Rocket Lab Corp Q4 FY2025 Earnings Call

Hello, and welcome to Rocket Labs Fourth Quarter and Full Year 2025 Earnings Conference Call. 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 in 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 ESCAPADE mission to Mars for NASA, and we had record growth across all of our Space Systems component businesses. On acquisitions, we welcomed Geost 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 SmallSat. 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 orb 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 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 standard repeat 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 the 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 Lab's history. What's more as a leading merchant supplier into the other Tranche III prime contractors, there are additional subsystem opportunities that 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 Geost 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 III, 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 II program. With the two 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 domain of the legacy aerospace primes. We're seeing a new world order established in the defense world with the rise of companies like Anduril 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 ESCAPADE mission launched and the twin satellites we built for NASA and UC Berkeley are now well on their way to the red planet. With ESCAPADE, we've proved that it's possible to deliver decade-class missions on a drastically shortened time line 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, 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 cheering Blue and Gold along as they arrive in Mars orbit in September next year. Our role in ESCAPADE might have reached mission success, but we're not quite finished yet with Mars. We've made no secret of the fact that we think Rocket Lab is the strongest contender to deliver NASA's Mars Telecommunications Orbiter 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 software has enabled some of the most ambitious and successful Mars missions in history, including the Mars Insight Lander, Perseverance Rover, and Ingenuity Helicopter. Mars is in our DNA and Rocket Lab has more hardware on orbit around Mars than just about any other company today. Okay. On to programs. We had a key milestone for LOXSAT, 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 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 causes data centers on earth to 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 array. 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 in 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 technologies. When size, weight, and power performance are at a premium, traditional high-efficiency cells are beneficial. When cost schedule or 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 two to deliver 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 Mynaric. 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 I'll say 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 Lab's 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. 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 action with the SDA Tranche III 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 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 warfighter 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 Hegseth, during the Arsenal of Freedom Tour. The visit highlighted the critical support we already delivered to the warfighter 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 Neutron. 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 Middle 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. 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 structure. 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 were getting the automated fiber placement machine up and running. And it's in this handlaid 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 produced entirely in-house 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 our time with 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 fairing 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 Hungry 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 Hungry Hippo 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 hurdle 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 LC-3. Meanwhile, at Middle River, Neutron's interstage is undergoing its own qualification campaign before being shipped to LC-3. Neutron's second stage is hung inside this during flight and then passes through the mouth of the Hungry Hippo and carries cargo to orbit. Like the Hungry Hippo, the interstage remains attached to the first stage for 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 LC-3. This is a specially built rig on the top of the LC-3 launch mount where we'll conduct a barrage of integrated tests before ultimately moving into hot fires on the stand. That will be LC-3's first taste of what an Archimedes engine is 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 being nice to them at all. It's all well and good to test engines to expected bounds. But through experience, I've learned that spaceflight has a way of throwing things at you that aren't expected. Rocket engines don't tend to fail when everything is boring, and 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. This is 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 Archimedes. 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 for final integration. These are the final steps before we go into integrated testing on the pad with hot fire 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. LC-3 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 in the next few months to know that we're marching steadily towards launch include more hardware making its way to the launch site, 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 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 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 to 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 was 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 SDA Tranche III 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 III revenue recognition estimates, which we believe will prove to be conservative. This, in addition to the healthy sales pipeline, is 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 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 Neutron 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 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 headcount was 389, representing an increase of 4 from the prior quarter. In summary, total headcount at the end of the fourth quarter was 2,645, up 43 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 LC-3 in Wallops, 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 Geost 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 was $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 Mynaric 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 a 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 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 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 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 into flight inventory throughout 2026, which is an encouraging sign of progress as we move closer toward Neutron's transfer 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. 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.

Our first question comes from Andres Sheppard with Cantor Fitzgerald.

Adam, maybe I want to start with the backlog. I'm wondering if you can maybe help us drill a bit deeper into it. And maybe remind us what is included in here, does this include the 40% of revenue from SDA Tranche II and 10% of maybe the Tranche III? And what are you including from Neutron and Electron here?

All of the SDA contracts were added to backlog. So what remains for SDA Tranche II 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 III 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?

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. The way to think about just sort of follow-on flights is, it's not quite as dire as 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 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.

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 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 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 that significant.

Our next question comes from Edison Yu with Deutsche Bank.

Wanted to ask a question on space data centers. I think you had alluded to a lot of interest. 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 within the next 2 or 3 years?

We're early with data centers. If you look at some of the models, there are 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 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. Two is heat rejection through various means. And three is just sheer power, like there's a gigawatt of 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 Earth or not, there'll be Rocket Lab logos all over that stuff. So as far as I'm aware, nobody else has a silicon solution quite like we've developed.

