[[Home|🏠]] <span style="color: LightSlateGray">></span> [[Interviews]] <span style="color: LightSlateGray">></span> September 23 2024 **Insider**: [[Adam Spice]] **Source**: https://www.youtube.com/watch?v=EhUe8LU6ji0 **Date**: September 23 2024  🔗 Backup Link: https://www.youtube.com/watch?v=EhUe8LU6ji0 ## 🎙️ Transcript >[!hint] Transcript may contain errors or inaccuracies. **Edison Yu (Deutsche Bank):** [0:17] Greetings everyone, welcome to Podzept. My name is Edison Yu and I lead the space and satellite research here at Deutsche Bank. As part of our "Making Sense of Space" series, we welcome Adam Spice, CFO at Rocket Lab. Thank you for joining us, Adam. **Adam Spice (Rocket Lab):** Thanks for having me. **Edison Yu:** A quick background on the company: Rocket Lab is an end-to-end space company with an established track record of mission success, having launched well over 50 rockets into orbit and supplied components to 1,700 satellites. Rocket Lab was founded in 2006 in New Zealand and now has over 1,700 employees globally. Financially, on a quarterly basis, the company broke through $100 million in sales, representing the largest amount for any publicly traded new space company on the market. ### From Semiconductors to Space **Edison Yu:** [1:12] I think listeners know we did have Peter Beck on our first edition about two years ago and talked about how he got interested in rockets. I know from reading about your background, Adam, you actually spent a lot of time in the semiconductor industry. Can you tell us about your journey through there and then what drew you to Rocket Lab? **Adam Spice:** [1:32] Sure, and by the way, even in as short a time as since our statistics came out, we're now at over 2,000 employees since we reported the 1,700 previously. So we're growing very rapidly, which is exciting. My journey to space was a little bit different than some others. After spending 25-ish years in the semiconductor industry where I started off my career in the 90s at Intel, and then worked my way to Broadcom in the 2000s, and then in 2010 I was at an analog mixed signal RF company called MaxLinear, which was also publicly traded. I got an out-of-the-blue call from a recruiter, and I usually don't take recruiter calls, but he said, "Hey, you know there's this unicorn startup basically looking to become one of the big players in this new space economy." He thought I should talk to them. I didn't think so, but he hassled me a few times. I agreed to take a meeting with Pete, and Pete and I met up. It was one of those things where you ask a bunch of questions and you start to get some real interesting responses back, which was a little bit different than I was expecting. I quickly pieced together that he was really onto something as far as his vision for the size of the opportunity and then just a very pragmatic way of getting there. He invited me out to New Zealand over a Thanksgiving weekend back in 2017 and said, "Come check stuff out on the ground." So I went over and was just absolutely amazed by the capital efficiency – what he and the team had developed with such a scant amount of capital. The rocket business is notorious for being incredibly capital-consuming, and it's true – there's a lot of infrastructure and you can spend a lot of money very quickly. We've seen people who've done that very poorly in our space, and some of those have gone bankrupt and had a lot of challenges along the way. But when I saw what had been done for around $100 million and have a functioning rocket with the infrastructure and a pad and all the other things, I was blown away. In the semiconductor market, it hadn't been uncommon to develop a relatively not-even-the-most-complex chip for $50 to $100 million or hundreds of millions of dollars, and that's really just pure R&D. That's not even putting any infrastructure in place because typically you'll use foundries. When I saw the capital efficiency and the practicality of what Pete had built, I was like, "All right, I'm in. I'll take a flyer" – literally. **Edison Yu:** [4:04] I assume no regrets thus far? **Adam Spice:** Yeah, probably my biggest regret is that I sold my Broadcom stock too early, so that has nothing to do with Rocket Lab. No, I would say no regrets, but I would certainly say this has been way harder than I ever thought it was going to be. After spending those years in semiconductors, I thought there was nothing more complicated than semiconductors, and I was so wrong. Rockets literally involve the complexity of physics and all the complexities that get added as far as geopolitical concerns and regulatory issues with regards to ITAR and everything else. This really stands on its own as far as level of complexity, and the ecosystem is very unique. But that's all part of why I wanted to do this. I wanted to get out of semis and really kind of be part of what the next huge growth opportunity for mankind was, which was really space, and then also have the opportunity to build a company and take it public, which fortunately we were able to do. So I think I've checked all the boxes other than the fact that I've got a much higher aspirational market cap target for Rocket Lab than we currently experience, but that will come as well. ### Comparing