Rocket Lab USA, Inc.

Good afternoon, everyone, and welcome to the Rocket Lab Third Quarter 2021 Financial Results Call. My name is Emily, and I'll be coordinating the call today. There will be a Q&A session during today's presentation where you will have the opportunity to ask a question by pressing Start followed by 1 on your telephone keypads. I will now turn the call over to our host, Gideon Massey, Finance Planning and Analysis Manager. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss Rocket Lab's third quarter 2021 financial results. Today's call is being hosted by Peter Beck, founder and CEO, and Adam Spice, chief financial officer. After our prepared comments, we will take questions. Our comments today include forward-looking statements within the meaning of applicable security laws, including statements relating to our guidance for fourth quarter 2021 revenue, revenue growth expectations in our principal target markets, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, interest and other expense, and adjusted EBITDA. In addition, we will make forward-looking statements relating to trends, opportunities, and uncertainties in various products and geographic markets, including, without limitation, statements concerning opportunities arising from our launch service and space systems markets, and opportunities for improved revenues across our target markets. These forward-looking statements involve substantial risk and uncertainties, including risk arising from competition, global trade, and export restrictions. The impact of the COVID-19 pandemic, our dependency on a limited number of customers, average selling price trends, and risk that our market and growth opportunities may not develop as we currently expect, and that our assumptions concerning these opportunities may prove incorrect. More information on these and other risks that may affect the forward-looking statements as outlined in the risk factors section of our third quarter 10Q filing, which will be filed today, and the documents incorporated therein. Any forward-looking statements are made as of today, and Rocket Lab has no obligations to update or revise any forward-looking statements. The third quarter 2021 earnings release is available in the investor relations section of our website at rocketlabusa.com. To supplement our unaudited, consolidated financial statements presented on a basis consisted with GAAP, we disclose certain non-GAAP financial measures, including gross margin and operating expenses. These supplemental measures exclude the effects of stock-based compensation expense, amortization of purchased intangible assets, other non-reoccurring interest and other income expenses, net attributable to acquisitions, and non-cash income tax benefits. and expenses. We also supplement our unaudited historical statements and forward-looking guidance with the measure of adjusted EBITDA, where adjustments to EBITDA include share-based compensation, one expense related to customers and partners, third-party expenses related to mergers and acquisition activity, foreign exchange gains or losses, other non-operating income and loss excluding interest expense related to debt, and other non-recurring gains or losses. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in our investor update presentation available on our website. We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future charges, including stock-based compensation and its associated tax effect and the effects of award expense related to customers and partners. Non-GAAP financial measures discussed today are not in accordance with and do not serve as an alternative for the presentation of Rocket Lab's GAAP financial results. We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business. We believe that these non-GAAP measures have limitations and that they do not reflect all the amounts associated with our GAAP results of operations. These non-GAAP measures should only be viewed in conjunction with corresponding GAAP measures. And lastly, this call is also being webcast with a supporting presentation and a replaying copy of the presentation will be available on our website for two weeks. Now let me turn the call over to Peter Beck, founder and CEO.

