Rocket Lab Stock

Good day, and thank you for standing by. Welcome to the Rocket Lab Corporation Q2 Earnings Call. Please be advised that today's conference is being recorded. [Operator Instructions].

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

Hello, and welcome to today's conference call to discuss Rocket Lab's Second 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 and 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 Officer, Sir Peter Beck; as well as Chief Financial Officer, Adam Spice. They will be discussing key business highlights, including updates on our launch, spaces and programs as well as our pending acquisition of Iridium Communications. 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.

It's been another exceptional quarter for Rocket Lab, with some great wins after the close. We achieved a record $234 million in Q2 revenue, up almost $90 million or 62% versus the same quarter last year. That's a $34 million increase over last quarter's record revenue. The launch, demand is extreme. In Q2 and since the end of the quarter closed, we've signed more than $437 million in bookings for Electron, Haste and Neutron. This includes a record $266 million contract for up to 18 subtle emissions for the Space Force, our largest launch contract ever.

Also, we've seen a massive surge in Space Systems contracts with more than $581 million signed in Q2 and post quarter. We ended the quarter with a $2.36 billion in backlog and across launch in Space Systems, we've signed more than $1 billion in new contracts across Q2 and the period since the quarter closed.

It was also a milestone quarter for strategic acquisitions, having closed Mynaric and [ models ] and of course, announcing our intentions to acquire Iridium, which will accelerate our future and space applications and involve Rocket Lab into a fully integrated space powerhouse. So with that, welcome to the beginning of our new space applications era.

Our pending Iridium acquisition is a strategic move that will combine Rocket Lab's launch capability and satellite manufacturing with Iridium's global satellite communications network and rear spectrum. In short, Rocket Lab will become a self-launching Tier 1 space power, delivering critical communications capability to millions of users worldwide. For years, we've talked about the space value chain in 3 key verticals. The first is access to space, and we have that with launch. The second is the hardware to do things in space once you're there. That's the satellites and their components, and we have this too. The third and final vertical is space applications, the entire reason for going to space in the first place. This is part of the space economy that provides data services to millions of people on earth and deliver strong reoccurring revenue. With Iridium, Rocket Lab will have all 3 of these verticals.

I've long since said that the most successful space companies will be the ones that have the keys to space, i.e., can build and launch their own satellites. Rocket Lab is one of only 2 companies capable of this now. By acquiring Iridium, we were accelerator entrants into the space applications market. It will take a decade or more to build out a constellation from scratch.

With Iridium, we are starting with a constellation of 66 satellites relied upon by more than 2.5 million subscribers and delivering more than $870 million in annual revenue this past year. That's an incredibly strong foundation on which we intend to build we won't simply continue Iridium's network. We will expand upon it and scale it into untapped markets and pioneer new space-based services.

Since the transaction is not yet closed, we are still only on the integration and growth planning stages. There are, however, some obvious areas to focus on, and these are aligned with the growth plans that Iridium has already shared. That includes expanding capabilities in IoT, direct-to-device and advanced P&P defense and national security as well as aviation and marine safety. We can also introduce efficiencies and streamline the deployment of new infrastructure by building and launching our own spacecraft, limiting the costs and risks associated with third parties. We will fast track our ability to deliver new and advanced capabilities. It's through these growth areas that Rocket Lab will put already in spectrum to more effective use extracting substantially greater capacity and throughput from the same finite spectrum allocation. We are immensely excited at what the future holds once Iridium is part of the Rocket Lab family.

For now, we are steadily working through the customary closing conditions, including approval of Iridium stockholders and all the regulatory review processes. The transaction is expected to be completed in mid-2027 to the extent that we are able, we look forward to sharing updates throughout that process.

Okay, on to some space systems updates. Q2 and the weeks after, so us awarded significant contracts across base systems, including a $397 million contract to build and launch multiple flat-lie spacecraft for the space force space-based airborne moving target indicator program. This program is a high priority for the Department of War and it seeks to establish a satellite network to track aircraft, mettle and airborne threats globally.

And another example of our end-to-end space strategy bearing fruit. Neutron will be launching this mission. Satellite is our high-performance, low-profile spacecraft designed for rapid production and optimized for launch, enabling us to deploy large volumes from Neutron and from other launch vehicles. There has been significant interest in flat-lie from commercial and government customers since we first announced it last year. So it's exciting for it to make its debut with such an important program.

On to the next contract win, we signed 2 deals totaling more than $160 million to build 3 geostationary satellites, including a prime contract with the Space Systems Command to build Tudo satellites for space domain awareness. What's more, they will incorporate our Heimdall payload from our recently acquired company, Geost, once again highlighting the success of our vertical integration strategy. Rocket Lab is no stranger to building satellites for lower orbit and interplanetary missions, but these contracts are our first step into the government geostationary satellite market. It's an exciting expansion.

We don't just win contracts, we execute on them. There's no better mission that demonstrates that than our record-breaking results for the VICTUS HAZE mission in Q2. The mission from Space Force was clear, launched an electron orbit in just 24 hours, we did this in 16 hours and 42 minutes, a new record. We also designed and built the satellite that it launched. The space force gave us 72 hours to commission that spacecraft on orbit. We did it in 38. Then we had 84 hours to track, chase and photograph a noncooperative satellite, we did it in less than 59. VICTUS HAZE was the first time that the space force had ever seen a single prime contractor deliver the Rocket, the spacecraft and orbit operations for the same technically responsive space mission.

For Rocket Lab to deliver all 3 and with record-breaking results demonstrates the advanced capabilities that we're delivering to the Pentagon at a time when space is a key strategic priority. And finally, Rocket Lab is very clearly a space leader in the U.S, but recently, we deepened our roots in Europe with the acquisition of Mynaric. Whenever Rocket Lab makes an acquisition, we don't just carry on running it. We streamline it, introduce efficiencies, scale production and, in many cases, introduce new capabilities. We're planning to do just that with the official establishment of Rocket Lab, Germany.

There's a real opportunity here for us to establish a regional hub for Constellation class manufacturing as well as full-scale spacecraft assembly integration and test. This will enable Rocket Lab to serve commercial, civil and defense base programs as a domestic European provider, a growing presence there also represents an opportunity to address Europe's launch deficit by bringing a mission tested launch partner to the region to eliminate space access bottlenecks. Europe faces clearing gaps across both launch and spacecraft manufacturing. Rocket Lab Germany aims to address this directly, providing the region with new domestic strength in a rapidly evolving new space era.

That wraps up the Space Systems for the quarter, let's move on to launch. There's been huge demand driving record numbers across new contracts and launch backlog more than $437 million in Q2 and post quarter and 26 new launches that grew our backlog to 90-plus launches after the quarter, our highest in history. Operationally, electron and haste continue to lead the industry on small launch. We're at 13 launches this year with 100% mission success and on track to beat last year's launch tally Net has signed on for 3 electron launches across 2 missions next year.

