Rocket Lab Corp Q1 FY2026 Earnings Call

Good day, and thank you for standing by. Welcome to the Rocket Lab Corporation Q1 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Murielle Baker. Please go ahead.

Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's First Quarter 2026 Financial Results, business highlights and other updates. Before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation, and a replay and a copy of the presentation will be available on our website. Our speakers today are Rocket Lab's Founder and Chief Executive Officer, Sir Peter Beck; as well as Chief Financial Officer, Adam Spice. They will be discussing key business highlights, including updates on our launch and space systems programs, and we will discuss financial highlights and outlook before we finish by taking questions. So with that, let me turn the call over to Sir Peter.

Thanks, Murielle. Before we dig into the quarter, I want to walk you through what sets Rocket Lab apart as one of the only true end-to-end space companies on the planet. Ultimately, it's our technologies, our capabilities and our proven execution for the world's most demanding customers. First, our technology. For launch, we have Electron, the world's leading small launcher alongside HASTE, which is delivering critical hypersonic test launch capabilities to the Department of Defense, and Neutron, a medium-lift rocket tailored to constellation deployment and national security missions. But launch was just a start. In 2020, we launched Photon, our first in-house developed spacecraft. That moment marked the beginning of our evolution from a pure-play launch provider to an end-to-end space company. In just six short years, we expanded our technology stack to include a full family of highly capable spacecraft available at constellation scale. And critically, we also manufacture the subsystems and payloads that go into the spacecraft. This vertical integration means we control quality, schedule and cost in ways that our competitors simply can't. These technologies have given us a huge suite of capabilities. We provide tactically responsive space launch and dedicated small satellite launch with unmatched flight heritage, suborbital hypersonic and missile defense testing for our defense customers and national security launch on both Neutron and Electron. Our rockets also deploy and replenish constellations, launch lunar and planetary missions and more. On space systems, our satellite and subsystems enable communication and connectivity infrastructure, missile warning and tracking, space reconnaissance and surveillance, space protection and space control, astrophysics and earth science missions, in-space manufacturing and more. Execution is what matters most. Anyone can promise capabilities, but Rocket Lab is actually delivering right now for demanding and complex programs. We're enabling the Space Development Agency's Proliferated Warfighter Space Infrastructure, delivering complete satellites with payloads on aggressive timelines. We're supporting the DoD's MACH-TB hypersonic program and the Golden Dome Space-Based Interceptor program. We're onboarded as a national security space launch provider, and we're executing missions for the NRO, Space Force, Missile Defense Agency, DIU and DARPA. We are a trusted partner for the U.S. and international space agencies, including NASA, JAXA and ESA. Rocket Lab hardware is flying on Artemis missions. Our technology is on Mars rovers and orbiters. We support ISS resupply and other flagship NASA missions. Commercially, we're supporting direct-to-device constellations, earth observation constellations, lunar landers, orbiters and reentry missions. This is execution. Real missions on orbit now or in production and generating revenue. When the world's most sophisticated space organizations need mission success, they choose Rocket Lab. We built this technology and capability to serve our customers, but we've also built something more, the ability to deploy and operate our own space-based applications and services. We are one of the only companies on the planet with this capability. This is the next significant opportunity that lays ahead for us. So with everyone up to speed, let's take a closer look at how we executed against this strategy in Q1. This quarter has been phenomenal, the strongest Q1 in Rocket Lab's history. We've blown through the ceilings across all of the most important metrics: record revenue, record GAAP gross margins, record backlog, record cash position and record launch contracts across Electron, HASTE and Neutron. With revenue, we topped $200 million in the quarter for the first time, up more than 63% versus this time last year, and our forecast has revenue coming in even higher for Q2. Our gross margins are excellent, sitting strong at 38.2% GAAP and 43% non-GAAP. Our backlog jumped to more than $2 billion in contracted revenue across our national security, civil space and commercial programs, 20% over the quarter and 108% year-over-year, again, the highest it's ever been. That's partly thanks to the record number of contracts we signed in Q1. In fact, with the 31 Electron and HASTE launches and five Neutron contracts combined, we booked more launches in the first three months of 2026 than we did for all of last year. Overall, we exited the quarter with $1.48 billion in cash and cash equivalents and currently have secured access to more than $2 billion in total liquidity, giving us financial flexibility and positioning for growth and further M&A. There are more highlights across launch and Space Systems than we could fit into one slide, so let's go over them in more detail. Starting off with small launch across Electron and HASTE. What a truly exceptional quarter it's been for Electron and HASTE. We booked 31 missions, which is the most we've ever signed in a quarter. Demand for Electron has always been strong, but we're seeing an inflection now across both orbital and suborbital launch. Our customers know when they book on Electron and HASTE, they're buying the certainty and responsiveness they need to launch where and when they need to go. We've got more than 70 launches in backlog now, which is a new record. With eight missions off the pad already this year, we're on track to beat last year's launch record, too, and we'll hit our 100th launch later