Earnings Call Transcript - YSS Q4 2025

Operator, Operator

Hello, everyone. Thank you for joining us, and welcome to the York Space Systems Fourth Quarter and Full Year 2025 Earnings Call. I will now hand the call over to Christopher Evenden, Vice President of Investor Relations. Please go ahead.

Christopher Evenden, Vice President of Investor Relations

Hello, everyone, and welcome to York Space Systems Fourth Quarter and Full Year 2025 Earnings Call. With me on the line are Dirk Wallinger, our CEO; and Kevin Messerle, our CFO. Please note that our earnings press release is available at ir.yorkspacesystems.com. In addition, we have posted an earnings presentation to accompany our prepared remarks on the same website. Lastly, after the call we will post a transcript of our prepared remarks and an audio replay of this call. For those listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, Thursday, March 19, 2026, and have not been updated subsequent to this call. During this call, we will refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings press release. We will also make statements that are considered forward-looking, including those related to our 2026 outlook, future growth prospects, backlog, growth of market share, growth strategy and capabilities, and future health of our spacecraft. Listeners are cautioned that our forward-looking statements involve certain assumptions and are inherently subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors and other discussions included in our prospectus filed with the SEC on January 30, 2026, and in our subsequent reports filed with the SEC, including our upcoming annual report on Form 10-K for the year 2025. After the completion of prepared remarks, we will open the call for questions. Now I will turn the call over to Dirk.

