Prepared remarks
Good evening and thank you for standing by. My name is Kelvin and I'll be your conference operator today. At this time, I would like to welcome everyone to Rocket Lab’s Fourth Quarter 2024 Financial Results Update and Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to turn the call over to Murielle Baker, Senior Communications Manager. Please go ahead.
Thank you. Hello and welcome to today's conference call to discuss Rocket Lab's full year and fourth quarter 2024 financial results. Now, before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company and these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release and others are contained in our filings with the Security 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.
Now, our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation and a replay and copy of the presentation will be available on our website. Our speakers today are Rocket Lab’s Founder and Chief Executive Officer, Sir Peter Beck, as well as Chief Financial Officer, Adam Spice. They'll be discussing key business developments and highlights including updates on our launch and space systems programs. We will discuss financial highlights and outlook before we finish by taking questions. So, with that, let me turn the call over to Sir Peter.
Thanks, Murielle, and thanks for everybody joining us today. Look, 2024 was our biggest revenue year ever and I'm proud to share that we delivered very strong results for Q4 2024 and indeed for the full year. We achieved our highest annual revenue figure to date of $436 million, that's more than a 78% increase on previous year's revenue, demonstrating that our strategy of delivering end-to-end space services is paying off and delivering significant growth. From Q3 to Q4 last year, we saw growth of more than 26% and year-on-year Q4 growth was 121%. Something you'll hear me say often at Rocket Lab is we do what we say we're going to do and in this case that's delivering significant growth, a 382% increase in Q4 revenue to be precise, since our entry into the NASDAQ in 2021. On the launch side, these figures are driven by an increase of electron launch cadence and the introduction of hypersonic suborbital test launch capabilities.
Space systems contribution has been continued strong execution across both spacecraft and constellation build and operation, as well as our merchant satellite component businesses. Now, let's dig into these areas in a little bit more detail in the following slides. Our accomplishments in 2024 really speak for those record numbers. On the launch front, we delivered a record number of 16 launches spanning Electron and HASTE, all with 100% mission success. Once again, we've maintained our position as the leading small launch provider globally and the second most frequently launched US rocket annually. We signed more than $450 million in new contracts in 2024 across launch and space systems, further strengthening our backlog which currently sits at just over $1 billion. We also achieved a world-first by successfully launching two missions within 24 hours from pads on either side of the planet.
On the space systems front, there are too many achievements to distill into one slide, so here are just a couple of my favorites. We made significant progress on the design and build of the 40-plus spacecraft in our backlog, but I'm particularly proud of the team completing the manufacture and test of the twin spacecraft for NASA's ESCAPADE mission to Mars. They did this on an impressively short timeframe and in an incredibly cost-competitive manner for an interplanetary mission. While they're yet to launch, we're excited to see these birds on their way to the Red Planet soon. Our re-entry to Varda was another major milestone, successfully enabling the first in-space manufacturing mission outside the International Space Station. Since the first re-entry early last year, we've delivered two more Pioneer spacecraft for Varda, with the second returning to Earth in South Australia. Another third Pioneer spacecraft for Varda is just now days away from launch.
That's just a tiny snapshot of our achievements in 2024. But before we dig deeper into the updates across Electron, Neutron, and Space Systems, I want to provide an overview of our strategic focus for this year. We're building a truly end-to-end space company. That means owning the full value chain of having the keys to unlock enormous potential from the rapidly growing space economy. The first two steps are well underway with launch in space systems, meaning that we have our own ride to space and we can build and operate the satellites on orbit. The final remaining step is space applications or delivering data or services from space using our own constellation. In 2024, we made significant progress across all three and we're building on that again in 2025. On the launch front, this year is the year of Neutron. We look forward to unlocking the medium launch bottleneck by bringing Neutron to the pad to help launch more than an estimated 10,000 constellation spacecraft that need deployment in the coming decade.
We're continuing to ramp up our small launch cadence with more than 20 missions in 2025 on the manifest across Electron and HASTE. Of course, as usual, these missions only launch when our customers are ready. It's worth pointing out that, as far as I'm aware, Rocket Lab is the only launch provider with missions scheduled this year across small launch, medium launch, and hypersonic suborbital test launch capabilities. This demonstrates the breadth of our launch experience and capabilities and also positions us to take advantage of the TAM exposure across several different growing launch markets. On the Space Systems front, we have more than 40 spacecraft in various stages of production right now. By the end of this summer, we expect to have, by the end of summer this year, more than quadruple the number of Rocket Lab spacecraft on orbit ready to launch or have completed their missions. I'm also excited to reveal a new addition to our spacecraft lineup, one that slots nicely into our vision for space applications and I'll talk more about this satellite later in the call.
But first, so now for some updates on Electron. 2024 was a fantastic year for Electron. Last year, we increased our launch cadence 60% year-on-year, and 2025 is shaping up to be even bigger. We've launched twice this year already, both times for satellite constellation operators, and each with only 10 days of each other. Last year's trend was building out satellite constellations with Electron. In Q1 2025, this has continued with launches for constellation operators Blacksky and Kineis, both of whom have booked multiple missions on Electron to deploy or replenish their constellations. Kineis in particular is worth calling out since we launched them for the first time in June last year as part of a five-launch deal. We're now four launches in and on track to complete their fifth launch shortly, meaning that we will have deployed their full constellation of 25 satellites in less than a year.
