Rocket Lab - Earnings Call - Q3 2025

Executive Summary

• Record Q3: Revenue $155.1m (+48% YoY) at record GAAP gross margin 37%; non‑GAAP gross margin 41.9%. Space Systems drove growth; Launch declined sequentially on fewer missions.
• Beat vs Street: Revenue $151.7m* consensus; EPS −$0.06* consensus; actual Revenue $155.1m and EPS −$0.03, a clear beat on both. EPS benefited from a $41.1m tax benefit tied to Geost purchase accounting. Values retrieved from S&P Global.
• Mix and one‑offs helped margins: Transition to over‑time accounting on certain HASTE missions and a canceled Electron mission recognized at ~100% margin (<$5m) boosted Q3 gross margin; underlying launch ASP and absorption improve into Q4.
• Outlook: Q4 guidance calls for $170–$180m revenue, GAAP GM 37–39%, non‑GAAP GM 43–45%, and Adjusted EBITDA loss $23–$29m; Launch mix and cadence expected to lift margins further.
• Strategic momentum: 17 Electron launches booked in Q3 (record), backlog ~$1.1bn (57% 12‑mo conversion), >$1bn liquidity post‑ATM, closed Geost (up to $325m); Neutron to arrive at LC‑3 in Q1 2026 with first launch thereafter pending qual/acceptance testing.

What Went Well and What Went Wrong

What Went Well

• Strong top‑line and margin execution: Revenue $155.1m (+48% YoY), GAAP GM 37% at the high end, non‑GAAP GM 41.9% above guide; sequential revenue +7.3%.
• Commercial traction and backlog: 17 Electron launch contracts signed in Q3; total backlog ~$1.1bn with 57% expected in next 12 months. CEO: “We’ve once again delivered record revenue… at record GAAP gross margin of 37%”.
• Liquidity and strategic M&A: >$1bn liquidity after ATM; closed Geost to add EO/IR payloads; Mynaric restructure progresses, enabling vertical integration.

What Went Wrong

• Profitability below internal targets: Adjusted EBITDA loss −$26.3m, below guide (−$21m to −$23m) on higher Neutron development spend; GAAP and non‑GAAP opex exceeded guidance.
• Launch Services down sequentially: Launch revenue $40.9m (−12.3% QoQ) due to customer spacecraft delivery delays; segment reliance on cadence continues.
• One‑time margin tailwinds: Q3 GM benefited from rev rec transition on HASTE and a contract closeout recognized at ~100% margin (<$5m); these are non‑recurring.

Transcript

Speaker 9

Good day, and welcome to the Rocket Lab Corporation Third Quarter Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Murielle Baker, Director of Corporate and Launch Communications. Please go ahead.

Speaker 1

Thank you.

Speaker 9

Hello, and welcome to today's conference call to discuss Rocket Lab's third quarter 2025 financial results, business highlights, and other updates. Before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company. These statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance, and factors that could influence our results are highlighted in today's press release, and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements.

Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation and a replay, and a copy of the presentation will be available on our website. Our speakers today are Rocket Lab Founder and Chief Executive Officer Sir Peter Beck, as well as Chief Financial Officer Adam Spice. They will be discussing key business highlights, including updates on our launch and space systems programs. We will discuss financial highlights and outlook before we finish by taking questions. With that, let me turn the call over to Sir Peter.

Speaker 3

Thanks, Murielle. Thanks, everybody, for joining us today. It was another record-breaking quarter for Rocket Lab. We're up 48% year on year with $155 million in revenue and strong gross margins as well. This is the second time in a row we've delivered record-breaking growth quarter by quarter, once again demonstrating our relentless execution. Electron demand is accelerating faster than ever before, and the momentum continues to build with their largest launch contract backlog yet, with 49 launches on contract. We've just launched our 16th mission this year, equaling last year's launch record. We've got another launch scheduled in the coming days that will take us to 17, with more to come and a new precedent set for Electron annual launch cadence. We see this precedent continue in 2026 as well. Amazing performance is also the theme across our space systems groups.

Our twin spacecraft for NASA's Mars mission are integrated onto its launch vehicle and are ready for lift-off in Cape Canaveral in the coming days. For Neutron, we've got a full update to share on our progress to the pad following the official opening of the launch complex in August, ticking off a critical milestone in the program. We'll share more detail about that in the upcoming slides. Before we get into it, I want to zoom out and talk about our performance over the last five years, given this is sort of a little bit of a wrap-up for the year in some respects. Execution and reliability are critical in the space industry, but even more so in the public markets.

Our ability to consistently deliver results for our customers, expand our capabilities, and grow our revenue and gross margins really sets us apart in the sector as we set new benchmarks for operational and financial success. From $35 million in revenue just five years ago to our implied full-year guidance of roughly $600 million at the midpoint, an approximately 1,600% increase over that time period. Our gross margins are looking great too, from negative 34% GAAP gross margin in 2020 to the midpoint of our implied full-year guidance of slightly over 34% positive in 2025, and looking great to exit 2025 with an even higher 37%-39% in the fourth quarter. Our position as a leading end-to-end space company has never been stronger.

We're a trusted disruptor of the industry, and we're proving that we can move quickly to scale our products and our services across both launch and space systems. That focus is translating into the double-digit growth results you're seeing on the page here. Right, onto Electron. As the title says, it's been a record-breaking quarter for launch contracts. Seventeen dedicated launches were signed in just three months, but all but two of them were signed with international customers from Japan, Korea, and Europe. Those new missions, plus the ones already on the books for international space agencies like ESA and JAXA, prove Electron is not just a leading launch vehicle in the United States, but it's becoming the preferred small launch vehicle globally. Electron's business model is one of schedule flexibility for our customers.

You can see from these new bookings, demand is stronger and growing for Electron. HASTE, our hypersonic test vehicle, continues to redefine the way technology is being developed and tested in the United States. In Q3, we launched back-to-back missions from Launch Complex 2 in Virginia with 100% mission success, enabling technology to be tested in real-life hypersonic environments, which is a critical capability for next-generation defense programs like Golden Dome. By leveraging our commercial speed, our vertical integration, and our execution history with Electron, HASTE delivers the proven agility and responsiveness that these programs demand. Speaking of momentum, we're on track to fly our 17th launch of the year in the next few days, which will officially surpass our previous annual launch record set in 2024. This pace is only possible because we are very intentional about designing Electron for scale.

This extends beyond the vehicle itself to all the supporting infrastructure, like manufacturing, processing, and operating a high-volume launch range infrastructure as well. It's an important approach that we're deploying for Neutron too, ensuring that we're thinking well beyond first flight. As of right now, there are only three American commercial launch providers who have launched to orbit more than once this year: SpaceX, ULA, and of course, us, which really does highlight just how rare Electron's capabilities are. Now let's turn to space systems. Starting off with a little bit of an update for M&A for the quarter. We closed the GEOS deal to create a new payloads business unit, strengthening our offering as a prime contractor for national security programs like Golden Dome and for the Space Development Agency.

