Peter Beck: 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've flown more than 800 of those engines successfully to space. So we'll be bringing the same level of reliability and rigour to Archimedes. Beyond the stage one 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 fires, 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. LC3 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, includes seeing more hardware making its way to the launch site. We will be conducting extensive testing of flight hardware, and then obviously that'll 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.
Adam Spice: 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 system 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 non-linearity 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 and launch services more than offset the declines in space systems, generating $75.9 million in revenue, representing an 85% quarter-by-quarter increase due to the increase from four to seven launches during the period, including one HAST mission. On a full year basis, 2025 revenue was $602 million, an impressive 38% growth year-on-year. Now turning to gross margin. Gap 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-per-quarter. Non-gap 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 to 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've 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 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 in 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 SDA Tranche 3 Tracking Layer 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 de-risk revenue growth for several years. We continue to cultivate a strong pipeline that includes multi-launch agreements across Electron, HAST, 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 three 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 operating expenses, GAAP operating expenses for the fourth quarter of 2025 were $119.3 million, below our guidance range of $122 to $128 million. Non-GAAP operating expenses for the fourth quarter were $104.5 million, which were also below our guidance range of $107 to $113 million. The sequential increase 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 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, gap expenses increased $8.1 million quarter over quarter, while non-gap expenses rose $7.7 million. These increases were driven by the ramp up of Archimedes production and testing, along with higher expenditures related to composite structures and fluids, as just mentioned. Q4 ending R&D headcount was 1,012, representing a decrease of seven 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 headcount was 389, representing an increase of four from the prior quarter. In summary, total headcount 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, 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 LC3 in Wallace, 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 GOST acquisition purchase price accountings. 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 lead 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 was approximately $1.1 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 Monarch 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 general corporate expenditures and working capital. We exited Q4 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 fourth quarter of 2025 was $17.4 million, which was below our guidance range of $23 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 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 slipdown in both GAAP and non-GAAP gross margins in the first quarter, with GAAP gross margin to range between 34% to 36% and non-GAAP gross margin to range between 39% 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 system segment. We expect first quarter gap operating expenses to range between $120 and $126 million and non-gap operating expenses to range between $106 and $112 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 and into Flight 2 inventory throughout 2026, which is an encouraging sign of progress as we move closer toward Neutron's first 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 31st. We expect first quarter adjusted EBITDA loss to range between 21 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. 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 in Q4, we have substantially 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: Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to move yourself in the queue, please press star 11 again. Our first question comes from Andrea Shepherd with Cantor Fitzgerald. Your line is open.
Andrea Shepherd: Hey, everyone. Good afternoon. Thanks so much for taking our questions, and congrats on all the great progress, and thanks for the update on Neutron. Adam, maybe you want to start with the backlog. I'm wondering if you can maybe help us 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 two, 10% of maybe the tranche three, and what are you including from neutron and electron here? Thank you.
Adam Spice: I'm sorry, the mic went off. I don't know how much you caught of that. So all of the SDA contracts were added to backlog. So what remains for SDA tranche two 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 three 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.
Andrea Shepherd: Yeah, that's helpful. Thank you. 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? You know, will you still target maybe three 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. Thank you.
Peter Beck: Adam, I can answer a couple of those and maybe you and someone as well. 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 AFP machine. you know, that really solves that problem. And yeah, the way to think about just sort of follow-on flights is it's not quite, you know, as dire as like moving all of the follow-on flights 12 months, you know, or to the, you know, to the first flight, because as you've seen in the we're already building flat out additional neutron tail numbers. So it'll probably be a slightly faster convergence into subsequent flights because none of the other hardware that's qualified is 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.
Adam Spice: Yeah, 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 one 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 hand-laid-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 for 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, you know, the impact to R&D as a result of the tank failure is actually not – that tank itself is actually not that significant.
Andrea Shepherd: Got it. That's super helpful. Thanks so much for all the detail, and congrats again on the quarter. I'll pass it on.
