Earnings Call
Rocket Lab Corp (RKLB)
Earnings Call Transcript - RKLB Q3 2025
Operator, Operator
Good day, and welcome to the Rocket Lab USA, Inc. Third Quarter Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Murielle Baker, Director of Corporate and Launch Communications. Please go ahead.
Murielle Baker, Director of Corporate and Launch Communications
Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab USA, Inc.'s Third Quarter 2025 Financial Results, Business Highlights, and Other Updates. Before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company. These statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance, and factors that could influence our results are highlighted in today's press release. Others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation, and a replay and copy of the presentation will be available on our website. Our speakers today are Rocket Lab USA, Inc. founder and chief executive officer, Peter Beck, as well as chief financial officer, Adam Spice. They will be discussing key business highlights, including updates on our launch and space systems programs. We will discuss financial highlights and outlook before we finish by taking questions. So with that, let me turn the call over to Peter Beck.
Peter Beck, CEO
Thanks, Murielle, and thanks, everybody, for joining us today. It was another record-breaking quarter for Rocket Lab USA, Inc. We're up 48% year on year with $155 million in revenue and strong gross margins as well. This is the second time in a row we've delivered record-breaking growth quarter by quarter, once again demonstrating our relentless execution. Electron demand is accelerating faster than ever before, and the momentum continues to build with the largest launch contract backlog yet with 49 launches on contract. We've just launched our sixteenth mission this year, equaling last year's launch record, and we've got another launch scheduled in the coming days that'll take us to 17, with more to come and a new precedent set for Electron annual launch cadence. We see this precedent continue in 2026 as well. Amazing performance is also the theme across our space systems groups. A twin spacecraft for the NASA Mars mission are integrated onto its launch vehicle and are ready for liftoff in Canaveral in the coming days. And for Neutron, we've got a full update to share on our progress to the pad following the official opening of the Launch Complex 3 in August, ticking off a critical milestone in the program. We'll share more detail about that in the upcoming slides. So before we get into it, I want to zoom out and talk about our performance over the last five years, given this is sort of a little bit of a wrap-up for the year in some respects. Execution and reliability are critical in this space industry, but even more so in the public markets. Our ability to consistently deliver results for our customers, expand our capabilities, and grow our revenue and gross margins really sets us apart in the sector as we set new benchmarks for operational and financial success. From $35 million in revenue just five years ago, to an implied full-year guidance of roughly $600 million at the midpoint, and approximately 1600% increase over that time period. Our gross margins are looking great, too, from negative 34% GAAP gross margin in 2020 to the midpoint of our implied full-year guidance of slightly over 34% positive in 2025. Looking great to exit '25 with an even higher 37 to 39% in the fourth quarter. Our position as a leading end-to-end space company has never been stronger. We're a trusted disruptor of the industry, and we're proving that we can move quickly to scale our products and our services across both launch and space systems. That focus is translating into the double-digit growth results you're seeing on the page here. Right, on to Electron. As the title says, it's been a record-breaking quarter for launch contracts. 17 dedicated launches were signed in just three months, but all but two of them were signed with international customers from Japan, Korea, and Europe. Those new missions plus the ones already on the books for international space agencies like ESA and JAXA prove Electron is not just a leading launch vehicle in the United States, but it's becoming the preferred small launch vehicle globally. Electron's business model is one of schedule flexibility for our customers, and you can see from these new bookings demand is stronger and growing for Electron. For Haste, our Hypersonic Test Vehicle continues to redefine the way technology is being developed and tested in the United States. In Q3, we launched back-to-back missions from launch complex two in Virginia with 100% mission success, enabling technology to be tested in real-life hypersonic environments, which is a critical capability for the next generation defense programs like Golden Dome. By leveraging our commercial speed, our vertical integration, and our execution history with Electron, Haste delivers the proven agility and responsiveness that these programs demand. Speaking of momentum, we're on track to fly our seventeenth launch of the year in the next few days, which will officially surpass our previous annual launch record set in 2024. This pace is only possible because we are very intentional about designing Electron for scale. This extends beyond the vehicle itself to all the supporting infrastructure like manufacturing, processing, and operating a high-volume launch range infrastructure as well. It's an important approach that we're deploying for Neutron too, ensuring that we're thinking well beyond the first flight. As of right now, there are only three American commercial launch providers who have launched to orbit more than once this year: SpaceX, ULA, and, of course, us, which really does highlight just how rare Electron's capabilities are. Now let's turn to space systems. Starting off with a little bit of an update for M&A for the quarter. We closed the Geos deal to create a new payload business unit, strengthening our offering as a prime contractor for national security programs like Golden Dome, and for the Space Development Agency. Our history and expertise in buying and expanding smaller shops, to meet industry demand, we're turning our attention now to scaling a new electro-optical and infrared sensors for lucrative future contracts. Also closer to acquiring laser communications company Manaruk. They have completed their financial restructure under German law in August, which was a pivotal moment in the acquisition process and one that brings us nearer to closing out this deal. Rocket Lab USA, Inc. has been a force in the U.S. Space industry, and we're ready to bring that same energy to the European space sector with our first European foothold and expansion into Germany. As for what's next, we've built up our dry powder future M&A with more than $1 billion in liquidity following the market offering program implemented in September. It was a very strategic move to lock in capital that will allow us to act quickly on some of the exciting opportunities in the pipeline. We're not ready to reveal the details of these strategic players just yet, but I can assure you that the pipeline is active. We've always taken a disciplined approach to acquisitions, and our successful track record speaks for itself. We've got a bit of a knack for identifying, acquiring, and then integrating businesses that enhance our end-to-end capabilities and make us a stronger competitor for large-scale programs. That's made us the consolidator of choice for many companies in the space sector. We're often the ones being approached first by companies wanting to join Rocket Lab USA, Inc. now because they see the value we create for growth and innovation. Onto our upcoming space systems missions. We're a few days away from two of our spacecraft launching for the escapade mission. The initial launch attempt was unfortunately scrubbed by a launch provider yesterday, but by this time Wednesday, they're scheduled to be launched from Cape Canaveral, and they'll be on their way to Mars. What makes this mission truly groundbreaking is that we're tackling these interplanetary challenges with spacecraft built from an order of magnitude less than the usual cost