Semiconductors to the Space Industry **Edison Yu:** [5:26] What would you say are the biggest differences between the two industries you've been in? I know both are very hard, but just as the CFO? **Adam Spice:** [5:39] The semiconductor industry went from your original IDM or integrated device model, where companies like Intel and AMD and TI owned their own fabs, and then the market moved to a fabless model where you got a bunch of brilliant engineers who design a sophisticated device. They basically throw the design over to somebody like TSMC or Chartered, and they would manufacture the chip for you, drop ship it to your customer. It became an incredibly elegant model. Chips – the technology involved is challenging for sure, but the business model is quite simple, and the infrastructure around it is quite minimal. So you can really direct your R&D, you can direct your capital to very targeted uses in developing these chips. On the rocket side of things and satellite side, it's very different because you have a lot of things you've got to feed. You've got to feed the R&D engine, you've got to feed the infrastructure engine, you've got to feed your business systems and all the other capabilities. It's a much more challenging business to operate in – a lot more choices you have to make than in the semi market, where your choices are relatively narrow. I would say also that in the semiconductor market, you are much more in control over your own destiny because you design the chip and you pick a qualified foundry partner. As long as you pick the right chip design and customers, then you're off to the races. In this business, you have a lot of dependencies on third parties, and that's really what's proven to be the Achilles heel of a lot of companies – they overestimate the execution capabilities of their partners, and that can really lead to lots of problems. You can go out of business in this business for no fault of your own – you can go out of business because you put a key dependency on somebody that didn't execute. You don't really see that on the semiconductor side, but you do see it in this business. I think one of the things that we've done very consciously is eliminated many of those choke points to make us much more self-deterministic. When you look on the rocket side of the business, out of necessity because of ITAR restrictions – when Pete started the company in New Zealand and he wanted to buy elements or subsystems from the traditional aerospace ecosystem, they'd say, "Sorry, you're not a US company, we can't sell you this ITAR-controlled technology." So Pete's like, "Okay, well I guess I have to make it myself." As a function of that, we became very independent and very vertically integrated. We are probably the most vertically integrated rocket manufacturer around. We literally bring in carbon fiber materials and make our tanks. We bring in Inconel powder to print our engines. We make our own harnesses. We do a lot of the avionics ourselves. We're very different in that respect, so we eliminated that dependency on people that can let you down and get you into a lot of trouble. Then we basically mirrored that on the satellite side too, but we did that a little bit differently. We acquired a lot of capabilities. We've acquired four companies now for our space systems business, and all of that was with the eye that if we're going to build these very complex space systems, we need to own all of the real critical subsystems that go into those. So that's why when we acquired Sinclair Interplanetary about four years ago now, we acquired the reaction wheels and the star trackers and the sun sensors and torquer rods. Then we bought Solero to pick up the solar capacity, and we picked up PSC for separation systems and ASI for the command and control software. We developed a bunch of other things that normally people would outsource, but we basically insourced and vertically integrated. Pete's been very disciplined on identifying where other people can screw us over and basically taking that off the table. Some of the things we've done aren't necessarily because we think they can be great merchant businesses, although there are those opportunities as well, but in some cases, we just don't want this – this has the ability to screw our own programs in a way that we can't stomach, so let's make that investment to take that risk off the table for ourselves and our customers. **Edison Yu:** [10:00] I imagine that's probably seeming every day more prudent given you've probably seen all these supply chain issues in aerospace. **Adam Spice:** Absolutely. ### Capital Efficiency in Space **Edison Yu:** [10:13] I wanted to ask you about the point you made earlier about capital efficiency because that is something that we have seen in the industry that has not been a focal point, and part of that was the sort of SPAC women bus that we saw over the last couple years. So I'm curious from your perspective – how have you been so capital efficient? Because we've seen all these rocket programs and these upstarts raise all this money, and unfortunately both on the legacy and on the upstart side, there's not been a lot to show for it. So what's the secret to being so capital efficient? **Adam