this year, the fastest anyone in the industry will have ever done that. It's another record on the books for HASTE with our $190 million 20-launch order through Kratos for the Department of Defense and MACH-TB. This is the largest single order we've seen within the program and a very clear vote of confidence from the Pentagon in HASTE's ability to deliver the hypersonic test and missile defense capabilities that the nation needs. HASTE now makes up almost one-third of all of our launch backlog today. What's particularly significant about HASTE is that along with being the category leader for hypersonics test missions, HASTE's strength has helped position us in the center of America's defense architecture for the next big wave of spending. We're already ingrained with spacecraft components and full satellite builds. And when you add HASTE hypersonic rockets to test missile tracking and defense, that's almost the entire spectrum of capabilities covered by Golden Dome. The new era of space primes have begun injecting pace and innovation into national security and defense. Two companies at the forefront of this are Rocket Lab and Anduril, and we're excited to confirm that we're teaming up. Anduril has booked three dedicated HASTE launches to support missions that combine their rapid prototyping with our industry-leading flight cadence to accelerate tech development for the DoD within months, not years. The first of these launches are scheduled no earlier than November this year. That's commercial speed and tactical responsiveness in action. While we can't talk program or mission specifics, the main takeaway from this partnership is that it brings together two of the defense industry's most innovative prime contractors to advance defense capabilities for the nation. So like I said, it's been a fantastic quarter for launch, but there's plenty to talk about for Space Systems as well. I'm thrilled to confirm that Rocket Lab has been selected to enable one of the nation's top national security priorities, the Space-Based Interceptor program under Golden Dome. Rocket Lab and Raytheon have been selected to demonstrate advanced capabilities for the Space-Based Interceptor program. This program is an important step in strengthening national missile defense capabilities, and we're proud to be contributing proven expertise to advance the development of solutions for this urgent security need. I know everyone knows we always have a strategic acquisition opportunity up our sleeve, and I'm excited to share the next one. We've entered into a definitive agreement to acquire Motive Space Systems, a California-based leader in space robotics, motion control systems and spacecraft mechanisms. Their technology is featured on the CADRE Lunar Rover and NASA's Mars Perseverance Rover. That includes the rover's entire robotic arm, which was the most capable ever deployed on Mars in terms of load capacity, precision and sensing. Motive also built the zoom, focus and filter wheels for the primary imager for the mission. Most pictures you'll see from Mars come through that camera and Motive's zoom mechanism were the first ever deployed in a planetary surface mission. This acquisition positions us to play a critical role in future lunar and planetary exploration missions, such as future commercial mass sample return missions, as well as expand into significant national security programs. It will also bring the design and manufacturing of critical spacecraft mechanisms like solar array drive assemblies, antenna and propulsion gimbals, filter wheels, focus mechanisms and precision drive electronics in-house, completing a key element of our satellite manufacturing at scale strategy. We unveiled our new electric propulsion thruster for satellites called GA at the Space Symposium last month with a 200-unit production line already established and units delivered to ourselves for some of our own constellation programs. We've been inundated with inquiries from programs in need of hundreds of units each, and we're ready to break the bottleneck on electric propulsion. Rocket Lab is recognized as a world leader in propulsion. So an organic electric propulsion solution is a natural progression for us. And we're excited to bring manufacturing scale, reliability and performance to electric propulsion for the first time in the industry. The pace at which we rolled out new products this year has been relentless, whether it's been organic or inorganic. What unifies our acquisitions and our internal innovations is a powerful vision: complete vertical integration across the entire satellite value chain. Everything you see on this page — optics, solar, laser terminals, electric propulsion and other components — is already being built to our own platforms or being supplied to others. So that's a good chunk of upcoming missions across civil, commercial and national security that have a Rocket Lab logo on them somewhere. We're a supplier of choice across the industry and other prime contractors turn to us for mission-critical technology. This quarter, we also closed our acquisition of Mynaric, but the real story here is more than just adding optical comm terminals to our national security capabilities. With Mynaric, we've established Rocket Lab's first European footprint to support the German and European space industry on a much larger scale. Our expansion couldn't have come at a better time. The European space and defense market has been accelerating its investments in sovereign space capabilities, up to $109 billion by 2030 by some estimates across the European Union, Germany and the United Kingdom. Rocket Lab Europe gives us boots on the ground to capture that demand, whether it's optical comms, spacecraft build, international constellations, responsive launch or providing our sought-after subsystems in high volumes. The door is now open to programs, partnerships and revenue streams that weren't accessible before. And Rocket Lab Europe is about positioning the company for what's the next phase of growth in one of the world's most strategic markets. Moving on to Neutron. I'm excited to announce a new multi-launch contract for Neutron that makes up the largest contract in Rocket Lab's history: five dedicated Neutron flights plus three Electrons now between now and 2029 for a confidential customer. It was only a few weeks