developed in about one-third of the time. We're proving an entirely new, more accessible model for sending satellites to other planets. In short, this mission is a tough one both in flight and in the design, but, you know, of course, we love a challenge. Another program with a big green tick this quarter is our Transport Layer Constellation for the Space Development Agency, which has cleared critical design review to be able to move it into spacecraft production now. While existing and fully funded contracts like a half-billion-dollar program can continue under the government shutdown, the situation does continue to have an impact on the timing of new awards for the SDA tranche three constellation. Neutron. Alright. Moving on from space systems. Let me give you a bit of an update for Neutron for the quarter. Now I've spent a lot of my time in the recent weeks elbow to elbow with the teams at the various sites for Neutron testing. I have to say I'm extremely happy with the progress, but more than that, the thoroughness of the team during this critical qualification and acceptance testing phase. We're into the big meaty bits and the meaty tests where we have whole systems integrated together and large subassemblies. This is the time when you find out on the ground what you got right and what you got wrong, and, of course, rather than finding out during the first launch. Now at Rocket Lab USA, Inc., we have a proven process for delivering and developing complex spaceflight hardware. I think that process speaks for itself with respect to our hardware always looking and, more importantly, always working beautifully. Our process is meticulous, but it works. Electron, for example. It's the world's most frequently launched small launch vehicle, as we all know. We scaled the production and launch of it faster than any other commercial launch vehicle in history. Which is great. But if we think about how many others have tried to develop a launcher, the results have been extremely poor. Those who have failed to deliver are numerous. Basically, every new space company except Rocket Lab USA, Inc. and SpaceX has failed to build an orbital rocket that has scaled to any kind of launch cadence and is reliable. This is the Rocket Lab USA, Inc. process in action, and I've been resolute about sticking to this approach. With all the hardware in front of us now and significant testing programs underway across all parts of the vehicle, we can see we need a little bit more time to retire the risk and stick to the Rocket Lab USA, Inc. process. Yep. It might mean things will take a little bit longer, but I want to give some context here. I mean, the labor cost for the program is about $15 million a quarter, which we make back four times over a single launch anyway. So it makes zero sense to change what we know and what is proven to work. So we're aiming to get Neutron to the pad in Q1 next year, if all goes well, with the first launch thereafter. Once again, though, that's provided that myself and the team are confident we have completed Neutron's qualification testing and acceptance testing program to the Rocket Lab USA, Inc. standard. As always, this is a Rocket program, so that's been completed at a pace and a cost that nobody has achieved before. The financial and long-term impacts are insignificant to take a little bit more time to get it right. Now we've set high expectations for Neutron's first flight. Our aim is to make it to orbit on the first try. You won't see us minimizing some qualifier about us just clearing the pad and claiming success and whatnot. That means that we don't want to learn something during Neutron's first flight that could be learned on the ground during the testing phase. Excuse me. At the end of the day, Neutron will fly when we're very confident it's ready. We're not going to break the mold of the Rocket Lab USA, Inc. magic. Now over the next few slides, I want to take you through some of the testing campaigns we've been running to paint a bit of a picture of what it takes to deliver a reliable rocket to the launch pad. As you've seen for some time, we're very hardware-rich across the entire vehicle. Now it's all in sort of assembly and qualification and acceptance testing before it's all brought together under the East Coast sites. Okay. So these pictures are just a snapshot of many of those activities. We're deep diving into the qualification test and acceptance of every major assembly, subassembly, and system before we get into launch operations. In fact, I'd say we're putting Neutron through an even more extensive barrage of testing than we did Electron. Because it's not your kind of conventional rocket that we're developing. We have a couple of novel things being the world-first architecture like hungry hippo fairing, suspended second stage, and the vehicle itself is, let's not forget, the world's largest flying carbon composite structure ever built. We're making tremendous progress in these structures, testing across all levels of the vehicle. Every one of Neutron's major structures is tested on the ground to the levels that exceed what the rocket may see in flight, including testing of our primary structures like propellant tanks, thrust structures, the end stage, pushing them all to their limits to ensure they meet the demands of launch and reusability. Before we can call these qualified, we go through a full run of load cases axial lateral torsional transient and combined loads. The main and primary structures must withstand a liftoff of 1,500,000 pounds of thrust from the Archimedes engines, worst cases of aerodynamic loading on the way up as the vehicle through MAX Q, and all the separation loads. And then for the structures that come back on stage one, they have to survive all the thermal and aerodynamic loads too. Now we test secondary and auxiliary systems to the same level of scrutiny as well. This involves pulling and pushing across the same load cases even down to the smallest fixtures and the smallest bracket that holds every device in Neutron's primary structure. Across both stage one and two structures have yielded a wealth of valuable data, by anchoring and validating our engineering models through these tests, we're able to uncover and retire technical risks on the ground well before we fly. With Neutron's reusable fixed fairing design and our suspended second stage that passes through it, we're working with the unique architecture that has never been seen on a rocket before. We've been taking it through its paces to rid the entire system for its first flight. This has included testing the hungry hippo's aerodynamic control surfaces, as well as turning the electromechanical actuators and the control systems in all of the entire mechanisms. The Hungry Hippo's open and closed systems have passed performance testing, and so has the staging system, systems pneumatic locks, and pushes and guides, and all of the stuff that's inside of second stage that passes through the hungry hippo's mouth. While it's been one thing to build these huge assemblies for flight one, the team has also set up the infrastructure for this testing that allows us to get as close as to a flight test as we possibly can on the ground. This is important because it also lays the foundations not just for the first launch, but flights two and beyond. You can see some of the giant towers in these staging tests on the right-hand side of the slide there. In fact, some people thought we were building a launch site. It was so big. In the Neutron flight software and GNC team, we've been flying to orbit virtually almost now for two years. Leveraging a proven approach from the Electron program with our own flight software and hardware in the loop testing that integrates physical components with simulated flight environments to validate system-level functionality and performance. In preparation for Neutron's first flight, our operators and engineers have been running virtual test and launch operations week in, week out. We've been exercising our operations team on console going through static fire operations and launch day operations so that we can hit the ground running when the vehicle arrives at Launch Complex 3. Our world-class simulation tools built in-house allow