Spice:** [10:56] You can almost go back to probably the most famous thing that one of the early CEOs of Intel was known for – Andy Grove was known for writing a book called "Only the Paranoid Survive." I think that's kind of in our nature as a company. We're afraid that the last money we raised will be the last money we ever raise, so spend it like it's the most precious thing on earth. We're very paranoid – one thing we can never do is run out of money, so that's always at the very forefront of our minds. As a culture, we've grown a very frugal organization. Everybody knows what everybody else does. If you've been to our offices, you see our layouts – there's no offices, it's all bullpen seating. There's a lot of things that come from that – open communication, which is probably the most important thing. If you want something, you literally stand up and ask the person on the other side of your wall what they're working on or if they can help you. The other fact is that there's no place to hide. Everybody's got to be efficient because you have people that are very noticeably just literally working night and day to get herculean things done, and there's no room for freeloaders. Freeloaders get identified very quickly here. Part of it too is that Pete comes from a very scrappy background, so you make do with less than others. We've known from the beginning that we can't compete with Elon and Jeff and large government primes based on outspending them – that's impossible. What we have to do is just do things very differently. Everything starts with how do we make this a profitable endeavor. We don't try to make something and figure out later how to make it profitable. We start from the very beginning and say, "What does this need to look like at the end game, knowing what's going to happen with pricing, knowing what's going to happen with inflation and other things? How do we ensure that we're going to make money off this product line or service that we're looking to deliver?" By my nature, I hate spending money. I think most CFOs are probably in that camp, so I don't think I'm particularly unique in that, but Pete's even tighter than I am. It makes my job from that respect very easy because we have, for example, within the company, if you want to spend more than $40,000 on something, we actually have to write a formal business case. It needs to be presented to Pete and me, and we have to formally approve it before anything gets spent on that order – other than production orders of raw materials and stuff like that. But if it's to invest in infrastructure or R&D, we all have to approve it. So it's a very tightly controlled environment, but we also have to be careful that we balance controls and frugality with the ability to move quickly and be agile. That means people like Pete and myself have to make ourselves available for lots of things, so it makes our life a little bit more challenging perhaps, but as long as you're willing to move quickly and respond quickly, then you can have control and speed at the same time. ### Managing Launch Business Volatility **Edison Yu:** [13:57] One of the things you brought up earlier about space is oftentimes you're not in total control of your destiny. I'm wondering, in terms of the launch business specifically, that's probably where it's most notable – how do you sort of manage that volatility? You never know when a customer might not be ready. Obviously, we've seen that in some quarters where maybe a launch slips. How does one get accustomed to managing that? **Adam Spice:** [14:28] I think with things like launch cadence, it comes down to communication. I think we've been very open since we came public as a company. We say, "Look, launch is lumpy." I don't know if I could count the number of times I've said "lumpy" on quarterly calls and investor meetings. So you just got to condition your investors to realize that it's lumpy, and as long as your backlog is solid, it's more of a timing issue than a "will it happen" issue. The other thing that you can do, and we do, is we look to where we can overbook our manifest because we just assume that a certain amount of our customers are going to slip. So you get as much front-loaded in your queue as you can so if something pushes out, you've got something to backfill it with. To date, the market's not quite, or our customers aren't quite established enough to have a predictable routine. They're still getting surprised by like a radio failure in final TVAC testing or something else happening where they've got to go back and root cause the issue and then go back to their vendors. Because the industry is still very much, at least where we're at on the smaller launch side of things, we don't have large constellations yet. They're not building hundreds of satellites – it's still kind of one-offs or maybe half a dozen or a dozen. We're not in that Starlink realm where they're making thousands of satellites per year. Hopefully, we get there. I think we will actually get there when we bring Neutron to market. That's going to have exposure to that more established part of the market than the more early-stage, where a lot of things that fly on Electron are pathfinder missions just to see if the tech demos work. ### Why