Now, to put that into perspective, many constellation operators can wait for a year for their first launch with other providers. Last year, we also signed a multi-launch deal with the Japanese earth imaging company iQPS for four Electrons and then just this month they signed another agreement to double that and lock in eight Electron launches for their constellation deployment over 2025 and 2026. In 2024, we built on our success in the small launch market with Electron's suborbital variant HASTE. Last year's Pentagon budget request for hypersonic research was up 46% to $6.9 billion compared to the two years prior, and we're ideally positioned to support this expanding market. We're the only commercial provider that's executed two launches in 21 days for the Department of Defense's MACH-TB program, which we completed in Q4, and we have another five HASTE missions locked in for the DoD and its contractors.
In January, we also announced that we've been selected by KRATOS to support the next phase of the MACH-TB program called MACH-TB 2.0. It's a $1.45 billion five-year contract to expand hypersonic technology testing and with HASTE we're uniquely suited to meet that challenge. I think it's also important to place all of that within the wider context of today's geopolitics and America's defense technology. Hypersonics have become increasingly urgent under the new administration. In the words of the President, within the executive order he issued in January to build the Iron Dome for America, the threat of hypersonic and other advanced aerial attacks is the most serious threat facing the United States today. Furthering peace and strength is critical to America's defense. Our capabilities with HASTE, our affordability, and our speed, all of which are the new administration's top priorities, makes it a great product fit to address these challenges.
Right, moving on from small launch into Neutron updates. Well, the title really hearsays it all. This is the year of Neutron, our monopoly breaker to unlock the bottleneck of medium launch. As I said before, there are more than 10,000 satellites that need launching in the next five years from commercial constellations alone, and then there's the growing demand from national security and defense missions as well as interplanetary exploration for the science community and it goes on. The need is clear. So, I won't labor on it other than to say that the industry is crying out for more launch options in this class and Neutron is coming to market in a record time to deliver it. Neutron is also critical for us to launch and operate our own future satellite constellation. So, over the next few slides I'll take you through the latest development milestones and achievements as we work to get Neutron on the pad in the second half of this year.
Okay, so at LC-3, all major hardware and infrastructure items have arrived and been installed and our civil works on the site are practically finished. Yes, and we even have water. Most recent updates include the flare stack, 165 tons steel circular launch mount structure that Neutron will launch from, a giant pair of LNG tanks, the ones you can see on the bottom left of the slides. Those are the heaviest objects to have ever crossed the Wallops Island Bridge and their installation marks the completion of all the long lead propellant storage for the launch site. What's left now is to complete the electrical and mechanical connections for a fully integrated system, but otherwise we look forward to its grand opening in a few short months. Now on to the one of the most exciting and novel features of Neutron, its Hungry Hippo fairing. The massive reusable nose cone halves are now live and moving, fully integrated with their avionics and actuators and all of the mechanical systems.
We're testing like we're flying, opening and closing the Hungry Hippo at full speed to understand exactly how they behave and I was glad to say I was there in person for the first lot of testing and I can tell you that it's a wonderful sound to hear the Hungry Hippo in action and I fully encourage you to go and check out the video we'll put out today of all testing in action; it's pretty cool. We have a few more run-throughs as we add some hardware, then they'll soon be making their way over to our assembly and integration facilities ready to be fitted to Neutron's first stage for launch. Let me draw your attention to the picture on the top left. That's our Stage 1 tank stacked and ready to ship out. Check out the person at the bottom of the frame for scale and you can see the size of that tank. All of the launch vehicle is currently in production with significant parts of it currently in test before being shipped out to the launch site for integration.
We've been moving past Flight 1, with structures including fairing halves already in production for our second Neutron rocket. For Flight 1 though, all of Neutron's largest pieces will soon be moving across the country and making their way to the East Coast. They'll be integrated with all the avionics and software, and it'll go with the fit checks and AIT before going straight into full system qualification. So, keep an eye out for pictures of tanks on barges to know where we're getting close to that next milestone. Now on to Archimedes. The engines qualification campaign continues at a cracking pace. We're hot firing every few days and the testing is going well. We've got engines consistently moving across the country between the production line in Long Beach and the engine test site in Mississippi. You also may have seen we shared a recent update that performance iterations on the production line have resulted in more than a couple of hundred kgs shed from the engine, which is always good.
And also check out the size of that second stage novel expansion cone that we recently produced and on its way for testing. It's a cool thing. Okay, so from engine testing, we're really doubling down on our test cadence to match the increased production rate out of Long Beach. So, we're running a really intensifying test campaign on multiple engines as we lead up to Flight 1. In that case, the build of a second Archimedes engine test cell is nearly complete. This enables us to concurrently test engines as our investments in production ramp up. Having two cells is always a good move. Now, we've provided plenty of updates on where Neutron will lift off, but not much about where it will land. Here she is; meet Return On Investment. We named that specifically for Adam Spice. Neutron's 400-foot ocean landing platform is what we see on the screen there. For the image at the bottom of the left, also providing a great sense of scale of how big this vessel actually is.
Alongside shore-based landing sites and the ocean platform gives us the flexibility to maximize the vehicle's performance by allowing us to dedicate less propellant to landing and more to lifting our customer's payloads to diverse and complex orbits. With the vessel secured, work has now begun on modifying it. We're adding autonomous ground support equipment that secures Neutron to the deck when it lands, heat shielding, propulsive systems, and features to keep it on target for Neutron's return. The landing platform is also a clear indication that we're scaling up and moving past the first minimum viable product with Neutron now. With one launch set for 2025, we're aiming to triple that in 2026 and then the landing barge is obviously critical to that ramp-up. Now, recovery isn't planned on the barge for the first test flight, we'll be doing a soft splashdown, but we can expect Return On Investment to live up to its name in 2026 when it enters service for all the future Neutron flights.