Thank you very much, Gideon, and thank you all for joining us here today as we review Rocket Lab's business highlights and financial results for the third quarter of 2021. As Gideon mentioned, joining me today is our CFO, Adam Spice, who you'll hear a little bit from later. Today I'll be talking you through our key business accomplishments for the third quarter of 2021. And Adam will be covering off our financial highlights and outlook, sharing our up-and-coming conference schedule, and of course, we'll have time for Q&A. Right, so since the end of the second quarter, we've seen significant growth in our backlog. At June 30, backlog was $141 million, and ending the September 30 quarter at $183 million. Today our backlog stands at 237 million, representing nearly 100 million in backlog growth since the end of the second quarter. We've seen bookings strengthen across every major product in the company, including new electron launch contracts, government study contracts, interplanetary photon satellites, orbital debris removal programs, NASA demonstrations that include satellites, Electron launch vehicle, Rocket Lab components and software and numerous component sales spanning a global customer base that includes government, foreign government, universities and commercial customers. I've never been more excited or proud of all of the use cases we're finding for our technology and high value missions we're enabling with our suite of products and services. Many of these programs will enable and provide transformative technological breakthroughs that will have a long-lasting impact on our planet, which we're very proud about. Proof of our many industry-leading technologies and strong mission heritage can be seen in our strong repeat customer bookings. Since the end of Q2 2021, we have seen over a dozen repeat customers book additional business with Rocket Lab, with nine of these customers listed on the slide. As we continue to broaden our portfolio of space-based products and services, our ability to cross-sell and integrate technologies will lead to even richer customer engagements and relationships. On September 27th, we announced an agreement with the US Space Force under the National Security Space Launch Program, or NSSL, worth $24 million to advance development of the neutron rocket's upper stage. This development will support national security and defence launch capabilities for scientific and experimental satellites to the world's most critical national security payloads. We are really honoured to be partnered with the US Space Force and view this as a vote of great confidence from the US government is another proof point in our ability to deliver low-cost, responsive, next-generation launch that will transform space access across constellation deployment. And this is a really big deal. If you look at the other players that also won contracts, you will see we're a very good company. In August, our previously announced ESCAPADE mission passed a NASA critical mission review following the mission to its next phase with a target launch reading this date of 2024. In September, we finalized the phase B of the contract and also completed a kickoff meeting in November. This mission, in partnership with UC Berkeley's Space Science Laboratory, will put two photon spacecraft into the orbit of Mars to study its magnetosphere. Could obviously not be more excited with the progress the team is making on this really complex, high-value, and crucial mission to explore other planets in our solar system. So that covers the key business highlights of our third quarter, but I'd also like to touch briefly on some of our key achievements since the third quarter. So we achieved a key program milestone with the NASA demonstration mission with our partner ETA Space. This mission is very, very unique in two different ways. LOCSTAT-1 is the first cryogenic oxygen fluid management demonstration mission for NASA in its history. This will prove out the usage of on-orbit fueling systems, the satellites on orbit, and thus developing critical technology that can keep our precious satellites monitoring gas emissions or still monitoring on orbit, extending their lives for a longer period. Secondly, this was the first mission where Rocket Lab won both the launch and the spacecraft design and build in a complete integrated solution, ensuring a faster, more cost-effective and seamless development program for this particular NASA demonstration. On October the 12th, we signed and completed acquisition of Advanced Solutions Inc., or ASI, an industry leader in mission-critical flight software and GNC for space vehicles. The ASI team brings with them over 20 years of flight heritage, more than 30,000 hours of on-orbit operation, and a growing team of 57 members located in Littleton, Colorado. The acquisition of ASI further positions Rocket Lab as an end-to-end space company, as we desire, and able to provide complete mission solutions to our customers. We're already integrating the MAX flight software into our photon space system solutions for our LEO and interplanetary space vehicle missions. With more than 137 cumulative years of mission operations and heritage and more than 45 missions on with the MAX flight software solutions, we believe that this provides a clear differentiator in the marketplace. Lastly, I'm excited to have a footprint in Colorado, the second largest aerospace economy in the United States, with a strong base of research institutes, universities to bolster Rocket Lab's workforce. And today's a big day. I'm very excited to announce the signing of a definitive agreement to acquire Planetary Systems Corporation, or PSC, an industry leader in spacecraft separation systems and quite frankly, a company I've worked with and admired for many, many years. Walt Holman and his team have built an extraordinary business based on best-in-class products that are reliable and have had 100% mission success on over 150 missions. These are viewed as the premier supplier for the U.S. government on small sat missions with their motorized light bands, advanced light bands, and canisterized satellite dispensers and separation systems. Adding PSC to the Rocket Lab team continues the execution of our stage strategy of expanding our product portfolio with best-in-class product offerings. We're excited about the cross-selling opportunities in combination of these leading spacecraft separation systems with our existing electron launch services and other spacecraft components, software and service offerings, and believe there are meaningful synergies that can be achieved post-acquisition in shortening lead time, scaling production, and driving costs to provide our customers with an even better service offering than they've had before. Looking forward into the rest of Q4, as we've already announced, we're planning to launch two Black Sky dedicated launches in this quarter, with the first launch scheduled for no sooner than November 17th UTC, so tomorrow. These missions are part of a five-launch agreement signed earlier this year with Spaceflight to deploy Black Sky's Gen 2 satellite constellation. We really appreciate Black Sky entrusting us with their satellites and look forward to these up-and-coming launches. As part of the up-and-coming Flight 22 with Black Sky Global, we'll be introducing helicopters into the operations of our recovery program for the very first time. We intend to station helicopter in the recovery zone and track and visually observe the descending stage. While we won't be attempting to catch up mid-air on this particular mission, this is really the last step in our program, we'll test all the communications and tracking for future electron launches and aerial captures. This is really a key milestone for the Electron Recovery Program and as we work to make Electron the very first reusable small launch vehicle. So with that, I'll turn it over to Adam Spice as CFO. Over to you, Adam.