ago that we announced a $190 million 20-launch deal for HASTE, which was the record at that time. Now we have exceeded that deal with an even larger one. It speaks volumes to the strong and growing demand for all of our launch capabilities, and this booking means Neutron's manifest is filling up fast right through the end of the decade. This market needs medium launch. The demand signal is clear. Equally clear from these continued bookings is that customers trust Rocket Lab and Neutron to deliver this medium launch capability. We've introduced and scaled new vehicles to a reliable high cadence before. We're one of only two companies in history that has successfully done this with meaningful reliability, and we're doing the same with Neutron. I hope that by now, you know that my stance is not discounting flights just to fill up a manifest. So I can confirm that pricing for these Neutron and Electron launches are very much in family with our commercial rates. Now on to development updates across the program. The team has made tremendous strides on the Stage 1 tank. Design refinements have improved both the tank strength margins and manufacturability and give us confidence in the structural performance. It's only been two months since our last Neutron update, and already we have AFP-made components sitting on the production floor. That's the beauty of automated production with AFP, not just for Flight 1, but also for the fleet of vehicles that come thereafter. This will feed directly into the next round of testing and qualification for Stage 1's tank as we drive towards Neutron's debut. As it stands, current progress is keeping our aggressive schedule towards the first launch later this year. Stage separation tests are also underway using Stage 2, its interstage and fixed bearing test articles to test a condition as close to flight for how Neutron's first and second stages will separate during launch. Stage 2 deployment is arguably Neutron's most novel capability. Unlike other rockets with stacked stages that separate, Neutron's second stage is hung inside the fairing before it's deployed along its interior rails and out the mouth of the "Hungry Hippo" fairing. This reusable architecture is one of Neutron's clever competitive advantages. It allows us to reuse fairings without having to deploy separate marine assets to capture them downrange or deal with refurbishment from splashing them down in the ocean. We've cleared separation events at full flight loads on the second stage article and interstage deployment system, which is great news. We're now testing the resilience of the off-nominal separation events. So if you see something broken on the test stand from here on, know that that's completely intentional. For the end stage, that's happening at Middle River right now as the team works on the structures qualification. It's up on the test stand and being subjected to the loads that we should expect during launch, reentry and landing. Then it will head back inside the building to be fitted out with its full suite of avionics and fluid systems. After that, it will be shipped off to Wallops to join the Hungry Hippo fairing for further assembly. Another part of Neutron's program that we don't talk about enough, but which is a critical part of its development, is the landing barge called Return on Investment. Now the photos do not do it justice because this thing is massive. It's practically a launch site of its own. We're talking a huge amount of power generation, 10 megawatts across its four station-keeping thrusters, enough to power thousands of homes. By the time it's completed, it will be more than 11 million pounds or 5,000 metric tons. So fitting out this landing platform is coming along nicely. Housing for the platform thrusters have been installed as well as the main cabin and the aft edge of the barge. Its power generation systems and thrusters have arrived at the shipyard in Louisiana and are ready to go in next, and we're on track for sea trials to start later this year. It's one thing to say that you're going to be reusable. It's another to actually make the investments into the landing platforms that enable it. We're doing this now well ahead of time so that we can move swiftly into reusability with Neutron as early as Flight 2. And finally, to round out Neutron's development, here's a look at other significant progress across the program. From the bottom of the vehicle to the top, we've got the Archimedes engines continuing to undergo extensive testing at Stennis in their flight configurations. This is for both the Stage 1 version of the engines and for the vacuum-optimized Archimedes that will power Stage 2. It's nonstop hot fires across both tests as the team really stretches the performance of these engines while running them in the full range of gimbal angles. For the thrust structure, since completing qualification, the team has gotten stuck into fitting it out with the full flight set of avionics and fluid systems. That's taking place at our Middle River facility before it's sent out to Launch Complex 3 for integrated systems testing on the pad. Stage 2 continues to progress with the integration of fluid systems and avionics. We also qualified its payload support structure, a separate interface on the top of the stage that physically attaches a satellite to Neutron. This payload support structure is another carbon composite structure that's designed to be as lightweight as possible since every kilogram reduces payload capacity. And having cleared qualification smoothly, it's just days away from shipping out to Launch Complex 3 as well. Then right at the top of the Hungry Hippo, our qualified reusable fairing system has been covered in TPS, or Thermal Protection System, once arriving in Virginia. Integration of the avionics and fluid systems on this part of the vehicle continues as well. So as you can see, there's been lots of Neutron activity lately. I will remind you that these comprehensive test campaigns are all being run in parallel, all timed to converge for the first launch at the end of this year. That means a lot more exciting updates to look forward to in the coming weeks and months before the vehicle comes together and goes on to the pad. That wraps up the operational highlights. Now over to Adam for the financial overview and outlook.

