Rocket Lab Corporation

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Rocket Lab second quarter 2024 financial results update and conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Morgan Connaughton, Vice President of Communications at Rocket Lab. Please go ahead.

Thank you. Hello and welcome to today's conference call to discuss Rocket Lab's second quarter 2024 financial results. Before we begin the call, I would like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company. And 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, and others are contained in our filings with the Security and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and 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 replay of a copy of the presentation will be available on our website. Today's speakers are our Rocket Lab Founder and Chief Executive Officer Sir Peter Beck as well as Chief Financial Officer Adam Spice. They will be discussing key business highlights as well as updates on our Electron, Neutron 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 Sir Peter.

Thanks very much, Morgan, and thank you all for joining us today. We've delivered an exceptionally strong second quarter this year, and I'm looking forward to taking you through all of the highlights and achievements. But before we get there, I wanted to spend some time talking about who we are today, where Rocket Lab is headed in the future, and the very deliberate and strategic steps we're taking to get there. One of the common misconceptions we've faced is that Rocket Lab is a launch company. Yes, launch is something that we're an industry leader in, and of course, rocket being in the name doesn't help, but it's just part of what we do. I'd like to look at this in three clear steps. First, the ride. To do important things in space, you first have to get there. We've solved this with small launch with Electron, and we're breaking the medium launch monopoly with Neutrons. next the tools to do the things in space once you get there this is spacecraft the critical components that make them function the software the ground systems and all the other pieces that make missions possible in orbit we're reliably delivering this for commercial government and customers today with the first two comfortably under our belt our future in in the whole reason for going to space is in the first place the data and the services that provide that spacecraft provide it's the most valuable part of the supply chain demand for it is growing worldwide and it's what will deliver long-term recurring revenue and incremental value for shareholders. By owning launch and spacecraft, we're at a distinct advantage when it comes to establishing our own space capabilities or constellations. We can build and launch our own spacecraft at cost, and we don't have to wait in line for limited launch capacity. We completely avoid the pain point that most constellation operators face, being at the mercy of suppliers on cost and schedule, often causing deeply disruptive delays and bringing capability online at scale. But that constellation or capability is not quite ready yet for us to disclose. But this overall company vision is useful to bear in mind when reviewing Rocket Lab's achievements in this quarter, in the months, and the years ahead. So with that, let me move on to more specifics for the quarter. Q2 was a huge quarter for Rocket Lab in a lot of ways, but especially in terms of revenue. For the first time, Rocket Lab revenue ticked past $100 million in the quarter. Revenue ultimately came in at $106 million for Q2, which is a company record. We also achieved a 15% quarter-on-quarter increase and a whopping 71% year-on-year increase. This result demonstrates the continued strength of our end-to-end space company strategy in offering diversified products and services since the growth is driven by an increase in launches on last year as well as significant growth in our space systems business. As of Q2 close, our backlog sits at over a billion dollars. Now onto some Electron specific updates. Before I get into some more Electron achievements in the quarter, it's worth spending a moment going back to basics on the Electron business model. I raise this because the most common metric we get held to is number of launches per quarter and the resulting point in time revenue recognition. Revenue recognition is guided by a well-established gap principles, but can at times fail to reflect the underlying strengths in our business given the constructive cash flow nature of the launch business where we collect cash well in advance of revenue recognition. Electron delivers what rideshares and other rockets can't. It's a dedicated launch service tailored to each customer's specific needs. What that means in practice is customers get to choose and change their launch date. They can choose their launch site and precisely where they want to be deployed in orbit, and they can launch on incredibly short notice. We've demonstrated getting someone from contract signing to orbit in less than eight weeks. If you're booked on a large rideshare or a bunch of other spacecraft, you simply don't get that flexibility. And you certainly can't expect to get a dedicated ride on a large rocket or a near-entrance vehicle in just weeks noticed. This flexibility does make it challenging to predict with high certainty exactly how many launches we'll do each year and exactly where they'll land in each quarter. That's not unexpected. Rather, it's baked into our model and what sets us apart. Now, fortunately, the surface-level volatility represented by gap launch revenue recognition, is disconnected from the underlying cash flow generation, in so much as we collect the vast majority of cash from our launch customers before launch day. So if they shift out by a few days, weeks, or even months, it makes a negligible difference. On this slide, you can see an example of our billing cycle for Electron. We typically do it one or two ways, time-based billing or milestone-based. Time-based