Closing Bell - Manifest Space: Back on Track with Rocket Lab CEO Peter Beck 11/16/23

Episode Date: November 16, 2023

After a complex mission failure involving its Electron rocket in mid-September, Rocket Lab now expects to resume launches as soon as the end of November. An launch by year-end is pivotal for the company as it looks ahead to 22 Electron missions on the manifest in 2024. Morgan Brennan sits down with co-founder & CEO Peter Beck to discuss the upcoming mission cadence, the latest on Neutron, space systems & launching hypersonic drones for the Pentagon.

Rocket Lab is looking to get its launch business back on track. Founder and CEO Peter Beck says the company now expects to resume launches as soon as the end of November, just over two months after a complex mission failure involving its Electron rocket. It was a very, very difficult anomaly to try and resolve. Naturally, you know, the vehicle has so much heritage and so much flight that, you know, time now that anything that happened wasn't going to be like super simple. Somebody forgot to plug something in or something like that. It was going to be deeply complex, which it was.

But the team was able to push through, resolve it, get to root cause and put some mitigated, you know, fixes in there that won't see that coming back. On this episode, Beck discusses the action-packed launch manifest for 2024, roughly two missions per month, the latest on the new, more powerful Neutron rocket, the space systems business, which is actually the company's biggest, and launching hypersonic drones for the Pentagon. I'm Morgan Brennan, and this is Manifest Space. So you just came off of earnings earlier in the month.

I think maybe let's start there, because it wasn't just about the financial results for the quarter, but it was also the fact that you are opening up your next launch window for Electron, which is the end of this month, which marks two and a half months since your last mission, which we know failed. Yeah, no, it was a very, very difficult anomaly to try and resolve. Naturally, you know, the vehicle has so much heritage and so much flight that, you know, time now that anything that happened wasn't going to be like super simple. Somebody forgot to plug something in or something like that.

It was going to be deeply complex, which it was, but the team was able to push through, resolve it, get to root cause, and put some mitigated fixes in there that won't see that coming back. So, yep, great to be back on the pad and resuming launches again. Well, congratulations on that. What was the root cause? How long have you got? I mean, to cut a long story short, there's some really unique phenomena that occur in space. You really need to study up your partial and partial curves, but in the simplest possible way I can distill it, a high voltage arc anomaly that was kind of

exaggerated by a set of conditions and also a number of unique circumstances that only occurred at stage separation. I mean look, you have to get, imagine like a hundred pieces of Swiss cheese and they all have to line up for the hole to squeak through, but it was a difficult one. And you've made changes since then and now the launch window is open for your next mission? Correct, yep, yep, no we well and truly put the passion curve back in its box and we're feeling very confident about that. So how does that set you up for 2024? Not only with Electron, well, we'll start with Electron and then we'll get to Neutron. Yeah, so 2024 is a big year for us. You know, we have 22 flights on the manifest.

So we're fully booked for 24. And know we're we're you know 23 here we've got a good production cadence going so we'll roll into 24 now with our being our busiest year ever with with electron so 22 launches that means you're launching one almost every two weeks next year yeah that's quite a cadence it is it is. And it really brings us to, you know, to our model, our financial model, which is going to be great to see. You know, the margins on Electron in the last quarter improved significantly. So we can see that, you know, trend likely to continue. So what does that mean in terms of production of the rocket versus the reusability aspect? Yeah, so, I mean, you know, we're still continuing with the reusability program for sure,

and you'll see a number of reusability missions throughout the year. But, you know, the most important thing for us is obviously making sure that we get our customers to orbit and, you know, the reusability is important, but, you know, we can achieve what we need to achieve without it from a financial aspect. And, yeah, so the next major milestone for reusability on Electron

is flying a whole Electron with a completed set of engines that have been reused and flown again. So that will be the next major milestone. Is that something that's going to happen next year or undecided yet? Yeah, we hope so. Yeah, so those engines are currently in the factory going through recertification. So they'll pop onto the back of a vehicle in due time for sure. And you've been developing a new rocket, a more powerful rocket, Neutron. Is that still on pace for previous forecasts that you've laid out? Yeah look I mean it's a rocket program so as on target as ever a rocket program is but yeah at the moment I would say we're in kind of a honeymoon period where we have lots

of hardware turning up and you know we're making major tests. You know in this quarter we had a really major milestone which was you know the second stage tank. We got through all the cryogenic testing of that so that's a huge milestone. And we're still trying to get something on the pad by the end of 24, and that remains the goal for that program. So how does all this speak to the broader supply-demand dynamics for the launch services market? Because I've had a number of conversations with folks saying, you know what, capacity is really tight right now, especially as you have Amazon's Kuiper coming online and a number of other projects and constellations afoot as well. What are you seeing? Yeah, I see exactly the same thing. Not just for Neutron, but also for Electron. I mean, look at the manifest is absolutely jam-packed for next year. And for Neutron, we see exactly the same thing. I mean, there is going to be a real launch crunch in that sort of 25, 26 timeframe where a lot of these large constellations are coming to market and all need launch.