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 inorganic? Just curious on what needs to be kind of technically done there.

All spacecraft have radiators. You generate heat, you have to reject it. So there's various ways of doing that piping heat around the spacecraft radiator. So I don't see that as a huge technical challenge, just on the scale, that scale required hasn't been achieved before. So that's the challenge there. But to be clear, 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.

Got you. If I could just sneak one quick one 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?

We have to be a little bit careful 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. So I know you talked a little bit about progress on the Mynaric 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 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.

One of the reasons why we like Mynaric and why we think it's important, Europe more generally, is exactly that point is that there are 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 it takes to build often these sovereign capabilities. They're very specialist 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 European programs becomes possible. So I think it's a great opportunity. There are literally billions and billions of dollars of well-funded government programs underway right now, and the time lines associated with those are conducive or, I would say, not conducive 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?

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 it as the same on launch as you went on Space Systems where I think there's a bit more existing indigenous capability in Europe already?

They're certainly giving it a good college try but not having tremendous success, I would say, 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 all in orbit, it's kind of pointless. This is the reason why you have the European Union and ESA 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 orbit. So I would expect to see that persist for some time and continued investments made in Launch for Europe. But in saying that, everyone is pragmatic and if you need to get stuff to orbit, 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 Neutron. But post sort of test flight, and we think that sort of 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?

The timing of Flight 2 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 short as possible. If things need to be fixed, then that will take longer. But nominally, the timing remains consistent with what we've kind of talked about. The vehicle will be outfitted with all of its requirements for Flight 1 even for a downrange landing, and we'll attempt to do the reentry and landing. If all that goes well, then the next one we would intend to slip a barge under. If we pull the vehicle into the ocean, then we'll probably go to Flight 2 and get that soft landing right before we put infrastructure under that, which could be costly if we damaged it.

I think consistent with prior discussions, we see good growth opportunities in Electron. When I say Electron, I mean Electron and HASTE. So I think you'd expect an 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, I think is a pretty reasonable estimate for where we see this business growing over the near and intermediate to maybe 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. We always get turn orders. So 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.

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 Geost. 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 how you think customers are really looking at this, if that makes sense.

The customers probably don't care that much, other than the fact that 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. In order for us to be able to guarantee that 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 drives certainty for us around cost and schedule and innovation. Yes, they were a supplier to Geost, that's for sure. And when we acquired the Geost 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 in delivering really disruptive and affordable parts or programs for our customers, and this was the #1 thing. I think this makes us very unique among the other suppliers of payloads who are outsourcing optics. It is the most expensive and longest lead item in any of these explicit optical payloads.

That sounds great. Adam, I have a quick follow-up for you regarding your comments on the backlog and Tranche III. It seems like the projections for recognition in the first 12-month period might be conservative. Could you explain the factors that are influencing the revenue recognition for Tranche III? Is it related to customer timing for deliverables? Please provide a bit more detail on this.

I think we have previously explained that when we win these programs, we typically recognize revenue as follows: about 10% in the first year after the award, 40% in the second year, another 40% in the third year, and around 10% in the final year. This forms a standard bell curve. The main factor affecting our ability to accelerate this process is the performance of our subcontractors. Our speed in reaching these milestones and recognizing revenue is largely dependent on their timely deliveries. This ties back to the point Peter made earlier about the significance of vertical integration. By owning more of the platform, we can exert greater control, leading to increased predictability in our revenue recognition timing. A significant focus for us in 2026 will be ensuring our engineering and production teams monitor which parts still come from third parties, ensuring they meet their deadlines so we can expedite the program and recognize more revenue. We approach this with caution. If you consider the backlog conversion at 37%, which was mentioned earlier, part of that is related to Launch, but some pertains to Space Systems, including components and subsystems that are unrelated to SDA Tranche II and Tranche III. Regarding Tranche III, we are basing our assumptions on conservative delivery timelines from our subcontractors, and we hope to collaborate with them for better outcomes.

Our next question comes from Ned Morgan with BTIG.

Actually got Andres on, 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?

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 platforms versus the subsystems business. So one of the things I mentioned in my prepared remarks was that it is difficult to control the execution for your rev-rec requirements under ASC 606. It just depends on how well your subs are executing. We've all seen some fairly public venues customers of these programs talking about how there have been some snags in the supply chain, including from those, for example, like from the optical terminal providers. We continue to look for ways to reduce dependency on third parties as much as we can. 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 outsourced to third parties. So it's really just a function of getting them to deliver as aggressively as possible, without sacrificing quality or cost. So I wouldn't read too much into the granularity that people may have expected from our Space Systems business because of diversified businesses; we really just look at the top line and how to deliver that sequential growth of the business. Sometimes, more of it is going to come from Launch. Sometimes more is going to come from Space Systems and we'll have that many more tools at our disposal when we have Neutron coming online, which is why getting that first flight off is so important.

