HawkEye 360, Inc. (HAWK) Q3 2026 Earnings Call Transcript

Operator: Greetings. Welcome to the Hawkeye 360 Third Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Peter Lopez, Head of Investor Relations. Thank you, Peter. You may begin.

Peter Lopez: Thank you, Max, and good afternoon, everyone. Welcome to Hawkeye 360's Third Quarter 2026 Earnings Conference Call. With me on the call today is John Serafini, CEO; and Craig Searl, CFO. Before we begin, I would like to remind everyone that our remarks may include forward-looking statements about our expectations, plans, outlook and future performance, which we make pursuant to the safe harbor provisions of federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Please refer to the forward-looking statements disclosure in our earnings release and on our filings with the Securities and Exchange Commission. We will also discuss certain financial measures that are not presented in accordance with GAAP. Our earnings release includes additional information about these non-GAAP measures, including definitions and reconciliations to the most directly comparable GAAP measures as applicable. With that, I would now like to turn the call over to John Seraffini. John?

John Serafini: Thank you, Peter, and good afternoon, everyone. I'm John Serafini, Founder and Chief Executive Officer of Hawkeye 360. I'd like to start by welcoming Peter Lopez as our new Head of Investor Relations. Peter joins us from BiSat, and we look forward to working -- before I begin, I'd like to start by thanking our tremendous Hawkeye 360 employees whose dedication to our customers and devotion to our mission achievement accelerates this great company forward. If you turn to Page 3, I am delighted to present the results of a highly successful third quarter, the best performance yet for the company. I am pleased to report record revenue of $59.3 million, an 84% increase from the third quarter of last year and 19% quarter-over-quarter. Excluding the contribution from our acquisition of ISA, revenue grew roughly 24% year-over-year. International revenue reached a record $23.3 million, up 76% year-over-year, further illustrating the differentiating diversification of our business and our ability to access and close high-margin, high-growth overseas contracts. Adjusted EBITDA for the quarter was a record high of $13.3 million, representing an adjusted EBITDA margin of 22% compared with $7.0 million and 14% last quarter. Our Rule of 40 score of 46% reflects the balance we've achieved between delivering strong growth and maintaining healthy profitability. In addition, we ended the quarter with an increased backlog of $300.3 million. This does not include the additional $135 million in new contracts signed just in the past 6 weeks since the end of Q3 that we announced this morning. Craig will walk you through the financial drivers in detail shortly. I will start today by updating you on the significant growth we're seeing across the business, the successful launch of Clusters 15 and 16, the progress we are making on our next-generation satellites and the investments to support our growth. Turning to Page 4. First, I'll highlight our contract growth and the expanding breadth of our customer relationships. Since we last spoke in August, we have secured several major awards across our U.S. government and international businesses. These contracts reflect growing demand for our RF data and analytics to strengthen defense capabilities, enhance operational awareness and inform national and coalition security decisions. These wins will contribute to our 2026 performance and provide additional visibility into 2027 and beyond. Starting internationally, revenue reached a record $23.3 million in Q3. During the quarter, we secured $54 million in new international contracts across at least 11 allied partners and nations. Spanning the Indo-Pacific, the Middle East, Europe and the Americas. These contracts extend relationships with both new and long-standing customers, demonstrating the international demand for our signal processing capabilities and advanced space-based sensor technologies. Europe is an increasingly important contributor to this momentum. As part of the $135 million of new awards since Q3 ended, we received more than $70 million in new and follow-on European contract awards, expanding our support for Ministries of Defense, intelligence agencies and allied partners and further highlighting the operational imperative of our capabilities for European sovereigns concerned about the evolving security paradigm. Governments across the region are accelerating investment in sovereign defense capabilities. They need actionable RF intelligence that can be delivered immediately within Europe, integrated into their own architecture and shared across allied defense networks and the urgency of their missions requires capabilities they can deploy today without lengthy procurement and development cycles. We are expanding our regional presence and partnerships to meet these requirements. In September, we established Hawkeye 360 Luxembourg, our first European subsidiary, providing a base from which to deepen customer relationships and participate in emerging European defense programs. We established a formal collaboration with Leonardo to integrate our RF capabilities into its space architecture, including proposed reserve capacity for European areas of interest delivered through Italian ground stations and EU-based cloud infrastructure. We also partnered with ERA of the Czech Republic to serve as an international processing partner for radar products derived from our RF data. These initiatives connect our intelligence capabilities with the regional infrastructure, processing expertise and customer relationships needed to support European missions. We have also signed contracts with multiple pan-European governmental agencies to deliver advanced unclassified and shareable signals intelligence in support of a variety of European member nations. This reflects the growing importance of unclassified and shareable intelligence that allies can rapidly access, integrate and use together. Further, we remain exceptionally proud of our support for Ukraine, which draws on both U.S. government funding and substantial support from other sovereign nations and is emblematic of the valuable capabilities we deliver to the battlefield for tactical success. Our relationships across Europe also encompass a broader set of enduring national and regional security requirements. Much of our work is focused on building defense and intelligence capabilities that will serve these customers over the long term in all conditions, in times of hostilities, in times of gray zone conflicts and in times of peace. With international revenue approaching half of our business, this expansion gives us substantially diversified base of customers spread out over 40 different international entities with a wide variety of different missions and funding sources. Accordingly, we have greatly reduced our dependence on any single government's budgeting process. Turning to the U.S. government. In quarter 3, we achieved a substantial increase in our U.S. government business, representing a 25% growth rate quarter-over-quarter. In August, the National Reconnaissance Office awarded us a landmark contract under its commercial radio frequency capability augmentation program. After completing all three phases of the NRO study contracts, we became the first and to date only commercial RF provider to advance from test and evaluation into an operational augmentation contract. This marks an important step in the adoption of commercial RF intelligence to support government missions and highlights Hawkeye 360's leadership position in the market for space-based signals intelligence. The U.S. Space Force selected ISA as one of three companies to develop an adaptable radar warning