Dirk Wallinger, CEO

Thanks, Chris. Hello, and welcome to York's Fourth Quarter and Full Year 2025 Earnings Call. I appreciate you all taking the time, and I'm happy to be speaking with you. 2025 marked an inflection point in our business. We grew revenue by 52% year-over-year, and we exited the year with a clear line of sight to profitability in 2026. Kevin will get to the details of that in a moment. Our financial results are a reflection of the business milestones we reached during the year. Given this is our first earnings call, I'll provide some context on how we got here. I founded York in 2012 with one purpose, to disrupt the traditional space industry. At that time, it was an era of multibillion-dollar satellites built over decade-long timelines. And it was clear to me that if the United States continued on this path, we'd lose the second space race to our adversaries. We needed the ability to design, build, and deploy large constellations of satellites on significantly accelerated timelines. That meant transforming how we manufacture, launch, and operate satellites, shifting from bespoke programs to a fully industrialized model. That's exactly what York was built to do and what we've been executing on since 2012. As the mission prime, we own the full satellite life cycle from design and manufacturing through launch, operations, and sustainment. Our multi-platform approach is built around a standardized modular family of spacecraft that range from 200 to more than 2,000 kilograms. We architect our platforms as integrated systems, combining flight-proven hardware with proprietary flight and mission operations software. That integrated software-hardware approach is designed to allow us to seamlessly coordinate across three different operation centers, task across our global network of close to 50 antennas and procure and integrate launch services. Executing as the mission prime enables us to monetize the full mission life cycle and maintain control over most aspects required to execute our vision. That integrated approach is what has set York apart and what has enabled us to deliver reliably at speed and scale. 2025 saw us deliver on that founding vision. We launched 23 satellites into orbit in 2025 alone. We emerged as a leading provider of the Department of Defense's Proliferated Warfighter Space Architecture, measured by spacecraft on orbit, number of contracts, and mission types. We acquired a global ground station network and software-defined operations platform, effectively eliminating ground communication bottlenecks to support our end-to-end mission architecture. And we fine-tuned our industrialized production process with every satellite we build. We've achieved multiple technical feats, including in-plane, cross-vendor, and space-to-ground optical laser communications. York demonstrated K-band connectivity, orbit maneuvering, and remains the only provider ever to demonstrate Link 16 from space to ground. Together, these demonstrations validate our ability to integrate advanced capabilities into cohesive, secure architectures designed to meet the evolving needs of the warfighter. These milestones reflect years of deliberate execution and sustained intentional investment. From the outset, we've aligned every major decision around enabling the rapid, cost-effective production and operation of satellite constellations critical to U.S. mission success. With U.S. government demand accelerating rapidly, we are positioned to deliver at scale. Our IPO strengthened our capital base and operational flexibility, enabling us to accelerate execution and further extend our lead over competitors. Now I'd like to highlight the 2025 achievements that we expect to have the biggest impact on our future. Most significantly, on September 10, we launched 21 satellites for the Department of Defense. This low earth orbit constellation is designed to provide secure, resilient communications, and data transport for U.S. and allied warfighters. We delivered our satellites to orbit one month ahead of our nearest competitor, and we confirmed the health of all spacecraft within hours of launch separation through our own classified mission operations center here in Denver. We are excited about the launch of our second plane of satellites for Tranche 1. These spacecraft were the first operational communication satellites in orbit for the PWSA, and we understand they will play a key role in communications infrastructure, underpinning America's next generation of space-based defense systems. Our multi-platform approach enables us to execute across nearly every Golden Dome mission set, including communications, signals intelligence, remote proximity operations, earth observation, synthetic aperture radar, and visible imaging. Our S-CLASS platform launched in 2018 and has flown across multiple missions and constellations, establishing a repeatable, flight-proven foundation. We expanded that architecture with our LX-CLASS platform, which shares approximately 80% of its hardware and nearly all of its software with the S-CLASS. That design commonality validated our manufacturing model and reinforces the strength of our integrated hardware and software ecosystem. Building on that foundation, we introduced our largest M-CLASS platform in 2025, extending the same core architecture to support payloads in excess of 8 kilowatts of power. By leveraging the same flight-proven hardware and software stack, M-CLASS enables us to scale into higher power mission sets without redesigning the underlying system. This significantly broadens our addressable market across national security, civil, and commercial markets. As part of our plan to continue expanding our share of the market, I am happy to share that we recently finalized a $187 million commercial contract for a 20-plus satellite constellation built on the M-CLASS platform. This is our fifth commercial contract and the first constellation of a series of constellations for this customer. Our platform and turnkey ecosystem approach is designed to lower cost, streamline and derisk procurement, accelerate build times, and significantly reduce capital intensity. Recognizing that ground infrastructure is foundational to proliferated architectures, we acquired ATLAS Space Operations in the third quarter of 2025. As proliferated constellations scale, ground infrastructure becomes a critical constraint. The pressure is particularly acute when dozens of satellites are deployed simultaneously at launch and require rapid checkout and orbital phasing, as was the case with our numerous constellation launches. By bringing ATLAS into our ecosystem, we expanded our global ground network, reduced dependency on constrained third-party capacity, and reinforced our integrated end-to-end mission model, enhancing space-to-ground resilience. ATLAS was essential in enabling us to confirm the health of 21 satellites launched in September quickly. As a wholly owned subsidiary, ATLAS will continue to operate independently under its existing brand, serving its diverse portfolio of customers across the industry. Another key mission in 2025 was Dragoon. Launched in June, Dragoon is notable because we went from contract execution to orbit in just seven months, a 75% reduction in delivery timeline versus a typical 30-month program. York was approached with an identified agency need, and we then reallocated a satellite in production to this mission. We integrated a completely new capability and successfully delivered the spacecraft in orbit. York is probably one of maybe two providers, which have demonstrated this ability. Another milestone in 2025 was our commercially procured communications mission for NASA, the BARD mission, developed in collaboration with NASA's Space Communications and Navigations Program and the Johns Hopkins Applied Physics Laboratory executed more than 100 on-orbit communication activities. BARD successfully demonstrated forward and return link connectivity to NASA's tracking and data relay satellite system, validating interoperability across multiple commercial K-band relay networks. These demonstrations confirmed the feasibility of seamless roaming between government and commercial communication services. BARD is an important opportunity as a potential pathfinder for modernizing NASA's legacy TDRS architecture into a proliferated LEO network. Such a transition would expand connectivity, reduce latency, and enable faster commercial pace technology refresh cycles while preserving compatibility for existing users and unlocking new mission capabilities. We anticipate the BARD mission to be extended to address an expanded series of demonstrations, further showcasing our large customer base and wide mission capabilities. In addition to our mission execution, we also strengthened our strategic position in January by going public. Our decision to go public was grounded in long-term strategy and informed by a clear assessment of market timing and growth trajectory. The capital we've raised provides us flexibility to seek opportunities to grow our TAM through M&A and adjacent market products, grow inventory to provide unmatched scheduled deliveries, expand the manufacturing advantage we currently have over our competitors, and scale our network ecosystem. Our recent acquisition of Orbion Space Technologies is a good example of the first point. Orbion is a Michigan-based manufacturer of flight-proven electrical propulsion systems that has already delivered at scale for York missions. Acquiring the company helps us reduce supply chain risk, which improves schedule certainty and enables us to align our technology road maps with the growing constellation scale demands across the sector. Similar to ATLAS, Orbion will continue to operate as a wholly owned U.S. subsidiary of York, serving customers across the broad space industry. Both acquisitions reinforce our deliberate strategy to integrate critical mission capabilities across York Space ecosystem, propulsion, ground operations, and end-to-end mission execution. Future M&A may address strategic elements of the supply chain. Some may help us grow our TAM, and some may do both. The second use of proceeds will be to build inventory of our satellite platforms. We demonstrated the velocity of our manufacturing process in September by being first to orbit for the PWSA Tranche 1 contract. We demonstrated we can reduce in-orbit delivery by up to 75% with inventoried spacecraft. And we are one of the very few in the industry with proven platforms mature enough in their life cycle to provide this capability. This presents a significant strategic competitive advantage and can also enable us to recognize revenue on accelerated schedules. Our time to orbit was already a differentiator, one we've built through over a decade of manufacturing satellites, but we believe the ability to leverage existing platform inventory provides a step function improvement, further widening the gap between us and our competitors. Demand signals are very encouraging. The government is currently reengaging, and the Pentagon is moving quickly to execute their missions. We believe there is a clear understanding across the government that the global threat environment is deteriorating and that investment in space domain awareness, missile defense, connectivity, and counter space capabilities are essential to America's security. Proliferated architectures have become the preferred approach for resiliency and fight-through capability. We are also seeing a pronounced push to diversify supplier bases in other areas of the market as cost and speed take on greater importance, especially as proliferation is only feasible if satellites can be made affordably enough to deploy in large quantities. York's 2025 performance metrics validate the mission I set when I founded the company. From day one, our goal has been to serve as a mission prime for proliferated systems. Today, we've built the foundation, scalable satellite manufacturing, a unified software stack across platforms, and an integrated space terrestrial ecosystem. Today, York is executing at scale across national security and commercial missions, with 33 satellites currently on orbit, mission operations centers supporting five active missions and two operational constellations. We are preparing for our eighth launch overall, which will see another 21 York satellites reach orbit on a fully dedicated launch vehicle for the second time. We are executing on our 12th contract and advancing work on our sixth constellation contract, underscoring York's ability to deliver repeated, reliable performance across multiple programs while continuing to scale production and mission execution capacity. York's proven mass production cadence demonstrates its strong competitive advantages, enabling the company to field multiple flight-proven platforms with decades of flight heritage, demonstrated on our performance and the ability to deliver fully populated launches at scale. Our latest commercial constellation contract win further demonstrates York's ability to win across numerous markets and customers. For all these reasons, we believe York is well positioned to meet the evolving needs of the United States Government and commercial customers. And with that, I'll hand the call over to Kevin.