Operator: Thank you. Our next question comes from Edison Yu with Deutsche Bank. Your line is open.
Edison Yu: Thank you. And a great quarter, as always. I 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 hot 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 two or three years?
Peter Beck: Hey, Addison. 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, you know, we never want to miss an opportunity. And, you know, we've been developing the silicon rays and power solutions for a while now, focusing on mega constellations and, you know, there's you know, high volume power applications. But if you stand back objectively and you think about what are all the challenges with putting, you know, data centers in orbit, it boils down to the really three things. One is cost and cadence of launch to be able to make the model close. And then two is heat rejection through various means. And three is just sheer power. Like these are gigawatts of electricity. electrical power. So, you know, solar arrays of multi-kilometers in scale are what's needed. So, you know, we wanted to make sure that, you know, whether they leave this earth or not, there'll be Rocket Lab logos all over that stuff. So, you know, as far as I'm aware, nobody else has a silicon solution quite like we've developed.
Edison Yu: Understood. And to your point on heat rejection, I guess the radiator, is that a capability you have in-house that you need to develop over time? Or is that something, you know, inorganic? Just curious on what needs to be kind of technically done there.
Peter Beck: Yeah, I mean, look, all of our spacecraft have radiators. I mean, you generate heat, you have to reject it. So... there's various kind of ways of doing that, piping heat around the spacecraft to radiate it. So I don't see that as a huge technical challenge. It's just on the scale, 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 anytime 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
Edison Yu: Gotcha. If I could just sneak one quick one in. In terms of just the discussions, can you give us a sense of the flavor of customers? Are these kind of new customers, non-traditional customers kind of exploring this idea with you?
Peter Beck: Yeah, I mean, we have to be a little bit careful here, but I would say that there's certainly more non-traditionals looking at this kind of solution than traditional players. Great. Thank you so much.
Operator: Thank you. Our next question comes from Ronald Epstein with Bank of America. Your line is open.
Alex Preston: Hey, this is Alex Preston on for Ron. Can you guys hear me all right?
Adam Spice: Yeah, we can hear you.
Alex Preston: Perfect. So I know you talked a little bit about progress on the Monarch 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 and national security space capabilities. And I'm interested if you sort of see this trend yourselves or how you see this developing. I know, you 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.
Peter Beck: Yeah, Alex, it's a great question. Look, one of the reasons why we like Menarik and why we think it's important, 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 timeframes. and uh i think it's always everybody's desire to build um domestic capabilities but the reality is um if you want to stand up these kind of capabilities really really quickly um you don't have the decades that it takes to to build often these these sovereign capabilities um the 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 where 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, you know, once we have, you know, a footprint in Europe proper, you know, being eligible for participating in European programs becomes possible. So, no, I think it's a great opportunity. There's, you know, literally billions and billions of dollars of, you know, well-funded government programs underway right now. you know, the timelines associated with those are conducive, or I would say not conducive necessarily always to, you know, creating sovereign capability.
Alex Preston: 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 US-based providers.
Peter Beck: No, I think it's very constructive. I think, you know, naturally that Europe is looking to create sovereign capability, but I think that also, you know, the conversations we've had, they're very pragmatic and realistic that, you know, the capability they're looking to create takes a long time. So, you know, working with, for example, a rocket lab Europe is a great way to move forward.
Alex Preston: And just real quick, would you characterize that the same on launch as you would on space systems? where I think there's a bit more existing indigenous capability in Europe already.
Peter Beck: Yeah, 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 orbit, it's kind of pointless. So this is the reason why you have the European Union and ESA's launch vehicles that, on the face of it, aren't that commercially competitive, but they'll never go away because, you know, the nations need access to orbit. So, you know, I would expect to see that persist for some time and, you know, continue investments made into launch for the, you know, for Europe. But in saying that, you know, everyone's pragmatic and if you need to get stuff to orbit, then, you know, pick up the phone.
Operator: Got it.
Alex Preston: Thank you very much for the call.