us to exercise our avionics, GNC, and software tools well in advance of conducting these operations with a fully integrated vehicle. This not only allows us to reduce risk, but also serves as a training platform for the operations team. Combine that with a full suite of vehicle avionics in the loop, and we bring tests like you fly to a whole new level. It's all part of the smart, rigorous approach that we apply to every program and mission. Now onto Archimedes. Since the last engine update, the propulsion team has continued to validate its performance across the entire run box. The upstage engine is on the test stand too, and we continue to work for all the qualification testings on these engines and test as you fly configurations as you well know. The test cell is operating at a 27 rate, meaning twenty hours a day, seven days a week. The only way you can get through years of qualification know, always expected for an engine program, is to squeeze years of hours into months. So as you can imagine, no weekends or evenings are left on the table at the Stennis test facility. Now onto our ocean recovery for Neutron. While the return on investment barge won't be used for the first flight, the recovery team is making great progress on having it ready for flight two. The three main propulsion generating sets for the 400-foot length barge recently passed factory acceptance testing and have been cleared to be sent to the shipyard in Louisiana. Each of return on investment three diesel electric gensets capable of more than three megawatts of electrical power. Combined, that's more than 2.5 times the total electricity capacity for all of launch three. So these things are big. All in all, return on investment is looking good to enter service next year for the launch. Okay. Finally, wrap up our progress; it was a great moment to be able to cut the ribbon at the launch site last quarter. Neutron will bring the largest lift capacity to the Mid Atlantic Regional Spaceport has ever seen. So opening it was an important milestone not only for the path of first launch, but for assured access to space that the nation needs as launch congestion continues to build up across the country. The team is running through the final activation as they prepare to receive Neutron on the launch mount, otherwise all ready to go. Most recent tests have included flowing cryogens through the propellant systems, and tests continue to run smoothly. We've designed the site to be able to turn missions within twenty-four hours. That was the design requirement. Now that's important for response to space and the launch cadence we expect for the vehicle. But equally so, we can get Neutron straight into back-to-back testing during the launch and readiness campaigns as well. You can see there's been lots of Neutron activity this quarter. The team has made significant progress towards Neutron's first launch while continuing to prioritize our very rigorous testing and qualification processes over rushing to the pad. We've seen what happens when others rush to the pad with an unproven product, and we just refuse to do that. Methodical and deep approach to qualification is what's driven our reputation for success and reliability in the industry. It's been a cornerstone of our success with Electron. And it's the same philosophy that we'll be applying to Neutron. Okay. Here's Adam with the financial highlights for the quarter and outlook ahead for Q4.
Adam Spice, CFO
Great. Thanks, Pete. Third quarter 2025 revenue was a record $155 million coming in at the high end of our prior guidance range and representing an impressive year-over-year growth of 48%. This strong performance was driven by significant contributions from both our business segments. Sequentially, revenue increased by 7.3% underscoring the continued momentum across the business. Our Space Systems segment delivered $114.2 million in revenue in the quarter, reflecting a sequential increase of 16.7%. This growth was primarily driven by increased contributions from our satellite manufacturing business, which continues to perform exceptionally well and provides comforting diversification alongside our robust but at times lumpy launch business. Meanwhile, our launch services segment generated $40.9 million in revenue, representing a 12.3% quarter-over-quarter decline due to fewer launches during the period, driven primarily by customer spacecraft delivery delays. We have a busy Q4 manifest and as a result, expect a strong return to sequential revenue growth in our launch business in the fourth quarter. Now turning to gross margin. GAAP gross margin for the third quarter was 37%, at the high end of our prior guidance range of 35% to 37%. Non-GAAP gross margin for the third quarter was 41.9%, which was above our prior guidance range of 39% to 41%. The sequential improvement in gross margins was primarily driven by a one-time benefit from the transition to overtime revenue recognition for certain HASTE divisions. Paired with revenue recognition of an Electron emission cancellation due to a customer's internal program cancellation which was recognized at a 100% margin. We ended Q3 with production-related headcount of 1,190, up 48 from the prior quarter. Turning to backlog, we ended Q3 2025 with $1.1 billion in total backlog. With launch backlog accounting for approximately 47% and space systems representing 53%. During the quarter, launch backlog contributed to gain share, supported by strong underlying trends as we convert a robust pipeline of opportunities across Electron and HASTE. This includes the 17 Electron bookings signed within the quarter that Pete mentioned earlier. While space systems bookings remain inherently lumpy due to timing of increasingly larger and high-impact program opportunities, Space systems backlog continues to hold at healthy levels despite the step up in revenue run rate recognized over the last few quarters. We're actively cultivating a strong pipeline that includes multi-launch agreements and large satellite manufacturing contracts across government and commercial programs. As noted earlier, these larger needle-moving opportunities can create lumpiness in backlog growth. But they are critical drivers of long-term value and scale for the business. Looking ahead, we expect approximately 57% of our current backlog to be converted to revenue within the next twelve months. Additionally, we continue to benefit from relatively quick turns business, across launch and space systems components businesses that drive incremental top-line contributions beyond the current twelve-month backlog conversion. Turning to operating expenses. GAAP operating expenses for 2025 totaled $116.3 million, above our guidance range of $104 million to $109 million. Non-GAAP operating expenses for the third quarter were $98.1 million, which was also above our guidance range of $86 million to $91 million. The sequential increases in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in prototype and headcount-related spending to support our Neutron development program. Specifically, investments ramped up in propulsion as we continue to qualify our committees, as well as in test and integration of mechanical composite structures at our facility in Middle River, Maryland. In RV specifically, GAAP expenses increased $4.6 million quarter over quarter, while non-GAAP expenses rose $4.8 million. These increases were driven by the ramp-up of Archimedes production along with higher expenditures related to mechanical systems deposits as just mentioned. Q3 R&D headcount was 1,019, representing an increase of 84 from the prior quarter. In SG&A, GAAP expenses increased $57 million quarter over quarter, while non-GAAP expenses rose $6.4 million quarter over quarter. These increases were primarily due to the acquisition of GEOS during the quarter, paired with higher legal expenditures, insurance renewals, and fees associated with our annual proxy statement and related filings. Q3 ending SG&A headcount was 385, representing an increase of 42 from the prior quarter, the majority of those coming from the closing of the GEOS acquisition. In summary, total headcount at the top at the end of the third quarter was 2,602, up 174 heads from the prior quarter. Turning to cash.
