Quarter 1
Q1 2026 Earnings Call — May 7, 2026
Andres Shepherd (Canter Fitzgerald): Hey, everyone. Good afternoon. Thank you so much for taking our questions. And 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, you know, since you're contracting Neutron missions ahead of that first launch. So just curious on that customer feedback and reception that you're getting. Thank you.
Pete (Executive): Hey, Andreas. Nice to chat to you. So I guess the key things to be watching out for, you know, the continued, you know, placing of items on test stands. Because really, that's the large pieces of work yet to come that have risk associated with them. So as we put these large pieces of the vehicle on the test stand and take them to their limits and sometimes beyond, then the completion of those pieces of work is probably the easiest and most visual thing to track. Of course, there's a tremendous amount going on in the background that's kind of less visible. But for investors, I think that's probably the easiest thing to focus on. And then with respect to customer feedback, I think you can see from our strategy of just not dropping our pants and deploying neutrons at really low prices, we've held our ground there. And the customers that ultimately buy those vehicles, they know us well and we're very well trusted. And, you know, they have complete confidence in both, you know, Rocket Lab and our ability to deliver Neutron. So needless to say, there's also a lot of customers waiting to see it fly. So, but, you know, the more aggressive customers are making sure that, you know, they don't miss out their opportunities to fly early.
Andres Shepherd (Canter Fitzgerald): Wonderful. I know that. That's great to hear. And maybe just as a quick follow-up, maybe for you, Adam, on the 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. Thank you.
Adam (Executive): Yeah, you know, 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. You know, I think everybody's been, you know, had a lot of visibility to what's going on with various elements of Golden Dome. SBI is one of the more visible ones. You know, there's a limited amount that we can really talk about for that program specifically. But, you know, we envision it to be a very large opportunity, but there are gates that we got to get through. And as you're aware, you know, this is kind of an interesting opportunity procurement process for the government where companies like ourselves and Raytheon and others that are in the mix have to put some of their own skin in the game to unlock a potentially very large opportunity in the back end. So I'd say the most important thing right now is are we able to, like we have in the past, bring really quick cost advantage solutions to the market because of our vertical integration capabilities. You know, we'll be able to do things in time frames and cost points that we think few, if any, people will really be able to compete with. So we think we're in a good spot, and I don't know, Pete, do you want to put any more commentary?
Pete (Executive): I think you've covered it beautifully, Adam. Yeah, I can't really add more to that.
Andres Shepherd (Canter Fitzgerald): All right, excellent. Well, thank you so much. Congrats again on all the great progress. Looking forward to that Neutron first launch. We'll pass it on. Thank you.
Christine Lewak (Morgan Stanley): Hey, good afternoon, everyone. You know, 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, you know, 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? Thanks.
Pete (Executive): Yeah, hey, Christine, great to talk to you. Well, I think you've just seen, you know, just a methodical approach here from us is, you know, we continue to expand our TAMs. But what I would say is they're all, you know, expanding for a common reason and a common direction and that's as we've talked about, to ultimately be able to provide services of our own in orbit. So, I mean, yeah, I think at this point there's a lot of capability that we've managed to accumulate, both organic and inorganic. And I think we're really at the point where I think if anybody comes to us and asks us to build any spacecraft or satellite, we just sort of shrug our shoulders and get to work. So I think we've brought in-house a tremendous amount of capability and it all kind of drives towards those end goals.
Adam (Executive): Yeah, 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 expanding into ones they're 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 of the organic and inorganic side. You know, we announced a few weeks ago as Pete talked in his prepared remarks about Gauss, our EP solution that we're bringing to market. That's one where we could have spent, you know, a few hundred million dollars acquiring, you know, a startup and kind of went through all the scaling challenges there and then probably ultimately came up with a solution that we thought would be inferior. Instead, we dedicated, you know, a portion of our engineering team, probably an order of magnitude less capital to get it done. And we ended up with what we think is the best solution for the market. So I think when we look at how we expanded new markets, we're not just so you know, kind of focused on just spending shareholder capital to go get it, you know, from acquisition will actually be very efficient and go after it organically as well, which we think yields great benefits for our shareholders.
Christine Lewak (Morgan Stanley): Great. Thank you. And if I could follow up on Neutron, you know, you guys talked about the pricing for the recent deal aligns with your average selling price for the launches. You know, with a smaller backlog for Neutron, can you level set us on how we should think about the pricing for that? And then also, you know, with the maturity or the upcoming launch in the fourth quarter, what's been the customer reception for this? You've got a very strong order this quarter. You noted, you know, higher than what you had last year. So I just want to understand the demand environment for that launch as we get closer to 4Q for the first one.
Pete (Executive): Yeah, thanks, Christine. I mean, look, we've always been consistent about, you know, our pricing structure with Neutron, and that remains the same, I think. You know, I was burned pretty heavily with discounting electrons and flushing them out of the manifest. It took years. So we're not we're just not going to go down that road again. And then, you know, of all of the things that I sit awake at night worrying about, like neutron demand is just not one of them. And, you know, with the backlog we have currently with neutron, you know, the backlog is super healthy for a number of years. And, you know, at this point, we also need to make sure we have capacity for other customers as well.
Adam (Executive): Yeah, and I think, Christine, we can also kind of look back historically and look at what happened with electron pricing. And when we brought that vehicle to market, pricing was, call it $5 to $6 million, and we now see how backlog is priced, with average backlog priced in around $8.5 million for commercial emissions, and some are 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 up front. We understand the value proposition that Neutron brings relative to what is arguably very scarce competition in the market, primarily Falcon 9. And we think that we'll compare very favorably there and hopefully experience an upward bias to ASP as we continue to kind of gain cadence and credibility with the platform.