Launch Is So Challenging **Edison Yu:** [16:14] I'm reminded when I had Pete on two years ago, people were saying launch is going to be a commodity, there's so many companies. Fast forward now, I think we can both agree that that's definitely not true. So the question is, why is it so hard? Why is it so hard to do it? The example I always use – we went to the moon 60-70 years ago, yet it's so hard for all these companies to survive, to put stuff up. **Adam Spice:** [16:50] That's interesting. We've thought a lot about that. I was actually doing a little bit of research not too long ago on this. We forget that when we went to the moon 60 years ago, that was the collective resources of an entire nation. The amount of money in today's dollars was staggering – it even makes investments made by Jeff and Elon pale. I think it's difficult to disconnect the dots because you think of these huge NASA programs way back that were just huge national programs versus commercial entities trying to do this, which is very different. So I think not having unlimited resources is a challenge, but as we've seen with Blue Origin, even when you have unlimited resources, it's still not a given – you can still get delays. I think also, if you go back to 2015-2017, there were literally over a hundred aspirational small launch vehicle companies. What you find is that a lot of those companies were basically being driven or created by entrepreneurs who really weren't hardcore engineering, physics-minded people. So I think you had a lot of promotional folks that just said, "Hey, everyone's talking about how much money you can raise in space and start a cool rocket company." In reality, there are very few people on this planet that can really execute a real rocket development program. In fact, if you look, you can count on both hands how many entities in history have done it, including governments. So I think there was just this fluffy, promotionalist opportunity for people to go raise a bunch of money, and then we saw what happened with that. If you've seen "Wild Wild Space," the documentary on HBO, I think there's a pretty good example of one of those in there, and I think that was even one of the more quote-unquote "credible" ones that actually got through the public process. Think of how many others didn't and kind of ended up hitting a wall. It's just an incredibly complex thing because battling physics is a challenge. When you've got a rocket like Electron, for example, it has roughly 66,000 parts. In a lot of cases, it takes one of those parts to fail, and you've lost the mission. So there's very little room for lack of quality control. I think what we still haven't seen is we're the only small launch company that's actually managed to scale and be launching dozens of times. You find other people where – and we've said this before – building your first rocket is relatively easy. Building your 50th rocket is actually harder than building your first rocket because instead of your engineers and people like Pete lovingly looking at every little threading of a screw and nut, because they designed it, they know exactly how it's supposed to look when it's assembled... Well, now on the 50th rocket, you've got assembly techs following work instructions. They didn't design it, they don't know the impact of something being off by a few degrees or being over-torqued or something else. So it's complex in not just designing the vehicle but then also doing it in a way where you can actually do it reliably, consistently, and actually make money doing it. It's just really tough on almost every aspect. But the great thing is, once you've figured it out and you've cracked the nut, then you've got a fairly protected area. To your earlier point, this market has not commoditized. We don't believe it's going to commoditize because there are very few people that can actually pull this off, and I think the window for raising the amount of capital that was necessary to let you try has closed. So I think the launch companies that you see today are probably the launch companies you're going to see in the future at most. **Edison Yu:** [20:49] I love the example about having Pete and all the PhDs around for the first one, and then by the 50th, you have to teach someone who probably doesn't have that pedigree. Maybe it's a silly question – how does one get comfortable along the way of transferring that level of responsibility to someone who isn't Pete or the team of PhDs working on it? **Adam Spice:** [21:20] You just have to instill in the organization the importance of quality. We give practical tests to most if not all the people, certainly people that work on the production floor, whether you're a production engineer or a tech. You have practical tests to see how you move your hands and how you place your tools and how you replace your tools. We select very carefully for people that have the same level of attention to detail as Pete, for example. It's a very rigorous selection process. Part of it is we have a reasonably high turnover rate in those functions because some people just don't make it, and you figure that out relatively quickly. Even if they get through the exam, you might get them on the job and realize it's not quite