Kevin Messerle, CFO

Thanks, Dirk. As Dirk said, 2025 was a transformative year for York. By successfully delivering on a broad set of contracts, we were able to significantly grow revenue and take significant strides towards profitability. Revenue for the year was $386.2 million, up $132.7 million or 52% on the prior year. Substantially, all of our revenue derives from long-term fixed firm price contracts and is recognized using a percentage of completion method. We believe this approach most accurately tracks the business and it provides generally a steady progression of revenue throughout a program. Year-on-year growth in revenue was primarily driven by increased completion against two of our Transport Layer Tranche 2 contracts. Gross margin percentage, which includes allocated labor, overheads, and depreciation and amortization, was 20%, up 7 percentage points year-on-year, driven by improved mix as newer programs became a larger part of the whole and a reduction in negative estimate at completion adjustments. We have built cross-functional teams at York that reevaluate these on a program-by-program basis every quarter. Turning to operating expenses. While our revenues increased 52% year-on-year, our SG&A plus R&D expenses only increased 8% for the same period. We also incurred approximately $12.1 million of one-time transaction costs associated with our M&A program as well as IPO-related professional fees. The ability to scale our revenue while tightly controlling expenses is the primary driver of our improvement in adjusted EBITDA from 2024 to 2025, and we expect that trend to continue through 2026. On the operations front, we had 710 employees at the end of the quarter, of whom almost 75% are directly involved in the design and manufacture of satellites or delivery of mission services. Just to touch on our liquidity, as of December 31, 2025, our cash and cash equivalents were $162.6 million and availability under our revolving facility was $150 million for total liquidity of $312.6 million. On January 30, 2026, we completed our IPO of 18.5 million shares of our common stock at a public offering price of $34 per share. We received net proceeds of $582.6 million, net of underwriting discounts and commissions and offering costs, bringing our total liquidity at January 31 to $895.2 million. We make use of a number of non-GAAP metrics to inform our management of the business and to give investors insight into our core business drivers. These include contribution margin and adjusted EBITDA. We define contribution margin as revenue less material costs. Historically, 85% to 90% of our direct costs for our program, excluding overhead allocations and depreciation, have been material costs. So it is incredibly important for us to price our contracts at a healthy margin above our single largest cost, material cost. We target a 35% contribution margin on all new business. Contribution margin in 2025 was 32%, an increase of 2 percentage points from 2024's 30%. We don't disclose program level margins, but I will broadly say that margins on our newer programs have been quite a bit higher than our older programs. We attribute this improvement to our increased ability to project material costs based on years of experience with actual production runs, together with a more rigorous pricing process that includes the use of appropriate management reserves. To further reduce margin risk, just as we operate under firm fixed price contracts, we largely hold our suppliers to the same. We grew contribution margin dollars by $47 million in 2025 to $122 million, an increase of 63%. Loss per share was $0.89 for the year. Capital expenditures for 2025 were $8.9 million as compared to $18 million in 2024. As Dirk touched on in his remarks, our manufacturing process is highly flexible and very efficient, and this has enabled us to keep CapEx very low by the standards of the industry. Turning briefly to the quarter. Revenue for Q4 was $105 million, up 38% on Q4 2024. Gross profit margin was 20%, operating expenses were $38.2 million. Contribution margin was 33%, and adjusted EBITDA was negative $1.4 million, up from the negative $4 million last year. Looking ahead, we expect revenue for the year to be in the range of $545 million to $595 million, up 48% year-over-year at the midpoint. Over 70% of this is expected to come from our existing backlog, with the remainder anticipated to come from new business in the back half of the year. With regards to new business, our current expectation is for government contracts to start to be awarded towards the middle of the year, and York intends to compete strongly for them. And now I'll hand it back over to the operator for questions.