With our history and expertise in buying and expanding smaller shops to meet industry demand, we're turning our attention now to scaling a new electro-optical and infrared sensors for lucrative future contracts. We're also closer to acquiring laser communications company Mynaric. They've completed their financial restructure under German law in August, which was a pivotal moment in the acquisition process and one that brings us nearer to closing out this deal. Rocket Lab has been a force multiplier for the U.S. space industry, and we're ready to bring that same energy to the European space sector with our first European foothold and expansion into Germany. As for what's next, we've built up our dry powder for future M&A with more than $1 billion in liquidity following our at-the-market offering program implemented in September.

It was a very strategic move to lock in capital that will allow us to act quickly on some of the exciting opportunities in the pipeline. We're not ready to reveal the details of these strategic plays just yet, but I can assure you that the pipeline is active. We've always taken a disciplined approach to acquisitions, and our successful track record speaks for itself. We've got a bit of a knack for identifying, acquiring, and then integrating businesses that enhance our end-to-end capabilities and make us a stronger competitor for large-scale programs. That has made us the consolidator of choice for many companies in the space sector. We're often the ones being approached first by companies wanting to join Rocket Lab now because they see the value we create for growth and innovation. Onto our upcoming space systems missions.

We're a few days away from two of our spacecraft launching for the ESCAPADE mission. The initial launch attempt was unfortunately scrubbed by the launch provider yesterday. By this time Wednesday, they're scheduled to be launched from Cape Canaveral, and they'll be on their way to Mars. Now, what makes this mission truly groundbreaking is that we're tackling these interplanetary challenges with spacecraft built for an order of magnitude less than the usual cost, developed in about one-third of the time. We're proving an entirely new, more accessible model for sending satellites to other planets. In short, this mission is a tough one, both in flight and in the design, but of course, we love a challenge.

Another program with a big green tick this quarter is our transport layer constellation for the Space Development Agency, which has cleared critical design review to be able to move into spacecraft production now. While existing and fully funded contracts like our half-billion-dollar program can continue under the government shutdown, the situation does continue to have an impact on the timing of new awards for the SDA Tranche 3 constellation. Neutron, all right. Moving on from space systems, let me give you a bit of an update for Neutron for the quarter. Now, I've spent a lot of my time in the recent weeks elbow to elbow with the teams at the various sites for Neutron testing. I have to say I'm extremely happy with the progress, but more than that, the thoroughness of the team during this critical qualification and then acceptance testing phase.

We're into the big meaty bits and the meaty tests where we have whole systems integrated together and large sub-assemblies. This is the time when you find out on the ground what you got right and what you got wrong, and of course, rather than finding out that during first launch. Now, at Rocket Lab, we have a proven process for delivering and developing complex space flight hardware. I think that process speaks for itself with respect to our hardware always looking beautiful and, more importantly, always working beautifully. Our process is meticulous, but it works. Take Electron, for example. It's the world's most frequently launched small launch vehicle, as we all know. We scaled the production and launch of it faster than any other commercial launch vehicle in history, which is great.

If we think about how many others have tried to develop a launcher, the results have been extremely poor. Those who have failed to deliver are numerous. Basically, every new space company except Rocket Lab and SpaceX has failed to build an orbital rocket that is scaled to any kind of launch cadence and is reliable. Now, this is the Rocket Lab process in action, and I've been resolute about sticking to this approach. Now, with all the hardware in front of us now and significant testing programs underway across all parts of the vehicle, we can see we need a little bit more time to retire the risks and stick to the Rocket Lab process. Yep, it might mean things will take a little bit longer, but I want to give some context here.

I mean, the labor cost for the program is about $15 a quarter, which we make back four times over a single launch anyway. It makes zero sense to change what we know and what has proven to work. We are aiming to get Neutron to the pad in Q1 next year if all goes well, with the first launch thereafter. Once again, though, that is provided that myself and the team are confident we have completed Neutron's qual testing and acceptance testing program to the Rocket Lab standard. As always, this is a rocket program, so that has been completed at a pace and a cost that nobody has achieved before. The financial and long-term impacts are insignificant to take a little bit more time to get it right. We have set high expectations for Neutron's first flight.

Our aim is to make it to orbit on the first try. You won't see us minimizing some qualifier about us just clearing the pad and claiming success and whatnot. That means that we don't want to learn something during Neutron's first flight that could be learned on the ground during the testing phase. Excuse me. At the end of the day, Neutron will fly when we're very confident it's ready, and we're not going to break the mold of the Rocket Lab magic. Now, over the next few slides, I want to take you through some of the testing campaigns we've been running to paint a bit of a picture of what it takes to deliver a reliable rocket to the launch pad. As you've seen for some time, we're very hardware-rich across the entire vehicle.

Now, it's all in sort of assembly and qualification and acceptance testing before it's all brought together under the East Coast sites. Okay, these pictures are just a snapshot of many of those activities. We're deep diving into the qualification test and acceptance of every major assembly, sub-assembly, and system before we get into launch operations. In fact, I'd say we're putting Neutron through an even more extensive barrage of testing than we did Electron because it's not your kind of conventional rocket that we're developing. We have a couple of novel things being the world-first architecture like the Hungary Hippo fairing, suspended second stage, and the vehicle itself is, let's not forget, the world's largest flying carbon composite structure ever built. We are making tremendous progress in these structures, testing across all levels of the vehicle.

Every one of Neutron's major structures are tested on the ground to the levels that exceed what the rocket may see in flight. This includes testing of our primary structures like propellant tanks, thrust structures, the interstage, pushing them all to their limits to ensure they meet the demands of launch and reusability. Before we can call these qualified, we go through a full run of load cases like axial, lateral, torsional, transient, and combined loads. The main and primary structures must withstand a lift-off of 1.5 million pounds of thrust from the Archimedes engines. The worst cases of aerodynamic loading on the way up as the vehicle goes through Max-Q and all the separation loads. For the structures that come back on stage one, they have to survive all the thermal and aerodynamic re-entry loads too.

Now, we test secondary and auxiliary systems to the same level of scrutiny as well. This involves pulling and pushing across the same load cases even down to the smallest fixtures and the smallest bracket that holds every device in Neutron's primary structure. A test across both stage one and two structures has yielded a wealth of valuable data. By anchoring and validating our engineering models through these tests, we're able to uncover and retire technical risks on the ground well before we fly. With Neutron's reusable fixed fairing design and our suspended second stage that passes through it, we're working with a unique architecture that's never been seen on a rocket before. We've been taking it through its paces to ready the entire system for its first flight.

This has included testing the Hungary Hippo's aerodynamic control surfaces, as well as turning the electromechanical actuators and the control systems and all the entire mechanisms. The Hungary Hippo's open and closed systems have passed performance testing, and so has the staging system, systems pneumatic locks and pushes and guides and all of the stuff that's inside of second stage that passes through the Hungary Hippo's mouth. While it's been one thing to build these huge assemblies for flight one, the team has also set up the infrastructure for this testing that allows us to get as close to a flight test as we possibly can on the ground. This is important because it also lays the foundations not just for the first launch, but flights two and beyond. You can see some of the giant towers in these staging tests on the right-hand side of the slide there.