Christine Lewak (Morgan Stanley): Great. Thank you very much.
Eric Rasmussen (Stifel): Yeah, thanks for taking the questions. Congratulations on the neutron bulk order. Just trying to understand, you know, I hear your comments around trying to be, you know, pretty pragmatic and balanced and keeping, you know, keeping an eye on your ASPs for that, make sure that you're not sort of underselling that rocket ahead of schedule. But, you know, are we, are you at a point now where you will, where we could see an acceleration of the signings of Neutron and those Neutron launch contracts, given, obviously, the strong demand that we're seeing there?
Pete (Executive): Yeah, I mean, potentially, Eric. I think that will certainly occur after successful flights, for sure. And for a number of reasons, you know, not just customer confidence, but also insurance rates will go down and all of those kind of things that get factored into launch costs. So, yeah, and look, we're also always very careful with what we commit, you know, given that it is a development program and we don't want to let anybody down. So, you know, having customers that have, you know, some flexibility in the beginning is super helpful.
Eric Rasmussen (Stifel): Great. And maybe just my follow-up. You spent a little bit of time on the AFP machine. But what are your expectations, and it seems like you're making a lot of progress there, but what are your expectations for moving from maybe a single development machine to maybe more of a high-cadence production on that?
Pete (Executive): Yeah, well, the AFP, the single machine we have, fits our production for far into the future. So at the end of the day, stage ones will be a fleet model, no different to a fleet of aeroplanes. The only, you know, part that we reproduce are the stage twos, which, you know, we can bang out on the AFP super quickly. So, you know, at full cadence rate, you know, we don't see the need to really invest into too much more of the AFP infrastructure. It's well scaled, you know, right out of the chute.
Trevor Walsh (Citizens): Great. Thanks for taking the questions. Peter, maybe for you, on the motive acquisition, the prepared remarks focus a lot on the kind of planetary exploration, Mars missions, moon missions, et cetera. But then there was a little call out in the slide deck around on orbit docking and spacecraft servicing. That seems like that could be a really large opportunity. How much is Motive leaning into that right now, or can you just maybe unpack what that specific piece kind of looks like, and if that's something we should kind of be paying attention to at all for that acquisition?
Pete (Executive): Yeah, thanks, Trevor. So Motive actually brings a really interesting and unique capability. So yes, I mean, we highlighted the MAV stuff because that's extremely unique and frankly very cool, but also basically any actuation and high-precision actuation, these guys are literally the world experts at. So that ranges, you know, from like Mars booms and cameras, of course, through to, as you pointed out, like if you want to do some on-orbit rendezvous, you know, we have a very own, you know, Rocket Lab Canada arm, if you will, for that kind of stuff. But also just precision, you know, drive and drive electronics for things like, you know, solar panel rotators and array drives, which is something that typically we've bought. So we're able to now bring that in-house as well. So, yeah, 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, yeah, it does a number of things for us.
Trevor Walsh (Citizens): Great. Appreciate that. Adam, maybe just a quick follow-up for you. With respect to the step-down and non-gap gross margin, both in this quarter and then I think what's implied based on what you're guiding to for Q2, you said that was basically space systems mix entering in. Is that specifically the SDA tranches coming in, or I think that was called out for Q1 as the kind of main driver there, but is that also flowing into what's happening in Q2, or is there some other dynamic that we should be thinking about?
Adam (Executive): No, you've got that right, Trevor. It's essentially as the SCA tranche two and tranche three programs become more and more of the mix, they come in at lower gross margin, but they bring a lot of scale with them. So if you look at what that does to kind of overall operating margins, it'll be accretive to that. But I think that the other thing to think about too is we have normal quarterly mix changes. This quarter, there's less higher margin launch business in Q2 than we had in Q1 and Q4. And the launch business, as we've talked about in the past, it's a little bit difficult to predict because now we have a mix of point-in-time revenue recognition and overtime revenue recognition. And I think it's much harder to have a lot of predictability to what that margin is going to be. But overall, we see margins expanding in launch as we progress through the year, as we increase our cadence on Electron. And then as we also have periods where we mix in more subsystems and components business, those typically come at higher gross margins than these large SDA contracts. So, you know, we feel very good about where we're at margin wise.
We think we have a lot of opportunities to continue to drive gross margin increases. So really, but you got to look when you start kind of getting a little bit too kind of digging a little too deep in one quarter versus the next. There's a lot of things that are moving around under the surface. But again, the macro trend is supportive of solid gross margins going forward.
Michael Leshock (QBank Capital Markets): Hey, good afternoon. I wanted to follow up on the mode of 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?
Pete (Executive): Yeah, Michael. Yeah, no, we bought them from multiple suppliers previously.
Michael Leshock (QBank Capital Markets): Okay, great. Thanks. And then maybe moving to Electron and just assuming that the demand is there for more launches and the impressive manifest that you have clearly implies that it is. How many electrons could you physically launch annually? Is there anything that could potentially lead to another step change in the electron launch cadence or any potential bottlenecks that might be preventing even more of an increase in those launches? Thank you.
Pete (Executive): Yeah, so when we set up the electron factory, we designed it for 52 electrons a year. So we have a capacity to reach there. And there'll be some modest capital investments to reach that, but that's basically it. And we have two pads already done at LC1, so that's not a constraint. And of course, we have the third pad in Wallops. So no, I think we're really set up for that increase in cadence. And yeah, it would be very, very modest investments to realize that. And then, of course, if it went over 52 launches a year, we'll have to take a little bit more real estate and expand the factory. But it's all pretty trivial stuff.