Commercial Constellation customer QPS, has signed on for another 3 launches. This is the third time they've done a bulk buy in less than a year, taking the total number of launches with us to and we've had a confidential defense prime sign up for a prepare Haste launches in 2027. Haste rapid repeatable flight cadence was the clincher for that deal. Our suburb launch capability anchors our largest loan contracts to date, a $266 million contract from the space force for up to 18 missile defense launches. We bid our legacy defense primes for this contract, and it's a second multiyear multi-launch Department award deal for suborbital missions in 5 months.

These lunches will mostly fly out of our new launch location in Kodiak, Alaska, which opens up Pacific access for Missile Defense testing for our government partner. There's now 6 Rocket Lab launch pads across 3 launch sites, giving us unmatched geographical flexibility for all mission types. Speaking of our new launch location, it's time to introduce Ghost.

We've mastered the art of building launch sites. Now we're making the deployable worldwide. Our 2 new pads in Alaska will be deployed using our Ghost containerized deployable launch site technology. Electronics revolutionized small orbital launch and hypersonic testing. Now we're making it easier to deploy them wherever they needed most, whether that's at the missile defense testing or sovereign orbital launch capability.

With Ghost, we deliver the Rocket launch infrastructure, ground support and range control systems and shipping containers establishing launch capability and new locations on rapid time lines. It's easy to promise mobile or deployed launch systems. It's quite another to have the proven rockets, launch sites and contracts to back them up. Once again, Rocket lab is not just talking about it. We're delivering the real capability for real missions.

Now on to Neutron. It's been another really big quarter of testing and integration for Neutron. Every part of the vehicle has now seen significant testing. As with any complex development program, we've had to tweak a few things along the way, but we're moving now into final checkout and assembly of all of our flight hardware before integrating them at the pad.

First up, Stage 1. We pulled the new barrels and homes of the AFP for the Stage 1 tank and are moving those into assembly. For the end state, new panels are also into the flight assembly after qualification load tests were completed recently. Production currently lines up with the target delivery of Neutron to the paid in Q4 2026. While the window for an end year launch is narrowing, the work we're doing now is about risk trading, balancing the timing of our first launch against how quickly and seamlessly we can scale at tenth launch. Our focus is on the bigger picture and making sure that when Neutron flies and into service as a system ready for full-scale production and high cadence launch.

For Stage 2, the team is completing the install of flight avionics and Fluid Systems before it's out the door to launch complex 3. Once that arise in Virginia will be doing the integrated fluids sitting and running the flight avionics suite to validate Stage 2s end-to-end performance before we add the our committees vacuum engine. That way, we did risk some of the elements early and avoided added time to the schedule.

The next section of the rocket at [ LCI ] will be Neutron's thrust module. The ancillary teams have been installed and the fluid systems in [ Aviles ] integration is finishing up now. Similar story here as well. After the install of the fluids and the Avionics will be taking the thrust module through the integrated systems test on the pad because the module is the only physical interface between the launch vehicle and the launch mount running this test before we integrate the thrust module with Stage 1, lets us derisk how the full vehicle will interact with the pad once everything else arrives.

Down at Stennis, we're heading off into the final stretch of Arkema's engine testing. We've completed more than 400 hot fires across both Stage 1 engines and Stage 2 vacuum engines. We're early testing was all about the fundamentals like power level, mix ratio control and achieving duration. Now it's about durability and the stuff that really met it for a reusable engine.

We've been intentionally running engines for extended time to prove its margins beyond what they need for a successful flight as well as repeated cycles to understand how durable the engines are after multiple restarts and uses. With confidence in the engine, we're already into production with a full engine set for new [ TransFirst ] launch. Once we formally complete qualification, those flight engines will go straight into an acceptance test program at Stent before they're sent up to LCI for integration with a thrust module.

And now to Hungry Hippo. The team has been busy integrating control surfaces, avionics and fluid systems and its thermal protection system and soon, we'll be getting into preflight testing with the most innovative part of Neutron. Once that's done, Hungry Hippo is essentially finished and ready for launch. The next step will be donated to the end of stage when it arrives, and then that will bring us one step closer to having a full vehicle at the launch pad.

Out of development and into new contracts. As we rush closer to first launch, we're seeing huge demand for neutrons early flights. Like I've mentioned earlier, we've been newly awarded a dedicated neutron launch contract for the space force for their space-based airborne moving targets program. This mission is a strong indicator of the trust that the government has in Neutron to support the most critical national security programs.

And then on the commercial side, today, we announced a dedicated launch for Kepler Communications to deliver their next set of satellites to lower orbit. That mission will expand the capacity of their network with honor but compute, optical comms and hosted payloads. And it's the first time Kepler has booked an entire rocket for their constellation rather than ride share. Again, another strong signal of the expectation for Neutron to become the industry's alternate ride space for medium missions.

To understand the momentum behind neutron, you have to look at the broader launch landscape today. Launch has never been so constrained the Pentagon is accelerating procurement for its top priority programs, like we've seen with the NECL Lane 1 tripling its ceiling from $5.6 billion to $17 billion. Military spending in Europe has increased and sovereign launch remains a hot topic globally, too. The truth is that if you want to book a launch now or especially after 2029, the options are extremely limited. Rocket Lab is uniquely positioned in this sense. We have a proven track record with Electron and Haste and customers know we develop and scale reliable launch vehicles, which is why they're coming to us now and locking in neutron slots early. Neutron is going to help unblock the industry's bottleneck, giving operators a reliable capacity than they need for years to come. That wraps up the operational highlights.

Now over to Adam for the financial overview and outlook.

Thanks, Pete. Second quarter 2026 revenue was a record $234 million, which was within our prior guidance range and reflects significant year-over-year growth of 62% and 16.8% sequentially and driven by strong contribution from both business segments. Our Space Systems segment delivered $189.5 million in the quarter, reflecting a sequential increase of 38.6%. This growth was primarily driven by increased contribution from our satellite manufacturing business, along with initial contribution from our Mynaric acquisition, which closed in the quarter.

Our Space Systems business continues to perform exceptionally well and provides comforting diversification alongside our robust, but at times won't be launched business. Meanwhile, our Launch Services segment generated revenue of $44.6 million this quarter, representing a 30% decrease compared to the previous quarter despite completing a similar number of launches. This decline is primarily attributable to a shift in the revenue mix between our point-in-time electron business and our overtime Haste business.

This quarter was somewhat atypical for our launch operations as we launched haste missions for which a significant portion of revenue had already been recognized in prior periods under the overtime accounting method. In contrast, revenue from Electron emissions is recognized at the point of time of launch.