Thanks, Pete. First quarter 2026 revenue was a record $200.3 million, coming in just above the high end of our prior guidance range and representing an impressive year-over-year growth of 63.5% and quarterly sequential growth of almost 12%. This strong performance was driven by significant contributions from both of our business segments and underscores the continued momentum across the business. Our Space Systems segment delivered $136.7 million in revenue in the quarter, reflecting a year-on-year increase of 57.2% and a sequential increase of 31.7%. This growth was primarily driven by increased contribution from our satellite platforms business, which continues to perform exceptionally well and provides company diversification alongside a robust but at times lumpy launch business. Meanwhile, our Launch Services segment generated $63.7 million in revenue, up an impressive 78.9% year-over-year, though down 16.1% sequentially due to fewer launches in the period. Now turning to gross margin. GAAP gross margin for the first quarter was 38.2%, up slightly sequentially and above our prior guidance range of 34% to 36%, with outperformance driven primarily by solar products and launch, owing to better-than-expected absorption and lower spend, respectively. Non-GAAP gross margin for the first quarter was 43%, while down slightly sequentially, was also above our prior guidance range of 39% to 41%. The sequential decline in non-GAAP gross margin, which was better than expected, was primarily driven by a mix shift towards Space Systems and a modest decline in launch margin based on mix and lower revenue. Relatedly, we ended Q1 with production-related headcount of 1,448, up 250 from the prior quarter, largely driven by a transition of dedicated R&D headcount from the first Neutron test flight to our production teams related to future revenue-generating missions as well as headcount ramps related to our recent Geost and PCL acquisitions. Turning to backlog. We ended Q1 2026 with approximately $2.2 billion in total backlog, with launch backlog accounting for approximately 41.5% and Space Systems representing 58.5%. During the quarter, launch backlog continued to gain share, supported by strong underlying trends as we convert a robust pipeline of opportunities across Electron, HASTE and Neutron. This includes the 20 HASTE block buy missions signed within the quarter that Pete mentioned earlier as well as five Neutron bookings with a confidential customer. We are actively cultivating a strong pipeline that includes multi-launch agreements, large satellite platform contracts and an increasingly diverse set of satellite component and subsystem merchant opportunities across government and commercial programs. As noted earlier, these larger needle-moving opportunities can introduce lumpiness in backlog growth, but they are critical drivers of long-term value and scale for the business. Looking ahead, we expect approximately 36% of our current backlog to convert into revenue within the next 12 months. Additionally, we continue to benefit from relatively quick-turn business, particularly in our Space Systems components and subsystems businesses that drive incremental top-line contribution beyond the current 12-month backlog conversion. In addition, as we close and integrate our new acquisitions such as Geost, Optical Systems, Inc., Monarch and Motive, they will be accretive to our served addressable market opportunity, backlog and forward revenue growth rates and margins. Turning to operating expenses. GAAP operating expenses for the first quarter of 2026 were $132.5 million, above our guidance range of $120 million to $126 million, driven by the stock-based compensation charge related to Peter Beck's RSU forfeiture. Non-GAAP operating expenses for the first quarter were $105 million, which was below our guidance range of $106 million to $112 million. In R&D specifically, GAAP expenses increased $1.7 million quarter-over-quarter, while non-GAAP expenses rose $1.9 million. These increases were driven by continued investment within our Neutron program paired with seasonal step-ups in payroll taxes. Q1 ending R&D headcount was 949, representing a decrease of 70 from the prior quarter. The decrease in dedicated R&D headcount is due to the transition of our production teams from R&D cost centers to production cost centers as we begin the transition from the first Neutron R&D test flight to future revenue-generating missions. In SG&A, GAAP expenses increased $11.4 million quarter-over-quarter, while non-GAAP expenses declined $1.3 million quarter-over-quarter. The increase in GAAP SG&A was primarily due to the previously mentioned Peter Beck RSU cancellation, resulting in a large one-time stock-based compensation expense. Meanwhile, the decline in non-GAAP SG&A was primarily due to a one-time adjustment of accruals related to our 2025 annual bonus plan, which were ultimately lower than previously anticipated due to certain executive officers foregoing bonus awards for 2025. Q1 ending SG&A headcount was 381, representing a decrease of four from the prior quarter. In summary, total headcount at the end of the first quarter was 2,778, up 176 heads from the prior quarter. Turning to cash. Purchases of property, equipment and capitalized software licenses was $27.1 million in the first quarter of 2026, a decrease of $22.6 million from the $49.7 million in the fourth quarter. This decrease reflects less capital investment in Neutron development during the quarter, particularly for the Return on Investment recovery barge as well as the pad at LC-3 at Wallops, Virginia. As we progress towards Neutron's first flight, we expect capital expenditures to remain elevated as we invest in testing, production scaling and infrastructure expansion. GAAP EPS for the first quarter was a loss of $0.07 per share compared to a loss of $0.09 per share in the fourth quarter. The sequential improvement to GAAP EPS is primarily due to increased revenue contribution paired with increased gross profit. GAAP operating cash flow was a use of $50.3 million in the first quarter of 2026 compared to a use of $64.5 million in the fourth quarter. Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to Neutron development, longer lead procurement for our SDA programs and investments in subsequent Neutron tail inventory as we scale the business beyond its initial test flight. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow less purchases of property, equipment and capitalized software in the first quarter of 2026 was a use of $77.4 million compared to a use of $114.2 million in the fourth quarter. The ending balance of cash, cash equivalents, restricted cash and marketable securities was roughly $1.48 billion at the end of the first quarter. The sequential increase in liquidity was driven by proceeds from sales of our common stock under our at-the-market equity offering program, which generated $450.4 million during the quarter. In addition, in April, we completed the ATM offering by raising another $24 million in cash as well as entering into a collared forward transaction with a floor price of $474 million. We also have access to capped call transaction proceeds related to our 2024 convertible notes offering with a maximum aggregated payment of $201.9 million by final maturity in 2029. Putting this together with our cash on hand, we now have access to more than $2 billion in liquidity, resulting from a successful series of capital raises over the last several years conducted at increasingly higher equity prices. In February of 2024, we raised a $355 million convertible bond offering with an effective post-capped call price of $8.04 a share and followed that with a series of three ATM facilities executed at average prices of $26.19, $47.85 and $70.47, respectively. Additionally, under the most recent ATM, we entered into collared forward transactions with a floor price of $63.61 and a ceiling price of $86.11. These funds are intended to support acquisitions and a robust M&A pipeline alongside general corporate expenditures and working capital. We exited Q1 in a strong position to execute on both organic and inorganic growth initiatives and to further vertically integrate our supply chain, expand strategic capabilities and grow our addressable market, consistent with what we've done successfully in the past. Adjusted EBITDA loss for the first quarter of 2026 was $11.8 million, which was well below our guidance range of a $21 million to $27 million loss. The sequential improvement of $5.6 million in adjusted EBITDA loss was driven by higher revenue and strong gross margin. With that, let's turn to our guidance for the second quarter of 2026. We expect revenue in the second quarter to range between $225 million and $240 million, representing 16% quarter-over-quarter revenue growth at the midpoint. We anticipate GAAP gross margin to range between 33% to 35% and non-GAAP gross margin to range between 38% to 40% — these forecasted GAAP and non-GAAP gross margins are accounting for a mix shift within our Space Systems business. We expect second quarter GAAP operating expenses to range between $138 million and $144 million and non-GAAP operating expenses to range between $120 million and $126 million. The quarter-over-quarter increases are primarily driven by the Monarch acquisition and ongoing Neutron development and spending related to Flight 1, including staff costs, prototyping and materials. However, we expect to see a shift in spending from R&D to Flight 2 and beyond inventory, which is an encouraging sign of progress as we move closer to Neutron's first flight. Please note that the nascency of the closing of the Monarch acquisition and the newly announced and yet-to-be-closed Motive transaction, the GAAP guidance figures exclude any to-be-determined impact of purchase price allocation and stock-based compensation related to these deals. We expect second quarter GAAP and non-GAAP net interest income to be $12.5 million, which is a function of higher cash balances as well as a significant reduction in our outstanding convertible notes. We expect second quarter adjusted EBITDA loss to range between $20 million and $26 million and basic weighted average common shares outstanding to be approximately 629 million shares, which includes convertible preferred shares of approximately 46 million. Lastly, consistent with prior quarters, we expect negative non-GAAP free cash flow to remain at elevated levels, driven by ongoing investments in Neutron development and scaling production. This excludes any potential offsetting effects from any financing activities. In summary, Q1 was another quarter of strong execution. We exceeded guidance and expectations for revenue, gross margins and EBITDA, all while maintaining robust liquidity to fund future growth initiatives. We expect this momentum to continue, guiding to strong revenue growth as our satellite platforms business continues to scale and Neutron progresses towards first flight. And last but not least, here are some of the upcoming investor events that we'll be attending in the next few months. And with that, we'll hand the call over to the operator for questions.