Thanks, Pete. I'll first review our third quarter 2021 results and then further discuss our outlook for Q4 2021. Our third quarter 2021 revenue of $5.3 million was slightly above the guided range of $4 million. Our ability to launch in the latter parts of Q3, revenue was largely driven by space systems, which outpaced and has grown by 698% year-on-year for the nine-month end of September 30th, 2021. Our launch revenue was impacted by both COVID restrictions and a legacy overtime revenue recognition policy for the successful Space Force launch that occurred on July 29th. This was the last launch contract for which revenue was being recognized over time. Going forward, all launch contracts are expected to be recognized as point in time at the time of launch. Revenue for the nine months ended September 30th, 2021 is up 79% year on year, with growth being contributed across both launch and a broadening of our space systems products and services. Our gap and non-gap gross margins for the third quarter of 2021 were a negative 236% and a negative 84% of revenue respectively. This compares to GAAP and non-GAAP gross margins of negative 18% and negative 14% respectively. GAAP and non-GAAP gross margins were significantly impacted by non-recurring, de-SPAC-related stock-based compensation charges and New Zealand COVID restrictions that impacted production and launch operations, overhead cost absorption, and launch cadence. We view all of these as non-recurring events and, as such, are indicating a significant upswing in profitability Gap operating expenses for the third quarter of 2021 were $39.9 million versus the third quarter of 2020, significantly impacted by non-recurring D-SPAC-related stock-based compensation charges hitting both R&D and SG&A. In addition, Q3 2021 saw a meaningful step up in non-recurring acquisition-related deal expenses and from the impacts of public company costs when compared to prior year results. Net of the stock-based compensation charges, the growth rate in R&D investment has nearly doubled the growth rate of SG&A year-on-year, representing continued aggressive prioritized investments into TAM expanding opportunities. Q3 2021 adjusted EBITDA loss was $17.5 million, at the low end of the guidance range of a $17 to $20 million loss. Q3 saw several unique one-time charges related to the V-SPAC with which included the mark-to-market warrant expense of $34.5 million related to the outstanding publicly and privately held warrants, stock-based compensation expense of $31.5 million, the first full quarter impact of our Hercules loan interest expense of $3 million, depreciation and amortization expense of $2.6 million, and acquisition costs of $700,000, offset slightly by an income tax provision benefit of $1.7 million. GAAP R&D expense was $14.2 million for the third quarter, which included stock-based compensation of $6 million and amortization of purchased intangibles, yielding $7.9 million of non-GAAP R&D expense for the third quarter of 2021. As previously referenced, the growth rate in R&D investments year-on-year is outpacing the growth rate in SG&A spend by more than 2x. and is driven largely by increased staffing and prototype expenses related to our space systems products and services, neutron development, and continued spend on our launch vehicle automated flight termination systems development efforts. GAAP SG&A expense was $25.7 million for the third quarter, which included stock-based compensation of $17.6 million and acquisition cost of $700,000, yielding approximately $7.4 million of non-GAAP SG&A expense for the third quarter of 2021. The year-on-year step-up of $1.9 million in SG&A was primarily due to increased headcount and related labor expenses, directors and office insurance, and other new public company costs. Our cash flow consumed from operating activities was $13.3 million for the third quarter of 2021 versus an operating loss in the quarter of $88 million, which reflects an increase in cash consumed of $4 million versus the third quarter of 2020. This increase in cash consumption was driven by a $6.9 million increase in inventory and a $4.7 million increase in prepaids and other current assets. These were offset somewhat by non-cash expense add-backs of $56.4 million, largely driven by the aforementioned stock-based compensation, warrant expense, and depreciation and amortization charges, as well as $9 million of cash generation from accounts receivable and $220 million of cash generation from deferred revenue. Cash consumed from investing activities was $5.7 million in the third quarter of 2021, compared to cash consumed of $2.2 million in the third quarter of 2020. With this year-on-year period increase in cash consumed driven by several large capital projects, including investments that are expanding our lab facilities at our Long Beach headquarters, investments in our second launch pad at Launch Complex 1, and our new consolidated propulsion test complex in New Zealand. The combination of cash consumed from operating activities and investing activities was more than offset by the $704.4 million net cash generated from the financing activities in the period, resulting in $793.8 million in cash and cash equivalents and restricted cash as of September 30th, 2021. This cash generation was driven by $730.5 million in proceeds from the VSPAC, the Vector Acquisition Corporation, and the related pipe financing. In addition to collecting $2 million in proceeds from the exercise of employee stock options and $2.3 million related to the deferred transaction costs, which were somewhat offset by $30.4 million repurchases of shares and options from management. We believe the liquidity resources of the company enable the execution of our strategic development roadmap, including the development of our neutron launch vehicle and continued investments targeted at expanding our total addressable market for strategic space system solutions. With that, let's turn our guidance to Q4 2021. We currently expect revenue in the fourth quarter of 2021 to range between $23 million and $25 million, which includes two dedicated launches and partial quarter contribution from ASI. This revenue guidance does not include any partial quarter contribution from PSC, which was announced earlier today and is expected to close during the month of November. We expect Q4 2021 GAAP and non-GAAP gross margins of 13% and 27% respectively. The 249% anticipated increase in GAAP gross margin is driven by a favorable mix of higher margin space systems revenue, increased absorption of manufacturing overhead with increased launch cadence, and a step down in stock-based compensation after the non-recurring Q3 catch-up related to the D-SPAC transaction and related accounting treatment of restricted stock units. We expect Q4 2021 GAAP operating expenses to range between $24 million and $26 million. and non-GAAP operating expenses to range between $19 million and $20 million as we continue to fund strategic development programs targeted at delivering strong top-line growth in 21 and beyond across launch and space systems and our goal of delivering operating leverage within the business. Please note that this guidance does not include impacts from the purchase price accounting of ASI, any impact of stock-based compensation related to the employee stock purchase plan that we rolled out for the first time later this month, and again does not include any contributions or purchase price accounting impacts from the pending acquisition of PSE announced earlier today. We expect Q4 2021 GAAP and non-GAAP interest expense to be $2.8 million. Given the requirement to fair value the publicly and privately held warrants assumed in the Decker Acquisition Court merger, which is based on the end of quarter stock price, we cannot estimate these below the line GAAP other income and expenses items at this time, nor are we able to forecast for exchange gains or losses. We expect Q4 2021 adjusted EBITDA loss to range between $9 million and $11 million. And with that, I'd like to open up the call for questions. Operator?