That's the reason, quite frankly, we're working so hard to bring Neutron to the market in that right timeframe and mature it at that time as well. If you see a slowdown in economic growth or a recession, heaven forbid, over the next couple of years, does that change anything? Or does this tend to be, when you start talking about launch manifests that are years in advance, does that tend to be more immune to those sorts of dynamics? Yeah, look, I've been doing this a while and it seems to be the way. Your point is exactly right. A lot of these programs are very long and multi-year programs and seem to be relatively immune to macroeconomic conditions as much as you can be. It's more the early stage companies and some of the less mature companies that tend to be a little more dynamic and especially in today's funding

environment, it's a very, very different funding environment for startups-based companies than it was a couple of years ago. Hypersonic testing, that's on pace for your working with the Defense Innovation Unit on that. But that doesn't start until 2025, right? No, we've already launched our first hypersonic mission. We launched that earlier in the year, so out of wallops, and we're seeing a huge uptake in that. We've signed seven missions in six months since we first flew that first hypersonic mission. And we're really excited about it because it provides the nation an opportunity for a test platform that hasn't been there before, and there is a deficit in that testing capability,

well at least there was, that we're happy to fill. So it gives all the defense and civil industry an opportunity to actually get stuff in the sky, which is super important. How big is that market going to be, or do we know yet? It's hard to say. I mean, it's one of those things that, you know, it's a definite requirement. And we've seen really strong uptake in it, obviously.

But look, it's too hard to predict how large that really grows for us. But at the moment, I would say, you know, it's a significant part of our manifest. Something else that we don't talk about as often, and we should because it's very compelling for the company, and it's a good profitability story, and that's your space systems business, which has been growing and which is very strong. I guess just walk me through that business and the trajectory for it. Yeah, look, the rockets always steal the show for 100% for sure, but the reality is our space systems business represents two-thirds of our revenue and is a very profitable part of our company. And it's really born out of the fact that, look, we're trying to build an end-to-end space company. A rocketer

is certainly the keys to space and a really, really important element to have. But if you can also build a satellite, then it gives you the ability to put your own infrastructure in orbit as well. So we've been very strategic with the projects that we take on. We have two missions to Mars, and we have the MDA Global Star constellation

to provide direct to self services for various customers, and those kind of programs. So we're very strategic in what we do to try and get us to our end goal. But to your point, the space systems business is across component level right through to full satellite and also services. We operate satellites for other folks as well. So how does that speak to I guess the future of this company? What does the mix look like? How does the portfolio

continue to grow and evolve? Yeah I mean at the end of the day we're trying to build a multi-generational end-to-end space company and I think the the large space companies of the future will will comprise of obviously you know they'll be able to build satellites but also being able to launch your own satellites and I think that that will be the differentiator between between all space companies. Launch is great and it's hugely strategic but it's really lumpy business and it's a really really hard business to be successful in. Satellites once again again, a little bit smoother in revenue, but, you know, a really important element.

And, like, the space industry, from an engineering perspective, is a giant engineering compromise, and it's no different in kind of, you know, in a financial sense. And if you can combine both satellites and launch vehicles together under one roof, then it's a powerhouse that's really difficult to compete if you just have one or the other elements. So that's what we're marching towards and making great progress towards. And I think, you know, if we have this conversation in 10 years' time, that the really large and successful space companies will all own their own rockets.

And I guess how does that speak to this next chapter of the space economy that we do see emerging? Yeah, well, I think you're seeing that play out in real time, right? I mean, if you take our friends over at SpaceX with Starlink, very hard to compete with Starlink given the rate and the cost in which SpaceX can deploy those assets into orbit. So I think you're seeing that kind of thesis play out in real time, and I think you'll just see more and more of that. That does it for this episode of Manifest Space.

Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.