Rocket Lab USA A Aktie

Good afternoon, everyone. Thanks for sitting in here. We have Adam Spice, CFO of Rocket Lab, so we'll run through a bunch of stuff today. Let's start with the launch side before we move to kind of the space systems side of things. So we'll start with Electron. Maybe just talk about where we are in terms of your production cadence, launch cadence, how much capacity you have, where we could get to in terms of Electron?

Yes. So Electron is our workhorse today on the launch side of the business. We've got Neutron coming to market ensure we'll talk about a little bit later. We've launched Electron 88 times. Last year, we launched it 21 times. This year, upper 20s is probably the right way to think about the cadence. So it's had a pretty good growth clip to it. We sized our factory at our infrastructure to do 1 launch per week.

So we're kind of approaching a little bit more than half of that as we exit 2026. In order for us to double that again, we probably have to put some more factory footprint in place. I think we're pretty good from a pad perspective. We have 3 launch pads. We have 2 in New Zealand. We have one at Wallops. So -- and across those pads were launched -- licensed to launch roughly 140 times per year. So we have a lot of launch capacity.

Factories are a little bit more, but Electron is a relatively small vehicle not a lot of heavy infrastructure. We could probably double production, probably take us 2 years and probably cost us a few tens of millions of dollars, but not a lot, not a lot. So we think we're in a good spot. The demand has been continuing to grow. We found new applications for the vehicle, most recently in the form of these HASTE missions for doing hypersonics R&D work, and that's growing really quickly. It's probably the fastest growing piece of the portfolio for Electron. But we're also seeing a lot of growth -- there's a tremendous amount of growth on the international side of Electron. And then as more and more questions have come around with regards to kind of availability of kind of ride share, access on things like the SpaceX transport emissions, it just kind of puts even more kind of a demand kind of focus on Electrons. So we think that the growth is going to continue to be strong in Electron.

And the mix of HASTE versus non-HASTE where it is today, where it can go to, what that means for price per launch?

So HASTE this year will represent around 20% of the total launches. And again, it's the fastest-growing piece of the portfolio. You can think about HASTE probably having a 30% to 50% CAGR on it at this point for the near term. And the rest of the portfolio of Electron kind of being in the 20% CAGR range.

And if you look at pricing, a HASTE mission averages around $10 million versus Electron commercial launches, which are more in the, call it, $8 million to $9 million range. We do have missions that are quite higher than that, not really anything lower than that in the backlog. We occasionally get higher emission ASPs when people come with late-breaking needs that we have to prioritize and the customers are willing to pay for that. Yes.

Transitioning over to Neutron talk about where we are in terms of timeline there and the key gating steps from here to first launch.

Yes. So Neutron it's been -- it's getting put through its paces and its components, like the subsystems of the rocket. So usually the longest pole in the tent of a rocket program is propulsion. And propulsion is kind of progressing well. We posted some videos recently showing full-duration hot-fire test with the engines, gambling and so forth. So we think we're in good shape there. We're now testing the vacuum optimized upper stage engine, that's doing well. So now what we do is we basically how the engines are "working" you basically have to put them through what's called the Runbox, which is all the different conditions at which the engines have to operate, different fuel mixtures, relight temperatures, ambient, all the kind of stuff that affect kind of the real-world conditions. And so that's just a matter of kind of getting through all of those and things are progressing well.

And then if you think about the avionics, that's another typical risk pocket on a development program, but we're leveraging a lot of the electronics and avionics from Electron for Neutron. So pretty low risk there, and we feel good about where we're at. The infrastructure is in place. So the launch pad is ready to go, factories are producing, engines we're producing an Archimedes engine every 8 days, which is the engine for Neutron. And so those are just kind of returning those so we continue doing a lot of testing. And I'd say the tanks and structures or the next kind of work stream. That one, we had an issue in February on our booster tank, where we had a tank rupture. We got the tank up to the flight pressures, but we didn't get to the margin. We usually push beyond that. As we push beyond the 100% of flight pressures then basically the tank let go. We ultimately root cause that to be a manufacturing issue from a third party and so now we're manufacturing the current and future tanks on our AFP or automated fiber placement machine. So should eliminate those kind of workmanship type of issues. But clearly, I think the big risk item is we've got to get that tank back on the test stand and get it through its hydro stat than it's cryostat. And all of that right now is kind of scheduled to be in the call it, the August time frame, and we're trying to pull that in a little bit into July. But everything right now is still pointing towards an opportunity to launch in -- before the end of the year.

Okay. So how far have you build ahead on Neutron at this point? I guess what is the production system is geared to do what?

So at this point, we're scaling the production system to be able to produce up to 4 Neutrons per year. And now at this point, we are already starting to build -- we kind of refer to them as tails. So this first flight is Tail-1 then Tail-2, Tail-3. We're working on elements of Tail-3 at this point. And for example, on the engines, we're still kind of -- as we put the engines through their paces, we're kind of getting to the point where we'll have that full set of 10 flight engines because you need 9 on the booster need 1 in the upper stage. But again, as I mentioned, we're in a position to roll an engine off every 8 days. So it doesn't look like engines will be any kind of a gating factor.

Now that we're on the automated fiber placement machine for tanks, that shouldn't be a gating item. So we really don't see anything that prevent us from ramping. And you got to be a little bit careful because what we don't want to do is we fly the first rocket and realize, oh, we probably want to change a few things for Flight 2 and Flight 3. So we're building ahead of things we think are very low risk of having to be iterated because we don't want to take a bunch of write-offs on kind of in process stuff.

Okay. The plan for reusability. When you test reusability, when you target reusability and I guess, how do you view the risk around the potential for reusability?

Well, we started working on reusability several years ago when we were looking to bring Electron into reasonable form, right? So Falcon 9 didn't start off as a reasonable launch vehicle, but they iterated their way to that. And we were progressing on a similar path with Electron, but then decided to prioritize Neutron development over Electron reuse just because the value in getting that rocket to market first. But in the process, we've reentered 10 Electrons from space back into the atmosphere.

So we understand how the materials behave. The materials are slightly different for the composites for Neutron are slightly different and ideally better than Electron for reentry purposes. But every time -- well the several missions that we reentered Electrons, we were actually testing out materials for Neutron on those missions. We've relet engines. We've done all kinds of things. So we think we're in a pretty good position of having done this now 10x on Electron to be in a good position, we're not really doing it for the first time on Neutron. But the plan right now is the first mission its goals are to basically prove that the rocket can deliver mass to orbit, do a reentry of the vehicle and then do a propulsive soft landing in the ocean, that rocket will basically sink to the bottom of the ocean.

The second rocket, which we currently have planned for about 6 months after the first successful test launch, that one is planned to, again, in this case, deliver a payload, return to atmosphere and actually land on our barge. And then we're going to take that rocket and we're going to use it for postmorteming. So that won't refly. The third tale is the one where we plan on launching it, bring it back and putting that back into service in one form or another, whether it's the full rocket or whether it's -- we have to replace some of the elements on the rocket, whether it's some avionics, some of the propulsion. But that's the kind of -- and then kind of increasingly get to full reusability over the course of the next few flights after that.

How many boosters will you build?

I think it depends on how successful we are in surviving re-entry, right? So I think right now, the -- ultimately, we can foresee a need for, say, a half dozen boosters in the fleet. Our goal is to be able to fly or is designed to fly up to 20x. We've now seen Falcon 9s kind of do over 30 re-flights, but different materials usage like they're using stainless steel and aluminum tanks and so forth, a little bit quite a bit different actually.

So if we can get to the 20 flights, we think a fleet of 6 vehicles gives you the opportunity to fly quite a few times approaching perhaps 100 times per year with a fleet of about 6. If you have any kind of reasonable reuse model of, let's say, you fly your boosters once every 30 days, which is kind of where Falcon is right now.

Okay. Let's transition over to talk about spaces. So it's a bigger part of your business gets less attention.

Less sexy.

Yes. But -- and what you're doing there is really, really interesting. Talk about all the capabilities you kind of build out and acquired over the past couple of years and kind of where you are in terms of being very vertically integrated on the sally side of things?

Yes, it's definitely been a journey. I mean, it's been a very conscious one. I kind of think back to when I interviewed with Peter back for this role about 8 years ago. Actually is close to 9 years ago now. I asked what his vision was for the company. And if he said, "Oh, I'm out to build the most dominant small dedicated launch company on the planet. I would have said, oh, that's interesting, but probably not big enough, right, as far as what I'd pretty interested. And so what he laid out at that time, he's been very, very consistent is this vision of being an end-to-end space company where we started with small launch because it was actually doable. Right? From a capital perspective and infrastructure because we didn't have limitless capital like some other space companies that when you think about the people that we compete with, 2 of which are 2 of the richest people in the planet, right? So they have lot of access to capital.

So we started off to something that was doable, which was Electron. We achieved that, but he says, "I'm going to do Electron. And then very quickly thereafter, once I prove that, that works, I'm going to basically start building out the capabilities to build satellites in a very integrated way. Because ultimately, my goal with Rocket Lab is not to just be a launch company, but I actually want to have my own assets on orbit that I generate recurring revenue from because that's the real goal here. And so there's a lot of parallels we see what SpaceX has accomplished. They've just done it very, very quickly and very successfully part of because they've had such great access to capital. They also had phenomenal engineering execution as well.

But that's the same -- we share the same goal. So in order to do that, we kind of started off and we literally got in a conference room with all of our key people and said, okay, we're not going to start building satellites. And we literally block diagram explosions of what is a satellite and all the way from things like attitude direction and control to in-space propulsion to solar power and batteries and tanks and so forth. And we said, okay, where are the real choke points in all of this, and we started breaking the and say, "Well, if you want to have a satellite orbit, you need to be able to do pointing and stabilizing. So let's go order some reaction wheels and star trackers and sun sensors. And so we called up Doug Sinclair that owned Sinclair the planetary and we said they were the leader in the small sat element of the market. So we want to order some of these reaction mills and you said, "Okay, well, you'll get them about 12 months from now and they're going to cost you x and Pete like well, that's not going to work, right? If new space is going to live up to the growth potential that we all see for it, we got to do things in a very different way. So let's just buy them and then we did that. So we bought Sinclair. That was our first acquisition. They were making about 150 reaction wheels a year. Last year, we shipped over 2,000 reaction wheels, right? And so we tend to buy these small very capable, proven heritage products and then apply the Rocket Lab kind of production capabilities and scale them pretty aggressively.

So that's kind of how we've gone about kind of a methodical way of picking up out all the pieces. So we started reaction wheels and start trackers and sun sensors. Then we basically bought a software company that controls those elements of the spacecraft called ASI. [indiscernible] And we bought a company separate satellite makes an important part of our satellite bill materials.And then we just continued to build off of that. And most recently, we acquired a company called Motive that makes solar actuators. So basically, the things that help your solar panels deploy when they get on orbit, very important piece because if those hinges and actuators fail, then your mission fails. So we're very careful about picking things that derisk each mission, right? And so things like solar, well, but we also kind of just don't assume that we have to buy these things.

So for things like radios, we've actually developed and manufacture our own radios. You may have seen we announced a new product called Gouse, which is an in-space electric propulsion system. Again, we could have gone out and acquired an EP company, but rather than spend a couple of hundred million dollars in payoffs and VCs. Pete said, give me $15 million in 18 months, and I'll go do it myself, and that's exactly what we did.

So we've got the luxury of not having to buy everything that we need. We can actually develop it ourselves as well. So it's been a combination of inorganic working our way into all the key subsystems on a satellite. And then most recently, we -- well, not most recently, but the new addition to our capabilities last summer, we acquired a company called Geost to get the payload capability. So you can think of a satellite bus as being kind of the functional chassis of a satellite and the payload makes it do a specific thing, whether it's taking a picture, communicating in this case with Geost, it's an infrared sensor for doing missile warning, missile track. So each satellite has got a different payload to meet its application. So now we forayed into making the payloads as well. So now we can provide a complete solution to the customer.

So the embodiment of that is for SDA, tranche 3 tracking layer win that we got late last year for $816 million that basically now we provide the full solution. It's our bus, it's our payload. I mean, hopefully, down the road, those satellites launch on Neutron. So we can kind of get that full value chain of going all the way from satellite design manufacturing launch. And then ultimately, again, when we own our own constellation assets, operate those on orbit.

You didn't mention Mynaric, it's a big one.

That's a big one. So Mynaric is...

Mynaric sorry.

Yes, everyone pronounce it differently. So Mynaric makes optical terminals. So basically, those are the devices that sit on the satellites and let the satellites talk to each other through high speed, very secure optical links. So if you think about any constellation of size going forward is likely to have these optical links versus RF links. And so yes, a very key foundational capability. It also gives us a beachhead in Europe. Europe is a very protected market. They will only buy American when they have to buy American, unless you have a presence there, where you're actually considered a European supplier because you make it on the ground there.

So we now have a very modern, capable factory with several hundred people over there pumping out optical terminals, and there's an opportunity for us to produce other existing Rocket Lab products in that factory and be branded Europe. So I think it's a big -- not only does it bring key foundational technology, but it brings market access with it as well. So we're actually very, very excited about that deal. I think acquisitions have been a big part of our strategy for growth, and I think they'll continue to be. But again, it's -- we just look at any way it's possible to grow the business as fast as possible.

Are there any -- I mean you talked about on PSA being able to kind of build to the entire thing. But are there any missing pieces you feel like in terms of what you still need from a SAP perspective?

I would say at this point, the piece that we that we still rely on third parties for -- and any time we have a reliance on third parties that's uncomfortable. Because one thing that we've learned in this market is if you build a dependence on your supply chain, it's going to burn you at some point, right? So it's really on the RF signal chain part where we are relying on third parties. So we use third parties for our beam steerable antenna arrays for our modems, for our antennas, those kinds of elements of that, the encryption boxes.

So over time, I think you'll find us kind of in-source a lot more of those capabilities. Fortunately, they're out there. I mean, these -- I don't think for most of the elements that we would need to bring in house, these are not billions of dollars. These are tens of millions, if not maybe hundreds of millions of dollars of acquisitions and/or internal development.

So you talked a little bit about PWSA, but what about SBI, how you're participating there at this point, [indiscernible]

That's -- it's an exciting, but admittedly early opportunity, right? I think that that's -- I kind of view that opportunity as kind of a little bit of a risk on risk where you put risk money up to prove that you can get through a couple of technical hurdles and technical gates. If you get through those, then there's some level of reimbursement for that R&D that you put at risk, which then lets you take an even bigger bite at the apple in the next phase. And ultimately, if you get through all those phases and you keep getting some kind of return on that risk R&D not a lot. I mean that's not where the money to be made is you ultimately. If the program was to go to production, which will require the whole congressional budget approval to get through, which has all the political risk dynamics associated with it, then there's potentially a very big prize at the end of that.

So we're partnering with Raytheon on that program. We -- each company brings its unique strengths and capabilities. We think we're well positioned. We are fortunate we have got so much of what we need to deliver for that program already kind of in-house. And so the incremental cost for us to go support these kind of things is relatively low. So for us, we've got -- I kind of view it as a nice option on a big opportunity that doesn't require a huge amount of kind of P&L burden at this point. So I think -- but as the program -- if the program continues, then I think that -- those R&D investments are going to kind of increase and that will take a little bit more, I think, scrubbing and scrutiny. But I think we're excited about the opportunity. We think we've got the best partner you can partner with Aaron Raytheon. So we think it could be a really big kind of needle-moving program for the company over the next several years if it comes through.

So you talked about the ultimate goal here is to put up your own constellation and have a business capture the economics around that. I mean what kind of timeline are we looking at before that becomes a potential reality and thoughts on what kind of business that would go to serve at this point?

Well, I think we're pretty fortunate and that on the launch side of the business, you get to see a lot of different business models, right? We've seen -- what I've seen come and go over the last 8 years has been pretty interesting. If you were to rewind the clock to 2018, 2019, a lot of excitement was around kind of new space business models of putting earth observation satellites up to count cars and Walmart parking lots and kind of see how low oil tankers were sitting in the water to see how much -- all that kind of stuff, none of those things really developed, right? It is supposed to be for insurance markets for after hurricanes and earthquakes and all kind of stuff, but that really didn't develop. What really did develop was government. Right? So government has become the hockey stick for our business in a lot of ways, both domestic and international governments. So if you think about applications out there, the biggest opportunity, the biggest TAM has historically been on the communication side of things, right? So we've all seen with how Starlink has grown pretty dramatically. That type of application is probably out of our wheelhouse at this point, just given the amount of capital we take to do that. And we think that it's probably pretty well addressed between what Amazon is doing, what SpaceX is doing. But there are different verticals within comms that could end up being more attractive. They're a little bit more protected, if you will, and more actionable. And Part of what we have to align to is the fact that whatever we do from a constellation perspective, it's going to be serviced by Neutron.

So you have to line Neutron capacity availability with when you want to deploy your own stuff. Right? So right now, if you look, we're obviously -- we're booking Neutrons for customers, right, for third parties. Ultimately, we want to use Neutron for our own needs. But if you look at our announced cadence of one launch this year, 3 launches next year and 5 launches the year after that, you really start talking about 2029 before we'd actually have capacity of our own to start leveraging as Neutron really starts to scale. Because it wouldn't really make sense for us to kind of start thinking about deploying stuff on other people's rockets, right?

So this is really focused on Neutrons availability. So Neutron is very important for a lot of reasons. It's not only important for our launch business for, but it's very important for our own constellation ambitions as well. So it's absolutely a focused investment for us and we watch these other markets develop like will the direct-to-device market become big and real. Will other applications that develop that are people are working on right now. I mean 1 thing we've seen is earth observation is a real market. It's a relatively small market, but it's real, and it's growing. Comms is absolutely real, and we've seen examples of that with again how SpaceX is growing, but there's other parts of that market. And now you've got secure government Comms as an opportunity as well that's presenting itself. And as we've seen StarShield turn a government procurement of satellites into a service procurement kind of model, which is pretty exciting.

So we think there's lots of different ways to pursue the application side of the business. We haven't just talked about, I'm sure on your list you one of those opportunities that people are talking about space-based data centers, too, which is like in object literally.

I wasn't necessarily going to go there, but I wanted to ask about SpaceX and their transition to starship and away from Falcon. And most of their big chunk of their Falcon capacity has been going for Starlink for cells. It hasn't actually been -- now we don't really know ultimately, the plan with Falcon from here. But I mean, in a potential world, they launched Starlink on Starship, and that frees up capacity from Falcon to sell into the marketplace. How do you think about that? What impact that potentially could have on Neutron and pricing in the market?

If you look at what SpaceX is really chasing from an opportunity set, I don't think that being in the merchant launch business is the best ROI for their focus. I mean, if you think about like the audacious plans they have around Starlink and around space-based data centers, taking other people's freight to orbit is probably not the best use of their time, right? So -- and there's been a lot of rumors and speculation about whether Falcon 9 stays on the market for merchant capabilities or not. If it doesn't, I mean, we never counted on Neutron not having a Falcon 9 competitor.

But the probability that, that capacity that's currently being used for Starlink deployments would be made available to the merchant market. It doesn't seem like the most probable outcome. It seems more like if and when Starship works, they've obviously focused that on Starlink and also on the space-based data center opportunity. But then the merchant market becomes less and less of a focus for them, because for us, I mean, we kind of look at -- our approach has been because access to capital has been different. We've taken this crawl-walk-run approach where we've been selling picks and shovels as far as hardware to other satellite manufacturers to build out our own capabilities, right? So in the process of selling satellite subsystems to our satellite manufacturing competitors, we built out our capacity in our technology portfolio.

Same thing on launch. We've proven out our launch capability, and we've had our customers basically pay to develop that launch infrastructure and launch capabilities, which ultimately, both of those things we'll use for our own needs. SpaceX didn't really need to do that as much because of their access to capital. But now given where they're going, again, I think it's seeming like that Neutron is going to have a very nice spot in this market going forward once we can actually get it to a point where we can scale rapidly, which again, it's going to take a few years, but that's -- we're well -- we're kind of -- we have our plans well in place to be able to scale vehicle pretty quickly.

So as Neutron comes online, what impact will there be to your margin profile, your cash flow, you're going to build out boosters. How does that kind of play into the cash flow side?

So fortunately for -- because it's a reasonable launch vehicle, you actually end up building the greatest number of boosters early in the program right? Assuming successful on those boosters. You're not putting it in the bottom of the ocean. But each time we build a booster is about $50 million.

So if you assume that I mentioned before, you have a fleet of, say, half a dozen of these boosters, that's about $300 million of capital equipment, if you will, that you're building out and from a pad perspective, again, we've got the pad built out over time, would we need to build out more pad infrastructure to support volume increases, yes. And if you think about the timing it takes about 2 years to build a new launch pad at an existing launch facility, and it costs about $100 million.

On Neutron, we were able to get our -- have our government partners co-invest with us to about 50% of that. But if you assume $50 million to $100 million per pad in 2 years lead time, so let's say we had to build 2 new pad infrastructures and 6 boosters, you're really looking at around $0.5 billion type of investment, which is quite manageable in the context of the opportunity that we're looking at for that vehicle.

And the margin progression?

So margins, it's a function of success on getting to reasonability, right? So the vehicle that will -- is currently planned to launch at the end of this year. That's an R&D vehicle, no revenue associated with it. A lot of the R&D is already in the rearview mirror on that when it launches. The second tail that we talked about, that's going to be, that will be revenue associated with it, but either kind of neutral to negative margins on that one, on that first customer paying mission.

By the time you get to your reusability and the question is going to be, okay, let's say, the third vehicle that we fly land successfully on the barge and is reused. Well, at that point, depending on how the auditors. We work with the auditors to get the treatment on that vehicle, that may also have been a fully expensed tail. In which case after that, you're not burden, the COGS isn't burdened with the booster anymore. But at some point, you're going to get your model a point where, let's say that we're all in agreement that the vehicle has proven that it can fly 20 times.

Well, then you're amortizing a $50 million booster over 20 emissions and the margins really become much more predictable and I think predictably towards our model of 50% non-GAAP gross margin. But there will be a journey along the way, and there's going to be some volatility because at some point, you may have agreed that you're going to try to amortize this booster over 4 flights and maybe it flies 8x, right? So you fully amortized the booster over 4 launches and you get free boosters essentially for the next 4 missions. So there will be some volatility, but we would -- what we're looking to do is probably break out Electron and Neutron separately within our launch business. You can see that. So you can see the steady progression of Electron. And you'll see that progression as well, the volatility associated with the Neutron. So you can kind of kind of form your own opinions about where margins will end up.

So as you think about the future state of business, I mean maybe not thinking about putting up your own constellation, it seems a bit out there. But the launch versus space systems piece. So Space Systems larger today, more backlog, but how do you think about kind of the relative growth profile of the 2 parts of the business looking out beyond maybe the next year or 2?

Yes. Well, if you go -- if you think, again, in the 3- to 5-year type of horizon, we think there's a 20% to 30% CAGR on Electron from where we're at today. So again, if we -- let's say, we're -- if we're launching kind of pushing towards, let's say, somewhere in the 25 to 28 launches this year on Electron and you apply that 20% to 30% CAGR to that. You can get -- you can -- and ASPs continue to drift up. Could that be call it, $0.5 billion to $1 billion business in the next 3 to 5 years? Yes, I think there's potential for that, particularly as international governments look to do kind of more of what the U.S. has been doing.

Now Neutron, I mentioned that 135 cadence, Well, I think that once you can get that vehicle to be launching, let's say, a couple of dozen times a year, which could be in that same time frame. And those come along at kind of $50 million to $55 million ASPs. You're not talking about another $1 billion contribution from that. And I think we've been historically conservative on forecasting ASPs.

So hopefully, there's some upside to that, particularly who knows what the Falcon 9 dynamics are at that point in time. And then the Space Systems business has the biggest TAM in front of it, right? So that's the one where we're -- we've got pretty broad exposure to kind of a rising tide raising all ships thing where we sell into everybody who's playing into these major programs globally.

So that business has got a lot of big opportunities in front of it. So I would say that I still see Space Systems being bigger than launch. It's probably -- I think the mix between launch and Space Systems will probably -- today, it's 70% Space Systems, 30% launch. Could I see it getting closer to maybe 60-40 or 55-45 in favor of Space Systems. Yes, I can see that. But I think the growth is still going to be -- I think in the near term, stronger on Space Systems until Neutron really kind of hit its stride.

Okay. And then in terms of capital, future capital needs you talked about the investment in Neutron that's out there. you've had a lot of success with the ATM in terms of raising capital. How do you think about potential future capital needs? And obviously, you've been a very active acquirer. Just how you're thinking about that and your preference for using the ATM program. Obviously, stocks has been done very well. So how do you think about future funding needs and how you might go about that?

Yes. I think our -- I would say, with the capital that we had exiting Q1, I don't think there's -- what we've talked about around needs for Neutron, we really don't need to raise any more capital for Neutron or even our Space Systems business. It's really all about inorganic. It's like we want to have plenty of dry powder to go kind of acquire strategic assets, which there are quite a few out there. I think that we're continuing to look for more needle-moving kind of things.

I think historical, if you look at the deals we've done, they've been very strategic vertical integration plays, bringing really unique capabilities in the portfolio, but they haven't been financial deals, right? We're requiring a lot of revenue and cash flow. I think that's -- as we continue to evolve as a company, I think we're going to start to put more of those kind of deals and focus because it's really now about how do we get true scale into the business. And there are some inorganic ways of doing that, but just we want to be well positioned to be able to capitalize on those.

Okay. Well, we're about out of time. So we'll -- I think it's a good place to end. Adam, thank you for the time.

Thanks, David.

Good day, and thank you for standing by. Welcome to the Rocket Lab Corporation Q1 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Murielle Baker. Please go ahead.

Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's First Quarter 2026 Financial Results, Business highlights and other updates.

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 are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements.

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

Our speakers today are Rocket Lab's Founder and Chief Executive Officer, Sir Peter Beck; as well as Chief Financial Officer, Adam Spice. They will be discussing key business highlights, including updates on our launch and space systems programs, and we will discuss financial highlights and outlook before we finish by taking questions.

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

Thanks, Murielle. Before we dig into the quarter, I want to walk you through what sets Rocket Lab apart as one of the only true end-to-end space companies on the planet. Ultimately, it's our technologies, our capabilities and our proven execution for the world's most demanding customers.

First, our technology. For launch, we have Electron, the world's leading small launcher alongside HASTE, which is delivering critical hypersonic test launch capabilities to the Department of War and Neutron, a medium lift rocket tailored to the constellation deployment and national security missions. But launch was just a start. In 2020, we launched Photon, our first in-house developed spacecraft. That moment marked the beginning of our evolution from a pure-play launch provider to an end-to-end space company. In just 6 short years, we expanded our technology stack to include a full family of highly capable spacecraft available at constellation scale.

And critically, we also manufacture the subsystems and payloads that go into the spacecraft. This vertical integration means we control quality, schedule and cost in ways that our competitors simply can't. These technologies have given us a huge suite of capabilities. We provide tactically responsive space launch and dedicated small satellite launch with unmatched flight heritage, suborbital hypersonic and missile defense testing from our defense customers and national security launch on both Neutron and Electron.

Our rockets also deploy and replenish constellations, launch lunar and planetary missions and more. On space systems, our satellite and subsystems enable communication and connectivity infrastructure, missile warning and tracking, space reconnaissance and surveillance, space protection and space control, astrophysics and earth science missions in space manufacturing and more. Execution is what matters most. Anyone can promise capabilities, but Rocket Lab is actually delivering right now for demanding and complex programs.

We're enabling SDA's Proliferated Warfighter Space Infrastructure, delivering complete satellites with payloads on aggressive time lines. We're supporting the DoW's Mach-TB hypersonic program and the Golden Dome Spacebased Interceptor program. We're onboarded as a national security space launch provider, and we're executing missions for the NRO, Space Force, Missile Defense Agency, DIU and DARPA. We are a trusted partner for the U.S. and international space agencies, including NASA, JAXA and ESA.

Rocket Lab hardware is flying on Artemis missions. Our technology is on Mars rovers and orbiters. We support ISS resupply and other flagship NASA missions. Commercially, we're supporting direct-to-device constellations, earth observation constellations, lunar landers, orbiters and reentry missions. This is execution. Real missions on orbit now or in production and generating revenue.

When the world's most sophisticated space organizations need mission success, they choose Rocket Lab. We built this technology and capability to serve our customers, but we've also built something more, the ability to deploy and operate our own space-based applications and services. We are one of the only companies on the planet with this capability. This is the next significant opportunity that lays ahead for us.

So with everyone up to speed, let's take a closer look at how we executed against this strategy in Q1. This quarter has been phenomenal, the strongest Q1 in Rocket Labs history. We've blown through the ceilings across all of the most important metrics, record revenue, record GAAP gross margins, record backlog, record cash position and record launch contracts across Electron, HASTE and Neutron.

With revenue, we topped $200 million in the quarter for the first time, up more than 63% versus this time last year, and our forecast has revenue coming in even higher for Q2. Our gross margins are excellent, sitting strong at 38.2% GAAP and 43% non-GAAP. Our backlog jumped to more than $2 billion in contracted revenue across our national security, civil space and commercial programs, 20% over the quarter and 108% year-on-year, again, the highest it's ever been. That's partly thanks to the record number of contracts we signed in Q1.

In fact, with the 31 Electron and HASTE launches and 5 Neutron contracts combined, we booked more launches in the first 3 months of 2026 than we did for all of last year. Overall, we exited the quarter with $1.48 billion in cash and cash equivalents and currently have secured access to more than $2 billion in total liquidity, giving us financial flexibility and positioning for growth and further M&A.

There are more highlights across launch and Space Systems than we could fit into one slide, so let's go over them in more detail. Starting off with small launch across Electron and HASTE. What a truly exceptional quarter it's been for Electron and haste. We booked 31 missions, which is the most we've ever signed in a quarter. Demand for Electron has always been strong, but we're seeing an inflection now across both orbital and suborbital launch. Our customers know when they book on Electron and HASTE, they're buying certainty and responsiveness they need to launch where and when they need to go.