Thank you very much. If you would like to ask a question, please press Start followed by 1 on your telephone keypads now. If you wish to withdraw your question from the queue, please press Start followed by 2. When preparing to ask your question, please ensure that your device is unmuted locally. Our first question today comes from Eric Rasmussen from Stiefel. Eric, your line is open.

Yeah, thanks for taking the questions, and congratulations on the progress in the quarter. Maybe just in relation to your presentation, your acquisition of ASI, what sort of revenue contribution comes from them? And then maybe you could just comment on the strategic rationale and maybe just how we should think about the types of acquisitions. You just announced planetary systems, but the types of acquisitions you are targeting as you look to expand the business.

Yeah, Eric, thanks for the question, Adam. So on the revenue side,

know it was a you know the revenue run rate was approximately 10 million dollars per year at the point of acquisition so i'll let pete speak to the strategic nature of the deal and future deals yeah absolutely so the kind of acquisitions we're looking um to make here are ones that uh um you know technologies that we we've used and we trust and we know super well and that are best in class that's kind of fundamental And then as we think about how we're going to build our business out in the future and how we're going to deliver on, you know, ultimately building our own infrastructure and all, but what we're looking to do here is compile all the pieces and bits and pieces that are best in class to really form a few kind of things that like a cabinet of capabilities that we can deploy not just in our own systems but on others as well. So this is really important for the ultimate longer-term game of the business in providing end-to-end solutions in space.

Okay, thanks. And then, so... and it may be just in relation to the black sky and the two launches that are upcoming. You know, obviously we saw that that got pushed from November and looks like that's on, on track for the 17th. But, you know, Any other sort of impacts that it could potentially have, you know, as we think about the reigning part of the year? And I think you'd mentioned there was an opportunity for further missions, you know, maybe even December, you know, for the final one in December. Could that still be possible?

Yeah, so the plan here is to launch those two Black Sky missions in this rounding out year. And, you know, both those missions, the vehicles at the launch site and some of the spacecraft, we moved the launch a few days, a couple of days ago for a couple of reasons. One, we saw a sensor reading on the ground that we didn't like. We subsequently reviewed it and it was as we expected. Nothing. And also it gave us more time to prepare for the helicopter intercepts. But at this point in time, those are the two missions that we're planning in this quarter, and we'll be unlikely to push a third mission in this quarter.

Okay. And maybe just on the outlook for Q4, $23 to $25 million, it looks like your overall for the year increased by $5 million. How much is that from ASI and acquisitions versus just business outperformance?