Eric Rasmussen: thank you our next question comes from eric rasmussen with steeple your line is open yeah thank you for taking the questions um maybe just back on neutron um i appreciate the so the update on cadence and it sounds like uh with the push out naturally you continue to sort of build out uh some of those uh more capabilities and just neutron the infrastructure around neutron um but Post sort of test flight, and we think that's sort of Q4, and if it's late Q4, I don't know the timing, but what do you think then that first revenue flight, what do you think the timing around that could be? Also, when considering that, you know, that probably needs to have a higher level of reliability. And then with that, are you still targeting this as a recovery mission?
Peter Beck: Yeah. Hey, Eric. Thanks for the question. So, you know, the timing of flight two will always depend on the results of flight one. You know, if flight one goes swimmingly, then, you know, the time to get the second vehicle on the pad, you know, we'll endeavor to make as short as possible. If there's things to fix, there's kind of things to fix. But, you know, nominally, the timing remains consistent to what we've kind of talked about. And, you know, the vehicle will be outfitted with, you know, all of its kind of requirements for, you know, flight one even for a downrange landing. you know, we'll attempt to do the reentry and landing burn and splash it down. Once again, if all that goes well, then the next one we would intend to slip a barge under. If we pole drive it into the ocean, then, you know, we'll probably, you know, go to a flight two and get that soft landing right before we go and put infrastructure under that could be costly, you know, if we're damaged.
Eric Rasmussen: Great. And maybe just on Electron, you had a nice launch campaign in 2025, 21 successful launches. What does the manifest and internal planning suggest for this year? And then maybe just a mix between your standard Electron missions and HAST.
Peter Beck: Yeah, I mean, I'm not sure how much we've disclosed about that, but I mean, certainly this year we're looking for, you know, more launch than last year. You know, as you saw, the bookings and manifest are bulging and, you know, we're banging electrons out every sort of 11 or 13 days now. So that's going fast. extremely well. But I'll pass over to Adam if he wants to comment on launch schedule for the year.
Adam Spice: Yeah, Eric. So I think consistent with prior discussions, we see good growth opportunities in Electron and when I say Electron, I mean 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 normally pointed people towards kind of 20% growth you know, I think is a pretty, you know, kind of, I would say, I would say reasonable estimate for where we see this business growing over the near and intermediate to maybe the long term. So I would say, you know, we certainly have given the production team direction to produce, you know, 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 nominally 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. That's helpful.
Eric Rasmussen: Thanks.
Operator: Thank you. Our next question comes from Trevor Walsh with Citizens. Your line is open.
Trevor Walsh: Great. Hey, team. Thanks for taking the questions. 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, your capabilities, even though it sounded 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 customers really looking at this. Does that make sense?
Peter Beck: Yes. Yeah, no, that's a great question, Trevor. And, you know, to be fair, the customers probably don't care that much other than the fact what they really care about is does their 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. So in bringing and owning that optics in-house, you know, really, really drives, you know, certainty for us around cost and schedule and innovation. And it's, yeah, they were a supplier to GEOS, that's for sure. And, you know, when we acquired the GEOS business, the first thing we sat down with the leadership team there and said, right, where are the critical supply chain elements that might trip us up and being able to deliver, you know, really disruptive and affordable, you know, parts or programs for our customers. And this was the number one thing. I think this makes us very unique amongst the other suppliers of payloads who are outsourcing optics. And, you know, it is the most expensive, the most longest lead item in any of these explicit optical payloads. So, you know, it was important to own it.
Trevor Walsh: Terrific. Thanks, Peter. Super helpful. Adam, maybe just a quick follow-up for you. For your prepared remark commentary around the backlog and how tranche three is going to, you know, 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 three rev rec? Is it just customer timing of when they want deliverables, just give us maybe one level deeper, that'd be terrific.