Now the road to launch. I'm often asked what should we look at to indicate Neutron's progress to the pad because there's just so much going on. So we tried to create a little bit of a visual overview here of the big ticket items that we're running concurrently right now and what's left to go to get to the pad. We've always been clear that we run aggressive schedules and that gets us to the pad on a rapid timeframe, but of course nobody wants to get the rocket to the pad faster than I do. The important thing to point out here is that these tasks are not serial. We don't wait to finish one before starting the next. Everything has been worked on concurrently and some of them are long lead pieces that might come together just days before the launch, for example, a launch license. This isn't our first rodeo as everyone knows; we're no strangers to bringing a new rocket to market. We're running aggressive schedules as we always do. At the end of the day, as I've always said, it's a rocket program.
Ladies and gentlemen, this is the operator. I apologize that there will be a slight delay in today's conference. Once again, ladies and gentlemen, this is the operator. There will be a slight delay in today's conference. Please hold, and the call will resume momentarily. Thank you for your patience.
Sorry about that, everyone. I'm not sure why the line dropped, but I'll summarize the previous slide to ensure everyone is on the same page. I'm frequently asked what indicators to watch for Neutron's progress to the pad. We've put together a visual overview of the major tasks we're currently working on and what still needs to be completed to reach the pad and flight this year. We've made it clear that we follow aggressive schedules, which helps us get to the pad quickly. I want to reach the pad faster than anyone else. It's important to note that these tasks are not sequential; we don't wait to finish one before starting another. We're working on everything at the same time, and some tasks are long lead items that will come together just days before the launch, such as obtaining a launch license. This isn’t our first time bringing a new rocket to the pad; we’re experienced in this area.
As always, it's a rocket program and we’re targeting our first launch for the second half of this year. I'm very pleased with our progress and development program. Neutron is set to be a crucial vehicle for the industry, and we’re excited to be at the forefront of this initiative. Moving on from launch updates, I would like to share some news about our Space Systems businesses. I'm pleased to report the successful mission of our latest spacecraft, Varda, which achieved flawless Earth reentry and deployed its capsule in South Australia early this morning. The mission launched in January and spent over a month in orbit, performing essential functions for Varda's capsule. We have another Pioneer class satellite ready for launch with its Varda capsule in the next few days, marking the second satellite ready for launch in this program in just a month. Our Space Systems team is also busy assisting with a NASA lunar lander mission to the Moon.
After traveling through space for 45 days, our space-grade solar cells have provided more than 1,400 operational hours of power, while our software team has offered continuous support for orbit control and engine burns. This support will continue through the mission’s critical phases, including the landing itself. In our National Defense segment, our team is excelling in two crucial programs. We are currently deep into the detailed design phase of our $500 million Prime contract with the Space Development Agency. Last month, we successfully cleared a significant milestone—the first design review, which ensures that our satellites meet the rigorous requirements set by the US Department of Defense. All 18 satellites utilize nearly every integrated subsystem and component, including solar panels, composite structures, and avionics. This level of control over our prime programs enables us to deliver exceptional national defense solutions with certainty regarding cost, schedule, and quality.
We also have a 24-hour notice responsive space mission planned this year for the US Space Force. This $32 million VICTUS HAZE mission involves launching a Rocket Lab satellite on short notice to demonstrate our ability to respond swiftly to threats. This capability, known in the defense industry as Tactically Responsible Responsive Space, is complex but highly desirable, and the Pentagon is eager to partner with trusted commercial entities like ours. Most of these missions will use our standard vertically integrated satellites announced last year. Today, I’m excited to introduce Flatellite, a low-cost mass-producible satellite designed for large constellations. We developed Flatellite after extensive collaboration with constellation operators to understand their current and future needs. It is a scalable, resilient, high-power satellite capable of providing secure, low-latency, high-speed connectivity and remote sensing for national security, defense, and commercial markets.
Flatellite allows us to efficiently build in high volumes, thanks to our spacecraft production experience and vertical integration of components, giving us superior control over costs and schedule compared to others reliant on constrained supply chains. Additionally, its low-profile stackable design maximizes the number of Flatellites we can launch per mission, which integrates seamlessly with Neutron. The render of Flatellite stacked inside Neutron’s fairings illustrates the scale of our capabilities. However, Flatellite is not merely a new product; it represents a strategic move towards fulfilling Rocket Lab's vision of becoming a comprehensive space company, operating our own constellation and delivering services from space. With access to Neutron and Electron for launching, alongside the ability to produce our own spacecraft in large quantities, we have a significant advantage in establishing constellations efficiently and quickly. That’s all I can share about Flatellite for now, but I look forward to providing more details soon. Now, I'll turn it over to Adam to discuss our financial highlights and outlook.
Thanks, Pete. Fourth quarter 2024 revenue was $132 million, which is above the midpoint of our prior guidance range and reflects significant year-over-year growth of 121%, driven by strong contributions from both business segments, but led by Space Systems. Fourth quarter revenue represented a sequential increase of 26.3%, primarily due to the increase in launches from three to five, including two HASTE missions during the quarter, which come at a higher ASP versus standard Electron missions. On a full year basis, 2024 revenue was $436 million, an impressive growth of approximately 78% year-on-year. Our launch services segment delivered revenue of $42.4 million and our current Electron and HASTE backlog continues to support an increasing ASP with some quarterly variability tied to volume purchase commitments, launch location, and mission assurance requirements. On a full year basis, launch delivered revenue of $125.4 million, which is an increase of roughly 74% year-on-year.