Ron Epstein (Bank of America): Hey, good afternoon. This is Alex Preston on for Ron. I wanted to ask on space systems, are you seeing or thinking about or how are you thinking about opportunities in proliferated geo and maybe other higher orbits? Right. I know it's been the trend has definitely been towards Leo proliferation, but I think in recent weeks we've seen some momentum on contracting activity, particularly seems on the Space Force side there. This is a space you're looking at. And to what extent could you maybe enter that market as a prime as well, given your current capability set?
Pete (Executive): Yeah, hey Alex. Certainly we're interested in that and a lot of the spacecraft that we build already go to low Earth orbits and that necessitates incredibly hard radiation tolerance. So those environments are not dissimilar to geo. So a lot of the challenges around RadHard and those kind of operating environments we're already very familiar with. You know, going to geo for us is not scary at all. I mean, we're happy to go to Mars and operate in those really deep space environments. So a lot of our tech stack is kind of, you know, rad hard or rad tolerant already. So we're watching the geo stuff as well as you are. And I think that is an area we could easily move to.
Alex Preston (Bank of America): Great, thanks. And then if I could follow up, I think Christine asked this question similarly, but I wanted to ask more on the national security side if there are, right, so you've got the capabilities on launch, haste, providing satellites themselves to SDA, now adding to that with SBI. Are there areas that you could look to expand your capabilities specifically looking at national security that may be areas you can't address currently that you'd like to in the near term?
Adam (Executive): Yeah, I think one of the really interesting opportunities that the GEOS application bought us is these very bespoke, unique national security payloads. So with that acquisition, I think we were introduced and got exposed to a lot more programs and folks than we would have otherwise. So I think it's a core drive and a core capability within the company, and I think we're in one way or the other, whether it's a component supplier or a prime, we have pretty deep exposure into that national security environment now, as you point out, both through launch and through spacecraft.
Jan Engelbrecht (Baird): Good afternoon, Peter and Adam. Thanks for taking our questions. I'll start with the space systems business. You know, you've announced a lot of updates recently, I think seven different sort of capabilities in the last four months. And then there was the in-house development of key components. We think of, you know, the Star Tracker in Toronto, the electric propulsion thruster in New Zealand, and then the Monarch deal. And sort of each of these updates points towards a strategy of expanding Rocket Lab's manufacturing footprint beyond the U.S., so more of sort of a distributed manufacturing model. Just curious, the thought there, should we expect more of that in the future? Did sort of the disruption of tariffs factor into that, or was it mostly just a logical business decision of being able to serve customers globally in a much easier way?
Pete (Executive): Yeah, so a bit of both, a bit of all of those things you said actually. So yes, it's strategic in the fact that, for example, you know, Monarch really gave us a foothold in Europe and, you know, Europe, you know, outside the United States is like the second largest, you know, market and opportunity for us. So, and also it just sort of depends where the technology is. Like, you know, the Monaric laser terminals are widely regarded as the best in the business. So if it means we have to go to Europe to get them, that's where we'll go. So, you know, that was just convenient that it was also very strategic for us. But yeah, I mean, we operate kind of, you know, areas of excellence and, you know, some places it makes sense to do stuff in New Zealand, some times it makes sense to do it in various facilities in the States. So, you know, we really look at that quite holistically in that sense.
Jan Engelbrecht (Baird): Thanks, Peter. And then if I just could have a quick follow-up. As we think about the TRANS3 tracking layer, I think in late December, was about $800 million, and then in the release it said there's the potential for subcontracting opportunities to take it up to a billion dollars. I was curious, Amir, any of the updates, any of the new components that you've announced, sort of developed in-house, and then you've brought Mineric in there, is there anything, I know you can't, maybe don't want to talk about exact dollar values, but if we think about future tranches of the tracking layer, is there a ballpark of sort of content that these latest developments could have has increased your ability to serve the other prime customers?
Adam (Executive): Yeah. So, I mean, you know, a number, if we just talk about, you know, some of the transport layer stuff and what some of the track and SDA work in particular, like, you know, they are all optically linked together. So, you know, obviously there's an opportunity there and they all have, you know, high power solar requirements and there's opportunities there. All need electric propulsion so there's opportunities there. So you can see that that, you know, we can be widely distributed across things and, you know, I like to think of it as like even when we lose we kind of win because if we lose a project then, you know, the next day there's a bunch of purchase orders, you know, turning up for solar panels and reaction wheels and all that kind of stuff so even when we we lose we win but even when we win we also win twice because, you know, the same thing happens is we can win the program and if there's multiple awards typically, there'll be, you know, come Monday, there'll be a bunch of purchase orders for components for other people's systems as well. So that's kind of what you saw with T3 is we kind of won twice.
Edison Yu (Deutsche Bank): Hey, thank you for the questions. Let's actually add something I brought up a couple of calls ago. And it's in the context of you obviously laid out today, you have the complete satellite component portfolio, whole line of different types of satellites. And then, you know, you probably saw recently Amazon acquired GlobalStar. And so does Spectrum and, you know, these kind of potential services markets in the future, have your views kind of changed over the last maybe six to nine months? Are there certain services that look more attractive, less attractive? The spectrum, your view on spectrum change at all? Just curious reviews on that.