Now turning to gross margin. GAAP gross margin for the second quarter was 36.1%, above our prior guidance range of 33% to 35%. Non-GAAP gross margin for the second quarter was 41.5%, which was also above our prior guidance range of 38% to 40%. Key drivers to gross margin this quarter include a shift mix within our Space Systems business to our slightly lower gross margin satellite platforms business and initial contributions from our Mynaric acquisition, which similar to prior acquisitions, will need some time to benefit from integration synergies and applying the Rocket Lab operating system and its related scale advantages. Additionally, we recorded a nonrecurring benefit from tariff refunds which was largely offset by an inventory reserve against our new light launch vehicle. Relatedly, we ended Q2 with production related head count of 1,688, up 240 for the prior quarter.

Turning to backlog. We ended Q2 2026 with approximately $2.36 billion in total backlog, with launch backlog accounting for approximately 40% and Space Systems representing 60%. While bookings across base systems of launch can be inherently lumpy due to the timing of increasingly larger high-impact program opportunities. Backlog continues to hold at healthy levels despite the step-up in revenue run rate recognition over the past few quarters.

We continue to see a strong pipeline that includes multi-launch agreements and large satellite manufacturing contracts across government and commercial programs. Notably, subsequent to the quarter end, we signed a significant volume of contracts within Space Systems and launch across all vehicles, which will be reflected in our Q3 backlog and further strengthen our momentum across the business. Looking ahead, we expect approximately 45.5% of our current backlog to convert into 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 second quarter of 2026 were $142.1 million, within our guidance range of $138 million to $144 million. Non-GAAP operating expenses for the second quarter were $115.7 million, which was below our guidance range of $120 million to $126 million. In R&D specifically, GAAP expenses increased $1.9 million quarter-over-quarter, while non-GAAP expenses rose $830,000. These increases were primarily due to incorporating minor expenses as that acquisition closed in the quarter.

Q2 ending R&D head count was 1,087, representing an increase of [ 108 ] for the prior quarter. In SG&A, GAAP expenses increased $7.7 million quarter-over-quarter, while non-GAAP expenses increased $9.8 million quarter-over-quarter. The increase in SG&A was primarily due to incorporating Mynaric expenses again, as that acquisition closed in the quarter. Q2 ending SG&A head count was 442, representing an increase of 61 from the prior quarter. In summary, total headcount at the end of the second quarter was 3,217, up 439 heads from the prior quarter.

Turning to cash. Purchases of property, equipment and capitalized software licenses were $26 million in the second quarter of 2026, a decrease of $1 million from the $27.1 million in the first quarter. We continue to invest in Neutron, particularly for the return on investment recovery barge as well as launch and test infrastructure investments. 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 second quarter was a loss of $0.08 per share compared to a loss of $0.07 per share in the first quarter. The sequential decline in GAAP EPS primarily reflects the inclusion of Mynaric's results after the acquisition closed, including amortization of in-table assets acquired. GAAP operating cash flow was a use of $84.1 million in the second quarter of 2026 compared to a use of $50.3 million in the first quarter.

Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to neutron development and new troncal production as we scale the business beyond the initial test flight and as we procure longer lead items for our SDA programs. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow less purchases of property, equipment and capitalized software in the second quarter of 2026, was a use of $110.1 million compared to a use of $77.4 million in the first quarter.

The ending balance of cash, cash equivalents, restricted cash and marketable securities was roughly $2.4 billion at the end of the second 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 $1.08 billion during the quarter before it was subsequently terminated. These funds are intended to support acquisitions such as the recently announced Iridium acquisition as well as other targets in a robust M&A pipeline, alongside general corporate expenditures and working capital.

We exited Q2 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 have done successfully in the past. Adjusted EBITDA loss for the second quarter of 2026 was $8.8 million, which was well below our guidance range of $20 million to $26 million of loss. The sequential improvement of $2.9 million in adjusted EBITDA loss was largely driven by higher revenue and strong gross margin.

With that, let's turn to our guidance for the third quarter of 2026. We expect revenue in the second quarter to range between $250 million and $265 million, representing 10% quarter-over-quarter revenue growth at the midpoint. We anticipate GAAP gross margin to range between 29% to 31% and non-GAAP gross margin to range between 35% to 37%. These forecasted GAAP and non-GAAP gross margins are accounting for a shift in mix within our Space Systems business, and we expect a beneficial remixing impact on gross margins as we look beyond Q3.

We expect third quarter GAAP operating expenses to range between $143 million and $149 million, and non-GAAP operating expenses to range between $121 million and $127 million. The quarter-over-quarter increases are 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 to flight to inventory, which is an encouraging sign of progress as we move closer to new transfer flight.

We expect third quarter net interest income to be $21 million, which is generally a function of higher cash balances. We expect third quarter adjusted EBITDA loss to range between $17 million and $23 million, and basic weighted average common shares outstanding to be approximately 641 million shares.

Lastly, consistent with prior quarters, we expect negative non-GAAP free cash flow in the third 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 the quarter.

In summary, Q2 was another quarter of strong execution. We continue to see exceptional revenue growth across the business, 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 scales exceptionally 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]. Our first question comes from Andres Sheppard with Cantor Fitzgerald.

Congratulations on the quarter and all the great progress. Maybe one on Neutron and one on Iridium. So on Neutron, it's great to see all the recent progress. I guess I want to maybe move past the first launch and talk about scale. In the past, you've given us some cadence on neutron first launches. But I guess my question there is how quickly do we think we could potentially get to 10 launches in additional scale? Is there a possibility to perhaps accelerate the ramp-up process? And then finally, with the space industry still significantly constrained on the launch side, how are you thinking about ASPs going forward? Is there an opportunity perhaps to increase ASPs, both of neutron and maybe electron and haste as well?

Yes, Andrew, good to chat to you. So thanks for the question. So with respect to Neutron, I guess one of the questions that I think people should be asking us is Obviously, the first flight is extremely important, but what about Flight 10 because that's probably the -- in my -- apart from first flight, the second most important thing. And how quickly we can scale into cadence is absolutely critical. So I think as we are kind of working forward with the vehicle right now and the way we're thinking about things is it's not just to get to the pad quickly for Flight 1. Of course, we all want that no 1 more than but it's really about how do we get to Flight 10 in the shortest time possible.

So for us, that's really all about reusability and we're constantly trading the time lines and the qualification criteria for the various systems and subsystems to get to the pad on for Flight 1, but also making sure that when it comes to Flight 10 that we'd have to go back and requalify things. So there's a constant kind of assessment along that way. And I think our ramp that we've sort of explained to everyone is a 135 ramp, and that's been kind of educated from what we did with Electron.

But for Neutron, it really is all about reusability. And the more robust we can fall into reusability, then the faster we can scale it. And clearly, you've seen the strain in the launch industry right now and the need, not just for new vehicles, but new vehicles at cadence. So I guess that that's how we're sort of balancing all those things. And I'll let Adam comment on the ASP.