We've got more than 70 launches in backlog now, which is a new record. With 8 missions off the pad already this year, we're on track to beat last year's launch record, too, as well as we'll hit our 100th launch later this year, the fastest anyone in the industry will have ever done that. It's another record on the books for HASTE with our $190 million 20launch order through Kratos in the Department of War and MACH-TB. This is the largest single order we've seen within the program and a very clear vote of confidence from the Pentagon in Haste's ability to deliver the hypersonic test and missile defense capabilities that the nation needs. HASTE now makes up almost 1/3 of all of our launch backlog today.

What's particularly significant about HASTE is that along with being the category leader for hypersonics test missions, HASTE strength has helped us to position us in the center of America's defense architecture for the next big wave of spending. We're already ingrained with spacecraft components and full satellite builds. And when you add HASTE hypersonic rockets to test missile tracking and defense, that's almost the entire spectrum of capabilities covered by Golden dome. The new era of space primes have begun injecting pace and innovation into national security and defense.

Two companies at the forefront of this are Rocket Lab and Anduril, and we're excited to confirm that we're teaming up. Anduril has booked 3 dedicated HASTE launches to support missions that combine their rapid prototyping with our industry-leading flight cadence to accelerate tech development for the DoW within months, not years.

The first of these launches are scheduled as no earlier than November this year. That's commercial speed and tactical responsiveness in action. While we can't talk program or mission specifics, the main takeaway from this partnership is that it brings together 2 of the defense industry's most innovative prime contractors to advance defense capabilities for the nation.

So like I said, it's been a fantastic quarter for launch, but there's plenty to talk about for Space Systems as well. I'm thrilled to confirm that Rocket Lab has been selected to enable one of the nation's top national security priorities, the Space-Based Interceptor program under Golden Dome. Rocket Lab and Raytheon have been selected to demonstrate advanced capabilities for the space-based Interceptor program. This program is an important step in strengthening national missile defense capabilities, and we're proud to be contributing proven expertise to advance the development of solutions for this urgent security need.

I know everyone knows we always have a strategic acquisition opportunity up our sleeve, and I'm excited to share the next one. We've entered into a definitive agreement to acquire Motive Space Systems, a Californian-based leader in space robotics, motion control systems and spacecraft mechanisms. Their technology is featured on the CADRE Lunar Rover and NASA Mars Perseverance Rover. That includes the Rover's entire robotic arm, which was the most capable ever deployed on Mars in terms of load capacity, precision and sensing.

Motiv also built the zoom and focus and filter wheels for the primary imager for the mission. Most pictures you'll see from Mars come through that camera and Motiv's zoom mechanism were the first ever deployed in a planetary surface mission. This acquisition positions us to play a critical role in future lunar and planetary exploration missions, such as future commercial mass sample return missions as well as expand into significant national security programs.

It will also bring the design and manufacturing of critical spacecraft mechanisms like solar array drive assemblies, antenna and propulsion gimbals, filter wheels, focus mechanisms and precision to drive electronics in-house, completing a key element of our satellite manufacturing at scale strategy. We unveiled our new electric propulsion thruster for satellites called GA at Space Symposium last month with a 200-unit production line already established and units delivered to ourselves for some of our own constellation programs.

We've been inundated with inquiries from programs in need of hundreds of units each, and we're ready to break the bottleneck on electric propulsion. Rocket Lab is recognized as a world leader in propulsion. So an organic electric propulsion solution is a natural progression for us. And we're excited to bring manufacturing scale, reliability and performance to electric propulsion for the first time in the industry.

The pace at which we rolled out new products this year has been relentless, whether it's been organic or inorganic, what unifies our acquisitions and our internal innovations is a powerful vision, complete vertical integration across the entire satellite value chain. Everything you see on this page, optics, solar, laser terminals, electric propulsion and other components is already being built to our own platforms or being supplied to others.

So that's a good chunk of upcoming missions across civil, commercial and national security have a Rocket Lab logo on them somewhere. We're a supplier of choice across the industry and other prime contractors turn to us for mission-critical technology. This quarter, we also closed our acquisition of Mynaric, but the real story here is more than just adding optical comm terminals to our national security capabilities. With Mynaric, we've established Rocket Lab's first European footprint to support the German and European space industry on a much larger scale.

Our expansion couldn't have come at a better time. The European space and defense market has been accelerating its investments in sovereign space capabilities, up to $109 billion by 2030 by some estimates across the European Union, Germany and the United Kingdom. Rocket Lab Europe gives us boots on the ground to capture that demand, whether it's optical comms, spacecraft build, international constellations, responsive launch or providing our sought-after subsystems in high volumes. The door is now open to programs, partnerships and revenue streams that weren't accessible before. And Rocket Lab Europe is about positioning the company for what's the next phase of growth in one of the world's most strategic markets.

Moving on to Neutron. I'm excited to announce a new multi-launch contract for Neutron that makes up the largest contract in Rocket Lab's history, 5 dedicated Neutron flights plus 3 electrons now between now and 2029 for a confidential customer. It was only a few weeks ago that we announced a $190 million 20launch deal for Hays, which was the record at that time.

Now we have exceeded that deal with an even larger one. It speaks volumes to the strong and growing demand for all of our launch capabilities, and this booking means Neutron's manifest is filling up fast right through the end of the decade. This market needs medium launch. The demand signal is clear. Equally clear from these continued bookings is that customers trust Rocket Lab and Neutron to deliver this medium launch capability. We've introduced and scaled new vehicles to a reliable high cadence before. We're 1 of only 2 companies in history that has successfully done this with meaningful reliability, and we're doing the same with Neutron.

I hope that by now, you know that my stance is not discounting flights just to fill up a manifest. So I can confirm that pricing for these Neutron and Electron launches are very much in family with our commercial rates. Now on to development updates across the program. The team has made tremendous strides on the Stage 1 tank. Design refinements and have improved both the tank strength margins and manufacturability and give us confidence in the structural performance.

It's only been 2 months since our last Neutron update, and already we have AFP made components sitting on the production floor. That's the beauty of automated production with AFP, not just for Flight 1, but also for the fleet of vehicles that come thereafter. This will feed directly into the next round of testing and qualification for Stage 1's tank as we drive towards Neutron's debut. As it stands, current progress is keeping our aggressive schedule towards the first launch later this year.

Stage separation tests are also underway using Stage 2, it's interstage and fixed bearing test articles to test a condition as close to flight for how Neutron's first and second stages will separate during launch. Stage 2 deployment is arguably Neutron's most novel capability. Unlike other rockets with stacked stages that separate, Neutron's second stage is hung inside the fairing before it's deployed along its interior rails and out the mouth of the Hungry Hippo fairing. This reusable architecture is one of Neutron's clever competitive advantages.

It allows us to reuse fairings without having to deploy separate marine assets to capture them down range or deal with refurbishment from spacing down them in the ocean. We've cleared separation events at full flight loads on the second stage article and interstage deployment system, which is great news. We're now testing the resilience of the off-nominal separation events. So if you see something broken on the test sand from here on, know that that's completely intentional.

For the end stage, that's happening at Middle River right now as the team works on the structures qualification. It's up to the test stand and being subjected to its loads that we should expect during launch, reentry and landing. Then it will head back inside the building to be fitted out with its full suite of applied avionics and fluid systems. After that, it will be shipped off to Wallops to join the Hungry Hippo fairing for further assembly.

Another part of Neutron's program that we don't talk about enough, but which is a critical part of its development is the landing barge called return on investment. Now the photos do not do it justice because this thing is massive. It's particularly -- practically a launch site of its own. We're talking a huge amount of power generation, 10 megawatts across its 4 station keeping thrusters, enough to power thousands of homes. By the time it's completed, it will be more than 11 million pounds or 5,000 metric tons.

So fitting out this landing platform is coming along nicely. Housing for the platform thrusters have been installed as well as the main cabin and the aft edge of the barge. Its power generation systems and thrusters have arrived to the shipyard in Louisiana and are ready to go in next, and we're on track for sea trials to start later this year. It's one thing to say that you're going to be reusable. It's another to actually make the investments into the landing platforms that enable it. We're doing this now well ahead of time so that we can move swiftly into reusability with Neutron as early as flight 2.

And finally, to round out Neutron's development, here's a look at the other significant progress across the program. From the bottom of the vehicle to the top, we've got the Archimedes engines continuing to undergo extensive testing at Stennis in their flight configurations. This is for both Stage 1 version of the engines and for the vacuum optimized Archimedes that will power Stage 2. It's nonstop hot fires across both tests as the team really stretches the performance of these engines while running them in the full range of gimbal angles.

For the thrust structure, since completing qualification, the team has gotten stuck into fitting it out with all the flight set of avionics and fluid systems. That's taking place at our Middle River facility before it's sent out to the Launch Complex 3 for integrated systems testing on the pad. Stage 2 continues to progress with the integration of fluid systems and avionics. We also qualified its payload support structure, a separate interface on the top of the stage that physically attaches a satellite to Neutron.

This payload support structure is another carbon composite structure that's designed to be as lightweight as possible since every kilogram reduces payload capacity. And having cleared qualification smoothly, it's just days away from shipping out to launch Complex 3 as well. Then right at the top of the Hungry Hippo, our qualified reusable faring system has been covered in TPS or thermal protection system once arriving in Virginia. Integration of the avionics and fluid systems on this part of the vehicle continues as well.

So as you can see, there's been lots of Neutron activity lately. I will remind you that these comprehensive test campaigns are all being run in parallel, all time to converge for the first launch at the end of this year. That means a lot more exciting updates to look forward to in the coming weeks and months before the vehicle comes together and goes on to the pad.

That wraps up the operational highlights. Now over to Adam for the financial overview and outlook.

Thanks, Pete. First quarter 2026 revenue was a record $200.3 million, coming in just above the high end of our prior guidance range and representing an impressive year-over-year growth of 63.5% and quarterly sequential growth of almost 12%. This strong performance was driven by significant contributions from both of our business segments and underscores the continued momentum across the business.

Our Space Systems segment delivered $136.7 million in revenue in the quarter, reflecting a year-on-year increase of 57.2% and a sequential increase of 31.7%. This growth was primarily driven by increased contribution from our satellite platforms business, which continues to perform exceptionally well and provides company diversification alongside a robust but at times lumpy launch business.

Meanwhile, our Launch Services segment generated $63.7 million in revenue, up an impressive 78.9% year-over-year, though down 16.1% sequentially due to fewer launches in the period. Now turning to gross margin. GAAP gross margin for the first quarter was 38.2%, up slightly sequentially and above our prior guidance range of 34% to 36%, with outperformance driven primarily by solar products and launch, owing to better-than-expected absorption and lower spend, respectively.

Non-GAAP gross margin for the first quarter was 43%, while down slightly sequentially, was also above our prior guidance range of 39% to 41%. The sequential decline in non-GAAP gross margin, which was better than expected, was primarily driven by a mix shift towards Space Systems and a modest decline in launch margin based on mix and lower revenue.

Relatedly, we ended Q1 with production-related headcount of 1,448, up 250 from the prior quarter, largely driven by a transition of dedicated R&D headcount from the first Neutron test flight to our production teams related to future revenue-generating missions as well as headcount ramps related to our recent Geost and PCL acquisitions.

Turning to backlog. We ended Q1 2026 with approximately $2.2 billion in total backlog, with launch backlog accounting for approximately 41.5% and Space Systems representing 58.5%. During the quarter, launch backlog continued to gain share, supported by strong underlying trends as we convert a robust pipeline of opportunities across Electron, HASTE and Neutron.

This includes the 20 HST block buy missions signed within the quarter that Pete mentioned earlier as well as 5 Neutron bookings with a confidential customer. We are actively cultivating a strong pipeline that includes multi-launch agreements, large satellite platform contracts and an increasingly diverse set of satellite component and subsystem merchant opportunities across government and commercial programs.

As noted earlier, these larger needle-moving opportunities can introduce lumpiness in backlog growth, but they are critical drivers of long-term value and scale for the business. Looking ahead, we expect approximately 36% of our current backlog to convert into revenue within the next 12 months. Additionally, we continue to benefit from relatively quick turns business, particularly in our Space Systems components and subsystems businesses that drive incremental top line contribution beyond the current 12-month backlog conversion.

In addition, as we close and integrate our new acquisitions such as Geost, Optical Systems, Inc., Monarch and MOI, they will be accretive to our served addressable market opportunity, backlog and forward revenue growth rates and margins.

Turning to operating expenses. GAAP operating expenses for the first quarter of 2026 were $132.5 million, above our guidance range of $120 million to $126 million, driven by the stock-based compensation charge related to Peter Beck's RSU forfeiture. Non-GAAP operating expenses for the first quarter were $105 million, which was below our guidance range of $106 million to $112 million. In R&D specifically, GAAP expenses increased $1.7 million quarter-over-quarter, while non-GAAP expenses rose $1.9 million.

These increases were driven by continued investment within our Neutron program paired with seasonal step-ups in payroll taxes. Q1 ending R&D headcount was 949, representing a decrease of 70 from the prior quarter. The decrease in dedicated R&D headcount is due to the transition of our production teams from R&D cost centers to production cost centers as we begin the transition from the first Neutron R&D test flight to future revenue-generating missions.

In SG&A, GAAP expenses increased $11.4 million quarter-over-quarter, while non-GAAP expenses declined $1.3 million quarter-over-quarter. The increase in GAAP SG&A was primarily due to the previously mentioned Peterbck RSU cancellation, resulting in a large onetime stock-based compensation expense. Meanwhile, the decline in non-GAAP SG&A was primarily due to a onetime adjustment of accruals related to our 2025 annual bonus plan, which were ultimately lower than previously anticipated due to certain executive officers foregoing bonus awards for 2025. Q1 ending SG&A headcount was 381, representing a decrease of 4 from the prior quarter. In summary, total headcount at the end of the first quarter was 2,778, up 176 heads from the prior quarter.

Turning to cash. Purchases of property, equipment and capitalized software licenses was $27.1 million in the first quarter of 2026, a decrease of $22.6 million from the $49.7 million in the fourth quarter. This decrease reflects less capital investment in Neutron development during the quarter, particularly for the return on investment recovery barge as well as the pad at LC3 at Waltz, Virginia. As we progress towards Neutron's first flight, we expect capital expenditures to remain elevated as we invest in testing, production scaling and infrastructure expansion.

GAAP EPS for the first quarter was a loss of $0.07 per share compared to a loss of $0.09 per share in the fourth quarter. The sequential improvement to GAAP EPS is primarily due to increased revenue contribution paired with increased gross profit. GAAP operating cash flow was a use of $50.3 million in the first quarter of 2026 compared to a use of $64.5 million in the fourth quarter. Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to Neutron development, longer lead procurement for our SDA programs and investments in subsequent Neutron tail inventory as we scale the business beyond its initial test flight.

Overall, non-GAAP free cash flow, defined as GAAP operating cash flow less purchases of property, equipment and capitalized software in the first quarter of 2026 was a use of $77.4 million compared to a use of $114.2 million in the fourth quarter. The ending balance of cash, cash equivalents, restricted cash and marketable securities was roughly $1.48 billion at the end of the first quarter. The sequential increase in liquidity was driven by proceeds from sales of our common stock under our at-the-market equity offering program, which generated $450.4 million during the quarter.

In addition, in April, we completed the ATM offering by raising another $24 million in cash as well as entering into a collorered forward transaction with a floor price of $474 million. We also have access to capped call transaction proceeds related to our 2024 convertible notes offering with a maximum aggregated payment of $201.9 million by final maturity in 2029. Putting this together with our cash on hand, we now have access to more than $2 billion in liquidity, resulting from a successful series of capital raises over the last several years conducted at increasingly higher equity prices.

In February of 2024, we raised a $355 million convertible bond offering with an effective post-capped call price of $8.04 a share and followed that with a series of 3 ATM facilities executed at average prices of $26.19, $47.85 and $70.47, respectively. Additionally, under the most recent ATM, we entered into colored forward transactions with a floor price of $63.61 and a ceiling price of $86.11. These funds are intended to support acquisitions and a robust M&A pipeline alongside general corporate expenditures and working capital.

We exited Q1 in a strong position to execute on both organic and inorganic growth initiatives and to further vertically integrate our supply chain, expand strategic capabilities and grow our addressable market, consistent with what we've done successfully in the past. Adjusted EBITDA loss for the first quarter of 2026 was $11.8 million, which was well below our guidance range of a $21 million to $27 million loss. The sequential improvement of $5.6 million in adjusted EBITDA loss was driven by higher revenue and strong gross margin.

With that, let's turn to our guidance for the second quarter of 2026. We expect revenue in the second quarter to range between $225 million and $240 million, representing 16% quarter-over-quarter revenue growth at the midpoint. We anticipate GAAP gross margin to range between 33% to 35% and non-GAAP gross margin to range between 38% to 40% -- these forecasted GAAP and non-GAAP gross margins are accounting for a shift mix within our Space Systems business.

We expect second quarter GAAP operating expenses to range between $138 million and $144 million and non-GAAP operating expenses to range between $120 million and $126 million. The quarter-over-quarter increases are primarily driven by the Monarch acquisition and ongoing Neutron development and spending related to Flight 1, including staff costs, prototyping and materials. However, we expect to see a shift in spending from R&D to Flight 2 and beyond inventory, which is an encouraging sign of progress as we move closer to Neutron's first flight.

Please note that the nascency of the closing of the Monarch acquisition and the newly announced and yet to be closed Motiv transaction, the GAAP guidance figures exclude any to-be-determined impact of purchase price allocation and stock-based compensation related to these deals. We expect second quarter GAAP and non-GAAP net interest income to be $12.5 million, which is a function of higher cash balances as well as a significant reduction in our outstanding convertible notes.

We expect second quarter adjusted EBITDA loss to range between $20 million and $26 million and basic weighted average common shares outstanding to be approximately 629 million shares, which includes convertible preferred shares of approximately 46 million. Lastly, consistent with prior quarters, we expect negative non-GAAP free cash flow in the fourth quarter to remain at elevated levels, driven by ongoing investments in Neutron development and scaling production. This excludes any potential offsetting effects from any financing activities.

In summary, Q1 was another quarter of strong execution. We exceeded guidance and expectations for revenue, gross margins and EBITDA, all while maintaining robust liquidity to fund future growth initiatives. We expect this momentum to continue, guiding to strong revenue growth as our satellite platforms business continues to scale and Neutron progresses towards first flight. And last but not least, here are some of the upcoming investor events that we'll be attending in the next few months.

And with that, we'll hand the call over to the operator for questions.

[Operator Instructions] We'll take our first question -- your first question comes from the line of Andres Sheppard from Cantor Fitzgerald.

Congratulations on all the quarter and all the great progress. Maybe one on Neutron and one on Space Systems. So on Neutron, Pete, I know you talked a lot about this during the prepared remarks, but just maybe to simplify it for us, what are the key items that are pending that investors and ourselves should be tracking as we get closer to the first launch? And also curious if you can maybe give us some of the customer feedback that you've been getting on Neutron since you're contracting Neutron missions ahead of that first launch. So just curious on that customer feedback and reception that you're getting.

Andres, nice chat here. So I guess the key things to be watching out for the continued placing of items on test stands because really, that's the large pieces of work yet to come that have risk associated with them. So as we put these large pieces of the vehicle on the test stand and take them to their limits and sometimes beyond, then the completion of those pieces of work is probably the easiest and most visual thing to track. Of course, there's a tremendous amount going on in the background that's kind of less visible.

But for investors, I think that's probably the easiest thing to focus on. And then with respect to customer feedback, I think you can see from our strategy of just not dropping our pants and deploying neutrons at really low prices. We've held our ground there. And the customers that ultimately buy those vehicles, they know us well, and we're very well trusted. And they have complete confidence in both Rocket Lab and our ability to deliver Neutron. So needless to say, there's also a lot of customers waiting to see it fly. So -- but the more aggressive customers are making sure that they don't miss out their opportunities to fly early.

Wonderful. No, that's great to hear. And maybe just as a quick follow-up, maybe for you, Adam, on the Space Systems and on the state-based Interceptor program, -- just curious if you can maybe quantify that a bit further for us or any granularity in terms of the structure or expectations there alongside Raytheon?

Yes. I'll provide what color I can, and I'll pass it back over to Pete with regards to the relationship of the partnership with Raytheon. It really is we view it as a partnership. I think everybody has been -- had a lot of visibility to what's going on with various elements of Golden Dome. SBI is one of the more visible ones. There's a limited amount that we can really talk about for that program specifically. But we envision a very large opportunity, but there are gates that we got to get through.

And as you're aware, this is kind of an interesting procurement process for the government where companies like ourselves and Raytheon and others that are in the mix have to put some of their own skin in the game to unlock a potentially very large opportunity in the back end. So I'd say the most important thing right now is, are we able to, like we have in the past, bring really quick cost-advantaged solutions to the market because of our vertical integration capabilities.

We'll be able to do things in time frames and cost points that we think few, if any, people will really be able to compete with. So we think we're in a good spot. And I don't know, Pete, do you want to put any more commentary?

I think you've covered it beautifully out of me. I can't really add more to that.

All right. Excellent. Congrats again on all the great progress. Looking forward to the Neutron first launch.

Your next question comes from the line of Kristine Liwag from Morgan Stanley.

Pete, Adam, there were a lot of moving pieces that occurred in the quarter as you continue to broaden out your capabilities and increase vertical integration. So I guess, first, when you look at your capabilities today, are there any areas you are interested in filling in more? And also second, as you continue to broaden out your capabilities, how do you think about the expansion of your TAM? And how should we think about opportunities as you're able to provide more solutions as space as a service?

Kristine, great to talk to you. Well, I think you've just seen just a methodical approach here from us is we continue to expand our TAMs. But what I would say is they're all expanding for a common reason and a common direction and that, as we've talked about, to ultimately be able to provide services of our own in orbit. So I mean, yes, I think at this point, there's a lot of capability that we've managed to accumulate both organic and inorganic.

And I think we're really at the point where I think if anybody comes to us and ask us to build any spacecraft or satellite, we just sort of track our shoulders and get to work. So I think we've brought in-house a tremendous amount of capability, and it all kind of drives towards those end goals.

Yes. And I would add maybe one more point to that. I think it's important for shareholders. Like a lot of other companies when they're going to expand into new TAMs or expanding into ones that are already in, they just default to acquiring their way in. And I think this quarter is a great example of us being able to really execute on both sides of the organic and inorganic side. We announced a few weeks ago, as Pete talked in his prepared remarks about Gouse, our EP solution that we're bringing to market. that's one where we could have spent a few hundred million dollars acquiring a start-up and kind of went through all the scaling challenges there and then probably ultimately came out with a solution that we thought would be inferior.

Instead, we dedicated a portion of our engineering team, probably an order of magnitude less capital to get it done, and we ended up with what we think is the best solution for the market. So I think when we look at how we expand in new markets, we're not just so kind of focused on just again spending shareholder capital to go get it from acquisition. We'll actually be very efficient and go after it organically as well, which we think yields great benefits for our shareholders.

Great. And if I could follow up on Neutron. You guys talked about the pricing for the recent deal aligns with your average selling price for the launches. With a smaller backlog for Neutron, can you level set us on how we should think about the pricing for that? And then also with the maturity or the upcoming launch in the fourth quarter, what's been the customer reception for this? You've got a very strong order this quarter. You noted higher than what you had last year. So I just want to understand the demand environment for that launch as we get closer to 4Q for the first one.

Yes. Thanks, Kristine. I mean, look, we've always been consistent about our pricing structure with Neutron, and that remains the same. I think I was burned pretty heavily with discounting electrons and flushing them out of the manifest it took years. So we're not -- we're just not going to go down that road again. And then of all of the things that I sit awake at night worrying about, like Neutron demand is just not one of them. And with the backlog we have currently with Neutron, the backlog is super healthy for a number of years. And at this point, we also need to make sure we have capacity for other customers as well.

And I think, Kristine, we can also kind of look back historically and look at what happened with Electron pricing. And when we brought that vehicle to market, pricing was, call it, $5 million to $6 million. And we now see how backlog is priced with average backlog priced in around $8.5 million for commercial missions and some hypersonics being higher than that.

So I suspect that we'll see that same kind of trend present itself as we bring Neutron to market where we tend to be very conservative upfront. we understand the value proposition that Neutron brings relative to what is arguably very scarce competition in the market, primarily Falcon 9. And we think that we'll compare very favorably there and hopefully experience an upward bias to ASP as we continue to kind of gain cadence and credibility with the platform.

Your next question comes from the line of Erik Rasmussen from Stifel.

Congratulations on the Neutron bulk order. Just trying to understand, I hear your comments around trying to be pretty pragmatic and balanced and keeping an eye on your ASPs for that to make sure that you're not sort of underselling that rocket ahead of schedule. But are we -- are you at a point now where you will -- where we could see an acceleration of the signings of Neutron and those Neutron launch contracts given obviously the strong demand that we're seeing there?

Yes. I mean, potentially, Erik, I think that will certainly occur after successful flights for sure. And for a number of reasons, not just customer confidence, but also insurance rates will go down and all of those kind of things that get factored into launch costs. So -- and look, we're also always very careful with what we commit given that it is a development program, and we don't want to leave anybody down. So having customers that have some flexibility in the beginning is super helpful.

Great. And maybe just my follow-up. You spent a little bit of time on the AFP machine. But what are your -- and it seems like you made a lot of progress there. But what are your expectations for moving from maybe a single development machine to maybe more of a high cadence production on that?

Yes. the AFP, the single machine we have fits our production for far into the future. So at the end of the day, Stage 1s will be a fleet model, no different to a fleet of airplanes. The only part that we reproduce are the Stage 2s, which we can bang out on the AFP super quickly. So at full cadence rate, we don't see the need to really invest into too much more of the AFP infrastructure. It's well scaled right out of the chute.

Your next question comes from the line of Trevor Walsh from Citizens.

Peter, maybe for you. On the Motiv acquisition, the prepared remarks focused a lot on the kind of planetary exploration, Mars missions, missions, et cetera. But there was a little call out in the slide deck around on-orbit docking and spacecraft servicing. That seems like that could be a really large opportunity. How much is Motiv leaning into that right now? Or what -- can you just maybe unpack what that specific piece kind of looks like and if that's something we should kind of be paying attention to at all for that acquisition?

Yes. Thanks, Trevor. So Motiv actually brings a really interesting and unique capability. So yes, I mean, we highlighted the MA stuff because that's extremely unique and frankly, very cool. But also basically, any actuation and high-precision actuation, these guys are literally the world experts at. So that ranges from booms and cameras, of course, through -- as you pointed out, like if you want to do some onaudites, we have a very own Rocket Lab Canada, if you will, for that kind of stuff.

But also just precision drive and drive electronics for things like solar panel rotators and array drives, which is something that typically we have bought, so we're able to now bring that in-house as well. So yes, it's a unique acquisition in the fact that it exposes us to new opportunities and gives us new capabilities. It also closes one of the last few subsystems that we currently buy externally and with respect to solar array drives. So yes, it does a number of things for us.

Great. Appreciate that. Adam, maybe just a quick follow-up for you. With respect to the step down in non-GAAP gross margin, both in this quarter and then I think what's implied based on what you're guiding to for Q2, you said that was basically Space Systems mix entering in. Is that specifically the SDA tranches coming in? Or I think that was called out for Q1 as the kind of main driver there, but is that also flowing into what's happening in Q2? Or is there some other dynamic that we should be thinking about?

No, you've got that right, Trevor. It's essentially as the SDA Tranche 2 and Tranche 3 programs become more and more of the mix, they come in at lower gross margin, but they bring a lot of scale with them. So if you look at what that does to kind of overall operating margins, it will be accretive to that. But I think that the other thing to think about, too, is we have normal quarterly mix changes. This quarter, there's less higher-margin launch business in Q2 than we had in Q1 and Q4. And the launch business, as we've talked about in the past, it's a little bit difficult to predict because now we have a mix of point-in-time revenue recognition and overtime revenue recognition.

And so I think it's just -- it's much harder to have a lot of predictability to what that margin is going to be. But overall, we see margins expanding in launch as we progress through the year as we increase our cadence on Electron. And then as we also have periods where we mix in more subsystems and components business, those typically come at higher gross margins than these large SDA contracts. So we feel very good about where we're at margin-wise. We think we have a lot of opportunities to continue to drive gross margin increases.

So really -- but you got to look -- when you start kind of getting a little bit too kind of digging a little too deep in one quarter versus the next, there's a lot of things that are moving around under the surface. But again, the macro trend is supportive of solid gross margins going forward.

We will take our next question and the question comes from the line of Michael Leshock from KeyBanc Capital Markets.

I wanted to follow up on the Motiv acquisition, and you mentioned how it brings in-house a lot of the costly and supply-constrained components. You called out solar array drive assembly specifically. For things like that, did you previously buy them from Motiv? Or did you have multiple other suppliers for components like that?

Michael, yes. No, we bought them from multiple suppliers previously.

Okay. Great. And then maybe moving to Electron and just assuming that the demand is there for more launches and the impressive manifest that you have clearly implies that it is. How many electrons could you physically launch annually? Is there anything that could potentially lead to another step change in the electron launch cadence or any potential bottlenecks that might be preventing even more of an increase in those launches?

Yes. So we -- when we set up the Electron factory, we designed it for 52 electrons a year. So we have capacity to reach there. And there'll be some modest capital investments to reach that, but that's basically it. And we have 2 pads already done at Alpha 1. So that's not a constraint. And of course, we have the second -- sorry, the third pad in Wallop. So no, I think we're really set up for that increase in cadence. And yes, it would be very, very modest investments to realize that. And then, of course, over 52 launches a year, we'll have to take a little bit more real estate and expand the factory, but it's all pretty trivial stuff.

Your next question comes from the line of Ron Epstein from Bank of America.