sensor for military satellites. This work extends our capabilities into another important mission, helping to protect critical assets in space. Our work in both this quarter and last features the increasing relevance of our space domain awareness value proposition for on-orbit signals intelligence. Since the end of the third quarter and as part of the $135 million I previously mentioned, we have also signed approximately $60 million in restricted U.S. government contracts, further expanding our government business. In Q3, ISA delivered new hardware systems to a large domestic airport for critical infrastructure protection. This achievement is a tangible example of how our capabilities can help support the security and operation of critical infrastructure, which people and organizations depend upon every day and is emblematic of our value for nondefense applications that we intend to bring to market on an increasing basis in 2027. Shifting to Page 5. Secondly, we told you that Clusters 15 and 16 would launch in the second half of 2026, and both are now on orbit. Since inception, Hawkeye 360 has now designed, built, launched and successfully operated 51 satellites with exceptional performance for building functionality that performs consistently an immensely differentiated track record. Cluster 15 launched aboard a SpaceX Falcon 9 on October 20. Just three days later, Cluster 16 launched from New Zealand aboard a Rocket Lab Electron. I'm proud of how our team managed both launches on opposite sides of the globe while continuing to support customer missions. We've established contact with all six satellites and commissioning is underway to bring this new collection capacity online. Hawkeye Clusters 15 and 16 enable our dedicated capacity model. They can collect multiple RF signal types while downlinking mission data at the same time, a major technological achievement. And this allows us to further reduce the latency in getting the data down to the customer in theater as soon as it is collected. And with rideshare capacity tightening, we have secured launch opportunities through 2028 to maintain constellation continuity. These satellites will both replace existing end-of-life satellites and provide improvements to collect more signals per pass to expand capacity. Third, our next-generation satellites. Our first Block 3 Kestrel Cluster remains on track for launch in the first quarter of 2027. We continue to make strong progress on the remaining software development and are working through a comprehensive test campaign. We are also assembling our second Kestrel cluster for midyear 2027 launch with several additional Kestrel clusters in development thereafter. These next-generation platforms will cost efficiently expand our capabilities, further strengthen our competitive moat and create additional opportunities for revenue growth and margin expansion. That brings me to my final point, investment. Last quarter, we discussed pulling forward spending to accelerate our technology road map, including investments to support the ramp of our Block 3 and Block 4 clusters. We continue to advance our Block 4 and angle of arrival payload demonstration, maturing the design and procuring the hardware and launch services needed for a mission targeted in late 2027. In parallel, we are working to secure customer funding for on-orbit test campaigns and proof-of-concept demonstrations for several new capabilities. This creates opportunities to organically advance our technology in collaboration with customers and to demonstrate its value against their mission requirements. We are also working via partnerships and M&A opportunities to bring certain externally provided signal processing capabilities in-house and to develop more robust, broadly applicable radar processing capabilities for use both on the ground and aboard our satellites. On the topic of M&A, our robust balance sheet gives us resources to pursue selective acquisitions. Our acquisition of ISA last December contributed revenue and profitability, expanded our customer access and strengthened our RF processing capabilities. We're applying the same discipline as we evaluate other acquisition opportunities and are excited by the pipeline under consideration. Collectively, these investments extend to how we discover and characterize new signals. As we expand into new regions, we are identifying the emitters of greatest interest in those areas and delivering that critical intelligence with ever-increasing speed. We are also investing in AI-enhanced automation to accelerate signal discovery, allowing us to pursue new signals more efficiently and at greater scale. The additional advantage of these investments is the ability to extend beyond government customers and deliver value for commercial markets. In particular, we're seeing substantial interest in data analytic products such as maritime domain awareness, GPS interference and satellite communication spectrum analysis and have had several enterprise engagements in those areas. We anticipate scaling our product offering for these incremental customer segments in 2027. I also wish to address how we're positioned for U.S. budget uncertainty following the midterm elections. First, we are approaching a point where approximately half of our revenue comes from outside the United States. That diversification alone is a very meaningful and differentiating strength. It reduces our dependence on any single government's budgeting process and gives us access to customers with their own funding sources, procurement priorities and urgent mission requirements. Our international business also offers attractive characteristics beyond diversification. We often see stronger pricing, longer contract durations and less competition in these pursuits. The international awards we have discussed today demonstrate how those relationships are translating into meaningful business. Second, we have built our growth plans around existing customer missions and established funding priorities. Our anticipated growth does not depend upon new programs like Golden Dome or the passage of new reconciliation or supplemental funding packages. Those initiatives may shape the broader defense market and may have contributed to prior macro investment accelerations, but they are not assumptions we use to build our U.S. government business strategy. Accordingly, the substantial majority of our anticipated 2027 U.S. government revenue is tied to programs already established in the fiscal 2026 budget, programs support in the proposed fiscal 2027 base budget or opportunities we can pursue within existing customer budget authorities. That gives us a foundation for growth under a continuing resolution even if funding availability, award timing or execution are impacted. Before closing, I wish to welcome our newest Board member, the former Director of the CIA and former Deputy Secretary of State Ambassador, Bill Burns, who was elected Tuesday to the Hawkeye 360 Board of Directors. Bill brings three decades of strategic national security knowledge, leadership and diplomacy to Hawkeye 360, and we are delighted for him to join us. Looking ahead, we are very well positioned to continue to grow, not just for growth's sake, but because growth enables us to best achieve our customers' demanding exceptionally important and rapidly increasing requirements. We see strong demand, a growing set of new awards and new capacity coming online. Over the next several months, our priorities are clear: bringing Clusters 15 and 16 into full operation, launching Kestrel 1 and 2 and Cluster 17, executing at the highest level across our business to deliver for our customers and thoughtfully deploying the substantial amount of cash on our balance sheet in a variety of disciplined acceleration initiatives. With that, I'll turn the call over to Craig to review our financial results in more detail. Craig?