Yes. No. Look, I think on the ASPs, it's really a function of what's going on in the broader kind of launch market. we brought -- sorry, new tran to market with a $50 million to $55 million ASP with a commitment really not to do any significant discounting for early launches. And we've stuck to that. We feel very good, though, about where the market is from a supply versus demand perspective. And I think right now, the view is that we see more upside to ASPs and certainly anything that are down or sideways. So I think we feel good. I think it's left us room to move pricing as demand continues to firm up. And again, I think there's probably more upside in that mix than the downside.

Excellent. Thank you both really appreciate all that color. And maybe just a quick one on Iridium. So Peter, you touched on it a little bit in your prepared remarks, but just wondering if you can maybe elaborate a bit further on the overall combined strategy, what new opportunities does Iridium unlock both through vertical integration and with their 60-plus constellation? What new awards and opportunities can you now pursue? And maybe separately, how will you ultimately think about assigning neutron launches to Iridium's new Constellation and new customers?

Yes. Thanks. So I mean, obviously, we're very excited about it. I think there's a lot of obvious I think I've always been very clear that the large space companies of the future are going to have the ability to launch their own satellites that they've built themselves on their own rocket. I think that's very clearly demonstrated as being superior. So that's obviously really exciting. We've got a lot of areas that we think we can grow that business. And if you look at the cost of what it costs Iridium to put up the initial constellation and we sit here with the -- on the back of an envelope and what we could do it for now. It's pretty stark. And obviously, a good way. So we think there's lots of opportunities. there.

And then no, I think your point is right. We also -- as we're thinking about neutrons capacity in this environment where demand is extreme -- we need to obviously serve the commercial market. We need to make sure that we have some launches left for our government customer as we've been onboarded onto the NSL program. And we also need to make sure we have capacity for ourselves because ultimately, our intention here will be to improve that constellation. So it's all a bit of a juggling act for sure.

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

Great Peter, on Iridium for a second, just obviously, they come in, they bring some real nice profitability and a presence in the applications market, which you want. They bring slower growth, and I know you've been pretty impressive with previous acquisitions, particularly on margins. But here, you're going to have to really try to reaccelerate or accelerate that top line. Like what are the lowest hanging fruit, so to speak, in terms of things that you can do over the shorter to intermediate term to accelerate their top line?

Yes. It's a great question. So firstly, it's a quite essential Rocket lab deal and the fact that we're not buying a big hole in our P&L, as you point out, right? So they bring some nice profitability and the constellation itself is good into 2035. And there's -- and you also pointed out correctly that it's a relatively slow-growing business. But for us, as we think about some of the initiatives that they've already embarked on to grow, I think we can supercharge those especially in the area of P&T and with a relatively modest tweak to a constellation add a whole bunch more capability.

But also I think it puts us in a totally different position from the perspective of some of our government customers. Because previously, we can go along to our government customer and they give us full credit that we can design and build launch vehicles and you jump on a rocket lab launch vehicle, and you have no concern about getting to all. But also, the same goes for building spacecraft. I think we've demonstrated we can build anything from a low earth orbit comms bird through to something that goes to Mars.

But where it gets a little bit tricky for us is to put our hand in our heart and say, well, we can do a mission-critical life-critical constellation and provide services and manage all that. credibly before an Iridium acquisition, we couldn't do that. So I think we turn up to a government customer and commercial customers to that sense with just a whole new set of toolkits and capabilities that really sets us out from everybody else really apart from one other provider in the market. So I think that in itself provides a lot of opportunity. Our focus is rightly so with the acquisition from day 1 will be growth, growth, growth.

Yes. Makes sense. One last for me on cost. Very interesting. Talk a bit more about that, what infrastructure is needed at the site? It sounds like you bring a lot. There's clearly going to be some things that have to be there. But I'm particularly interested in kind of what business can or will this capture that you couldn't otherwise capture? And really, what was the genesis of the idea?

Yes, it was really a request from a customer. They have very important needs for the HAE program and to be able to service those needs. We need to be able to be a little bit more mobile than we are. So it's not a -- maybe we'll build it and someone will be interested in that capability. We're definitely directed to that capability. And we don't need a lot that we've built 3 pads for electron to date. And the 1 thing I'll say that with Neutron that what used to feel like big pieces of steel feels on electron scale, feels like very small piece pieces of steel now. So to move on to paid infrastructure around on Electron scale is really quite arbitrary for us at this point.

Our next question comes from Trevor Walsh with Citizens.

Great. Peter, maybe just a follow-up or pack on the growth question. Should we there ways we should think about the price per launch or the revenue per launch and then maybe the cost structure around those now got enabled launches as compared to an electron launch or even a haste launch? I know I think case, you were able to charge more. So just curious as you do more of these got capability launches, if that's going to kind of change the financial profile a little bit of those.

Yes. Look, I think, obviously, these are Haste's missions. That's happening out of the West Coast. So I think you should look at pricing to be pretty consistent with what we've been showing on has. I think overall, again, as this type of mission becomes more strategic and important, particularly if certain elements of gold and dumb continue to proliferate the way many thing that they will, there'll be more demand for these types of things.

So it feels like we could be in the early phase of Haste demand. I think certainly, we've seen great demand and great backlog build in the last few quarters. But as that continues, again, we think we're in a very enviable spot with regard to unique capabilities to deliver these kind of missions for the government customer. And we also think there's international opportunities as well. So if haste kind of behaves like other parts of the Electron portfolio where ASPs have gone up pretty significantly over the years, we could be looking at the same kind of opportunity for haste across both our Virginia pad the new pads in Alaska and then, of course, even opportunities from New Zealand.

Great. . Perfect. And then maybe 1 quick follow-up for semi related. For the new Kodiak site, is there going to be a step-up in CapEx kind of associated with that that's maybe not already accounted for? How should we think about that in terms of the comments you've made around CapEx kind of for the balance of the year?

Yes. No, there's some CapEx required for that. But again, as Pete was mentioning, in the context of what we've been dealing with Neutron, it's relatively in the noise and the contracts that we engage with have some CapEx funding in them. yes, they'll show up in a CapEx increase, but they're funded under that agreement to a large part.

Our next question comes from Edison Yu with Deutsche Bank.

Want to come back on Iridium. And I'm curious, I know you mentioned technically, you can't run until mid-2030s, but how are you thinking about the timing and sort of the potential synergies you might have with the next gen constellation? And then obviously, the landscape is going to change a lot. by 2035. So is the idea to actually deploy the next-gen constellation sooner?