is most used for our customers booked a year or more in advance of launch. And as you will see, we bill 10% on contract signing, then further installments until we get to the final 10%, which is payable on launch day as soon as we ignite the engines. Milestone-based is more used for our customers who come to us with their hair on fire, say L-3 months. Once again, we'll take a 10% on signing, and then we move swiftly through the key milestones like spacecraft fit checks and readiness reviews, and then we collect the remaining instalments until, again, we charge the final 10% when we ignite the engines. So as you can see, if a customer requires a launch date that pushes into the next quarter, we've likely already collected up to 90% of the contract value. We just don't recognise the revenue until launch day for accounting practices purposes. OK, a quick overview of some Electron achievements. We've signed 17 new Electron launch contracts year to date, with a total contract value of $141 million. We also reached an exciting new place in the global launch rankings. Electron is now the third most frequently launched rocket globally, behind only Falcon 9 and the Chinese Long March. For a rocket that has only been flying for seven years, this is a monumental achievement and really highlights Electron's significance as a proven, sought-after capability. We've achieved 100% increase in launch rate for the first half of this year as compared with the first half of 2023. Doubling rocket production and launch cadence in this year is far from the norm and really sets our team apart. As of today, Electron counts for 64% of all non-SpaceX US launches in 2024 so far. This really shows what an impact Electron has had on the industry and highlights just how constrained customers are right now with respect to launch options. And of course, in a year plagued by launch anomalies and delays worldwide, Electron has continued to deliver trusted and reliable access to space with mission success throughout the year for all of our customers. Now, this approach has been a successful one for Electron, retaining its title of the most active small rocket globally, and now, of course, third most frequently launched and flown rocket this year. I won't go into the specifics of all nine launches we've completed this year to date, but if there's something that I'd like you to take away from looking at all of these missions, is just how complex and tailored and customer-centric they are. We're taking dedicated missions 11 days apart to place climate change monitoring constellation in precise locations to monitor the poles, a rideshare mission that deployed two different customer satellites to entirely different orbits and altitudes on the same launch, swapped the customer mission out with the next one in queue within two weeks when a customer required a later launch date, All of this is exactly why customers choose Electron. It delivers a flexible service that small sats have never had before. Now on to contract wins. It was a few big months with the commercial sales team with a 10-launch deal signed with Sunspective, a Japanese Earth observation constellation operator. We've been the sole launch provider for Sunspective to date with five successful missions, which has been a huge honour. We have also signed a for-launch deal with another commercial constellation operator who has asked to remain confidential at this time. Electron also continues to be a critical enabler to the Department of Defence. We recently signed three new launch deals that further strengthen our position as a trusted partner across launch and space systems. Those contracts include being selected by the Space Force Systems Command to demonstrate an end-to-end space mission. This means Rocket Lab will design, build a spacecraft and launch it, and operate it on short notice. This is a clear validation of our model as an end-to-end space company. We were also awarded the STP S-30 launch contract, a $14.5 million mission for the Space Force. And last but not least, HACE continues to be a sought-after capability with another hypersonic suborbital mission sold. We're immensely proud to have taken a proven product in Electron and adapted it into a new use case, unlocking hypersonic test launch capability for the DoD, helping open up the bottleneck that has existed for so long, thanks to the limited availability of wind tunnels and test flight opportunities. In the second quarter, we reached a significant company milestone, but also set a record for the wider launch industry when we launched our 50th Electron mission. We reached this milestone faster than any other commercially developed rocket in history, and we're on track to be the fastest to 100 also. This really just demonstrates our team's ability to execute in record time. We also demonstrated a pretty unique ability on our 50th mission, which was deploying a customer spacecraft within eight meters of the target. Now, for context, the general accepted industry tolerance is 1,500 meters or 15 kilometers. So to deploy the spacecraft within single-digit meters, not kilometers, is a real differentiator. Here's why that matters. It makes Electron the clear launch vehicle of choice for some really complex missions and unique capabilities that are increasingly sought after, like rendezvous and proximity operations, constellation replenishment, and customized orbits. Right, moving on from small launch into updates on the neutron development. I'm often asked how Neutron plans to compete and why we need to invest in a medium launch vehicle. So I'm going to go back to a little bit of 101 here. There is a practical monopoly in medium launch right now. There's no doubt about that. Demand is strong and growing for launch capability, particularly in the constellation space, with more than 10,000 satellites needing launch by the end of the decade. And that's viewed by many as a pretty conservative projection. Neutron is best placed to be the rocket that disrupts this monopoly. We have a proven track record