This is Alex Preston on for Ron. I wanted to ask on Space Systems. Are you seeing or thinking about -- or how are you thinking about opportunities in proliferated GEO and maybe other higher orbits, right? I know it's been -- the trend has definitely been towards LEO proliferation. But I think in recent weeks, we've seen some momentum on contracting activity, particularly it seems on the Space Force side there. Is this a space you're looking at? And to what extent could you maybe enter that market as a prime as well given your current capability set?

Alex, certainly, we're interested in that. And a lot of the spacecraft that we build already go to high -- low earth orbits and they -- that necessitates incredibly hard radiation tolerance. So those environments are not dissimilar to GO. So a lot of the challenges around rad-hard and those kind of operating environments, we're already very familiar with. So going to geo for us is not scary at all. I mean we're happy to go to Mars and operate in those really deep space environments. So a lot of that tech stack is kind of rad-hard or rad-tolerant already. So yes, we are watching the geo stuff as well as you are. And I think that is an area we could easily move to.

Great. And then if I could follow up, I think Kristine asked this question similarly, but I wanted to ask more on the national security side, if there are -- right? So you've got the capabilities on launch, haste, providing satellites themselves to SDA, now adding to that with SBI. Are there areas that you could look to expand your capabilities, specifically looking at national security that maybe areas you can't address currently that you'd like to in the near term?

Yes. I think one of the really interesting opportunities that the GES application brought us is these very bespoke unique national security payloads. So with that acquisition, I think we were introduced and got exposed to a lot more programs and folks than we would have otherwise. So I think it's a core drive and a core capability within the company. And I think we are -- in one way or the other, whether it's a component supplier or a prime, we have pretty deep exposure into that national security environment now, as you point out, both through launch and through spacecraft.

Your next question comes from the line of Jan Engelbrecht from Baird.

I'll start with the Space Systems business. You announced a lot of updates recently, I think, 7 different sort of capabilities in the last 4 months. And then there was the in-house development of key components, if you think of the Star Tracker in Toronto, electric propulsion cluster in New Zealand and then the Mynaric deal. And sort of each of these updates points towards a strategy of expanding Rocket Labs manufacturing footprint beyond the U.S., so more sort of a distributed manufacturing model.

Just curious the thoughts there. Should we expect more of that in the future? Did sort of the disruption of tariffs factor into that? Or was it mostly just a logical business decision of being able to serve customers globally in a much easier way?

Yes,. So a bit of both, a bit of all of those things you said actually. So yes, it's strategic in the fact that, for example, Mynaric really gave us a foothold in Europe. And Europe outside the United States is like the second largest market and opportunity for us. So -- and also, it just sort of depends where the technology is, like the Minar laser terminals are widely regarded as the best in the business. So if it means we have to go to Europe to get them, that's where we'll go.

So that was just convenient that was also very strategic for us. But yes, I mean, we operate kind of areas of excellence in some places, it makes sense to do stuff in New Zealand, some times it makes sense to do it in various facilities in the states. So we really look at that quite holistically in that sense.

And then if I just could have a quick follow-up. As we think about the Trans 3 tracking layer, I think in late December, it was about $800 million. And then in the release, it said there's a potential for subcontracting opportunities to take it up to $1 billion. I was curious, any of the updates, any of the new components that you've announced sort of developed in-house and then you've brought Mynaric in there. Is there anything -- I know you can't maybe don't want to talk about exact dollar values, but if we think about future tranches of the tracking layer, is there a ballpark of sort of content that these latest developments sort of has increased your ability to serve the other prime customers?

Yes. So I mean, a number if we just talk about some of the transport layer stuff and some of the track and SDA work in particular, like they are all optically linked together. So obviously, there's an opportunity there, and they all have high-power solar requirements and there's opportunities there. They all need electric propulsion, so there's opportunities there. So you can see that we can be widely distributed across things. And I like to think of it as like even when we lose, we kind of win because if we lose a project, then the next day, there's a bunch of purchase orders turning up for solar panels and ration wheels and all that kind of stuff.

So even when we lose, we win. But even when we win, we also win twice because the same thing happens is we can win the program. And if there's multiple awards, typically, there'll be -- come Monday, there'll be a bunch of urge orders for components for other people's systems as well. So that's kind of what you saw with T3 is we kind of won twice.

Your next question comes from Edison Yu from Deutsche Bank.

I want to actually ask something I brought up a couple of calls ago. And it's in the context of -- you obviously laid out today, you have the complete satellite component portfolio, a whole line of different types of satellites. And then you probably saw recently Amazon acquired Globalstar. And so does spectrum and these kind of potential services markets in the future, have your views kind of changed over the last maybe 6 to 9 months? Are there certain services that look more attractive, less attractive? Does spectrum -- your view on spectrum change at all? Just curious your views on that.

Great to talk to you. Look, I think we've always been super consistent that the end goal here is to provide services from space. And I think that's the largest TAM, and that's where if you own your own rocket and have your own satellites, you can be most disruptive. And that thesis hasn't changed. But I also think it's a little bit academic to be talking about us doing services when we still have Neutron in development and things like that.

So it's at the right time, I think we'll be happy to talk a little bit more about our thoughts there. But for right now, the focus is really on completing Neutron and making sure that we have all the components and everything we need at scale to be able to ultimately deploy applications in orbit.

Understood. And then probably something maybe more -- perhaps a little bit more near term or more kind of next couple of years. I think you said your the manifest was like 1/3 already or 1/3 of the manifest. Do you kind of envision a future where your launch mix is actually becomes probably like 1/3, whether, let's say, for every -- let's say, you get 30 launches, 10 of them every year are actually hypersonic testing. Is that like a realistic scenario?

Yes. Look, it could be. And part of this will depend on the pace and scale of Golden Dome. -- because one really key critical element of Golden Dome is how do you test it and simulate the threats and all those kinds of things. And this is where we're seeing a lot of interest in the HAS portfolio, of course, because you can do things with that, that it's very difficult to simulate. So I would say that the scale of HASTE will somewhat depend -- or the massive scale of HASTE will somewhat depend on the scale of Golden Dome and the pace in which that takes place.

Yes, Edison, I'd also maybe add to that, too, that one of the things that we're seeing is the international opportunity is becoming much more clear and present. I think that also applies to hypersonics, right? I think that the environment that we find ourselves in these days geopolitically just is driving more and more sovereigns to need capabilities that these to rely upon the U.S. for primarily. So again, when you think about the long-term demand for HCE type of solutions, I don't think you have to think of just the U.S. as the customer base for that.

I think it's going to expand beyond that. Now of course, everything we do requires U.S. State Department approval and cooperation. And we, of course, work with only the most friendly partners in the United States, but I think there is a bigger opportunity out there than just like MCTV, for example, and U.S. government opportunities.

We will take our next question. The question comes from the line of Gautam Khanna from TD Cowen.

Anton on for Gautam. Can you just share some more details on Neutron timing? So based on the way things are trending now, is this more of an early Q4 story or late Q4 story? And then just depending on the timing of the first Neutron launch, is it possible we could see maybe 3 payload carrying launches in 2027?

Gautam, could you repeat the first question? We had a bit of a follow-up on the audio on our side.

Sorry about that. Can you just share some more details on Neutron timing? Is this kind of more of an early Q4 story or late Q4 story? And then the second part was just depending on the timing of that first launch, could we maybe see 3 payload carrying launches in 2027?

Yes. I mean I don't think we have enough visibility to narrow it down to a couple of weeks and a quarter at this point in time. As we approach first launch, it will be -- those time lines will become much, much tighter. And then we've always said that plan is sort of 135, and that's what we've demonstrated with Electron, and we think that's the right kind of cadence. So that thought still remains consistent.

Your next question comes from David Strauss from Wells Fargo.

This is [ Ben Tom ] on for David. I was just curious, following up on that last question, when do you plan to incorporate the reusability for Neutron? And then how will that kind of impact cadence going from there?

Yes, great question. So on Flight 1, we'll be attending to reenter into a soft splashdown for Neutron. So that will test all of the reentry engine relights and downrage burns. This is the area that's kind of the most unknown and the hardest to test for other than actual flight testing. Hence, the reasons for the intentional soft splashdown where we just splash down in the ocean. Provided that is -- that all goes well, and we're happy with what we need to do there, then we'll slip the return on investment barge under it and attempt to landing on Flight 2.

Now of course, if we don't get the result that we want on the reentry for Flight 1, then we'll reevaluate. And basically, I just don't want to put the barge under the vehicle until we know that we're not going to punch a hole through it.

Got it. Great. And then maybe going back to -- can you just provide an update on your contracts there and then how you're thinking about that program at a high level? Have you guys received all the funding for Tranche 2 transport? And how are you thinking about the transport layer going forward with that shift to the space data network?

Yes. Well, I can speak to where we are with contracts. So everything is on track. We've been hitting our milestones. We've been getting on-time payments from our government customers. In fact, a pretty sizable one earlier this week. So no, I think everything seems to be on track there. So I don't think funding is an issue for the programs that we're executing against. As far as the long-term direction for transport layer, I think there's been plenty of kind of press and discussions and a lot of speculation, of course. But I think for us right now, our focus is on executing our Tranche 2 of transport and then, of course, on the missile track missile warning for Tranche 3.

I don't know if Pete, do you want to add anything to that?

Yes. Thanks, Adam. I think you've covered it well. I mean transport is kind of one layer. But I mean, the layer that is doing the work is track. So hence, the reason why we focused very intently on that for the T3 stuff.

The next question comes from Suji Desilva from Roth Capital.

Congrats on the progress here. Adam, I know you talked about the Space Systems business coming in with the PWA program. But maybe can you talk about what the mix of launch in Space Systems, how it may trend? There are a lot of moving parts that I know may be hard, but -- and then gross margin implications of that as you look out the next several quarters, I guess, 1 or 2 years maybe.

Yes. So look, I think that we're clearly going to have more mix in 2026 as we progress through the year coming from Space Systems, even though we're going to have pretty significant growth coming from the electron side of the business as well, Electron and haste. I would say that it won't be dramatic. As the mix -- as I mentioned earlier, as the mix skews more towards Electron, that's very helpful to the overall corporate margin because that product is really coming into its own, getting very close, if not at the target margins that we set for that business several years ago.

When you look at our Space Systems business, we mentioned earlier that, yes, these SDA contracts are large, and they bring a lot of absolute dollar scale with them with a little bit lower gross margin profile. But the other thing to take note of, too, is if -- we just closed the Mynaric acquisition. That will contribute, if you want to think about roughly $15 million in this quarter on a run rate basis. And that comes at lower than the Space Systems overall gross margin because it's a brand-new business.

I think Pete mentioned on the last call that there's a bunch of work that we need to do there to get that business in a fighting shape in the way that we view kind of Rocket Lab product lines. We're very excited and very confident we're going to get there, but there's some work to be done. And until we get a few more quarters under our belt and really kind of Rocket Lab eyes, if you will, that system, it's going to be a bit of a drag on margins, but I wouldn't say anything too, too significant. And we do think longer term that there's no reason why that business can't be at or greater than our target margins for our Space Systems division.

So I think the other thing that's going to influence is, obviously, once we start to get Neutron in the mix, which is really more of a obviously revenue-generating 2027 story onward, that's going to do, we think, very much what Electron did through its maturation, which is start off with challenged gross margins, but then because of reusability and because of our experience in kind of ramping a rocket business, we think that, that's got as much, if not better, long-term gross margin potential as Electron is exhibiting.

So I think overall, we're not going to see a dramatic shift, I think, either quarter-to-quarter or even over the next several years. It's going to be more of kind of the progression that we've seen. And I think we've been pretty clear in kind of what our long-term model for the business is, which is a strong top line growth with gross margins at a corporate level and again, longer-term targets of around 50% or greater and then delivering mid- to upper 20s operating margins for the business. And I think that -- when we look at what's going on underneath all the various pieces coming together, really, the key to unlocking that is Neutron, right? We've got to get Neutron's first flight off.

We've got to pivot that into production. And when we do, there's a lot of very positive things that happen to the P&L. And then lagging that by perhaps 18 to 24 months is the strong cash flow generation that will come after we've had the opportunity to build out the fleet of Neutron, as Pete talked about earlier, where it looks much like a fleet of aircraft. So we think we've got all the right kind of levers in place. It's just a matter of executing. And again, I don't think you should be expecting any sharp kind of changes to our margin profile. I think it should be relatively straightforward model. I don't think there are any big surprises that are looking anywhere.

That's very helpful color there. And then maybe this one is bigger picture for Pete, and it could be a bit of reach because you're not the first company to think about when you think about lunar missions. But Peter, are there any opportunities that Rocket Lab intercepts with everything that you guys can talk about NASA Impact that we're not maybe realizing but should? Or is that something that maybe is other companies more so than you guys?

Yes. It's probably other companies than us in some areas. We are obviously a provider of a lot of critical hardware for many of those companies. So for the Lunar stuff, I think we kind of prefer to be the picks and shovels behind those missions rather than those headline those missions. It's kind of a bit of a tricky one because typically, those programs have been a little bit wobbly in the fact that we're going to the moon, no, we're not going to the moon, now we're going to Mars.

Now we're going back to the moon. Now we're going back to. So I just don't want to get whipsawed and have those big contracts in the mix getting whipsawed backwards and forwards. For example, where gateway got canceled. And then the commercial space stations got completely changed. And I don't know, it's just those are core programs, but it's very easily whipsawed around. So we much prefer to play a quiet a role.

Now in saying that, there's certainly some projects with respect to Mars that we're very vocal about. Mars Telecommunication Orbit, I think, is one that more recently that we've talked about a lot in the Mars sample return missions. So where we see those missions that have strong proven funding and that are relatively uncontentious from changes of administration and all those kind of things, then we'll go after them. But I'm not less keen to chase the shiny things that can be a little bit less certain.

We will take our next question. And the question comes from the line of Ryan Koontz from Needham & Co.

Great. Just a quick question here. Thinking about your recent additions to the portfolio with Mynaric and the gas electric propulsion. One, first part is like how do you think that improves your competitive position in the broader landscape? And then secondly, your ability to compete financially in the big picture, thinking kind of multiyear strategic level. I appreciate your thoughts there.

Yes. Thanks, Ryan. Well, I think some of these acquisitions are just driven by pure pain. If we look back through some of our programs, the things that caused a lot of pain for us were things like electric propulsion that was constantly late, constantly expensive and just not great solutions. And Monarch was slightly different. great technology just always struggled with respect to delivery. So some of these things are just driven from pain.

Now of course, owning those things means that you can resolve the pain, and that puts you in a much stronger competitive position, both from an on-time delivery or faster time line delivery. And then, of course, when they're all vertically integrated, the cost structure is much more effective as well. So being vertically integrated and owning these really critical unique key pieces of the space ecosystem naturally gives a competitive advantage.

Yes. And I'd add one more thing to that. I mean I think we have a very tangible example of the benefits that it can yield. If you look at our Tranche 3 win that we had for the $860 million, one of the main reasons why we think we prevailed in getting award there is because of our level of vertical integration, -- and if you look at the margins that we model for that, which are very much in line with our Space Systems platform business, I think they look quite different than people who won similar awards that aren't as vertically integrated.

So not only does it position us to win because the customer can have more confidence that we're going to deliver on schedule with performance that we commit to because we own the whole platform or more of the whole platform. It just also puts us in a much stronger position to win financially as well because we just -- we can turn what would otherwise be a pretty lackluster kind of financial profile of program into something that's actually quite strong. So I think it's really important at both levels, first and foremost, strategically enabling us to just execute on programs. And then when we do it, to give it the kind of returns that we and our shareholders expect.

Your next question comes from Andre Madrid from BTIG.

This is [ Ned Morgan ] on for Andre this afternoon. Could you guys just size up how much of Space Systems revenue is being consumed internally versus third parties this year? And then moreover, how that could trend over time?

So I guess I think if I understand your question correctly, you're saying what percentage of our -- if you look at a spacecraft that we're delivering, say, for example, to SDA, what percentage of that would be vertically integrated BOM versus third-party procured? Is that what you're asking?

I mean, I guess more so I was thinking about with the electric thrusters, you guys are using those on your -- that business line you're building out is going to support your SDA satellites. How much of your internal production at Space Systems is supporting your programs versus others?

That's an interesting question. I would say -- I mean Yes, it depends. If you look at our solar business, for example, right? I would say that we don't yet consume a majority of our solar capacity for our internal programs. That's still very much a program -- sorry, a platform or a line of business where the majority of the revenue is coming from other satellite manufacturers that we sell to like Lockheed and Airbus and others.

If you look at things like electric propulsion for G, that's going to be disproportionately internally focused initially because we're going to prioritize that for our key strategic programs. But make no mistake about it, every line of business, every product that we develop is designed to not only meet our internal needs, but also serve the merchant market. So I would say that, yes, it really depends by platform. Again, solar is low, gas will be high.

When we think of things like reaction wheels, I would say the vast majority of our production actually goes to third parties versus internal supply. So yes, there's really no, I'd say, holistic number that I can give you that would be helpful. It's just kind of a case-by-case kind of product-by-product kind of look.

Okay. And then one more, just trailing back to how big HA and hypersonics in general could be. I guess what would make you decide to broaden your hypersonic offerings beyond just HSE? I know there's some other programs like MC XL out there. I was just curious if you have any interest in those.

Yes. I mean I think we have kind of interesting exposure across a wide field of stuff. So the HC is obviously a very, very specific requirement. And we are obviously involved in SBI as well. So yes, I mean, I think we view it where we can add the most amount of value and we are strategic for us. And as various programs rise, we always take a good solid look and sort of make decisions based on those factors.

Yes. I think that if I could kind of wave a magic wand and come up with ideal mix, I would -- and I talked about this a few years ago when I was meeting with folks, it was like if we can get to the point where HASTE represented, let's say, the base business for the Electron platform that got us to our target margins, which was, as we've talked before, about 24 launches a year. If we could have 24 launches a year be HASTE that covers really the nut for that business and gets us to absorbing a lot of the overhead and everything else becomes gravy and really additive to margin, that would be the place where we want it to land.

Now could it get there? I think there's a possibility of that. I mean this year, if you look at the mix of HASTE launches this year out of our total manifest, it's sitting at around a little between 20% and 25% of the mix is going to be haste. So there'd be a little bit of work yet to get to that kind of a baseline of, say, 2 HASTE launches a month. But I would say also, as I mentioned earlier, it doesn't just have to come from U.S. programs. There's a good chance it's going to be coming from lots of different places.

Your next question comes from the line of Jeff Van Rhee from Craig-Hallum Capital Group.

This is [ Vijay ] on for Jeff. I'll keep it to one. On subsystems, how are you tracking the progress post acquisition? Is it how much cost you're able to take out? Is it how much you can increase margins? How much you can scale production? Just kind of what are you look at there?

Yes. It depends a little bit on the business, Vijay, like some require a lot more work than others. Generally, historically, we've acquired very profitable little companies. And the Rocket Lab housing, as Adam called it, is relatively limited to black ball snack machines and t-shirts versus complete financial restructure. But I would say that Mark is certainly one of those that is going to take a lot more work.

But consistent that's comments around our financial model, we have very clear gross margin targets. And these business units are run almost as their own entities. I treat them actually like start-ups. So they have to come pitch to me for money. They're expected to grow a certain amount every year. And whether they do that through selling more products or creating new products, that's their business. But we very much run them fast and hard and like start-ups, and that's worked out really well for us.

There are no further questions. I would like to hand back for closing remarks.

Great. Thanks very much, everybody, and thanks for joining us today, and we look forward to sharing more exciting updates in the months ahead. So thanks very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Hello, and welcome to Rocket Labs Fourth Quarter and Full Year 2025 Earnings Conference Call [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Morgan Connaughton, Vice President, Marketing and Communications at Rocket Lab. Thank you. You may begin.

Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's Fourth Quarter and Full Year 2025 financial results, business highlights and other updates. 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 are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP.

This call is also being webcast with a supporting presentation, and a replay and copy of the presentation will be available on our website. Our speakers today are Rocket Lab's Founder and Chief Executive, -- sir Peter Beck; as well as Chief Financial Officer, Adam Spice. They will be discussing key business highlights, including updates on our launch and Space Systems programs. We will discuss financial highlights and outlook before we finish by taking questions. So with that, let me turn the call over to -- sir Peter.

Thanks very much, Morgan. So I'm going to start today by stealing some of Adam's thunder and sharing some of the financial highlights upfront. We had a new annual revenue record in 2025 coming in at $602 million, which represents 38% growth year-on-year compared with 2024. We also had a record quarter in Q4 with revenue coming up at $180 million, which was up 36% from Q4 last year.

At the end of Q4, our backlog sat at a record $1.85 billion, which is up 73% from the same time in 2024. And finally, we also achieved record gross margins in Q4 at 38% GAAP and 44% non-GAAP. As you tend to say on launch day, that's greens all across the board and a great result. It comes down to one thing, and it's simply relentless execution from the Rocket Lab team across our launch and Space Systems programs. Here are some highlights from that execution. I won't labor on these now as we'll go into more detail in the up-and-coming slides.

But ultimately, we launched and signed a record number of electron missions and led the way on hypersonics testing with haste and achieved some significant qualification and development milestones on Neutron. On the Space Systems front, we were awarded the largest contract in Rocket Lab's history, successfully delivered the EsCAAdmission demars for NASA, and we had record growth across all of our Space Systems component businesses. On acquisitions, we welcomed Geos in 2025, which officially marked our entrance into payloads and followed this up in Q1 2026 with the acquisition of Optical Support, Inc., which further strengthens our optical systems offering.

We also expanded our machining and manufacturing footprint with the acquisition of Precision Components Limited, which actually just closed today and will ultimately support continued scaling of the components manufacturer for both launch and space systems. More on these in the slides ahead. So on to some quick highlights for Electron and Haste. Rocket Lab remains the small launch leader globally as the only rocket delivering reliable and high cadence launch opportunities for smmallSat. We launched 21 missions across Electron and Haste in 2025, which was a new company record.

We also launched 7 missions in Q4, our highest number of launches in a single quarter to date. Meanwhile, there were no successful orbit launches of a new U.S. or European small launch vehicle in 2025 at all. And it's very clear when small cell operators need a dedicated ride to orbit, they come to Rocket Lab, and we're proud to hold the title and look forward to expanding it again the record again even further this year. The U.S. government has made no secret of the fact that faster and more frequent hypersonic testing is an urgent need and a national priority.

Rocket Lab is the only credible provider that has demonstrated the ability to deliver this capability right now, not years into the future. In 2025, we conducted 3 successful HASTE missions, and the next one is on the pad in Virginia now just days away from launch. This kind of cadence and reliability positions us well for programs like Golden Dome. With more HASTE missions on the books this year, we'll be rapidly building that moat even further. It was a record year for launching missions, but also for signing them. We added more than 30 new launches to the manifest across Electron and HASTE.

They came from a nicely diversified customer base spanning the U.S., NASC and defense, commercial constellations and international organizations. We had many returning customers sign new contracts often for bulk buys and multiple launches, but also added new names too, which demonstrates that our small launch customer base continues to expand. In Q4 alone, we signed a new multi-launch deal with BlackSky for 4 new launches, which brings the total number of missions they booked with us to 17. We also signed a contract with a new confidential customer in support of national security. As always, our pipeline for Electron and HASTE remains strong, and we're excited to continue signing new and novel missions as well as a standard repeat and mission profiles in 2026.

Now on to Space Systems. Rocket Lab is not new to being a prime contractor, but in Q4, we made an announcement that highlights our substantial growth in satellite satellite market and further cements our position as a preferred disruptive prime. The Space Development Agency or SDA, awarded us an $816 million contract to build an advanced constellation of 18 spacecraft equipped with advanced missile warning, tracking and defense sensors to provide global and persistent detection and tracking of emerging missile threats. It's the largest single contract in Rocket Labs history.

What's more as a leading merchant supplier into the other tranche 3 prime contractors, there are additional subsystem opportunities that could total capture -- could add a total capture value to approximately $1 billion for supplying payloads, solar power reaction wheels and star trackers software and other solutions from our broad portfolio of capabilities. It's important to point out that the acquisition of GES played a significant role in securing this award. Rocket Lab is the only commercial provider producing both the spacecraft and payloads in-house for SDA and for the tracking layer Tranche 3, supporting the government's goals for speed, resilience and affordability in space-based missile defense.

This award follows on from our previous prime contract award for SDA's transport layer Beta Tranche 2 program. With the 2 programs combined, we now have more than $1.3 billion in contracts signed with the SDA. I think an important takeaway from this announcement is not just that we won a significant contract, it's that Rocket Lab is repeatedly winning large awards that have historically been the exclusive legacy -- exclusive to the legacy aerospace primes. We're seeing a new world order established in the defense world with Ares companies like Andrew and Palantir playing leading roles in disrupting slow bloated traditional players.

Rocket Lab is clearly doing this in space and unseating the old guard. Okay. On to Mars. In Q4, the EscoPade mission launched and the twin satellites we built for NASA and UC Berkeley are now well on their way to the red planet. With EscoPade, we've proved that it's possible to deliver decade-class missions on a drastically shortened time lines and for significantly smaller budgets than typical interplanetary missions. We made this possible through vertical integration, maintaining strict control over schedule and budget.

With both spacecraft now successfully commissioned and in a Loiter trajectory near L2, that's a Legrange point, around 1.5 million kilometers from Earth, Rocket Lab's primary role in the mission will soon be complete when we hand it over to the team at UC Berkeley next month. Even once control has been transferred, we'll be chairing Blue and Gold along as they arrive in Mars orbit in September next year. Our role in Escoade might have reached mission success, but we're not quite finished yet with Mars yet.

We've made no secret of the fact that we think Rocket Lab is the strongest contender to deliver NASA's Mars telecommunication Orbit program. An NTO will be fundamental to everything else on Mars, enabling science now and human exploration in the future. We'll make it possible with a rare combination of proven spacecraft, deep space mission experience, reliable rockets and end-to-end space systems capability as a vertically integrated mission provider. Our hardware and our software has enabled some of the most ambitious and successful Mars missions in history, including the Mars Insight Lander, Perseverance Rover, Ingenuity Helicopter, Mars is in our DNA and Rocket Lab has more hardware and on and orbiting Mars than just about any other company today. Okay. On to programs.

We had a key milestone for LockSAT, which is our launch plus spacecraft mission to build and deploy an on-orbit cryogenic fuel depot for NASA. This spacecraft is now complete and we will be marching steadily towards launch later this year. Okay. We also have an exciting development to share from our space solar business. It requires some background on kind of the state-of-the-art of space solar power, so bear with me a little bit on this one. The satellite industry is rapidly expanding and projected to grow 7x by 2035. Those satellites will all need solar power. Rocket Lab is the world leader in solar space power.

So it should come as no surprise that we're the best positioned to serve this growing market. In addition, ambitious opportunities are on the horizon from space-based data centers. As AI and compute demand saw and data centers on earth reach their limits, companies are beginning to seriously explore moving data centers to orbit where they can take advantage of the cool conditions and infinite solar energy. But rapid market growth of this size, both for typical constellations and futuristic projects like space-based data centers will be hampered if traditional solar cells are the only option.

So it's against this backdrop that I'm proud to announce that Rocket Lab is introducing a space-optimized silicon solar arrays. While silicon is not new in space, it's always suffered from low radiation tolerance and very low life expectancy with poor performance. Our team are the experts in space solar, having developed some of the most complex cells for flagship missions to the sun and most of the missions on Mars today. The team has produced a silicon array that is a game changer. By harnessing silicon, we're able to deliver a really low cost per watt at industrial scale, enabling gigawatt class power generation and space at kilometer size scale using mass manufacturable lightweight and modular systems.

We've also taken the additional step of developing a hybrid solar array solution that incorporates both high-efficiency cells and silicon cells, an approach that leverages the benefits of both technology. When size, weight and power or performance are at a premium, traditional high-efficiency cells are enabling. When cost schedule or cost constellation scale are required, silicon cells can meet that demand. When these factors must be traded off and balanced, hybrid arrays enable a combination of the 2 to deliver an optimal performance at a compelling value. So for new products, we move into new acquisitions. On the top of acquisitions, no doubt, everybody is interested in an update on Minar. The German government is still working methodically through the regulatory review process.

So there's not much to add at this stage while that sort of runs its course as expected. But we look forward to providing an update once that's concluded. There are a few stories floating around in the media with different theories on how the transaction is progressing. All as I'd say there is don't believe everything you read in the media and online. Otherwise, this month, we have welcomed Optical Support, Inc. to the Rocket Lab team. OSI is a Tucson-based leader in the design and manufacture of custom high-precision optical and electro-optical mechanical instruments. OSI's technology is a key enabler for national security and commercial satellites.

They are a key subsystem in Rocket Labs payloads for space protection, space domain awareness, missile warning and tracking defense. The vertical integration opportunities here are clear while we look forward to scaling production and capabilities to serve our customers and our own programs as we've done with many of our other successful acquisitions. And last but not least, we've also acquired Precision Components Limited in New Zealand, again, a known and trusted supplier to us that's now part of the family. With this acquisition, we have established a new precision machining complex that enables a huge increase in machining capacity.

So I think it's worth spending just a quick moment here on the strategic importance of our recent optical-focused acquisitions. Vertically integrated high-performance RF and optical payload technologies unlock high-value opportunities for national security and commercial customers. They are key to unlocking programs like Golden Dome and other proliferated mission architectures. Owing to the payload chain enables -- owning the payload chain enables discriminating performance plus greater control over schedule, cost and especially for high-volume constellations. We've already seen this strategy in the action with SDA Tranche 3 award, and we expect to deliver more value and opportunities to us this year and beyond. We received another strong vote of confidence in our ability to deliver on critical national security and defense programs when we were recently selected by the NDA for Shield.

In short, we're now onboarded to the program, which has a contract value up to $151 billion, giving us the opportunity to compete for future launch and space systems contracts that deliver these capabilities to the war fighter with increased agility. All of the above ultimately points to one thing. Rocket Lab is a disruptive leader in building the future for space and defense. This was driven home by a recent visit to our facilities in Long Beach by the Secretary of War, Pete Hescket, during the arsenal of Freedom Tour. The visit highlighted the critical support we already delivered to the war fighter today and showcased our capability to meet ever-evolving needs in the future. And last but not least, before Adam digs into the financials, here's the latest on NeutrO.