In fact, some people thought we were building a launch site. It was so big. In the Neutron flight software and GNC team, we've been flying to orbit virtually almost now for two years, leveraging a proven approach from the Electron program with our own flight software and hardware-in-the-loop testing that integrates physical components with simulated flight environments to validate system-level functionality and performance. In preparation for Neutron's first flight, our operators and engineers have been running virtual test and launch operations week in, week out. We've been exercising our operations team on console, going through static fire operations and launch day operations so that we can hit the ground running when the vehicle arrives at Launch Complex 3. Our world-class simulation tools built in-house allow us to exercise our avionics, GNC, and software tools well in advance of conducting these operations with a fully integrated vehicle.

This not only allows us to reduce risk, but also serves as a training platform for our operations team. Combine that with a full suite of vehicle avionics in the loop, and we bring tests like you fly to a whole new level. It's all part of the smart, rigorous approach that we apply to every program and mission. Onto Archimedes. Since the last engine update, the propulsion team has continued to validate its performance across the entire run box. The upstage engines on the test stand too, and we continue to work for all the qualification testings on these engines in our test as you fly configurations as you know. The test cell is operating at a 27 rate, meaning 20 hours a day, seven days a week.

The only way you can get through years of qualification, always expected for an engine program, is to squeeze years of hours into months. As you can imagine, no weekends or evenings are left on the table at the Stennis test facility. Now, onto our ocean recovery platform for Neutron. While Return on Investment barge won't be used for the first flight, the recovery team is making great progress on having it ready for flight two. The three main propulsion generating sets for the 400 ft length barge recently passed factory acceptance testing and have been cleared to be sent to the shipyard in Louisiana. Each of Return on Investment's three diesel electric gensets are capable of more than 3 megawatts of electrical power. Combined, that's more than 2.5 times the total electricity capacity for all of Launch Complex 3. These things are big.

All in all, Return on Investment is looking good to enter service next year for the second launch. Okay, finally, to wrap up our progress, it was a great moment to be able to cut the ribbon at the launch site last quarter. Neutron will bring the largest lift capacity to the Mid-Atlantic Regional Spaceport it has ever seen. Opening it was an important milestone, not only for the path to first launch, but for the assured access to space that the nation needs as launch congestion continues to build up across the country. The team is running through the final activation as they prepare to receive Neutron on the launch mount, but otherwise all ready to go. Most recent tests have included flowing cryogens through propellant systems, and tests continue to run smoothly. We've designed the site to be able to turn missions within 24 hours.

That was the design requirement. Now, that's important for responsive space and the launch cadence we expect for the vehicle. Equally so, we can get Neutron straight into back-to-back testing during the launch and readiness campaigns as well. You can see there's been lots of Neutron activity this quarter. The team has made significant progress towards Neutron's first launch while continuing to prioritize our very rigorous testing and qualification processes over rushing to the pad. We've seen what happens when others rush to the pad with an unproven product, and we just refuse to do that. A methodical and deep approach to qualification is what's driven our reputation for success and reliability in the industry. It's been a cornerstone of our success with Electron, and it's the same philosophy that we'll be applying to Neutron.

Okay, here's Adam with the financial highlights for the quarter and our outlook ahead for Q4. Great. Thanks, Pete. Third quarter 2025 revenue was a record $155 million, coming in at the high end of our prior guidance range and representing an impressive year-over-year growth of 48%. This strong performance was driven by significant contributions from both our business segments. Sequentially, revenue increased by 7.3%, underscoring the continued momentum across the business. Our Space Systems segment delivered $114.2 million in revenue in the quarter, reflecting a sequential increase of 16.7%. This growth was primarily driven by increased contribution from our satellite manufacturing business, which continues to perform exceptionally well and provides comforting diversification alongside our robust, but at times lumpy, Launch Services business.

Meanwhile, our Launch Services segment generated $40.9 million in revenue, representing a 12.3% quarter-over-quarter decline due to fewer launches during the period, driven primarily by customer spacecraft delivery delays. We have a busy Q4 manifest, and as a result, expect a strong return to sequential revenue growth in our launch business in the fourth quarter. Now, turning to gross margin. GAAP gross margin for the third quarter was 37%, at the high end of our prior guidance range of 35-37%. Non-GAAP gross margin for the third quarter was 41.9%, which was above our prior guidance range of 39-41%. The sequential improvement in gross margins was primarily driven by a one-time benefit from the transition to over time revenue recognition for certain HASTE missions, paired with revenue recognition of an Electron mission cancellation due to a customer's internal program cancellation, which was recognized at 100% margin.

We ended Q3 with production-related headcount of 1,198, up 48 from prior quarter. Turning to backlog, we ended Q3 2025 with approximately $1.1 billion in total backlog, with launch backlog accounting for approximately 47% and space systems representing 53%. During the quarter, launch backlog contributed to gain share, supported by strong underlying trends as we convert a robust pipeline of opportunities across Electron and HASTE. This includes the 17 Electron bookings assigned within the quarter that Pete mentioned earlier. While space systems bookings remain inherently lumpy due to the timing of increasingly larger and high-impact program opportunities, space systems backlog continues to hold at healthy levels despite the step-up in revenue run rate recognized over the last few quarters. We're actively cultivating a strong pipeline that includes multi-launch agreements and large satellite manufacturing contracts across government and commercial programs.

As noted earlier, these larger needle-moving opportunities can introduce lumpiness in backlog growth, but they are critical drivers of long-term value and scale for the business. Looking ahead, we expect approximately 57% of our current backlog to convert into revenue within the next 12 months. Additionally, we continue to benefit from relatively quick turns business across launch and space systems components businesses that drive incremental top-line contribution beyond the current 12-month backlog conversion. Turning to operating expenses, GAAP operating expenses for the third quarter of 2025 were $116.3 million, above our guidance range of $104-$109 million. Non-GAAP operating expenses for the third quarter were $98.1 million, which was also above our guidance range of $86-$91 million. The sequential increases 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 qualify our committees, as well as in test and integration of mechanical and composite structures at our facility in the middle of America. In R&D specifically, GAAP expenses increased $4.6 million quarter over quarter, while non-GAAP expenses rose $4.8 million. These increases were driven by the ramp-up of our committee's production, along with higher expenditures related to mechanical systems and composites, as just mentioned. Q3 R&D headcount was 1,019, representing an increase of 84 from the prior quarter. In SG&A, GAAP expenses increased $5.7 million quarter over quarter, while non-GAAP expenses rose $6.4 million quarter over quarter. These increases were primarily due to the acquisition of GEOS during the quarter, paired with higher legal expenditures, insurance renewals, and fees associated with our annual proxy statement and related filings.