working out, so we have to make a change. It really comes down to culture and making sure that you instill that quality culture in every role. ### The Case for Neutron **Edison Yu:** [22:21] Let's talk about Neutron, which I think there's a lot of excitement around. Can you just remind us what are the main reasons for moving to develop a larger rocket? **Adam Spice:** [22:35] There are a couple of very clear reasons for us. I guess the most basic is the fact that there's a very large TAM in deploying a larger size spacecraft. Electron can deploy up to 300 kgs to low Earth orbit, but there are a lot of spacecraft that don't fall within that category. Where there are a lot of spacecraft in that mass class, when you want to deploy a constellation, you want to deploy multiple of those into a single plane, and so it's just not efficient – there's not enough time to do thousands of Electron launches to deploy a constellation. So it's all about getting a greater number of satellites on orbit more quickly to support the constellation deployments that we see taking place today and in the future. That's probably the most primary rationale for the vehicle. But there's a secondary one – if we go back to the very first interview I had with Pete back in 2017, I said, "Well Pete, what do you really want this business to be? What are you trying to create here?" He didn't say, "I want to build the world's most dominant small dedicated launch company." He said, "I want to build an end-to-end space company." I said, "Okay, what does that mean?" He said, "We're going to be able to design satellites, build satellites, launch satellites, operate those satellites in orbit so that ultimately we can have our own assets in orbit." He said from the first day, "I want my own constellation assets in orbit, and I want to generate recurring revenue from those assets in orbit." I think we've seen that SpaceX is more than 10 years older than we are – they got there faster than we did, but I think the models are going to look fairly similar. Now, are we likely to go after a Starlink-sized constellation? Probably not, not anytime soon. It'll be a much more targeted application where you would need dozens or hundreds of satellites, but probably not tens of thousands of satellites. But ultimately, we're very clear that we will have our own assets on orbit, and we're going to create that next leg of the growth stool off of the application side of the market. **Edison Yu:** [24:49] We need Neutron for that, right? **Adam Spice:** We're very clear that if you really look at what has enabled Starlink's pretty amazing success to date, it's been the launch vehicle. If SpaceX didn't have a reusable Falcon 9, Starlink would not be what it is today, and we think the same thing. We believe that it's a huge advantage to have a reusable medium-class launch vehicle to deploy your own assets because if not, then you're at the mercy of merchant launch providers who may have conflicting interests or needs and demands on their own capacity. We think it gives you a very defensible and almost unassailable position if you have that capability. ### Space Systems Business Growth **Edison Yu:** [25:41] I want to come back to that, but beforehand, on space systems – this is a business that has actually gotten quite large and is growing very quickly. I think maybe people don't realize that because the company is called Rocket Lab, so you obviously think of rockets. Can you go back to the genesis of that? I know it ties into the bigger theme, but you made several acquisitions. How did you kind of put that business together, considering you started off as a rocket company but now you actually have a very fast-growing, potentially lucrative space systems business? **Adam Spice:** [26:23] It came from Pete saying, "First thing I'm doing, I'm developing the Electron launch vehicle." Once we had a couple of successful launches on Electron, at that point Pete said, "All right, time to start working on space systems. We're going to use our Photon – our kick stage from the rocket – we're going to turn that into a satellite as a kind of first demo or proof of concept." So he said, "Okay, tell me what it takes to build a satellite." We assembled a team, and they said, "Here's the bill of materials for a satellite." It had things like reaction wheels and star trackers and batteries and all these different things. Pete said, "Okay, first one on here – reaction wheel. Let's call up the leading supplier of reaction wheels for the small satellite market and get some of them delivered." So he calls up Doug Sinclair at Sinclair Interplanetary and says, "I need X number of reaction wheels." Doug goes, "Okay, that'll be about 12 months – I'll deliver you some reaction wheels then." Pete's like, "12 months? Are you kidding me? This is not how you grow a nascent industry into something huge – by waiting a year for a reaction wheel!" That really put us on the path where we sat around and said, "Okay, let's revisit this. Let's look at this bill of materials for the satellite and identify each one of the critical subsystems that could be a choke point, and let's go acquire that." So Sinclair was the first part of that, and Solero was another piece, and then PSC was yet