We'll take our first question. Your first question comes from the line of Andres Sheppard from Cantor Fitzgerald.

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

Andres, nice to chat here. So I guess the key things to be watching out for are the continued placing of items on test stands because really, that's the large pieces of work yet to come that have risk associated with them. So as we put these large pieces of the vehicle on the test stand and take them to their limits and sometimes beyond, then the completion of those pieces of work is probably the easiest and most visual thing to track. Of course, there's a tremendous amount going on in the background that's less visible. But for investors, I think that's probably the easiest thing to focus on. And then with respect to customer feedback, I think you can see from our strategy of just not discounting flights to fill a manifest. We've held our ground there. And the customers that ultimately buy those vehicles, they know us well, and we're very well trusted. They have complete confidence in both Rocket Lab and our ability to deliver Neutron. So needless to say, there's also a lot of customers waiting to see it fly. The more aggressive customers are making sure that they don't miss out on opportunities to fly early.

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

Yes. I'll provide what color I can, and I'll pass it back over to Pete with regards to the relationship of the partnership with Raytheon. It really is, we view it as a partnership. I think everybody has had a lot of visibility to what's going on with various elements of Golden Dome. SBI is one of the more visible ones. There's a limited amount that we can really talk about for that program specifically. But we envision a very large opportunity, and there are gates that we've got to get through. As you're aware, this is kind of an interesting procurement process for the government where companies like ourselves and Raytheon and others that are in the mix have to put some of their own skin in the game to unlock a potentially very large opportunity in the back end. So I'd say the most important thing right now is, are we able, like we have in the past, to bring really quick cost-advantaged solutions to the market because of our vertical integration capabilities. We'll be able to do things in time frames and cost points that we think few, if any, people will really be able to compete with. So we think we're in a good spot. Pete, do you want to put any more commentary?