Adam Spice: Yeah. So I think we've articulated previously that typically when you win one 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 a what really gates our ability to kind of move faster is really our subcon deliveries, right? So what really either kind of helps us accelerate and get through these gates and milestones and rev rec quicker is our subcon's ability to deliver on time. And so I think that, you know, 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, you know, how we kind of, you know, time revenue recognition and so forth. So I would say that, you know, a big job for us in 2026 is, you know, across our engineering and production, you know, teams is to really make sure we stay on top of what parts are still coming from third parties, make sure that they stay on their deliverables so we can kind of, you know, again, get the program accelerated as much as possible and get more of that revenue recognized. So, again, we go into it pretty conservative. I think, you know, if you look at the pure conversion, that 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 STA tranche two and tranche three. But what is in there for tranche three is, again, assuming some pretty conservative delivery dates from our subcons that hopefully we can work with them to do better.
Trevor Walsh: Great. Thanks, both. I'll leave it there. Thanks for the questions.
Operator: Thank you. Our next question comes from Ned Morgan with BTIG. Your line is open.
Ned Morgan: Hey, you actually got Andre on. I don't know what happened there, but all good. I wanted to ask about space systems. Seems like it came in a little bit weaker than what consensus might have expected at first, so 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?
Adam Spice: Yeah, I don't know that 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 one of the things I mentioned this in my, 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, the execution for your RevRec 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, you know, I think we've all seen in some fairly public venues customers, you know, of these programs talking about how there's been some snags in the supply chain, you know, including, you know, 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 you can. So yeah, I wouldn't read too much into... the granularity that people may have expected from our space systems business. Cause one of the benefits that we have now from being such, 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 more, it's going to come from space systems and within space systems, you know, platforms can have a great quarter and components can be weak and vice versa. And then, you know, it just gets that much better and we'll have that many more tools at our disposal to, 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.
Ned Morgan: Yeah, no, that's super helpful. Thanks, Adam. I guess to stick with you, I mean, around the two 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?
Adam Spice: Yeah, you know, 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, you know, revenue contributions, so forth. These particular deals really much more strategically around, again, vertical integration, reducing risk versus, you know, I would say providing big access to large external third, you know, 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, material amount of revenue contribution that's going to move the needle from the deals that we just announced. Clearly, you know, Monarch would be a different story if and when that deal gets approved, because that would come with significant backlog and revenue opportunity. And again, our pipeline also has lots of other deals that have a mixture of just, you know, again, elimination of margin stacking, and in some cases, you know, also more meaningful revenue contribution. But these two, I don't think you need to change your models at all for the impact for these two relatively small deals. Got it. Got it. That's helpful. I'll leave it there.
Ned Morgan: Thanks, Adam.
Operator: Thank you. Our next question comes from Guadamcana with TD Cowan. Your line is open.
Guadamcana: Yeah, thanks. Good afternoon, guys. I was wondering on the neutron tank failure, have you guys... Are you of 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?
Peter Beck: Yeah, no, we undertook a complete failure tree analysis and We're able to find the piece of tank that could cause the initiation of the failure. We're able to reproduce the results through analysis and then also through coupon testing as well. So no, we're very, very confident. We understand that failure extremely well.
Guadamcana: Okay, that's great to hear. 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?
Peter Beck: Yeah, I think if you look across a spacecraft 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 that we will look to bolster. And, you know, we'll seek opportunities, you know, to add scale where possible. But I think, you know, this is just going to be bread and butter for us to, you know, to constantly make sure that, you know, we don't get stung with, you know, suppliers that aren't able to deliver for us and continue to vertically integrate. But as Adam pointed out, you know, our M&A pipeline is is, is pretty full. And, um, you know, there's a range of opportunities there from, from these kinds of things that, you know, that important don't add huge revenue, uh, bottom lines, but they, they kind of guarantee revenue because, um, we, we, we're not gonna, you know, miss milestones. Uh, But they're all 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.
spk07: Thank you.
Operator: Thank you. Our next question comes from Ryan Kuntz with Needleman Company. Your line is open.