of building and launching a reliable vehicle that became a market leader. Through this experience, we've been able to work incredibly closely with customers to design a new rocket that meets their needs, resulting in a customer-led design. And we're on track to bring that to market at an incredibly rapid timeline. Across all of our launch and space systems businesses to date, we've astutely assessed demand and opportunities and accurately allocated investment and effort where it makes the most business sense. And that has produced undeniable successful results, and Neutron will be no different. Now onto overall Neutron development progress. And I'm pleased to confirm we've largely progressed past the design phase, and we've moved swiftly into production and qualification of flight hardware for 100% of the vehicle. With flight articles now coming together, we're on track to first launch for mid next year. I've said this before, but it's a key point that I think a lot of people tend to miss if they're not familiar with the launch vehicle development programs. Developing a rocket is certainly a big piece of work, but it's only about one third of what you actually need to do. The remainder is launch and production infrastructure. That's the pad, the test cells, the production lines, the factories, and all the processes and procedures to support them. A lot of organisations will focus their attention on their first rocket, but we knew that that would be very important to build up all the infrastructure to support production, test and launch in the long term, so that's what we've done in parallel. I'm really proud of the speed and progress that the team has achieved with Neutron so far in an incredibly short timeframe, especially in the update I'm about to share next. Okay, the update you've all been waiting for, the Archimedes engine test campaign. As we've said before, propulsion is always a long pole in the tent when it comes to developing a rocket, but thanks to having successfully designed, flown and built more than 500 Rutherford engines, we have a pretty good chunk of experience how to do this. We use this to fast track Archimedes development and this has certainly paid off. We also made a very conscious and strategic decision right from the outset to design a flight engine and put something on the engine test stand that was designed to be flight ready. It's fairly common to see downscaled engines or early stage prototypes used for a couple of years before companies actually move into putting something on the stand that could fly. But we didn't do that. In the past couple of months, we put Archimedes through hundreds of tests to validate the design, including spin primes, ignition tests, as well as understanding all the startup and shutdown transients. All of that work cumulated recently in a successful Archimedes hot fire. We started off with a series of low power hot fires with great results, then cranked it up to put the engine through its paces. We've now reached main stage hot fire at 102% power. Now, taking a new stage combustion liquid rocket engine from clean sheet design to hot fire in a flight configuration in just a couple of years is really industry-leading stuff. From here, it's about dialing the engine in, building a bunch more of them, and getting them rolling off the production lines. Now, the team has been pushing hard to get the first flight articles through qualification, but like we've always said with Electron, bringing your first rocket is hard, building your first rocket is hard, but building the 10th or the 50th is even harder. That's why we know it's just as important to build the machine behind the rocket and set it up for scale from day one. The next Archimedes engine is coming off the production line right now, and while the assembly line for many more is also established. Meanwhile, we've scaled avionics production line to support both Electron and Neutron, and all things that make it easier to roll into a launch cadence after flight one. While the propulsion team has been kicking goals, the composite team has been moving at pace too. As you can see here, we have flight hardware in production, including the fairing panels for Neutron's fixed fairing. Remember, this fairing is pretty unique in that it remains attached to Neutron throughout the launch and landing, enabling us to reuse it across multiple missions. Meanwhile, we have flight hardware in production for all other neutron composite structures, including stage one and stage two tanks and the interstage. Since Pitcher paints a thousand words, here's a quick look at some of the composite production going on behind the scenes to bring neutron to life. The progress in composites production is just about to accelerate even faster with the installation of our automated fiber placement machine in Middle River, Baltimore. Establishing this capacity and capability in parallel to manual lay-up of neutron structures enables us to rapidly scale up production for the first flight and full operational cadence to follow. The custom-built 90-ton machine will automate the production of all large composite neutron structures, including the panels that make up the 91-foot interstage and fairing, as well as the first and second stages. This machine is one of the largest of its kind in the world and will allow us to save thousands of hours on stage one alone, compared with hand labor. Speaking of infrastructure, progress is coming along nicely at Launch Complex 3 Virginia with fluid systems installation underway, and we've started receiving some of the critical long lead items like cryogenic systems and tanks. As you can see from the photo on the screen, we've poured tons of concrete into Neutron's pad and ready to receive the launch mount. This is a huge piece of infrastructure and a big milestone to tick off for the part of the first flight. Just 10 minutes down the road from the pad is a Neutron assembly and integration facility where Neutron will undergo the final assembly before transportation to the