We've got lots of progress to share across Neutron, but I'll start with the topic on everyone's mind, I'm sure, which is the Stage 1 tank update. In January, we shared that Neutron's Stage 1 tank had ruptured during a hydrostatic pressure test at Space Systems complex in Little River. Now failures aren't uncommon during the qualification phase of any rocket development program, but I do want to point out that this was unexpected. And ultimately, we had anticipated that this tank would pass qualification. Now the tank did meet its anticipated flight loads, but as we prepared to open up the test bound and push the pressures and loads beyond this to understand the margins in the structure, the tank let go earlier than we expected.

The post-test review process identified that a manufacturing defect introduced a reduction in the strength at a critical joint in the structure, specifically around the tank closeout, which is an autoclave produced part that interfaces with the bulk composite laminate of the tank and the dim. The review of the hardware and test data suggested that the tank otherwise performed as expected. The first tank was handlaid by a third-party contractor while we're getting the automated fiber placement machine up and running. And it's in this handlid process that a defect was introduced. Now the decision to work with a third-party contractor was ultimately driven by schedule as it would allow us to produce the first tank rapidly while simultaneously commissioning the AFP machine for future tank production.

And it's not uncommon for us to run parallel development paths like this to accelerate schedules as it can be a cost-effective way to iterate prototypes and first articles while also standing up long-term production capability to enable fast scaling down the track. Now the next tank is already in production. This time, it's being built on the AFP machine, completely eliminating the possibility of this hand defect reoccurring. It's worth pointing out that Neutron's second stage was largely produced -- was entirely internally passed and qualification -- sorry, -- it's worth pointing out that Neutron's second stage was produced entirely and internally and passed qualification comfortably.

Beyond changing the manufacturing process, we also are making some minor design changes to the first stage tank to introduce more margin and improve manufacturability. To be clear, we're happy with the overall tank design. But since we're making a new one, we thought we'd always take the opportunity to tweak things a little bit and optimize it. Once completed, the new tank will undergo an extensive test and qualification campaign to verify flight readiness, and we're going to take a time of that process. The priority will always be to bring a reliable rocket to market even if it means taking a few extra months. Ultimately, the combination of the new tank and the production design tweaks and the test and qualification campaign will adjust Neutron's time frame a little bit. As such, Neutron's first launch is now targeted for Q4 2026. Neutron is still scheduled to come to market in an incredibly aggressive time frame.

And what's more, we'll be bringing a robust and thoroughly tested vehicle to the pad. We look forward to sharing more development progress as we run through the final development phases this year. Okay. So on to some milestones in the Neutron program over the past quarter. You would have seen over the next few slides why I'm dubbing this the quarter of qualification. We've taken massive strides in Q4 as well as Q1 so far, successfully qualifying critical flight hardware from large structures through to component level systems.

In Q4, the Hungry Hippo fearing successfully passed qualification and then on into Q1, it made its way to wallops. It's an exciting time in Virginia as Neutron flight hardware starts arriving and we can get into the final assembly and integration and test phase. For the Hungary Hippo specifically, that looks like fluid systems and installation of canards and thermal protection systems and then, of course, end-to-end testing. While we work through that in preparation for the first flight, we have the second Hungary HIPO in production for the next Neutron launch vehicle as well. Another successful qualification on the board is Neutron's thrust structure. This is a really complex part of Neutron. It must be able to withstand 2.1 million pounds of thrust, which is more than 44 electrons simultaneously lifting off to give everybody kind of a sense there.

The structure is now officially on to final integration, which is the final her before we get into integrated system checkouts, cryogenic proof tests, vehicle hot fires, wet dress and then, of course, launch. It will go through avionics and fluids and subcomponent integration before shipping out to LC3. Meanwhile, at Middle River, Neutron's interstage is undergoing its own qualification campaign before being shipped to LC3. Neutron's second stage is hung inside this during flight and then passes through the mouth of the Hungary HiPo and carried orbit. Like the Hungary HiPo, the interstage remains attached to the first stage and reuse. So it needs to undergo a robust testing program so we can assure that it can withstand the forces of launch and landing multiple times. And then Stage 2 is in its final integration and getting ready for its debut on the test standard LC3.

This is a specially built rig on the top of the LC3 launch mount, where we'll go and conduct a barge of integrated test before ultimately moving into hot fires on the stand. That will be L3's first taste of what of an Archimedes engine and a huge milestone for the development program. So we look forward to testing that soon. Which brings me to the last but not least, Archimedes. Right now, the engines are in boot camp. We are not been nice to them at all. It's all well and good to test engines to expected bounds. But through experience, I've learned that space flight has a way of throwing things at you that aren't expected. Rocket engines don't tend to fail when everything is boring and when you can rely on analysis and simulation to bound and then truly understand performance.

Ultimately, engine reliability is gained via testing. There's just no substitute. So that's what we are doing, and we're really pushing them through the edge cases, backing right off the inlet pressure, inducing cavitation and generally doing really nasty stuff to them. Ultimately, you want to know how the engines are going to perform in a really wide range of scenarios on the ground before you put them in the air and find out in flight. Too many rocket companies have not done this, and it typically doesn't end well. This is the same kind of process we undertook when developing Rutherford, the engine on Electron. And right now, we're flying more than 800 of those engines successfully to space.

So we'll be bringing the same level of reliability and rigor to Ares. Beyond the Stage 1 tank, we've had a really positive quarter for Neutron progress, and this gives you a snapshot of just how much progress we've seen and made on the path to first launch. Major structures and subsystems are passing qualification. And for the first time, we have hardware and final integration.

These are the final steps before we go into integrated testing on the pad with hot 5 stage tests and then wet dress and then, of course, launch. Beyond the vehicle itself, we have established all the supporting infrastructure to enable first launch and beyond. OC3 has obviously stood up plus production and test facilities are all humming while the regulatory work is all tracking along as we expect. The things to look out for the next few months to know that we're marching steadily towards launch, including more hardware making its way to the launch site. We will be conducting extensive testing of flight hardware and then obviously, that will lead up to Neutron's first flight. So that wraps up the operational highlights. So I'll hand over to Adam for the financial overview and outlook.

Thanks, Pete. Fourth quarter 2025 revenue was a record $180 million, coming in at the high end of our prior guidance range and representing an impressive year-over-year growth of 36%. This strong performance was driven by significant contributions from both of our business segments. Sequentially, revenue increased by 16%, underscoring the continued momentum across the business.

Our Space Systems segment delivered $103.8 million in revenue in the quarter, reflecting a sequential decrease of 9.1%. This decline was primarily stemmed from our satellite platforms business and our solar businesses, both of which continue to perform exceptionally well despite the time-to-time programmatic nonlinearity of revenue recognition under ASC 606 and related subcontractor progress. We're fortunate that the growing diversification across Space Systems and launch can often provide more predictable top line growth despite underlying volatility at the individual product line level. This was one of those quarters where strength in launch services more than offset the declines in Space Systems, generating $75.9 million in revenue, representing an 85% quarter-over-quarter increase due to the increase from 4 to 7 launches during the period, including 1 HASTE mission.

On a full year basis, 2025 revenue was $602 million, an impressive 38% growth year-on-year. Now turning to gross margin. GAAP gross margin for the fourth quarter was 38%, at the center of our prior guidance range of 37% to 39% and an increase of 100 basis points quarter-over-quarter. Non-GAAP gross margin for the fourth quarter was 44.3%, which was also in line with our prior guidance range of 43% to 45% and an increase of 240 basis points quarter-over-quarter.

The sequential improvement in gross margins was primarily driven by an increase in Electron fixed cost absorption due to the increased launch cadence within the quarter, paired with increased contribution from our higher-margin Space Systems components businesses. On a full year basis, GAAP gross margin was 34.4%, an increase of 780 basis points year-over-year, while non-GAAP gross margin was 39.7%, an increase of 770 basis points year-over-year. Relatedly, we ended Q4 with production-related headcount of 1,244, up 46 from the prior quarter.

Now before moving on to backlog. I want to take a moment and zoom out and provide perspective on the progress we have made towards our long-term financial model since our NASDAQ listing in 2021. Revenue has grown nearly 10x, achieving a compound annual growth rate exceeding 76%. Gross margins have increased each year, more than doubling the contribution from each dollar of revenue. This expansion highlights our strong and disruptive competitive position in the industry as well as our highly valued and differentiated products and services across the business.

The combination of this revenue growth and margin expansion has put the company on a solid foundation and path towards achieving meaningful operating leverage and long-term cash flow generation. Lastly, I thought it's important to call out our SG&A spending as a percentage of revenue as I'm encouraged to see this continue to trend downward as we scale the business. We are constantly driving the business to be fiercely efficient, and I believe that we're positioned to drive even more growth and efficiency in 2026 and beyond.

Now turning to backlog. We ended Q4 2025 with approximately $1.85 billion in total backlog, an impressive 69% growth sequentially, primarily due to our recent FDA Tranche 3 tracking their contract award, which we announced last December. As we've mentioned before, Space Systems backlog in particular, can be lumpy given the timing of these increasingly larger needle-moving program opportunities. But once awarded, they can significantly derisk revenue growth for several years. We continue to cultivate a strong pipeline that includes multi-launch agreements across Electron, HASTE and Neutron as well as large satellite platform contracts across government and commercial programs.

Currently, launch backlog accounts for approximately 26%, while Space Systems represents approximately 74%. Looking ahead, we expect approximately 37% of our current backlog to convert into revenue within the next 12 months, which includes preliminary tranche 3 revenue recognition estimates, which we believe will prove to be conservative which, in addition to the healthy sales pipeline are expected to drive incremental top line contribution beyond the current 12-month backlog conversion.

Turning to operation operating expenses. GAAP operating expenses for the fourth quarter of 2025 were $119.3 million, below our guidance range of $122 million to $128 million. Non-GAAP operating expenses for the fourth quarter were $104.5 million, which were also below our guidance range of $107 million to $113 million. The sequential increase in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in prototype and headcount added spending to support our neutron development program. Specifically, investments ramped up in propulsion as we continue to test Archimedes engines as well as test and integration of mechanical and composite structures at our facility in Middle River, Maryland. In R&D specifically, GAAP expenses increased $8.1 million quarter-over-quarter -- while non-GAAP expenses rose $7.7 million.

These increases were driven by the ramp-up of our committees production and testing along with higher expenditures related to composite structures and fluids, as just mentioned. Q4 ending R&D head count was 1,012, an representing a decrease of 7% from the prior quarter. In SG&A, GAAP expenses decreased $5.1 million quarter-over-quarter, while non-GAAP expenses declined $1.3 million quarter-over-quarter. These decreases were primarily due to a reduction in transaction-related legal and other professional services fees related to M&A and capital markets transactions paired with a slight reduction in marketing expenses. Q4 ending SG&A head count was 389, representing an increase of 4% from the prior quarter.

In summary, total head count at the end of the fourth quarter was 2,645 up 43 heads from the prior quarter. Turning to cash. Purchase of property, equipment and capitalized software licenses were $49.7 million in the fourth quarter of 2025. And an increase of $3.8 million from the $45.9 million in the third quarter. This increase reflects ongoing investments in Neutron development as we continue testing and integrating across the pad at LCI in Walls, Virginia and Middle River, Maryland, expanding capabilities at our engine development complex in Long Beach, California and build-out of the return on investment recovery barge in Louisiana.

As we progress towards Neutron's first flight, we expect capital expenditures to remain elevated as we invest in testing, production scaling and infrastructure expansion. GAAP EPS for the fourth quarter was a loss of $0.09 per share compared to a loss of $0.03 per share in the third quarter. The sequential increase to GAAP EPS loss is mostly attributable to the $41 million tax benefit we recorded during the third quarter, which was due to the partial release of the valuation allowance against our corporate deferred tax assets as a result of acquiring an equal amount of deferred tax liabilities emanating from the GES acquisition purchase price accounting.

GAAP operating cash flow was a use of $64.5 million in the fourth quarter of 2025 compared to $23.5 million in the third quarter. The sequential increased use of $41 million was almost entirely due to the timing of employee equity program related tax payments. Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to neutron development, longer procurement for SDA, investments in subsequent neutron tail production and infrastructure expansion to scale the business beyond the initial test flight. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow less purchases of property, equipment and capitalized software in the fourth quarter of 2025 was a use of $114.2 million compared to a use of $69.4 million in the third quarter. The ending balance of cash, cash equivalents, restricted cash and marketable securities with $1 billion at the end of the fourth quarter.

The sequential increase in liquidity was driven by proceeds from sales of our common stock under our at-the-market equity offering program. which generated $280.6 million during the quarter. These funds are primarily intended to support acquisitions, such as the announced pending Minarik acquisition, the recently consummated acquisitions of Optical Support, Inc. and Precision Components Limited as well as other targets in our robust M&A pipeline, along with the general corporate expenditures and working capital.

We exited Q4 in a strong position to execute on both organic and inorganic growth initiatives and further vertically integrate our supply chain, expand strategic capabilities and grow our addressable market, consistent with what we've done successfully in the past. Adjusted EBITDA loss for the fourth quarter of 2025 was $17.4 million, which was below our guidance range of $23 million to $29 million loss. The sequential decrease of $8.9 million in adjusted EBITDA loss was driven by significant revenue and gross margin improvement, partially offset by increased operating expenses related to Neutron development. With that, let's turn to our guidance for the first quarter of 2026. We expect revenue in the first quarter to range between $185 million and $200 million, representing 7% quarter-on-quarter revenue growth at the midpoint and growth of 57% from the year ago quarter.

We anticipate slight slip down in both GAAP and non-GAAP gross margins in the fourth quarter with GAAP gross margin to range between 34% to 36% and and non-GAAP gross margin to range between 9% to 41%, with a modest sequential decline driven by a greater mix of space systems versus higher-margin launch and a weaker margin mix within our Space Systems segment. We expect first quarter GAAP operating expenses to range between $120 million and $126 million and non-GAAP operating expenses to range between $106 million and $112 million.

The quarter-over-quarter increase were primarily driven by ongoing neutron development and spending related to Flight 1, including staff costs, prototyping and materials. However, we expect to see a shift in spending from R&D and into flight to inventory throughout 2026, which is an encouraging sign of progress as we move closer toward new transfers flight and adjusted EBITDA positivity as a result. I'm optimistic that with the impressive strides we've made towards this milestone and currently expect Q1 to mark peak neutron R&D spending. We expect first quarter GAAP and non-GAAP net interest income to be $8 million, which is a function of higher cash balances as well as conversion of approximately $117 million of convertible notes since December 31.

We expect first quarter adjusted EBITDA loss to range between $21 million and $27 million and basic weighted average common shares outstanding to be approximately 605 million shares, which includes convertible preferred shares of approximately $46 million and reflects the conversion of approximately 23 million shares from our outstanding convertible notes thus far in Q1. We there remains only 7.5 million shares or 11% of the original $355 million issuance outstanding.

And when taken into the additional context of the retirement of the Trinity equipment line on Q4, we have substantially eliminated -- we have eliminated indebtedness from the business. Lastly, consistent with prior quarters, we expect negative non-GAAP free cash flow in the first quarter to remain at elevated levels, driven by ongoing investments in Neutron development and scaling production. This excludes any potential offsetting effects from financing activities. Last but not least, here are some of the upcoming investor events that we'll be attending in the next few months. And with that, we'll hand the call over to the operator for questions.

[Operator Instructions] Our first question comes from Andres Sheppard with Cantor Fitzgerald.

If your question has been answered and you come from Andres Sheppard with Canter Fitzgerald. -- everyone. Congrats on all the great progress, and thanks for the update on Neutron. Adam, maybe I want to start with the backlog. I'm wondering if you can maybe help us build drill a bit deeper in it. And maybe remind us what is included in here, does this include the 40% of revenue from SDA tranche to 10% of maybe the tranche 3? And what are you including from Neutron and Electron here? .

I'm sorry, the mic went off. I don't know how much you caught that -- so the -- all of the FDA contracts were added to backlog. So what remains for SDA tranche 2 transport layer is still in the backlog. Obviously, what's been recognized as revenue is no longer there. Through the end of Q4, we hadn't recognized any of the tranche 3 contract awards. So all of that value is currently in backlog, and that will start to convert into revenue and come out of backlog obviously in that process. As far as Neutron is concerned, I think we've spoken before that we have several flights that are representative in our launch backlog that's reflected in our filings. So hopefully, that answers your question on backlog composition.

Yes. That's helpful. And maybe just as a follow-up. So on Neutron, with the shift to Q4 now with the first launch, how should we think about cadence? Will you still target maybe 3 launches within the first 12 months after the first one. How confident are we in the development of the second tank and wondering if maybe we should expect any step-up in CapEx now with the second tank in production.

And I can answer a couple of those and maybe you and summer as well. Andreas, so with respect to the tank, I think it's well understood what needs to be done there. And we had built a lot of the second stage tank on the machine. So that really solves that problem. And the way to think about just sort of follow-on flights is it's not quite as dire as like moving all of the follow-on flights 12 months or to the first flight because as you've seen in the presentation, we're already building flat out additional Neutron tail numbers. .

So it will probably be a slightly faster convergence into subsequent flights because none of the other hardware that's qualified as being halted, obviously, it's just that tank and the AFP machine enables us to build a tank just way more rapidly than with a hand lay process. So I think we'll be in better shape there.

Yes. And Andre, I guess with regards to your question as far as CapEx and so forth related to the second tank that's replacing the first 1 that ruptured I mean the benefit now, as Pete said, of being on the AFP is not only can we produce it faster, but the actual cost to produce that second tank is quite low. The first tank was very expensive because as Pete mentioned earlier, it was a handled up tank. It took a long time, this will be much quicker. And also, since we've now commissioned the AFP, we're really just talking about variable costs related to the tank materials, more than anything else because the existing labor is already kind of in the model. So there won't be any increased CapEx and the impact to R&D as a result of the tank failure is actually not -- the tank itself is actually not that significant.

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

Thank you, and a great quarter. As always, wanted to ask a question on space data centers. And I think you had alluded to a lot of interest. I think it's obviously become a topic in the industry. Can you give us a sense on how these kind of early discussions are going with potential customers interested in doing this? And is it realistic to see some type of rocket lab content in a space data center, let's say, within the next 2 or 3 years.

So thanks for the question. So I think, look, we're early with data centers. If you look at some of the models, there's a number of things that sort of have to come into focus before they become the logical choice versus terrestrial. But we never want to miss an opportunity and we've been developing the silicon arrays and power solutions for a while now focusing on mega constellations and there's high-volume power applications.

But if you stand back objectively and you think about what are all the challenges with putting data centers in orbit, it boils down to really 3 things. One is cost and cadence of launch to be able to make the model close. And then 2 is heat rejection through various means. And 3 is just sheer power, like there's a gigawatt of electricity, electrical power. So solar arrays of multi kilometers in scale are what's needed. So we wanted to make sure that whether they leave this Ethor not, there'll be Rocket lab logos all over that stuff. So as far as I'm aware, there's nobody else has a silicon solution quite like we've developed.

Understood. And to your point on heat rejection, I guess, the rate eater -- is that a capability you have in-house that you need to develop over time? Or is that something inorganic? Just curious on what needs to be kind of technically done there?

Yes. I mean, look, all of that spacecraft have radiators, I mean, you generate, you have to reject it. So there's various kind of ways of doing that piping heat around the spacecraft radiator. So I don't see that as a huge technical challenges just on the scale that's required hasn't been achieved before. So that's the challenge there. But to be clear, I mean, I don't foresee us building massive AI data centers any time soon, but those who are at least experimenting with it and looking to go down that path, I think we have a lot of compelling solutions.

Got you. If I could just sneak 1 quick 1 in. In terms of just the discussions, can you give us a sense of like the flavor of customers? Are these kind of new customers, nontraditional customers kind of exploring this idea with you?

Yes. I mean we have to be a little bit cap here, but I would say that there's certainly more nontraditional looking at this kind of solution than traditional players. .

Our next question comes from Ronald Epstein with Bank of America. .

This is Alex Preston on for Ron. Can you guys hear me all right?

Yes, we can hear you.

Perfect. So I know you talked a little bit about progress on the Minarik acquisition, but I was a little more interested maybe broadly in the environment in Europe and more generally, right? It seems like there's a growing appetite for, call it, indigenous launch in national security space capabilities. And I'm interested if you sort of see this trend yourselves or how you see this developing. I know Pete mentioned no other small launch provider has really succeeded in the last year, but it's still, I think, focus for a lot of people.

Alex, it's a great question. Look, 1 of the reasons why we like Minarik and why we think it's important, Europe and Europe more in general, is exactly that point is that -- there's a lot of space nations there that have very little capability with giant aspirations and really short time frames. And I think it's always everybody's desire to build domestic capabilities. But the reality is, if you want to stand up these kind of capabilities really, really quickly. You don't have the decades that it takes to build often these sovereign capabilities. They're very specialist often equipment and facilities and also intellectual property and knowledge. So we see Europe as a great opportunity for us and a real expansion beachhead we can provide solutions at the component level. We can provide solutions at the complete system with respect to a satellite.

We can provide launch, and you've seen even European space agencies procure launch from us now. And once we have a footprint in Europe proper, being eligible for participating in your European programs becomes possible. So I think it is -- it's a great opportunity. There's literally billions and billions of dollars of of well-funded government programs underway right now, and the time lines associated with those are conducive or, I would say, not producive necessarily always to creating sovereign capability.

Got it. And then I guess it would sound like the attitude is still broadly constructive from what you said versus maybe Europe starting to get a little more distant from U.S.-based providers?

No, I think it's very constructive. I think naturally Europe is looking to create sovereign capability, but often also the conversations we've had, they're very pragmatic and realistic that the capability they're looking to create takes a long time. So working with, for example, a Rocket Lab Europe is a great way to move forward. .

And just real quick, would you characterize is that the same on launch as you went on Space Systems where I think there's a bit more existing indigenous capability in Europe already.

Yes, they're certainly giving it a good college try but not having tremendous success, I would say, -- but that is just how difficult launch is. But I think launch is just so strategically important. You can build all the satellites you want, but if you can't put them in all, but it's kind of pointless -- so this is the reason why you have the European Union and ESS launch vehicles that on the face of it aren't that commercially competitive, but they will never go away because the nations need access to all, but I would expect to see that persist for some time and continued investments made in -- into launch for the -- for Europe. But in saying that everyone is pragmatic and if you need to get stuff all but then pick up the phone.

Our next question comes from Erik Rasmussen with Stifel.

Yes. Maybe just back on Neutron. I appreciate the sort of the update on cadence. And it sounds like with the pushout, naturally, you continue to sort of build out some of those more capabilities in just neutron infrastructure around neutral. But post sort of test flight, and we think that sort of Q4 and if it's late Q4, I don't know the timing, but -- what you think then that first revenue flight? What do you think the timing around that could be? And also when considering that, that probably needs to have a higher level of reliability. And then with that, are you still targeting this as a recovery mission.

Eric, thanks for the question. So the timing of Flight II will always depend on the results of Flight 1. If flight 1 goes swimmingly, then the time to get the second vehicle on the pad, we'll endeavor to make it sure as possible. If the things to fix this kind of things to fix. But nominally, the timing remains consistent to what we've kind of talked about. And the vehicle will be outfitted with all of its kind of requirements for flight 1 even for a down range lending, we'll attempt to do the reentry and landing burden space it down -- once again, if all that goes well, then the next 1 we would intend to slip a barge under. If we pull drive it into the ocean, then we'll probably go to a flight 2 and get that soft landing right before we go and put infrastructure on that could be costly to them if we damaged.

Great. And maybe just on Electron. You had a nice large campaign in 2025, 21 successful launches. What does the manifest and internal planning suggests or this year? And then maybe just the mix between your standard Electron missions and HASTE.

Yes. I mean I'm not sure how much we've disclosed about that. But I mean, certainly, this year, we're looking for more launch than last year as you saw the bookings and manifest a bulging and we're being in electrons out every sort of 11 or 13 days now. So that's going extremely well. But I'll pass over to Adam, if he wants to comment on -- you want schedule for the year.

Yes, Eric. So I think consistent with prior discussions, we see good growth opportunities in electronic when I could say electronic and electron and HASTE. So I think you'd expect increase in both standard electron launches plus growth in the HASTE side of the business. We've not only pointed people towards kind of 20% growth, I think, is a pretty kind of I would say, a reasonable estimate for where we see this business growing over the near and intermediate maybe the long term.

So I would say we've certainly given the production team direction to produce significantly more rockets in 2026 than in 2025. And as Pete mentioned on the call earlier, we booked over 30 electron launches in '25, and we always get turns orders. So -- look, I think if you kind of normally assume a 20% growth in kind of the launch business, excluding Neutron, of course, I think that's probably a pretty good place to be.

Our next question comes from Trevor Walsh with Citizens.

Peter, maybe first for you, some of your prepared remarks around the OSI acquisition made it sound like that was even further enabling you with the customer as far as just attractiveness for your services and your capabilities, even though -- it sounds like from the announcement that OSI was actually already in the chain of suppliers with GEOs. So is the customer that focused really then, can we assume on just the vertical integration aspect? Or is there also just capabilities, functionality features of that acquisition from a systems perspective that are also attractive. Just trying to gauge kind of how you think [indiscernible] are looking at this, if that makes sense.

Yes. No, that's a great question, Trevor. And to be fair, the customers probably don't care that much, other than the fact, what they really care about is -- does this sensor arrive on time at a cost and a performance capability that they've never seen before and that's what we're delivering. And in order for us to be able to guarantee we deliver that, the most critical element of many of these optical systems are, in fact, the optics, bringing and owning that optics in-house really, really drives certainty for us around cost and schedule and innovation.

And it's -- yes, they were a supplier to GEOs, that's for sure. And when we acquired the GEO business, the first thing we sat down with the leadership team there and said, right, we are the critical supply chain elements that might trip us up and been able to deliver really disruptive and affordable parts or programs for our customers, and this was the #1 thing. I think this makes us very unique amongst the other suppliers of payloads who are outsourcing optics. And it is the most expensive, the most longest lead item in any of these explicit optical payloads. So it was important to own .

Terrific. Super helpful. Adam, maybe just a quick follow-up for you. for your prepared remarks commentary around the backlog and how tranche 3 is going to -- sounds like it's maybe conservative in terms of what's going to be recognized in that first 12-month period. Can you just maybe walk us through a little bit of the puts and takes of how -- what's, I guess, influencing that tranche 3 rev rec? Is it just customer timing of when they want livables? What's the -- just give us maybe 1 level deeper, that would be terrific. .

Yes. So I think we've articulated previously that typically when you win 1 of these programs, you can recognize revenue kind of like 10% in the first 12 months after award, then 40% in the second 12 months, 40% in the third 12 months, in the last 12 months, it's about another 10%. So you got a pretty kind of normal bell curve. What I would say is that with -- what really gates our ability to kind of move faster is really our subcon deliveries, right? So would really either kind of helps us accelerate and get through these gates and milestones and rev rec quicker is our subcons ability to deliver on time.

And so I think that, that all goes back to what Pete was talking about earlier and the importance of vertical integration. So to the extent that we can just own more of the platform, we have greater control and that allows us to have more predictability to how we kind of time revenue recognition and so forth. So I would say that a big job for us in 2026 is across our engineering and production teams is to really make sure we stay on top of of what parts are still coming from third parties, make sure that they stay on their deliverables so we can kind of, again, get the program accelerate as much as possible and get more of that revenue recognized.

So again, we go into it pretty conservative. I think what we've -- what -- if you look at the pure conversion at 37%, I think that was mentioned earlier of backlog converting, I mean, obviously, a portion of that is launch but the portion that's related in Space Systems. Some of that is coming from the components and subsystems completely unrelated to SDA Tranche 2 and Tranche 3. But what is in there for tranche 3 is, again, assuming some pretty conservative delivery dates from our subcons, and hopefully, we can work with them to do better.

Our next question comes from Ned Morgan with BTIG. .

Actually got Andre, I don't know what happened there, but all good. I wanted to ask about Space Systems. It seems like it came in a little bit weaker than what consensus might have expected at first. So I just wanted to know the puts and takes there. I know you explained it, but why might have consensus gone a little bit ahead here in the quarter?

Yes. I don't know that consensus does a great job in breaking out the various pieces of the business, even differentiating much between launch and Space Systems. And then certainly within Space Systems, I'm not sure they really look at between kind of our platforms business versus the subsystems business. So 1 of the things I mentioned this in my prepared remarks, is that it is difficult to I would say -- I mean you can't -- to the extent that you can control the execution for your rev rec requirements under ASC 606. It just depends on how well your subs are executing, right? And how tightly you're working with them to make sure they stay on track.

And to your best efforts, I think we've all seen in some fairly public venues customers of these programs talking about how there's been some snags in the supply chain, including from those, for example, like from the optical terminal providers. And so if you look at what we do is we continually look for ways, as Pete mentioned, to just reduce any kind of dependency on third parties as much again. That's why if you look at Electron, how vertically integrated that vehicle is neutron will be very similar. We're getting that way more and more with our Space Systems platform offerings where very little is still, I would say, outsourced to third parties.

So it's really just a function of, again, you work with them and get them to deliver as aggressively as you possibly can, while not sacrificing quality or cost where we can. So Yes. I wouldn't read too much into the granularity that people may have expected from our Space Systems business because 1 of the benefits that we have now from being -- having such a diversified businesses, we really just look at the top line, how can we deliver that sequential growth of the business and sometimes more of it's going to come from launch. And sometimes the word is going to come from space systems and within Space Systems, platforms can have a great quarter and components can be weak and vice versa. And then just gets that much better, and we'll have that many more tools at our disposal when we have neutron coming online, which is why, obviously, getting that first flight off is so important, why we're all looking so forward to that.