Our Space Systems segment delivered $90 million in the quarter, reflecting sequential growth of over 7%, driven primarily by a strong quarter from satellite manufacturing and our attitude direction and control subsystems business. On a full year basis, Space Systems delivered revenue of $310.8 million or an increase of 80% year-on-year. Now turning to gross margin. GAAP gross margin for the fourth quarter was 27.8%, at the high end of our prior guidance range of 26% to 28%. Non-GAAP gross margin for the fourth quarter was 34%, which was also at the high end of a prior guidance range of 32% to 34%. On a full year basis, GAAP gross margin was 26.6%, while non-GAAP gross margin was 32%. Although gross margins in our launch business can be volatile quarter to quarter, dependent upon customer mix and mission type, in 2025, we expect continued margin expansion in both segments as Electron's cadence continues to increase at higher ASPs and our Space Systems business continues to scale.
Relatedly, we ended Q4 with production-related headcount of 1,004 heads, up 40 from the prior quarter. Turning to backlog, we ended Q4 2024 with $1.07 billion of total backlog, with a launch backlog of $386 million and space systems backlog of $681 million. While year-on-year backlog growth was modest at approximately 2%, this should be put in the context of increasingly larger needle-moving deals and customer program opportunities. Sequentially, there was a slight remixing of our backlog as a result of particularly strong bookings in our launch segment, which we expect to continue as we convert our pipeline of Neutron opportunities. At first glance, our backlog has roughly a 50-50 split between government and commercial. But as you dig deeper, many of our commercial customers ultimately cater to the needs of the US Government and other friendly nations. We view this as a significant advantage, especially in evolving political and budgetary environments, as governments focus on space and efficiency remains a high priority.
We continue to cultivate a healthy pipeline, including multi-launch deals and large satellite manufacturing contracts that, as mentioned earlier, can create lumpiness in backlog growth given the size and complexity of these opportunities. We expect approximately 50% of current backlog to be recognized as revenues within 12 months. Turning to operating expenses in the quarter, GAAP operating expenses for the fourth quarter of 2024 were $88.4 million, modestly above our guidance range of $84 million to $86 million. Non-GAAP operating expenses for the fourth quarter were $74.5 million, just below our guidance range of $75 million to $77 million. GAAP operating expenses grew 39% from the prior year fourth quarter, almost entirely related to a step-up in Neutron spending, particularly Archimedes testing, investments in composite structures development, and IT-related spending including a step-up in cybersecurity requirements related to our US Government programs.
Non-GAAP operating expenses also grew 39% year-on-year, largely due to the same reasons as our GAAP OpEx increases, less the effect of stock-based compensation expenses and non-recurring transaction costs. Now, focusing on quarter-over-quarter changes. The sequential increases in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in headcount and prototype spending to support our Neutron development program and related IT infrastructure and IT support for both Neutron and our SDA satellite contract. In R&D specifically, GAAP expenses increased $532,000 quarter-on-quarter due to neutron prototyping materials and headcount growth. Non-GAAP R&D expenses were up $3.3 million quarter-on-quarter, more than the GAAP increase due to fluctuations in non-cash stock-based compensation between R&D and cost of sales related to the EAC accounting of our space systems manufacturing programs.
As such, the non-GAAP R&D increase of $3.3 million represents well the underlying trend in core R&D spend in the business, again driven largely by investments in Neutron. Q4 ending R&D headcount was 828, representing an increase of 52 over the prior quarter. In SG&A, GAAP expenses increased $7.9 million quarter-on-quarter, largely due to an increase in outside services related to IT, legal, and finance, with IT spend largely related to security and cybersecurity requirements under our SDA contract, legal spend supporting a range of corporate initiatives, including corporate development, and year-end audit activities, which are paired with an increase in staff costs. With that GAAP spend, we reported non-recurring transaction costs of $2.2 million in Q4, owing to a step-up in corporate development activities including advancing a robust pipeline of M&A opportunities. Non-GAAP SG&A expenses increased by $2.5 million, driven by the previously mentioned GAAP increases.
Q4 ending SG&A headcount was 329, representing an increase of 29 from the prior quarter. In summary, total fourth quarter headcount was 2,161, up 121 heads from the prior quarter. Turning to cash, purchases of property, equipment, and capitalized software licenses were $21.5 million in the fourth quarter of 2024, an increase of $10.5 million from the $11 million in the third quarter of 2024. As we continue to invest in Neutron research, testing, and scaling production, we expect increased capital expenditures to continue for the next few quarters. Cash consumed from operations was $2.4 million in the fourth quarter of 2024, compared to $30.9 million in the third quarter of 2024. The sequential improvement of $28.5 million was driven primarily by the increased space systems program's milestone receipts, which can be lumpy. 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 2024, was a use of $23.9 million, compared to $41.9 million in the third quarter of 2024.
We do expect a pickup in cash consumption in Q1 owing to an expected increase in Neutron spending ahead of our 2025 launch and the lumpiness in large contract driven space systems milestone collections, which are projected to be lower in Q1 off a strong Q4 combined with higher payment outflows to our SDA program subcontractors that we expect will ultimately be reflected in higher revenue recognition in the back half of 2025. The ending balance of cash, cash equivalents, restricted cash, and marketable securities was $484 million as of the end of the fourth quarter of 2024. We exited Q4 in a strong position to execute on our organic expansion initiatives as well as inorganic options to further vertically integrate our supply chain with the critical capabilities and expand our addressable market, consistent with what we have done successfully in the past. Adjusted EBITDA loss was $23.2 million in the fourth quarter of 2024, modestly above our guidance range of $27 million to $29 million loss.
