutron successfully launches and moves into production, there will be a noticeable shift in its income statement. A key factor is that the high R&D costs associated with Neutron will decrease as production ramps up, and much of the prototyping costs will transition into COGS as Neutron rockets are sold for $50-55M.

Future M&A Targets

Rocket Lab's M&A strategy remains focused on strengthening its vertical integration, particularly in the supply chain. The company is constantly looking for opportunities to acquire supply-constrained, high-value components, with Mynaric serving as a recent example of this approach.

In addition to supply chain integration, Rocket Lab continues to explore potential acquisitions in the payload space. While the company currently focuses on the satellite bus and its components, the payload is an equally important area. As a result, Rocket Lab is actively researching and seeking opportunities to enhance its capabilities in this area to offer more comprehensive solutions in the satellite industry.

Disclaimer: As of writing, M. V. Cunha holds a position in Rocket Lab (RKLB) at $4.82/share.

That’s it. Thanks for reading!