Pete (Executive): Yeah. Hey, it's great to talk to you. Um, look, I think we've always been super consistent that, you know, our end goal here is to provide, uh, you know, services from, from space. And I think that's the largest PAM and that's where if you're on your own rocket and have your own satellites, uh, you can be most disruptive and that thesis hasn't changed. But, um, I also think it's a little bit academic to be talking about us doing services when we still have Neutron in development and things like that. So at the right time, I think we're happy to talk a little bit more about our thoughts there. But for right now, the focus is really on completing Neutron and making sure that we have all the components and everything we need at scale to be able to ultimately deploy applications in orbit.
Edison Yu (Deutsche Bank): I just said I thought I'd try. And then something probably more something maybe more, perhaps a little bit more near term or more kind of next couple years. I think you said it your your haste, the manifest was like a one third already, or one third of the manifest. You kind of envision, you know, a future where your launch mix is actually becomes, you know, probably like one third haste, whether you know, let's say, you know, for every, let's say you get 30 launches, you know, 10 of them every year actually, you know, hypersonic testing. Is that like a realistic scenario?
Pete (Executive): Yeah, look, it could be. And a part of this will depend on the pace and scale of Golden Dome because, you know, one really key critical element of Golden Dome is, you know, how do you test it and, you know, simulate the threats and all those kinds of things. And this is where we're seeing a lot of interest in the haste portfolio, of course, because you can do things with that that it's very difficult to simulate. So I would say that the scale of haste will somewhat depend, or the massive scale of haste will somewhat depend on the scale of Golden Dome and the pace in which that takes place.
Adam (Executive): Yeah, Edison, I'd also maybe add to that too, that one of the things that we're seeing is, you know, the international opportunity is becoming much more clear and present. I think that also applies to hypersonics, right? I think that the environment that we find ourselves in these days, geopolitically, just is driving, you know, more and more sovereigns to need capabilities that they used to rely upon, you know, the U.S. for primarily. So, you know, again, when you think about the long-term demand for haste type of solutions, I don't think you have to think of just the U.S. as the customer base for that. I think it's going to expand beyond that. Now, of course, you know, everything we do, you know, requires, you know, U.S. State Department approval and cooperation. And, you know, we, of course, work with only the most friendly partners in the United States. But I think there is a bigger opportunity out there than just, you know, like Mock TV, for example, and U.S. government opportunities.
Gautam Khanna (TD Cohen): Good afternoon. This is Anton for Gotham. Can you just share some more details on neutron timing? So based on the way things are trending now, is this more of an early Q4 story or late Q4 story? And then just depending on the timing of the first neutron launch, is it possible we could see maybe three payload carrying launches in 2027?
Pete (Executive): Yeah, I mean, I don't think we have enough visibility to nail it down to, you know, a couple of weeks and a quarter at this point in time. You know, as we approach first launch, it'll be, you know, those timelines will become much, much tighter. And then, you know, we've always said that plan is sort of one, three, five. And, you know, that's what we've demonstrated with Electron. And we think that's the right kind of cadence. So, you know, that thought still remains consistent.
Ben Tomek (Wells Fargo): Good afternoon. This is Ben Tomek on for David. I was just curious, following up on that last question, when do you plan to incorporate the reusability for Neutron, and then how will that kind of impact cadence going from there?
Pete (Executive): Yeah, great question. So on flight one, we'll be attempting to re-enter and do a soft splashdown for Neutron. So that will test all of the re-entry engine relights and downrange burns. This is the area that's kind of the most unknown and the hardest to test for other than actual flight testing. Hence the reasons for the intentional soft splashdown where we just splashdown in the ocean. Provided that all goes well and we're happy with what we need to do there, then we'll slip the return on investment barge under it and attempt a landing on flight two. Now, of course, if we don't get the result that we want on the re-entry for flight one, then we'll re-evaluate. Basically, I just don't want to put the barge under the vehicle until we know that we're not going to punch a hole through it.
Ben Tomek (Wells Fargo): Got it. Great. Thanks. And then maybe going back to EWSA, can you just provide an update on your contracts there and then how you're thinking about that program at a high level? Have you guys received all the funding for Tron 2 transport? And how are you thinking about the transport layer going forward with that shift to the space data network?
Adam (Executive): Yeah, well, I can speak to where we are with the contracts. So, um, everything's on track. We've been, we've been hitting our milestones. We've been getting, you know, on-time payments from our government customers. In fact, you know, pretty sizable one, uh, earlier this week. So, um, no, I think everything seems to be on track there. So I don't think funding is an issue for the programs that we're executing against as far as...
Quarter 2
Q4 2025 Earnings Call — February 26, 2026
Our first question comes from Andrea Shepherd with Cantor Fitzgerald. Your line is open. Hey, everyone. Good afternoon. Thanks so much for taking our questions and congrats on all the great progress and thanks for the update on Neutron. Adam, maybe you want to start with the backlog. I'm wondering if you can maybe help us a drill a bit deeper in it and maybe remind us what is included in here. Does this include the 40% of revenue from SDA tranche two, 10% of maybe the tranche three, and what are you including from neutron and electron here? Thank you. Hello? I'm sorry. The mic went off. I don't know how much you caught of that. So all of the SDA contracts were added to backlog. So what remains for SDA tranche two transport layer is still in the backlog. Obviously, what's been recognized as revenue is no longer there. Through the end of Q4, we hadn't recognized any of the tranche three contract awards. So all of that value is currently in backlog, and that will start to convert into revenue and come out of backlog obviously in that process.
