Rocket Lab Corporation (RKLB) Earnings Call Transcript & Summary

Welcome back to the Deutsche Bank Global Space Summit. Next up, we have Rocket Lab. Joining us from the company is the Founder and CEO, Peter Beck. For this session, we'll start off with the presentation from Peter and then proceed into the Q&A session. Thank you for joining us, Pete.

Thank you very much, Edison. And I'm going to try and summarize 16 years in under 10 minutes. So if I'm talking too fast, I apologize, but we'll have it correct. So we get straight into it. The way I'd like to think about space is you can kind of break it up into 3 distinct elements. So one is obviously launch. We see this as like the key to the space. The second is Space Systems, which are satellites and spacecraft. These are basically the infrastructure in space. And then the third one is space applications, and these are all the things that you do from the space. Now each one of these kind of buckets represents different TAMs. So you've got launch, which is sort of a $10 billion to $20 billion TAM. You've got Space Systems, sort of $20 billion to $30 billion TAM. And then you've got space applications, over $320 billion TAM. So as you can see, there's kind of clear areas of value. Now to be really, really effective in space applications, if you also own Space Systems, then launch, it puts you in an unfair advantage. So as Rocket Lab being an intervening space company, that's ultimately where we're positioning ourselves. So obviously, launch is well under control. Space Systems is well under control. And at some point, we'll enter into applications and orbit. But for those who are not familiar with the company, at a bit of a glance. So a few days ago, we just launched our 32nd rocket. We've deployed over 150 satellites in orbit now from our Electron launch vehicle. We operate 3 pads, 2 in New Zealand, 1 in the U.S. We are the second most frequently-launched U.S. rocket behind SpaceX. So we launch a lot. And then on our Space Systems side, we have over 1,700 spacecraft for satellites on orbit with Rocket Lab technology in them. Whether it be GEO or LEO missions, we have 14 interplanetary and lunar missions, where either we're doing the entire mission or we have a bunch of hardware or software on those missions. So Rocket Lab is an entity. It's -- You can think of it as an intervene space company but kind of loosely right now, broken up into launch and also into Space Systems. What it really enables us to do is take an idea all the way through to an application on orbit really. So we can start off with designing and building satellites, all the components that go into them, all the software and testing. And then obviously, all the infrastructure around launch and the ground systems. And then finally, we can launch them and then operate them in orbit. And across all of those 6 aspects you see there below, we have programs and customers across all sets today. And in speaking about customers, the customers are pretty much broken up into 50% commercial and 50% government. So within the government, it's sort of bisected into 30% defense and 20% civil, like civil being NASA-type customers. And our customer base is very diverse. We're flowing just about every U.S. government agency you can imagine. The most discerning government agencies like the National Reconnaissance Office, NRO, these are missions of national security. They really, really matter. And currently, the interflow on Rocket Lab, SpaceX and ULA. So incredibly discerning, incredibly important customer through to all of the commercial companies that you may be familiar with. And then globally, other governments globally and other companies globally right down to acute sets for academic use. So pretty wide spectrum of customers. We have a tremendous number of repeat customers but from by sector between 50% commercial and 50% government, which is what we really like. The company itself is a very, very vertically-integrated company, especially raw material in one door and rocket at the other. And we're spread across 5 different states in the U.S., and we have operations in Canada and in New Zealand, obviously. So a pretty global footprint across the planet. But what's most important here -- to say here is very, very vertically integrated, which has been incredibly powerful for us, especially in these times of constrained supply chains. We do a lot of manufacturing. So Rocket Lab is an engineering and manufacturing company really. And not just kind of boring, old, stodgy manufacturing but really state-of-the-art. We were the first 3D printer on rocket engine and put it into orbit, and now we produce one 3D printed rocket engine roughly every 24 hours. And factories are, as I mentioned before, literally raw material in one end and complete rocket or spacecraft flying out the other. So just briefly detailing more a little bit further. So the main launch product is the Electron small launch vehicle. It's a vehicle designed to look small satellites into orbit for our dedicated customers. It's been a really successful product for us. We've launched, as I mentioned, 32 of them to date, and that launch cadence has been increasing. This year, we've -- since April, we've been launching one a month or one every 4 weeks-ish with the shortest turnaround time of being 15 days, so between launches. So very rapidly. As I mentioned before, the second most frequently launched U.S. rocket. We've become the kind of the premier choice for our small satellite constellation builders. We -- typically, a customer these days will come to us and buy a bulk -- buy out Electrons to deploy their whole constellation to all, but the reliability of the vehicle and its performance has been well proven now, and these are the kind of repeat customers that we like to see. So we're pretty much the provider of choice for all of these small sat constellations. One of the crown jewels within the company is our launch sites, mainly the New Zealand launch site, it's the only private orbital launch site operational