Craig Searle: Thanks, John, and welcome, everyone, to our third quarter 2026 earnings call. I will walk through our company's results for the third quarter, provide an update on our balance sheet and liquidity and then discuss our updated outlook for 2026. As a reminder, I'll be discussing non-GAAP financial measures. Reconciliations between our GAAP and non-GAAP financial measures are included in our press release. Starting on Page 6. Revenue in the third quarter increased 84% year-over-year to $59.3 million, primarily driven by the acquisition of ISA and continued strength in our international business. International revenue was $23.3 million, up 76% year-over-year and 11% sequentially. This growth was all organic in nature. U.S. revenue was $36 million, up 90% year-over-year, including $19.5 million from ISA. Legacy U.S. revenue declined $2.5 million compared to the prior year period, but improved 14% sequentially. Excluding ISA, total revenue growth grew approximately 24% year-over-year. Third quarter net loss was $163,000 compared to $1.7 million net income in the prior year period. Higher revenue and interest income earned on our IPO proceeds were offset by higher expenses to support growth, including costs associated with ISA and operating as a public company. On Page 7, you can see our adjusted EBITDA growth. Adjusted EBITDA was $13.3 million compared to $9.6 million in the third quarter of 2025 and $7 million in the second quarter of 2026, representing an adjusted EBITDA margin of approximately 22%. Higher revenue contributed to the year-over-year improvement, partially offset by investments to support our long-term growth. During the quarter, we generated $9.6 million of cash from operations and invested $9.5 million in satellites, property and equipment, resulting in free cash flow of $137,000 compared with negative $6 million in the prior year period. Our capital spending reflects continued investment in expanding our constellation. Turning to the balance sheet on Page 8. We ended the third quarter as of September 30, 2026, with $494.9 million of cash and cash equivalents and no debt outstanding. Our $125 million revolving credit facility remains undrawn. Together, our cash balance and available borrowing capacity provide us with significant liquidity to execute both our organic and inorganic growth plans. In the third quarter, we booked $67.3 million, which represents a book-to-bill ratio of approximately 1.1. This does not include the $135 million of awards after the end of Q3 that John highlighted earlier in the call. Backlog as of September 30, 2026, was $300.3 million, up from $292.2 million as of June 30, 2026. Finally, on Page 9, you can see our updated outlook for 2026. We are raising our full year revenue and adjusted EBITDA guidance, reflecting our third quarter performance and continued customer demand. We now expect revenue of $225 million to $227 million compared with our previous range of $215 million to $220 million and adjusted EBITDA of $38 million to $40 million compared with our previous range of $30 million to $36 million. As we look ahead, we have strong secular demand for our offerings, and we are making critical incremental investments in innovative capabilities to capture the large opportunity. Our focus remains on executing against our strategic priorities, supporting growing customer demand and continuing to scale the business efficiently. We believe the progress we are making positions Hawkeye well for sustained growth and long-term shareholder value creation. I want to thank our employees for their hard work and dedication, our customers for their trust and our shareholders for their continued support. With that, operator, we are ready to open the line for questions.

Operator: [Operator Instructions] Our first question is from Ken Herbert with RBC Capital Markets.

Kenneth Herbert: John and Craig, congratulations on the results. Maybe the first question, I just wanted to comment on the international opportunity. Obviously, it seems like it's picking up speed. How do you see that momentum continuing as we exit this year into next year? And can you just provide any more specifics maybe on a geographic basis or country basis in terms of what you're seeing in terms of the order activity?