As far as Neutron is concerned, I think we've spoken before that we have several flights that are representative in our launch backlog that's reflected in our filings. So hopefully that answers your question on backlog composition. Yeah, that's helpful. Thank you. And maybe just as a follow-up, so, you know, on Neutron with the shift to Q4 now with the first launch, how should we think about cadence? You know, will you still target maybe three launches within the first 12 months after the first one? How confident are we in the development of the second tank? And wondering if maybe we should expect any step up in CapEx now with the second tank in production. Thank you. Adam, I can answer a couple of those and maybe you and someone as well. So with respect to the tank, I think it's well understood what needs to be done there. And we had built a lot of the second stage tank on the ASP machine, so that really solved that problem. Yeah, the way to think about just sort of follow-on flights is it's not quite, you know, as dire as like moving all of the follow-on flights 12 months, you know, or to the first flight.
Because as you've seen in the presentation, we're already building flat out additional neutron tail numbers. So it'll probably be a slightly faster convergence into subsequent flights because, you know, none of the other hardware that's qualified is being halted, obviously. It's just that tank. And the AFP machine enables us to build a tank just way more rapidly than with a hand-lay process. So, you know, I think we'll be in better shape there. Yeah, and Andre, I guess with regards to your question as far as CapEx and so forth related to the second tank, that's replacing the first one that ruptured. I mean, the benefit now, as Pete said, of being on the AFP is not only can we produce it faster, but the actual cost to produce that second tank is quite low. The first tank was very expensive because, as Pete mentioned earlier, it was a hand-laid-up tank. It took a long time. This will be much quicker. And also, since we've now commissioned the AFP, we're really just talking about variable costs related to the tank materials more than anything else because the existing labor is already kind of in the model.
So there won't be any increased capex and You know, the impact to R&D as a result of the tank failure is actually not – the tank itself is actually not that significant. Got it. That's super helpful. Thanks so much for all the detail, and congrats again on the quarter. I'll pass it on.
Thank you.
Our next question comes from Edison Yu with Deutsche Bank. Your line is open. Thank you. And great quarter, as always. I want to ask a question on space data centers. And I think you had alluded to, you know, a lot of interest. I think it's obviously become a hot topic in the industry. Can you give us a sense on how these kind of early discussions are going with potential customers interested in doing this? And is it realistic to see some type of rocket lab content in a space data center, let's say, within the next two or three years? Hey, Addison. Thanks for the question. So I think, look, we're early with data centres. If you look at some of the models, there's a number of things that sort of have to come into focus before they become the logical choice versus terrestrial. But, you know, we never want to miss an opportunity. And, you know, we've been developing the silicon arrays and power solutions for a while now, focusing on mega constellations and, you know, there's high volume power applications. But if you stand back objectively and you think about what are all the challenges with putting data centers in orbit, it boils down to really three things.
One is cost and cadence of launch to be able to make the model close. And then two is heat rejection through various means. And three is just sheer power. Like these are gigawatts of electricity. So, you know, solar arrays of multi-kilometres in scale are what's needed. So, you know, we wanted to make sure that, you know, whether they leave this earth or not, there'll be Rocket Lab logos all over that stuff. So, you know, as far as I'm aware, nobody else has a silicon solution quite like we've developed. Understood. And to your point on heat rejection, I guess the radiator, is that a capability you have in-house that you need to develop over time, or is that something, you know, inorganic? Just curious on what needs to be kind of technically done there. Yeah, I mean, look, all of our spacecraft have radiators. I mean, you generate heat. You have to reject it. So, you know... There's various kind of ways of doing that, piping heat around the spacecraft to radiate it. So I don't see that as a huge technical challenge. It's just on the scale, the scale that's required hasn't been achieved before. So that's the challenge there.
But to be clear, I don't foresee us building massive AI data centres anytime soon, but those who are at least experimenting with it and looking to go down that path, I think we have a lot of compelling solutions. Gotcha. If I could just sneak one quick one in. In terms of just the discussion, can you give us a sense of like the flavor of customers? Are these kind of new customers, non-traditional customers kind of exploring this idea with you? Yeah, I mean, we have to be a little bit careful here, but I would say that there is certainly more non-traditionals looking at this kind of solution than traditional players. Great. Thank you so much.
Thank you.
Our next question comes from Ronald Epstein with Bank of America. Your line is open. Hey, this is Alex Preston on for Ron. Can you guys hear me all right? Yeah, we hear you. Perfect. So I know you talked a little bit about progress on the Monarch acquisition, but I was a little more interested maybe broadly in the environment in Europe and more generally, right? It seems like there's a growing appetite for call it indigenous launch and national security space capabilities. And I'm interested if you sort of see this trend yourselves or how you see this developing. I know, you know, Pete mentioned No other small launch provider has really succeeded in the last year, but it's still, I think, the focus for a lot of people. Yeah, Alex, it's a great question. Look, one of the reasons why we like Monarch and why we think it's important, Europe more in general is exactly that point, is that there's a lot of space nations there that have very little capability with giant aspirations and really short timeframes. And I think it's always everybody's desire to build on.
LC3 has obviously stood up, plus production and test facilities are all humming, while the regulatory work is all tracking along as we expect. The things to look out for the next few months, to know that we're marching steadily towards launch, includes seeing more hardware making its way to the launch site. We will be conducting extensive testing of flight hardware, and then obviously that'll lead up to Neutron's first flight. So that wraps up the operational highlights, so I'll hand over to Adam for the financial overview and outlook. Thanks, Pete. Fourth quarter 2025 revenue was a record $180 million, coming in at the high end of our prior guidance range and representing an impressive year-over-year growth of 36%. This strong performance was driven by significant contributions from both of our business segments. Sequentially, revenue increased by 16%, underscoring the continued momentum across the business. Our space system segment delivered $103.8 million in revenue in the quarter, reflecting a sequential decrease of 9.1%.