in the world today. We have the ability to launch literally every 72 hours for the next 20 years out of that site. We operate 2 pads there, which is super important. And then we have our third pad in Wallops Island, Virginia, which is coming online, and we announced the launch date for that launch just recently. Excuse me, so it will be great to see Electron fly out of the East Coast of the U.S. here before the end of the year. We're also a keen proponent of rocket reusability, and we have a reasonable program for Electron, which we're moving through very, very quickly. And we foresee Electron as a small launch vehicle, which is generally believed to be impossible to do, become a reasonable launch vehicle, and that has obviously great impacts to our gross margins. But we're not going to stop a small launch. So we're also building Neutron. So this is probably the largest R&D project -- it is the largest R&D project within the company right now. So this is a medium to large class launch vehicle designed to compete with the likes of the Soyuz, which is now unavailable; and also Falcon 9 and others. It's a relatively unique vehicle. It's designed for reusability from day 1. Hence, the reason why it looks a little bit different to most launch vehicles. It's designed to go up, just as much as it's designed to go down. And we're really looking forward to bringing this product to market in 2024. Between Electron and Neutron, mean that we can lift to 90% of everything that has been identified to be launched in the next decade. So it will [indiscernible] a very, very powerful position for -- in the launch sector. Of course, Space Systems represents generally either half or 2/3 of our revenue per quarter. So it's a very important area for us. Everyone loves a rocket, a super flashy and exciting, but actually building of the spacecraft is equally as important, both not from a business standpoint, but also from a capability standpoint. So there's a couple of -- a bit of an eye chart here, but a couple of key points. As [indiscernible] to the team when we started our Space Systems division in 2019, I said, "Look, everything that goes to orbit should have a Rocket Lab logo on them." Don't care if we launched it, don't care if we build it, that's what we need to aim for. So I'm pleased to say that this year or last year, about 38% of everything that went to space that we could address actually had a Rocket Lab logo on it. So we're making good on that promise, and it's super important for our Space Systems group. So you've seen us have a pretty aggressive vertical integration and acquisition strategy. So we acquired 3 companies since becoming public, which is obviously a lot to swallow. But we just felt we had to do it because the time is right. And also in order to deliver on that kind of objectives, we needed to put all of the really key and critical items of a satellite in under the hood. So if you think about a satellite and you kind of disassemble one on the table in front of you, the key components would comprise of reaction wheels, star tracker which we're able to secure with Sinclair Interplanetary. Obviously, software, which were able to secure with ASI. Things like separation systems are often drive lead times for the ability to launch. So PSC was a really, really important one for us. And then generally, the most expensive part of the satellite and the longest lead time is the solar panels. So there is only 3 companies in the world that make space-grade solar cells, and we have one of them and the largest one now being SolAero, and super critical and strategically important asset to put under the hood. SolAero did the solar panels for the James Webb Telescope for the Mars Ingenuity Helicopter and so on and so forth. So really, the best within the industry. And if you look across all of our acquisitions, that's consistent across all of them that they are a huge heritage, established themselves as the best in the market, and joining them with Rocket Lab has been a really fantastic success. So really, what we're trying to do here is obviously enable the space economy. As I mentioned, more than 1,700 spacecraft actually have our hardware on it. I won't labor on some of these, but you can see we get to be involved with some supercool missions, whether it's going to the sun or going to Mars or discovering the origins of the universe. We get to be involved with these amazing things. And not just historically, but going forward, we have over 220 missions that we're supporting, whether it be lunar landers through the interplanetaries and also lower orbit stuff. So a huge array of projects that we're involved with. I think one of the kind of crowning achievements this year was winning the MDA Globalstar contract for us to build the spacecraft buses for Globalstar's new constellation. Obviously support a significant telco and their desires. So this is a very large program, very complicated spacecraft to build on a very short time frame. And this is where our kind of vertical integration strategy really paid off because we had SolAero in-house. We had reaction wheels in-house. We had software in house. We had so many things in-house that we're really able to secure the ability to deliver on the time lines that this program required. And then finally, what we haven't really said is that if you own your own rocket, you own all your own satellites and all the bits that go into them. The obvious next choice is to provide an application from orbit. Now we haven't disclosed or even discussed what application we may actually provide from orbit, but we think it's too early for that. But just so everybody knows the trajectory of the company, we want to be able to address that $320 billion total addressable market here shortly. And we're building all of the capability and infrastructure to be able to do that in a way that we'll see us being incredibly, incredibly competitive. So with that, hopefully, that's 2 minutes for 15 years or 16 years and happy to have to take questions, Edison.