Yes, Edison. So you're right in the fact that the landscape for direct to mobile and to services from Internet from space is going to change a lot. But one of the really nice things that we liked about the Iridium kind of business model is these are L-bands. So rain and weather penetrating indoors penetrating spectrum because novel spectrum is the same as I'm sure you're aware. And just the safety, critical and stickiness of the current application. So I guess I'm less concerned about I'm happy to let the larger players fight over some of those Internet and space type markets. Meanwhile, we think what Iridium has with -- in particular with the L-band spectrum is very important today, but actually going to be more important in the future. So I guess the landscape for me doesn't look vastly different. And I think it's also too early to quantificate about a new constellation now clearly, the whole point of this is that we are a self-launching machine now. So there will be a constellation, but I don't think we're ready to talk about exactly what that's going to be right just this early. .

Understood, understood. Separate topic. You obviously won several pretty big satellite awards flat you have the GEO award. Maybe it's for Adam, any sense on the timing of the ramp of these contracts? Are these fairly linear? Or are these going to be a bit more lumpy?

Yes. No, I think our contracts, again, on the government side are pretty typical. I mean these programs are the ones that last for, call it, 4 years and the kind of [ 10, 40, 40, 10 ] kind of curve is still looking to be approximately right. Each program is a little bit different, but I think that's a good way to model it going forward.

Our next question comes from Jan Engelbrecht with Baird.

Congrats on another set of great results. I think I'll start with the spacecraft components supply chain as a whole. Just obviously, you guys benefit internally just given your vertical integration. But as other companies and customers of yours start to try and ramp up their satellite constellations. And if you just look at some of these components, reaction wheels, laser terminals, coder panels, thrusters, where do you guys sort of see the biggest opportunity across those components? And what's the capacity like looking at your factories today versus over the next couple of years as loans cadence picks up and as more satellites going to orbit.

Thanks for the question because I think people think of launch is a big moat and launch. Yes, launch is a really, really big moat. But equally well, spacecraft components is a big moat because if you just turn up in the industry and say, 11,000 reaction wheels, then your chances are getting them are almost 0. And unless you come to perhaps us. So I think we've built a decent sense of scale within all of the components businesses. But I very much look at it as a motion. I think probably when some of the analysts that have been on with us here for a long time when we first announced like an old solar company in Albuqurque, you are thinking what on earth is pet on. But you can see now that we've scaled that to being the largest space-grade solar manufacturer in the world. And every single satellite needs solar and tremendous amounts of it. So I think the components element continues to grow year after year. And as more constellations and more spacecraft come into production, that only continues to grow for us.

Yes. And I would add to that, that being a component provider on a merchant level is interesting. It's a growing business for us. Most of those products have very nice margins associated with them. it's more strategic than that for us because really, what we do is we're looking to -- as you look at the growth that we had on the program side of things, that's really enabled to a large part because we're able to eliminate margin stacking and just be that much more competitive in going after these large strategic programs.

So the ability to basically take advantage of the scale as a merchant provider and then further use that internally to be more competitive on these large, bigger programs, as you've seen us be successful in closing on that's really kind of where the magic all comes together. It's more than just kind of playing in a healthy merchant component market. It's really about kind of feeding and enabling this much more strategic capability building part of our platforms business.

Perfect. Thanks, Peter. A quick follow-up, if I may. Just returning to the haste contract, the $266 million contract. Are you guys sort of going to break out the cost between sort of launch and actually building the pad because I think if you just look at the 18 launches then it implies sort of a $50 million sort of ASP, which I don't think is potentially correct. Maybe there's some launch infrastructure that's being funded as part of the contract, but maybe just on has as a whole ASPs and then just sort of how we -- what's the negotiations looking with commercial customers? Because I think in May, you guys booked your first contract with Andre. But what's sort of the follow-on, what's that look like on haste for commercial customers specifically?

Yes. So on -- you're absolutely right. There is a bunch of stuff that's mixed into that the overall [ $266 ] million contract value. I mentioned earlier, I think when the question was asked, there is some funding in there for infrastructure. So I mean, obviously, these launches will come through when we recognize the revenue based on the standalone price for those launches. there'll be separate revenue with regards to continuing operations and so forth. And of course, the infrastructure build-out will show up in incremental CapEx spend and then depreciation and amortization, I would say, overall, nothing that you see in that contract will change the way that the margin profile of that haste business, which is actually coming along quite nicely, if you look in the overall scheme of kind of Electron and Haste.

So yes, I don't see any difference there. And on the commercial side of haste, maybe Pete, do you want to speak to that?

Yes.No. Certainly seeing more interest. And as some of the these larger defense programs come to fruition. Has really proven itself as the go-to solution there. So yes, plenty of interest in conversations and stuff going on there.

Our next question comes from Erik Rasmussen with Stifel.

Maybe my first on Iridium. I know it's still early days. You outlined a few target markets. Initially, they're looking to go after the narrowband IoT services. But at what point or would there be an opportunity maybe to look at the broadband layer? And if so, what would that entail if that's a route that you wanted to go down?

Yes, Erik. I mean it's the wrong kind of spectrum for broadband. I mean, the L-band spectrum has very unique advantages to it than some of the more broadband spectrum. And I've learned to never say never. But I think the 2 most wealthiest people in the world are going after that, and that's quite a challenge to go and compete. But we see value in other places where you could have the most amount of spend spectrum you want and the most amount of satellites you want. But if you don't have an L-band spectrum, there's going to be certain things that you just can't do.

Got you. Okay. And then maybe just, Adam, you talked about Mynaric gross margins being pressured initially, where are the margins today in that business? And what's the target margin profile? And when do you think you might get to that framework that time frame to get to that target profile?

Yes. Look, I think the gross margins for Mynaric coming out of the gate, they're always going to be a little bit lower. I mean I think that, as people know, that asset had some challenges, had some supply chain issues went through an insolvency process, and so we're in the process of building that back up. I would say that if you think about where I can't really comment because it's been less than really a quarter that we've owned the business. So I don't want to go into too many details on where gross margins are falling out. . We're still doing some work there.

But going forward, we think this business will really kind of look in line with the rest of our Space Systems kind of merchant business. It may take us a few quarters to get there. I think you may recall because you've been along on this journey for quite some time. When we acquired Solero, the margins were quite challenged, called high single digits, and we were able to get that in line with our overall target for the business. This won't take nearly that long.

This is one where we've been able to take relatively decisive action on understanding what needs to be done to get the margins up. We're also facing increased volumes in that business over the next several quarters. So we have a combination of revenue growth and some cost efficiencies that are really going to get the business into fighting shape relatively quickly.

Our next question comes from Alex Potter with Piper Sandler.

This is Ben Johnson online for Alex Potter. I guess first question is, can you guys just kind of walk through the big milestones that you view as the highest risk to getting neutron to the pad in 4Q?