Operator, Operator

Your first question comes from the line of John Godyn of Citi.

John Godyn, Analyst

I appreciate it. I wanted to follow up on a few things, but I will focus on the acquisition of Orbion. Could you provide more details about how it came about and what the terms were? I am also curious if this was the deal mentioned in the S-1. There was a note in the S-1 regarding a letter of intent for an acquisition. Was this it, or was it a different one?

Dirk Wallinger, CEO

Yes, sure. Happy to dive into that one a little bit. Thanks, John. I appreciate the question. Yes, it is the acquisition that we are contemplating from the S-1. We're really excited about Orbion for a few different reasons. We've launched a good amount of satellites at this point. We've worked with a wide range of propulsion providers. Orbion was really a clear winner as far as their ability to execute, their ability to perform. Their hardware has performed really well in orbit. It's a really great team to work with. So we're excited about bringing that on. And it kind of goes to the vision of when we were doing the IPO, right? We spoke about the four different things that we were going to do and how we're going to go on offense. And one of those was some inorganic associated with bringing great technologies kind of in-house so we could align our technology road map, kind of give them a better vision of where the market was headed, where we were headed. So that they could be more successful in developing those products kind of right out of the gate. And that kind of communication is going to be critical because we're already a leader as far as costs and schedule go. But with Orbion with us now, we'll be able to align that technology road map, give them assurance of the kind of size of production cadence they're going to need in the coming years. So that they'll be really prepared to deliver for us. And so they've been a phenomenal performer for us for years now. And so we think this will make them an even better performer for us and the rest of the market as well. So they will continue to execute as a wholly-owned subsidiary.

John Godyn, Analyst

That's fantastic. Are you able to share how much revenue that is contributing this year? Additionally, regarding mergers and acquisitions, are there any other acquisitions that we should know about?

Dirk Wallinger, CEO

Yes, Kevin, please correct me if I'm mistaken. I don't believe we are breaking them out individually. Instead, we will continue to report at the top level.

Kevin Messerle, CFO

We're not issuing specific guidance, John, on Orbion, but we can confirm that it's included in our consolidated guidance figure.

Dirk Wallinger, CEO

And to the latter question about additional M&A, I mean, I do think there's some opportunity for some additional M&A. I think people in the industry and in this segment kind of see what we're doing. They're very excited about it. They want to be a part of it. And so there'll be some other things where like Orbion, they make sense, right? They're the best technologies. It will help us continue to drive down cost even further and make that advantage that we have larger, but then also kind of align that so that our schedules continue to be the best in the sector. So I think there could be some more opportunity for that. And then there's also opportunities where we might start to look at kind of adjacent markets and things like that.

Operator, Operator

Your next question comes from the line of Seth Seifman of JPMorgan.

Seth Seifman, Analyst

I wanted to start off talking about some of the opportunities for new business that you mentioned coming later in the year. Is it some of the Golden Dome opportunities moving maybe to the left of initial expectations for 2027? Is it in the intelligence community? Is it the next tracking layer? And what are the prospects to exit this year with a backlog that's bigger than where it is now?