John Serafini: Thanks, Ken. I appreciate the question. Definitely, our international business is a real position of strength for us. And as I've mentioned in the past, I think it's a significant point of differentiation from many of our peer companies. We took the position early on in the year that we are going to provide as much capability as we could to potential customers in the Middle East in order to support them during the conflict. And those customers are steadily converting into material contracts for us that should be with us for the long term. It's a similar game plan that we ran in Eastern Europe a couple of years ago, which, as you know, is another area of real strength for us. We have a mandate to continue to grow internationally. Our growth opportunities are not just limited to Eastern Europe or the Middle East, but particularly working in the southern border region of the United States and Mexico and of course, in Asia Pacific. We also have a value proposition strongly for maritime domain awareness and hence, can provide Atlantic, Pacific, Arctic, et cetera, maritime domain awareness around the world that further contributes to our international growth. What I'm most excited about is the diversification. We work with over 40 different sovereign entities. They operate in many different types of neighborhoods with many different types of threat needs and many different types of requirements that is challenging for Hawkeye to be able to meet simultaneously around the world. But we have a phenomenal team of program managers and international sales individuals who are capable of delivering this functionality to, again, 40 different international customers. So we're exceptionally proud of that. What I'm also proud of is we've been able to achieve this substantial amount of international business, Ken, without any real international offices. And we just announced our first one. This is in Luxembourg, and we're in the process of building that new infrastructure in Europe. But Hitting Q4, we've run everything out of the United States. And that conflicts pretty differently from some of our peer companies who have 8 to 10 individual satellite offices around the world, which creates a significant amount of operating cost. And we've been able to do this also with building our satellites here in the United States and not yet contemplating overseas manufacturing elements. So for all those reasons, and particularly given the changing dynamic here in the U.S. potentially with the new Congress, we're exceptionally proud of our international business.

Kenneth Herbert: That's great. And if I could, as we think about the international sales, what should we assume in terms of margins relative to U.S. sales? How much better are they internationally? And does that sustain or even improve as we get into '27 and '28?

John Serafini: I'll turn it over to Craig in a second. I would say that when we're dealing with international customers who do not have access to other variants of organic signals intelligence sensors or processing capabilities, we do have more leverage with our international pricing. We tend to see materially higher pricing, and Craig can talk about that in a second. And additionally, we see longer duration contracts, and all of that obviously is appreciated. I'll turn it over to Craig.

Craig Searle: Thank you for the question, Ken. Keep in mind that our international business does skew more towards data and analytics sales. As John mentioned, we're seeing strong pricing tailwinds in Q3 across Hawkeye data and analytics products, we've experienced year-over-year double-digit percent price tailwind on a per collection basis in a blended fashion. One of the drivers there is a rising share of higher-priced offerings such as air defense radar monitoring or communications mapping, which our international customers are very much buying.

John Serafini: Ken, I do want to finish up with a bit more thoughts, and that is we've been really successful selling data and data analytics traditionally from our constellation. That's our flagship. Increasingly, we're seeing customers who want sovereign assets. And you and I have talked about this in the past, where they want something that they consider their own, maybe that's a sovereign cluster or even a sovereign constellation or dedicated capacity. We had the first one of those sales wins back in last December with Sumitomo, our partner for Japan, where they contributed where they committed $100 million over the next four years to acquire a certain amount of collection capacity over the Japan area of operations. And we're still able to utilize those satellites, namely Clusters 15 and 16 that were just launched elsewhere in the world to also contribute to our worldwide revenue. We anticipate in the future that our sales internationally will be in three different mechanisms. Thing one, sales from our constellation with our data and data analytics. Thing two, putting individuals alongside the customer to help them with exploiting the value of our processing capabilities; and thing three, dedicated capacity, dedicated clusters and even dedicated constellations. Thank you.

Kenneth Herbert: Thanks you very much, John and Craig. Nice info.

Operator: Our next question is from Kristine Liwag with Morgan Stanley Investment.

Kristine Liwag: Hey, John and Craig. Welcome Peter. So maybe on the backlog. So you've got $300 million of quarter end backlog and plus, John, you talked about the $135 million of subsequent awards after the quarter ended. Can you talk about how much of these new orders you expect to recognize over the next 12 months? And are these orders primarily recurring data subscriptions? Are they dedicated capacity agreements or development contracts? And how does the mix between these different types of contracts affect revenue visibility?

John Serafini: Thanks, Kristine. I appreciate the question, and we look forward to seeing you tomorrow. I would tell you a couple of things, and I'll turn it over to Craig in a moment. The first is we're exceptionally excited about this $135 million of new contracts. They recognize us doing work in difficult environments to close deals, and we got them done. Thing one is these deals enable us to feel as if 2026 is pretty much complete. We have all the contracts that we need in place to hit our revenue numbers for 2026. We additionally are excited about these because they provide exceptional visibility into 2027. The vast majority of the $135 million flows out of 2026 and into 2027 and beyond, which will further contribute to backlog growth. Let me turn it over to Craig for his thoughts.