Q3 ending SG&A headcount was 385, representing an increase of 42 from the prior quarter, with the majority of those coming from the closing of the GEOS acquisition. In summary, total headcount at the end of the third quarter was 2,602, up 174 heads from the prior quarter. Turning to cash, purchases of property, equipment, and capitalized software licenses were $45.9 million for the third quarter of 2025, an increase of $13.9 million from the $32 million in the second quarter. This increase reflects ongoing investments in Neutron development as we continue testing and integrating large structures at our facility in Middle River, expanding capabilities at the engine test stand in Stennis, Mississippi, and scaling additive manufacturing at our engine development center in Long Beach. 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 third quarter was a loss of $0.03 per share compared to a loss of $0.13 per share in the second quarter. The sequential improvement to GAAP EPS is mostly attributable to the $41 million tax benefit we recorded during the third quarter, which is 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 GEOS acquisition's purchase price accounting. GAAP operating cash flows was a use of $23.5 million in the third quarter of 2025, compared to $23.2 million in the second quarter. Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to Neutron development, longer lead production 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 third quarter of 2025, was a use of $69.4 million, compared to a use of $55.3 million in the second quarter. The ending balance of cash, cash equivalents, restricted cash, and marketable securities was just over $1 billion at the end of the third quarter. The sequential increase in liquidity was driven by proceeds from the sale of our common stock under our at-the-market equity offering program, which generated $468.8 million during the quarter. These funds are intended to support acquisitions such as the announced Mynaric acquisition, as well as other targets in our robust M&A pipeline, alongside general corporate expenditures and working capital.

We exit Q3 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 have done successfully in the past. Adjusted EBITDA loss for the third quarter of 2025 was $26.3 million, which was below our guidance range of $21-$23 million loss. The sequential increase of $1.3 million in adjusted EBITDA loss was driven by higher revenue and improved gross margin, which was more than offset by increased operating expenses related to Neutron development. With that, let's turn to our guidance for the fourth quarter of 2025. We expect revenue in the fourth quarter to range between $170-$180 million, representing a 12.8% quarter-on-quarter revenue growth at the midpoint.

We anticipate further improvement in both GAAP and non-GAAP gross margins in the fourth quarter, with GAAP gross margins to range between 37-39% and non-GAAP gross margin to range between 43-45%. These forecasted GAAP and non-GAAP gross margins are benefited by a higher mix of launch contribution in the quarter, as well as underlying improvements in launch ASPs and greater launch overhead absorption due to higher forecasted launch cadence in the quarter. We expect fourth quarter GAAP operating expenses to range between $122 million and $128 million, and non-GAAP operating expenses to range between $107 million and $103 million. The quarter-over-quarter increases are primarily driven by ongoing Neutron development and spending related to flight one, including staff costs, prototyping, and materials.

However, we expect to see a shift in spending from R&D to flight two inventory, which is an encouraging sign of progress as we move closer to Neutron's first flight. I'm optimistic that with the impressive strides we've made towards this milestone, we're approaching peak Neutron R&D spending and are on the path towards meaningful operating leverage and positive cash flow in the future. We expect fourth quarter GAAP and non-GAAP net interest income to be $3.5 million, which is a function of higher cash balances, as well as the conversion of approximately $192 million of convertible notes since September 30, 2023.

We expect fourth quarter adjusted EBITDA loss to range between $23 million-$29 million, and basic weighted average common shares outstanding to be approximately 571 million shares, which includes convertible preferred shares of approximately 46 million and reflects the conversion of approximately 37 million shares from convertible notes thus far in Q4. Lastly, consistent with prior quarters, we expect negative non-GAAP free cash flow in the fourth quarter to remain at elevated levels, driven by ongoing investments in Neutron development and scaling production. This excludes any potential offsetting effects from financing under our ETF facility. With that, we'll hand the call over to the operator for questions.

Speaker 1

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchstone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ryan Koontz with Needham & Co. Please go ahead.

Speaker 3

Great. Thank you. Really nice to see the strong bookings and backlog jump there for launch. Really impressive. Sounds like a lot of that was international. Any particular color you can share on the use cases, defense versus government? Anything you can share as far as what's really driving that pickup in backlog and how you feel about it going forward over the next few quarters?

Speaker 7

Yeah, hi Ron, thanks very much. Yeah, it's a bit of both. Strong commercial bookings, but also for the first time we see space agencies who typically go to the first stoppers to go and use their own sovereign capabilities, but Electron is really the only vehicle of its kind operating in the world right now. It was very, very promising to see space agencies now kind of standardizing on the Electron as a platform.

Speaker 3

For sure. That's great. How are you feeling about supply chain relative to meeting that kind of demand for Electron at this point?

Speaker 7

Electron's like 90% plus built in-house, so we don't see too many challenges there. The factory that we built here was ultimately designed to build 52 rockets a year, and so I think we'll be fine.

Speaker 3

That's great. Maybe one last one just to wrap up. Just to clarify what Adam said about launch gross margins, there was a couple of one-time events there. Anything you can share with us on that, Adam?

Speaker 8

Yeah. As Electron continues to kind of mature as a business, we've got a deep pipeline and backlog, and you're going to have customers that have changing priorities. Programs get canceled. Fortunately, we have very strong contract terms, which allow us to make sure that we're protected in the event that people's programs get canceled or change their priorities. I think on the HASTE change, that was really kind of, again, a pivot on some of the HASTE missions where the contractual terms are such where it's really more appropriate under ASC 606 to recognize revenue over time and use EAC accounting to measure the cost that you're incurring and you recognize revenue and margin accordingly. We now have a mix in that business where we have point in time and over time, and it really is just a function of contract terms.

HASTE is evolving into an important and meaningful part of our business. A lot of good things come from that, the fact that you've got typically higher ASPs. You've got, I would say, along with that, now you've got a little bit more stability, I would say, or predictability to the revenue contribution from that, given the fact that, again, some are going to be point in time, but some are going to be over time, and that over time allows a little bit more of a, I would say, a little bit more predictability, and I think it's a healthy place to be.

Speaker 3

That's great. Appreciate the questions. Thank you.

Speaker 1

The next question comes from Andre Shepherd with Cantor Fitzgerald. Please go ahead.

Speaker 10

Hey, everyone. Good afternoon, and thanks for taking our questions. Pete, it really is great to hear all the great progress over the last few years to see everything up until this point. Two quick questions for us, one on space systems and one on launch business. On the space systems, maybe for Adam, can you remind us the revenue recognition associated with the SDA Tranche 2 award? I think in the past you had targeted 40% revenue recognition in 2026. Just wondering if that's on track or on change. Also, on the SDA Tranche 3 award, now, obviously, the government shutdown has maybe delayed the decision there slightly, but do we still feel confident in that award and in that decision? If awarded, that would be the largest contract, I think, awarded in company history, so curious on your thoughts there. Thank you.

Speaker 8

Yeah, I'll take the first piece on RevRec. I'll give you my thoughts on T3, and then I'll hand it back over to Pete. On the RevRec, yeah, I mean, we're still very much in that path of recognizing the revenue over that pattern where it was kind of think about these larger long-lived government programs as kind of 10% in kind of in the first year after you achieve award, and then it's 40, 40, 10. Think about that as the shape of the curve. SDA's kind of Tranche 2 transport layer is shaping up to be similar to that. Yeah, everything is consistent there. As you know, similar to the other overtime RevRec, you basically estimate your cost to complete the mission, and as you incur costs, proportionately, you recognize revenue at the program margin.