another piece because it doesn't make sense to develop and build these satellites if all of a sudden you go to buy a separation system and you have to wait 12 to 18 months for that. It was all focused around how do you eliminate choke points and create more self-determination in your model. Along the way, we developed our own radios and our own composite capabilities and different propulsion systems. We've been very consistent in eliminating those choke points and bottlenecks that allow us to ramp much more quickly. That's really what's informed that strategy, and there are still elements that we need. Right now, we've got a great bus solution, but where we stop is at the payload side. So it's very likely that some of the things we'll continue to look to bring in-house are payload capabilities because those could also take some time to develop from a green field, and so it probably makes more sense and is more capital efficient to go acquire those things. That's one of the focus areas – there's still a few more pieces of the bus BOM that we want to get, but then we're incrementally looking more towards the payload. On the application side, those are also areas where we could consider and are considering inorganic ways to enter that market. ### The SDA Contract Win **Edison Yu:** [29:11] On the space systems, I know it culminated in the big SDA win at the very end of last year. How did that all come together? I understand it was competitive – you were competing against some very big people who had been doing this a long time, and you won. What were the factors there? **Adam Spice:** [29:31] We're pretty disciplined – we don't just take on work to take on work. We take on work that allows us to learn at somebody else's expense. We love to get paid to learn. As we were developing the capabilities that would be required to prime a mission, we were looking at the next big thing. I'll back up one step before the SDA – the real enabler was we've done a whole bunch of single missions like the ESCAPADE satellites that are going to Mars and VA Space. There's been a whole bunch of these programs that we've executed on, but then ultimately the first major constellation that we landed was the GlobalStar MDA opportunity where we're providing the bus, MDA is the prime, and GlobalStar is the constellation operator. We had to develop some capabilities there that were very unique that didn't really exist in the small satellite market – things like radiation hardening because of where the satellites were going to be operating at altitude, and also the reliability of the network had to be at a certain level given the end customer requirements. To do those things, we had to create new IP. So now we have those capabilities. Then when we went and said, "Okay, what's the next thing we need?" Well, we want to be able to prime. When we want to have our own assets and our own constellation, we need to be able to prime the entire build. So let's go win a design where we are the prime, and we have to go from bus all the way through payload and on-orbit operations. In going to pitch for that SDA program, we were able to show them all of the IP that we developed for the GlobalStar MDA that would be applicable to SDA. At the same time, we showed them the level of supply chain integration which de-risked our program much more than others. It's a little bit strange or paradoxical to think about – how can we be less risky than a Lockheed or a Northrop or L3 Harris? Well, in a lot of ways, we're more vertically integrated than those guys are. Where have these programs really stumbled? Supply chain. Since we're so vertically integrated, we don't have to bid out solar to somebody else and rely upon them delivering something in an early capacity-constrained market – same thing for the reaction wheels and the star trackers, propulsion, all those kinds of things. We're able to control much more carefully. Now, the final piece in that puzzle is going to be Neutron because now not only can we design and build in a very vertically integrated way, but now we can launch everything as well. Gone will be the days where we do all this work, build things up, and then hand it off to somebody else to launch. They're procured differently, they have different paths of procurement, but at least now we'll be in the game where we can say, "And by the way, when we're pitching the launch piece, we'll have a very well-thought-out, architecturally advantaged solution with regards to things like dispensers to make sure that we know going in what it looks like." We can pre-position everything to have the full end-to-end solution, and that's where the whole vision comes back to how important it is to be an end-to-end player. ### Satellite Services and Applications **Edison Yu:** [32:58] The last piece, which we talked a little bit about earlier – on the services side, I know you're keeping this one a bit close to the chest because you don't want to give away too much. But let me frame the question a little bit differently in a different context: There's a lot of businesses right now that have tried to do services, whether it's connectivity or flavors of that, or Earth observation. What is your general view on what's going right now? Do you think