Yes. No, that's super helpful. I guess to stick with you. I mean, around the 2 acquisitions that were just announced, are there any financials that you can give any kind of color as to what they were doing on a performance basis? And I guess, just how much cost we might be able to see taken out as a result of them being brought in-house? .

Yes. Our pipeline is always kind of interesting. It's got a mix of kind of more needle-moving deals from a financial perspective as far as revenue contribution and so forth. These particular deals really much more strategically around, again, vertical integration, reducing risk versus, I would say, providing big access to large external third kind of TAMs, if you will, or adjacent markets. So these are really more, I would say, reducing some margin stacking and also just taking greater control over the programs.

So I wouldn't say there's not a, I would say, a material amount of revenue contribution that's going to move the needle from the deals that we just announced. Clearly, Minarik is -- would be a different story if and when that deal gets approved because that would come with a significant backlog and revenue opportunity.

And again, our pipeline also has lots of other deals that have a mixture of just, again, elimination of margin stacking and in some cases, also more meaningful revenue contribution. But these 2, I don't think you need to change your models at all for the impact for these 2 relatively small deals.

Our next question comes from Guatam Khanna with TD Cowen.

I was wondering on the neutron tank failure, -- have you guys are you high certainty that it was that manual layup process. And therefore, the new process is not going to have the same anomaly? Or is the study still ongoing of what happened? .

Yes. No, we undertook a complete pastry analysis, and we're able to find the piece of tank that caused the initiation of the failure. We're able to reproduce the results through analysis and then also through coupon testing testing as well. So no, we're very, very confident. We understand that value extremely well. .

Okay. That's great to hear. And then you mentioned some areas where you'd like to take more in-house vertical integration. Can you describe some of those product areas that might be of interest?

Yes. I think if you look across the space craft these days, the areas that we still don't have 100% control of are starting to get smaller and smaller. We have a great RF team, but I think that's an area and we'll seek opportunities to add scale where possible. But I think -- this is just going to be bread and butter for us to constantly make sure that we don't get stung with suppliers that aren't able to deliver for us.

And and continue to vertically integrate. But as Adam pointed out, our M&A pipeline is pretty full, and there's a range of opportunities there from these kind of things that important, don't add huge revenue bottom lines, but they kind of guarantee revenue because we're not going to miss milestones, but they're ranging through to some real needle movers that are much more transformational and as Adam also pointed out, we're always making sure that we have plenty of capital reserves to go and do those more meaningful acquisitions.

Our next question comes from Ryan Koontz with Needham & Company.

Great. as that backlog, Adam, your commentary there as you think about the opportunities ahead over the next, say, 12, 18 months? Obviously, -- the FDA has been very, very active. And how you think about the composition of your backlog relative to DoD versus commercial, just in terms of the next 12, 18 months?

Yes, all fortunate spot, where traditionally, government business has not really been ever viewed as a hockey stick. I think for us since we're coming in, in such a disruptive way. And were disruptive, but also the whole architecture where you've gone from GEO to LEO and the number of satellites that are required to support that architecture has just been so strong. We've got so many things that are pushing us in the back as far as kind of where the opportunities are.

But I'd say, overall, we've got really big commercial opportunities that we continue to chase even though for me, I was given the choice of chasing a government hockey stick or a commercial hockey stick, I would take the government hockey stick because even though they may not be as dynamic in some cases at a program level is commercial, they always pay their bills. They're pretty clear cut how you work with them.

And in that government market, we're just competing with people that seem to be fighting with their hands tied behind their backs, right? So we move much more quickly. We have a lot more tools at our disposal because of our vertical integration. So I love the mix as it's trending towards government. I do think it's also very comforting to have this big commercial hockey stick opportunity out there as well.

But I would say that it's -- the pipeline -- when you look at the pipeline of kind of business opportunities, forget the M&A side, it's a pretty balanced set of opportunities between commercial and government. I mean I'll let Pete kind of provide his view, but it seems like we don't just have a choice of kind of taking 1 fork or the other in the road where we can try to think about how do we take both of those things. And I think we've done a pretty good job balancing, but maybe Peter want to speak about that.

I think you've said it perfectly, Adam. Yes, Mike, I can't add anything better than that. .

Great. Maybe just a quick follow-up. As you think about Golden Dome and timing and WSA fitting into that architecture any updated thoughts on your role there or opportunities when you think that emerges as a truly viable business opportunity for you?

Yes. I think Golden Dome is quite a complex 1 is obviously, it's a huge program, but it's -- a lot of it is also classified. So it's very difficult to discuss too much. But I would say that in multiple fronts, I think we are well positioned to have a good chunk of this whether it be launch or satellites optical terminals, a lot of the optical payloads, the SDA, when the tranche SDA win is is a clear missile track payload, which is very complicated pallet obviously and critical for the Golden Dome. So as that program formulates and continues to grow, I think we're pretty key piece of that foundation. .

Our next question comes from Michael Leshock with KeyBanc Capital Markets.

I wanted to ask a longer-term question on a potential future Rocket Lab, satellite constellation, just given some of the recent announcements across the industry. And as you mentioned in the presentation, the significant growth in satellites that's expected over the next decade, have there been any changes to your approach on a future constellation of your own or what potential applications you may target? Or is this still a longer-term growth opportunity that really won't be a priority until Neutron is launching consistently?

Yes. Thanks for the question, Michael. I think what's kind of call here is that you've all heard me say that it's going -- space is going to get blurry. It's going to be difficult to determine what is the space company and what is something else company. And that continues -- that thesis really continues to firm now that you look at data centers and all these other kind of opportunities that are growing in space. It's like it is -- the large successful companies are going to be blurry. Are they going to be a space company, are they telecommunications company or their data services company.

And your point is really accurate until kind of neutrons online, and we have multi-ton reusable launch capability. I think that's the time that we can really lean into deploying infrastructure. But in saying that, we're not sort of sitting back and sitting on our hands, thinking about what we could do. I think you can see in just about every avenue, we at least have knowledge or components or exposure.

When I see revenue every kind of opportunity that potentially being thought about or used in space today. So it's still too early, Michael, but it's not on a day that doesn't go by where there's not an internal discussion about it.

Great. And then maybe on the Stage 1 tank rupture, I don't know if I missed it, but how fast can you produce the second tank now with the new AFP machine. And then will that get even faster as you repeat this process over time?

God, look, it's ridiculous. The AFP machine is just is totally ridiculous. I can't remember the exact time line to lay up a dome. But we measure a dome manufacturer on the AFP in days. Actually, the longer pole in the tent dear for a tank manufacturer is not actually laying up and curing the components. It's the it's the joining of the various domes and tanks and barrels together and all the tabs and details of baffles and all those kinds of things actually take the time, but a new tank, we're talking months here not for a complete tank.

But from an actual manufacturing of the oral components, it's ridiculously fast. And also to Adam's point, it's like now that it's all automated, really the only cost of the raw material that's going in there.

Our next question comes from Jan Engelbrecht with Baird. .

I'd like to get your -- just go back on PSA and just get your sort of your high-level thoughts about that program. It does seem like your focus will shift more towards the tracking layer given that's really impressive when the GEOs acquisition, just how you're thinking about the future of that for Rocket Lab.

And then also just we've heard a lot of government reports being issued on the transport layer piece, like how difficult would it be for a commercial variant like Star Shield with Minit to sort of act as the transport area. It seems like there's a lot of things that would stand in the way of that because a commercial Starfield Orbitz at much lower altitudes than the transport of tracking layer. So there would be a lot of redesign work. But I'll stop there and just to get your overall thoughts there. .

I mean we could dig out about this for days, Jen. So yes, it was intentional for us to move up the value chain, if you will. Not the transport layers elementary by no means is a entry, but it's an order of magnitude more difficult and more valuable to be able to doing the tracking stuff. And the tracking stuff is critical for things as things develop for Golden Dome and other kind of programs.

So that's the high-value stuff where you want to be, that there's really only a few people in the nation that can successfully execute on. With respect to the transport layer going away, I mean we haven't heard or seen any evidence to that. Obviously, there's a lot of discussion about other providers. But the whole point of the SDA program is kind of all of the spacecraft are integrated very closely with each other, even though they're from other providers, there's a set of requirements that we all must meet for interoperability. So I think your point is a good one. It becomes more difficult to have interoperability when you have something that's quite different.

But it will be interesting to see how it all shakes out. But I think for the tasks that FDA is trying to achieve, to me, at least, it makes more sense to have a dedicated transport layer and then the other layers, of course, tracking and then custody and so on, on top of it.

Very helpful. And then just a quick follow-up, if I may. I want to be respectful of the Minarik deal, let that play out as it will, but on optical terminals, sort of at which point, and again, hoping like it works out well here, but at which point do you potentially look at not maybe an alternative supplier of [indiscernible] or does GEOs or the new acquisition, SI have any capability that you could look towards developing these optical terminals over time?

Yes. So GEOs has developed some optical terminals. And obviously, we have the optics now in-house as well. But there's just it's incredibly difficult to do. And as we look across the landscape of all of these optical terminal suppliers, of which there's really only Minarik just stood out as the absolute best with respect to technology. Now they're stuck at other things like running their business, but they make the best terminals. So to go out and develop your own terminal, yes, totally feasible. It's just a time thing. And it would just take longer to do that than it would to acquire. .

Our next question comes from Jeff Vanry with Craig-Hallum Capital Group. .

This is Daniel Hischman on for Jeff Fan. Congrats on and the SDA win in particular. On Mars Telecommunication Orbiter, the $700 million, $750 million there about wondering, it looks like earlier this week, NASA put out an RFP for Mars telecommunications network. So a little bit of a name change there. It sounds like that might be a multi-satellite architecture where previously, they were just looking at that 1 single arbiter. But what can you tell us just about how the competition and market lines positioning for that's been evolving?

Thanks, Jeff. Great question. Yes, so the MTO, as you pointed out, there's a slight change there to network. And as more infrastructure is built on Mars, then, of course, the network will need to be created. The MTO was always intended to be the first of water to come. .

Look, obviously, we think we're well positioned here. There's -- we have the experience. We have a lot of the capabilities and a lot of the demonstrated capabilities, but I think we'll put our best foot forward there. And of course, others think they can do the job, too. That's the great thing about competition and we'll see who wins. .

And then Adam, 1 for you just on the gross margins, which obviously are growing tremendously, I think, what, 8 points up in 2025. And then the guide for 126 has those stepping back down a few hundred bps and you called out the space system mix shift, is there anything persistent about that mix shift either in terms of the new business coming online potentially with the SDA transport layer that it's going to have some persistent margin pressure?

Or should we be assuming in our models that we'll be getting right back to that more normal cadence of a few hundred bps of expansion as we get back into the later half of the year.

Well, I think gross margin is a -- there's a lot of things that are going on underneath the surface there. So as we continue to grow, there's a call -- a question earlier from Eric about the Electron launch cadence, so I mentioned a 20% launch growth in that. To the extent that we can do better than that, which I think there's opportunities to grow faster in 2026, then that's going to be a positive upward bias to margin these larger, longer-term programs like SDA Tranche 2 and Tranche 3, they typically come in at relatively at the low end of our gross margin mix, but they have really good operating margin kind of characteristics to them or contribution margin because of the fact that there isn't a tremendous amount of incremental R&D that's kind of outside of the programs.

So I would say that in a quarter where you've got a lot more contribution from the big programs like Tranche 2 and Tranche 3, that will put downward pressure, offset hopefully by growth from -- increase in the Electron contributions. The Components business has a quite interesting range of margins. You have some products in there that are more towards, say, 30 points in non-GAAP gross margin, other ones that are kind of north of 70 points of non-GAAP gross margin.

So there's a widespread and mix is hard to predict that far out in the year. I mean I do think there will be a supportive trend towards gross margin, but I think it's difficult to really get a lot of granularity kind of much more than, I'd say, maybe 1 or 2 quarters out. But overall, I think as we continue to kind of grow that components mix of the business, more electron in the mix, it's all going to be positive.

Now I think the 1 caveat to that is, as we bring Neutron into production, it will have a margin expansion curve, probably not too dissimilar to what we've experienced on electron which has been incredibly, it's been a great margin expansion story. But when you bring a new product like a rocket to market, you do things like block upgrades and then that all helps bring down cost, increase performance, so you can sell out more capacity on the rocket, which is helpful to ASP and so forth.

But I think the most important thing in the launch business is rate, right? So it's all about absorbing your fixed overhead or fixed costs related to that program or product. So I think that you're going to see what we'll start to do, our plan is to give you guys as much clarity as we can or break out between Electron, for example, and Neutron as that comes into production. So you can see that continued expansion and kind of that electronic business operating at model and then the trends as Neutron ramps as that goes towards target model as well.

Hopefully, it's a bit quicker to get to target model, target margins on Neutron because it's a reasonable launch vehicle, but it will still take several years. So you'll start off with fairly kind of low to even maybe negative gross margin for some of the early flights. But then again, you'll see just like Electron to pop back up and become pretty positive pretty quickly and get to target model. So it's a long-winded answer. I do think, again, the trends are supportive of gross margin expansion, but it could be a little bit kind of volatile and hard to predict quarter-to-quarter when you get more than 1 or 2 quarters out.

Our next question comes from Suji Desilva with Roth Capital. .

Congratulation on the progress here. Just real quick on the electron launches. Are there any ASP trends to not add on any tailwinds in the second half? Or are they fairly steady next couple of quarters? .

I think that we're going to continue to see a march towards, I'd say, I'd say as we increase more of the mix towards haste, that's helpful to the ASP, I think margins are relatively consistent because even though HASTEs are priced higher, there's a lot more mission assurance and other things go along with them. So absolute dollars are higher. The gross margin percentage is relatively consistent across HASTE and Electron.

And then -- so I would say, overall, we've seen a very nice expansion in ASP over the last several years because of the increased mix from haste, and I don't see that changing. In fact, we continue to grow that subsegment of the business quite nicely. And again, I just given the things that Pete has talked about earlier regards the golden Dome and the importance of the hypersonics test capabilities, that's a really strong area of growth for us going forward. So I think overall, a positive bias towards higher ASP per launch. just as we've seen over the last several years. .

Okay. And a follow-up question maybe is for Pete. Maybe you can reflect on versus a few years ago to get to the launch cadence, the customers payload readiness was something that was variable. Has that changed? Has the nature of the customers changed where you can feel more comfortable that you can hit an 11- to 13-day cadence? Is it just a higher number customers coming in that you can kind of load them off? Or just any color that would be helpful.

Yes. Thanks, Sajid. I would just say that we've probably got better at looking like a DUC where it's just on a glassy pond and it looks normal and there's legs flat out underneath it. And with a higher cadence gives us the ability to move customers around. So I would say that that's just the reality of the launch business, payloads are ready until they're not. I think we've just got way better at managing those customers having having more rockets integrated, ready to go and managing that. So it's great to hear that it looks smooth, but behind the scenes, as everyone's flat out, mixing and matching and making sure that it all looks smooth on the outside. .

Our next question comes from Chris Kristine Liwag with Morgan Stanley. .

This is Justin Lang on for Christine. Pete, can you just back on the Neutron time line, -- how do you not run into the Stage 1 tank issue? Would the program have met the earlier goal of getting to the pad here in 1Q? It sounded like from your earlier comments, there was a good volume of qualification work completed in the quarter. just trying to assess whether there are other factors that play in this new time line or are really isolated to the Stage 1 tank issue?

Yes. Thanks, Justin. It's kind of hard to say because when the tank let go, like the reverberation went through the test stand and the entire business. So at the moment that happened, everybody just stopped what they were doing and a lot of sense to get on to the tank to figure out what went wrong. So we moved a lot of resources around from lots of parts of the business. So I'd have to go back and have a look and see if we played everything forward with what that time line would have looked like. But sort of hard at this point because we had an anomaly. .

I would add 1 more thing to that. I think if there's a silver lining to the tank anomaly is the fact that because of what happened -- it just has given the other kind of subsystem teams, the opportunity to really kind of fully exercise all the demos, if you will, much more than they could have under the compressed time schedule we were working towards. So in some ways, the tank letting go will create certainly a lower risk test flight when that happens later this year. So I think yes, it's -- nobody is ever happy when you have an anomaly. It's something that wasn't planned and certainly wasn't anticipated, but I think it does help us bring down the overall kind of risk stance of the program as we move towards that first test launch. .

Got it. That makes sense and helpful. And Adam, actually, just 1 for you back on the SDA award. Curious if you could speak a little bit more to the cash profile in particular and how that lines up against the revenue build curve that you sketched out earlier? .

Yes. So actually kind of interesting with these types of programs because of the way that you do the accounting and the rev rec so under ASC 606, you -- we model these things, though, you always have to be in a positive cash position. So you -- when you kind of work out your milestones and how you're flowing out dollars to your subs and so forth and spending money in the program internally, you always need to be in a position of positive cash in order to be able to recognize revenue along the way.

And so this program is consistent with that. We've gotten some questions as to whether or not the partial government shutdown has impacted our customer, in this case, ability to pay as they know. In fact, we got a very large payment from that customer. So the money is still flowing and everything seems to be green lights right now.

There are no further questions at this time. This does conclude the program, and you may now disconnect. Everyone, enjoy the rest of your day.

Good day, and welcome to the Rocket Lab Corporation Third Quarter Earnings Conference Call.

[Operator Instructions]

Please note this event is being recorded. And I would now like to turn the conference over to Murielle Baker, Director of Corporate and Launch Communications. Please go ahead.

Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's Third Quarter 2025 financial results, business highlights and other updates. 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 are contained in our filings with the Securities and Exchange Commission.

Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials, a reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP.

This call is also being webcast with a supporting presentation end of replay and copy of the presentation will be available on our website. Our speakers today are Rocket Lab Founder and Chief Executive Officer; Sir Peter Beck as well as Chief Financial Officer, Adam Spice. They will be discussing key business highlights, including updates on our Launch and Space Systems programs, and we will discuss financial highlights and outlook before we finish by taking questions. So with that, let me turn the call over to Sir Peter.

Thanks, Murielle, and thanks, everybody, for joining us today. With another record-breaking quarter for Rocket Lab, we're up 48% year-on-year with $155 million of revenue and strong gross margins as well. This is the second time in a row we've delivered record-breaking growth quarter-by-quarter, once again demonstrating our relentless execution.

Electron demand is accelerating faster than ever before, and the momentum continues to build with our largest Launch contract backlog yet with 49 launches on contract. We've just launched our 16th mission this year, equaling last year's launch record, and we've got another launch scheduled in the coming days that will take us to 17 with more to come and a new precedent for electronic annual launch cadence, and we see this precedent continue in 2026 as well.

Amazing performance is also the theme across our Space Systems Groups. Twin Spacecraft for NASA Mars mission are integrated onto its launch vehicle and are really lift off in Cape Canaveral in the coming days. In Neutron, we've got a full update to share on our progress to the pad following the official opening of the launch complex in August, ticking off a critical milestone in the program. We'll share more detail about that in the upcoming slides.

So before we get into it, I want to zoom out and talk about our performance over the last 5 years. Given this is sort of a little bit of a wrap up for the year in some respects. Execution and reliability are critical in this base industry, but even more so in the public markets. And their ability to consistently deliver results for our customers, expand our capabilities and grow our revenue and gross margins really sets us apart in the sector as we set new benchmarks for operational and financial success.

From $35 million in revenue just 5 years ago to implied full year guidance of roughly $600 million at the midpoint, an approximately 1,600% increase over that time period. And the gross margins are looking great to from negative 34% GAAP gross margin to the midpoint of our implied full year guidance of slightly over 34% positive in 2025 and looking great [indiscernible] at '25 with an even higher 37% to 39% in the fourth quarter. Our position as a leading end-to-end space company has never been stronger. We're a trusted disruptor of the industry, and we're proving that we can move quickly to scale our products and our services across both Launch and Space Systems and that focus is translating into the double-digit growth results you're seeing on the page here.

Right, on to Electron. So as the title says, it's been a record-breaking quarter for Launch contracts. 17 dedicated launches were signed in just 3 months, but -- all but 2 of them were signed with international customers from Japan, Korea and Europe. Those new missions, plus the ones already on the books for international space agencies like [indiscernible] and [indiscernible] prove Electron is not just a leading launch vehicle in the United States, but it's becoming the preferred small launch vehicle globally. Electron's business model is one of scheduled flexibility for our customers, and you can see from these new bookings, demand is stronger and growing for Electron. The HASTE, our hypersonic test vehicle, continues to redefine the way technology has been developed and tested in the United States.

In Q3, we launched back-to-back missions from Launch complex to in Virginia with 100% mission success, enabling technology to be tested in real life hypersonic environments, which is a critical capability for the next-generation defense programs like Golden Dome. By leveraging our commercial speed, our vertical integration and our execution history with Electron, HASTE delivers the proven agility and responsiveness that are these programs demand. Speaking of momentum, we're on track to fly our 17th launch of the year in the next few days, which will officially surpass our previous annual launch record set in 2024. This pace is only possible because we are very intentional about designing Electron for scale. This extends beyond the vehicle itself to all the supporting infrastructure like manufacturing, processing and operating a high-volume launch range infrastructure as well.

It's an important approach that we're deploying for Neutron too, ensuring that we're thinking well beyond first flight. As of right now, there are only 3 American commercial launch providers who have launched to orbit more than once this year Space X, ULA and of course, us, which really does highlight just how [ real ] Electron's capabilities are.

Now let's turn to Space Systems. Starting up with -- starting off with a little bit of an update for M&A for the quarter. We closed the geos deal to create a new [indiscernible] business unit, strengthening our offering as a prime contractor for national security programs like Golden Dome and for the Space Development Agency. With our history and expertise in buying and expanding smaller shops to meet industry demand, we're turning our attention now to scaling our new electro-optical and infrared sensors for lucrative future contracts. We're also closer to acquiring Laser communications company, Mynaric. They have completed their financial restructure under German law in August, which was a pivotal moment in the acquisition process and one that brings us nearer to closing out this deal.

Rocket Lab has been a force multiplier for the U.S.-based industry, and we're ready to bring that same energy to the European space sector with our first European foothold and expansion into Germany. As for what's next, we've built up our dry powder for future M&A with more than $1 billion in liquidity following at the market offering program implemented in September. It was a very strategic move to lock in capital that will allow us to act quickly on some of the exciting opportunities in the pipeline. We're not ready to reveal the details of these strategic plays just yet, but I can assure you that the pipeline is active. We've always taken a disciplined approach to acquisitions and our successful track record speaks for itself.

We've got a bit of a neck for identifying, acquiring and then integrating businesses that enhance our end-to-end capabilities and make us a stronger competitor for large-scale programs. And that's made us the consolidator of choice for many companies in the space sector. We're often the ones being approached first by companies wanting to join Rocket Lab now because they see the value we create for growth and innovation.

On to outcoming Space Systems missions. We're a few days away from two of our spacecraft launching for the ESCAPADE mission. And the initial launch attempt was unfortunately scrubbed by the launch provider yesterday. But by this time, Wednesday, they're scheduled to be launched from Cape Canaveral, and they'll be on their way to Mars. Now what makes this mission truly groundbreaking is that we're tackling these interplanetary challenges with spacecraft built for an order of magnitude less than the usual cost developed in about 1/3 of the time. We're proving an entirely new, more accessible model for seeding satellites to other planets. In short, this mission is a tough one, both in flight and in the design, but of course, we love a challenge. Another program with Big Green Tech this quarter is our transport layer Constellation for the Space Development Agency which is cleared critical design review to be able to move it into spacecraft production now while existing and contract fully funded contracts like a $0.5 billion program can continue under the government shutdown, the situation does continue to have an impact on the timing of new awards for the SDA Tranche-3 constellation.

Neutron, all right. Moving on from Space Systems. Let me give you a bit of an update on Neutron the quarter. Now I've spent a lot of my time in the recent weeks, [ Albo to Albo ] with the teams at the various sites participated for Neutron testing. I have to say, I'm extremely happy with the progress, but more than that are the thoroughness of the team during this critical qualification in the acceptance testing phase. We're into the big media bits in the [indiscernible] test where we have whole systems integrated together in large subassemblies. This is a time when you find out on the ground what you got right and what you got wrong and of course, rather than finding out that during first launch.

Now at Rocket Lab, we have a proven process for delivering and developing complex space flight hardware. And I think that process speaks for itself with respect to our hardware always looking beautiful, and more importantly, always working beautifully. Now our process is meticulous, but it works. Take Electron, for example, it's the world's most frequently launched small launch vehicle, as we all know. And we scaled the production and launch of it faster than any other commercial launch vehicle history, which is great. But if we think about how many others have tried to develop a launch, the results have been extremely poor. Those who have failed to deliver a numerous basically, every new space company, except Rocket Lab and SpaceX has failed to build an orbital rocket that is scaled to any kind of launch cadence and is reliable.

Now this is the Rocket Lab process in action and I've been resolute about sticking to this approach. Now with all the hardware in front of us now and significant testing programs underway across all parts of the vehicle, we can see we need a little bit more time to retire the risks and stick to the Rocket Lab process. Yes, it might mean things will take a little bit longer, but I want to give some context here. I mean, the labor cost for the program is about [ $15 million ] a quarter, which we make back 4x over a single launch anyway. So it makes sense to change what we know and what has proven to work. So we're aiming to get to a new trend of the pad in Q1 next year, if all goes well with the first launch thereafter. Once again, though, that's provided that myself and the team are confident we have completed Neutron's goal testing and acceptance testing program to the Rocket Lab's standard. As always, this is a Rocket Program. So has been completed at a pace and a cost that nobody has achieved before. And the financial and long-term impacts are insignificant to take a little bit more time to get it right.

Now we've set high expectations for new transfers flight. Our aim is to make it to orbit on the first try. You won't see us minimizing some qualifier about us just clearing the pad and claim and success and whatnot. And that means that we don't want to learn something during neutrons first flight that could be learned on the ground during the testing phase. At the end of the day, Neutron fly when we're very confident it's ready and we're not going to break the mold of the Rocket Lab magic.

Now over the next few slides, I want to take you through some of the testing campaigns we've been running to paint a bit of a picture of what it takes to deliver a reliable rocket to the launch pad. As you've seen for some time, we're very hardware rich across the entire vehicle. Now it's all in sort of assembly and qualification and acceptance testing before it's all brought together under the East Coast site. Okay. So these pitches are just a snapshot of many of those activities. We're deep diving into the qualification, test and acceptance of every major assembly, subassembly and system before we get into launch operations. In fact, I'd say we're putting Neutron through an even more extensive barrage testing than we did Electron because it's not your kind of conventional rocket that we're developing. We have a couple of novel things being the world first architecture like Hungry Hippo appearing, that has been a second stage and the vehicle itself is, let's not forget, is the world's largest flying carbon composite structure ever built.

So we're making tremendous progress in these structures, testing across all levels of the vehicle. Every one of Neutron's major structures are tested on the ground to the levels that exceed what the Rocket may see in flight. This includes testing of our primary structures like propellant tanks, thrust structures, the end of stage pushing them all to their limits to ensure they meet the demands of launch and reusability. Before we can call this qualified, we go through a full run of load cases like axial lateral torsional transient and combined loads. The main and primary structures must withstand a lift off of 1.5 million pounds of thrust from the Archimedes engines. The worst cases of aerodynamic loading on the way up as the vehicle goes through Max-Q and all the separation loads.

And then for the structures that come back on stage 1, they have to survive all the thermal and neurodynamic reentry loads too. Now we test secondary and auxiliary systems to the same level of scrutiny as well. This involves pulling and pushing across the same load cases even down to the smallest fixtures and the smallest bracket that holds every device to Neutron's primary structure. A tests across both Stage 1 and 2 structures have yielded wealth of valuable data and by anchoring and validating our engineering models through this test, we're able to uncover and retire technical risks on the ground well before we fly.

With new [indiscernible] reusable fixed faring design and our suspended second stage that passes through it, we're working with a unique architecture that's never been seen in our rocket before. And we've been taking through it as -- we've been taking it through its paces to read the entire system for its first flight. This has included testing the Hungry Hippos aerodynamic control surfaces as well as turning the electromechanical actuators and the control systems and all the entire mechanisms. The Hungry Hippo's open and closed systems have past performance testing and so as the staging systems such as [indiscernible] locks and pushes and guides and all the stuff that's inside of second stage that passes through the Hungry Hippo's mouth. While it's been one thing to build these huge assemblies for Flight 1, the team has also set up the infrastructure for this testing that allows us to get as close as to a flight test as we possibly can on the ground.

And this is important because it also laser foundations, not just for the first launch, but flights to and beyond. You can see some of the giant towers in these staging tests on the right-hand side of the slide there. In fact, some people thought we were building a launch site was so big. In the Neutron flight software and GNC team, we've been flowing to orbits virtually almost now for 2 years, leveraging our proven approach from the Electron program with our own flight software and hardware in the loop testing that integrates physical components with simulated flight environments to validate our system-level functionability and performance. In preparation for Neutron's first flight, our operators and engineers have been running virtual test and launch operations week in, week out. We've been exercising our operations team on console going through static fire operations and launch day operations so that we can hit the ground running when the vehicle arrives at Launch Complex 3. Our world-class simulation tools built in-house allow us to exercise our Avionics GNC and software tools well in advance of conducting these operations with a fully integrated vehicle. This not only allows us to reduce risk, but also serves as a training platform for operations team.

Combine that with a full suite of vehicle avionics in the loop, and we bring test like you fly to a whole new level. It's all part of the smart rigorous approach that we apply to every program and mission.

On to Archimedes. Since the last engine update, the propulsion team has continued to validate its performance across the entire runbox. The upstaging on the test them to, and we continue to work for all the qualification testing on these engines and test as up configurations as you well as you know. The [ testing ] is operating at a 20/7 rate, meaning 20 hours a day, 7 days a week. The only way you can get through years of qualification always expected for an engine program is to squeeze years of hours into months. So as you can imagine, no weekends or evenings are left on the table at the [indiscernible] test facility.