Yes, Ben, probably the stage testing is always the thing that gets your adrenal and running because you have fully fueled vehicles on the pad. And you're igniting the engines for the first time. And I think you can also see for another space company that when it doesn't go well, it really doesn't go well. So I think that's always the last big milestone before flight. And then depending on how much granular detail you want to go into then there's a decreasing series of kind of important milestones. But once you see some stuff rolling outside that looks completely finished and doing tests, I think those are good pointers.

Great. And then my second question is on -- so you previously talked about the benefits of establishing a footprint in Europe, with the Mynaric deal. What are some of the initial green shoots you've seen? Can you elaborate on the interest you've seen from customers in Europe? And is that primarily on the satellite or launch side?

Yes, Europe is a really interesting market. It's typically been extremely kind of sheltered. But with the kind of the recent geopolitical tensions, all of the European nations are looking for sovereignty. And a good example, more recently, as Germany had put over $40 billion in place for our satellite missile warning system along with other things. And typically, that would have been outsourced to other nations.

So even in that alone, that's an area that Rocket Lab has tremendous experience and capabilities. So the challenge, of course, being that Europe generally hasn't got a lot of these capabilities. So they sort of need a lot of help to get there. And then on launch itself, we'll see. But I mean, clearly, Europe really only has a couple of launch vehicles that are launching relatively infrequently. And if you're trying to build whole constellations of systems, then you might need some help with launches also.

Our next question comes from Kristine Liwag with Morgan Stanley.

I just wanted to follow up on free cash flow. Can you provide more color on the higher expected cash burn in the quarter? How much of this was driven by higher-than-expected neutron development cost versus acceleration of inventory to support future launches?

Yes. Well, you've pretty much hit the nail on the head, Christine. So a significant amount of the spend or cash flow consumption in the quarter was driven by building out the subsequent tails for Neutron, right? So were least can imagine and Pete talked earlier about the importance of getting to rate quickly. And so for the parts of the rocket that we think are at low risk to needing some kind of a change as a result of the result of the first test launch later this year, hopefully.

That really is kind of informing what we're building ahead on. And then I would say also the Mynaric acquisition, I mentioned earlier, it had some supply chain challenges and so forth. And so we basically had to replenish that supply chain, and that was part of the step-up in the quarter as well, but we think we have that well in hand now. So that should be in a much more normal place. So it's really a combination of the neutron tail build-out plus getting Mynaric kind of talked back into shape and firing all cylinders.

Great. And just following up on Neutron then with the order that you're able to receive with the ASP that you are targeting, does this team that we should expect more acceleration of neutron orders, especially as you get closer to the test flight? And also, and I just wanted to follow up on my free cash flow question earlier. How should we think about the cadence of free cash flow through the rest of the year? And when is this 2Q to the peak in low-fee cash outflow?

Yes. I'll let Pete talk to the Neutron.

Yes, Kristine, I would say with Neutron, we are being very strategic and very thoughtful about our sales there. We have -- as we've discussed, we have a 135 and hopefully, we'll do a lot better than that. But we have commercial customers already signed. We have government customers you saw in SSL nearly tripling their budget for CSL launch, so we need to make sure that we've got capacity for that customer. And as I talked before, we have got our own aspirations and needs -- so I've personally never seen launch so constrained in pretty much ever. other which providers are backing off and focusing on their own needs as well. So the amount of launch that's left in the industry is really, really tight. So for us, it's been very thoughtful about which customers we sign up to at this point on going forward.

And then coming back to the free cash flow question. It's still very much a function of the timing of the first successful test launch of Neutron, right? We've been pretty consistent in pointing towards -- that will be the real turning point where we go to adjusted EBITDA positivity in the quarter after that, that event happens.

But then we've also been pretty clear that it's going to probably be 18 to 24 months after that pivot that we get to cash flow positivity because we'll have to continue to invest in a fleet of tails to build out for neutrons. So I think that's really -- I'd say those are kind of the 2 most driving factors.

Now, of course, pending the closing of the Iridium acquisition, the table gets reset pretty significantly, right? So as we've talked about, that business generates pretty significant free cash flow. So I think we'll have a lot of things to update folks on once we get closer to the timing of that closing that deal. But on a stand-alone kind of rocket let basis, it really is driven by the neutral on test timing.

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

A question for you, Adam, on Space Systems in terms of -- any kind of color on product mix you have for us there in the June quarter as well as kind of how we think about Tranche 2 and Tranche 3 timing in the second half. And then maybe reflect on the gross margin mix, apart from Mynaric. That would be great

Yes, Jeff. So mix is always difficult to kind of predict too far in advance. We have turns businesses plus we have these programmatic satellite platform businesses. I would say that there was little bit less of the, I would say, the more mature merchant products within the mix in kind of, I would say, a little bit in Q2 and actually pointing towards some of the weakness in margin in Q3, we have a pretty wide range of margins in our Space Systems business.

We have some component solutions such as solar that are always going to be more towards the lower end, call that in the kind of -- and then if you look towards some of the product areas, they can be more kind of north of 70 points of gross margin. So they're pretty big spread there within the portfolio. And then again, towards the lower end in the mix but greater in magnitude of the composition is really the satellite platforms business.

And you mentioned the biggest pieces of our backlog today are for SDA Tranche 2 and Tranche 3. And again, those are more kind of in the mid-30s, right? So I think right now, it's -- each quarter is going to be driven really by kind of the mix of how much of that higher-end component portfolio ships versus how much we have in these programmatic programs which those are relatively straightforward to model. But what you can't model as much is, again, is the components part of business.

Our next question comes from Gautam Khanna with TD Securities.

I was curious on the demand side for Neutron, do you still expect kind of a surge of orders once the first step line goes successfully? And I was curious, also, just given your large competitor is matching a much larger vehicle. Does that give you any concern on industry capacity maybe 3 or 4 years from now? And the demand for neutral. If you could just comment on that?

Yes, sure. Thanks very much. It's a good question. So I think pretest like post test flight, I would say neutron demand is just not concerned. Now naturally, I think everybody will be more comfortable with buying neutrons post test flight, but we've had absolutely 0 issues in selling full price neutrons pretest flights. So I don't see that making a huge difference.

Now with respect to launch capacity going forward, I don't want to sound too negative here, but I don't see that changing any time soon either. Because even as new capacity comes on market from some competitors, a lot of that capacity is already spoken for, for their own internal programs. whether it be Internet or AI data things or whatever, like it's a fair chunk of that capacity is already spoken for. So I see this constrained launch market persisting for quite some time.

Our next question comes from Andre Madrid with BTIG. You may proceed.

This is Ned Morgan on for Andre. I was just wondering, could we get an update on the Mars Telecommunications Orbiter program, just wondering how well you guys are positioned to win there and how we should think about timing and contribution.