these things are very successful? Do you think there are issues of utilization? How do you think about the services right now, and what are the strengths and weaknesses that you see? **Adam Spice:** [33:40] The applications market is very bifurcated – there's a lot of different verticals. We look out there and we see potentially successful business models on all of the different verticals, whether it's Earth observation in all its different flavors. You think of Earth observation as one category, but really remote sensing – if you back up, there's a lot of different layers and verticals to that. I would say that the biggest target with a bullseye on it is comms – it's the biggest market. But even within comms, there's lots of different things you can look at. There are new services being deployed to consumers, and then there's the enterprise and the government side of things. There are lots of capabilities. What we're really focused on is how do we get paid to learn to be able to bring these complex solutions to market that we can use to our own benefit down the road for building our own constellation. I don't think we can say we're going to dogmatically do one thing in one narrow part of one market. We're going to play across different parts of the market. We're going to place a few bets. I think the one thing that's attractive to constellation operators about potentially partnering in a very strategic way with Rocket Lab is if you think about what a constellation operator has to deal with today: They have to define their spacecraft needs, find somebody to build the spacecraft, manage a very distributed supply chain, procure launch, operate the satellites on orbit, and manage the end customer dynamic. What we can say is, "Look, we can actually design the spacecraft, manufacture with our own supply chain, launch them on our own rockets, operate them on orbit," and that really allows the constellation piece of the business to focus on maximizing how to manage the customer and the data. I think that applies whether it's Earth observation, communications, experimentation – it applies to a lot of different places. But ultimately, we know we're going to pick an application that we think can have reasonable scale to it. We're not really interested in tens of millions of dollar kind of lines of business – it's got to be hundred million dollar plus individual chunks of revenue, in some cases hopefully much higher than that. **Edison Yu:** [36:13] One thing we often hear from people is that there's way too much capacity coming online. Do you subscribe to that? **Adam Spice:** [36:20] We always think about, when I came out of the broadband markets – I spent a lot of time working in the terrestrial broadband markets for the most part – people would always say, "Oh my gosh, how are you going to use 100 meg? How are you going to use a gig?" And then it went to 10 gig. So I think applications will find a way to consume bandwidth, and that's always been the case. It will continue to be the case. So I'm not at all concerned that at some point we're going to have way too much bandwidth out there – it's never been the case in comms, at least not since I've been around for 30+ years. ### Neutron Development Progress **Edison Yu:** [37:03] Just one last one for me – I think we can conclude on Neutron. Obviously, people are very excited about a maiden launch in the middle of next year potentially. How are we feeling about that, and what should we be looking out for in the next three to six months as some key milestones? **Adam Spice:** [37:25] I can tell you I feel a heck of a lot better now than I did two months ago before we had a successful hot-fire test of Archimedes. Everyone's focused on the fiery "hot end of the stick," which is the engine, and rightfully so – it's always the long pole in a rocket development program. So getting that right is important. I think as we've talked about before, we took a very different approach in developing Archimedes. We didn't develop a PR piece or something just to do a demo – we built this engine with flight hardware, so we can go directly from R&D into production. That takes a little bit longer, it's a little bit riskier process, but it gets back to the capital efficiency. That's the most efficient way to develop an engine. That's why if you think about the ability to deliver a program like Neutron, including all the infrastructure, everything around it, for $300 million – that's unheard of. So you've got to do things differently, and Archimedes development was part of that way of doing things differently. But there are other work streams. When I think about the rocket development program, you've got propulsion, you've got structures (which are tanks, fairings, and all those kinds of things), you've got avionics and ground communications, and you've got infrastructure – and that infrastructure could be pad infrastructure and manufacturing infrastructure. All four of those work streams are going in parallel. Everyone focuses on the engine, but there's a lot of really intense things going on in those other three work streams. We've got eyes on all of those things, and they're all progressing very much in step. What you don't want is for one of those things to