Murielle Baker, Director of Corporate and Launch Communications
Purchase of property, equipment, and capitalized software licenses were $45.9 million for 2025, an increase of $13.9 million from the $32 million in the second quarter. This increase reflects ongoing investments in Neutron development. We continue testing and integrating large structures at our facility in Middle River, expanding capabilities at the engine test stand in Synagis, Mississippi, and scaling additive manufacturing at our engine development center in Long Beach. As we progress toward Neutron's first flight, expect capital expenditures to remain elevated as we invest in testing, production scaling, and infrastructure expansion. GAAP EPS for the third quarter was a loss of $3 per share, compared to a loss of $0.13 per share in the second quarter. The sequential improvement to GAAP EPS is mostly attributable to the $41 million tax benefit we recorded during the third quarter, which is due to the partial release of the valuation allowance against corporate deferred tax assets.
Adam Spice, CFO
As a result of acquiring an equal amount of deferred tax liabilities, emanating from the GEOS acquisition's purchase price accounting. GAAP operating cash flows was a use of $23.5 million in 2025, compared to $23.2 million in the second quarter. Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to Neutron development, longer lead production for SDA, investments in subsequent neutron tail production, and infrastructure expansion to scale the business beyond the initial test flight. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow less purchases of property, equipment, and capital software, in 2025 was a use of $69.4 million compared to a use of $55.3 million in the second quarter. The ending balance of cash, cash equivalents, restricted cash, and marketable securities was just over $1 billion at the end of the third quarter. The sequential increase in liquidity was driven by proceeds from the sale of our common stock under our aftermarket equity offering program, which generated $468.8 million in the quarter. These funds are intended to support acquisitions, such as the announced Manaruk acquisition, as well as other targets in our robust M&A pipeline, alongside general corporate expenditures and working capital. We exit Q3 in a strong position to execute on both organic and inorganic growth initiatives and to further vertically integrate our supply chain, expand strategic capabilities, and grow our addressable market, consistent with what we have done successfully in the past. Adjusted EBITDA loss for 2025 was $26.3 million, which was below our guidance range of $21 million to $23 million loss. The sequential increase of $1.3 million in adjusted EBITDA loss was driven by higher revenue and improved gross margin, which was more than offset by increased operating expenses related to Neutron development. With that, let's turn to our guidance for 2025. We expect revenue in the fourth quarter to range between $171 million and $180 million, representing 12.8% quarter-on-quarter revenue growth at the midpoint. We anticipate further improvement in both GAAP and non-GAAP gross margins in the fourth quarter, with GAAP gross margins to range between 37% to 39% and non-GAAP gross margin to range between 43% and 45%. These forecasted GAAP and non-GAAP gross margins are benefited by a higher mix of launch contribution in the quarter, as well as underlying improvements in launch ASPs and greater launch overhead absorption due to higher forecasted launch cadence in the quarter. We expect fourth-quarter GAAP operating expenses to range between $122 million and $128 million and non-GAAP operating expenses to range between $107 million and $113 million. The quarter-over-quarter increases are primarily driven by ongoing Neutron development spending related to flight one, including staff costs, prototyping, and materials. However, we expect to see a shift in spending from R&D to flight two inventory, which is an encouraging sign of progress as we move closer to Neutron's first flight. I'm optimistic that with the impressive strides we've made towards this milestone, we're approaching peak Neutron R&D spending and are on the path towards meaningful operating leverage and positive cash flow in the future. We expect fourth-quarter GAAP and non-GAAP net income to be $3.5 million, which is a function of higher cash balances as well as the conversion of approximately $192 million of convertible notes since September 30. We expect fourth-quarter adjusted EBITDA loss to range between $23 million and $29 million and basic weighted average common shares outstanding to be approximately 571 million shares, which includes convertible preferred shares of approximately 46 million, and reflects the conversion of approximately 37 million shares of convertible notes thus far in Q4. Lastly, consistent with prior quarters, we expect negative GAAP free cash flow in the fourth quarter to remain at elevated levels, driven by ongoing investments in Neutron development and scaling production.
Murielle Baker, Director of Corporate and Launch Communications
And with that, we'll hand the call over to the operator for questions.
Operator, Operator
We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ryan Koontz with Needham and Co. Please go ahead.
Ryan Koontz, Analyst
Great. Thank you. Really nice to see the strong bookings and backlog jump there for launch. Really impressive. Sounds like a lot of that was international. Any particular color you can share on, you know, the use cases, versus government, anything you can share as far as what's really driving that pickup in backlog and how you feel about it, you know, going forward over the next few quarters?