Yes. Thanks, Ned. I'd like an update too. So we're waiting for [ Venetto ] go through their procurement process. So hopefully, it would be great to hear this month. or thereabouts. But I think we're positioned well. There's very few folks that can demonstrate the level of capability and experience that we have. So we feel strongly positioned. But we just have to unfortunately wait for Nessa to work through the procurement process.

Got it. And a follow-up, after the successful launch of Neutron, how soon should we expect to see the MSSL task orders come through? I saw the upsized contract?

Yes. That's sort of control as well. I would say that you've seen them add a whole bunch more resources into that contract vehicle. So they have sort of set periods where they release those contracts. But I think the government along with others are hotly anticipating new trams arrival for sure.

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

I wanted to ask maybe a bigger picture. Are you in a conversation with customers about potential orbital data center opportunities whether that's as a merchant supplier or something else, I know higher efficiency solar panels are an important part of generating enough power for some of these plans that are out there. and you have that capacity already. Is data centers in space a real opportunity for Rocket Lab? Or is it too early to tell?

No, I think it's a real opportunity. I guess I'm still a little bit cautious on the scale in which they may be a thing. You've certainly seen us release new solar cells that are specifically targeted to that kind of application. So we're taking the opportunity seriously. And there's -- obviously, we -- there's a lot of folks that are looking at that fairly deeply. So I think if they turn out to be a real thing, I think we'll be pretty deeply entrenched and well positioned to capitalize it. Is Rocket Lab going out and build a whole or data centers. Well, I think not yet, that's for sure.

Okay. Great. And then just on M&A, do you still expect to be pretty active there going forward post Iridium -- and if so, are there any specific parts of the business you're targeting? Is that still Space Systems primarily? Or any updated thoughts on the M&A pipeline?

Yes. I mean, I think it's likely that you'll see some tuck-ins from us. I think the -- as the right things come along, we'll always be active. But I would encourage everybody to think of Iridium as not the endpoint from a applications play. I think it's really the starting point. We don't want to be known as like the L-band tricky communications company. Our intentions are much more grounded than that. But what it does do is it shows an ability for us to go and buy off a big piece and also use in time, we'll be able to demonstrate using the full machine where we can build our own satellites and launch them and be a self-licking ice cream. So I think, yes, people should not assume that, that Iridium is a one and done.

Our next question comes from Suji Desilva with ROTH Capital.

Congrats on the progress -- sorry I bring it back when is here. Just, Adam, at this point, Pete, the electron order customer base is very, very comfortable ordering. I'm wondering when in the 135 Neutron sequence, do you think customers get to that? I mean I don't know if it's just with the first launch, but you clearly have customers that are ahead of that and preordering, but when in the sequence does it start to feel more normal in terms of ordering and comfort?

Suji, it almost feels like that now, to be honest with you, as I mentioned before, we have a very limited supply of neutrons coming out of the gate, and we have to be very, very careful with where we put those. So I think the demand for the vehicle is already very high. So I don't know them might feel differently, but it doesn't feel like we're millimoles away from there already.

Actually, I'm actually pleasantly surprised kind of where we are in the cycle right now. I mean, to have the kind of backlog that we have on Neutron for a vehicle that's not flown yet, I think that shows a pretty strong endorsement. It's -- certainly, I think the market is saying it's -- from a customer perspective, is not saying if it's more when.

And I think Pete has been pretty clear, I think, through the communications today and earlier that a significant portion of Neutron down the road is going to be used to service our own demand, right? So I think we also be very mindful that we don't want to sell all of the capacity out for many, many years forward kind of without taking into consideration what we need to do, not only for Radium's needs. But as Pete said, this is the first step of many for us in the applications vein. So we need to make sure that we we're really leveraging Neutron to its greatest strategic extent, which it's going to be a great vehicle for the market. It's going to be great for adding more capacity in a capacity-constrained market. But this is going to be an incredible strategic enabler for us. And so we want to make sure we don't squander that opportunity and give too much of that capacity way too early to other people.

Got it. Great. That makes sense, customers have confidence in your execution given your history there. And then the other question, Pete, is on fatalite, I'm just curious, can you remind us the unique features of flatline and congrats on that government win. Is there opportunities there outside of government commercial? Or just how to think about flat light as a market opportunity for it.

Thanks, it for asking that question because that's actually -- I mean, -- this last quarter, I think there's 2 kind of really big takeaways. One, we now also build geo satellites. And I know that the geo market is not particularly an exciting market as compared to what it used to be. But actually, it's a very, very unique capability. So to be able to build low-earth orbit satellites mass satellites, geo satellites and then have our first flat light order, I think, shows a real breadth of skill and ability and capability. But the flat light is designed as a high cadence, a large number of satellites per launch vehicle Constellation builder. And I'm just so thrilled that their first customer for that is actually a really important U.S. government program. It really speaks to the confidence that the customer has after doing the due diligence of everybody in that flat like product. And that flat product once we start building them for that customer, that is a huge advantage for commercial customers as well who want that kind of thing. But candidly, for us as well, I mean, most of the stuff that I see in the future that Rocket Lab will do for itself will be built on the back of a slate platform.

Thank you. And this concludes the conference. Thank you for your participation. You may now disconnect.

Hi, and welcome to the Rocket Lab Investor Update. My name is Peter Beck. I'm the CEO of Rocket Lab. It's a very exciting time for us. We're going to talk today about Rocket Lab's acquisition of Iridium. The lawyers always make me say this stuff, so there's a whole bunch of legal stuff here. Please read that in your own time, and we'll get on with it.

First, I want to introduce you to the space application equation. Now look, we've talked a very long time about Rocket Lab entering applications and the things we might or we might not do. But a space application is particularly powerful when you have your own ability to launch and build your own spacecraft. But even when you have that, there's still some very specific challenges to building a really successful and large application.

The first thing, especially if you're talking about communications is you have to have spectrum. You need really global spectrum. The second thing is it takes a long time to design and build satellites and of course, then launch them and deploy them before you even generate your first $1 of revenue. And then finally, it's a long time to build and establish a business model, establish a customer base and actually get that sustained recurring revenue that everybody wants. But we think we found a little bit of a shortcut here. So I'm really excited today to announce that Rocket Lab is acquiring Iridium Communications. This will be one of the most transformative deals in the space industry. It combines Rocket Lab's launch capability and satellite manufacturing with Iridium's global satellite communications network and its rare spectrum.

Rocket Lab will become a fully integrated self-launching space superpower, delivering critical communications capability to millions of users worldwide. So for those of you who aren't familiar with the Iridium network, it's a truly unique global network. It delivers continuous pole-to-pole global communication coverage to every ocean, every mountain and every airway in the entire planet. Iridium is critical to the people and the systems that just can't lose signal. Pilots, mariners, first responders, governments, critical infrastructure and remote sensors operating at the ends of the earth. Enabled by L-band spectrum, rare, finite and valuable low-frequency signals that deliver reliable, always-on connectivity even in the most remote and harsh conditions. Its ability to work through all weather and in gaps where other bands don't reach makes it mission-critical for millions of people.