This decline was primarily stemmed from our satellite platforms business and our solar businesses, both of which continue to perform exceptionally well despite the time-to-time programmatic non-linearity of revenue recognition under ASC 606 and related subcontractor progress. We're fortunate that the growing diversification across space systems and launch can often provide more predictable top-line growth despite underlying volatility at the individual product line level. This was one of those quarters where strength in launch services more than offset the declines in space systems, generating $75.9 million in revenue, representing an 85% quarter-by-quarter increase due to the increase from four to seven launches during the period, including one haste mission. On a full-year basis, 2025 revenue was $602 million, an impressive 38% growth year-on-year. Now turning to gross margin. Gap gross margin for the fourth quarter was 38%, at the center of our prior guidance range of 37% to 39%, and an increase of 100 basis points quarter-by-quarter.
Non-GAAP gross margin for the fourth quarter was 44.3%, which was also in line with our prior guidance range of 43 to 45%, and an increase of 240 basis points quarter over quarter. The sequential improvement in gross margins was primarily driven by an increase in electron fixed cost absorption due to the increased launch cadence within the quarter, paired with increased contribution from our higher margin space systems components businesses. On a full year basis, GAAP gross margin was 34.4%, an increase of 780 basis points year over year, while non-GAAP gross margin was 39.7%, an increase of 770 basis points year over year.
Relatedly, we ended Q4 with production-related headcount of 1,244, up 46 from the prior quarter. before moving on to backlog i want to take a moment and zoom out and provide perspective on the progress we've made towards our long-term financial model since our nasdaq listing in 2021 revenue has grown nearly 10x achieving a compound annual growth rate exceeding 76 percent gross margins have increased each year more than doubling the contribution from each dollar of revenue this expansion highlights our strong and disruptive competitive position in the industry as well as our highly valued and differentiated products and services across the business. The combination of this revenue growth and margin expansion has put the company on a solid foundation and path towards achieving meaningful operating leverage and long-term cash flow generation. Lastly, I thought it important to call out our SG&A spending as a percentage of revenue, as I'm encouraged to see this continue to trend downward as we scale the business. We are constantly driving the business to be fiercely efficient, and I believe that we're positioned to drive even more growth in efficiency in 2026 and beyond.
Now, turning to backlog. We ended Q4 2025 with approximately $1.85 billion in total backlog, an impressive 69% growth sequentially, primarily due to our recent SDA tranche three tracking their contract award, which we announced last December. As we've mentioned before, space systems backlog in particular can be lumpy given the timing of these increasingly larger needle-moving program opportunities. But once awarded, they can significantly de-risk revenue growth for several years. We continue to cultivate a strong pipeline that includes multi-launch agreements across Electron, HAST, and Neutron, as well as large satellite platform contracts across government and commercial programs. Currently, launch backlog accounts for approximately 26% while space systems represents approximately 74%. Looking ahead, we expect approximately 37% of our current backlog to convert into revenue within the next 12 months, which includes preliminary tranche three revenue recognition estimates, which we believe will prove to be conservative, which in addition to the healthy sales pipeline are expected to drive incremental top line contribution beyond the current 12 month backlog conversion.
Turning to operating expenses, GAAP operating expenses for the fourth quarter of 2025 were $119.3 million, below our guidance range of $122 to $128 million. Non-GAAP operating expenses for the fourth quarter were $104.5 million, which were also below our guidance range of $107 to $113 million. The sequential increase in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in prototype and headcount related spending to support our neutron development program. Specifically, investments ramped up in propulsion as we continue to test Archimedes engines, as well as test and integration of mechanical and composite structures at our facility in Middle River, Maryland. In R&D specifically, gap expenses increased $8.1 million quarter over quarter, while non-gap expenses rose $7.7 million. These increases were driven by the ramp-up of Archimedes' production and testing, along with higher expenditures related to composite structures and fluids, as just mentioned. Q4 ending R&D headcount was 1,012, representing a decrease of 7 from the prior quarter.
In SG&A, gap expenses decreased $5.1 million quarter-over-quarter, while non-gap expenses declined $1.3 million quarter-over-quarter. These decreases were primarily due to a reduction in transaction-related legal and other professional services fees related to M&A and capital markets transactions, paired with a slight reduction in marketing expenses. Q4 ending SG&A headcount was 389, representing an increase of four from the prior quarter. In summary, total headcount at the end of the fourth quarter was 2,645, up 43 heads from the prior quarter. Turning to cash, purchase of property, equipment, and capitalized software licenses were $49.7 million in the fourth quarter of 2025, an increase of $3.8 million from the $45.9 million in the third quarter. This increase reflects ongoing investments in Neutron development as we continue testing and integrating across the pad at LC3 in Wallace, Virginia, and Middle River, Maryland, expanding capabilities at our engine development complex in Long Beach, California, and build out of the return on investment recovery barge in Louisiana.
As we progress towards Neutron's first flight, we expect capital expenditures to remain elevated as we invest in testing, production scaling, and infrastructure expansion. GAAP EPS for the fourth quarter was a loss of 9 cents per share, compared to a loss of 3 cents per share in the third quarter. The sequential increase to GAAP EPS loss is mostly attributable to the $41 million tax benefit we recorded during the third quarter, which was due to the partial release of the valuation allowance against our corporate deferred tax assets, as a result of acquiring an equal amount of deferred tax liabilities emanating from the GOST acquisition purchase price accounting. GAAP operating cash flow was a use of $64.5 million in the fourth quarter of 2025, compared to $23.5 million in the third quarter. The sequential increased use of $41 million was almost entirely due to the timing of employee equity program-related tax payments.
Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to neutron development, longer lead procurement for SDA, investments in subsequent neutron tail production, and infrastructure expansion to scale the business beyond the initial test flight. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow, less purchases of property, equipment, and capitalized software in the fourth quarter of 2025 was a use of $114.2 million compared to a use of $69.4 million in the third quarter. The ending balance of cash, cash equivalents, restricted cash, and marketable securities was approximately $1.1 billion at the end of the fourth quarter. The sequential increase in liquidity was driven by proceeds from sales of our common stock under our at-the-market equity offering program. which generated $280.6 million during the quarter.
These funds are primarily intended to support acquisitions, such as the announced pending Moneric acquisition, the recently consummated acquisitions of Optical Support, Inc., and Precision Components Limited, as well as other targets in our robust M&A pipeline, along with general corporate expenditures and working capital. We exited Q4 in a strong position to execute on both organic and inorganic growth initiatives and to further vertically integrate our supply chain, expand strategic capabilities, and grow our addressable market, consistent with what we've done successfully in the past. Adjusted EBITDA loss for the fourth quarter of 2025 was $17.4 million, which was below our guidance range of $23 to $29 million loss. The sequential decrease of $8.9 million in adjusted EBITDA loss was driven by significant revenue and gross margin improvement, partially offset by increased operating expenses related to neutron development. With that, let's turn to our guidance for the first quarter of 2026. We expect revenue in the first quarter to range between $185 and $200 million, representing 7% quarter-on-quarter revenue growth at the midpoint. and growth of 57% from the year-ago quarter.
We anticipate slight slipdown in both GAAP and non-GAAP gross margins in the first quarter, with GAAP gross margin to range between 34% to 36% and non-GAAP gross margin to range between 39% to 41%, with a modest sequential decline driven by a greater mix of space systems versus higher margin launch and a weaker margin mix within our space system segment. We expect first quarter gap operating expenses to range between $120 and $126 million, and non-gap operating expenses to range between $106 and $112 million. The quarter-over-quarter increases are primarily driven by ongoing Neutron development and spending related to Flight 1, including staff costs, prototyping, and materials. However, we expect to see a shift in spending from R&D and into Flight 2 inventory throughout 2026, which is an encouraging sign of progress as we move closer toward Neutron's first flight and adjusted EBITDA positivity as a result. I'm optimistic that with the impressive strides we've made towards this milestone and currently expect Q1 to mark peak Neutron R&D spending.
We expect first quarter GAAP and non-GAAP net interest income to be $8 million, which is a function of higher cash balances as well as conversion of approximately $117 million of convertible notes since December 31st. We expect first quarter adjusted EBITDA loss to range between $21 and $27 million and basic weighted average common shares outstanding to be approximately 605 million shares, which includes convertible preferred shares of approximately 46 million and reflects the conversion of approximately 23 million shares from our outstanding convertible notes thus far in Q1. There remains only 7.5 million shares or 11% of the original $355 million issuance outstanding, And when taken into the additional context of the retirement of the Trinity equipment line in Q4, we have substantially eliminated indebtedness from the business. Lastly, consistent with prior quarters, we expect negative non-GAAP free cash flow in the first quarter to remain at elevated levels, driven by ongoing investments in neutron development and scaling production. This excludes any potential offsetting effects from financing activities.
Last but not least, here are some of the upcoming investor events that we'll be attending in the next few months. And with that, we'll hand the call over to the operator for questions. Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again.
Our first question comes from Andrea Shepard with Cantor Fitzgerald. Your line is open. Hey, everyone. Good afternoon. Thanks so much for taking our questions, and congrats on all the great progress, and thanks for the update on Neutron. Adam, maybe you want to start with the backlog. I'm wondering if you can maybe help us drill a bit deeper in it and maybe remind us what is included in here. Does this include the 40% of revenue from SDA Tranche 2, 10% of maybe the Tranche 3, What are you including from Neutron and Electron here? Thank you. Hello? I'm sorry, the mic went off. I don't know how much you caught of that. So all of the SDA contracts were added to backlog. So what remains for SDA tranche two transport layer is still in the backlog. Obviously what's been recognized as revenue is no longer there. Through the end of Q4, we hadn't recognized any of the tranche three contract awards. So all of that value is currently in backlog and that will start to convert into revenue and come out of backlog obviously in that process.
As far as Neutron's concerned, I think we've spoken before that We have several flights that are representative in our launch backlog that's reflected in our filings. So hopefully that answers your question on backlog composition. Yeah, that's helpful. Thank you. And maybe just as a follow-up, so on Neutron with the shift to Q4 now with the first launch, how should we think about cadence? Will you still target maybe three launches within the first 12 months after the first one? how confident are we in the development of the second tank and wondering if maybe we should expect any step up in CapEx now with the second tank in production? Thank you. Adam, I can answer a couple of those and maybe you and someone as well. Andres, so with respect to the tank, I think it's well understood what needs to be done there and you know, we had built a lot of the second stage tank on the AFP machine. So, you know, that really solved that problem.