Yeah, so far, that program has been going very well, as Pete mentioned, that part of the business is performing very, very well. On T3, yes, that would be the largest contract the company would have won to date. You're right, the timing has been a little bit delayed due to the government shutdown. I think we've all seen recently that there are signs that perhaps we could be coming to an end of that shutdown, which I think would be great to get that momentum back in the awarding of those types of contracts. I'll turn over to Pete in regards to confidence in that win.

Speaker 7

Yeah, I think you've said it well, Adam. I mean, I think we've put ourselves in a really strong position as a prime contractor on those awards, especially with some of our acquisitions. So we're feeling good, and we just need the government to come back and finish off that last little piece. No, I think we're feeling good, Andre.

Speaker 10

Wonderful. That's great to hear. Maybe just as a quick follow-up on Neutron, with the first launch now targeted for early next year, should we still be assuming kind of three launches for next year, five the following year, and seven, or is there perhaps a change to that cadence as well? Thank you.

Speaker 7

Yeah, the way we think about that cadence is the clock starts for the next one from the first one. So depending on the first flight, think of it as like a 12-month kind of rate from there. But maybe, Adam, if you had any different views.

Speaker 8

Yeah, no, I think that's right. I think I just remind folks that the first launch is a test launch. It's an R&D launch. We've been expensing that vehicle over its manufacturing period. The previously communicated cadence was one test launch, which is still the case, and then we expect to be in revenue for the flights thereafter. I would say that depending how early we get the test launch off in 2026 will dictate whether or not we get, as Pete said, we kind of complete the next three missions in a 12-month window that would fall within that.

Speaker 10

Wonderful. Very helpful. Congrats again. I'll pass it on.

Speaker 1

The next question comes from Edison Yu from Deutsche Bank. Please go ahead.

Speaker 5

Hey, good afternoon. Wanted to ask about the future constellation. I know it's quite a long-term question, but there's been a lot of activity in some operators around spectrum. I'm curious, what's your thinking about the value of spectrum in your kind of calculus for any type of future constellation?

Speaker 7

I mean, that would be making an assumption that I guess you were sitting on a comms application as well. Clearly, spectrum is an important element to any kind of scaled comms business, although we have been seeing some interesting approaches where that becomes less so. I think you're just seeing some kind of natural consolidation in the industry right now around some of those spectrum assets, and I suspect that will continue. Look, Rocket Lab's not going to go out and buy billions of dollars' worth of spectrum, speculatively, that's for sure.

Speaker 3

Hey, Pete.

Speaker 8

This is Adam. Sorry, I got dropped. Unfortunately, the conference call dropped me. I do not know, but did I answer your question fully, Andre, on the launch cadence?

Speaker 10

Actually, Edison on now.

Speaker 7

Yeah, we did.

Speaker 8

Okay. Thank you.

Speaker 7

It's nice to see that you got dropped, Adam, this time and not me.

Speaker 8

It's not just one of them, for sure. Yep.

Speaker 5

A totally separate topic I wanted to ask about. I'm sure everyone has seen NASA. We got Isaacman seemingly back. Do you see increased opportunities in this type of changeover around whether it's Moon, Mars, space, and what do you think those incremental opportunities could potentially come from?

Speaker 7

Short answer is yes. I think if Jared is demeaned as the NASA administrator, I think if you look at Jared's approach to how he believes NASA should be run and the role that commercial entities like Rocket Lab will play, I think that bodes very well for the way that we operate and the value that we can bring the agency. I would view that as a very positive thing for Rocket Lab.

Speaker 5

Great. Thank you.

Speaker 1

The next question comes from Gautam Kana with TD Cowen. Please go ahead.

Speaker 4

Yeah, thanks. Good afternoon, guys. Was wondering if you could elaborate on how soon after Neutron arrives at the complex, realistically, it can launch? Is there a minimum interval of time? What sort of explains whatever that range might be?

Speaker 7

It's a little bit difficult to answer because it really depends on what you find. If we put the vehicle on the pad and we go through all of its fueling and detanking and all the operational tests and static hot fires and all of that sort of stuff, and it all flies through, then it's a fairly straightforward path. If we go there and we find some stuff that we do not like, then we're going to fix it. I think, as I tried to explain during the call, the way that we develop these kinds of things is I'm suspicious if everything just flies through because that, in some cases, causes more time to be spent than less because generally, you expect to see something because the whole vehicle is built on a safety factor of 1.1 or 1.2. You expect to see some things.

Depending on the magnitude of those things, we will not just blindly walk past them. We will go out and not only fix them but really, really deeply understand how they occurred and then also go one step further and feed that back into all of our engineering models to make sure that next time around we are doing a similar thing, that, I guess, the ability to predict and the fineness of that becomes better and better and better. Look, we know a lot more when we have a vehicle on the pad. We know even more when we hot fire it. After hot fire, if that is a successful campaign and we are happy with what we see, then the turnaround to launch after that point is pretty quick.

Speaker 4

Okay. I was curious also, maybe I missed it, but the cumulative catch-up adjustment or the one time, how large was it in the quarter?

Speaker 8

Sorry, Gautam. You're talking about the are you referring to the HASTE? I'm not sure if you can maybe sorry, I got dropped again from the call from our provider, but can you repeat that?

Speaker 4

No, I apologize. Yeah, I think you mentioned in the remarks that there was a, well, I know in the Q, it says there's a revenue adjustment of net $10 million favorable in the quarter. I wanted to know, I think you described the EBITDA margins were lifted by a contract closeout of some sort. I was just curious if you could quantify how large that was.

Speaker 8

Yeah. There was one contract closeout that was about, I think it was a little under $5 million was the value that we received when that cancellation occurred. Yeah, then there were some other things moving around with regards to the, well, there was a benefit to the gross margins as well because in Q3, we recognized revenue with higher gross margin associated because when we made the change in Q2, we ended up actually taking a margin hit because we recognized revenue without having associated, basically at zero margin because at that time, we did not have the ability to estimate what the costs were going to be to complete the mission as we did this transition. The path was essentially revenue in Q2 at no margin. Q3, we got, again, normal amount of revenue from that overtime contract, but that was now at margin, right?

I think those are really kind of the two prior things. When you look forward into Q4, given the guidance that we've provided, even with those things not recurring in Q4, you still see our gross margins improving. You can just see that, yes, that was kind of a unique dynamic in the transition from Q2 to Q3, but from Q3 to Q4, without those unique events, we still show gross margin strength and growth sequentially.

Speaker 4

Thanks very much, guys. Appreciate it.

Speaker 1

The next question comes from Eric Rasmussen with Stifel. Please go ahead.

Speaker 0

Yeah, thanks for taking the questions. I wanted to just on Neutron, I totally understand, Peter, and the team, how you guys operate. You're not looking at an iterative process and having things blow up. That's great. You've always operated that way. I wanted to see, though, with this latest push-out, what does that do from a timing perspective for things like the NSSL and some other things that you might have been looking at that Neutron would obviously be geared towards?