Now Iridium are the original space pioneers, which is great because that gives us an incredibly strong foundation to build upon. The Iridium constellation has 66 fully operational satellites with 14 on-orbit spares. Of course, we've talked about their extremely valuable L-band spectrum. They have over $800 million of annual revenue. Of course, extremely profitable. Over 2.5 million users, 1,000 team members. Last but not least, they are the trusted supplier and partner for mission-critical services on Earth today. So this is why we think this is the ultimate combination of all of us for growth. The equation that comes to mind is not 1+1=2 , it's 1+1=3. Firstly, on the Rocket Lab side, we have uncontested launch. We have spacecraft manufacturing. We're highly vertically integrated and we're trusted government partners. And we're a proven space disruptor.

And then on the Iridium side of the equation, obviously, they operate an incredibly important unique constellation today. They have highly valuable spectrum, which is very difficult to come by. They have millions of customers. And of course, they're a trusted government provider, too, and a very strong cash flow. This is not a cash-losing business. And then finally, the reason why this equals 3 is the result of this is it creates a self-launching company that can deliver new constellations and new services to the world. So I want to spend a little bit of time talking about spectrum because that word is used a lot, and I'm not sure everybody truly understands the importance. But if you want to do large-scale communications globally, you must have spectrum. And for us, this deal really enables us to accelerate our entry into this market. Spectrum is a very, very scarce resource that you can't just pick up on the corner one day.

And finally, not all spectrum is the same. And the reason why the Iridium spectrum is incredibly important to us is that it is global and it is L-band. And L-band is important because if you want to do safety critical comms, you need that band to penetrate through weather and harsh conditions. It is a band that ensures that you can always be connected. So following on to that, if you want to do big things in space, you need spectrum. And as you can see, the others on this list have arrived at the same conclusion as us.

One of the things that Rocket Lab is known for is really smart deals, and this is the quintessential Rocket Lab deal. We're not investing in hopes and dreams. We're not pushing all the chips into the center of the table. We are doing another really smart deal. We're buying capability that ensures that it is accretive to the bottom line. This is a highly profitable business. If you look at the customer base and what this business does, it's all about mission success, and that's what we're about to.

Now we're not just going to acquire this business. We are going to apply the Rocket Lab magic to it. We're going to absorb it and optimize it and scale it into something really truly fantastic. This represents an accelerated entry into a giant new TAM for Rocket Lab. Our future in space applications has just been unlocked and accelerated. This is our entrance into reoccurring application revenue from space, but it is not the finish line.

Rather than simply continuing Iridium's network, we will build upon it and scale it into untapped markets and pioneer new space-based services. So you've heard from me about why this is such a transformative deal for Rocket Lab. But I want to throw it over to Matt, the CEO of Iridium, to hear his words about why it's such a great deal for Iridium too. Thank you, Peter.

This is an exciting day in the long and productive history of Iridium, where over the years, we've built one of the most successful and important service platforms in space. As Pete said, millions of people every day around the world depend on our services to track, manage and communicate with assets in all kinds of industries, including aircraft, ships and to protect critical infrastructure.

We built a successful, growing, profitable platform in space and have attracted many hundreds of companies to take us to market in their most important applications. We're now focused on driving growth in unique and important areas like aviation safety, trusted time and location to protect and augment GPS, IoT, where we're the leader in evolving to the new era of direct-to-device standards as well as supporting the U.S. and other governments in their national security missions.

Combining Rocket Lab is the best way for us to take our experience and success into the future of the space business. Being part of an industry-leading launch and satellite provider will create a global space powerhouse, vertically integrated to innovate and succeed long term in this fast-growing industry. Together, we believe we can cost effectively launch, operate and sustain new services like the plans we envision for our next-generation PNT service or expand on our Aireon business by transforming the way pilots communicate with air traffic controllers. And we believe we can do it faster and make the business case work better as well.

We think our long experience complements Rocket Lab's well and makes the combination a real force to be reckoned with going forward. There are a lot of reasons to be excited about the future of the space industry. We think the most successful will be able to bring all the pieces together. That's what today represents, Iridium combining forces with Rocket Lab to create a fully integrated self-launching global space power. It's a great day, and we can't wait to be part of this. Now over to you, Adam.

Thanks, Matt. Now turning to the key transaction terms for this transformational acquisition. Under the terms of the definitive agreement, Rocket Lab will acquire Iridium for $54 per share in a combination of cash and stock, implying an enterprise value of approximately $8 billion. The consideration consists of $27 per share in cash and a number of shares in Rocket Lab common stock calculated using an exchange ratio that moves within a defined collar. The stock portion is sized around a reference price of $84.54, with a floor at $67.50 on the downside and a cap at $112 on the upside. This collar structure lets the share component adjust within this band if the stock moves before closing, keeping overall value balanced and the mix of cash and stock preserves our balance sheet integrity and capacity and maintains flexibility to optimize for cost of capital.

In conjunction with this transaction, we have secured commitments for a $3.6 billion, 364-day secured bridge facility from Deutsche Bank and Wells Fargo Bank. Unless replaced or reduced prior to closing, the bridge facility will be available to refinance approximately $2.1 billion of outstanding Iridium debt, which is adjusted for Iridium's recently announced Aireon transaction. The remaining $1.5 billion from the bridge, combined with approximately $1.6 billion from our own balance sheet will be available to pay the cash portion of the consideration and related fees. This financing strategy ensures we maintain financial flexibility to continue executing on our organic and inorganic growth initiatives across both our Launch and Space Systems segments.

The transaction has been unanimously approved by the Boards of Directors of both Iridium and Rocket Lab and is expected to close in 2027, subject to customary closing conditions, including approval by Iridium stockholders and regulatory approvals.

Now turning to the financial impact of this acquisition. In fiscal year 2025, Iridium generated $871 million in revenue and delivered 57% operating earnings before interest, taxes, depreciation and amortization margins. To that end, we believe this transaction will be significantly accretive to Rocket Lab's cash flow generation and profitability. These impressive and meaningful levels of revenue and profitability contribution are expected to materially transform Rocket Lab's financial profile.

This acquisition fundamentally enhances our business model by combining our strong satellite subsystems, satellite platforms and launch businesses with Iridium's proven cash-generating satellite services business. The result will be a high-growth, financially robust company with significant cash flow generation to fund future growth initiatives across the platform.

Now I'll hand it back to Pete to wrap things up.

Thanks, Adam. And finally, as you can see, our future in space has just been accelerated and unlocked. It's an exciting day for everybody, but now it's time to get to work.

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.