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?

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. These particular deals are really much more strategically around reducing risk versus providing big access to large external third kind of TAMs or adjacent markets. So I wouldn't say there's a material amount of revenue contribution that's going to move the needle from these two deals. Clearly, Mynaric would be a different story if and when that deal gets approved because that would come with a significant backlog and revenue opportunity.

Our next question comes from Gautam Khanna with TD Cowen.

I was curious about the Neutron tank failure. Are you confident that it was due to the manual layup process? Will the new process avoid the same issue, or is the investigation still ongoing?

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

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?

If you look across the 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 we will look to bolster. But I think this is going to be bread and butter for us. We're ensuring that we don't get stung with suppliers that aren't able to deliver for us and continuing to vertically integrate. Our M&A pipeline is pretty full, and there's a range of opportunities there from important things that don't add huge revenue bottom lines but guarantee revenue because we're not going to miss milestones. They range through to some real needle movers that are much more transformational.

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

I want to ask about backlog, Adam. Your commentary there as 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 DoD versus commercial, just in terms of the next 12, 18 months?

We're fortunate to be where government business has traditionally not been viewed as a hockey stick. I think for us since we're coming in, 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 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 overall, we've got really big commercial opportunities that we continue to chase. If I was given the choice of chasing a government hockey stick or a commercial hockey stick, I would take the government hockey stick because they pay their bills. They’re clear cut in how you work with them. We're competing with people that seem to be fighting with their hands tied behind their backs. We move much more quickly and have a lot more tools at our disposal because of our vertical integration. I love the mix as it's trending towards government. I do think it's very comforting to have this big commercial hockey stick opportunity out there as well.

Great. Maybe just a quick follow-up. As you think about Golden Dome and timing and PWSA 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?

Golden Dome is quite a complex program. It is a huge program, but a lot of it is classified. So it’s difficult to discuss too much. In multiple fronts, I think we are well positioned to have a good chunk of this, whether it be launch or satellites, optical terminals, and a lot of the optical payloads. The SDA Tranche III win is a clear missile track payload, which is very complicated and critical for Golden Dome. As the program formulates and continues to grow, I think we're pretty key to 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. 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?

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. That thesis really continues to firm now that you look at data centers and all these other opportunities that are growing in space. The large successful companies are going to be blurry. Are they a space company, a telecommunications company or a data services company? Until kind of Neutron is online, and we have multi-ton reusable launch capability, I think that's the time that we can really lean into deploying infrastructure. 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 to every kind of opportunity that potentially being thought about or used in space today. So it's still too early, but it's not a day that doesn't go by where there's not an internal discussion about it. Yes. So the MTO, as you pointed out, there's a slight change there to network. As more infrastructure is built on Mars, the network will need to be created. The MTO was always intended to be the first to come. We think we're well positioned here. We have the experience. We have many demonstrated capabilities, but I think we'll put our best foot forward there. Of course, others think they can do the job too. That's the great thing about competition, and we'll see who wins.

I believe that gross margin is influenced by various underlying factors. As we continue to expand, there's been a discussion about the Electron launch schedule, and I've noted a 20% growth in launches. If we can exceed that—something I think is possible as there are opportunities for faster growth in 2026—it could positively impact our margins. Larger, long-term projects like SDA Tranche II and Tranche III generally have lower gross margins but exhibit strong operating margin characteristics due to minimal additional R&D costs outside these programs. In a quarter where we'll see more contributions from projects like Tranche II and Tranche III, there may be downward pressure on margins, but it’s expected to be countered by growth and an increase in Electron contributions. 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. Just to get your sort of high-level thoughts about that program. It does seem like your focus will shift more towards the tracking layer given that's really impressive with the Geost acquisition.

It was intentional for us to move up the value chain. The tracking stuff is critical for things as things develop for Golden Dome and other programs. So that's the high-value stuff where you want to be, where you have a few people in the nation that can successfully execute on. The whole point of the SDA program is that all of the spacecraft are integrated very closely with each other, even though they're from other providers, there are a set of requirements that we all must meet for interoperability. I think your point is valid. 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.

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

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, while previously, they were just looking at that one single orbiter. But what can you tell us just about how the competition and market 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. As more infrastructure is built on Mars, the network will need to be created. The MTO was always intended to be the first to come. We think we're well positioned here. There are others who think they can do the job, but we'll see who wins.

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.

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.