Well, you did much better job of summarizing 16 years that I probably couldn't. So I wanted to start on the launch side. So I won't spend too much time because we did a podcast If you want to go about it. So if anyone's interested, please check that out. Why is it so hard to build a high volume launch in rocket? I think other than SpaceX and you guys, there's really nobody out there that can launch it in any sort of [indiscernible] or maybe countries. So why is it so hard for anyone to develop this capability?

Well, I mean I wish it wasn't so hard, it has to be said, that would be great. But the reality is that every day, I joke with our engineers that you're getting up to do better with physics, and physics will always win. And the reality is that somewhere between 1% and 4% of the total rocket's mass is actually the payload all the satellite that you put in orbit. And in Electron's case, 90% of the total mass of Electron is fuel. So if you only have like 2% to 4% of your total mass of the rocket being the thing you get to orbit, if you're a fraction and a percent out on trajectory, a fraction and percent out of the talent utilization or a fraction and percent out of anything, you just create international news rather than actually delivering a satellite to orbit. So that is fundamentally difficult. Now what is literally 100x harder is, to your point, is to do it over and over and over again. Like I used to think that building a first rocket was going to be the hardest thing to do, but the reality is the 20th rocket is the hardest rocket to build. Because by the time you get to rocket #20, it's all [indiscernible] construction, it's all ERP systems, it's supply chain, routings and technicians on the floor following those [indiscernible] constructions exactly to the literally you've written them to make sure that, that is that particular piece of rocket is assembled correctly. And rocket is a very digital machine. There's no, I almost got there, it was kind of right. It's either perfect or it's not. And that -- building the machine that builds the machine is drastically harder than building your first rocket. So and here's the reason, to your point, generally, it takes a country's worth of [indiscernible] and expertise to do it in any kind of significant way.

So after Electron, obviously, you're working on Neutron now. Can you go over the motivations behind that? We discussed a little bit earlier and also the latest progress on the development of that?

Yes, absolutely. So I mean Electron really owns the market for a dedicated small launch, which is great. And it has the associated TAM with it, and we've really -- that that's been a great product for us. But by adding Neutron on the top, we can lift literally 90% of the earning that's predicted in the market in the next 10 years. So it extends our TAM tremendously, of course. But it also enables us to launch our own stuff in the future. It enables us to also the human space-wise and really, really open up into the business into new areas and really, really expand the business with a greater sense of scale. So building a small rocket, and going through all those learnings early on, especially a reusable one, is incredibly valuable. And then graduating onto a larger launch vehicle, I think, is the obvious next step for us.

