Tuesday, 21 Sep 2021

Filing, US media highlight Rocket Lab’s Kiwi dependence

As it gears up for its US$4.1 billion ($5.8b) Nasdaq listing, Rocket Lab seems in some ways more and more like an American company, with its engine manufacturing in LA and plans to launch its coming Neutron rocket exclusively from its new launch pad in Virginia.

But a new regulatory filing with the SEC, and US media, have also highlighted how the company remains quintessentially Kiwi: its dependence on founder Peter Beck. Investors should be thankful he has no plans to fly into space.

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The 712-page filing also updates on Rocket Lab’s recent red ink and some interesting nuggets of information about the balance of its operations in the US vs NZ – as well as highlighting the continued importance of the US Department of Defence as an anchor customer, the Pentagon-insider background of a recently appointed director, and support for 24-hour rapid call-up capability for US military work.

Ars Technica (the geeky stablemate to Vanity Fair, Wired and The New Yorker in the Condé Nast stable) said: “In terms of risks, the company cited the unexpected but potential loss of Peter Beck as its leader. Fiery, charismatic, and demanding of his employees, Beck has relentlessly promoted the Rocket Lab brand publicly and been a key driver of its technological innovation.”

It might be a slight stretch to call Kiwi-bloke Beck “fiery” and “charismatic” next to the over-caffeinated Sir Richard Branson and Elon Musk, but the Aucklander hasn’t shrunk from recent accounts that he’s hard-driving. “You don’t go to Mars working eight to five, Monday to Friday.”

“We are highly dependent on the services of Peter Beck, our president, chief executive officer and chairman,” the Rocket Lab filing says.

“Mr Beck is the source of many, if not most, of the ideas and execution driving our company.

“If Mr Beck were to discontinue his service to us due to death, disability or any other reason, we would be significantly disadvantaged.”

The filing recounts who one-time Fisher & Paykel apprentice Beck founded Rocket Lab in 2006, and his role leading the team that developed its Electron Rocket, plus associated innovations including the world’s first 3D-printed rocket engines, electric-pump-fed rocket engine technology and fully carbon composite fuel tanks – as well as the Kiwi’s broader role guiding Rocket Lab to become a global player with his vision of a space transport company with a fully-integrated approach, covering every aspect of a launch for a customer.

Elsewhere, elements of the filing reiterate Rocket Lab’s close ties with key customers the US Department of Defence and NASA.

On the company’s new Launch Complex 2 in Virginia, on the eastern seaboard of the US, the filing says: “Rocket Lab’s operations, including this launch complex as part of our overall business, have received the designation of Essential Critical Infrastructure for National Security from the US Department of Defence, and can support 24-hour rapid call-up capability for defense needs and urgent constellation replenishment.”

It adds: “We expect to be able to launch up to 12 missions per year from Launch Complex 2 once it becomes operational.”

The filing also describes how the company’s newest director, Michael Griffin, has deep ties to its two largest customers.Griffin, who joined Rocket Lab’s board last year, worked in the Pentagon for the USDepartment of Defense from 2018 to 2020 as the Under Secretary of Defence, Research & Engineering, where he was responsible for all US Defence Department research and development. From April 2005 to January 2008, Dr Griffin served as the 11th administrator of NASA.

US vs NZ breakdown

For Rocket Lab completists, the filing also has an interesting breakdown of the 600-person company’s US vs NZ operations.

“We transferred our US headquarters and production operations from Huntington Beach, California to our state of the art 97,000 square foot [9000sq m]Long Beach, California facility in March 2020. From our Long Beach, California facility, in addition to manufacturing, we manage corporate administrative functions, sales and business development, launch services mission management, and conduct a range of research and development activities,” it says.

“Our Rutherford engine and avionics production activities are conducted out of our Long Beach facility.

“Our proprietary manufacturing processes, which include specialised automated equipment, is comprised of three primary steps; additive manufacturing, machining and assembly of complete engines and avionics subsystems. Our Long Beach facility is also home to a Mission Operations Center from which our team conducts on-orbit operation of our family of Photon spacecraft.

“In 2020, we began the process to build-out a space systems manufacturing line in this facility.”