Speaker 7

Yeah. Hi, Eric. Great question. Look, the NSSL team work shoulder to shoulder with us. They're on every review in the program. Obviously, I can't speak for them, but I think they take at least the feedback we've had from us. They very much appreciate our approach of both transparency but also the diligence of the way we build vehicles. The awards for the NSSL contracts have not been made yet, and there's some time away for them to be made. We need to have a flight under our belt, a successful flight under our belt before they'll make those awards anyway. Largely speaking, it's pretty irrelevant. We've been very careful, and I think there's been a lot of conversation previously about booking Neutron and making sure that we can deliver for our customers. Long story short, we're not letting anybody down here, Eric.

We're in a good spot.

Speaker 0

Great. Maybe just my follow-up question here. You closed the GEOS acquisition. Mynaric is soon to close, I would presume. With GEOS, are you seeing any traction in expanding the footprint in national security defense? I mean, that was part of the reason, but what are you seeing now that you've closed the deal?

Speaker 7

Yeah. Look, it's night and day to before. Obviously, we had a good relationship with SDA and through the intelligence community, obviously, for launch and things like that. I would just say we're in a totally different league now and working with totally different folks. There are long, long relationships that have been built with the GEOS team. Now that they have the support of Rocket Lab, we're really able to expand and supercharge those. Also, those relationships expose them to the larger offering of Rocket Lab because it always surprises me. Sometimes, people just think we're just this little launch company and do not have all this other capability. No, it's been incredibly important.

Also, just now being a payload provider, it brings you up to a whole nother level because you're having really detailed mission discussions rather than just talking about how you can provide a bus or a component or something. We're really in mission formulation territory.

Speaker 0

Great. Thanks, and good luck with the Neutron development.

Speaker 1

The next question comes from Michael Leshock with KeyBanc Capital Markets. Please go ahead.

Speaker 6

Hey, good afternoon, everyone. I wanted to ask on Archimedes. I know you're constantly testing and iterating the engine, but how close are you to having a finalized design that meets all the performance requirements and ready for first flight? Secondly, given your production cadence, I think you previously said a new engine was coming off the line every 11 days or so. How quickly can you ramp production of the engine to have nine Archimedes for the first stage of Neutron's debut launch?

Speaker 7

Yeah. So thanks, Michael. The engine design's pretty stable at this point, and we've met all the performance criteria. What we're doing is, obviously, with Ascent, there's one set of environments, and with Descent, there's an entirely new set of environments and much more challenging environments because your propellants are warm and lower pressures, and you've had oilage mixing and all kinds of stuff. Going through all of those things has been really important. I think the team, I got to check on the exact number, but I mean, the vast, vast majority of all of the components for Flight 1 engines are either complete or in some kind of form of build. We're iterating on the engine for sure, but the production machine is stood up and ready to support.

With Archimedes, we want to make sure as we're ascending on first flight that nobody is worried about an engine. Obviously, it's the most complicated part of the vehicle. There is just no substitute for putting hours and hours and hours on test articles. Hence the reasons why we have two cells running now. It's Denis, not just the one, as we think we talked about that last earnings. It's just switching between engine and engine. Some of the more interesting tests are just extra long durations to try and promote some fatigue in the engine because obviously, we want to reuse this engine over and over again. Just doing really extended burns to try and promote fatigue and items is some of those kind of things. They just take time. There is just no substitute for just burning.

Speaker 6

Okay. Great. And then sticking with Neutron, is that original budget for Neutron of $250 million-$300 million, is that still intact given the updating timing of Neutron's first launch? And you had said you're near peak Neutron spending. Just any way to frame how much you've spent so far or what's left to go? Thanks.

Speaker 8

Yeah. I can take a swag at that. So yeah, I mean, the program, as Pete mentioned, I mean, we've continued to make a lot of progress. The $250 million-$300 million kind of original estimate, I mean, we kind of got a little bit, I would say, behind us kind of with the push from launching middle of 2025 to the end of 2025. And now, as we get into kind of a 2026 scenario, right now, I'd say that we're estimating that we will have spent approximately $360 million exiting and cumulative across R&D and CapEx through the end of 2025. So we're above that. And as Pete mentioned, it's about a $15 million impact on the human capital side of things per quarter just by extending. Obviously, prototyping, you're going to spend, we're going to spend. It's really not impacted by the timeframe.

When the program kind of delays, you end up obviously incurring an extension of the staffing-related expenses for the program. Right now, again, we're looking at around $360 million exiting 2025. Again, as I mentioned, I do think we're approaching peak. Hopefully, Q4 is the peak, and it all depends on kind of when the timing of that first launch occurs. Of course, there was a launch as well.

Speaker 6

Yep. Thank you. I appreciate it.

Speaker 1

The next question comes from Suji DeSilva with Roth Capital. Please go ahead.

Speaker 2

Hi, Pete. Hi, Adam. Congrats on the strong backlog build here. On the Electron launches, you gave some sense of pricing, but any noticing on the trend in the size of the number of launches, maybe if not now into 2026, if you'll try and extend those, or is that fairly stable?

Speaker 7

Hey, Suji, I don't know if Adam, if you got that one, but I struggle to hear you on that one.

Speaker 8

Yeah. Suji, you broke up.

Speaker 2

Oh, sorry. I'll repeat it. Just any observations on the Electron launches, the deals in terms of number of launches, length of the launches? Are people trying to extend the visibility there in the next few quarters, or is it pretty stable?

Speaker 7

I think when we talk to customers, as you can see in the last quarter, it's generally not just sort of one launch. We see folks locking in their launch capacity and buying lots of launches in one hit. We never try and let a customer down or leave a customer on the pad. We map production with launch demand very well. That hasn't been a problem to date. No, we just continue to see just growth in the demand for the product.

Speaker 8

Yeah. I would add to that that Suji, so we've seen these larger bulk buys over long periods of time occur more on the commercial side. As we've talked about in the past, it's kind of hard to differentiate sometimes commercial versus government because a lot of our commercial customers actually end up fulfilling government demand. It's a quasi-commercial government. Also, we've been growing our HASTE business pretty significantly over the last couple of years. Those have come, I would say, more like Electron originally did, where kind of the onesie, twosie kind of size contracts.

I think that's hopefully the next kind of shoe to drop for us is the ability to start signing larger HASTE deals that cover a long period of time and a greater number of launches because that would give even more certainty to the revenue ramp in that part of the business. I think that's, again, that's something that we're looking forward to. I think that would be a very helpful indicator to the longevity of that HASTE business and the ultimate scaling of it.

Speaker 2

Okay. Helpful. Thanks, Adam. My other question is on the M&A environment and with targets. Is there a sense maybe among the targets that consolidation and being part of larger companies is increasingly important, maybe more willingness to come to the table? Are you seeing any of that trend now among M&A discussions?

Speaker 7

Yeah. I think you're seeing it in a few different places, both on the larger scale, but also I think we're seeing it also on some of the smaller scale stuff as well. I think it's a difficult environment to scale in, and there hasn't really been too many great companies that other companies want to join. As I think I mentioned on the call, we're sort of becoming the de facto go-to guys if you want to really scale your products and the opportunities that you have in front of you.