Yeah, you know, Eric, it's really kind of a – there is some contribution in the quarter, some partial contribution in the quarter from ASI. We have not baked anything in for PSC into the guidance that we provided. So if you think about maybe kind of low single-digit millions contribution from ASI and the rest really is coming from the core organic business, I'd say, you know, obviously, you know, launch is stepping up with the two launches in the quarter, obviously, versus Q3. So if you look majority launch, but Space Systems is quickly kind of closing that gap, in no small part because of contributions from the Sinclair acquisition that we did last year that's really paying off big dividends, and their business is looking very, very strong.

Great. Thanks. I'll jump back into the queue.

Our next question comes from Colin Canfield from Barclays. Colin, your line is open.

Hey, Adam, Peter, thanks for the question. So when we think about your helicopter intercept, can you just talk a little bit about how that's impacting your cost recovery for electrons? Yeah, sure. So, you know, the vast majority of the cost of an electron launch vehicle resides in the first stage. There's obviously nine engines on the stage one and the bulk majority of the systems. So we've successfully splashed down multiple fresh stages now, and we've got that to a point where we can re-enter the stage through this atmosphere and receive it down in the ocean in good condition. The helicopter intercept, it really enables us to not splash that down in the water. Obviously, rocket engines and rockets really don't love seawater, so it enables us to capture that and then return that back to land for refurbishment. And that obviously reduces quite a large amount of work. There is going to be some rework, of course, but it reduces a large amount of work. And it's fair to say that to date we haven't been baking any of that bonus we get from reusable systems to any of our numbers. It's just pure cream on the top of the cake. Got it, got it. And we think about neutron reusability and kind of the material and fuel preferences that you're thinking for your next stage of your vehicle. Can you just discuss kind of how you're thinking about that, if you have a preference in any way? Yeah, sure. We'll make a neutron announcement here in due course, but it's fair to say that the experiences that we've gained from re-entering Electron have just been absolutely critical in informing us how to design and develop Neutron. Going into a reusable launch vehicle program without actually having successfully re-entered a rocket would be difficult. So all the aero-data and aero-thermal data and all of the procedures and, you know, you can actually bring that rocket through the wall of the atmosphere in one piece has just been absolutely critical. So those lessons and knowledge have been transferred directly to the neutron program. In fact, more than that... Got it. And then the last question from me, but maybe if you could talk a little bit about pricing and capacity trends that you're seeing in the small sat launch market and to the extent that customers are fully utilizing a Rocket Lab vehicle or something along the lines where it's a partial capacity utilization for your vehicles.

Apologies, everyone. It appears we have lost connection to Peter Beck. Please bear with us while we regain connection to him.

Yeah, Colin, I'll take that question in the interim while Peter rejoins. So, you know, I think if you look at our missions, we really do have a pretty good mix of what we call just a dedicated mission where you expect, for example, for U.S. government customers, it's primarily a dedicated launch. For some of the commercial customers, we are seeing the opportunity to basically pull together what we call kind of a primary ride share, where there's a primary microstat that anchors the launch, and then we fill the remaining capacity with the CubeSats or other small spacecraft. So I'd say right now it's probably about, I'd say it's probably a little bit more than half of the business are pure kind of dedicated one satellite per launch. or one single customer, if you will. For example, on the Black Sky missions, we put two Black Sky satellites per launch. So if you think about it, single customer launches are still probably a little bit more than half of the mix. And then where we do the primary ride share and mix it with other payloads is a little bit less than half of that. I don't know if that helps. I mean, as far as the pricing trends, I would say that we're seeing relative stability in the pricing out there in the market. One thing that's probably the most encouraging kind of trend in our business, and you've probably seen that coming through some of our announcements, is the fact that we are getting multi-launch deals. So we are seeing kind of, you know, earlier in the company's life, we were seeing a lot of Pathfinder kind of one-off missions. Now we're starting to see recurring missions. You know, Pete talked about it earlier in the conference call about how we're seeing recurring customers. Well, we're seeing those recurring customers also sign up for multi-launch agreements. So I think that's an encouraging sign that the market is continuing to build overall and that, you know, we're continuing to kind of follow through with repeat business from those customers. So I think all of that is very supportive to this because of the pricing and kind of volume trends right now that we're seeing. Got it. Appreciate the call.

Apologies. We are still trying to regain connection to Peter's line, but our next question comes from Edison Yu from Deutsche Bank.

Thanks for taking our questions. I'll start with the kind of financial one while we try to get, you know, Peter back. Can you maybe go over the contribution on the planetary deal, just in terms of what you can provide there? And also on the ASI, are you able to say anything about the margins?