I think you've covered it beautifully, Adam. I can't really add more to that.

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

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

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

Kristine, great to talk to you. Well, I think you've just seen a methodical approach here from us as we continue to expand our TAMs. But what I would say is they're all expanding for a common reason and a common direction, and that is to ultimately be able to provide services of our own in orbit. So yes, I think at this point, there's a lot of capability that we've managed to accumulate both organically and inorganically. And I think we're really at the point where if anybody comes to us and asks us to build any spacecraft or satellite, we just sort of shrug our shoulders and get to work. I think we've brought in-house a tremendous amount of capability, and it all kind of drives towards those end goals.

Yes. And I would add maybe one more point to that. I think it's important for shareholders. A lot of other companies when they're going to expand into new TAMs or expand into ones that are already in, they just default to acquiring their way in. I think this quarter is a great example of us being able to really execute on both sides: organic and inorganic. We announced a few weeks ago, as Pete talked in his prepared remarks, about GA, our electric propulsion solution that we're bringing to market. That's one where we could have spent a few hundred million dollars acquiring a start-up and then gone through all the scaling challenges there and probably ultimately come out with a solution that we thought would be inferior. Instead, we dedicated a portion of our engineering team and an order of magnitude less capital to get it done, and we ended up with what we think is the best solution for the market. So I think when we look at how we expand in new markets, we're not just focused on spending shareholder capital to acquire. We'll actually be very efficient and go after it organically as well, which we think yields great benefits for our shareholders.

Great. And if I could follow up on Neutron. You guys talked about the pricing for the recent deal aligns with your average selling price for the launches. With a smaller backlog for Neutron, can you level set us on how we should think about the pricing for that? And then also with the maturity of the upcoming launch in the fourth quarter, what's been the customer reception for this? You've got a very strong order this quarter. You noted higher than what you had last year. So I just want to understand the demand environment for that launch as we get closer to Q4 for the first one.

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

And I think, Kristine, we can also kind of look back historically and look at what happened with Electron pricing. When we brought that vehicle to market, pricing was, call it, $5 million to $6 million. We now see how backlog is priced with average backlog priced in around $8.5 million for commercial missions and some hypersonics being higher than that. So I suspect that we'll see that same kind of trend present itself as we bring Neutron to market where we tend to be very conservative upfront. We understand the value proposition that Neutron brings relative to what is arguably very scarce competition in the market, primarily Falcon 9. We think that we'll compare very favorably there and hopefully experience an upward bias to ASP as we continue to gain cadence and credibility with the platform.

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

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

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

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

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

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

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

Thanks, Trevor. Motive actually brings a really interesting and unique capability. We highlighted the Mars stuff because that's extremely unique and very cool. But also, basically, any actuation and high-precision actuation — these guys are literally the world experts at. That ranges from booms and cameras through, as you pointed out, on-orbit docking and servicing. We have a very capable capability for that kind of work. Also just precision drive and drive electronics for things like solar panel rotators and array drives, which is something that typically we have bought externally, so we're able to now bring that in-house as well. So yes, it's a unique acquisition in the fact that it exposes us to new opportunities and gives us new capabilities. It also closes one of the last few subsystems that we currently buy externally with respect to solar array drives. So yes, it does a number of things for us.

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

No, you've got that right, Trevor. It's essentially as the SDA Tranche 2 and Tranche 3 programs become more and more of the mix, they come in at lower gross margin, but they bring a lot of scale with them. If you look at what that does to overall operating margins, it will be accretive to that. The other thing to think about is we have normal quarterly mix changes. This quarter, there's less higher-margin launch business in Q2 than we had in Q1 and Q4. The launch business is a little difficult to predict because we have a mix of point-in-time revenue recognition and over-time revenue recognition. So it's much harder to have a lot of predictability to exact margins in any given quarter. Overall, we see margins expanding in launch as we progress through the year as we increase our cadence on Electron. And when we mix in more subsystems and components business, those typically come at higher gross margins than these large SDA contracts. So we feel very good about where we're at margin-wise and think we have a lot of opportunities to continue to drive gross margin increases.

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

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

Michael, yes. We bought them from multiple suppliers previously.

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

We designed the Electron factory for 52 Electrons a year. So we have capacity to reach there. There'll be some modest capital investments to realize that, but that's basically it. We have two pads already done at Launch Complex 1, and of course, we have the third pad at Wallops. So I don't see those as constraints. Over 52 launches a year, we'll have to take a little more real estate and expand the factory, but it's all pretty modest investments.

Your next question comes from the line of Alexander Christian Preston from Bank of America.

This is Alex on for Ron. I wanted to ask on Space Systems. Are you seeing or thinking about opportunities in proliferated GEO and perhaps other higher orbits? The trend has been towards LEO proliferation, but there seems to be some momentum on contracting activity on the Space Force side. Is this a space you're looking at? And to what extent could you enter that market as a prime given your current capability set?