Ryan Kuntz: Great. Thanks for squeezing me in. I want to ask about backlog, Adam, your commentary there, and you think about the opportunities ahead over the next, say, 12, 18 months. Obviously, the SDA has been very, very active, and how you think about the composition of your backlog relative to, you know, DOD versus commercial, just in terms of the next, you know, 12, 18 months.
Adam Spice: Yeah, look, I think I think we're in a really fortunate spot where, you know, 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, you know, we're 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, you know, has just been so strong. You know, we've got so many things that are pushing us in the back as far as, you know, 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, if I was given the choice of chasing a government hockey stick or a commercial hockey stick, you know, I would take the government hockey stick because even though they may not be as dynamic in some cases at a program level as commercial, you know, they always pay their bills. They're pretty clear cut how you work with them. And, you know, 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, you know, it's also very comforting to have this big commercial hockey stick opportunity out there as well. But I would say that, you know, it's the pipeline. 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'll let Pete kind of provide his view, but it seems like we don't just have a choice of kind of taking one fork or the other in the road, you know, where we can, 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 Pete will speak about that. Nice.
Peter Beck: Thanks. You know, I think you've said it perfectly, Adam. Yep. I can't, I can't add anything better than that.
Ryan Kuntz: Great. Maybe just quick follow up as you think about, you know, Golden Dome and timing and, you know, PWSA fitting into that architecture and, You know, any updated thoughts on, you know, your role there or opportunities when you think that emerges as a truly viable business opportunity for you?
Peter Beck: Yeah, I think, you know, Golden Dome's quite a complex one, as obviously it's a huge program, but a lot of it is also classified. So it's very difficult to, you know, to discuss too much. But, you know, I would say that on multiple fronts, I think we're well positioned to have a good chunk at this. whether it be launch or satellites, optical terminals, you know, a lot of the optical payloads. The SDA win, you know, the trans-SDA win is, you know, is a clear missile track payload, which is a very complicated payload, obviously, and critical for the Golden Dome. So, you know, as that program formulates and continues to grow, you know, I think we're, you know, Pretty key piece of that foundation. Thank you.
Operator: Cool. Thank you. Our next question comes from Michael Leshock with KeyBank Capital Markets. Your line is open.
Michael Leshock: Hey good afternoon, 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?
Peter Beck: Yeah, thanks for the question, Michael. I think what's kind of cool here is that you've all heard me say that space is going to get blurry. It's going to be difficult to determine what is a space company and what is something else company. And that thesis really continues to firm now that you look at data centers and all these other kind of you know opportunities that are going that are growing in space it's like it is that the large successful companies are going to be blurry are they going to be a space company are they a telecommunications company are they a data services company um and um Your point is really accurate. And, you know, until kind of neutrons online and we have multi-ton reusable launch capability, I think, you know, that's the time that we can really lean into, you know, deploying infrastructure. But in saying that, we're not sort of sitting back and sitting on our hands thinking about, you know, 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 say every avenue, every kind of opportunity that's potentially being thought about or used in space today. So it's still too early, Michael, but there's not a day that doesn't go by where there's not an internal discussion about it.
Michael Leshock: Great. And then maybe on the stage one 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?
Peter Beck: Oh, God, yeah. Like, it's ridiculous. The AFP machine is just totally ridiculous. I can't remember the exact timelines. to lay up a dome, but we measure a dome manufacturer on the AFP in days. Actually, the longer pole in the tent there for a tank manufacturer is not actually laying up and curing the components. it's the joining of the various domes and tanks and barrels together and all of the tabs and details for 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 raw components, it's ridiculously fast. And also that's to Adam's point, it's like, Now that it's all automated, really the only cost is the raw material that's going in there.
Michael Leshock: Great. Appreciate all the detail.
Operator: Thank you. Our next question comes from Jan Engelbrecht with Baird. Your line is open.