I have a audience question here on Electron for reusability. Clearly, that's a goal objective for you guys. Once that's up and running once you catch the booster, what kind of turnaround -- what is the average turnaround time you would expect for that? And what is the main gating factor?

Yes, that's -- I mean until we actually do it, it's a little bit of a guess, but I mean from what we have received from the boosters that we've recovered today, a lot of them is the condition of the booster is in a way better condition than we actually thought. We're able to take engines that have been dumped into the sea and hot fire them as new. So we think the refurbishment time will come down as we do it more and more frequently. As kind of you're seeing with other people in the space pursuing reusability, the time line between refurbishment decreases pretty exponentially once you fly more and more often. But I think if I had to give you a time frame, I would say, a couple of months, I think, would be an appropriate time frame for refurbishment. But obviously, where we're trying to get with that is the absolute minimum possible and getting it back on the pad and flying it again as quickly as possible. But I should preface that with very, very difficult to do with a small launch vehicle. You just don't have the margins to be able to do things like compulsive landing and things like that on a large launch vehicle. So it's always slightly compromised on a small launch vehicle, and a small launch vehicle that was never designed for reusability. But when you look at Neutron, it is purpose-built from day 1 and designed for reusability. So the cycle turnaround time that Neutron has is intended to be incredibly short. We put a target on the team of 24 hours. Now not that we think that's actually going to happen, but it drives a whole of decision-making around propulsion types, pad, the way you do your pad infrastructure and whatnot. But you kind of get the sense of where we're at least thinking with Neutron, as we are expecting that first stage turnaround to be very, very short.

I think you've been joking around that you should have called the company Space Labs given that other things that you're doing in Space Systems. So what is the pivot there? Can you talk about the MDA win and how significant that was? Because I think for those in the industry, it was a really big deal and the fact that you won that. Can you talk -- can you discuss the implications from winning that?

Yes. I mean that is -- we were incredibly honored to win that program, and that is a very large program for Globalstar, and Globalstar has a very important customer with a very important service and to be charged with the responsibility of actually building those spacecraft buses. And then during earnings, we just announced, we are also running the ground station for that constellation is through doing the software for them is a further kind of extension of our relationship within that deal. So yes, I think it's a very complicated spacecraft. It's operating in an environment that is very difficult with large radiation doses. So it utilizes all Rocket Lab's skill and expertise. But I think as I kind of mentioned before, it's a true demonstration of our end-to-end strategy actually coming together and paying off because that program was needed to be done on a very compressed time line. And for example, having SolAero kind of under the roof and being able to provide reassurances that we can prioritize that SolAero that project is really, really important to make sure that it's successfully delivered on time.

Earlier, I think Stephen referred to the Space System that actually [ shovels ] of space. I think is a great metaphor. Where do you see -- can you just talk about some of these products that you mentioned star trackers or reaction wheel, where they would go on, what they're worth? I know -- I don't know if you can disclose pricing. But for example, how much that would cost us? Because these are actually the super critical parts. The [indiscernible]

Yes. And if you look at what we've done there, it's -- heritage is everything in the space industry because if you have a reaction wheel fail, then your whole spacecraft can be completely useless. So if you have a satellite life of 12 years and your reaction wheel fails within the first year, that's a really big deal. Likewise, just about any other component. And if you look at all the acquisitions we made, they all come off the back of 100% mission heritage, 100% mission success heritage, which is Rocket Lab's mantra as well. So we're very, very selective in those. And you're exactly right. I mean they are very, very valuable. They are the key and critical components. We didn't race to try and acquire companies that build nuts and bolts. They're not very valuable. It's through our own space satellite programs as well that we quickly identified these are the really, really key things that are supply constrained and are incredibly valuable. And if you look at what we've done with every single one of those businesses, we've tried to put the Rocket Lab force behind them to scale them. Sinclair Interplanetary doing reaction wheels is a great example. Doug and his team used to do 150 reaction wheels a year. We announced during the earnings that we have a production line now capable of doing 2,000 reaction wheels a year. So if we're serious about the space industry growing -- continue to grow to this $2 trillion industry or $1 trillion or whosever's report you want to read, the reality is we need everything at scale. And the space industry in this component sector, I think, is best described as kind of cottage industry at some scale, and that's a bit that we're trying to solve.