Craig Searle: Thanks for the question, Kristine. In the context of the $135 million of contracts since Q3 ended and our implied Q4 guidance based on our 2026 guidance, this suggests that we'll see a meaningful improvement to our year-end backlog versus where we ended Q3. This incremental wins, the $135 million does provide us incremental visibility. As John mentioned, we won't be providing any metrics on backlog conversion at this point in time, but the backlog does give us a good multiyear coverage on which to build on. Also keep in mind, there's an element of a book and ship type business that we execute every quarter, and we expect to continue executing that through 2027.

John Serafini: Kristine, let me follow up on that and just mention that we've announced a lot of international wins recently, $70 million of European wins. We talked about international deals in Q3 that we closed as well as Middle Eastern deals. The constant refrain across all these deals is these are difficult places to do business. It takes a long time in which to get these kinds of deals done and requires navigating bureaucracy, which is not easy. This is becoming a real core competency. -- of Hawkeye 360, the ability to get complex deals done that not only include international customers' equities, but also the U.S. government, which requires sign-off over all of our international deals given the fact that we are ITAR-controlled.

Kristine Liwag: Great. Super helpful. And maybe a follow-up. Now that you've got clusters 15 to 16 on orbit, where do you stand on revisit rates? And also as you expand out your ground station network, what visibility do you now have regarding getting to the single-digit minutes for your capability?

John Serafini: Thanks, Kristine. And I did want to mention, as I forgot to do so, addressing your question around what percentage of that $135 million is data sales in a traditional format and which is related to dedicated capacity. $135 million is all related to traditional data and data analytics sales on a service level agreement basis. Returning to your question, what Kristine is referring to is our discussion with the public markets, our goal to get to 10 minutes of revisit rate and 10 minutes of data latency over the very near future in our forecast approximately 2029, 2030 time frame. We are making progress here. The clusters that we just put up Clusters 15 and 16 are really around replacing satellites that have hit their end of life, their normal traditional end of life. And so we're not expecting a whole lot of decrease. Today, we talk about being overhead anywhere on earth at least every 35 to 45 minutes. I might say that we're closer now to 30 to 35 minutes, but we haven't run all the math until these satellites are fully commissioned in order to be able to say that. Both of them are -- I'd say, cluster 15 is in a polar orbit and 16 in a mid-inclination orbit. So 30 to 35, maybe closer to 37 minutes, I think, is a good estimation, and we can get more refined once we get done with the commissioning on those. As we think about latency, certainly, the ability for these Clusters 15 and 16 to be able to collect signals and downlink simultaneously is a really big achievement. This allows us to get that data down to the war fighter much faster. That, combined with adding more ground stations around the world, both ground stations that we lease and potentially in the future ground stations that we build. We're looking to add 8 to 10 additional ground stations, which we would construct ourselves over the course of the next 12 months or so. All of that should contribute to us continually getting our latency down. As we mentioned during the Operation Valiant Shield a few months ago, we were able to consistently demonstrate 10 to 15 minutes of data latency in that exercise, and that is our goal to be there quickly, but also to do so in a capital inefficient -- or excuse me, a capital-efficient way.

Kristine Liwag: Well, great. Thank you for the update and see you guys tomorrow.

John Serafini: Thank you, Kristine. Let me just provide one quick thought for Craig. mentioned to me that of the $135 million, some of that work is relevant to ISA. So it's not just work that's traditionally in our data and data analytics format.

Operator: Our next question is from Louie DiPalma with William Blair. Please proceed with your question.

Louie Dipalma: John and Craig, congrats on the quarter. And Peter, you will be missed in Carlsbad. My question is the Space Force recently discussed openly how it is using satellite weapons in space for the first time or at least the first time it was discussed. And John, you mentioned on this call that you won a contract for on-orbit signals intelligence. Are you able to provide on-orbit signals intelligence using your existing clusters? Or do you need to launch and build new clusters that are dedicated for that application? And also, how large do you see as the TAM for on-orbit signals intelligence?

John Serafini: Thanks, Louie. Great to talk to you. I think there's basically two different vectors here at Approach. The first is that ISA has won a contract to build a radar warning receiver, which is critical for the defense of our on-orbit satellites. Like an aircraft, it lets you know when the satellite is being pinged with radar, which could entail an upcoming strike against that satellite. So now we have an early warning system that we can deliver to the Space Force. And that work is being done today under a prototyping contract with the U.S. Space Force by ISA. Secondly, which I think is the point that you're heading towards is how our satellites today, the existing clusters that are on orbit now can be utilized for signals intelligence purposes for space domain awareness. Today, when our satellites are not being utilized terrestrially, i.e., looking down, we are capable of flipping our satellites and scanning up in order to perform certain types of RF missions for signals intelligence of other space assets. That is a mission that we anticipate growing significantly over time. We also anticipate making this easier on ourselves by putting certain antennas in additional places on our spacecraft such that we will not need to flip them and one can imagine in the future, being able to simultaneously collect up and collect down. That's going to be a big focus for us over time. We're early on in understanding what the total addressable market for space domain awareness signals intelligence is. But what I'd tell you is that it's definitively not part of our existing $34 billion of total addressable market that we anticipate by 2030 and that we anticipate today to be somewhere around $3 billion to $5 billion across all different modalities in orbits, but we're working to further refine that. I hope that answers your question, Louie.