Jan Engelbrecht: Good afternoon, Peter, Adam, and Morgan. Thanks for taking our questions. I'd like to just go back on PWSA and just get your high-level thoughts about that program. It does seem like your focus will shift more towards the tracking layer, given this really impressive win, 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 StarShield with Molnet to sort of act as the transport layer? It seems like there's a lot of things that would stand in the way of that because a commercial, you know, StarShield orbits at much lower altitudes than the transport and tracking layers. There would be a lot of redesign work. But I'll stop there just to get your overall thoughts there.
Peter Beck: Oh, man, we could geek out about this for days, Jan. So, yes, it was intentional for us to, you know, to move up the value chain, if you will. Not that the transport layer is elementary. By no means is it elementary, 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, you know, 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, you know, the transport layer going away, I mean, we haven't heard or seen any evidence to that, obviously. um you know there's a lot of discussion about um you know other other providers but um the whole point of you know the the sda program is is kind of you know 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 um i think your point is a good one um it becomes more difficult to have interoperability when you have something that's that's quite different um but uh It'll be interesting to see how it all shakes out, but I think for the tasks that SDA 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.
Jan Engelbrecht: Thanks, Peter. Very helpful. And then just a quick follow-up, if I may. I want to be respectful of the Monarch 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 maybe an alternative supplier of OCTs or does GEOS or the new acquisition OSI have any capability that you could look towards developing these optical terminals over time?
Peter Beck: Yeah, so Geost has developed some optical terminals. And obviously, we have the optics now in-house as well. But it's incredibly difficult to do. And as we looked across the landscape of all of these optical terminal suppliers, of which there's really only three, Monarch just stood out as the absolute best with respect to technology. Now, they suck at other things. like running their business, but they make the best terminals. So, you know, to go out and develop your own terminal, yep, totally feasible. It's just a time thing and, you know, it would just take longer to do that than it would to acquire it.
Jan Engelbrecht: Perfect. Thank you. Very helpful. I'll jump back in the queue.
Operator: Thank you. Our next question comes from Jeff Van Rie with Craig Hallam Capital Group. Your line is open.
Daniel Hibschman: Hey, this is Daniel Hibschman on for Jeff Van Rie. Congrats on the quarter and the FDA win in particular. On Mars Telecommunication Orbiter, the $700 million, $750 million thereabouts, wondering, you know, it looks like earlier this week NASA put out an RFP for Mars Telecommunications Network, so a little bit of a name change there. Sounds like that might be a multi-satellite architecture where previously they were just looking at that one single orbiter. But anyway, what can you tell us just about how the competition and MarketLab's positioning for that has been evolving?
Peter Beck: Thanks, Jeff. Great question. Yep. So, you know, the MTR, as you point out, there's a slight change there to network. And, you know, as more infrastructure is built on Mars, then, of course, you know, a network will need to be created. You know, the MTO was always intended to be the first of more to come. Look, obviously we think we're well positioned here. You know, we have the experience, we have a lot of the capabilities and a lot of the demonstrated capabilities. But, you know, I think, you know, we'll put our best foot forward there. And, you know, of course, others think they can do the job too. That's the great thing about competition. And, you know, we'll see who wins.
Daniel Hibschman: And then, Adam, one for you just on the gross margins, which, you know, obviously are growing tremendously, I think, what, eight points up in 2025. and then the guide for 2126 has those stepping back down a few hundred bips, and you called out the space system mix shift. Is there anything persistent about that mix shift, either in terms of new business coming online and potentially with the SDA transport layer that'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 bips of expansion as we get back into the later half of the year?