Alex, certainly we're interested in that. A lot of the spacecraft that we build already go to higher-altitude orbits and require hard radiation tolerance. Those environments are not dissimilar to GEO. A lot of the challenges around rad-hard electronics and those operating environments, we're already very familiar with. Going to GEO for us is not scary at all. We're happy to go to Mars and operate in deep-space environments. So much of that tech stack is rad-tolerant already. We are watching GEO opportunities and think it's an area we could easily move into.

Great. And then if I could follow up, Kristine asked similarly, but I wanted to ask more on the national security side. You've got capabilities on launch, HASTE, providing satellites to SDA, now adding SBI. Are there areas you could look to expand in national security that you can't address currently that you'd like to in the near term?

I think one of the really interesting opportunities that the SDA work brought us is these very bespoke, unique national security payloads. With acquisitions and our broader set of capabilities, we were introduced to a lot more programs and people than we would have otherwise. In one way or another, whether as a component supplier or a prime, we now have deep exposure into that national security environment through both launch and spacecraft.

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

I'll start with the Space Systems business. You announced a lot of updates recently, I think seven different capabilities in the last four months. Each of these updates points towards a strategy of expanding Rocket Lab's manufacturing footprint beyond the U.S., a distributed manufacturing model. Should we expect more of that in the future? Did disruption of tariffs factor into that, or was it mostly a logical business decision of being able to serve customers globally more easily?

A bit of both. Mynaric, for example, really gave us a foothold in Europe. Europe is a large market and opportunity for us. Also, it depends where the technology is — the Mynaric laser terminals are widely regarded as the best in the business. If it means we have to go to Europe to get them, that's where we'll go. We operate areas of excellence in different places: New Zealand makes sense for certain things, other facilities in the U.S. for others. We look at that holistically.

If I could have a quick follow-up. As we think about the Tranche 3 tracking layer, it was about $800 million in late December and then could expand up to $1 billion with subcontracting opportunities. Any of the updates — the new components you've announced in-house and Mynaric — increase your ability to serve other primes for future tranches? Can you give a ballpark of content that these developments have increased your ability to supply?

When you look at transport and track, they are all optically linked, need high-power solar and electric propulsion. There are opportunities across those elements. We can be widely distributed across components and platforms. Often when we don't win programs we still see orders for components from other winners, so we 'win twice' in that sense. That's what you saw with Tranche 3 — we won once and then had subsequent component orders come in.

Your next question comes from the line of Xin (Edison) Yu from Deutsche Bank.

I asked this a couple calls ago. In the context of having a complete satellite component portfolio and capabilities, and given recent deals in the industry, does your view on services markets, spectrum or other services change over the last six to nine months? Are certain services more attractive or less attractive? Does your view on spectrum change at all?

Great to talk to you. We've always been consistent that the end goal is to provide services from space. That's the largest TAM and where being vertically integrated with our own rockets and satellites can be most disruptive. That thesis hasn't changed. However, it's a bit academic to talk about services in depth while Neutron is still in development. Right now, our focus is completing Neutron and ensuring we have all components and scale to deploy applications in orbit in the right time.

Understood. Then more near term: you said HASTE makes up about one-third of the manifest. Do you envision a future where the launch mix has a sustained larger portion as hypersonic testing — for instance, one-third of launches or more being HASTE? Is that realistic?

Yes, it could be. Part of that will depend on the pace and scale of Golden Dome. One critical element of Golden Dome is how you test and simulate threats, and HASTE is very capable for things that are difficult to simulate. The scale of HASTE will somewhat depend on the scale of Golden Dome and the pace at which that program progresses.

Edison, I'd also add that we're seeing the international opportunity become much clearer. That applies to hypersonics as well. The geopolitical environment is driving more sovereigns to need capabilities and testing. So long-term demand for HASTE-type solutions likely expands beyond just U.S. programs. Of course, everything we do requires appropriate approvals and cooperation, but there is a bigger opportunity out there than solely U.S. government opportunities.

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

Can you share more details on Neutron timing? Based on current trends, is this more of an early Q4 story or late Q4 story? And depending on the timing of the first Neutron launch, is it possible we could see three payload-carrying launches in 2027?

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

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

I don't think we have enough visibility to narrow it down to a couple of weeks within the quarter at this point in time. As we approach first launch, those timelines will become much tighter. We've always said the plan is a 135-day cadence, and that's what we've demonstrated with Electron. We think that's the right cadence. That thought remains consistent.

Your next question comes from David Strauss from Wells Fargo.

This is Ben on for David. Curious, following up on that last question, when do you plan to incorporate reusability for Neutron? And how will that impact cadence going forward?

Great question. On Flight 1, we'll be aiming for a soft splashdown for Neutron. That will test reentry, engine relights and downrange burns — the area that's most unknown and hardest to fully validate other than actual flight testing. Provided that goes well and we're happy with performance, then we'll slip the Return on Investment barge under it and attempt a landing on Flight 2. If we don't get the result we want on reentry for Flight 1, we'll reevaluate. I don't want to put the barge under the vehicle until we know we're not going to damage it.

Got it. Great. And then can you provide an update on your contracts and how you're thinking about that program at a high level? Have you received all the funding for Tranche 2 transport? And how are you thinking about the transport layer going forward with that shift to the Space Data Network?