pad. Construction of this is progressing well and on track to receive the first neutron early next year ahead of launch. Okay, that wraps up launch. On to the other half of our business now, space systems. Before I dig into the achievements on specific space systems items, I thought it worth a quick reminder of the scale of the programs we have underway. Right now we have more than $720 million worth of spacecraft on contract and in development. including constellations for the Space Development Agency, Global Star, as well as bespoke spacecraft for NASA, the DoD, and commercial customers. On any given day, the team is working through design reviews, qualification campaigns, analysis, and production for these programs. In many cases, work isn't very visible because the hardware build only comes at the very end, and in some cases, our customers request confidentiality, so we can't share images or too much detail in progress. What I will say is our team has earned a reputation for delivering high-quality spacecraft on rapid timelines, and these programs are tracking no differently. Okay, on to the more granular detail. We hit a huge milestone recently by completing production and test of two identical spacecraft for the NASA Mars mission. It's not uncommon for an interplanetary mission to take a decade to go from design to flight-ready, So to design, build, and test not one but two Mars spacecraft in around three years is pretty impressive. Once again, it has been made possible in part by a vertical integration strategy, which removes heavy reliance on suppliers, since we produce many components in-house, enabling us to control schedule and costs. And in the case of Escapade, the spacecraft featured rocket labs, solar cells, reaction wheels, star trackers, separation systems, radio, flight software, structuring, on and on the goes. The twin spacecraft are now packed up for shipping out to the Cape and ready for launch during the up-and-coming Mars transit window, which extends through October. Over to Albuquerque now, where we've signed preliminary terms for $49.4 million in federal, state and local funding, including a portion under the CHIPS Act. The funding will enable us to expand production of our solar cells, which are important components for national defence and security satellites. We expect to create around 100 new manufacturing jobs as a direct result of this funding and expansion it enables. Another pair of spacecraft we have rolling down the production line are the next two set of satellites for VADA Space Industries. These pioneer class satellites host VADA's in-space manufacturing capsules which enable the production of pharmaceuticals and other products that benefit from low gravity environments. We successfully operated one of these spacecraft for VADA last year, successfully setting it onto a course for reentry and landing it in the Utah desert in February this year. The spacecraft is nearing completion and preparing for launch in the coming months with a third following not far behind. Now onto Constellation spacecraft in development at the moment. Recently we completed a successful systems requirements review for our $500 million prime contract with SDA to design and build 18 tranche 2 transport layer beta satellites From here, we'll move into preliminary design review before hardware starts to take shape in clean rooms. These spacecraft are scheduled to launch in 2027, so we're on track and kicking some of these critical design milestones off early in the program. A-17 spacecraft Thunder Constellation for MDA and Global Star. We've completed integration readiness review, and hardware is in production, including the first delivery of a full flatsat to the customer. This program is moving at pace, with spacecraft scheduled for completion and launch by the end of 2025. Our spacecraft programs tend to get the most of the attention in the space systems, but our merchant components business continues to kick goals too, including when it comes to innovating new products. At the Smallsat conference in Utah this week, the team introduced a new advanced satellite dispenser, giving customers more choice for versatile and reliable spacecraft deployment. The ASD builds on the 11-year heritage of the containerised satellite dispenser, which has successfully deployed more than 60 satellites. If I labour on about the achievements across our other components businesses, we'll be here all evening, so I'll try and keep it brief. Now, to round out our business updates, I just want to provide a quick update on our M&A strategy. We've had the privilege of being a launch provider, spacecraft developer, and component supplier to scores of companies and organizations across the global space industry. Increasingly, they want complete mission solutions, and a mixed approach of organic and developed development and M&A aims to serve this. Right now, we're managing a robust pipeline of targets while being selective and strategic about what we want to bring into our suite of capabilities. The focus on targets The focus is on targets that would fill gaps in our already extensive suite of solutions, while also enabling meaningful revenue scale and profit. We look forward to sharing more on this in due course. And last but not least, before we move into the financial highlights, I wanted to share some news about a documentary that recently came out which covers Rocket Lab in a way that many people may not have seen before. Wild Wild Space was released on HBO Max just a few weeks ago, It's a film version of the New York Times best-selling book When the Heavens Went on Sale by Ashley Vance, and it's directed by Academy Award-winning director Ross Koffman. If you're interested in the history of Rocket Lab and how we got to where we are today and some insight into what drives us, this is a great place to start. Highly recommended if you go and check it out on HBO. That wraps up the top-line business achievements. So with that, I'll hand it over to Adam to discuss our financial highlights and outlook.