Adam Spice: Well, you know, I think gross margin is a, there's a lot of things that are, that are going on underneath the surface there. So, you know, as we continue to grow, you know, there was a call question earlier from Eric about the electron launch cadence. So I mentioned a 20% launch cadence, the growth in that, 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 and, These larger, longer-term programs like SDA, Tronch 2, and Tronch 3, they typically come in at the low end of our gross margin mix, but they have really good operating margin characteristics to them or contribution margin because of the fact that there isn't a tremendous amount of incremental R&D that's outside of the programs. I would say that in a quarter where you've got a lot more contribution from the big programs like Tronch 2 and Tronch 3, that'll put downward pressure, offset hopefully by growth from increased 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 of non-GAAP gross margin, other ones that are you know, kind of north of 70 points of non-GAAP gross margin. So there's a widespread and mix is hard to predict, you know, 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, you know, much more than, you know, I'd say maybe one or two quarters out. But overall, I think, you know, as we continue to kind of grow that components, mix the business, more electron in the mix, it's all going to be positive. Now, I think the one caveat to that is As we bring Neutron into production, it'll have a margin expansion curve probably not too dissimilar to what we 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 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, you know, 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 Electron 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, you know, fairly, you know, kind of low to even maybe negative gross margin for some of the early flights. But then again, you'll see just like Electron, it pop back up and become pretty positive pretty quickly and get to target model. So it's a long-winded answer. I, you know, 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 one or two quarters out. Thanks, Adam. Thanks, Peter.
Operator: Thank you. Our next question comes from Suji De Silva with Roth Capital. Your line is open.
Suji De Silva: Hi, Pete. Hi, Adam. Congratulations on the progress here. Just real quick on the electron launches. Are there any ASP trends to note, Adam? Any tailwinds in the second half or are they fairly steady next couple of quarters?
Adam Spice: You know, I think that we're going to continue to see, you know, a march towards, you know, I'd say, you know, 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 is relatively consistent across Haste and Electron. And then, you know, 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, you know, we continue to grow that subsegment of the business quite nicely. And again, I just, given the things that Pete was talking about earlier with regards to Golden Dome and the importance of, you know, the hypersonics test capabilities, you know, 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.
Suji De Silva: Okay. And my follow-up question maybe is for Pete. You know, Pete, maybe you can reflect on first 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 a 11 to 13-day cadence? Is it just a higher number of customers coming in that you can kind of load them off or just any color that would be helpful.
Peter Beck: Yeah, thanks, Ajit. I would just say that we've probably got better at looking like a duck 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. I would say that, you know, that's just the reality. The launch business payloads are ready until they're not. I think we've just got way better at managing those customers, having more WIP, having more rockets integrated, ready to go, and, you know, managing that. So it's great to hear that it looks smoother, but, you know, behind the scenes, there's everyone's flat out mixing and matching and making sure that, you know, it all looks smooth from the outside.
Suji De Silva: Helpful, Colin. Thanks, Pete. Thanks, guys.
Operator: Thank you. Our next question comes from Christine Leeweg with Morgan Stanley. Your line is open.
Justin Laying: Yeah, hi. This is Justin laying on for Christine. Thanks for taking the questions. Pete, curious just back on the Neutron timeline, had 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 that It was a good volume of qualification work completed in the quarter. So just trying to assess whether there are other factors at play in this new timeline or are really isolated to the stage one tank issue.
Peter Beck: Yeah, thanks, Justin. It's kind of hard to say because when the tank let go, like, you know, the reverberation went through the test stand and the entire business. So the moment that happened, everybody just stopped what they were doing in a lot of sense to get onto the tank to figure out what went wrong. So, you know, we moved a lot of resources around and 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, whether, you know, what that timeline would have looked like. But It's sort of hard at this point because we had an anomaly.
Adam Spice: I would add one more thing to that. I think if there's a silver lining to the tank anomaly, it's 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 demons, 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, yeah, it's, you know, nobody's ever happy when you have an anomaly, 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.
Justin Laying: Got it. That makes sense and helpful. Thanks. And Adam, actually just one for you back on the SDA award. Curiously, we could speak a little bit more to the cash profile in particular and how that lines up against the revenue bell curve that you sketched out earlier. Thanks.
Adam Spice: Yeah. 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 know, you, you, we model these things that 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 on 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. I'd say no. In fact, we got a very large payment earlier this week from that customer. So the money is still flowing, and everything seems to be green lights right now. Okay. Thanks both.
Operator: Thank you. There are no further questions at this time. This does include the program, and you may now disconnect. Everyone, enjoy the rest of your day.