Now on to our ocean recovery platform for Neutron. While return on investment barge won't be used for the first flight, the recovery team is making great progress on having it ready for Flight-2. The 3 main propulsion generating sets for the 400-foot length barge recently passed factory acceptance testing and have been cleared to be sent to the shipyard in Louisiana. Each of return on investment 3 diesel electric [indiscernible], sets are capable of more than 3 megawatts of electrical power. Combined, that's more than 2.5x the total electricity capacity for all launch complex-3. So these things are big.

All in all, return on investment is looking good into service next year for the second launch. Okay. Finally, to wrap up our progress. It was a great moment to be able to cut the ribbon at the launch site last quarter. Neutron will bring the largest lift capacity to the Mid-Atlantic Regional Spaceport has ever seen. So opening it was an important milestone, not only for the past the first launch, but for the assured access to space that the nation needs a launch as launch congestion continues to build up across the country. The team is running through the final activation as they prepare to receive Neutron on the launch amount, but otherwise all ready to go. Most recent tests have included flow in cryogens through propellent systems and tests continue to run smoothly. We've designed the site to be able to turn missions within 24 hours. That was the design requirement. Now that's important for response space and the launch cadence we expect for the vehicle. But equally so, we can get Neutron straight into back back-to-back testing during the launch and readiness campaigns as well.

So you can see there's been lots of Neutron activity this quarter. The team has made significant progress towards Neutron's first launch while continuing to prioritize our very rigorous testing and qualification processes over rushing to the pad. We're seeing what happens when others rush to the pad with an unproven product, and we just refused to do that. A methodical and deep approach to qualification is what's driven our reputation for success and reliability in the industry. It's been a cornerstone of our success with Electron and it's the same philosophy that we'll be applying to Neutron. Okay. Here's Adam with the financial highlights for the quarter and our outlook ahead for Q4.

Great. Thanks, Pete. Third quarter 2025 revenue was a record $155 million, coming in at the high end of our prior guidance range and representing an impressive year-over-year growth of 48%. This strong performance was driven by significant contributions from both our business segments. Sequentially, revenue increased by 7.3%, underscoring the continued momentum across the business. Our Space Systems segment delivered $114.2 million in revenue in the quarter, reflecting a sequential increase of 16.7%. This growth was primarily driven by increased contributions from our satellite manufacturing business, which continues to perform exceptionally well and provides comforting diversification alongside our robust, but at times lumpy launch business. Meanwhile, our loan services segment generated $40.9 million in revenue, representing a 12.3% quarter-over-quarter decline due to fewer launches during the period, driven primarily by customer spacecraft delivery delays. We have a busy Q4 manifest and as a result, expect a strong return to sequential revenue growth in our launch business in the fourth quarter.

Now turning to gross margin. GAAP gross margin for the third quarter was 37% at the high end of our prior guidance range of 35% to 37%. Non-GAAP gross margin for the third quarter was 41.9%, which was above our prior guidance range of 39% to 41%. The sequential improvement in gross margins was primarily driven by a onetime benefit from the transition to over time revenue recognition for certain HASTE missions paired with revenue recognition of an Electron mission cancellation due to a customer's internal program cancellation, which was recognized at 100% margin. We ended Q3 with production-related head count of 1,198, up 48% in the prior quarter.

Turning to backlog. We ended Q3 2025 with approximately $1.1 billion in total backlog, with launch backlog accounting for approximately 47% and Space Systems representing 53%. During the quarter, launch backlog contributed to gain share, supported by strong underlying trends as we can hear a robust pipeline of opportunities across electronic ends. This includes the 17 electronic bookings signed within the quarter that Pete mentioned earlier. While Space Systems bookings remain inherently lumpy due to the timing of increasingly larger and high-impact program opportunities, Space Systems backlog continues to hold at healthy levels despite the step-up in revenue run rate recognized over the last few quarters. We're actively cultivating a strong pipeline that includes multi-launch agreements and large satellite manufacturing contracts across government and commercial programs. As noted earlier, these larger needle-moving opportunities can induce lumpiness in backlog growth and are critical drivers of long-term value and scale of business.

Looking ahead, we expect approximately 57% of our current backlog to convert in revenue within the next 12 months. Additionally, we continue to benefit from relatively quick turns business across Launch and Space Systems components businesses that drive incremental top line contribution beyond the current 12-month backlog conversion.

Turning to operating expenses. GAAP operating expenses for the third quarter of 2025 were $116.3 million, above our guidance range of $104 million to $109 million. Non-GAAP operating expenses for the third quarter were $98.1 million, which was also above our guidance range of $86 million to $91 million. The sequential increases in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in prototype and headcount-related spending to support our Neutron development program. Specifically, investments ramped up in propulsion as we continue to qualify our committees as well as in test and integration of mechanical composite structures at our facility in the middle of America.

In R&D specifically, GAAP expenses increased $4.6 million quarter-over-quarter while non-GAAP expenses rose $4.8 million. These increases were driven by the ramp-up of Archimedes production along with higher expenditures related to mechanical systems [indiscernible] Peter just mentioned. Q3 R&D headcount was 1,019, representing an increase of 84 from the prior quarter.

In SG&A, GAAP expenses increased $5.7 million quarter-over-quarter while non-GAAP expenses rose $6.4 million quarter-over-quarter. These increases were primarily due to the acquisition of GEOs during the quarter compared with higher legal expenditures insurance renewals and fees associated with our annual proxy statement and related filings. Q3 ending SG&A headcount was 385, representing an increase of 42 from the prior quarter, with the majority of those coming from the closing of the GEOs acquisition. In summary, total headcount at the end of the third quarter was 2,602, up 174 heads from the prior quarter.

Turning to cash. Purchases of property, equipment and capitalized software licenses were $45.9 million for the third quarter of 2025, an increase of $13.9 million from the $32 million in the second quarter. This increase reflects ongoing investments in new run development as we continue testing and integrating large structures at our facility in Middle River, expanding capabilities at the engine test and in [indiscernible], Mississippi and scaling additive manufacturing at our engine development center in Long Beach. As we progress towards Neutron's first flight, we expect capital expenditures to remain elevated as we invest in testing, production scaling and infrastructure expansion. GAAP EPS for the third quarter was a loss of $0.03 per share compared to a loss of $0.13 per share in the second quarter. The sequential improvement to GAAP EPS is mostly attributable to the $41 million tax benefit we recorded during the third quarter, which is due to the partial release of the valuation allowance against our corporate deferred tax assets as a result of acquiring an equal amount of deferred tax liabilities, emanating from the GEOs acquisition's purchase price accounting.

GAAP operating cash flow was a use of $23.5 million in the third quarter of 2025 compared to $23.2 million in the second quarter. Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated with a Neutron development, longer lease production for SDA, investments in subsequent Neutron tail production and infrastructure expansion to scale the business to be audited and testified. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow, less purchases of property, equipment and capital software in the third quarter of 2025 was a use of $69.4 million compared to a use of $55.3 million in the second quarter. The ending balance of cash, cash equivalents, restricted cash from marketable securities was just over $1 billion at the end of the third quarter.

The sequential increase in liquidity was driven by proceeds from the sale of our common stock under our aftermarket equity of program which generated $468.8 million during the quarter. These funds are intended to support acquisitions such as the announced Mynaric acquisition as well as other targets in our robust M&A pipeline, alongside general corporate expenditures and working capital. We exit Q3 in a strong position to execute on both organic and inorganic growth initiatives and to further vertically integrate our supply chain, expand strategic capabilities and grow addressable market, consistent to what we have done successfully in the past.

Adjusted EBITDA loss for the third quarter of 2025 was $26.3 million, which was below our guidance range of $21 million to $23 million loss. The sequential increase of $1.3 million and adjusted EBITDA loss was driven by higher revenue and improved gross margin, which was more than offset by increased operating expenses related to Neutron [indiscernible].

With that, let's turn to our guidance for the fourth quarter of 2025. We expect revenue in the fourth quarter to range between $170 million and $180 million, representing 12.8 quarter-on-quarter growth at the midpoint. We anticipate further improvement in both GAAP and non-GAAP gross margins in the fourth quarter, with GAAP gross margins to range between 37% to 39% and non-GAAP gross margin to range between 43% to 45%. These forecasted GAAP and non-GAAP gross margins are benefited by a higher mix of launch contribution in the quarter as well as underlying improvements in launch ASPs and greater launch overhead absorption due to higher forecasted launch cadence in the quarter.

We expect fourth quarter GAAP operating expenses to range between $122 million and $128 million and non-GAAP operating expenses to range between $107 million and $103 million. The quarter-over-quarter increases were primarily driven by ongoing Neutron development spending related to Flight-1, including staff costs, prototyping and materials. However, we expect to see a shift in spending from R&D to flight to inventory, which is an encouraging sign of progress as we move closer to Neutron's first flight. I'm optimistic that with the impressive strides we've made towards this milestone, we're approaching peak Neutron R&D spending and are on the path towards meaningful operating leverage and positive cash flow in the future. We expect fourth quarter GAAP and non-GAAP net interest income to be $3.5 million, which is a function of higher cash balances as well as the conversion of approximately $192 million of convertible notes since September 30.

We expect fourth quarter adjusted EBITDA loss to range between $23 million to $29 million and basic weighted average common shares outstanding to be approximately 571 million shares, which includes convertible preferred shares of approximately 46 million and reflects the conversion of approximately 37 million shares from convertible notes thus far in Q4. Lastly, consistent with prior quarters, we expect negative non-GAAP free cash flow in the fourth quarter to remain at elevated levels, driven by ongoing investments in neutron development and scaling production. This excludes any potential offsetting effects from financing under our ATM facility.

And with that, we'll hand the call over to the operator for questions.

[Operator Instructions]

The first question today comes from Ryan Koontz with Needham & Co.

Really nice to see the strong bookings and backlog jump there for launch, really impressive. Sounds like a lot of that was international. Any particular color you can share on the use cases, defense versus government? Anything you can share as far as what's really driving that pickup in backlog and how you feel about it going forward over the next few quarters?

Yes, Ryan, thanks very much. Yes, so it's a bit of both. So strong commercial bookings, but also for the first time, we see space agencies who typically use -- go to -- the first stop is to go and use their own sovereign capabilities. But Electron is really the only vehicle of its kind in -- operating in the world right now. So it was very, very promising to see space agencies now kind of standardizing on the electrons platform.

Sure. That's great. And how are you feeling about supply chain relative to meeting that kind of demand for Electron at this point?

Electron's like 90% plus built in-house. So we don't see too many challenges there. The factory that we built here was ultimately designed to build 52 rockets a year. And so I think we'll be fine.

That's great. Maybe one last one, just to wrap up, just to clarify what Adam said about launch gross margins. There was a couple of onetime events there. Any color you can share with us on that, Adam.

Yes. As Electron continues to kind of mature as a business, we've got a deep pipeline and backlog. And you're going to have customers that have changing priorities when programs get canceled. Fortunately, we have very strong contract terms, which allow us to make sure that we're protected in the event that people programs get canceled or change their priorities. I think on the HASTE change, that was really kind of again a pivot on some of the HASTE missions where the contractual terms are such where it's really more [indiscernible] under ASC 606 to recognize revenue over time and use EAC accounting to measure the cost that you're incurring and you recognize revenue and margin importantly. So we now have [indiscernible] in that business where you have point in time and over time, and it's really just a function of contract terms.

And HASTE is evolving into an important and meaningful part of our business. A lot of good things come from at the fact that you've got typically higher ASPs. You've got, I would say, along with that now you've got a little bit more stability, I would say, our predictability to the revenue contribution from that, given the fact that and some are going to be a point in time, but some are going to be over time and that over time allows a little bit more of a, I would say, like a little bit more predictability. And I think it's a healthy [ place ] to be.

Next question comes from Andres Sheppard with Cantor Fitzgerald.

Okay, everyone. And Pete, it's really -- it's great to hear all the great progress over the last few years to see everything up until this point. Two quick questions for us. One on Space Systems and one on Launch business. On the Space Systems, maybe for Adam, can you remind us the revenue recognition associated with the FDA Tranche-2 award. I think in the past, you had targeted 40% revenue recognition in 2026. Just wondering if that's on track or unchanged? And then also on the FDA Tranche-3 award now, obviously, the government shutdown has maybe delayed the decision there slightly. But do we still feel confident in that award. And in that decision, if awarded, that would be the largest contract, I think, awarded in company history. So curious on your thoughts there.

Yes. I'll take the first piece on the rev rec. I'll give you my thoughts on Q3, and then I'll hand it back over to Pete. But on the rev rec, yes, we're still very much in that path to recognize the revenue over that pattern where it was -- kind of think about these these larger long-lived government programs is kind of 10% kind of in the first year after you achieve award and then it's 40, 40, 10. So think about that as the shape of the curve. And FDA has got a Tranche-2 transport layer shaping up to be similar to that. So yes, everything is consistent there.

And as you know, similar to the other overtime rev rec, you basically estimate your cost to complete the mission as you incur costs proportionately, you recognize revenue at program margin. And so yes, it's been -- so far, that program has been in very well. As Pete mentioned, that's part of the business is performing very, very well. on T3, yes, that would be the largest contract company would have won to date. And you're right, the timing has been a little bit delayed due to the government shutdown. I think you've all seen recently that there are signs that perhaps we could be coming to an end of that shutdown, which I think would be great to get that momentum back in the awarding of those types of contracts, but I'll show repeat investor confidence in that win.

Yes. I think you've said it well, Adam. I mean, I think we put ourselves in a really strong position as a prime contractor on those awards, especially with some of our acquisitions. So we're feeling good, and we just need the government to come back and finish off that last little piece. But no, I think we're feeling good, Andre.

Wonderful. That's great to hear. And maybe just as a quick follow-up on Neutron. With the first launch now targeted for early next year, should we still be assuming kind of 3 launches for next year, 5 the following year and 7? Or is there perhaps a change to that cadence as well?

Yes. The way we think about that cadence is it's -- the clock starts for the next one from the first one. So depending on the first flight, you think of it as like a 12-month kind of rate from there. But maybe, Adam, if you any different views?

Yes. No, I think that's right. I think I'd just remind folks that the first launch is a test launch. It's an R&D launch. We've been expensing that vehicle over its manufacturing period. So the previously communicated cadence was 1 test launch which is still the case, and then we expect to be in revenue for the flights thereafter. So I would say that depending how early we get the test launch off in 2026, we'll dictate whether or not we get -- as Pete said, we kind of complete the next 3 missions in a 12-month window that would fall within that.

Wonderful, very helpful, and congrats again.

The next question comes from Edison Yu from Deutsche Bank.

I wanted to ask about the future constellation. I know it's quite a long-term question, but there's been a lot of activity in some operators around spectrum. And I'm curious, what's your thinking about the value of spectrum in your kind of calculus for any type of future constellation?

Well, I mean, that would be making an assumption that -- I guess you were sitting on a comms application as well. But clearly, spectrum is an important element to any kind of scaled comms business, although we have been seeing some interesting approaches where that becomes less so. But I think you're just seeing some kind of natural consolidation in the industry right now around some of those spectrum assets and I suspect that will continue. But look, Rocket Lab is not going to go out and buy billions of dollars worth of spectrum speculatively. That's for sure.

This is Adam. Sorry, I got dropped some, unfortunately, the conference call dropping. So I don't know, did I answer your question fully, Andre, on the launch cadence?

It's actually Edison on now.

Yes, we did. It's nice to see that you got dropped down in this time and not me. It's not for sure, yes.

So totally separate topic. I wanted to ask about. I'm sure everyone has seen NASA, we got Isaacman seemingly back. Do you see increased opportunities in this type of changeover around, whether it's moon, Mars space? And where do you think those incremental opportunities could potentially come from?

Short answer is yes. I think if you -- if Jared is cemented as the NASA administrator, I think -- if you look at Jared's approach to how he believes NASA should be run and the role that commercial entities like Rocket Lab will play, I think that bodes very well for the way that we -- the way that we operate and the value that we can bring the agency. So I would view that as a very positive thing for Rocket Lab.

The next question comes from Gautam Khanna with TD Cowen.

Was wondering if you could elaborate on how soon after Neutron arrives at the complex realistically it can launch? Does it -- is there a minimum interval of time? And then what sort of explains that whatever that range might be?

It's a little bit difficult to answer because it really depends on what you find. If we put the vehicle on the pad and we go through all of that fueling and de-tanking, and all the operational tests and static hot fires and all of that sort of stuff, and it all flies through, then it's a fairly straightforward path. But if you -- if we go there and we find some stuff that we don't like, then we're going to fix it. And I think as I tried to explain during the call, there's the way that we develop these kinds of things is I'm suspicious if everything just flies through because that, in some cases, causes more time to be spent than less because generally, you expect to see something because the whole vehicle is built on a safety factor of 1.1 or 1.2. So you expect to see some things and depending on the magnitude of those things, we won't just blindly walk past them. We'll go out and not only fix them, but really, really deeply understand how they occurred and then also go 1 step further and feed that back into all of our engineering models to make sure that next time around, we're doing a similar thing that the -- I guess, the the ability to predict and the fineness of that become better and better and better.

So look, we know a lot more than we have a vehicle on the pad. We know even more new hot fire after hot fire if that's a successful campaign. We're happy with what we see then the turnaround to launch after that point is pretty quick.

Okay. And I was curious also, maybe I missed it, but the cumulative catch-up adjustment or the onetime, how large was it in the quarter?

Sorry, Gautam. What you're talking about the -- are you referring to the HASTE. I'm not sure if you can maybe -- sorry, I got dropped again from the call from a provider, but [indiscernible].

Yes. I think you mentioned in the remarks that there was a -- well, I know in the Q, it says there's a revenue adjustment of net $10 million favorable in the quarter. Wanted to know, I think you described the EBITDA margins were lifted by a contract closeout of some sort. I was just curious if you could quantify how large that was?

Yes. So there was one contract close that was about -- I think it was a little under $5 million was the value that we received when that cancellation occurred. And then there were some other things moving around with regards to the -- well, there was a benefit to the gross margins as well because in Q3, we recognized revenue with higher gross margin associated because when we made the change in Q2, we end up actually taking a margin hit because we've recognized revenue without having associated basically at 0 margin because at that time, we didn't have the ability to estimate what the costs were going to be to complete the mission as we did this transition the path was essentially revenue in Q2 at no margin. Q3, we got, again, normal amount of revenue from that overtime contract, but that was at -- now at margin, right?

So I think those are really kind of the 2 prior things. But when you look forward into Q4, given our -- the guidance that we've provided, even with those things not recurring in Q4, you still see our gross margins improving. So you can just see that yes, that was kind of the unique dynamics in the transition from Q2 to Q3. But for Q3 and Q4, without those unique events, we still show gross margin strength and growth sequentially.

The next question comes from Erik Rasmussen with Stifel.

Yes. I wanted to -- just on Neutron. I totally understand, Peter and the team, how you guys operate. You're not looking at an iterative process and having things blow up. So that's great, and that you've always operated that way. But I wanted to see, though, with this latest push out, what does that do from a timing perspective for things like the NSSL and some of the things that you might have been looking at, at Neutron obviously is geared towards.

Yes. Erik, great question. So look, the NSSL team worked shoulder to shoulder with us. They're on every review in the program. And obviously, I can't speak for them, but I think they take at least the feedback we've had from is they very much appreciate our approach of both transparency but also the diligence the way we build vehicles. So the awards for the NSSL contracts have not been made yet and there's some time away for them to be made. We need to have a flight under our belt -- a successful flight under our belt before they'll make those awards anyway.

So largely speaking, it's pretty irrelevant. And we've been very careful, and I think there's been a lot of conversation previously about booking Neutron and making sure that we can deliver for our customers. So long story short, we're not letting anybody down here, Erik, we're in a good spot.

Great. And maybe just my Follow-up question here. You closed the GEOs acquisition. Mynaric is soon to close, I would presume, but with GEOs, are you seeing traction in expanding the footprint in national security and defense, I mean, that was part of the reason, but what are you seeing now that you've closed the deal?

Yes. It's -- look, it's just -- it's night and day to before. So obviously, we had a good relationship with SDA and through the intelligence community, obviously, for launch and things like that. But I would just say we're in a totally different league now and working with totally different folks. And there's a long, long relationships that have been built with the GEOs team and now that they have the support of Rocket Lab, we're really able to expand and surcharge those. And also, those relationships expose them to the larger offering of Rocket Lab, because it always surprises me. Sometimes people just think we're just this little launch company and don't have all this other capabilities. So no, it's been incredibly important -- and also just now being a payload provider is -- it brings you up to a whole another level because you're having really detailed mission discussions rather than just talking about how you can provide a bus or a component or something. We're really in mission formulation territory.

Great. Thanks, and good luck with the Neutron development.

The next question comes from Michael Leshock with KeyBanc Capital Markets.

I wanted to ask on Archimedes. I know you're constantly testing and iterating the engine, but how close are you to having a finalized design that meets all the performance requirements in ready for first flight?

And then secondly, given your production cadence, I think you previously said a new engine was coming off the line every 11 days or so. How quickly can you ramp production of the engine to have 9 Archimedes for the first stage of Neutrons debut launch?

Yes. So thanks, Michael. The engine design is pretty stable at this point. And we've met all performance criterias. What we're doing is, obviously, with ascent, there's 1 set of environments and with descent, an entirely new set of environment and much more challenging environments because you're propellent woman and lower pressures and you've had alleging and all kinds of stuff. So going through all of those things has been really important. And I think the team -- I got to check on the exact number, but I mean the vast, vast majority of all of the components for Flight 1 engines are either complete or in some kind of kind of form of build.

So we're iterating on the engine for sure, but the production machine has stood up and ready to support. But with our committees, we want to make sure we're -- as we are sending on first flight, but nobody is worried about an engine. And obviously, it's the most complicated part of the vehicle.

So there's just no substitute for putting hours and hours and hours on test articles and hence, the reasons why we have 2 cells running now at [indiscernible], not just the one, as we think we talked about their last earnings, and it's just switching between engine and engine.

And some of the more interesting tests, just extra long durations to try and promote some fatigue in the engine because obviously, we want to reuse this engine over and over again. So just doing really extended burns to try and promote fatigue and items as some of those kind of things. They just take time, like there's just no substitute for just burning?

Okay. Great. And then sticking with Neutron, is that original budget for Neutron $250 million to $300 million that still intact given the updating timing of new transfers launch? And you'd said you're near peak Neutron spending. Just any way to frame how much you've spent so far or what's left to go?

Yes, I can take a swag at that. So yes, I mean, the program, as Pete mentioned, I mean, we've continued to make a lot of progress. The $250 million to $300 million kind of original estimate we kind of got a little bit, I would say, behind us with the kind of the push from launching middle of '25 at the end of '25. And so now as we get into kind of a 2026 scenario. Right now, I'd say that we're estimating that we will have spent approximately exiting in cumulative across R&D and CapEx through the end of 2025. So we're above that. And as Pete mentioned, it's about a $15 million impact on the human capital side of things per quarter, just by extending, obviously, prototyping, you're going spend, we're going to spend. It's really not impacted by the time frame. But when the program kind of delays, you end up obviously incurring extension of that -- the staffing-related expenses for the program. So right now, again, we're looking at around $360 million exiting 2025. So again, as I mentioned, I do think we're approaching peak if hopefully, Q4 is the peak and it all depends on kind of when the timing the first launch occurs -- and of course, the launch as well.

The next question comes from Suji Desilva with ROTH Capital.

Congrats on the strong backlog build here. On the electron launches, you gave some sense of pricing, but any [indiscernible] the trend and the size of the number of launches, maybe if not now into '26, if you're trying to extend those? Or is that fairly stable?

I don't know, Adam, if you've got that one, but I struggle to hear you on that one.

Yes. Suji, you broke up.

Sorry, I'll repeat it. Just any observations on the Electron launches, the deals in terms of number of launches, length of the launches? Are people trying to extend the visibility there in the next few quarters? Or is it pretty stable?

I think when we talk to customers, as you can see in the last quarter, it's generally not for just sort of 1 launch we see folks locking in their launch capacity and buying lots of launches in 1 hit. We're -- we never try and let a customer down or leave a customer on the pad. So we met production with launch demand very well, but -- and that hasn't been a problem to date. But no, we just continue to see just growth in the demand for the product.

Yes. I would add to that, Suji. So we've seen these larger bulk buys over long periods of time occur more on the commercial side. as we've talked about in the past, it's kind of hard to differentiate sometimes commercial versus government because a lot of our commercial customers actually end up fulfilling government demand. So it's a quasi commercial government. But also, we've been growing our has business pretty significantly over the last couple of years. And those have come, I would say, more like Electron originally did were kind of the onesie-twosie kind of concise contracts. And I think that's hopefully the next kind of shoe to drop for us is the ability to start -- start signing larger case deals that cover a long period of time and a greater number of launches because that would give even more certainty to the revenue ramp in that part of the business. So again, that's something that we're looking forward to. So I think that would be a very helpful indicator to the longevity of that HASTE business and the ultimate scaling of it.

Okay. Helpful, Adam. And my other question is on the M&A environment and with targets. Is there a sense maybe among the targets that consolidation and being part of the larger companies increasingly important, maybe more willingness to come to the table? Are you seeing any of that trend now among the M&A discussions?

Yes. I think you're seeing it in a few different places, both on the larger scale, but also I think we're seeing it also on some of the smaller-scale stuff as well as -- I think it's a difficult environment to scale in, and there hasn't really been too many great companies that other companies want to join. And as I think I mentioned on the call, we're sort of becoming the de facto go-to guys if you want to really scale your products and the opportunities that you have in front of you.

The next question comes from Andre Madrid with BTIG.

I think earlier today, it was announced that the FDA was moving some funding earmarked for some of their programs over to true payments. This was a more of a DOW level. But seeing that and then you called it out, decreased cash receipts in the slide deck 2 related to SDA [indiscernible] work. I mean if things don't get resolved this evening, which hopefully they do. I mean, when does the shutdown pose a significant risk to your internal '26 outlook and beyond.

I can -- yes, go ahead, Pete.

You go ahead, Adam.

No, I was going to say, I think that there's so far, the government shutdown, I wouldn't say, has really dramatically affected us. Yes, there have been slightly slower cash receipts. But for example, we got a very large cash payment on Friday from SDA. So I would say that this ticket has not been shut off. I think it's just kind of -- it's just been a little bit slower and flowing. So that's very helpful. That even before the line of sight to the ending of the government shutdown, we were still getting -- and we received again a very large payment at the end of last week. So right now, it -- I don't think there's going to be any -- obviously, we factored in everything we believe is to be the most likely case in our Q4 guide that we described earlier. So it's hard, no one's got a crystal ball for kind of what happens with this -- when they bring the government back and kind of where they reprioritize their dollars. But I think we've been very fortunate so far that we've really not felt any significant impact from the shutdown today.

Got it. Got it. That's helpful. And go ahead. Sorry, I didn't mean to cut you off.

The only thing I'd add is like the requirement for what the SDA is doing is not diminishing. It's expanding. So it's an important program. So as far as like the need for the program, that's not getting smaller.

The next question comes from Jeffrey Van Rhee with Craig-Hallum.

On the margins and the gross margins for Q4 in the guide, it looks like maybe a couple of hundred basis points of sequential improvement. Is that just kind of break it down maybe a little more? Which side of the business are you expecting that sequential increase? And then any sort of even in clean as to maybe revisions on what you think target gross margins might be for either of those 2 segments?

Yes. So the gross margin trend and the improvement sequentially Q3 to Q4, again, is driven really by a mix where as we get more scale into our Electron business, and we've always talked about cadence, I think super important for the margin profile for that business because there's so much fixed cost related to it. So as you scale cadence and Pete kind of mentioned earlier in his comments that we're expecting hitting a new record for launches in the year. So obviously, that's all good for overhead absorption. So think of it as there's a lot of good underlying dynamics going on within the launch business as far as size of the backlog, the ASP increasing within that backlog.

We're getting greater overhead absorption benefits. So that's really kind of what's driving the strength in the launch business. And as it becomes a bigger piece of the mix in Q4, that's really the biggest factor. And I would say that within our Space Systems business, the trend of margins actually been quite solid in that as well. We've talked in prior calls about how we've made very, very significant improvements in our gross margins from our Solero solar business. We've kind of talked about a long-term target there of we get 30 points of gross margin, that was kind of an aspirational target. I think we're very comfortable that we're very close to that. I think we think about revisiting that 1 upward a bit, I think, but overall, we still believe that we -- that our launch business on Electron first, has the potential to be a 45- to 50-point non-GAAP gross margin business.

We think long-term Neutron has the ability to be at least as good as that, helped by the reasonability nature of that vehicle. And then on the Space Systems side, it's really -- 2 different elements that kind of have different margin characteristics. On the Space Systems components or subsystems business, that has a wide range with solar kind of being at the lowest end of that and again, around 30 points. Hopefully, we can push that a little bit higher. And for some of our other components business, we have margins that are well north of 60, in some cases, 70 points of margin. And I think overall, that kind of brings the gross market profile for that subsystems business around, call it, low to mid-40s.

The satellite manufacturing business because of the nature of those programs, we're able to take what for many people is either high single-digit or low double-digit gross margins and have those more in, call it, the -- I'd say 25 to 35 points, depending on the programs because of the level of vertical operation that we bring because those same components that we sell into the merchant market at very high margins, we basically obviously designed into our platforms. So I think longer term, I think we still see again a gross margin business from Launch that is in the -- call it, 50% range and for Space Systems, probably in the -- I'd say the 40%, maybe low 40s percent gross margin range, so it puts in a nice spot overall.

But I think it's also helpful to note that in Space Systems, it's not as R&D intensive as the launch businesses when you're getting a new vehicle established. So the operating margins or contribution margins for the spaces businesses, even the ones that aren't kind of in those high gross margin ranges is still quite healthy. And then I think -- again, I think the margins for our Launch [indiscernible] themselves.

Got it. Got it. Very helpful. Last 1 then on Space Systems. The -- can you talk about the pipeline? Obviously, Tranche-2, Tranche-3 are big needle movers, but the next layer beneath that look like? Like how many 8-figure, 9-figure deals, just some semblance of what the distribution of deal sizes that are later stage in the pipeline would be helpful.