Peter Beck, CEO
Yes. Hi, Thanks very much. Yeah. So it's a bit of both. So strong commercial bookings, but also, you know, for the first time, we see, you know, space agencies who typically, you know, use their own sovereign capabilities, but you know, Electron is really the only vehicle of its kind in operation in the world right now. So it was very, very promising to see space agencies now, you know, kind of standardizing on the Electron as a platform.
Ryan Koontz, Analyst
For sure. That's great. And how are you feeling about supply chain relative to meeting that kind of demand for Electron at this point?
Peter Beck, CEO
Electron's like 90% plus built in-house. So, you know, we don't see too many challenges there. You know, the factory that we built here was ultimately designed to build 52 rockets a year. And so, you know, I think we'll be fine.
Ryan Koontz, Analyst
That's great. Maybe one last one just to wrap up just to clarify what Adam said about launch gross margins. There were a couple of one-time events there. Any color you can share with us on that, Adam?
Adam Spice, CFO
Yeah. You know, as Electron continues to grow as a business, you know, we've got a deep pipeline and backlog, and, you know, you’re going to have customers that have changing priorities, you know, programs get canceled. Fortunately, you know, we have very strong contract terms, which allow us to make sure that we're protected in the event that people's programs get canceled or change their priorities. You know, I think on the Haste change, that was really kind of, again, a pivot on some of the Haste emissions where the contractual terms are such where it's really more appropriate under ASC 606 to recognize revenue over time and use EAC accounting to measure the cost that you're incurring and you recognize revenue and margin importantly. So we now have a nice in that business where you have point-in-time and over time, and it really just a function of contract terms. And Haste is evolving into an important and meaningful part of our business, and good things come from that. The fact that you've got typically higher ASPs, you've got, you know, I would say along with that now, you've got a little bit more stability, I would say, or predictability to revenue contribution from that given the fact that some are going to be point in time, but some are going to be over time, and that overtime allows a little bit more of a, I would say, like, a little bit more predictability, and I think it's a healthy place to be.
Ryan Koontz, Analyst
That's great. Appreciate the questions. Thank you.
Operator, Operator
The next question comes from Andres Sheppard with Cantor Fitzgerald. Please go ahead.
Andres Sheppard, Analyst
Hey, everyone. Good afternoon, and thanks for taking our questions. Pete, it's really great to hear all the great progress over the last few years to see everything up until this point. Two quick questions for us: on space systems, and one on the launch business. On the space systems, maybe for Adam, can you remind us of the revenue recognition associated with the FDA tranche two award? I think in the past you had targeted 40% revenue recognition in 2026. Just wondering if that's on track or unchanged? And then also on the FDA tranche three award, now obviously the government shutdown may have delayed the decision there slightly, but we still feel confident in that award and in that decision? If awarded, that would be the largest contract, I think, awarded in company history. So curious on your thoughts there. Thank you.
Adam Spice, CFO
Yeah. I'll take the first piece of rev rec. I'll give you my thoughts on T3, and then I'll head back over to Pete. On the rev rec, yeah, we're still very much in that path to recognize the revenue over that pattern where it was you know, kind of think about these larger long-lived government programs as kind of 10% in the first year after you achieve the award, and then it's 40, 40, 10. So think about that as the shape of the curve. And FDA has got a tranche two transport layer shaping up to be similar to that. Yeah, everything is consistent there. As you know, similar to the other overtime rev rec, you basically estimate your cost to complete the mission as you incur costs proportionately. You recognize revenue at the program margin. So, yeah, it's been so far, we've had that program has been going very well. As Pete mentioned, that part of the business is performing very, very well. On T3, you know, yes, that would be the largest contract the company would have won to date. And you're right, the timing has been a little bit delayed due to the government shutdown. I think we've all seen recently that there's signs that perhaps we could be coming to an end of that shutdown, which I think would be great to get that momentum back in the awarding of those types of contracts. But I'll turn over to Pete in regards to confidence in that win.
Peter Beck, CEO
I think you've said it well, Adam. I mean, I think, you know, we've put ourselves in a really strong position as a prime contractor on those awards, especially with some of our acquisitions. So we're feeling good, and, you know, we just need the government to come back and finish off that last little piece. But, no, I think we're feeling good, Andres.
Andres Sheppard, Analyst
Wonderful. That's great to hear. And maybe just as a quick follow-up on Neutron. With the first launch now targeted for early next year, should we still be assuming kind of three launches for next year, five the following year and seven? Or is there perhaps a change to that cadence as well? Thank you.
Peter Beck, CEO
Yeah. The way we think about that cadence is it's you know, the clock starts for the next one from the first one. So depending on the, you know, the first flight, think of it as like a twelve-month kind of rate from there. But maybe, Adam, if you yeah, any different views.
Adam Spice, CFO
Yeah. No. I think that's right. I think, you know, I just remind folks that the first launch is a test launch. It's an R&D launch. We've been expensing that vehicle over its manufacturing period. So the communicated cadence was, you know, one test launch, which is still the case, and then we expect to be in revenue for the flights thereafter. So I would say that, you know, depending on how early we get the test launch off in 2026, it will dictate whether or not we get, as Pete said, we kind of complete the next three missions in a twelve-month window. That would fall within that.
Andres Sheppard, Analyst
Wonderful. Very helpful, and, congrats again. I'll pass it on.
Operator, Operator
The next question comes from Edison Yu from Deutsche Bank. Please go ahead.
Edison Yu, Analyst
Hey, good afternoon. Wanted to ask about the future constellation. I know it's quite a long-term question. But there's been a lot of activity in some operators around Spectrum. And I'm curious what's your thinking about the value of Spectrum in your kind of calculus for any type of future constellation?