Dirk Wallinger, CEO

We are very pleased about the developments we've reported. One of the most exciting updates is that we've secured a new constellation for M-CLASS intended for a commercial client, which will be the first of many. This addition contributes to our backlog, which is an encouraging sign for us. General Guetlein has been more vocal regarding the importance of initiatives like Golden Dome and the broader focus on National Defense. While everyone focuses on the name Golden Dome, the larger objective is National Defense. He has emphasized the critical need to reduce costs, expedite processes, and utilize existing acquisition methods, and we have successfully addressed all these points. This progress is why we are beginning to see more visibility around National Defense and Golden Dome. While I can't share specific details right now, we have maintained a strong backlog and demonstrated our capacity to convert it into revenue. We've also recently secured a new commercial contract for M-CLASS and won two IDIQs for classified clients. We are optimistic about our current standing. However, it's important to note that most of the work related to Golden Dome will remain classified, which is reflected in the nature of the contracts being awarded. I can provide more details about the contracts we've acquired for classified customers in the coming weeks as we clarify what information we can disclose. Overall, we believe we are in a strong position to continue our performance, as we've made significant additions to our backlog since the IPO, and we are committed to executing our plans effectively.

Seth Seifman, Analyst

Excellent. To follow up on the recent commercial win, the segments of the total addressable market you've discussed previously were primarily focused on national security. How should we view the commercial aspect in relation to the overall market and what is the potential size of that in comparison to other segments? How significant could this become in your overall mix?

Dirk Wallinger, CEO

Yes. Historically, our focus has been on National Defense, primarily because that’s where the funding and contracts were available. We secured those contracts and executed them well, which led to further opportunities. While we’re pleased with this success, I am increasingly optimistic about the commercial sector. Unfortunately, I can't disclose the customer at this moment, but I am very enthusiastic about their mission, as it aligns with current trends. I anticipate significant growth in this area. Traditionally, the commercial sector has faced challenges in attracting the necessary attention and investment to achieve scale, but we are witnessing a shift. The current administration is expressing interest in leveraging more commercial opportunities, which is encouraging for further investment. I hope this is just the beginning. This particular customer has many more projects planned for orbit. We are excited about being involved in this. Overall, I expect to see continued growth in the commercial space. Additionally, we are experiencing a surge in national defense, which creates a great market for us, and our customer base is becoming more diverse. Winning significant commercial contracts is encouraging as well. Both markets appear poised for growth, and I believe we are well-positioned to seize these opportunities if we continue to execute efficiently and deliver at scale. It's clear that the demand for satellites will not diminish in the future.

Operator, Operator

Your next question comes from the line of Peter Arment of Baird.

Peter Arment, Analyst

Dirk, I’d like to revisit your comments regarding the Golden Dome and the National Defense contracts. Many investors are keen to know if there has been a significant change in your perspective on the PWSA architecture. Could you provide some clarity on whether you see it as materially changing or simply evolving into different classified versions of Golden Dome? Any insights you can share would be appreciated.

Dirk Wallinger, CEO

I think it's along the lines of what you said in the latter part there. So look, if it's called PWSA, if it's called Space Data Network, if it's called pLEO, whatever the name is, the government is definitively moving towards it. And they're delivering contracts pretty quickly now out to performers who are going to execute on this. They need this executed really quickly. So I don't think it's about, hey, does PWSA, is that going away? Is MILNET going away? There's nothing going away. Communications is not only absolutely critical for Golden Dome and missile and National Defense in general, it's the most important thing. Nothing else happens without communication. So I think it's more of there's definitely a realization that this is going to be the architecture of the future for the United States. And if it is going to be the architecture for the United States that it needs to be more coordinated, right? That's a general theme that we're hearing across anything, whether that's space, whether that's sea, land, air, it has to be more coordinated. So I think a lot of the changes that you're seeing in PWSA Transport or MILNET or what have you, isn't really about do we need this? It is about we do need this, how are we going to get them to talk to one another. And maybe we should look at that in more detail and definitize that more before we continue on kind of separate disparate paths, which is kind of what got us into the challenges the United States faces today is we have lots of amazing capabilities, but they're disparate and they don't talk to one another. So I think it's really more about that is whatever the name is, it doesn't matter, it's needed. I think it's just more about let's make sure that they're going to talk to one another because we shot ourselves in the foot like a couple of times over this. So let's not do that anymore. I think it's really more about that, like that's the mentality.

Peter Arment, Analyst

Got it. That's helpful color. And just it is exciting, obviously, with the new commercial win that you announced in February. Could you maybe talk a little bit about expectations of delivery of those 20-plus satellites just over what time line?

Dirk Wallinger, CEO

Yes. So T1 is an operational system. And as such, the readiness of the system is controlled information. So I can't discuss actual launch dates, but we are very far along on production, and I think shipping is imminent. I probably can't get any more specific than that.

Operator, Operator

Your next question comes from the line of David Strauss of Wells Fargo.