Louie Dipalma: Definitely. And another quick one. John, you discussed your partnership with Leonardo. And are there many other international defense contractors that you're in discussions with that could add more international distribution channel. I know you mentioned that as opposed to like many other earth observation satellite operators that you don't have many like satellite offices, but perhaps you could form more partnerships to increase that distribution. So I was wondering if you could provide more color there.

John Serafini: Thanks, Louie. I mentioned to you earlier that we've been able to secure a pretty meaningful book of business internationally without having to spend a whole lot overseas and certainly haven't had to develop any manufacturing infrastructure. One of the things that we're very proud of is that we've been able to do that without a whole lot of local partners. There are some regions where we just have to have a local partner. And in some cases, we've benefited greatly from it, such as our partnership with Sumitomo in Japan and a few other places around the earth. To the extent that we can, we want to sell direct in order to be able to preserve the highest possible margins. And we're working to do that in some very difficult to operate geographic areas. In other spots, it really is mandated either by local law or by the need on the ground to have partners. We discussed our partnership with ERA, the Czech company. We've discussed our partnership in detail with Leonardo. There are others that we're working towards, and we anticipate that they're going to bear a lot of fruit. However, I don't expect us to build a significant network of value-add resellers who are going to just pick up our data and be able to sell it without our involvement. What we do is hard. What we do is complex. What we do is critical to the end user, and that requires Hawkeye's involvement. And so we anticipate that we'll always be directly involved with just about every international sale over.

Louie Dipalma: Great. Yes, I was thinking along the lines of your discussion of like sovereign constellations and how companies are trying to preserve as much sovereignty as possible. And so perhaps they achieve some of that with a local partner. But yes, the objective definitely should be to go direct as it's more profitable.

John Serafini: Yes, you're exactly right. When we're talking about dedicated constellations and the need to build infrastructure, certainly, there's always going to be a pull from that government customer to include local firms to contemplate on-site manufacturing and distribution, et cetera. And that's something that we're willing to do, and we've signaled that to our customers, and we're exploring it in a variety of different places.

Louie Dipalma: Thanks, John, and Craig and Peter.

John Serafini: Thank you.

Operator: Our next question is from Brian Gesuale with Raymond James.

Brian Gesuale: Fantastic job on the quarter. I wanted to ask, it sounds like the product road map and innovation is really ticking up and on schedule. Can you remind us with Block 3 and 4, remind us what that means for the cost to launch as well as on the revenue side with the improvements in your revisit times, latency, capacity and all those factors, what it means for incremental revenue as well?

John Serafini: Sure. As we talked about in the past, and great to talk to you, Brian, well done on the Air Force win the other weekend, by the way. Block 3 is going to be 75% cheaper, less expensive. And it's a smaller spacecraft to really pack this spacecraft very full to be able to achieve the kind of monetization we anticipate as what we've been able to achieve with the Block 2. But again, 75% cheaper, which is why it's a really important innovation and frankly, why we're being super careful to make sure we get it right before we launch the first one in Q1 of 2027. The goal here is once it's been launched and commissioned and tested and proven, we're going to build to print a lot of these Block 3 is because they are so cheap or comparatively cheap. I mentioned part of the source of cost efficiency is the smaller size. It's roughly about 2/3 the size of our current Block 2, which means that we can then reduce the launch cost. I'm hopeful that as we look at additional electron launches with our partner, Rocket Lab, we may be able to put upwards of three different clusters in one of those electron launches, 3 being the Block 2, but we're confident right now that we can do a Block 2 and a Block 3 and potentially more. So that really provides some cost savings for us on the launch. On Block 4, it's going to be a larger spacecraft. It's going to be over 100 kilograms. It's going to be a complex system. A lot of times, it's going to be doing classified missions. And so that will entail a bit of a larger amount of cost for us, but we still anticipate that it will be fit into the size of an electron launch vehicle, and we anticipate that the Block 4 will also contribute more revenue. All of this has got to be worked out as we get closer to the launch. But certainly, our customers are excited, particularly with Block 4 with being able to go from 18 gigahertz up to 40 gigahertz in the future and provide more coverage of additional frequencies. I hope that answers your question, Brian.

Brian Gesuale: No, that was perfect. I really appreciate the color there. I wanted to maybe just ask about the EBITDA margins. They look fantastic. The incremental margin is very strong. Would you say this is a new jump-off point for as we look to model margins in the future? Or is there anything that we should keep in mind and maybe adjust downward before you start the trend back higher again?

John Serafini: Thanks, Brian. Let me turn it over to Craig.

Craig Searle: Brian, as you noted, the increase in our revenue and adjusted EBITDA guidance reflects an incremental margin of about 70%. While Q3 was strong, we do have investments that we're making in Q4 and beyond to support longer-term growth initiatives across capabilities and scalable infrastructure. We think Q3 is certainly a proof point for the operating leverage in our business and where we think margins will go over the long term.