The sequential improvement of $7.7 million was primarily driven by revenue growth and gross margin improvement across both segments. With that, let's turn to our guidance for the first quarter of 2025. We expect revenue in the first quarter to range between $117 million and $123 million, representing approximately 29% year-on-year growth at the midpoint, and expect a return to sequential growth in Q2 driven by strength in our Space Systems business. We expect first quarter GAAP gross margin to range between 25% to 27% and non-GAAP gross margin to range between 30% to 32%. These forecasted GAAP and non-GAAP gross margins reflect less favorable mix within our Space Systems segment and a lower launch ASP driven by customer mix discussed earlier. We expect first quarter GAAP operating expenses to range between $93 million and $95 million and non-GAAP operating expenses to range between $77 million and $79 million.
The quarter-on-quarter increases are driven primarily by continued Neutron investment into staff costs, prototyping, and materials. We expect first quarter GAAP and non-GAAP net interest expense to be $2.7 million. We expect first quarter adjusted EBITDA loss to range between $33 million and $35 million, and basic weighted average common shares outstanding to be approximately 458 million shares, which excludes convertible preferred shares of approximately 51 million. Lastly, given where we are in the final push to not only get Neutron to the pad this year, but also make advanced production scaling CapEx investments, such as the recovery barge that Pete spoke about earlier, as well as investing in inventory for subsequent Neutron tails beyond the test launch tail this year, cash consumption will increase and diverge more than it has normally from adjusted EBITDA. We continue to see the program investment in getting to Neutron minimum viable product and infrastructure to be consistent with our initial estimates of approximately $250 million to $300 million, having spent approximately $200 million of gross GAAP OpEx and CapEx through the end of 2024 on this program.
Specifically, over the last four quarters, total cash consumption has been running between approximately $20 million and $40 million per quarter and we expect this number to increase in Q1 due to a combination of these neutron-related investments as well as long-lead procurement items for our SDA program and a lack of significant contractual milestone payments receivable across our MDA Global Star and SDA programs in the quarter. While we proactively manage the working capital elements of our business, this unique situation is likely to result in an increase in cash consumption to approximately double from this prior range of $20 million to $40 million in Q1. We expect this dynamic to moderate in coming quarters with the resumption of contractual milestone payment schedules under our large space systems programs and as we get the minimum viable infrastructure in place to support the inaugural launch of Neutron later this year.
Questions and answers
And with that, we'll hand the call over to the operator for questions.
Thanks for taking our questions. One, the first one on Neutron and to check the language around the timing. I think in the past it's been talked about as mid-2025. Now you're saying second half. Is this just kind of semantics, it’s a couple of months or are you trying to maybe put some cushion or take more time with any of the processes?
Yeah, Edison. We've sort of said in the past mid-2025. So yeah, we're giving ourselves a little bit more time to get it to the pad and get the launch. But I mean, we're talking months here. It's not very material.
Understood. And just in terms of the launch itself, what would you kind of define as success? And I frame it in the context of, let's say it gets to orbit. Does that mean we're pretty confident in the three for next year? Just curious on the parameters for what you would define as a mission success.
Our goal is to achieve orbit. Anything less than that is not acceptable for us. We are aiming for an orbital launch on our first flight, which those familiar with the space industry know can be challenging. However, this is our second attempt, and we consider reaching orbit a success for that mission.
Hey everyone, congratulations on the quarter and thanks for the very thorough updates. Congrats on all the progress as well. Peter, just maybe to follow up on the Neutron question, maybe another way to ask is, how confident are you in launching this year? And as we look into 2026, how should we think about the revenue mix starting to shift between space systems and launch systems? Thank you.
I'll address the first part of your question, Andre, and then let Adam respond to the second part. Currently, we are not aware of any significant events that would raise concerns about achieving the launch this year. It's a rocket program, and while there are important tests still to complete, we are feeling quite confident about making this launch happen.
I can address the second part of your question, Andre. The mix in our business is expected to remain relatively stable. If growth continues in our Electron business, it will gradually become a smaller portion of our overall revenue as Neutron begins generating revenue from its launches. Based on our plans for over 20 launches this year, we anticipate ongoing growth extending into 2026. Additionally, with three Neutron launches projected at prices between $50 million and $55 million, the first year of Neutron's revenue could match what Electron has generated in eight years. This highlights the significant impact Neutron will have on our business model. We also foresee substantial growth in our Space Systems sector continuing through 2026. Currently, our business mix is around 70% space systems to 30% launch, but I expect that share of launches will increase. While I don’t foresee launches surpassing 50% of the total mix by 2026, we aim for a long-term balance of two-thirds space systems and one-third launch due to the unpredictable nature of launches based on customer readiness. Right now, we’re in a favorable position, and as Neutron scales up, we may lean more towards launches before returning to our ideal two-thirds to one-third mix.
Got it. That's super helpful, guys. Really appreciate that. Maybe just a quick follow-up. On space systems, can you maybe just remind us what are some key awards or key catalysts that we can look for this year, maybe things that are not necessarily reflected in the backlog?
Yes, Andre, as Adam mentioned earlier, the programs we pursue are not small; we focus on large-scale initiatives, which can lead to some variability in our backlog. We have been quite competitive in the SDA mission and will keep bidding for those opportunities. Additionally, there are several new missions launched recently related to the Iron Dome that we believe we are well-suited for. We will continue to pursue and bid on projects that make sense. However, it's important to note that there is some uncertainty in the industry with the new administration and defense forces regarding which programs are being expedited and which ones are being delayed. So, we will have to navigate that as it comes.