I can speak to where we are with contracts. Everything is on track. We've been hitting our milestones and getting on-time payments from our government customers. In fact, we received a sizable payment earlier this week. I don't think funding is an issue for the programs we're executing against. As far as long-term direction for transport layer, our focus is executing Tranche 2 of transport and on the missile-track and missile-warning capabilities for Tranche 3. There's a lot of public discussion about the overall architecture, but for us, it's about executing our current tranches.

The next question comes from Suji Desilva from Roth Capital.

Congrats on the progress here. Adam, I know you talked about the Space Systems business and the SDA programs. Maybe can you talk about how the mix of launch and Space Systems may trend over the next one to two years and the gross margin implications as that mix shifts?

Yes. We'll clearly have more mix from Space Systems in 2026 as we progress through the year, even though we're also expecting significant growth from Electron and HASTE. It won't be dramatic quarter-to-quarter. As mix skews more towards Electron, that's helpful to overall corporate margin because that product is getting close to target margins. Our Space Systems business has large SDA contracts that bring scale with a lower gross margin profile, but we also have higher-margin subsystems and components that offset that. We recently closed the Mynaric acquisition, which contributes roughly $15 million on a run-rate basis and comes in at a lower margin initially because it's a brand-new business for us. There's work to be done to get it into Rocket Lab's operating shape, but longer term we believe it can be at or above target Space Systems margins. Once we start to get Neutron in the mix, which we view as more of a 2027 revenue story, that will replicate what Electron did: start with challenged margins then improve as cadence, reusability and scale kick in. Long-term targets remain: corporate-level gross margins moving higher and delivering mid- to upper-20s operating margins. The key to unlocking that is executing Neutron's first flight and then scaling the fleet.

That's very helpful. Maybe one bigger-picture for Pete: are there opportunities in lunar missions or NASA programs that Rocket Lab is uniquely positioned to intercept that people might not realize? Are there particular areas where you see an opening?

Some areas, yes, but often those programs can be whipsawed by policy and funding changes. We prefer to be the picks-and-shovels supplier behind missions rather than the headline prime for programs that can be uncertain. Where there's proven funding and stability — like certain Mars programs and telecom orbit support for sample return — we'll pursue those. We prefer a stable program profile rather than chasing shiny but uncertain headline missions.

Your next question comes from Ryan Koontz from Needham & Co.

With your recent additions like Mynaric and GA electric propulsion, how do you think that improves your competitive position in the broader landscape, and how does it affect your ability to compete financially in the multiyear strategic picture?

Some of these acquisitions are driven by pure pain. Historically, parts like electric propulsion were constantly late and expensive. Motive had great technology but struggled with delivery. Owning these things allows us to resolve the pain, which puts us in a much stronger competitive position for on-time delivery and faster timelines. Vertically integrating important subsystems improves cost structure and gives a competitive advantage.

I'd add a tangible example. Our Tranche 3 win — the $860 million program — was in part because of our level of vertical integration. The margins we model for that kind of program are very much in line with our Space Systems platform business and look quite different than companies without similar vertical integration. Owning these pieces helps us both win contracts and deliver them with attractive financial profiles.

Your next question comes from Ned Morgan on for Andre Madrid from BTIG.

Could you size how much of Space Systems revenue is being consumed internally versus third parties this year? Specifically, how much of your internal production is supporting your programs versus others?

It depends by product. For solar, the majority of revenue today is sold to other satellite manufacturers like Lockheed and Airbus rather than consumed internally. For electric propulsion (GA), initially we'll prioritize internal strategic programs so internal consumption will be higher. Reaction wheels and other components today are predominantly sold to third parties. There's no single holistic number — it's product by product.

Okay. And one more: regarding how big HASTE and hypersonics could be, what would make you decide to broaden hypersonic offerings beyond HASTE? Any interest in other programs like MCXL?

We have interesting exposure across many areas. HASTE is a very specific requirement and fits well with our capabilities and SBI. We evaluate expanding further when we can add the most amount of value and it's strategic for us. As various programs rise, we'll take a solid look and make decisions based on capability fit and strategic value.

If I could wave a magic wand and set an ideal mix, I'd like HASTE to represent a stable base business for the Electron platform that would move us to target margins — something like 24 launches a year. That would absorb overhead and make other launches incremental margin. This year HASTE sits at roughly 20% to 25% of our manifest, so there's work to do to reach that baseline, but it's possible and international demand could help.

Your next question comes from Vijay on for Jeff Van Rhee from Craig-Hallum Capital Group.

On subsystems, how are you tracking progress post-acquisition? How much cost are you able to take out, how much can you increase margins, and how much can you scale production? What metrics are you watching?

It depends on the business. Historically, we've acquired very profitable small companies, and integrating them has been more about operational improvement than wholesale financial restructuring. Some acquisitions will take more work than others. We have clear gross margin targets for acquired units. We run those businesses like start-ups: they pitch for investment and are expected to grow and meet targets. That approach has worked well.

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

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

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