Yes. So there's -- we're always chasing a variety of stuff. So I think the intelligence community and the is obviously big opportunities for us. And things like GEOs really provide us new kind of access and visibility to some things that aren't very visible at all. So on that side of the equation, I think there's really good opportunities for us there. But I would say also, like if we think about the bids that we've got in play, there's also some extremely meaty commercial bids as well. So I would say it's fairly well distributed across -- the opportunity is fairly well distributed across both commercial and defense, but there's always the big [indiscernible] programs. But I mean, all of the business units, we kind of run the business units like little start-up companies as well. And they're expected to grow really healthily every year. And you see new products coming on all the time because as they reach the saturation with their customers. These business units have to develop new products to continue that growth. So this year alone, I think it's been a really, really great year. There's -- we set goals for those units.

And then there's kind of the Pet stretch goal. And they've all met or exceeded the peak stretch goal this year. So it's not just about -- I guess what I'm saying it's not just about these big projects. They're obviously an important needle moving, but just the underlying business and just continuing to drive that growth in all the business units in the underlying business is equally as important.

The next question comes from Anthony Valentini with Goldman Sachs.

Just a quick clarification question on the backlog and Neutron. Is there anything in the backlog today for Neutron or is it 0?

Yes, Anthony, we do have -- we have launches in backlog for Neutron. There are 2 fully priced missions in the backlog right now for Neutron. There's a third contracted mission, which is right now anticipated to be a rideshare, but we don't have that in backlog because we don't do that until we've actually added the payloads into the manifesting. Again, we've got a primary customer, but not -- on that third launch, we've not put in the backlog yet.

Okay. That's helpful. And is there a way to think through how backlog for Neutron specifically ramps up? Like does that happen once you guys do that first R&D launch? Or is it a certain number of successful launches? Just historically, and like what you guys know about the industry, like how does that start to flow through?

Yes, it's a good question, Anthony. And I think we sort of alluded to this in one of the previous questions. It's like -- we don't want to let anybody down. And people when they're looking to buy Neutrons aren't typically looking for one, they're looking for many. So a number of customers are looking to see that the vehicle does work and it scales. So -- and we work very closely with those customers as we go along and these are both commercial and government customers. So I think the unlocking point is certainly a successful flight in a number of these contracts, but also that we want to make sure we don't let customers down. And the last thing we want to do, and we've talked about this previously, is customers will be happy to book a bunch of Neutron like half price, and we're just not going to do that.

Right. Okay. That makes a ton of sense. And then last one for you, Peter. As I'm thinking through the opportunity set on the Tranche-3 transport layer and just looking back at the previous tranches, there's competition from the defense primes these new space tech companies, including yourself, I'm curious how you think through the differentiators for Rocket Lab and when you guys are presenting to the customer, what you think really separates you from the rest of the group?

Yes. So I think one of the big separators and one of the reasons why we won a prime spot on our first SDA contractors that we're so vertically integrated that if you look across all of these programs, they're typically plagued by delays. Not so much cost overruns because it's a firm fixed price, but certainly delays and when you control so much of your own supply chain, then if there's a delay in the component, you get to choose what resources you sell or push around to solve that problem. So I think that's a big element is just schedule certainty. Obviously, Adam talked about some of the margin stacking.

So price is a big element as well. But at the end of the day, all the stuff has got to work and this is where your reputation in this industry is just so critical and why we just never deviate from putting ourselves in a position where that can get compromised. When people buy a piece of Rocket Lab hardware, firstly, it turns up and it looks great, and it works. And in an industry where that seems to be challenging. I think that's an important element.

And also finally, there's a set of requirements and then there's how you go about solving those set of requirements like with the technologies that you can bring to bear. And we just have such a war chest of technologies that we can bring to bear to provide solutions to meet everybody's requirements and then some that I think it puts us in a really strong position.

The next question comes from Kristine Liwag with Morgan Stanley.

Peter, Adam, from your commentary from a previous question, I mean, it sounds like you're not going to go out there and go buy Spectrum. So first question, is that a fair assessment of your statement earlier. And also second to that, with over $1 billion in liquidity and with the broader and deeper capability set in Space Systems, what's your priority for M&A?

Yes. So we look at a number of things, Kristine. So I would say that there's always opportunities for tuck-ins and you've seen that with things like Mynaric where that gives us a capability that we didn't have. So we'll always do those. But I think the GEOs acquisition is a really good example about acquiring a company that just brings us into a totally different customer set and a totally different capability and also puts us at a totally different level. If you think of the big traditional primes, the one thing that sets them apart from lots of little space companies is they own the payload. So we'll continue to look for opportunities there where we can own the payload and really drive the missions. And look, we're always looking at big needle moving stuff as well. And we always look for things that we think have a step change in either scale or other elements of the company. So that's the way we look about this the way we think about it.

Super helpful. And look, when you look out into the market, it's hard not to see what SpaceX is doing in terms of their path towards that end-to-end space solutions. So when you look at your portfolio today, I mean it looks like you're kind of marching in a similar direction with your [indiscernible] product set to and now you've got these additional payloads. Where do you see your role in terms of that industry? Do you, at some point, want to own your own constellation and be able to sell more of that as a service. How do we think about where you are in this journey? And what does the end look like?

Yes. We're just sort of quietly and methodically going about making sure we amass all of the kind of the strategic elements we need to ultimately deploy things at scale. So Neutron is really an important element of that. If you look at others, access to space and low-cost rapid and reliable access to space is kind of the place you start and Neutron gives us that multi-tone capability. And then as you point out, you look at the Space Systems growth then really, at this stage, I don't think there's any satellite we can't go and build. I mean we've got 2 going to mass here shortly. So if you want to talk about complexity of spacecraft.

So I think from an engineering perspective and a component perspective, all of those kind of bases are loaded. And we'll be very strategic about how we think about the next step, which would be building our own constellation and whether we're providing services or infrastructure, I think, is yet to be determined.

The next question comes from Peter Arment with Baird.

Nice results, Pete and Adam, just a quick one, I guess, on Electron, more of the demand environment. I think you've previously talked about the demand for around 30 electronic flights a year. I was wondering if that still kind of holds just given the uplift that we've seen tied to kind of all the national security launches and kind of what's going to be expected with Golden Dome and additional testing if there's upward bias to that. And it certainly seems like it.

Yes, Peter. I mean, look, I think that's fair. If -- depending on how quickly and what scale Golden Dome grows to, I think we're in a very strong position to provide critical services there. And we see nothing but upward trajectory in both government taste and commercial launches for that product.

Appreciate that. And just a quick follow-up. Thanks for the comments on the Archimedes, the testing that you've been doing. Could you give us a little context? Is that much different in terms of the rate that you did originally with the [indiscernible] around Electron?

Yes, it is. It is at a much, much higher intensity in rate because for Rutherford, we only had to do half the job, meaning that we only had to go up -- for our committees, we have to go up and down. So it's like twice the amount of environments, twice the amount of run box and twice the amount of qualification.

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Beck for any closing remarks.

Great. Thanks very much and thanks for the thoughtful questions. So before we close out today, I would like to share that Medco is finishing up his time on the Rocket Lab Board of Directors. Matt's tenure as a member of the Board will end November 30. Matt is a Co-Founder and Managing Partner at a deep tech venture capital firm, DCVC and was one of Rocket Lab's earliest investors serving as a member of the Board since August 2021. And as a member of the legacy Rocket Lab Board since January 2017, so since then, we've been incredibly grateful for his leadership and his guidance as we grew Rocket Lab together from a small startup to a publicly listed company, one of the world's leading global space firms. And look, I just personally also want to thank Matt for backing us from the beginning and wish him all the best, has continued work in deep tech as he transitions out of Rocket Lab.

Otherwise, here are some upcoming events and conferences that the team will be attending. We look forward to sharing more exciting news and updates with you there. And thanks for joining us. That wraps up today's call, and we look forward to speaking with you again soon and sharing some more progress at Rocket Lab.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Rocket Lab Corporation Q2 Earnings Call. [Operator Instructions] Please note that today's event is being recorded. At this time, I would like to turn the conference over to Murielle Baker, Senior Communications Manager. Please go ahead.

Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's Second Quarter 2025 Financial Results. Before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company. And these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act.

Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and 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 Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP.

This call is also being webcast with a supporting presentation and a replay and a copy of the presentation will be available on our website.

Our speakers today are Rocket Lab's Founder and Chief Executive Officer, so Peter Beck as well as Chief Financial Officer, Adam Spice. They will be discussing key business highlights, including updates on our launch in space systems programs, and we will discuss financial highlights and outlook before we finish by taking questions. So with that, let me turn the call over to sir Peter.

Thanks, Murielle, and thanks for everybody joining us today. Look, we have delivered impressive financial results this quarter with another record revenue of $144.5 million, above the high end of our prior guidance and up 36% compared to last year. Our GAAP gross margin expansion exceeded expectations this quarter 2 and the consecutive growth of the company is really exciting to drive. No surprises here that Electron continues to be the leader of the small launch industry. We had 5 launches across the quarter, 2 of them back to back from launch complex 1 in 2 days. Demand for its services is also increasing from different countries with multiple international space agencies signed up for Electron launches this year and next.

We made rapid progress towards the pad with neutral this quarter. Launch Complex 3 is ready for its grand opening, and we've got the first rocket parts on their way to Virginia. More to share across the program in the up and coming slides here. And finally, in Space Systems, our prime contractor status is expanding with our imminent acquisition of Geost. Being able to quickly build and deploy entire satellite systems is the cornerstone of the future U.S. defense strategy, and we're in a prime position to play within those large opportunities within launched spacecraft and now payloads added to our end-to-end capabilities.

So let's get into those details now. We're very close to finalizing our acquisition of Geost, a maker of missile tracking satellites for national security missions. Having cleared through the antitrust review, we're on track for signatures on paper here pretty shortly. I'll let Adam take you through the financial details later. But if there's one thing to take away from this deal, it's adding payloads on top of launch and spacecraft really cements our status as a one-stop shop for national security.

We're really a trusted just -- we're already a trusted disruptor in the launch and prime contractor for Constellation build, and this acquisition adds to our competitive advantage. It will bring an extensive inventory of space-based missile warning sensors and manufacturing facilities in Arizona and Northern Virginia that secures the domestic supply chain of this critical technology for next-generation missile defense initiatives, like the Golden Dome and the SDA constellations.

The $175 billion Golden Dome program could prove to be one of DoD's largest procurements to date, and we're in a great position to capitalize on opportunities here. Our strategic investment and the way that we scale the company to uniquely meet its needs positions us strongly to win either as a prime contractor or even as a sub or even as a component supplier. Our pursuit of the Golden Dome extends just beyond payloads. Across its entire ecosystem, we have the technology and capability ready to serve. We operate the world's most reliable and responsive small launch vehicle, Electron, operating at the fastest cadence of any small launch vehicle in history having just completed its 69th launch.

With our hypersonic testing variant haste, we are revolutionizing the way missile defense technology is tested in a hypersonic environment. A new reusable rocket Neutron perfectly answers the call for a diversified launch of national security and can deploy entire constellations of spacecraft at once to build out the domes proliferated architecture. We've already won more than $0.5 billion contract with the SDA to build and operate a significant piece of their PSA network. So there's a golden opportunity to build upon that here with our existing capability.

And look, the list goes on that, I won't belabor the point. Our advantage is our commercial speed improving execution. The way programs like this have been built in the past, dominated by the large defense primes just won't work the same time -- this time around to meet the administration's urgent time line. And this agility and innovation, vertical integration and on-time delivery and execution. That's why we've delivered time and time again across our programs to date and what we stand ready to deliver for the Golden Dome.

There's no better mission on the box that demonstrates the full depth of our capabilities than the Vector Hays mission for the space force. Across its tactical responses space program, we're the only provider delivering a complete end-to-end launch plus base graft solution. We're bringing the full stack of offerings across the satellite design, component manufacturing, integration and testing flight software, ground mission and launch licensing and the launch itself and on [indiscernible] operations. We own the entire mission life cycle and its capability for national security that very, very few others can provide.

It's also a great demonstration of how commercial capability like ours can be leveraged to bring the concept of response space into operational reality, exactly what the U.S. administration is seeking with Golden Dome. This mission has a 24-hour call-up requirement, which quite frankly, is business as usual for Rocket Lab these days, and we recently cleared the program milestone for Vector Hays that moves us into the final integration and testing phase of our spacecraft for the mission and launch on Electron later is on track for later this year.

Another program with a major milestone tech is our transport layer constellation build for the SDA. The program has signed off our satellite design and approach for manufacturing, which means we can now move into full-scale production of these 18 spacecraft and recognize further revenue from this $515 million program. As this constellation gets underway, we're also preparing for a much larger opportunity within the SDA and its next tranche of satellite contracts. This is where our strategy of bringing key satellite technologies in-house makes us an attractive commercial partner.

Our income in sensor payloads, for example, are also in play for an SDA award and through other bidders. We can control the cost and reduce the schedule risk through our vertical integration in a way that others can't. And we hold the keys to their technology and components that are foundational to these contracts. And finally, for Space Systems. Another strategic area of focus for this past quarter has been in supporting the administration's plans for Mars exploration. It was great to see our $700 million provided for our Mars telecommunications arbiter in its recent but recent budget. The path to Mars for human spaceflight must begin with the ability to communicate there.

And this is something that we've always strongly pushed for. In fact, we were the only company that proposed an independently launched Mars Telecom arbiter as part of the end-to-end Mars sample return mission. So our ambition is clearly in line with the administration's vision for Mars. Much of our technology is already across major Mars missions like NASA InSight Lander, the Engineered helicopter, the cruise stage that [indiscernible] to Mars and of course, our ESCAPADE spacecraft that are ready for launch here soon.

We have got the experience in delivering mission success for Mars exploration and a vertically integrated approach reduces complexity, controls cost and provide schedule certainty, all under a firm fixed price. Now onto Electron. Once again, another busy quarter for Electron as demand and launch cadence continues to soar. The beauty of Electron has been able to choose when we you want to fly. Sometimes for us, that can mean flying in very close succession like the 4 launches and 4 weeks that we saw in June and 2 of those blue just days apart, a record turnaround for us at Launch Complex 1.

We since racked up launched #69 and #7 is scheduled for lift off next week, keeping us on track for 20 or more launches by this year's end. These missions are a great showcase of how quickly we can turn around launches as a manifest demand, with the infrastructure, production and capability to place and support a launch a week as the demand for small dedicated launch continues to expand. The [indiscernible] proven heritage as America's most frequently launched more rocket international space agencies are coming to rely on for access to orbit as well. We signed our first direct launch contract with the European Space Agency this quarter to launch a pair of satellites for the continent's future navigation constellation before the end of this year.

The mission urgency stems from East need to meet spectrum requirements by early '26. But with few domestic rides to space available for them, Electron is stepping up to the task of responsive launch. It's a similar situation faced by another sovereign space agency that came calling for Electron 2. I can't quite reveal the full details of those missions yet, but it's fuel on the fire to Electron's international expansion and leadership as a -- in the smaller market globally.

Now to cap off the list of Space Agency launch contracts. We secured another NASA emission on Electron, the launch early 2026. Time and time again, we've proven Electron to be the premier small launch of NASA science missions and we're looking forward to delivering the same precise orbital deployments that they've come to expect.

Now on to our Neutron update for the quarter. Let's start with a top-down view of where things stand today. We're building more than just FRS Rocket. We're laying the foundation for long-term sustainable program. We know that from experience that building the first one is hard, but building the system that gets you to launch #10 and 20 and beyond is much harder. Most of the capital of any rocket program goes into building out the infrastructure, and we believe we've got all the critical elements in place now.

Our launch in test sites are substantially complete, recovery infrastructure is on track. The Archimedes engine manufacturing line is now capable of knocking out an engine every 11 days, and we believe that we've scaled our operations to be ready to support -- to move into multiple flights a year after the first launch gets off the ground. On the launch vehicle side, the teams are working literally day and night to get Neutron to the pad. We're in a good spot with lots of core elements like the Hungry Hippo, major structures, [indiscernible] staging and qualification, et cetera. It's a green tech Stage 2 flight hardware and its qualification program, the brains of the rocket, like the flight computer and GNC are ready for flight. So lots of green across the vehicle as you'd expect.

There's been lots of action on the regulatory approval front as well. We've been granted our FCC license for neutrons first launch, and the FAA has accepted our launch license application that puts us on track for a launch license to fly from launch complex 3 by the end of the year. We've also had the critical agreements in place to transport flight hardware to the launch site on Wallops Island. You've likely seen a bit of activity on that front around expanding our operations and dredging in the channel. But these are improvements -- these improvements are related to increasing operational flexibility as launch cadence ramps up, it's not a gate to new Neutron's debut.

Importantly, the schedule is not sequential. Everything is happening in parallel and a lot of the progress markers that are underway are still pending are probably going to stay that way up until just before we launch. There are still some risks to retire like propulsion and full integration of Stage 1 testing, which we're taking our time on to make sure we're successful. And when the rocket is on the launch pad. But over the next few slides, I'll take you through the latest engineering updates and lay out the current expectations for the next few months ahead.

Next up, an exciting moment on the path to launch. Neutron flied hardware is on its way to the launch site. Over the past couple of months, we've put the second stage through many, many tests to validate its readiness for launch, having completed its critical testing phase is headed to Launch Complex 3 for final integration in preparation for stage testing at Wallops Island. The large structures that make up the first stage like propellant tanks and trust structures are expected to be on the test stands before they shipped out to the launch site shortly. Once they've completed in a major structural test, they'll progress into a final integration and stage testing.

As we move out of R&D into production for the next rockets in our fleet, our factories are all coming. We've automated the production of the largest composite rocket structures in history with our 90-tonne AFP machine that we installed there last year. We're calling flight parts off the machine now for the Stage 1 barrels and the pellets and allows us to scale efficiently. And we've made long lead commitments for manufacturing equipment that puts us in good place to build 3 vehicles next year.

For our committees, engine testing is accelerating. And this is the most crucial and time-consuming aspect of any rocket development program and always the longest pole in the tent. We're running the engine to full mission duration and the operational test cadence is heading up to 3 or 4 hot flies a day now, 7 days a week as we work diligently through all the engine qualification program. And between hot fires, the team is making improvements and iterating on the design quickly and then getting right back into the next engine test via and on the stand.

We expect these tweaks to -- all the way up to Neutron's debut launch and beyond. For those who are interested, take a look at the latest mission duration [indiscernible] 5 video we just shared.

Moving on to Launch Complex 3. I'm pleased to say that we have an official date for the site opening later this month. The team in Virginia is well and truly into launch pad activation where we closed out the final construction activities. The water dilute system was activated last quarter, and now the team is meticulously making their way through assistant by system to prepare for a static fire operations on the launch mouth once the flight hardware arise.

Launch Complex 3 is set to be a hugely important national asset. There's a space bottleneck at the other federal sites right now, and that shows how important launch site diversity really is. National Security must take priority. And with Neutron onboarded to the CSL program earlier this year, our rocket will be the first to fly for [indiscernible] out of Virginia when we pick up missions under that contract. We'll be cutting the ribbon for launch complex 3 on August 28. We're also opening up a limited number of spaces for retail shareholders to join us on Wallops Island. So I encourage anybody who is interested to check out the details on our website.

All in all, we continue to push extremely hard for [indiscernible] of year launch. We're continuing to run a green light schedule with Neutron, which means every single thing needs to go to plan that they're scheduled to hold, but I also want to stress that we're not going to rush and take stupid risks to get a launch Neutron before it's ready. In the context of the life cycle of the vehicle and the program a couple of months here or there is completely irrelevant. What's really important is performance, reliability, scalability right from the get-go, and there'll be no cutting corners here to just rush to the pad for an arbitral deadline.

I think everybody has heard me say it before. In fact, I'm a little bit impomous for it now. I'm not built to build chat. So with that, I'll hand it off to Adam. He can run through the financial highlights for the quarter.

Great. Thanks, Pete. Second quarter 2025 revenue was a record $144.5 million, which was above the high end of our prior guidance range and reflect significant year-over-year growth of 36%, driven by strong contribution from both business segments. Second quarter revenue increased 17.9% sequentially. Our Space Systems segment delivered $97.9 million in the quarter, reflecting a sequential increase of 12.5% and driven by increased contribution from each of our satellite components businesses.

Our Launch Services segment delivered revenue of $6.6 million, reflecting an increase of 31.1% quarter-on-quarter. Now turning to gross margin. GAAP gross margin for the second quarter was 32.1%, above our prior guidance range of 30% to 32%. Non-GAAP gross margin for the second quarter was 36.9%, which was also above our guidance range of 34% to 36%. The sequential increase in gross margins is primarily due to an increase in Electron ASP paired with favorable mix within our Space Systems business, driven by increased contribution from our higher-margin component sales.

Relatedly, we ended Q2 with production-related headcount of 1,150, up 62% from the prior quarter. Turning to backlog. We ended Q2 2025 with approximately $1 billion of total backlog with launch backlog representing approximately 41% of this and Space Systems 59%. In the quarter, launch backlog continued to take increasing share with promising underlying trends as we convert a very strong pipeline of Neutron, Electron and HASTE opportunities. Space Systems bookings remain lumpy given the timing of increasingly larger needle-moving customer and program opportunities but remains at a healthy level despite a step-up in revenue run rate for the past few quarters.

Upon the anticipated near-term closing of the Geost acquisition and given an increased line of sight to the Mynaric acquisition closing, the composition of backlog will likely skew a bit back in favor of Space Systems and further underpin incremental future growth. We continue to cultivate a healthy pipeline in multi-launch deals and large satellite manufacturing contracts that, as mentioned earlier, can create lumpiness in backlog growth, given the size and complexity of these opportunities.

We expect approximately 58% of current backlog to be recognized as revenues within 12 months. And we continue to get relatively quick turns business that drive top line growth beyond the current quant backlog conversion. Turning to operating expenses. GAAP operating expenses for the second quarter of 2025 and were $106 million, above our guidance range of $96 million to $98 million. Non-GAAP operating expenses for the first quarter were $86.9 million, which was also above our guidance range of $82 million to $84 million.

The sequential increases in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in prototype and headcount-related spending to support our Neutron development program. Specifically, investment has increased to support propulsion as we continue to qualify our committees as well as production mechanical and composite structures ahead of Neutron anticipated inaugural flight later this year.

In R&D specifically, GAAP expenses increased $11 million quarter-on-quarter due to ramping up our commutes production paired with increased expenses related to mechanical systems and composites, I just mentioned. Non-GAAP R&D expenses were up $10.2 million quarter-on-quarter, driven similarly to the GAAP expenses. Q2 ending R&D head count was 935, representing an increase of 12% from the prior quarter. In SG&A, GAAP expenses increased $600,000 quarter-on-quarter due to an increase in nonrecurring transaction costs as we continue to advance a robust pipeline of M&A opportunities partially offset by a step down in stock-based compensation in the quarter.

Non-GAAP SG&A expenses decreased by $200,000 due primarily to a decrease in audit fees, partially offset by increased legal expenses. We are encouraged by our ability to constrain SG&A spending as we look to scale the business more efficiently at this point. Q2 ending SG&A head count was 343, representing an increase of 11% from the prior quarter.

In summary, total second quarter head count was 2,420, up 85% from the prior quarter. Turning to cash. Purchases of property, equipment and capitalized software licenses were $32 million in the second quarter of 2025, an increase of $3.3 million from the $28.7 million in the first quarter as we finalize LC 3 construction activities continue to invest in the engine test facility in Mississippi and make initial investments in the fit out of the return on investment cards. As we continue to invest in Neutron development, testing and scaling production, we expect to maintain elevated capital expenditures leading up to Neutron's first flight.

GAAP operating cash flow was a negative $23.2 million in the second quarter of 2025, compared to a negative $54.2 million in the first quarter. The sequential decline in negative GAAP operating cash flow of $31 million was driven primarily by increased cash receipts from our SDA satellite program. Similar to the CapEx dynamics mentioned earlier, cash consumption will continue to be elevated due to Neutron development, longer lead procurement for SDA, investment in subsequent Neutron tail production and related infrastructure to scale the business beyond our initial test by.

Overall, non-GAAP free cash flow, defined as GAAP operating free cash flow -- sorry, defined as GAAP operating cash flow less purchases of property, equipment and capitalized software in the second quarter of 2025 was a use of $55.3 million compared to a use of $82.9 million in the first quarter. The ending balance of cash, cash equivalents, restricted cash from marketable securities was $754 million as of the end of the second quarter of 2025. The sequential increase in liquidity is due to the at-the-market equity offering that we announced earlier in the year, which generated [indiscernible] million in the second quarter. which in part is intended to fund acquisitions, such as the announced Mynaric acquisition, the Geost acquisition and other targets in a robust M&A pipeline, along with general corporate expenditures and working capital.

We exited Q2 in a strong position to execute on our organic expansion opportunities as well as inorganic options to further vertically integrate our supply chain and grow our strategic capabilities and expand our addressable market consistent with what we have done successfully in the past. Adjusted EBITDA loss was $27.6 million in the second quarter of 2025, better than our guidance range of a $28 million to $30 million loss.

The sequential decrease of $2.4 million of adjusted EBITDA loss was driven by an increase in revenue paired with increased gross margin, partially offset by increased R&D expenses related to Neutron.

With that, let's turn to our guidance for the third quarter of 2025. We expect revenue in the third quarter to range between $145 million and $155 million. We expect a further uptick in both GAAP and non-GAAP gross margins in the third quarter, with GAAP gross margin to range between 35% to 37% and non-GAAP gross margin to range between 39% to 41%. These forecasted GAAP and non-GAAP gross margins reflect improvement in launch ASP and overhead absorption. We expect third quarter GAAP operating expenses to range between $104 million and $109 million and non-GAAP operating expenses to range between $86 million and $91 million.

These modest quarter-on-quarter increases at the midpoint of our guidance are to be driven primarily by continued neutron development, spending across staff costs, prototyping and materials, though the spend is beginning to shift from R&D to Flight II inventory. I'm encouraged given the impressive progress made towards neutrons first flight that we're getting closer to moving beyond the past few years of elevated R&D spend and on the path to generating future meaningful operating leverage and positive cash flow.

We expect third quarter GAAP and non-GAAP net interest expense to be $1.3 million. We expect third quarter adjusted EBITDA loss to range between $21 million and $23 million and basic weighted average common shares outstanding to be approximately 528 million shares, which includes convertible preferred shares of approximately $46 million. Lastly, consistent with last quarter, we believe negative non-GAAP free cash flow in the third quarter will remain at an elevated level, consistent with the prior couple of quarters, excluding any potential offsetting effects of financing under our existing equipment facility.

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

[Operator Instructions] And today's first question comes from Michael Leshock with KeyBanc Capital Markets.

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

Michael, yes. So from a performance perspective perspective, we're very happy. One of the unique things about a reusable launch vehicle is you have a tremendous a number of different environments, the engine has to start and operate in. So normally, you have an ascent profile where there's a couple of throttle points and especially on Stage 1 and it's a fairly simple thing. But of course, we have a reentry burn and a landing burn. So you have to start the engine at different propellent temperatures, different head pressures and all these kinds of things.

So it creates a much enlarged run box or set of conditions that you have to be able to operate the engine and it's much more challenging to do. But from like a basic performance of the engine, we're very happy where it is. And it's -- like I said, it's just a much more complicated qualification program to get through because you're qualifying Ascent and distinct at the same time.

Great. And then shifting to a longer-term question. You've talked about satellite constellation potentially being a long-term opportunity for the company. How close are you to begin working on a constellation of your own? We saw the release of Flatellite earlier this year and the focus of it designed to scale? Is a Rocket Lab constellation something that is being developed or talked about today? Or is it more likely a longer-term opportunity, maybe 5 or more years down the road?

Yes, sure. So we've always -- as you pointed out, we always made our ambitions clear here, and we think that is the power of being an end-to-end space company when you have the ability to build whatever satellite you need and launch it at well, it's a very powerful position to be in. However, I'm also very aware of entrepreneurial drift where someone doesn't finish one thing before they start the next. And while we've been methodically building all of the capabilities and vertically integrating all the satellite components and whatnot we need to be able to do exactly what we want to do until Neutron is finished and flying, that's a key element of being able to deploy a disruptive infrastructure of satellites.

So I wouldn't expect any huge announcements from us on constellations until the big piece of the puzzle, which is Neutron starts to absorb less of our focus.

And our next question is from Erik Rasmussen with Stifel.

Great to hear all the progress, and I'm happy to hear the noise around the dredging seems like there's not really an issue in the near term of getting to your schedule. Just wanted to ask about backlog. And I think a lot of this has continued upon the SDA right now. I know you've also talked about the Golden Dome, but it looks like tranche 3. Maybe just if you could just update us on what your thinking is around potential timing around the RFP process, where Rocket Lab will compete? And at what -- and I guess in the vein of sort of the backlog, at what point will you start to include Neutron into the backlog?

Eric, I'll ask answer some of those, and I'll let Adam answer some as well. But more generally, in backlog, the kind of things that we're chasing now are really large programs. So by nature, these programs are pretty lumpy. SDA is a great example. I think we put ourselves in a very strong position. We're executing against our current SDA contract very strongly. And you've seen us acquire things like Geost that put us in a very strong position to provide solutions that are not plagued by delays and things like that. And also our recent penny acquisitions of things like Mynaric, which are one of the key elements in the SDA program.

So I believe the timing of the announcement is somewhere between September and October for the tranche 3. It's always a little bit opaque as they work -- as the SDA works through those awards, but that's sort of a similar time frame. But at any one point, we're working very large proposals, both government and commercial. And just by their very nature, they take a little bit longer to solidified, but I'll let Adam, maybe if you've got any comments on backlog.