Hi, Peter. Hi, Adam. Congratulations on naming a boat, Adam. I want to clarify whether you still anticipate Neutron costs to decrease as it prepares for its first launch. If that's the case, will that happen simultaneously with the first launch, be slightly delayed, or possibly occur earlier due to increased spending? Any insights on this would be helpful.
Yeah, I can take a pass at that first part, and then Pete can jump in. So, when you think about neutron costs, obviously this first test launch is an R&D launch. There won't be any revenue associated with that launch. And so as you look forward, of course, there's going to be, as we get some production efficiencies as you move from the first tail to the second tail to the third tail, that's always important. But I think the more meaningful thing, obviously, and the big focus item for us to really get the Neutron economics to come into focus is really reusability. And so Pete introduced the barge earlier today. And I like the name of that; certainly your return on investment is exactly what that barge is intended to do. But it's really about how quickly can we stick that first landing, right? So again, we're not going to attempt it on the first one. The question is, when do we feel comfortable to attempt it? And then when we do, for successful, putting that booster into reuse and going just as kind of we've seen SpaceX do; you hopefully get to reuse it a few times, and then maybe as you learn more, you can ultimately reuse that booster as we designed it to use at least 20 times. And really, when you start to amortize the cost of that expensive booster over a significant number of launches, that's really where the margin expansion comes into.
No, you said exactly what I was going to say; that is a critical element. The only bit to add is that the way that Neutron is designed, of course, is to burden the most amount of cost into that first stage as possible because we are, in fact, reusing it. So that's been an important design element for the vehicle.
Okay, great. Another question is about the new Flatellite product. It appears to be your entry into satellite constellation technology. I'm curious if you have a cost advantage per satellite with your architecture compared to what's currently available in the market or what competitors are planning to offer, and how we should evaluate the advantages of this product as the economics of constellations become increasingly important.
No, that's a great question. So, generally the way the conversations go is how fast can you make it, and then how cheap is it? That's generally the order of events. And being so vertically integrated, we really shine on how fast you can make it because basically over the years, we've just slowly been integrating more and more stuff and building more and more things in-house. So that gives us a huge edge. And then of course, because we're building rockets and large structures and equipment, we just have tremendous capability, whether it be machine shops or composites; you name it, robotics. We just have a huge amount of capability to really execute on. This is, I guess, where I think to really be a large competitive player in this industry, as I've always said, you have to have your ability to build satellites at scale and you have to have the ability to launch at scale. Launch is getting done with Neutron, and I'd say we're very far down the path now with space systems. The introduction of Flatellite is really a combination of a number of years' work to get a product that can truly be very low cost and very high volume.
Hi, thanks for taking the question. To follow up on the Flatellite discussion, Peter, I believe the presentation mentioned some flexibility with the payload. Considering how you plan to mix and stack within Neutron, are there any restrictions on the payload or the types of payloads? I'm particularly thinking about applications related to earth observation, like cameras and similar equipment.
That's a great question, Trevor. While the flat structure isn't suitable for large optical apertures like big telescopes, it is perfect for everything else. The design allows us to easily adjust the depth of the payload bay and the sizes of the arrays. You can think of it as a ladder backpack added to those structures, enabling us to easily modify the various payloads. We have carefully considered not only our customers' current needs but also how to future-proof the design to accommodate a wide range of applications.
I would encourage you to consider how the profit and loss statement evolves over time. After the initial launch, you will likely see a substantial decrease in research and development expenses. Many of the skilled professionals we hire in engineering roles are versatile and can effectively transition from R&D to production-related tasks. As we ramp up a new vehicle, some R&D skills remain essential to mature the vehicle. I suggest focusing on repurposing these roles rather than eliminating them. We do anticipate a reduction in R&D costs, but the associated expenses will shift to the cost of sales. I’ll let Pete share his perspective on the mix if he has additional insights. One key point to highlight is that our prototyping costs will decrease significantly since much of our current spending on Neutron is related to prototyping.
Yeah, I think you said it well, Adam. Nothing to add there further.
Good afternoon. Thank you for taking my question. I wanted to start with the Archimedes hot fire. You've significantly increased your testing frequency, and the fire appears very clean, which is great to see. I’m wondering if you could discuss any changes made to the propulsion system since the initial hot fire last August and update on Archimedes' current readiness for its first launch and whether it meets or exceeds your performance requirements.
Yeah. Hey, Michael, good question. So yep, no, we're running the engines just all the time. A qualification program, it covers a lot of different running conditions. And, it's not like the engine just needs to start on the ground once and ascend. We have a whole bunch of other run conditions where the propellant needs to sit for a while and do the reentry and landing burns. Then of course the Stage 1 engine is the same as Stage 2, so you've got big cost periods and relights. The qualification campaign is pretty big. I'm pretty happy with the engine to be fair. The changes that we made to remove mass were in large part to increase production ability. Whenever you design something and you put it in production, you inevitably find the things that you don't like. So, being agile enough at this stage to change them, change the various things we want to is the right time to do it. It gets harder once the engine's all qualified. And the team's just working through it. We've added that extra cell for the very reason it's just a tremendous amount of testing to get through and tweaking. Yes, we're just kind of hammering away at it.