Brian Gesuale: Great. I mean you're at least a year ahead of where I thought you'd be on the margin front. So I really appreciate that. And then if I could just sneak one last one in. With the balance sheet and the M&A commentary you had in the prepared remarks, can you remind us of kind of financial and kind of strategic imperatives as you evaluate properties out there and what the pipeline might look like from a size and breadth perspective?

John Serafini: Are you referring to M&A opportunities, Brian?

Brian Gesuale: That's exactly right, yes.

John Serafini: Well, we're going to let you sneak one more in there because you're a veteran. So happy Veterans Day, my friend, by the way. Yes. We are looking at a variety of really exciting M&A opportunities. We got a lot from that ISA acquisition. Significant amount of revenue, great growth, great profitability, phenomenal positioning with the customer and exquisite technology synergies. I think it provides a really great exemplar for the kind of deals that we're looking for in the future around that cost point, which was about $150 million to $170 million was what we spent to acquire ISA, and that's been disclosed. That feels digestible and repeatable to me and meaningful. So I think that, that's kind of the area that we'll focus on. That being said, there are really interesting technology adjacencies out there that we're excited about that allow us to expand into electronic warfare and further into space domain awareness as well as expanding the domains that we're relevant for with aerial and sea-based and terrestrial. So we may also look at smaller acquisitions that are more tuck-in but allow us to expand our TAM accordingly. Thanks so much for the questions, Brian.

Brian Gesuale: Appreciate you guys. Thank you.

Operator: Our next question is from Caleb Henry with Quilty Space.

Caleb Henry: John and Craig, echoing congrats on the great quarter. Two questions from me. First is on the revenue split between commercial and government or maybe more of a future-looking revenue split, but how does that stand today? And then looking into the future, what's the optimal mix of commercial versus government revenue that you anticipate?

John Serafini: Thanks, Caleb. Great to talk to you. Please tell Chris, we said hi. We're very pleased with the fact that we were able to close a meaningful deal in Q3 relevant to critical infrastructure protection, specifically a domestic airport that I mentioned earlier. That's great diversification for us. When I first started this company 10 years ago, someone told me a great piece of advice. They said, don't be award of the state, meaning that you can't be dependent upon U.S. government business. You can't put the government in that position. And that's a lesson that we took to heart, and we are close to the diversification of nearly 50% from the U.S. government side to the international. We want to continue that diversification trend. It's going to occur both internationally. But in the future, I think commercial applications and civil applications will become increasingly important to us. It might not necessarily be focused on critical infrastructure protection alone, but there's also great commercial applications of our technology that we're just starting to tap into. Those include things like fintech and shipping and maritime domain awareness, where we're already delivering products to government customers who are exceptionally demanding. We can take that same functionality and then present it into a commercial variant and deliver to customers. I would anticipate that 2027 is about commercial pilots and early-stage engagements moving towards 2028 commercial release and scalable revenue. I hope that answers your question, Caleb.

Caleb Henry: It does. And then one follow-up was just on air defense, which you may have hinted a little bit earlier, but I was wondering if you can talk about any opportunities you see in the counter drone, counter-UAS domain, especially given how much attention that's gotten globally and what the White House is pushing for presently?

John Serafini: We have a phenomenal counter drone value proposition, meaning that we identify all over the world, mobile surveillance and target acquisition radar systems that are trying to detect drones and aircraft. And we can detect these radar systems, which are oftentimes connected to surface-to-air missile systems that try to interrupt air superiority of our allies. We can track them even when they're moving, and we can understand what kind of modes that they're in. We can do this consistently for approaching two dozen different types of X-band radar systems. So we have a very real radar capability and the acquisition of ISA enabled significant growth for us. Additionally, we are working towards being able to identify drone base stations, specifically command and control links that allow us then to identify assets in the air as part of our multi-domain capabilities. I hope that answers your question.

Operator: Our next question is from Michael Filatov with...

Michael Filatov: Congrats on the good quarter. Just two questions. The first one, I know, Craig, you mentioned in the prepared remarks, excluding the ISA business, U.S. revenue is still down by about mid-teens percentage year-over-year. So I'm wondering when is the -- when should we see that inflect? Or what are sort of the factors that are impacting that business at the moment? And if you're talking about the NRO optional contract, when should we see that ramp meaningfully? And sort of what's the status of that second U.S. intelligence customer that I believe was on a bridge contract? And then I have a follow-up as well.

John Serafini: Okay. Thank you. Let me turn it over to Craig.

Craig Searle: The sales of our legacy Hawkeye U.S. business were down $2.5 million or $2 million over the prior year. But keep in mind that this is on the back of more than 70% growth in 2025, where we are still settling into a larger book of business. I'd also point out, as we've mentioned earlier in the call, that we improved $2 million over Q2. We are continuing to win business. We believe we have very strong offerings and value proposition as well as close relationships with end customers.