Yeah, so we're not providing any color right now on the margin for the various pieces within our space systems business. We kind of want to keep that more at that macro segment level where we talk about revenue and gross margin at that higher level. But the contributions from a revenue perspective on an annual run rate basis are about the same between ASI and PSC. So each business kind of roughly in that $10 million kind of run rate range. And I would also say that overall, the margins across the businesses are pretty consistent as well. So they're about the same size. They have similar gross margin profiles. You know, I would say that the gross rates are maybe a little bit different across the two businesses. And the ultimate kind of, I would say, margin contribution at the bottom line is a little bit different as well because one requires a little bit more investment than the other. But overall, I think they're somewhat similar. So, again, if you think about the combination of the two on an annualized basis running around $20 million combined of revenue contribution. And the margins, again, are very – we've talked about what the margins in space systems are. They're north of 60 points, and these businesses are kind of consistent with that overall profile.

Okay. I understand that. Cool. Sorry, my apologies. My phone dropped, so reading half screen on that. Sure. No worries. Go ahead. Second question about the, I guess, the launch cadence. Obviously, you had to push out some launches, I think, you would have liked to have done in the fourth quarter. Can you maybe talk about if that sort of means you can launch more or recover some of that in the first quarter or in the first half, kind of your ability to maybe launch more than you would have expected in the first half than before because of the COVID lockdowns kind of pushing everything out? Is there ability to do that?

Yes, I'll take a first pass and then Pete can add on. So I would say that it is a fair statement to say that we have a pretty healthy manifest going into the first half of 2022. So I think the challenge from us is we're really going to be not on the demand side. It's really just we've got to continue to increase our production rates and support the manifest from that perspective. But I would say there's certainly, you know, we certainly expect, you know, our business to be on the launch side cadence to increase as we progress into 2022. So, again, while we're not getting specific guidance for 2022, you know, all of the indications and bias right now are to certainly to an increased launch cadence in 2022.

Yeah, no, that's exactly right. I mean, you know, there's a lot of product on the floor right now that we need to move through. And, you know, having the New Zealand COVID lockdown certainly hampered our ability to deliver more in this quarter. The other thing to always remember, of course, is in the launch business, we sometimes, or more often than not, are subject to our customers' readiness. So, you know, once we have a launch vehicle in production, um meeting its targets but of course uh quite often um we find that our customers uh often the future moves around too so it's always a little bit of a manifest dance to get everything aligned but certainly there is a lot of product on the floor that we'll be pushing through yeah and i would say also that you know as the the customer requests are to launch sooner they're you know they're the bias right now is to is to pull in launch dates

So I think that's another kind of indication of where we see the business going. And kind of to your point of, you know, could we see some of that pent-up demand kind of manifest itself in launches as we head into 2022?

We certainly expect that would be the case. On Neutron, could you maybe discuss the potential or if, you know, human missions? You know, what could that kind of look like?

Or what have you maybe discussed with customers? Any comment on that? Yes, I mean, there's a relative subset of customers when you're talking about human spaceflight, obviously NASA being the biggest. And we're always talking to that customer about a multiple mission and nothing different, including humans.

Our focus is on those particular missions, but priority is getting the vehicle on the pad and making sure that it is ready to be certified and rateable. I agree. Thanks.

Our next question comes from Kai Von Rumer from Cowen. Kai, please go ahead.

Yes, thank you so much and good quarter. So a number of The other, you know, larger space companies and aerospace companies have mentioned supplier delays and the impact of the VAX mandate. And while I know you launched from New Zealand, you know, I assume that could have some impact on your domestic customers. So give us some color on that, if you might.

Thank you.

Yeah, we're managing supply chain issues, but we do carry a lot... ..a lot of stock, and so that's... We've been, you know, purely successful in many ways. One of the... ..facility... ..in New Zealand... ..securing...

spots our customers through working directly through that. Experiencing their share of supply chain issues. Perhaps you can comment about the vaccination mandate and that impact in the US.

Yes, sorry, you were breaking up a bit there, Pete, so I'll recap a little bit of what So far, we've been pretty fortunate that we haven't had any real, I would call them like significant supply.

You know, as Pete was indicating, we also have carried a lot of inventory, a lot of raw materials inventory. So, yeah, probably the biggest issue has really been, as Pete was saying, is getting people into New Zealand. to support the launches.

So we were fortunate that the two Black Sky missions that are going off this quarter already had the spacecraft in country.

They were already integrated.