Okay, great. And maybe shifting to Electron, if we look longer term at Electron's launch prospects, if LC-1 can provide 120 launch opportunities annually, and then maybe another 12 at LC-2, is the strategy, are you looking to max out the launch capacity with maybe over 100 plus launches per year, or does the supply-demand environment create a more attractive business model at maybe 30 or 40 electrons per year? I'm just wondering where that sweet spot is for Electron launches as we look out three to five-plus years down the road?
Yeah, good question. My answer is as many as possible, right? That's what we want to see. When we developed LC-1 and we had to license that site, we obviously never wanted to be constrained by the licensing on that site. So we just thought of the biggest number we could back in 2016 and that's that. So we have plenty of capacity there. Even though we've got 12 capacity out of LC-2, that can be amended and improved. That's not that much of a constraint either, but it's really just the market demand. The good news is it continues to grow year-on-year. Every year we sell more electrons than the previous year, which is great, but that's really the driving factor behind it. As we look out in the following years, we've seen strong growth in Electron sales year-on-year.
Hey, good afternoon, everybody. Hey, Peter, recognizing that space is hard, you guys are running aggressive timelines to your own admission on the Neutron. Maybe you could just walk us through the things that have caused the delays at each point. So, I think we had, pushed from the fourth quarter, excuse me, second half of ‘24 into mid ‘25, now into the second half of ‘25. What are you seeing that is causing you to make those changes?
Yeah, thanks, Jason. Well, I mean, firstly, if we stand back and look at the context of the timeline of a rocket program, this is still crazy fast compared to just about any historic rocket program. So it was always good to anchor on that. But look, there's no one thing. It's not like we had a giant engine failure or a tank failure or anything like that. There's no one thing. I would say probably the most frustrating thing is some of the large structures and third-party providers; we always end up having to pull stuff in house because we get let down by a number of providers. Early in the program, it's fair to say that we had to deal with some kind of COVID issues, so we just couldn't get concrete and we couldn't get steel; couldn't buy CNC machines. Those things had really long lead times associated with them. Now, of course, that's not the case now, but that sort of got us off to a little bit of a slow start. But there's no like one big thing that's just sort of got in the road. We continue to push hard and like I say, there's no giant thing. If something went put its leg well out of bed, then of course we would let everybody know but at the moment we're just sort of just eating away at it.
Yeah. And you mentioned suppliers. How much dependency do you have at this point to get this all wrapped up? Is this 90% under your control at this point? Do you still have some dependencies with suppliers?
Yeah, well, as we transition into rate production of the product, we have much more under our roof. When you're building large steel structures and launch sites and things like that, you don't have that in-house capability to do those kinds of things. The early prototypes were hand-laid rather than being made on the AFP machine, which is now of course up and running in commission. Some of those things delay. But there's just some practicalities around doing things for one-off. It doesn't make sense to build all that capability in-house. But I'd say as time goes on and as rate production starts to increase, we become far less reliant on those external contractors.
Right. Okay. I've got just a few more quick ones, if you'll humor me. On the pipeline in space systems.
Sure.
Yeah, in space systems, in the pipeline, I'm just kind of curious what you are seeing and what the shape of that business might look like in the future. And I'm thinking about a split between you being the OEM or kind of the prime building the full spacecraft versus you being a supplier into others. What do you see out there? Are you guys going to end up being more of a components business, more of an OEM, is it going to be a 50-50 split? I'm just kind of curious what you're seeing.
Well, I think you know our aspiration, Jason, is we want to provide the service. So, a higher tier than certainly just building the satellite and the higher tier again, just providing the components. But the beauty of the way that we run the business is that we can fiercely bid on a program that we want to go after. Even if we don't win, we still end up kind of winning because chances are we'll have some content and components in many of those larger programs. But certainly, there are a few things we're going after, right? One is very large US government programs, which we think we have some very discriminating technologies or capabilities. And then of course, other large commercial constellations and programs, which you've seen us execute against as well. And always we like to have a NASA science mission on the books as well. So, we've generally had a moon mission, a Mars mission or something on the books because we believe that's important to create technologies and for the company. You'll see those consistent sort of programs going out. But I mean, where we're really trying to get to is providing the service, not just providing components or subsystems or satellite buses.
Right. So, Andre, I'll get you involved here really quickly then. So your comment about two-thirds, one-third, two-thirds on the services and one-third on launch, does that include this third leg that you are all planning to stand up at some point? The services part of the business? I'm trying to figure out whether you're going to be adding a new segment at some point or that services part where you're going to be operating constellations will be a part of the Space Systems business? And that two-thirds, one-third mix is kind of what you were kind of getting encapsulated into that? Yeah, well, I think given the overall much larger size of the opportunity on the application side, I would expect that to fundamentally change that overall mix. I think that just the, if we kind of look at, and we've talked to, we've articulated the total addressable market opportunity in each segment, launch we articulated, it's roughly a $10 billion TAM. Systems and subsystems around satellites are around a $30 billion TAM. And then the applications is perhaps an order of magnitude of that. So really, I think, over time, the two-thirds, one-third was really a function of the business as it exists today without that third leg of the stool.
Okay, yeah, I just wanted to make sure I confirmed that. Didn't want people to be hanging on that word. And then two last really quick ones. Tariffs, next Tuesday could be a big day. Do you have any exposure to Canada or Mexico in particular? I'm thinking, there's some guys up in Canada that make antennas. I don't know if you're reliant on them. I'm just kind of curious, you're performing against fixed price contracts where some of your inputs might be going up in price as a result of some tariffs that come into the fold next week.
Yeah, I mean, I can make some comment there and then I'll pass it. So obviously we have Sinclair Interplanetary, so they're a Toronto-based reaction wheels and star tracker business unit up there. So we do have some exposure. But maybe, Adam, you're probably best placed on some of the financial questions.