Operationally, what does it take to scale this business up? Is it just because they didn't have capital before? Or I guess what prevented them from sort of ever getting to where they need to go and requiring someone to come in?

Yes. I think that's probably -- the summary is that a lot of these businesses, our [ firm believe ] bootstrap company is that the team had built over 10 or 20 years and not taking a bench capital path and just built really amazing, super solid, profitable businesses over time in a very methodical way. And also, it's fair to say that the demand has kind of really grown in the last few years. So the space industry has always kind of had this potential to grow. But I think what you're seeing now is you're seeing companies like Amazon, Apple and others really investing in like systems that require infrastructure in orbit. And for the first time, you're seeing really large scale start to occur in the space. And this is always the promise, right? And it's just it's really great to see that that's actually occurring, and it's not from kind of start-ups and venture capital-backed things. It's from like really big companies that are using space to provide better services.

I know you mentioned [indiscernible] space, are you seeing any sort of synergies forming between the 2 segments now that you have so many panels, you can do reaction wheels, start tracker. Is there any synergy to that? And also, is there any synergies you've seen with the launch side, meaning overnight, it was coming in and then you launch it, too?

Absolutely. Yes I mean this is one of the key reasons why we [indiscernible] so early. It's not uncommon for someone to come to us for a star tracker, for example, and where they're exposed to the full catalog of products. In that with software, solar panels and a launch, and being able to bundle those together and combine them together also to make life really easy for our customer. For example, the Sinclair reaction wheel and star tracker products integrate seamlessly into the MAX software from ASI that we bought and really, really shorten the time line from a customer going from an idea to actually having a satellite on orbit. So no, we realized tremendous benefits from visibility and also cross-selling and bundling and also not just benefits to us but benefits to our customers because, ultimately, they want to spend the least amount of money, have the most amount of reliability and get on all of the fastest. And that -- we understand that clearly, and all the things we do are really to enable that.

I realize the launch side has typically been a little bit more difficult to predict, mainly because that you could get scrubbed or pushed out because of the customer. How more predictable is the space segment -- Space Systems? Because you announced the emergency of the customer. Is that also something that helps out?

Yes, I'd say it's much more predictable. Launch, as you mentioned, is lumpy, and launch is always going to be lumpy. Launch is kind of the last piece in the chain. So if the spacecraft is experiencing an issue during the final TVAC test, then guess what moves out its launch. So launches are always super lumpy. Space Systems much, much smoother. Generally, it's projects, especially the projects that we go after, our projects that span multiyears. And they're relatively unaffected by macroeconomic environments and things like that, so that's good. But they also have long delivery time lines, and that tends to smooth out the revenue pretty nicely for sure.

So on SolAero, which is the most recent one, I think there's been some, shall we say, it's been a little bit more hairy. I think the other acquisition this biggest one. Any sort of regrets behind that? Or are you pretty happy with the progress that it is making?

No. That was awesome. I mean, look, I appreciate that it's kind of a little bit more challenging from a gross margin standpoint and things like that. But look, SolAero is such an enabler, like we have 1 of only 3 space grade solar cell manufacturers in the entire world. Every satellite needs solar we have the highest performing solar cell in the world, the IMM-ß cell. So from my perspective, we bought the highest-performing cell, the largest solar cell manufacturing solar panel space-grade solar manufacturer in the world. Yes, it was owned by private equity, and it's kind of struggled with some of the challenges that private equity ownership has. But with Rocket Lab scale and the projects that we are able to now kind of compete with, by having that is incredibly powerful. So no, zero regrets at all. If it's going to require a little bit of work, that's fine, [indiscernible] work. But I think we had this conversation in a [indiscernible] time, I think SolAero is lighting up being the star of it. So give us a chance to get that where it needs to be, but I'm very, very pleased and proud that we bought that one for sure.