John Serafini: Well, let me talk on that a little bit, Michael. And we haven't talked publicly too much about this new contract with the NRO, which is a landmark achievement. For the past four-plus years, we've been working with the National Reconnaissance Office on a series of testing and evaluation work to be credited to be deployed at scale to support the U.S. government as an augmenting form of commercial RF. The great news is that we're through the wickets. We've completed all the testing and evaluation, and we're now into a production contract, which allows us to provide scalable service to the U.S. government out of this NRO contract vehicle. This is a major landmark win, and we're the first ones to have accomplished this and be through the gauntlet. My expectation is now that we've been accredited by the NRO in such a way, it provides us with a long-term contract vehicle that we will scale significantly as additional statements of work come online from the combatant commands. I hope that answers your question.

Michael Filatov: Yes, absolutely. I appreciate it. And just one follow-up. Just broadly speaking, on the sort of EO and intelligence side of the business. I'm wondering if you see scope in the industry, John, for consolidation. I mean I know you guys sort of serve as a tip and the tip and queue. And I think there's some talk amongst some parties maybe on your customer side about how it would be ideal to maybe have more integrated EO operators across modalities. So I'm wondering if you have any thoughts on that and if we could see some consolidation across maybe optical, SAR and RF or if you have any views.

John Serafini: I got plenty of views on that. It's a great question. Not a day goes by when the investment banker doesn't reach out about that very thing. what we do today is very rare. And we only want to build in space that which is rare and cost effective, and we've been able to accomplish that. I don't think the rarity is the same phenomenon with other modalities, particularly electro-optical, where there's several other vendors in space. So I don't anticipate a world in which we acquire another modality operator in space. What we will consider is a lot more of tipping and queuing with APIs and multi-infusion in the data and data analytics, particularly where we can deploy our processing capabilities and our artificial intelligence capabilities for data analytics. But I don't believe that you need to own the underlying other modality satellites in order to be able to perform that fruitfully. I hope that answers your question.

Operator: Our next question is from Clarke Jeffries with Piper Sandler.

Clarke Jeffries: First question is just, John, you made some mention to navigating the bureaucracy in these difficult environments in some of the international markets. But just curious if you could give us a sense of how long the engagements are from that initial contact with the customer to the deal signing and specifically with the timing of this $135 million in the early Q4 time frame, was any of it based off of these additional clusters coming online or just the sort of long sales cycle to get it finally across the line?

John Serafini: Well, I'd start with the fact that we're not building toys, HawkEye 360. Everything that we do is ITAR-controlled outside the U.S. And rightly so, these are really capable systems that we're building. And so accordingly, as ITAR-controlled, everything that we do outside the U.S. with the exception of Canada is with the full partnership and approval of the U.S. government that requires us to get export licenses. Sometimes those export licenses take a couple of weeks. Sometimes they take considerably longer, depends upon the requirements of the end customer. The bottom line, though, is we have over 200 of these export licenses that allow us to sell around the world to every ally who is now engaged. But that is a meaningful contribution to the amount of time necessary to get a deal done. Some of these deals get done on a very quick basis, particularly those who live in difficult environments. You would imagine South China Sea or Eastern Europe, et cetera, those deals get done pretty quickly. They move into multi-month pilots and then quickly from a multi-month pilot into an annual contract that's a scalable value and then beyond. Some of these contracts take longer. We have in that $135 million, probably a couple of deals that took four-plus months to get done. Some of them might be closer to six to eight months. But bottom line is we were able to complete the deals and work them through the completion, which we're very proud of. I hope that answers your question.

Clarke Jeffries: Yes, it does. And just a follow-up around -- you mentioned around the investments pulling forward the technology road map and maybe some potential to get supported by customer funding. Just curious how that would come across in the model? Would that be sort of cost plus development work? Just curious on how that will manifest. I assume with the promise of much larger contract vehicles at the end of the customer-funded work, but curious for detail there.

John Serafini: I think we're pretty flexible. I mean our bread and butter is selling data and data analytics on a service level agreement to customers that can increase their spend rapidly once it's proven, right? We can expand the size of the geographic area. We can expand the number of signals that we're collecting or the number of times that we're delivering throughout the day or the latency requirements, et cetera. That's our bread and butter. If we can engage with the customer to help them better understand their requirements and bake that into the satellites that we're building and we're able to achieve some kind of a commitment long term from those customers. We're better off to continue to expand the size of the service level agreements because the margins are really great. We don't really want to be in a whole lot of cost-plus work off of our flagship. It's really about understanding and discovering customer requirements and showing that we're the right partner for them long term.

Operator: We have reached the end of the question-and-answer session. I would like to turn the floor back over to John Serafini for closing comments.

John Serafini: Thank you. Give me a one moment. Thank you again, Max. We are encouraged by our progress and the opportunities ahead, and we look forward to sharing further updates with you as we execute our strategy. At the heart of Hawkeye 360 is a clear commitment to support the United States and allied war fighters who carry out some of the world's most consequential missions. We are proud to earn their trust and recognize the responsibility that comes with it. Their mission success drives our people, our innovation and our execution. Thank you for your continued interest in Hawkeye 360. We look forward to speaking with you again next quarter. Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.