Speaker 2

Okay. Thanks, Pete.

Speaker 7

No worries. Thanks, Suji.

Speaker 1

The next question comes from Andre Madrid with BTIG. Please go ahead.

Speaker 6

Hey, everyone. Good afternoon. Thanks for the questions. I think earlier today it was announced that the SDA was moving some funding earmarked for some of their programs over to troop payments. This was at more of a DOD level. Seeing that, and then you called it out, decreased cash receipts in the slide deck too related to SDA SAT work. I mean, if things do not get resolved this evening, which hopefully they do, I mean, when does the shutdown pose a significant risk to your internal 2026 outlook and beyond?

Speaker 7

Well, it's.

Speaker 8

I can.

Speaker 2

Yeah. Go ahead, Pete.

Speaker 7

Oh, you go, Adam.

Speaker 8

No, I was going to say I think that there's so far, the government shutdown, I wouldn't say has really dramatically affected us. Yes, there have been slightly slower cash receipts, but for example, we got a very large cash payment on Friday from SDA. I would say that the spigot has not been shut off. I think it's just kind of been a little bit slower in flowing. To me, that's very helpful. Even before the line of sight to the ending of the government shutdown, we were still getting and we received a very large payment at the end of last week. Right now, it doesn't really, I don't think there's going to be any, obviously, we factored in everything we believe is to be the most likely case in our Q4 guide that we described earlier.

No one's got a crystal ball for kind of what happens when they bring the government back and kind of where they reprioritize their dollars. I think we've been very fortunate so far that we've really not felt any significant impact from the shutdown to date.

Speaker 6

Got it. Got it. That's helpful. Oh, go ahead. Sorry, I didn't mean to cut you off.

Speaker 7

Sorry, Andrew. The only thing I'd add is the requirement for what the SDA is doing is not diminishing. It's expanding. It's an important program. As far as the need for the program, that's not getting smaller.

Speaker 2

Got it. Got it. That's fair. I'll leave it for one. Thanks, guys.

Speaker 8

Thanks, Andrew.

Speaker 1

The next question comes from Jeff Van Reed with Craig-Hallum. Please go ahead.

Speaker 3

Great. Thanks for sneaking me in here. On the margins and the gross margins for Q4 in the guide, it looks like maybe a couple hundred basis points of sequential improvement. Is that just to kind of break it down maybe a little more? Which side of the business are you expecting that sequential increase? Any sort of even inklings as to maybe revisions on what you think target gross margins might be for either of those two segments?

Speaker 8

Yeah. The gross margin trend in the improvement sequentially Q3 to Q4, again, is driven really by a mix where as we get more scale into our Electron business, and we've always talked about cadence being super important for the margin profile for that business because there's so much fixed cost related to it. As you scale cadence, and Pete kind of mentioned earlier in his comments that we're expecting hitting a new record for launches in the year. Obviously, that's all good for overhead absorption. Think of it as there's a lot of good underlying dynamics going on within the launch business as far as size of the backlog, the ASP increasing within that backlog. We're getting greater overhead absorption benefits. That's really kind of what's driving the strength in the launch business.

As it becomes a bigger piece of the mix in Q4, that's really the biggest factor. I would say that within our space systems business, the trend of margins actually has been quite solid in that as well. We've talked in prior calls about how we've made very, very significant improvements in our gross margins from our Solero solar business. We've kind of talked about a long-term target there of we get to 30% gross margin. That was kind of an aspirational target. I think we're very comfortable that we're very close to that. I think we're re-thinking about revisiting that one upward a bit, I think. Overall, we still believe that our launch business on Electron first has the potential to be a 45-50% non-GAAP gross margin business.

We think long-term Neutron has the ability to be at least as good as that, helped by the reusability nature of that vehicle. On the space system side, it's really two different elements that kind of have different margin characteristics. On the space systems components or subsystems business, that has a wide range with solar kind of being at the lowest end of that, and again, around 30%. Hopefully, we can push that a little bit higher. For some of our other components business, we have margins that are well north of 60%, in some cases 70% of margin. I think overall, that kind of brings the gross margin profile for that subsystems business around, call it the low to mid-40%.

The satellite manufacturing business, because of the nature of those programs, we're able to take what for many people is either high single-digit or low double-digit gross margins and have those more in, call it the, I'd say, 25-35 points, depending on the programs, because of the level of vertical integration that we bring. Because those same components that we sell into the merchant market at very high margins, we basically obviously design into our own platforms. I think longer term, I think we still see again, a gross margin business for launch that is in the, call it, if you want to call it in the 50% range. For space systems, probably in the, I'd say, the 40, maybe low 40% gross margin range. It puts it in a nice spot overall.

I think it's also helpful to note that in space systems, it's not as R&D intensive as the launch businesses when you're getting a new vehicle established. The operating margins or contribution margins for the space systems businesses, even the ones that aren't kind of in those high gross margin ranges, is still quite healthy. I think, again, I think the margins for launch speak for themselves.

Speaker 3

Got it. Got it. Very helpful. Last one then on space systems. Can you talk about the pipeline? Obviously, tranche two, tranche three are big needle movers, but what's the next layer beneath that look like? How many eight-figure, nine-figure deals? Just some semblance of what the distribution of deal sizes that are later stage in the pipeline would be helpful. Thanks.

Speaker 7

Yeah. We're always chasing a variety of stuff. I think the intelligence community and the DOD is obviously big opportunities for us. Things like GEOS really provide us new kind of access and visibility to some things that aren't very visible at all. On that side of the equation, I think there's really good opportunities for us there. I would say also if we think about the bids that we've got in play, there's also some extremely meaty commercial bids as well. I would say it's fairly well distributed across. The opportunity is fairly well distributed across both commercial and defense. Those are always the big meaty programs. I mean, all of the business units, we kind of run the business units like little startup companies as well. They're expected to grow really healthily every year.

You see new products coming on all the time because as they reach saturation with their customers, these business units have to develop new products to continue that growth. This year alone, I think it's been a really, really great year. We set goals for those units. Then there's kind of the Pete stretch goal. They've all met or exceeded the Pete stretch goal this year. It's not just about, I guess what I'm saying, it's not just about these big projects. They obviously are important needle moving, but just the underlying business and just continuing to drive that growth in all of the business units and the underlying business is equally as important.

Speaker 3

Got it. Got it. Congrats on the great performance. Thanks.

Speaker 1

The next question comes from Anthony Valentini with Goldman Sachs. Please go ahead.

Speaker 10

Hey, guys. Thanks for getting me on. Just a quick clarification question on the backlog and Neutron. Is there anything in the backlog today for Neutron, or is it zero?

Speaker 8

Yeah, Anthony. We have launches in backlog for Neutron. There are two fully priced missions in the backlog right now for Neutron. There is a third contracted mission, which is right now anticipated to be a rideshare. We do not have that in backlog because we do not do that until we have actually added the payloads into the manifest. Again, we have got a primary customer, but not on that third launch, we have not put any of that in the backlog yet.