Understood, understood. Another aspect, I think, of the Space Systems side is, I guess, this idea of you can -- something like the moon mission, right? Where you can design something super advanced. Is that a business that -- or is that something that you're going to take further on? I think you have a Venus mission now as well. What kind of percentage do you have to do actually very advance kind of mission and actually did a lot of value for it?

I think the moon mission we launched for NASA earlier this year, the very first part of the [ autonomous ] program is a great example, where we designed and built the spacecraft we design and built the rocket. The spacecraft is all of our next software, all of our reaction wheel, star tracker is propulsion systems, like a radio is everything. And what we created here at the end of it was a low-cost way and a high-frequency way to go and visit any planet there in near solar system. So I think that's a huge enabler for the space science community that I think ultimately that is a very, very interesting business line because traditionally, you have to wait one giant planetary mission every decade or so costing billions of dollars, which is great science. But what we've kind of found the market niche for is in between those big missions, there's an ability now to go and do much more frequent and small mission at a cost point that the industry has never seen before. And I think it's also a great demonstration of the company's technology and capabilities. And tell you what, going to the moon is no joke. That is not a trivial thing to do. And the fact that we did it in the time frame from there I was -- I'm incredibly proud of the team.

You got a lot of M&A. You got a lot of acquisitions in Space Systems in a very short period of time, I might add. But what do you see other opportunities to add? I think in the past, we've talked propulsion themselves. Is that something that you'd be interested in?

Yes. Well, I mean I can't get to show all my cards here, but I think if you kind of, once again, lay a satellite down on the table and take it apart, it becomes obvious, which is the really critical and key elements. And we race to secure the most critical ones in our view. Clearly, there's more there for us to go. And the environment has to be right for the M&A. We're very, very fussy with the M&A that we've done. You'll see that we haven't acquired any start-up companies or anything like that. These are all companies that we've worked with for many, many years. We know the management teams very, very well and the products have had a demonstrated reliability of 100% mission success. So we move quickly to secure the things that we think we thought will be most important, and M&A continues to be an important part of our strategy going forward, but it's probably not the appropriate time to disclose all of the other things that we may or may not be interested in or pursuing.

Totally. I take the last question here from the audience. Actually, we'll go back to launch and on [indiscernible]. Neutron, I think you made some engineering changes lately as you disclosed at the Analyst Day. How come you are with those and the timing or the impact on timing?

Well, all the decisions we made were to either make it faster or a better vehicle, 1 of those 2 things. So I think the biggest engineering change we made was changing a cycle for the turbo pump from being off-switch to something gas generation off-switch cycle. And I think the thing that's probably misunderstood from that one is that typically, there's off-switch cycles or close cycles are associated with very, very high performance engines that are very difficult to build. Our approach here is to take a really high performance cycle and literally run it at idle. So we have all of the kind of operational advantages of the cycle, but none of the complexities of the cycle. So this is a great example. We actually made an engineering choice to accelerate the time frame for that engine build and accelerate its ability to be reused over and over again. So you can either choose one particular engine cycle that's sitting there on the red line, which would have been the gas generator cycle; or where you can take a different cycle and just idle it through, which is what we elected to do ultimately.

Great. I think it's safe to say that I believe every rocket that I can think of, especially big ones, is late. And everyone is taking that you aren't.

Me, too. Yes, history is correct there, but we're pushing hard.

Okay. On that note, it's a good way to end there. Thanks a lot, Pete, for joining us. I know Rocket Lab has taken part in several sessions, and I appreciate your time and your thoughts.

Thanks, Edison. I appreciate the time.