Yeah, Jason, we don’t have a lot of exposure. We certainly have our reaction wheels from the star tracker and sun sensor business that we acquired several years ago in Toronto. But I would say that doesn't really mean we do mass volume production of those solutions, especially the reaction wheels in Canada. Those are actually produced in New Zealand. With our MDA Global Star situation, we build the buses and then ship them to Montreal for AIT, which is essentially moving them from the US to Canada. There are many complexities around valuing those systems as they cross the border. However, at this point, we don’t see tariffs significantly impacting us. I believe we're fortunate that most of our operations are really between the US and New Zealand.
Yeah, thanks guys for taking questions. Maybe just on the Flatellite, the new satellite, low-cost satellite, what is the throughput, the expectation for that? And do you have sort of the infrastructure to support your aspirations in that new opportunity?
The throughput is designed to reach a couple of satellites a week, or even up to a satellite a day, depending on the specific customer or opportunity we pursue. Our facilities, including the headquarters which now functions as a satellite manufacturing site, have sufficient space to facilitate this. Across various subsystems, we have already scaled up production in many areas, such as solar panels and reaction wheels, which we provide to some larger constellations. Many of these components are being produced at scale. For final integration, we adjust our production lines for spacecraft fairly regularly based on customer needs. Overall, we have the majority of the necessary capabilities in place.
Great. And then maybe just on Neutron, the push out, and it really, again, it doesn't sound like a whole big change. I mean, I think you were talking about the last update was no earlier than mid-2025, and I think everyone was just so focused on just mid-25, but here it's second half. But what I guess, how achievable is this at this point? I mean, do you consider this more or less of a stretch goal than sort of where we were the last time when we made the New Orleans in 2025 estimate?
That about feels about the same to be honest with you, Erik. I mean, in a few months here in the year, it's really in the noise, but we just want to be as transparent as we can where we see things. But what we're trying to bring here to market in this vehicle in such a short timeframe, it's like I say, it's kind of in the noise, but yeah, we've been transparent.
Okay. Maybe then on Electron, have you seen any changes in customer behavior or demand that maybe suggest things are slower than what you expected? Because I think I recall for this year, we were maybe looking at around 26 launches, but it sounds like you're expecting around 20 or so launches for this year. Any sort of comments you can make on that?
I think we're exercising a bit more caution this year because we had a significant number of launches last year and successfully delivered on all of them. This reflects the reality of the Electron product. Customers are willing to pay a premium because they can launch when they need to. Last year was a strong sales year for Electron, and we've already added several more this year, continuing to see growth in that product. It certainly doesn’t appear to be slowing down from our viewpoint, but we recognize that sales cycles can fluctuate. We're always a bit cautious about how many launches we promise, as that aspect is beyond our control.
I'm focused on growth and the backlog. We're encouraged by the increasing size of the contracts we're signing with customers, particularly in terms of the number of launches. The Electron business is diversifying, especially with HASTE. We're seeing an increase in diversity within the business, along with a significant increase in scale, which is leading to higher average selling prices. As we've mentioned in various forums, this business thrives on scale. The more we can spread standing costs over a larger number of units, the better our economics become. We expect this trend to continue in the upcoming quarters as we scale the launch cadence, leading to improved margins as we manage relatively fixed costs over more units. I agree with Pete; our internal demand assessments show no signs of a market slowdown. In fact, adding the HASTE component is quite beneficial and encouraging as it addresses a strategic need in a unique manner. Overall, we are optimistic about our outlook.
Great. I just want to maybe bounce back to Neutron real quick. With this updated timeline, are you still within sort of the framework of being able to support NSSL? Maybe just talk about that timeline in relation to your new update.
Yeah, sure. I mean, we were working alongside the Space Force and have done for many years, and it won't affect the ability to on-ramp. The criteria is a credible path to launch by the end of the year and by all measures of that I think we're fine.
Hey, everyone. Good afternoon and thanks for the question. I mean, to touch back on space apps, I know this has always kind of been on in the background, even going back to when you guys first went public in ‘21. Given that you're comfortable unveiling the Flatellite platform today, could you maybe walk us through how you'd expect this application to really contribute to the business through the years? Maybe, when we could see a meaningful step-up of any measure?
Yeah, hey Andre. Well, I mean, look, it's kind of difficult to talk about that. The most important thing really is Neutron because if we take our friends over at SpaceX and the Starlink constellation, Starlink is a great satellite, but the real needle mover there was high-frequency, low-cost launch. That's why Neutron is so important. We're creating all of the right ingredients to be able to build constellations at scale. What I'm saying is while that's occurring in the background, we've just been methodically building the capability on the spacecraft side. No, that's a good point. I appreciate you highlighting that. And then maybe if I may follow up, looking at the true backlog mix, I know Adam touched on this before, but it's 50-50 commercial, defense, national security. But, I mean, given that, like you said, a sizable portion of commercial is bound for defense and national security customers. What's the true mix do you think? It's probably, I would say probably more like 70-30. What do you think, Adam?
I believe it could be even higher than that. I think it's likely over 80% of the data that we launch is utilized in some form by governments, whether it's in the United States or elsewhere. A lot of our electrons are very effective for remote sensing. Initially, people thought that counting cars in Walmart parking lots would be the primary use for Earth observation, but that has not turned out to be true. Instead, a significant portion of what these commercial constellations produce is sold to the US government for national security, weather, and other data purposes. So, my estimate is probably over 80%, but that's just my estimation.
Thank you.
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