So there's really no risk from a COVID-related, if you will, kind of spacecraft readiness from that perspective. And now as we get through, we're out of that level four alert in New Zealand, you know, we're able to have, you know, full production and launch cadence and support there. So I would say we've been very, very fortunate. We haven't had any of those issues, I would say, but we're very much looking forward to making it much easier for our customers to come support their spacecraft in New Zealand with the COVID restrictions easing. And, you know, as a backstop to that as well, of course, you know, we're very anxious to get operational out of our Wallops facility, where right now we've been waiting on certification of our automated flight termination hardware on NASA's software. It's been quite delayed. It was expected some time ago. The current expectation is that it could be done as early as the end of the year, which would allow us to commence flight operations out of LC2 and wallops in the first half of 2022. And that's what our current expectations are. So that will be kind of able to further mitigate, you know, the issues around, you know, kind of restrictions on travel and so forth. Now, as far as the overall vaccine mandate, you know, again, we've seen, you know, some push outs to those things from various elements in our supply chain. But again, we're not getting any indication right now from any of our supply chain partners that that's going to present an issue to supporting our manifest.

Our next question comes from Austin Merler from Canaccord. Austin, your line is open.

Good evening. Great quarter, guys. My first question is for Peter. Would you argue that pairing the electron with planetary systems, lightweight satellite dispenser products, make the electron even more competitive as a constellation launcher?

Yeah.

Sorry, go ahead, Peter. Yeah, no, sorry about that. In some respects, often, you know, the electron launch vehicle is ideal for very small constellations, but it doesn't give a one-off or early development of constellations. Certainly, having the portfolio of planetary systems products in there as well, and also giving exposure to satellites that aren't launched on Electron. You know, the PSC separation system is used on every launch vehicle across the industry, and we will continue to supply that across every launch vehicle across the industry.

Okay, good. And then... How much additional capital do you envision having to invest in the three launch sites, the two in New Zealand and the one in Virginia, to sort of get those to a capacity where they could support the 132 launches that you've discussed in the past?

Is it pretty much... I mean, that's either...

is activated and the launch pad A is obviously complete and launch pad B is and that will give us sufficient launch capacity for all of our launches in this couple of years.

Any additional capacity to bring it up to that really high number, it would be a... ...straining us here for a while.

Yeah, Austin, we're almost complete on all the investments for those launch pads. I'd say you're probably looking at capital to go of... less than a couple million dollars, so it's really quite small in the grand scheme of things. And that's really to finalize the operational of the LC1B pad in Mahia. But the Virginia pad is up and ready to go. It's been ready for over a year, again, just awaiting the software certification with NASA. So, yeah, we've got all that launch infrastructure in place that we need to support that capacity.

Okay. That's very helpful. And then Like Russians, like the Russian government in particular has had plans with a helicopter in the past. So can you sort of talk about what for booster recovery is different from those prior plans for a helicopter booster recovery and how you plan to achieve a high success rate there just given the situation?

challenges of catching a rocket in midair with a helicopter.

Yeah, absolutely. I think this is somewhat of a misconception. Actually, catching the rocket as it's ascending, once you've acquired it, and, you know, it's sort of helicopter pilots, but it's not that difficult, in fact. You know, we've done a lot of drop testing, and, you know, the success rate on the drop testing has been nearly 100%.

This is where we go out with 200 helicopters drop a simulated vehicle, then the other helicopter chases it down and captures it.

I know that sounds like the hardest part, but actually the hardest part is re-entering it through the Earth's atmosphere, controlling its trajectory and making sure it stays in one piece. The last part of the program here is a rendezvous, provided we can rendezvous, which we believe should be no problem, then we're not expecting a tremendously difficult run after that. We think the hardest part's actually behind us.

OK, great. Thank you for all the color.

Next, we have a follow-up question from Colin Canfield from Barclays. Colin, your line is open.

Hey, Adam P. Thanks for the follow-up question. From a high level, could we just talk a little bit about the cash flow walk and the cash that you're going to need for engine development with Neutron and your consolation plans? Kind of where do you expect the biggest contribution to come from split between organic debt and potentially equity?

So I could let Pete talk to the technical kind of milestones and so forth that drive it. But, you know, we forecast all of this when we were going through our D-SPAC process and related pipe raise and so forth. And we also raised enough capital as dry powder to go execute on things like ASI and PSC and other opportunities. So, you know, as you can imagine, you know, propulsion is well within our wheelhouse.

I mean, we've put, you know, We put 200 electron Rutherford engines on orbit. So whatever you're dealing with rocket science, obviously nothing is ever trivial, but we think we've well-scoped the capital investment required.

So we don't believe that for neutron or anything else we have in our roadmap that would require us to go back to the equity markets, debt markets, or what have you. So, again, we think we're fully funded to execute what we need to do. And then I'll let Pete kind of jump in and talk maybe a little bit more about timing.