On the newly minted Launch Complex 2 facility at NASA’s Wallops Island facility in Virginia, Rocket Lab says: “The complex is tailored for US government missions, but it can also support commercial missions as required. Launch Complex 2 can support up to 12 missions per year. In addition to the dedicated launch pad for Electron, Rocket Lab also operates an Integration and Control Facility within the Wallops Research Park. This facility is dedicated to secure vehicle and payload processing facilities. The facility can process several Electron launch vehicles and customer spacecraft concurrently, enabling rapid and responsive launch opportunities and parallel launch campaigns.”

In Auckland, “We conduct research and development and design and manufacturing of launch vehicle components and subsystems, our Photon family of spacecraft and satellite and other spacecraft components, vehicle integration, and subsystem testing at three adjacent buildings that we lease comprising our approximately 100,000 square foot [9300sq m] research and development and production complex,” the filing says.

“Manufacturing-related activities at the Auckland complex include the manufacture, assembly, and testing of high-voltage battery systems that power the Rutherford engines for Electron, the manufacturing and assembly of composite tanks, fairings, and other launch vehicle structures, electrical harnesses, complete kick stages, and final vehicle integration.

“Within research and development activities, they include those related to launch vehicles, launch operations and space systems initiatives. Additionally, guidance, navigation and control, ground segment communications and remote launch control activities are conducted out of our Auckland complex’s Mission Control Center.”

Still in the red

The filing also reiterates one of the themes of a presentation released earlier this year: Rocket Lab is still in a loss-making phase to the tune of tens of millions per year.

It says the company made net losses of US$30.4m and $55.0m in 2019 and 2020, on revenue that fell from US$48.4m to US$35.2m as the pandemic delayed several launches (Rocket Lab early noted that breakeven numbers filed with the Companies Office excluded its operations outside NZ.)

Rocket Lab has told investors it expects to break into the black in its 2023/2024 financial year. It forecasts a series of big profit and revenue jumps after the first launch of its larger Neutron rocket in 2024, with US$505m in operating earnings forecast on US$1.57 billion revenue by 2027.

The company says its cash balance will jump from around US$34m (plus a US$35m credit facility) to US$750m with its Nasdaq listing. The filing also notes Rocket Lab has a US$100m secured loan to Hercules Capital, taken out in June this year and repayable in 2024.

A chunk of the proceeds are earmarked to develop the Neutron which, with its up to 8000kg payload capacity (to the Electron’s 300kg), “Will address large commercial and government constellation launch opportunities and be capable of addressing the market for human space flight and cargo and crew resupply to the International Space Station,” the filing says.

The Neutron also “enable significantly higher revenue per launch with its capability to deploy larger spacecraft and greater numbers of spacecraft per launch.”

Rocket will also use some of the new capital to further develop its Photon “space” bus, which will be used to ferry a NASA satellite into lunar orbit later this year in a precursor to the US Space Agency’s “Capstone” mission – a stepping stone to returning crew to the Moon later this decade

Rocket Lab also recently won a NASA contract to design and build two Photon spacecraft for a 2024 mission to Mars. The company says it will disclose the value of the contract after it lists on the Nasdaq.

The listing will leave Beck with at least a 13.1 per cent stake in Rocket Lab, worth a little over $700m. The founder also has the option to sell around US$30m worth of stock with the Nasdaq transaction.

The final countdown

The also indicates a broad time frame for the listing, which it says will take place at some point after a vote by Vector Acquisition shareholders on August 20. Rocket Lab said earlier that it expects to list by the end of the third quarter (that is, by September 30).

Vector is the special acquisition corporation of “blank cheque” company that Rocket Lab will merge with for its reverse-listing in the US.

A big step for a man

Beck earlier told the Herald that shares had been granted to past and present Rocket Lab staff as a performance bonus.

If Rocket Lab lists at its anticipated US$4.1b value, the listing will turn more than 100 past and present staff into millionaires, Beck told the Herald, while more than 180 would hold stakes worth more than $500,000.

Early shareholders Sir Stephen Tindall’s K1W1, ACC and Lockheed Martin will also benefit from the listing. All have stakes under the 5 per cent disclosure threshold.

Australia’s Future Fund and a clutch of silicon valley VC funds are also in for a payday.

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