Peter Beck, CEO
Well, I mean, that would be making an assumption that you I guess you're settling on a comms application as well. But clearly, spectrum is an important element to any kind of scaled comms business, although we have been seeing some interesting approaches where that becomes less so. But I think you're just seeing some kind of natural consolidation in the industry right now around some of those spectrum assets. And, you know, I suspect that will continue. But, you know, look, Rocket Lab USA, Inc. is not going to go out and buy billions of dollars' worth of spectrum speculatively. That's for sure.
Adam Spice, CFO
This is Adam. Sorry. I got dropped. Some unfortunate conference call dropped me. So I don't know if I did I did I answer your question fully? Andres, on the launch cadence?
Edison Yu, Analyst
Oh, sorry. I mean, I'll repeat it. Just any observations on the Electron launches, the deals in terms of number of length of the launches? Are people trying to extend the visibility there? In the next few quarters? Or is it pretty stable?
Peter Beck, CEO
You know, I think when we talk to customers, as you can see in the last quarter, it's generally not sort of one launch. You know, we see folks locking in their launch capacity and buying lots of launches in one hit. We're we never try and let a customer down or leave a customer on the pad, so we map production with launch demand very well. But, you know, and that that isn't been a problem to date. But, no, we just continue to see just growth in the demand for the product.
Adam Spice, CFO
Yeah. And I would add to that, Edison, that we've seen these larger bulk buys over long periods of time occur more on the commercial side. As we talked about in the past, you know, it's kind of hard to differentiate sometimes commercial versus government because a lot of our commercial customers actually end up fulfilling customer government demand. So it's a quasi-commercial government. But also, we've been growing our Haste business pretty significantly over the last couple of years. And those have come, I would say, more like Electron originally did, where kind of, you know, the onesie twosie kind of size contracts. And I think that's hopefully the next kind of shoe to drop for us is the ability to start signing larger paced deals that cover a long period of time and a greater number of launches because that would give even more, you know, certainty to the revenue ramp in that part of the business. I think that's, you know, again, that's something that we're looking forward to. So I think that would be a very helpful indicator that the longevity of that Haste business and the ultimate scaling of it.
Suji Desilva, Analyst
Hi, Pete. Hi, Adam. Congrats on the strong backlog build here. On the Electron launches, you gave some sense of pricing, but any noticing on the trend in the size of the number of launches, maybe if not now into '26 or if you're trying to extend those or is that fairly stable?
Peter Beck, CEO
Hey, CJ. I don't know if Adam, if you if you got that one, but I struggle to see you on that one. Yeah. Suji broke up.
Operator, Operator
The next question comes from Andre Madrid with BTIG. Please go ahead.
Andre Madrid, Analyst
Hey, everyone. Good afternoon. Thanks for the questions. Knowing, I think earlier today, it was announced that the SC FDA was moving some funding earmarked for some of their programs over to true payments. This was at more of a DOW level. But seeing that, and then you called it out, you know, decreased cash receipts in the slide deck too related to SDASAT work. I mean, if things don't get resolved this evening, which hopefully they do, I mean, when does the shutdown pose a significant risk to your internal '26 outlook and beyond?
Adam Spice, CFO
What? I can okay. Go ahead, Pete.
Peter Beck, CEO
Oh, you go ahead, No. I was going to say, I think that there's, you know, so far, the government shutdown, I wouldn't say, has really dramatically affected us. Yes. There have been slightly slower cash receipts, but for example, we got a very large cash payment on Friday from SDA. So I would say that, you know, this ticket has not been shut off. I think it's just kind of just been a little bit slower and flowing. So that to me, that's very helpful. That even before the line of sight to the ending of government shutdown, you know, we were still getting and we received a very large payment. The end of last week. So right now, it doesn't really I think there's is going to be any obviously. We factored in everything we believe is to be the most likely case in our Q4 guide that we described earlier. So it's hard, you know, no one's got a crystal ball for kind of what happens know, with this they bring the government back and kind of where they reprioritize their dollars. But yeah, I think we've been very fortunate so far that we've really not felt any significant impact from the shutdown to date.
Andre Madrid, Analyst
Got it. Got it. That's helpful.
Peter Beck, CEO
The only thing I'd add is, like, the requirement for what SDA is doing is not diminishing; it's expanding. So, you know, it's an important program. So as far as, like, the need for the program, that's not getting smaller.
Operator, Operator
The next question comes from Jeffrey Van Rhee with Craig Hallum. Please go ahead.
Jeffrey Van Rhee, Analyst
Great. Thanks for sneaking in here. Andy, on the margin, gross margins for Q4 and the guide, it looks like maybe a couple of hundred basis points of sequential improvement. Is that just kind of break it down maybe a little more? Which side of the business you're expecting that sequential increase? And then any sort of even inklings as to maybe revisions on what you think target gross margins might be for either of those two segments?
Peter Beck, CEO
Yeah. So, you know, Adam can take that one.