David Strauss, Analyst

Dirk, I wanted to ask about in the fiscal '26 DoD budget that was passed, I think, end of January or early February, there was still a whole bunch of Tranche 1 and Tranche 2 funding in there. So have you actually received all of the Tranche 1 and Tranche 2 funding? Is that reflected in backlog today for you? Or is there still a fair amount of funding that has to come through and be put into your backlog related to Tranche 1 and Tranche 2?

Dirk Wallinger, CEO

I believe it's all included in the backlog. But Kevin, maybe if you think I'm mistaken, you can speak up.

Kevin Messerle, CFO

No, that's correct, Dirk. What we report as backlog consists solely of exercised options and only those that are funded. Therefore, our backlog is completely funded.

David Strauss, Analyst

Okay. So even though the funding wasn't approved until January after your 2025 year ended, is that included in the backlog or not?

Kevin Messerle, CFO

Let me explain it this way. All the programs we're involved in have funds allocated for them. As we transition into different fiscal years, the funding will be officially allocated. This means the funding becomes available over time. The main point is that all these programs have their budgets set aside. However, there are technical details regarding how the actual money is allocated to those programs over time. In our backlog, we only include exercised contracts or exercised options within those contracts and do not account for unexercised options, many of which pertain to the right of launch and O&S portion. Therefore, those are not part of the backlog. Regarding the movement of funding, we do not adjust our backlog based on funding amounts since a very small portion remains unfunded, and we are aware that the funds are in place. This is primarily a technicality concerning the timing of these funds.

David Strauss, Analyst

Okay. And then can you talk about kind of your current build rate? What are you producing at today? And what kind of build rate underlies the 2026 revenue guide as compared to 2025?

Dirk Wallinger, CEO

Yes. I would say that the build rate is definitely not our challenge. We are not ramping up production simply to meet current or future demand. On the contrary, York has made significant investments in our production capacity. For instance, at our Willow facility alone, we have enough capacity to fulfill all production needs through 2028. This does not even account for the production capacity at our Wazee facility, which is smaller but operates differently. Most importantly, our Potomac facility is four times larger than Willow. We have prepared for substantial production, with the capability to produce up to 1,000 satellites annually. This is what we have invested in, and it reflects our current capacity. This sets us apart from many other companies that are still working on validating their initial products and then scaling up. Our Willow facility alone can meet all our projections through 2028, and with the additional capacity at our Potomac facility, we are well positioned for the growth we anticipate through 2026, 2028, and 2029.

Kevin Messerle, CFO

Yes. I would like to add a few points here, Dirk. There is a useful slide in our earnings presentation that everyone should have access to either now or after the call. It's Slide 8, which indicates that we currently have 33 satellites in orbit. Additionally, we have 107 satellites in our production backlog, and we anticipate launching all 107 of those by the end of 2026 and into 2027. As Dirk pointed out earlier, we cannot disclose specific launch timings for individual programs since that information is restricted. However, we can generally state that we expect to have a total of 140 satellites in orbit by the end of 2027, if not sooner. Regarding our revenue, over 70% at the midpoint of our guidance is backlog, which represents a highly predictable revenue stream driven by our cost incurrence. Our supply chain is quite mature at this point, and we have regular discussions with our vendors depending on the program. This gives us a good understanding of the revenue timeline. Overall, we plan to launch 107 satellites into orbit in the coming years, which does not include the new commercial constellation we are still coordinating with the customer on to finalize launch expectations.

Operator, Operator

Your next question comes from the line of Austin Moeller of Canaccord Genuity.

Austin Moeller, Analyst

Just my first question here. Given the funding already included in Big Beautiful Bill and the fiscal year '26 budget for Golden Dome, what funding do you think might be allocated in this $450 billion reconciliation bill for space that they're talking about? Do you think it might include more satellites or more ground infrastructure for Space Force and DoD?

Dirk Wallinger, CEO

I mean at the 10,000-foot level, it's going to include more for both, for sure. Space is absolutely going to be critical to the National Defense and what we're doing in the future. But that does include a significant amount of ground effort as well. Ground will need to tie, like I said, all the disparate systems together. That's kind of the main challenge that we have is we have all the capabilities we need. We need to be more efficient in how they talk to one another. So ground will be a huge part of that. Building out ground is important. And that's one of the IDIQs that I mentioned was a contract win for us is about York helping to contribute to that, us helping to contribute on how you operate hundreds and thousands of satellites in orbit, how you feed that information and how you distribute that information and disseminate it. And satellites are really the best way of disseminating information. It's kind of above the entire battlefront. So there's going to be a significant amount for both ground and satellites, for both. Now all that said, our pipeline that we've identified and we have to update it, I'm sure, but we have $11 billion in identified pipeline right now. So that's seemingly only going to grow. I've seen more requests for more funding for some of our more recent engagements as well. So our identified pipeline is $11 billion, and that was before a lot of the growth that you're talking about here.