Yeah, no, thanks, Adam. So the way we're approaching neutron is being really smart where we innovate. And propulsion is an area that if you want a reusable launch vehicle, you don't want an engine that's completely, you know, stressed to its limits. You want a propulsion system that's got lots of margin in it. So as we've been thinking about the propulsion, the neutron, that's really been our focus. And as a result, that's not an area where we're carrying a lot of risk.

There's other areas where we're innovating that have a much, much bigger payoff.

But as Adam says, we feel like we're in a good position to execute the propulsion program, but also the neutron program. Got it. And then if you could just talk about the investments that you're making today for your future compilation plans, whether you guys are bidding on Spectrum, kind of a bunch of talent you've put in place or other intellectual property assets that you're going after. Yeah, I mean, look, we want to build infrastructure in orbit and we're methodically putting in place all of the elements required to be able to do that in a very competitive way. And I would say at this point, we're not prepared to make a bet on the particular application that we may go after. We have not secured the spectrum to go after any particular applications. But we're obviously watching with interest with what everybody else is doing. And, you know, like I say, for us, the most important thing right now is to methodically build all of those capabilities and we get to contribute into other people's large efforts and constellations by being a supplier. And, you know, we'll continue to work on what we think is, you know, a disruptive opportunity in the future. Got it. Thanks, .

And finally, we have another follow-up question from from . Kai, your line is open.

I might have missed it, but what did you pay for ASI and also As you know, their company in Colorado. Did you look at that, and are they competition to you when you go out and look at acquisitions? I would guess not, but love your perspective on that.

So I'll comment on the purchase price of ASI. ASI is a $45 million cash purchase. And then, you know, I can't speak to the other acquisition that you're referencing from Raytheon. Obviously, we're familiar with the Blue Canyon acquisition, but I'm not familiar with their software company. I would say that, in general, the environment for deals, we're trying to be pretty receptive to the Rocket Lab platform. And I think that's really what it's coming down to. We find that we're a very attractive place where entrepreneurial engineers want to call home. I think there's no knock on some of the larger potential acquirers out there, but it's a very different choice, right, to go to a large, well-established prime or you want to be part of something that's a little bit smaller and perhaps you could have a greater impact through your efforts. So I think it's kind of an apples and oranges choice for sellers. And this is a seller's market. There's no question about it. And there is competition for deals. I think that we're being very selective. I think we do have a healthy pipeline of opportunities that we're always evaluating and, in this case, executing on the most recent acquisitions of ASI and PSC. But, again, I think that we don't really see – it seems like we're both looking at different types of assets. I would say that we don't necessarily see head-on competition in a lot of the stuff that we're looking at, but there's certainly, more broadly speaking, competition for the assets that we're bringing into the family. Okay.

And to add to that, I think you can see, Kai, that of the acquisitions that we make, it's very much, you know, a try before you buy. We're using Synthetis Reaction more than our projects and products. We're using ASI software. We're using... We've been using PSC for separation systems. So these are companies that we know well and are always the leaders in the area. That is always a strong fundamental to the acquisition system.

Yeah, and I think taking that further, I think you can also start to see the acquisition strategy really start to play out in the fact that if you look at some of our

Upcoming missions, you'll see, you know, obviously we're providing launch services.

In many cases, we're providing the satellite components in the form of reaction wheels and star trackers from Sinclair. In many cases, the satellites are using ASI software. In many cases, satellites are being deployed on a PSC separation system. And you'll start to see, again, that theme start to continue to play out where we're starting to get more and more content. And we really view this as a platform. It's not one-off, you know, launch services or one-off. This really is how we bring all the pieces together and offer truly end-to-end solutions that bring down the cost, increase the, you know, shorten the time to market. And, again, I think when you start to put all the pieces together and when you see from the missions that we're executing on, it's kind of undeniable kind of how all the pieces are coming together and how that leads to just, you know, increased amount of revenue per mission that we service. So, yeah. I think we're all very, very excited about kind of what the culmination of these deals represents and how it is providing a lot of revenue diversity to our model and some margin uplift as well, and, again, just the scaling of the business. So I think this is an exciting part of our roadmap right now.

Thanks so much.

because we currently have no further questions. I'll now hand back to Peter for any closing comments.

Thanks very much. Before I wrap up the call, I'd like to thank everyone who participated in today's call. We look forward to having the opportunity to provide further updates on our business, including through our participation in the UBS Aerospace Investor Conference on November 19th. And we look forward to speaking to you all again. Thank you very much.

This now concludes today's conference call and you may now disconnect your lines.

Thank you everyone for joining us today.