Adam Spice, CFO
Yeah. So, the gross margin trend, you know, in the proven sequentially Q3, Q4, again, is driven really by a mix where as we get more scale into our Electron business. We've always talked cadence being super important for the margin profile for that business because there's so much fixed cost related to it. So as you scale cadence, and Pete kind of, you know, mentioned earlier in his comments that we're expecting, you know, hitting a new record for launches in the year. So, that's all good for overhead absorption. So think of it as there's a lot of good underlying dynamics going on within the launch business as far as, you know, size of the backlog, the ASP increasing within that backlog. We're getting greater overhead absorption benefits. So that's really kind of what's driving the strength in the launch business. And as it becomes a bigger piece of the mix in Q4, that's really the biggest fact. I would say that within our space systems business, the trend of margins actually has been quite solid in that as well. You know, we talked in prior calls about how we've made very significant improvements in our gross margins from our Solero solar business. You know, we've kind of talked about a long-term target there of, you know, we get to 30 points of gross margin. That was kind of an aspirational target, and I think we're very comfortable that we're, you know, we're very close to that. I think we're at we think about revisiting that one upward a bit, I think. But overall, you know, we still believe that our launch business on Electron First, you know, has the potential to be a 45 to 50 non-GAAP gross margin business. We think long-term Neutron has the ability to be at least as good as that, helped by the reusability nature of that vehicle. And then on the space system side, you know, it's really two different elements that kind of have different margin characteristics. On the space systems components or subsystems business, that has a wide range with solar kind of being at the low end of that, and, again, around 30 points. Hopefully, we can push that a little bit higher. And then for some of our other components businesses, where we have margins that are, you know, well north of 60 in some cases, 70 points margin. And I think overall, that brings the gross mow market profile for that subsystems business around, call it, low to mid-forties. The satellite manufacturing business, because of the nature of those programs, you know, we're able to take what for many people is either high single digit or low double-digit gross margins and have those more in, I'll call it, the I'd say, 25 to 35 points depending on the programs because of the level of vertical integration that we bring because those same components that we sell into the merchant market at very high margins we basically obviously design into our platforms. So I think longer term, I think we still see again, again, a gross margin business from launch that is in the probably, if you want to call it, the 50% range and for space systems. You know, probably in the I'd say, the 40, maybe low forties percent gross margin range. So puts in a nice spot overall. But I think it's also helpful to note that, you know, in space systems, it's not as R&D intensive as the launch businesses when you're getting a new vehicle established. So the operating margins or contribution margins for the space systems businesses, even the ones that aren't kind of in those high gross margin ranges is still quite healthy. And then I think on again, I think the margins for launch speak for themselves.
Jeffrey Van Rhee, Analyst
The can you talk about the pipeline? Obviously, tranche two, tranche three are big needle movers. But what's the next layer beneath that like? Like, how many, you know, eight-figure, nine-figure deals? Just some semblance of what the distribution of deal sizes that are later stage in the pipeline would be helpful. Thanks.
Peter Beck, CEO
Yeah. So there's, you know, we're always chasing a variety of stuff. So I think the, you know, the intelligence community and the DOD is obviously big opportunities for us. And, you know, things like Geos really provide us new kind of access and visibility to some things that aren't very visible at all. So on that side of the equation, I think there's really good opportunities for us there. But I would say also like, if we think about the, you know, the bids that we've got in play, there's also some extremely meaty commercial bids as well. So say it's fairly well distributed across the opportunity is fairly well distributed across both commercial and defense. But there's always the big meaty programs. But, I mean, you know, all of the business units, we kind of run the business units like little start-up companies as well. And, you know, they're expected to grow really healthily every year. And, you know, you see new products coming on all the time because, you know, as they reach saturation with their customers, these business units have to develop new products to continue that growth. So this year alone, I think it's been a really, really great year. We set goals for those units. And then there's kind of the Pete stretch goal. And, you know, they've all met or exceeded the, you know, the Pete stretch goal this year. So, you know, it's not just about I guess what I'm saying is not just about these big, big projects. You know, they're obviously important needle-movers, but just the underlying business and just continuing to drive that growth in all the business units. And the underlying business is equally as important.
Jeffrey Van Rhee, Analyst
Got it. Got it. Congrats on the great performance. Thanks.
Operator, Operator
The next question comes from Anthony Valentini with Goldman Sachs. Please go ahead.
Anthony Valentini, Analyst
Hey, guys. Thanks for getting me on. Just a quick clarification question on the backlog and Neutron. Is there anything in the backlog today for Neutron? Or is it zero?
Adam Spice, CFO
Anthony. We do have launches in backlog for Neutron. There are two fully priced missions in the backlog right now for Neutron. There's a third contracted mission, which is right now anticipated to be a rideshare. But we don't have that in backlog because we don't do that until we've actually added the payloads into the manifest. And, again, we've got a primary customer, but not on that third cusp on that third launch, we've not put any in the backlog yet.
Anthony Valentini, Analyst
Okay. That's helpful. Is there a way to think through, you know, how that backlog for Neutron specifically ramps up? Like does that happen once you guys do that first R&D launch? Or is it a certain number of successful launches? Just historically, and, like, what you guys know about the industry, like, how does that start to flow through?
Peter Beck, CEO
Yeah. It's a good question, Anthony. I mean, I think we sort of alluded to this in one of the previous questions. It's like we don't want to ever let anybody down. And, you know, when they're looking to buy neutrons, aren't typically looking for one. Looking for many. So, know, there are a number of customers looking to see that the vehicle does work and it scales. So and, you know, we work very closely with those customers we go along. And these are both commercial and government customers. So I think the unlocking point is certainly a successful flight. In a number of these contracts. But also, you know, that you know, we want to make sure we don't let customers down. And the last thing we want to do, and we've talked about this previously, is customers will be happy to book a bunch of Neutron at, like, half price. And we're just not gonna do that.
Anthony Valentini, Analyst
Right. Okay. That makes a ton of sense. And then last one for you, Peter. As I'm thinking through the opportunity set, on the Tranche three transport layer and just looking back at the previous tranches, there's competition from the defense prime, and some of these new space tech companies, including yourself. I'm curious how you think through the differentiators for Rocket Lab USA, Inc. and when you guys are presenting to the customer, what you think really separates you from the rest of the group?