come out of step. If you're lagging on engine and you're racing to finish your pad at Wallops, you're going to deploy capital way quicker than you really need to, and so it's all about timing these things to make sure they all come together at roughly the same time. For the most part, it's coming together that way. I would say overall, we did have to push the Neutron program out by about six months earlier this year. That wasn't because we hit a roadblock or had a technical challenge – it was the fact that it just took longer to gather momentum on the program because hiring over the last couple years has been a difficult thing to do compared to other periods. Now we've got that critical mass and are able to continue to execute on the plan as we anticipated. So now we feel much better – we don't see any glaring technical risks, we don't see any impediments to getting the infrastructure for the pad in place, we largely have all the production infrastructure in place. We're leveraging a lot of the avionics from Electron, a lot of the structural work we're leveraging from Electron with carbon composites. The real big piece of innovation was around the engine – this different architecture for the engine versus Rutherford for Electron. Now that we've got a successful hot-fire, I think we've cracked that nut, so I sleep much better now. **Edison Yu:** [40:39] Fantastic! Well, we're all certainly very excited for that. I'm sure we could chat for much longer, but I want to be mindful of your time. Adam, thank you so much for joining us. This is Podzept from Deutsche Bank Research. I'm Edison Yu, and thank you everyone for joining. [40:51] *[Closing disclaimer: This podcast has been produced by Deutsche Bank and may contain research as defined in method 2. The information discussed is believed to be reliable and has been obtained from public sources believed to be reliable, although Deutsche Bank makes no representation as to its accuracy or completeness. Opinions, estimates and projections discussed constitute the current judgment of the speaker at the time of recording. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. For further important information, please visit research.db.com]* **Adam Spice:** [37:25] I can tell you I feel a heck of a lot better now than I did two months ago before we had a successful hot-fire test of Archimedes. Everyone's focused on the fiery "hot end of the stick," which is the engine, and rightfully so – it's always the long pole in a rocket development program. So getting that right is important. I think as we've talked about before, we took a very different approach in developing Archimedes. We didn't develop a PR piece or something just to do a demo – we built this engine with flight hardware, so we can go directly from R&D into production. That takes a little bit longer, it's a little bit riskier process, but it gets back to the capital efficiency. That's the most efficient way to develop an engine. That's why if you think about the ability to deliver a program like Neutron, including all the infrastructure, everything around it, for $300 million – that's unheard of. So you've got to do things differently, and Archimedes development was part of that way of doing things differently. But there are other work streams. When I think about the rocket development program, you've got propulsion, you've got structures (which are tanks, fairings, and all those kinds of things), you've got avionics and ground communications, and you've got infrastructure – and that infrastructure could be pad infrastructure and manufacturing infrastructure. All four of those work streams are going in parallel. Everyone focuses on the engine, but there's a lot of really intense things going on in those other three work streams. We've got eyes on all of those things, and they're all progressing very much in step. What you don't want is for one of those things to come out of step. If you're lagging on engine and you're racing to finish your pad at Wallops, you're going to deploy capital way quicker than you really need to, and so it's all about timing these things to make sure they all come together at roughly the same time. For the most part, it's coming together that way. I would say overall, we did have to push the Neutron program out by about six months earlier this year. That wasn't because we hit a roadblock or had a technical challenge – it was the fact that it just took longer to gather momentum on the program because hiring over the last couple years has been a difficult thing to do compared to other periods. Now we've got that critical mass and are able to continue to execute on the plan as we anticipated. So now we feel much better – we don't see any glaring technical risks, we don't see any impediments to getting the infrastructure for the pad in place, we largely have all the production infrastructure in place. We're leveraging a lot of the avionics from Electron, a lot of the structural work we're leveraging from Electron with carbon composites. The real big piece of innovation was around the engine – this different architecture for the engine versus Rutherford for Electron. Now that we've got a successful hot-fire, I think we've cracked that nut, so I sleep much better now.