Austin Moeller, Analyst

Okay. And as the production lots for Golden Dome or PWSA grows with additional contracts for that constellation or those constellations, what gives you confidence in maintaining the target gross and contribution margins going forward? Is it just the strong execution record and timely delivery and best-in-class product?

Dirk Wallinger, CEO

Yes. For us, the three main metrics are best capability, best performance, and best schedule, which we consistently meet. Historically, we've managed to execute at a price that is half that of our competitors while maintaining margins that are very close to our current levels. We believe we have the potential to increase those margins as we continue to become more efficient. For instance, during the critical design review for the T1 program, we had 65 engineering heads involved, whereas for T2, we reduced that to 15. This shows significant improvements in our efficiency and execution capabilities. Kevin, you might have some additional insights on those margins, but those are the margins we target, price to, and operate within, and we've achieved this while charging half the price. Kevin, do you have anything more to add?

Kevin Messerle, CFO

No, I think you covered it really well, Dirk. I would say that since we are already half the price of our competition, we have a strong pricing position. I don’t think we need to lower our prices at all. Our strategy, as Dirk discussed previously, is to maintain this pricing, as it allows us to make good margins. However, as our supply chain matures and we increase our order volumes, our cost base is expected to decrease. This suggests that there is potential for growth in our contribution margin. From an accounting standpoint, our vertical integration initiatives have proven beneficial to our contribution margin, primarily due to the intercompany financial dynamics that effectively cancel out profit margins. Overall, I feel confident about the growth of our contribution margin moving forward. Additionally, we have been producing at large scale for a couple of years, which gives us an advantage that many of our competitors may still need to develop. Our experience in managing large constellations has minimized surprises regarding pricing on contracts from previous years. We don’t anticipate any unexpected changes in material costs, and we will continue to focus on reducing our supply chain expenses.

Operator, Operator

Your next question comes from the line of Ryan Koontz of Needham & Co.

Ryan Koontz, Analyst

I would like to get a broader perspective on the 2026 guidance, noting that over 70% is already secured in backlog. Could you elaborate on the types of revenue or the revenue mix that is not currently in backlog that you anticipate for 2026?

Kevin Messerle, CFO

We expect new business award activity to begin increasing as funds are allocated to the spending agencies that will ultimately issue the contracts. This process will take some time, but we anticipate that by midyear into the second half, we will see significant award activity. This expectation forms the basis of our revenue range of $545 million to $595 million. We believe most of this will come from our traditional Department of Defense government sector, including PWSA, Golden Dome, or IC. One key point Dirk mentioned today is that we are somewhat indifferent to where the contracts come from, as we feel our capabilities position us well overall. There will be some contributions from a new commercial contract, but we do not expect substantial revenue recognition from it this year. Therefore, we anticipate that the majority of revenue will stem from government defense awards in the second half, along with a small amount from commercial sources.

Ryan Koontz, Analyst

Helpful. That's really great. And anything on the supply chain you'd call out as challenging these days? We hear about it in other areas of tech getting tough. But any particular areas you're concerned about having to invest maybe extra working capital to be prepared?

Dirk Wallinger, CEO

Yes. I mean we do hear a lot about supply chains now. But I think that we're a little bit differentiated in that sense. And how I mean that is we are at production capacity now, which means that we were tackling supply chain issues several years ago. And so I think it's a little bit new for folks trying to ramp up now, but we've done that investment. I think acquisitions like Orbion are very, very helpful in the sense of we can better plan with our partners on kind of what kind of numbers we're going to need and when, and we can co-invest if that's required. And so we've done a lot of that already. And so our supply chain is very robust, very secure. We worked these issues many years ago. We did things like buy solar arrays in bulk ahead of a need, ahead of challenges that were coming ahead. We co-invested on some laser capability to stand up production on that. But again, that was for a tZERO contract. So we've basically retired a lot of that investment we needed to make in our supply chain. We're kind of more now in improvement cycle where we're trying to improve it, make it more efficient and make it a little bit better. But us kind of delaying schedule and things like that because of supply chain is a problem that we looked at a couple of years ago, and we feel like we have a good handle on it. I think when we did the IPO, we did talk about that we were going to inventory a lot of our spacecraft. We're in a unique position to be able to do that. We have a very large backlog. We have a consistent product. We know that it works. We know that it works in orbit. And so we are going to invest in some inventory, which should help with the supply chain challenges as well. The reality is something being delayed is only really a problem if you're already behind, right? But if you are ahead of the need and ahead of a schedule and have an inventory product, if something shows up three weeks later than it should have, but you have inventory spacecraft and you have ahead of a need, then you're able to kind of sustain those impacts. So that's where we're focused more is standing up, basically supporting our supply chain to be more efficient, and then we're going to build inventory spacecraft. And that's going to really take that kind of lead time out of the equation for us.