Speaker 10

Okay. That's helpful. Is there a way to think through how that backlog for Neutron specifically ramps up? Does that happen once you guys do that first R&D launch, or is it a certain number of successful launches? Just historically and what you guys know about the industry, how does that start to flow through?

Speaker 7

Yeah, it's a good question, Anthony. I think we sort of alluded to this in one of the previous questions. It's like we don't want to ever let anybody down. People, when they're looking to buy Neutrons, aren't typically looking for one. They're looking for many. A number of customers are looking to see that the vehicle does work and it scales. We work very closely with those customers as we go along. These are both commercial and government customers. I think the unlocking point is certainly a successful flight in a number of these contracts, but also that we want to make sure we don't let customers down.

The last thing we want to do, and we've talked about this previously, is customers will be happy to book a bunch of Neutron at half price, and we're just not going to do that.

Speaker 10

Right. Okay. That makes a ton of sense. Last one for you, Peter. As I'm thinking through the opportunity set on the tranche three transport layer and just looking back at the previous tranches, there's competition from the defense primes and some of these new space tech companies, including yourself. I'm curious how you think through the differentiators for Rocket Lab and when you guys are presenting to the customer what you think really separates you from the rest of the group.

Speaker 7

Yeah. I think one of the big separators and one of the reasons why we won a prime spot on our first SDA contract is that we're so vertically integrated that if we look across all of these programs, they're typically plagued by delays. Not so much cost overruns because it's a firm fixed price, but certainly delays. When you control so much of your own supply chain, then if there's a delay on a component, you get to choose what resource you swell or push around to solve that problem. I think that's a big element, just schedule certainty. Obviously, Adam talked about some of the margin and margin stacking, so price is a big element as well. At the end of the day, all this stuff's got to work.

This is where your reputation in this industry is just so critical and why we just never ever deviate from putting ourselves in a position where that can get compromised. When people buy a piece of Rocket Lab hardware, firstly, it turns up and it looks great and it works. In an industry where that seems to be challenging, I think that's an important element. Also, finally, there's a set of requirements, and then there's how you go about solving those set of requirements with the technologies that you can bring to bear. We just have such a war chest of technologies that we can bring to bear to provide solutions to meet everybody's requirements and then some that I think it puts us in a really strong position.

Speaker 3

Great. Thank you so much for the thoughtful response.

Speaker 7

No worries.

Speaker 1

The next question comes from Christine Luag with Morgan Stanley. Please go ahead.

Speaker 5

Okay. Good evening, everyone. Peter, Adam, from your commentary from a previous question, it sounds like you're not going to go out there and go buy a Spectrum. Is that a fair assessment of your statement earlier? Also, with over $1 billion in liquidity and with a broader and deeper capability set in space systems, what's your priority for M&A?

Speaker 7

Yeah. We look at a number of things, Christine. I would say that there's always opportunities for tuck-ins, and you've seen that with things like Mynaric, where that gives us a capability that we didn't have. We'll always do those. I think the GEOS acquisition is a really good example about acquiring a company that just brings us into a totally different customer set and a totally different capability and also puts us at a totally different level. If you think of the big traditional primes, the one thing that sets them apart from lots of little space companies is they own the payload. We'll continue to look for opportunities there where we can own the payload and really drive the missions. Look, we're always looking at big needle moving stuff as well.

We always look for things that we think have a step change in either the scale or other elements of the company. That's the way we think about it.

Speaker 5

Sounds super helpful. Look, when you look out into the market, it's hard not to see what SpaceX is doing in terms of their path towards that end-to-end space solutions. When you look at your portfolio today, I mean, it looks like you're kind of marching in a similar direction with your satellite product set too, and now you've got these additional payloads. Where do you see your role in terms of that industry? Do you at some point want to own your own constellation and be able to sell more of that as a service? How do we think about where you are in this journey and what does the end state look like?

Speaker 7

Yeah. We're just sort of quietly and methodically going about making sure we amass all of the kind of the strategic elements we need to ultimately deploy things at scale. Neutron is a really important element of that. If you look at others, access to space, low-cost, rapid, and reliable access to space is kind of the place you start. Neutron gives us that multi-ton capability. As you point out, you look at the space systems growth, then really at this stage, I don't think there's any satellite we can't go and build. I mean, we've got two going to Mars here shortly. If you want to talk about complexity of spacecraft. I think from an engineering perspective and a component perspective, all of those kind of bases are loaded.

We'll be very strategic about how we think about the next step, which would be building our own constellation and whether we're providing services or infrastructure, I think, is yet to be determined.

Speaker 5

Great. Thank you very much.

Speaker 1

The next question comes from Peter Arment with Baird. Please go ahead.

Speaker 4

Yeah. Hey, thanks. Nice results, Pete and Adam. Just a quick one, I guess. On Electron, more of the demand environment, I think you've previously talked about the demand for around 30 Electron flights a year. I was wondering if that still kind of holds just given the uplift that we've seen tied to kind of all the national security launches and kind of what's going to be expected with Golden Dome and additional testing if there's upward bias to that. It certainly seems like it. Thanks.

Speaker 7

Yeah. Hey, Peter. I mean, look, I think that's fair. Depending on how quickly and at what scale Golden Dome grows to, I think we're in a very strong position to provide critical services there. We see nothing but upward trajectory in both government HASTE and commercial launches for that product.

Speaker 4

Appreciate that. And just a quick follow-up. Thanks for the comments on the Archimedes, the testing that you've been doing. Could you give us a little context? Is that much different in terms of the rate that you did originally with the Rutherfords around Electron? Thanks.

Speaker 7

Yeah, it is. It is at a much higher intensity and rate because for the Rutherford, we only had to do half the job, meaning that we only had to go up. For Archimedes, we have to go up and down. It is like twice the amount of environments, twice the amount of run box, and twice the amount of qualification.

Speaker 4

Appreciate the call. Thanks, guys.

Speaker 1

This concludes our question and answer session. I would like to turn the conference back over to Peter Beck for any closing remarks.

Speaker 8

Great. Thanks very much. Thanks for the thoughtful questions. Before we close out today, I would like to share that Matt Ocho is finishing up his time on the Rocket Lab Board of Directors. Matt's tenure as a member of the board will end November 30. Matt is a co-founder and managing partner at a deep tech venture capital firm, DCVC, and was one of Rocket Lab's earliest investors, serving as a member of the board since August 2021 and as a member of the legacy Rocket Lab board since January 2017. Since then, we've been incredibly grateful for his leadership and his guidance as we grew Rocket Lab together from a small startup to a publicly listed company, now one of the world's leading global space firms.

I just personally also want to thank Matt for backing us from the beginning and wish him all the best in his continued work in deep tech as he transitions out of Rocket Lab. Otherwise, here are some upcoming events and conferences that the team will be attending. We look forward to sharing more exciting news and updates with you there. Thanks for joining us. That wraps up today's call, and we look forward to speaking with you again soon and sharing some more progress at Rocket Lab.

Speaker 1

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.