And yeah, the way to think about just sort of follow-on flights is it's not quite, you know, as dire as like moving all of the follow-on flights 12 months, you know, or to the, you know, to the first flight, because as you've seen in the presentation, we're already building flat out additional neutron tail numbers. So it'll probably be a slightly faster convergence into subsequent flights because none of the other hardware that's qualified is being halted, obviously. It's just that tank. And the AFP machine enables us to build a tank just way more rapidly than with a hand-lay process. So I think we'll be in better shape there. And, Andre, I guess with regards to your question as far as CapEx and so forth related to the second tank that's replacing the first one that ruptured, I mean, the benefit now, as Pete said, of being on the AFP is not only can we produce it faster, but the actual cost to produce that second tank is quite low. The first tank was very expensive because, as Pete mentioned earlier, it was a hand-laid-up tank. It took a long time. This will be much quicker.
And also, since we've now commissioned the AFP, we're really just talking about variable costs related to the tank materials more than anything else. because the existing labor is already kind of in the model. So there won't be any increased capex. And, you know, the impact to R&D as a result of the tank failure is actually not – that tank itself is actually not that significant. Got it. That's super helpful. Thanks so much for all the detail, and congrats again on the quarter. I'll pass it on.
Thank you.
Our next question comes from Edison Yu with Deutsche Bank. Your line is open. Thank you. And great quarter, as always. I wanted to ask a question on space data centers. And I think you had alluded to, you know, a lot of interest. I think it's obviously become a hot topic in the industry. Can you give us a sense on how these kind of early discussions are going with potential customers interested in doing this and Is it realistic to see some type of rocket lab content in a space data center, let's say, within the next two or three years? Hey, Addison. Thanks for the question. So I think, look, we're early with data centers. If you look at some of the models, there's a number of things that sort of have to come into focus before they become the logical choice versus terrestrial. But, you know, we never want to miss an opportunity. And, you know, we've been developing the silicon arrays and power solutions for a while now, focusing on mega constellations and, you know, these... high volume power applications. But if you stand back objectively and you think about what are all the challenges with putting data centers in orbit, it boils down to the really three things.
One is cost and cadence of launch to be able to make the model close. And then two is heat rejection through various means. And three is just sheer power. Like these are gigawatts of electricity. electrical power. So, you know, solar arrays of multi-kilometers in scale are what's needed. So, you know, we wanted to make sure that, you know, whether they leave this earth or not, there'll be Rocket Lab logos all over that stuff. So, you know, as far as I'm aware, nobody else has a silicon solution quite like we've developed. Understood. And to your point on heat rejection, I guess the radiator, is that a capability you have in-house that you need to develop over time? Or is that something inorganic? Just curious on what needs to be kind of technically done there. Yeah, I mean, look, all of our spacecraft have radiators. I mean, you generate heat. You have to reject it. So, you know, yeah. there's various kind of ways of doing that, piping heat around the spacecraft to radiate it. So I don't see that as a huge technical challenge. It's just, you know, on the scale, the scale that's required is, you know, hasn't been achieved before. So that's, you know, that's the challenge there.
But to be clear, I mean, I don't, you know, those who are at least experimenting with it and looking to go down that path, I think we have a lot of compelling solutions. Gotcha. If I could just sneak one quick one in. In terms of just the discussions, can you give us a sense of like the flavor of customers? Are these kind of new customers, non-traditional customers kind of exploring this idea with you? Yeah, I mean, we have to be a little bit careful here, but I would say that there is certainly more non-traditionals looking at this kind of solution than traditional players. Great. Thank you so much.
Thank you.
Our next question comes from Ronald Epstein with Bank of America. Your line is open. Hey, this is Alex Preston on for Ron. Can you guys hear me all right? Yeah, we can hear you. Perfect. So I know you talked a little bit about progress on the Monarch acquisition, but I was a little more interested maybe broadly in the environment in Europe and more generally, right? It seems like there's a growing appetite for call it indigenous launch and national security space capabilities. And I'm interested if you sort of see this trend yourselves or how you see this developing. I know, you know, Pete mentioned No other small launch provider has really succeeded in the last year, but it's still, I think, focused for a lot of people. Yeah, Alex, it's a great question. Look, one of the reasons why we like Monarch and why we think it's important, Europe more in general is exactly that point, is that there's a lot of space nations there that have very little capability with giant aspirations and really short timeframes. And I think it's always everybody's desire to build domestic capabilities.
But the reality is, if you want to stand up these kind of capabilities really, really quickly, you don't have the decades that it takes to build often these sovereign capabilities. They're very specialist, often equipment and facilities and also intellectual property and knowledge. So we see Europe as a great opportunity for us and a real expansion beachhead where we can provide solutions at the component level. We can provide solutions at the complete system with respect to a satellite. We can provide launch. And you've seen even European space agencies procure launch from us now. And once we have a footprint in Europe proper, you know, being eligible for participating in European programs becomes possible. So I think it's a great opportunity. There's, you know, literally billions and billions of dollars of, you know, well-funded government programs underway right now. And, you know, the timelines associated with those are conducive, or I would say not conducive necessarily always to, you know, creating sovereign capability. Got it.
And then I guess it would sound like the attitude is still broadly constructive from what you said versus maybe Europe starting to get a little more distant from U.S.-based providers. No, I think it's very constructive. I think, you know, naturally that Europe is looking to create sovereign capability, but I think that also, you know, the conversations we've had, they're very pragmatic and realistic that, you know, the capability they're looking to create takes a long time. So, you know, working with, for example, a rocket lab Europe is a great way to move forward. And just real quick, would you characterize that the same on launch as you would on space systems? where I think there's a bit more existing indigenous capability in Europe already. Yeah, th