Yes. No, I think, Pete, I think you hit it right. I think, look, we've got diversity in the things that we're chasing. It's easy to focus on something like SDA Tranche 3 because it's kind of a big shiny object that a lot of people are actually chasing. But we've got a lot of diversity in the things that we're going after. And to your question on Neutron's influence on backlog, we do have 3 missions of Neutron in the backlog today. Those were added over the last few quarters.

And I would say that, of course, we expect after a successful flight of Neutron that we -- that will start to gain a lot more momentum because, as you can imagine, launch customers are they're betting a lot when they launch vehicle, and it's a long-term choice, and there are limited choices out there today. So everyone is being very careful about what they do. So we do expect that demand to be kind of unleashed, if you will, once we have a successful test launch.

I would say that the -- if you look across all of our businesses, again, we're starting to see the diversity benefits where if you look at the opportunities we're chasing across our subsystems business across Electron, both commercial, government, HASTE variants, we're seeing strong demand across all of them. So it's just a matter of kind of converging. And if you look at the trend of backlog over the last year, actually launch has been the bright spot, right? We had a huge step-up when we put the SDA tranche 2 award into backlog. And then basically be working against that as we recognize some of that revenue and then launches continue to build in the backlog.

And that's going to continue to -- we believe to be the case once Neutron kind of gets past that next big milestone or achievement of initial launch.

Great. Maybe just sticking with launch and Electron. You already did 11%. It sounds like you have the 12-point coming up pretty soon your seventh launch. What would you say the mix between your traditional Electron launches and maybe HASTE missions in the back half of the year? What does that look like?

Yes. So if you look in our backlog right now, if you look at the mix, we're expecting about -- I think it's 3 of the remaining launches this year will be HASTE missions. So as Pete talked about, we're on path to do at least 20, hopefully, more than 20 launches this year, which will be nice growth of 2024. And so we haven't had any hate launches yet this year. So we're looking at roughly 3 launches and all of them in the back half of the year.

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

Yes, Eric. I mean, I get written every day on that question. The reality is it just takes time to roll in the learnings between flights. So we proved with electron that, that was the right kind of scale up cadence. And if you look historically across Rocket programs, that it's even pretty aggressive. So we'll stick with that $135 million and -- but who knows that at the moment from where we are in the program that feels like the right kind of place to target everything.

Next question is from Andres Sheppard with Credit Suisse.

Andres here from Cantor Fitzgerald. I'm not sure what that was. Congrats on the quarter and all the big great success. I'll limit myself to 2 questions just to be respectful to all the other analysts. Maybe one on space systems and one of launch systems. On the Space Systems, Adam, I'm wondering if you can maybe remind us kind of what does the revenue recognition look like for the SDA tranche 2 awards, both for this year and for next year?

And I know you mentioned, obviously, you're exploring several opportunities. But just to come back to SDA tranche 3 if I'm not mistaken, right, that could potentially be the largest contract in company history. And so how would you characterize maybe the likelihood of success there?

Yes, I can comment on kind of the rev generally for the SDA program, tranche 2 transporter that we have that we're executing against. So these programs typically -- the award was, I believe, in late 2023. And so you get -- typically, when the program kicks off, you're doing a lot of the kind of initial finalizing the design and so forth. So where you really experience the meat of the revenue recognition is when you're actually starting to take possession of the bill of materials to build the satellites with.

So right now, as Pete mentioned, that's what we're kind of getting in now to that sweet spot where we're going full scale production of those vehicles. So we're going to see a ramp in spending -- sorry, a ramp in spending and a ramp in rev rec resultingly from that. So I think that you should expect that revenue will be pretty, I would say, evenly balanced between the second and the third year of the program, with 2025 being the second year in reality and next year is kind of the third year and then it will tail off. So you have kind of tails on either end with most of the revenue recognition in '25 and '26. I mean just if you want to just think broad strokes for contribution in 2025, it's probably -- if you want to think in the order of kind of $150 million to $200 million is the right range to be in.

And then, again, that should look somewhat similar in 2026, assuming that we continue to execute like we have. And then if you look at SDA Tranche 3 tracking, should we be fortunate enough to win that program. As you said, it would be the biggest program by a significant margin that the company has earned to date. And they have a similar profile. I mean there's a chance that there could be some revenue recognized early in the program even as early as some of it later this year. And then you'd have kind of the buildup where 2026 would look for that program would look probably like 2024-ish looked for SDA.

And then you'll have that again, probably 80% of the revenue being recognized within the middle 2 years of the 4-year program. So that's probably the best guidance I can give to you right now on that.

Got it. That's super helpful. And just maybe a quick follow-up, if I may. Maybe one for Pete on the launch systems. After getting closer and closer to Neutron, I'm curious if you're seeing perhaps an uptick from customer demand or prospective customer demand for future flights. Obviously, you have to the track record, the heritage from the Electron and HASTE, Neutron still coming up. But given the -- what you want to call it, the conflicts between the administration and space management team. Just curious if you've seen perhaps an uptick in interest for future Neutron missions. Any color there? Since Neutron essentially will be the only viable alternative to the Falcon 9, right? So just curious on what you're seeing.

Yes. Thanks, Andres. Well, I mean, look, I think the market does need a competitor to the Falcon 9. I think that was very clear, and that was presented to us both from our commercial customers and our government customers. So there's a lot of anticipation and pent-up demand for that vehicle to come to market, and that continues to increase all the time not just from sort of political events or geopolitical events, but also from just large programs being added, things like the Golden Dome, I mean that is going to be one of the largest DoD programs in the country's history.

And they're all spacecraft and space, and they all need to get there. So yes, no, we're seeing growing demand and also I think it's fair to say, realization that sorting out from the real players from the players that are less likely to be able to provide.

The next question is from Ron Epstein with Bank of America.

So Pete, just maybe broadly, when we think about the first launch of Neutron, for you, I mean, just to kind of level set, what a successful launch be?

Ron, well, you're not going to hear some rubbish about just clearing the pads success. That is not. For us, the successful launch of Electron will be successfully getting to orbit and making sure the vehicle is ready to scale. I think you saw us come out of the gate with Electron going to orbit and then straight away 3 emissions after that, successfully delivering customers to orbit. So that will be the definition of success. The bit that we'll be a little bit more flexible on is obviously the reentry and soft landing of the first vehicle. There's a lot to learn there.

We think we've got a good head start, but that's the bit that always requires a bit of iteration. So like I said, we'll declare success when we're in orbit. If we don't soft splash down on the first flight, I think there's a little bit of tolerance there for learning, but apart from that...

Got you. Got you. And then, Adam, maybe what drove the strong electronic ASP in the quarter. And is that a reasonable way to think about electronic pricing going forward?

Well, we've been -- well, there's a few things that drive that, but probably the most I would say, dominant force would be the mix of HASTE in the manifest. So as we've talked about, we -- the HASTE missions require very unique, I'd say, mission assurance and other things, the vehicles are unique and so forth. So that makes sense that the ASP would be significantly higher, but it's really driven primarily by that. I'd say overall, if you look at commercial HASTE -- sorry, commercial Electrons, those trends have been trending up nicely as well. So we really had -- we benefited from the fact that we've got customers coming back and they're doing bulk is of Electrons and the significantly higher ASPs than we've seen in the past.

If you were to rewind the clock 2 or 3 years ago, we would get customers coming that wanted to buy bulk buys, but they were wanting a significant discount to do that. And so in order for us to build the manifest and be able to kind of continue to drive the market, we did that. And I think now we're in a position where we really don't have to accept any significant discounts, and we're getting bulk buys. And I think part of the strength as well is we're getting a lot of support, as Pete mentioned in his comments, from the international community.

Sovereign countries are coming forward with strong demand. And I think it's a testament to the fact that execution in this market is so, so, so difficult. A lot of people can talk about it. They can put spec sheets on web pages and whatever else and pay with user guide. But at the end of the day, we're the only one that has had 69 launches of a small dedicated launcher. And I think right now, we're benefiting from all that hard work and execution. And so we really don't have the distraction of people kind of doing some false pricing in the market to put pressure. I mean now it's pretty clear that execution is key and you got to pay for execution.

Got you. Got you. And then that's actually a nice segue into my last question. When we think about the Mynaric acquisition and Electron adding the European Space Agency, what do you see as potential -- is there a potential European national security opportunity for you guys in space?

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

Our next question comes from Edison Yu with Deutsche Bank.

I wanted to ask, I think, probably it's for Pete, your latest thoughts on orbital transfer vehicles, space tugs. I know there was a bit of a [indiscernible] several years back in that kind of flamed out a bit, but now it seems there's a lot of offerings coming to market, maybe trying to go farther away, bigger. And so is that an area of interest to you? I know you have the kick stage, but when you try to kind of tackle that more directly or more broadly going forward?

Yes, it's a good question. I've novelly understood the business opportunity and the business case for those because you start off with a relatively cheap ride share and you end up with a really expensive delivery. So as you pointed out, we had a couple of starts. So look, if it turns into being a real market, it's completely elementary for us to go after it. I mean we operate at kick stage on the top of electron essentially. And all the components to be able to do it, we have.

So if it turns out to be a real market and a real opportunity, the time that it would take us to deliver a product to market would be extremely short. But at the moment, I just don't see it worth us investing in.

Understood. And then on Electron, I wanted to ask about the TAM and in the context of -- I have this big slide obviously on Golden Dome, hypersonics. Historically, I think the TAM, maybe 30-plus launches, do we think that the TAM now for Electron could be much, much bigger than that, like 50, 60 launches going forward or at some point in the future?

Well, you're talking to a conservative engineer by nature so it's hard for me to get too bullish. But if you just look at some of the programs like the Golden Dome, the amount of testing that that's going to require and the amount of suborbital kind of hypersonic missile stimulants that you're going to need to deploy to be able to validate that system. There's a pretty significant number there that would be required. So in HASTE alone, I think we're expecting that to continue to grow. But year upon year, the TAM continues to grow. And the exciting thing is that Electron is helping to create and open up that TAM.

We see a lot of satellites these days that are made specifically to just fit on Electron, envelope its environment, and it's enabling a lot of stuff. So I think we continue to see the TAM expand, and I think I don't see any sign of that decreasing in the future.

Great. If I could just sneak one housekeeping one on Geost. Any color on how much revenue that could potentially bring in fit closes? And what kind of growth profile or backhaul that has going forward?

Yes, I'll take that one. Look, yes, we can't really say too much about it. It's still a pending acquisition. As Pete mentioned, we got through the antitrust review, which is great. And I think close should be imminent. But we'll hold back any comments and color on that business until we actually own it, if you don't mind.

The next question is from Jeff Van Rhee with Craig Hallum.

I guess, Peter, on Space Systems, when you kind of flesh it out in your mind what you envision Space Systems ultimately being, what percent of the way your vision are we in terms of the capabilities that, that segment currently has?

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

Yes. Helpful. And Adam, on the margins as it relates to Space Systems, just -- correct me if I'm wrong, I think 40% was the target there. You've made some really good progress. Is 4% still the right number? And any sense of a time line or a sense of scope that it might take to get to that 40%?

Yes. There's a pretty wide mix, I would say, of margin profiles within our Space Systems business. you think about the margins on putting together a full turnkey platform solution, they tend to be lower. If you think about those margins kind of if you want to think about the ranges in the in the 20s to 30s, but on the good scale with them because of the size of the contracts that are involved. And actually, those are much better margins than most other people would expect to achieve, and that's because we're so vertically integrated.

Now when you look at the subsystems, we also have a very wide range there. We have some products where the margins are in the 20s, but we have some where margins are well north of 60 points. So if you look at blended average for, I would say, the overall space systems between the weighting. And right now, it's kind of split evenly between subsystems and platforms. And as we start to mix in applications, we'll get even -- it will get different in a good way.

You should think about 40%. We're not that far actually from that target. So I think our target was probably set a little bit on the modest side. So -- but if you think of 40 to 45 points kind of as the real target for margins are, I think that's probably a pretty good place to be. And that can be pretty good as far as contribution to the bottom line because there's not a lot of R&D that goes into those businesses, right? A lot of it is customer-funded R&D. So when you look at the contribution margin, it's very, very healthy.

So again, I think that -- yes, we've been -- we set the bar, we like to kind of set expectations low and kind of overdelivered to those. And I think that we're on the path to do the same thing with our Space Systems business when it comes to margins.

Yes. Very helpful. Maybe last for me. On Peter, you mentioned production, and I missed a little bit of it. But on Neutron, obviously, you're spending a lot of time building scale manufacturing capabilities. Just where are you in terms of of Neutron's now in terms of how many are you initially building? And what is the manufacturing capacity that you're putting up to give us a glimpse in terms of how you're thinking in a number of ships this year, next year, year after?

Yes, sure, sure. So some areas are at a high production rate, like engines, we're pushing for [ one ] engine every 11 days. And it's kind of -- because it's a reusable launch vehicle program, the whole production cycle is literally turned upside down. So we need the most number of vehicles in production at the start of the program rather than sort of ramping and scaling and as you go along. So as we talked about, there's multiple vehicles that we're building even now.

And Stage 1 can be reused 10, 20 times. So you're not actually every year, you're not building that many Stage 1. So the most amount of stage 1s we'll ever build is probably year 2 or 3. Of course, the Stage 2 is expendable, but that's been highly refined for a very, very quick production and low-cost rate. So Yes. I mean, as I said before, sort of 3 stage 1s as next year is the right way to think about it.

Our next question is from Andre Madrid with BTIG.

This is Ned Morgan on for Andrea today. I was just wondering, I've seen a lot of partnerships lately in support of Golden Dome. And I was just wondering if you guys are looking at doing something similar as opposed to doing any M&A.

Yes, it's a good question, Ned. The reality is that we are very, very vertically integrated. And there's still obviously a piece of technology that we partner with, as we've shown on the SDA program. But I guess it's probably slightly less of a need for us to give -- like I say, given our vertical integration and just the breadth of stuff that we've got. We don't need to partner with that many people to deliver a solution.

Okay. Makes sense. And then maybe one more for me. Regarding tranche 3, how different would the upside look if you guys are selected as a prime versus a sub through, for example, Geost?

How do you mean the upside need? What do you mean by that?

If you guys are selected as a prime, I would imagine revenue contribution would be significantly more than as a sub through Geost [indiscernible] bid. So I was just wondering how things would low if...

I can take that that piece. Yes. Basically, if you look at the value of the subsystem that Geost provides, you can think of that as being kind of somewhere around 30% of the total platform value is in the payload. So obviously, it's a much bigger opportunity as the prime that it's just the sub for a subsystem. Now there is the opportunity where you could have a goal situation where you select as the prime, but also Geost was bidding with other primes as well for that opportunity. So there's a range of outcomes there. But yes, certainly, our goal here is to sell at this time.

The next question will come from Kristine Liwag of Morgan Stanley.

Peter, you've been very clear about your disciplined approach to pricing regarding Neutron. And considering the tightness of supply of launch, I'm a little surprised that you still haven't built out a sizable backlog for the program. Can you provide more color on how advanced your discussions are with incremental customers for Neutron what they're waiting for to commit to an order? And how to think about the competitive landscape, especially as you've got a competitor rocket coming into a market that's fairly well capitalized, too?

Kristine, well, I mean, you can split this into both into commercial and government. I mean we were onboarded onto the Unisel program, which obviously is extremely large opportunities on $5.6 billion, if I remember. And then on the commercial side, we've talked about this before. We are -- they want to see a rocket that works before they commit because a lot of people have been burnt signing on vehicles that are either delayed or even in some cases, never turned up. And we've always talked about it as well, is we want to make sure that when we sign one of these customers that consume a large amount of their manifest that they actually turn up on time and all the rest of it.

So we maintain that discipline going through. We -- it does nobody any good to fill up a whole bunch of manifests with a bunch of launches that -- or a bunch of payloads that don't turn up in time and you kind of left holding the bag. So the most important thing, I think, for everybody is we get to the pad and we start launching it and then we'll make the decision, who are the best customers and most reliable customers for us and the customers will make the same decision back. And on competition, I think I'm not sure I quite view that the same way.

And Adam, as a follow-up, you mentioned expectations for elevated cash consumption beyond Neutron's transfer flight as you scale up. How should we think about the capital intensity following this initial launch? And should we still expect 2026 to be a positive free cash flow year?

Yes. Look, I think the cash assumptions will continue after the first launch because as Pete mentioned, we're building the subsequent tails. And so if you think about the cost to build a booster, and I think we've kind of used this, we've communicated this term or this figure before. But you assume around $60 million for a booster, and you're building several of them in series or in parallel in some cases here. You could consume additional capital from that.

The key thing for us is getting through that first test flight. We've gotten the point where we've gotten the infrastructure largely in place. We do have some incremental scaling investments that need to be made such as this return on investment barge that we've talked about. So yes, I mean, I think the business could consume -- continue to get some money through 2026. So I would say, more realistically for, I would say, positive free cash flow, 2026. Again, given how aggressively we're moving forward given the demand signals that we're getting, I think that's probably not likely. I think it's much more likely to be in 2027, but it depends.

We could come across opportunities that generate enough offsetting incoming cash flow that it kind of balances that out. But right now, I'd say, you should think of Neutron as being continued to -- even in a success scenario, in particular, in success scenario, continuing to consume cash as we kind of build out that capability and put the -- all the other scaling infrastructure in place.

Yes. I think it's important, Kristine, to to differentiate that. I believe that the P&L will obviously look much, much better once we get through the initial kind of successful test launch of neutrons. So I think it's important to to separate the kind of the free cash flow from the P&L optics, right? Because I think the P&L does get much, much, much friendlier much sooner. And then I think like a lot of other growth businesses, we're we're going to be continuing to invest to grow, but the P&L should start to look much more attractive. And I think that's -- we're keeping our eye on both, obviously.

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

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

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

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

And then the rest is to be kind of putting the focus a little bit later, but Pete, over to you.

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

The next question is from Ryan Koontz with Needham & Company.

Great. And most of my questions have been answered, but I'll touch on Space Systems that nice progress on gross margins. Obviously, I know you had acquired the solar business and some backlog there that was lower margin. How do you think about that business going forward and have the margins in that business now kind of normalized with new contracts and such that make you comfortable with the vector and continuing to see some uplift on Space Systems.

Well, I take part of the tactics on that one real quickly. So if you actually look at the progress on gross margin for the Solero business, first of all, has been very, very strong. When we acquired that business, we were looking at high single-digit gross margins. And in the first half of 2025, we delivered margins that were above the long-term target that we had set for that business. We set a target of 30%. That business is subject to -- the margin volatility is subject to kind of when some of the -- again, that early contract, which still hasn't completely kind of flowed its way through the books yet, but there's still some to be delivered on that.

And so it's the timing of when that kind of comes in and out of deliveries. But I would say, look, if you just kind of look at where we'll be for the year, we're going to be pretty much spot on our long-term target of 30%. And I think longer term, there's upside to that. And I think more importantly, that deal has really -- or that acquisition has really kind of fulfilled its strategic import of kind of really taking control of a very critical and tricky component in supply chain for being a long-term kind of system provider and owner.

So I think on that front, hopefully, that gives you some color and then I think maybe, Pete, you can speak to maybe the types of opportunities that we see in that business going forward and kind of where you expect margins to land for those?

Yes. Thanks, Adam. Yes. So we continue to expand capability in that business. obviously, you would have seen that we were successful with some chips money, which has enabled us to completely modernize or will enable us to completely modelize the reactor fleet in there and that drives in itself efficiencies and -- but if you look at programs like the Golden Dome, there is an unprecedented amount of spacecraft and power that's needed to fulfill that. And there's 3 space-grade suppliers in the world, and we're currently one of the largest, if not the largest.

So I see a lot of exciting opportunities for that business going forward. I mean, we are one of the permanent providers for national security solar. So that's a pretty exciting future.

Our next question is from Suji Desilva with ROTH Capital.

Adam, can you just remind us or tell us how the Neutron costs will flow maybe from OpEx to COGS. As the first launch goes and whether that might be material to the gross margin, so we could anticipate that as these first few launches go up?

Yes. That's going to be a really challenging thing to model for you guys. I think that -- and that's a function of the fact that the first the test flight, of course, all of that's flowing through R&D, right? And now we're actually starting to -- for the subsequent tails, that's not going to flow through through cost of goods sold with revenue cover associated with it. So the P&L is going to fluctuate quite a bit to the positive, as I mentioned to an earlier question.

Now when you start talking about the reusability and what that introduces to the volatility to margins, you can imagine that as we progress through "hardening" Neutron's reusability, how many reuses will, for example, we'll be able to assume for for amortizing over kind of future missions, that's going to be a great influencer of our gross margin. So you can imagine if the rocket is only kind of assumed initially to do x number of reuses, but it actually surpasses that or comes in underneath that, you're going to have a lot of volatility because you got to have a situation where we have a fully amortized booster with all the revenue going forward on it or you could have made assumptions where you expect to apply a certain number of times and it under kind of achieved to that.

And so you have a lot of incremental costs for future missions that weren't assumed. So it's going to be a tough one to manage. I think that the only thing that we can really point to is a bit different because it wasn't designed to be reasonable from the outset was Electron. And we've been able to bring down Electron costs dramatically, right? And that's without reusability. So we have a track record of successfully kind of scaling and bringing down costs as we've talked about many, many times, another big influence to gross margins is overhead absorption.

So I suspect that Neutron will be a little bit different, but not fundamentally different from the fact that what's going to drive its gross margins is going to be cadence, right? So it's reusing cadence. But Cadence is something that we, again, we saw, we understand how that works with Electron, the huge benefits you get when you get the cadence up, and that's going to be a large driving factor for Neutron as well. again, also coupled with our success in getting this vehicle to be reasonable as quickly as possible and for as long as [indiscernible].

Okay. Great. And we'll get my one [indiscernible]. And the other question I have is on payloads. Is Geost kind of your entree here? Do you have efforts in-house for payloads as well as this inorganic effort? Or will that segment be grown through inorganic exclusively?

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

The next question is from Anthony Valentini with Goldman Sachs.

I'm just curious if -- I recognize you guys are laser-focused on Neutron here. But is there any reason to think that you guys would introduce a new launch vehicle in the future that is either larger than Neutron or maybe even in between Electron and Neutron in terms of the capacity that it can take into orbit?

Yes. Good question, Anthony. So certainly not -- we don't really believe there's really a market between the Electron and Neutron side. It's very limited opportunity in that range. Now if we need to go larger, I guess, the good news is that the vehicle is very scalable. It's a 7-meter diameter Stage 1 tank. So it's a very short dumpy vehicle. So typically, that's what governs your ability to increase the vehicle sizes, your tank dimed otherwise you end up with big long skinny pencils. and that becomes challenging.

So we have no intentions at this point in time. We think we've got the market accurately sized and we've proven historically that we are not bad at making those kind of calls. But for whatever reason, the market drastically moved to a larger scale, we have a vehicle architecture that is very easy to scale.

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

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

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

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rocket Lab Acquires Geost Investor Presentation. [Operator Instructions]

I would now like to turn the conference over to Murielle Baker, Senior Communications Manager. You may begin.

Thank you. Hello, and welcome to today's conference call to discuss today's announced proposed acquisition of Geost.

As a reminder, today's call will include forward-looking statements regarding our future business performance and the expected timing and completion of the proposed transaction as well as the potential financial impact to Rocket Lab. These statements include risks and uncertainties that could cause our actual results to differ materially from the statements made on this call. Please refer to our press release today and our recent filings with the SEC for information on specific risk factors.

Comments made during today's call will primarily refer to both GAAP and non-GAAP financial measures. And any forward-looking statements are made as of today, and Rocket Lab has no obligation to update or revise any forward-looking statements.

This call is also being webcast with a supporting presentation, and a replay and copy of the presentation will be available on our website.

Our speakers today are Rocket Lab Founder and Chief Executive Officer, Sir Peter Beck; as well as Chief Financial Officer, Adam Spice.

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

Thanks, Murielle, and thanks for everybody joining us today.

Look, I'm pleased to announce that Rocket Lab and Geost, LLC have today signed a definitive agreement under which Rocket Lab will acquire Geost from Lightridge Solutions, a portfolio company from ATL Partners, in a cash plus equity transaction amounting $275 million, plus a potential $50 million revenue-based earn-out. I'm very excited to say that with this deal, Rocket Lab will officially enter the payload market as a disruptive prime contractor to U.S. national security.

Our acquisition of Geost will bring onboard critical technology and payloads that are relied upon by the Department of Defense for missile warning and tracking tactical intelligence and surveillance and reconnaissance as well as earth observation and space domain awareness. That now primes us to deliver the complete stack of mission-critical hardware for U.S. national security missions and opens up significant potential to reshape our business.

Our track record with past acquisitions has shown that we have the resource, scale and expertise to transform critical subscale satellite technology into readily available product lines for our customers, and we fully intend to do the same with Geost's technology.

Over the next few slides, I will take you through strategic rationale for the acquisition and review Geost's products and market potential, after which Adam will cover the financial profile of the transaction.

Rocket Lab is already a trusted contractor to the U.S. national security missions across multiple launches and constellation spacecraft. With Rocket's satellites and payloads, we are uniquely positioned to be a disruptive prime contractor, delivering a completely uncompromised solution for national security quickly and economically.

Flagship programs like the Space Development Agency's Tracking Layer and the Golden Dome for America's missile defense have developed from a mandate to move fast and put next-generation space capabilities into the hands of people who defend the nation.

We are already a trusted and relied upon launch provider to the Pentagon with our 3 rockets across dedicated small launch, hypersonic flight test and soon-to-be medium-lift launch for the DoD's highest priority national security missions.

In spacecraft manufacturing and operation, we're a prime contractor to the Space Development Agency's proliferated LEO constellation with a $0.5 billion contract that puts us in charge of the design, development, production, test and operation of the agency's next-generation satellites.

We'll also deliver tactically responsive spacecraft and launch vehicles for the U.S. Space Force's Space Systems Command, supporting their ability to respond to on-orbit threats on very short time lines for the up-and-coming VICTUS HAZE mission. And now, with our acquisition of Geost, we move into payloads to offer a complete end-to-end solution aimed at disrupting the industry, and it really is a logical addition to our vertically integrated national security offering and the next natural step for Rocket Lab.

Geost's products are elegantly engineered solutions that integrates seamlessly into our business and our mission. Geost's compact high-performance electro-optical and infrared systems for small satellites, otherwise known as EO and IR payloads, enable key capabilities that directly support our national security and intelligence customers.

For ISR with Geost payloads, we're able to deliver real-time intelligence from orbit, whether for global missile warning, tactical battlefield awareness or multi-orbit surveillance, the technology is optimized for rapid deployment and cost-effective scaling and is ideal for delivering critical data with speed, clarity and confidence.

And for mission autonomy, through this acquisition, we're bringing AI and machine learned-enabled technologies in-house to better support national security missions. Geost systems can detect threats, assess intent and initiate responses without human input. And that level of autonomy is a centerpiece of satellites highly valued by the defense and intelligence communities.

In the space industry, heritage is everything. It's critical. As we bring on a new payload capability, we will focus on finding a company with products that deliver best-in-class solutions to the industry. We believe we found that in Geost, and it's clear that the Pentagon and federal agencies think the same.

Between Rocket Lab and Geost, we share many of the same defense, intelligence and national security customers. And adding Geost payloads on top of our launch and spacecraft offering means that the U.S. government operators and our commercial customers will benefit from a more fully integrated suite of solutions to support their mission objectives.

We're not just bringing on critical technology with fantastic heritage. We're also adding a roster of industry leaders committed to the mission with decades of experience that will deepen our executive bench and expand our technical expertise.

The acquisition of Geost will bring with it clean rooms, laboratories and an expanded factory in Tucson, Arizona and Northern Virginia that broadens our already expansive footprint in the United States. And importantly, too, it shores up U.S. domestic supply of payload sensors designed, made and built and operated in America.

And with that, I'll turn it over to Adam to dig into the specifics of the transaction.

Thanks, Pete. As disclosed in our press release from earlier today, Rocket Lab has entered into a definitive agreement to acquire Geost for $275 million, in a mix of $125 million of cash and $150 million in privately placed shares of Rocket Lab common stock, plus up to $50 million in potential additional cash earn-out payments tied to revenue targets in 2026 and in 2027. We're well positioned to close out this acquisition with ample cash and cash equivalents of $517 million as of the end of Q1 2025, and we have the ability to access the capital markets should we choose to.

This acquisition unites our respective company's backlog of exciting contract and pipeline opportunities across a range of common U.S. government national security programs. In particular, there are significant near-term growth opportunities as it relates to the upcoming Space Development Agency's Tranche 3 procurement that will develop and deploy more than 50 missile tracking and missile defense satellites for its proliferated constellation across 3 awards.

Tranche 3 builds upon the agency's Tranche 1 and Tranche 2 constellation contracts for which Rocket Lab is already a prime contractor on the Tranche 2 Transport Layer.

Bringing Geost into the Rocket Lab portfolio, along with our previously announced planned acquisition of Mynaric, creates a more fulsome end-to-end mission solution to benefit our SDA customer. This also positions us to be a competitive provider for the Golden Dome missile defense system, a high-priority initiative by the current administration, with a total projected value of up to $175 billion. The President's recent announcement made it clear that there is a strong emphasis on utilizing efficient and fast providers, which positions us well to capture these opportunities.

Since the GAAP purchase price accounting analysis has just begun, we cannot speak to any GAAP forecast measures at this time, but we do expect this business to be neutral to modestly accretive to adjusted EBITDA in the second half of the year.

The acquisition is subject to normal and customary closing conditions, including antitrust review with the Federal Trade Commission and Department of Justice. The deal has been approved by the Boards of Directors of both Rocket Lab and Geost and is not subject to Rocket Lab shareholder approval. The deal is expected to close in the second half of 2025.

And with that, I'll turn it back to Pete for some closing remarks.

Thanks, Adam. And before we wrap up the call, if you're interested in more information about this acquisition, please reach out to our Investor Relations and Communications team. Those contact details are available on today's press release. Otherwise, thanks very much for joining today's call. We look forward to speaking with you again in the future and talking about all the exciting progress that has been made in our business. Thanks very much.

This concludes today's conference. You may now disconnect.