Rocket Lab Corporation (RKLB) Earnings Call Transcript & Summary

Welcome to today's Neutron update with Rocket Lab's CEO, Sir Peter Beck. Now before we begin, the presentation today involves our plans and expectations for the future of Neutron and Rocket Lab. And this slide here highlights key risks and forward-looking statements to keep in mind as you listen. I'll hand it over now to Sir Peter, for further remarks.

Hello, and thanks for tuning in. I'm here to share an update on Neutron, including a change to our first flight schedule. Neutron is on an ambitious time line, but we're focused on more than just reaching the launch pad for Flight 1. We're building the program's long-term infrastructure at the same time as we build our first rocket. So that we can scale quickly, unlock global launch crunches and commercial customers, governments and our own future satellite services are also counting on it. But I've also said that we won't rush to the patent with unnecessary risk and that development programs like Neutron have their challenges. Recently, we hit one of those challenges that has moved Neutron's first launch into next year. I want to talk you through what happened, the mitigations we've put in place and what it means for Neutron. Earlier this year, the first stage tank we built failed qualification due to a third-party manual hand-layup process. Following this, we pivoted to our long-term planned production process using the automated fiber placement machine, which lays down the carbon with speed and accuracy. This change also let us make some design improvements only possible with the AFP machine's capabilities like eliminating the insert and thickening the sections for the propellant aft and forward domes on Neutron's first stage to increase strength. We've made some great progress in recent months and successfully produced many parts in the AFP machine, including the first stage barrels, the propellant domes. But recently, we've identified an issue with the manufacturing process for the propellant dome specifically, and this caused us to delay production and investigate further. Bear with me while I talk through the detail. As carbon composite sections are laid up in a mold, they go through a curing process. Curing involves a heat-activated chemical reaction that transforms the epoxy into a solid cross-linked polymer that binds the carbon fibers together. The curing process is typically done in an autoclave where pressure is applied to compact the carbon fiber layers and improve the fiber epoxy bonding. But there's a size limit to using autoclaves, and we're not dealing with small sections of carbon fiber with this rocket. We are building the largest pressurized structure ever made out of carbon composite made by one of the biggest AFP machines in the world for the largest composite rocket ever. Because of its scale, we've had to develop new out-of-autoclave processes to build Neutron. And this includes custom cure cycles for the very large pieces like the forward and aft domes for the propellant tanks on Stage 1. If this process is not perfect, defects can occur and one such defect is the formation of voids or tiny air pockets that can form between the layers of the carbon fiber, which in turn compromises strength, durability and reliability of the part. Now during the recent inspection of the newly cured forward dome, we found some voids that had formed within the carbon composite layers. They don't necessarily mean that the dome would fail on flight, but our practice is to proceed only when we believe the system has the appropriate margins. Possible success isn't our standard. As soon as we uncovered the voids, we began investigating why they were forming and how to prevent them. Our analysis and testing showed that we were already very close to getting the process right when we built the forward dome. However, after the Stage 1 qualification earlier this year, we made a design change that deleted joints and increased the thickness of the carbon composite in some areas. Those thicker sections are where the voids formed. We were able to replicate the issue in testing and add mitigations to the manufacturing process to prevent these from appearing in the future. We since run another carbon composite section called the Aft Dome through this new process, and I am pleased to report that it has resulted in the highest quality carbon composite dome to-date and we've solved the problem. That gives us complete confidence to move forward with the new forward dome also. That process to make a new forward dome, combining with all the time that it took to investigate, identify and resolve the issue has pushed Neutron's first launch date to next year. We're balancing speed to first launch with bringing a reliable high cadence rocket to market for the long term, which means making deliberate choices about time lines to support reliability going long into the future. Along these lines, we're also using this time to bring forward upgrades to other parts of the vehicle that we plan for future flights. I know the first question people will be asking is what's the new target launch date. Before we can provide more granularity on that, here's what needs to happen next. Step 1, build the forward dome on the AFP machine. That's already underway. Step 2, curate and analyze it with ultrasonic testing and other inspection methods to confirm there are no voids or further issues. Step 3, assemble the forward and aft dome and the components together to create the entire first stage. Then run the hydrostatic test campaign followed by the cryo test campaign. All going well, we expect the first two steps to be completed before Q1 with the third wrapped up within that quarter. From there, we expect to be in good shape to share a new target launch date. In the meantime, I'd rather show you real-time progress than give you a date that I might have to walk back. We'll be increasingly transparent about our progress to these milestones, including providing regular updates on our website, social media channels, so keep an eye out for those. Finally, I want to explain again why we're taking this path with Neutron's development and not rush in to the pad with a minimum viable product that may have to go back for requalifying time and time again. As the world's largest carbon composite rocket, we've had to invent new techniques for Neutron that take time now but bring massive scaling benefits in the long run. That's why we built factories and facilities alongside the first rocket and why our second and third rockets are already being built before Flight 1. It's a complex but ambitious effort. But once we perfect our new processes, we'll be a lighter, more efficient rocket that's faster to build and better for our customers since the mass saved by carbon composite goes straight to payload performance. We've done this before with things like Electron being the world's first carbon composite orbital rocket, Rutherford being the first 3D printed orbital rocket engine and Launch Complex 1 being the world's first private orbital launch site. Every one of these bets required solving problems that no one had solved before, and every one of them is now why Electron is the most frequently launched small rocket in the world. There's significant demand for what Neutron has to offer, including some new contracts we'll be able to talk about soon. We'll be in the fortunate position of partnering with customers who choose Neutron not just for a single launch, but for multiple missions across long-term partnerships. Those customers understand that a reliable rocket is far more valuable than an early one, and we're grateful for their trust. We believe Neutron is going to be a game changer and taking the time now to solve these challenges means we're in a better position to deliver a rocket that's ready to meet the needs for the industry for years to come. We're making great progress, and we'll provide more updates in the coming months. Thanks for joining.