Ryan Koontz, Analyst

Great. And one just quick clarification there. If you're building that inventory and shipping from inventory, is that a different form of revenue recognition than traditionally?

Kevin Messerle, CFO

No, what it does is effectively speed up the revenue recognition. As Dirk mentioned, we want to strategically build up some satellite platforms in inventory. This way, our business development team can determine how quickly a mission needs to be flown because, as Dirk highlighted in his prepared remarks regarding our Dragoon mission, we achieved ATP to orbit in seven months, which is quite remarkable. This approach will allow us to develop the cost structure on our balance sheet and inventory. Once we assign that to a specific revenue-generating program, the revenue recognition cycle will be very quick, making it exciting to see that unfold.

Operator, Operator

Your next question comes from the line of Sheila Kahyaoglu of Jefferies.

Sheila Kahyaoglu, Analyst

Congrats on your first quarter. Maybe if I could ask first on just the margin comments and the pricing. You guys offer an affordable solution. What's driving some of the higher margins? I know you talked about the supply chain improvements. What is that? Is that more like supply chain pricing? And how do we think about the volume leverage? And maybe if we could clarify on Orbion, how do we think about the revenue contribution there given that's a vertical integration play as well?

Dirk Wallinger, CEO

Kevin, why don't you talk to that? Yes.

Kevin Messerle, CFO

I'll address that. Starting with Orbion, when we acquire a company like Orbion or ATLAS, they engage in both York business and non-York business. Consequently, when we report our consolidated numbers, the net effect is primarily on the non-York business. From an accounting viewpoint, their York business revenue cancels out with our costs of goods sold. Their revenue essentially becomes our cost, so those figures net out during elimination. They are included in our projections, but I would say they don't represent a significant portion of our guidance for 2026 since we are purchasing companies from which we already source many products. This results in more of a margin improvement. Earlier, I mentioned that our vertical integration acquisitions significantly boost contribution margin because we remove profit margins we were paying to third-party vendors, which now remain within our company. This greatly enhances our overall gross margin as well. Regarding margins, we have seen year-over-year improvements, with our gross margin increasing by about 700 basis points. This is primarily due to changes in our program mix. A substantial portion of our revenue growth in 2025 stemmed from our Tranche 2 transport layer programs, alpha and gamma, which we priced effectively during a time of strong representation in our system through T0 and T1, making them higher margin. Generally, our newer programs tend to have higher margins. This is a result of both mix factors and reduced negative estimates at completion adjustments in fiscal 2025, demonstrating the maturity of our business and our enhanced pricing and cost management. We do not anticipate significant negative estimate at completion adjustments moving forward. These two factors primarily drove the nearly 700 basis point increase in gross margin in 2025.

Sheila Kahyaoglu, Analyst

Got it. That's very clear. And then maybe if you could just provide a quick update on how you're thinking about Transporter Tranche 3 and just the path forward for that mission.

Dirk Wallinger, CEO

Yes. As I kind of talked about a little bit earlier, there's no doubt that communications is going to be a major part of Golden Dome and National Defense in general. I believe that it's going to be restructured under something called the Space Data Network, where they're working through that architecture and what that will look like now. My best guess, and it's a guess, is that I think transport will probably be part of that Space Data Network, and it will interlink with the other systems. So it kind of goes to what I was saying before, of they're realizing that these systems cannot be disparate and unique, and they need to be part of a larger architecture that works together. And my feeling is that I think transport will definitively be a part of that. I think that they're working the details of that architecture now and how that will work. Obviously, I think that we're in a really phenomenal position to win significant parts of that given that we've already performed so well on tZERO, T1. We're already under contract for T2. So I think our delivered capabilities, flight heritage, and the fact that we're the first time to launch every single time kind of speak to us being able to deliver that mission successfully. So I think it's going to be part of the space data network. And I think that they're working that architecture now, and we feel like we're in a strong position to win that work.

Operator, Operator

I will now turn the call back to Dirk Wallinger for closing remarks.

Dirk Wallinger, CEO

I want to express my gratitude to everyone who has been following us. Your support in understanding our initiatives means a lot. We are proud of our strong engagement and our capacity to execute. We have numerous exciting projects ahead, and we are witnessing significant growth in our customer base. In addition to our traditional LEO national defense systems, we are securing new contracts with various classified clients and large constellations for commercial customers. We are genuinely optimistic about the future and appreciate your continued support. Thank you very much.

Operator, Operator

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