Peter Beck, CEO
Yeah. So I think one of the big separators and one of the reasons why we, you know, we won a prime spot on our first SDA contract is that, you know, we're so vertically integrated that if we look across all of these programs, they're typically plagued by delays. You know, not so much cost overruns because, you know, it's a firm fixed price, but certainly delays. And, you know, when you control so much of your own supply chain, then you know, if there's a delay in a component, you get to choose what resource you swell or push around to solve that problem. So I think that that's a big element, just schedule certainty. Obviously, Adam talked about some of the margin and margin stacking, so price is a big element as well. But at the end of the day, all this stuff's gotta work. And this is where, you know, your reputation in this industry is just so critical and why we just never deviate from putting ourselves in a position where that can get compromised. You know, when people buy a piece of Rocket Lab USA, Inc. hardware, know, firstly, it turns up and it looks great, and it works. And, you know, in an industry where that seems to be challenging, I think, you know, that's an important element. And also, finally, there's a set of requirements, and then there's how you go about solving that set of requirements. Like, you know, with the technologies that you can bring to bear. We just have such a war chest of technologies that we can bring to bear to provide solutions to meet everybody's requirements and then some. That I think, you know, it puts us in a really strong position.
Anthony Valentini, Analyst
Great. Thank you so much for the thoughtful response.
Operator, Operator
The next question comes from Kristine T. Liwag with Morgan Stanley. Please go ahead.
Kristine T. Liwag, Analyst
Okay. Good evening, everyone. Peter, Adam, from your commentary from our previous question, I mean, it sounds like you're not going to go out there and go buy a spectrum. So first question, is that a fair assessment of your statement earlier? And also second to that, you know, with over a billion dollars in liquidity, and, you know, with the broader and deeper capability set in space systems, What's your priority for M&A?
Peter Beck, CEO
Yeah. So we look at a number of things, Kristine. So, you know, I would say that there's always opportunities for tuck-ins, and you've seen that with things like Manaruk where, you know, that gives us a capability that we didn't have. So we'll always do those. But I think the Geost acquisition is a really good example of, you know, acquiring a company that just brings us into a totally different customer set and a totally different capability and also puts us at a totally different level, know, if you think of the big traditional primes. One thing that sets them apart from lots of little space companies is they own the payload. So, you know, we'll continue to look at for opportunities there where we can own the payload and really drive the missions. And look, we're always looking at big needle-moving stuff as well. And, you know, we always look for things that we think, you know, have a step change in either the scale or other elements of the company. So, you know, that's the way we look about, you know, that's the way we think about it.
Kristine T. Liwag, Analyst
It's been super helpful. And, look, you know, when you look out into the market, you know, it's hard not to see what's SpaceX is doing in terms of their path towards that end-to-end, you know, space and recent. So when you look at your portfolio today, I mean, it looks like you're kind of marching in a similar direction. With your Flatellite product set too, and now you've got, you know, these additional payloads. Where do you see your role in terms of that industry? You know, do you at some point want to own your own constellation and be able to sell more of that as a service? How do we think about where you are in this journey? And, you know, what does the exit look like?
Peter Beck, CEO
Yeah. We've just sort of quietly and methodically gone about making sure we amass all of the kind of the strategic elements we need to ultimately deploy things at scale. So Neutron is really important element of that. If you look at look at others, you know, access to space and low-cost rapid and reliable access to space is kind of the place you start. Neutron gives us that multi-ton capability. And then as you point out, you look at the space systems growth then really at this stage, I don't think there's any satellite we can go and build. I mean, we've got two going to Mars here shortly. So if you, you know, want to talk about complexity of spacecraft. So I think from an engineering perspective and a component perspective, all of those kind of bases are loaded. And we'll be very strategic about how we think about the next step, which would be building our own constellation and whether we're providing services or infrastructure, I think, is yet to be determined.
Operator, Operator
The next question comes from Peter Arment with Baird. Please go ahead.
Peter Arment, Analyst
Nice results, Pete and Adam. Just a quick one, I guess. On Electron, of the demand environment. I think you've previously talked about the demand for around 30 flights a year. I was wondering if that still kind of holds just given the uplift that we've seen tied to kind of all the national security launches and kind of what's going to be expected with Golden Dome and additional testing if there's upward bias to that, and it certainly seems like it.
Peter Beck, CEO
Yeah. Hi, Peter. I mean, look, I think that's fair. Depending on how quickly and what scale Golden Dome grows to, think we're in a very strong position to provide critical services there. And, you know, we see nothing but upward trajectory in both government, taste, and commercial launches for that product.
Peter Arment, Analyst
Appreciate that. And just a quick follow-up. For the comments on the Archimedes, the testing that you've been doing. Could you give us a little context? Is that much different in terms of the rate that you did originally with the retrofits around Electron?
Peter Beck, CEO
Yeah. It is. It is at a much, much higher intensity and rate because for Rutherford, we only had to do half the job, meaning that we only had to go up. For Archimedes, we have to go up and down. So it's like twice the amount of environments, twice the amount of run box. And twice the amount of qualification.
Operator, Operator
This concludes our question and answer session. I would like to turn the conference back over to Peter Beck for any closing remarks.
Peter Beck, CEO
Great. Thanks very much, and thanks for the thoughtful questions. So before we close out today, I would like to share that Matt Oko is finishing up his time on the Rocket Lab USA, Inc. board of directors. Matt's tenure as a member of the board will end November 30. Matt is a co-founder and managing partner at a deep tech venture capital firm, DCVC, and was one of Rocket Lab USA, Inc.’s earliest investors, serving as a member of the board since August 2021. And as a member of the legacy Rocket Lab USA, Inc. board since January 2017. So since then, we've been incredibly grateful for his leadership and his guidance as we grew Rocket Lab USA, Inc. together from a small start-up to a publicly listed company. Now the world's one of the world's leading global space firms. And, look, I just personally also want to thank Matt for backing us from the beginning, and wish him all the best in his continued work in deep tech as he transitions out of Rocket Lab USA, Inc. Otherwise, here are some upcoming events and conferences that the team will be attending. We look forward to sharing more exciting news and updates with you there. And thanks for joining us. That wraps up today's call, and we look forward to speaking with you again soon and sharing some more progress at Rocket Lab USA, Inc.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.