[[Home|🏠]] <span style="color: LightSlateGray">></span> [[Interviews]] <span style="color: LightSlateGray">></span> May 8 2024 **Insider**: [[Peter Beck]] **Source**: [Vince is Bullish](https://www.youtube.com/watch?v=T__1ubfs_iE&t=849s) **Date**: May 8 2024  🔗 Backup Link: https://www.youtube.com/watch?v=T__1ubfs_iE ## 🎙️ Transcript >[!hint] Transcript may contain errors or inaccuracies. **Vince:** Hello everybody, welcome to the channel on a very special episode. On this channel, we believe in investing and knowing what one invests into. This is done by continuously studying a company and by crowdsourcing research. We believe that if we do this, we can get an edge on Wall Street and have exceptional results. Whereas Wall Street only looks at Excel sheets and numbers only showing the past, we try to understand what the future can bring. Almost a year ago, I wanted to write a bearish article about a company called Rocket Lab, but once I started studying the company, I was amazed by what I saw. I saw a founder who has overcome the impossible and started a successful rocket company in a remote country without venture capital, any aerospace industry to rely on for suppliers, with no possibility to hire employees with previous experience, and all of this on a shoestring budget. By all odds, this should not have worked, but it did, and in a spectacular fashion. I started Rocket Lab Weekly with Matt 31 weeks ago to be able to keep up with Rocket Lab on a weekly basis. We are both proud members of a growing community where we hope to see this company grow into a generational space company. Rocket Lab is a long-term investment—it's exciting, it's making life better for humanity, and we believe the wait will be more than worth it. Today we have a very special guest. We are honored to have Peter Beck, CEO of Rocket Lab, here to speak about Q1 earnings and answer some questions we have. So Peter, thank you so much for being here and congratulations on a great quarter. **Peter Beck:** Thanks very much guys, it's great to be here. ### Launch Manifest and Scheduling **Vince:** The first question I want to ask—interesting questions that analysts have not asked you before. So we in the Rocket Lab community obviously want to see your company scale a lot, and I see a lot of questions about worries about the scalability of the launches and the launch manifest wall, as you call it. Do you think there's a way in the future that you can make launches more secure? For example, if the solution would be that Rocket Lab does all the manufacturing of all the payloads, would that be something that would secure the uncertainty? **Peter Beck:** I think the first thing to say is don't worry about it. The reality of a launch business is that launches move around. People buy an Electron ride because they get to choose when they launch and where they go. So if the spacecraft goes into T&C [Test and Checkout] and there's an issue, they need the flexibility to move it—that's the value of the service. It's not just unique to us; all launch vehicles and all launch companies kind of struggle with this. It's just a little bit more obvious for us because we launch really frequently. If you go back through the origins of time, all launch companies are at the mercy of when the spacecraft turns up. So don't worry about it. When we're just a launch company, a launch moving out of a quarter was a big deal. These days, we don't really see any major or financial impact if a launch moves out of a quarter. The reality is, this is just the business. There's nothing we really can do to make sure a satellite doesn't fail in a T&C chamber from a customer or something like that. They turn up when they ultimately turn up. We collect 90% of the contract's value from a cash perspective until launch. Generally on launch, two things happen: we collect the last 10% of the contract on intentional ignition, and we get to recognize the revenue. But all the way through that process, we're collecting cash against those milestones anyway. Launch cadence is a metric that's very easy to track, and of course we all like to know how many launches we're going to do in a year, but it's kind of irrelevant—well, it's relevant if they all move out and there's nothing. I can't remember a manifest review board where the table hasn't been upended and we're picking all the cards back off the floor to figure out where all the launches get placed back together. It's just part of the business. Now we have a big enough and a diversified enough company that if a launch moves out of a quarter, it doesn't really affect the business. I don't know how we message that better, but we're trying to communicate to everybody: this is just the business we're in. **Matt:** The thing that I'm observing, just to iterate on that, and then I'll give it back to Vince to ask the second question, is the way I interpret it is: it's a growing space, you guys have excess capacity to meet that demand, and with that, as the demand grows, you'll be able to make sure that you have all your slots filled, right? Had you had additional people that were able to say launch this year and say, "Okay, we need something in May," you guys would have had the capability to do that. **Peter Beck:** Yeah, and the challenge is that it's tempting to kind of double book spaces, but then I never want to have to call up a customer and say, "Hey, sorry, the reason you're late..." because you got to remember that that's the service they're buying. So we have to walk this fine line between squinting just to see, "Yep, we think this is going to be on time, it's not going to be on time." Sometimes we'll double book because we know that some customers, especially governments, generally never make it on time, so we sort of hedge our bets there. But we don't want to be in the situation where we have to call up a customer and say, "Sorry, I know you're supposed to launch today, but you're not." So it's just finely balancing all of those objectives. ### Neutron Development and Customer Strategy **Vince:** Thank you so much for the color on this. Next question: when it comes to Neutron, we understand that we will be seeing contracts after the hot fire test when the rocket is pretty close to flying. It was mentioned a few times that Neutron is a mega constellation builder and that customers will order multiple launches of Neutron. Could you give us an idea how many launches a customer would order and why? Is it possible that you get orders to produce a mega constellation as an end-to-end supplier and then also get the launch as part of that contract? And if that is the case, then you constantly have to replenish the constellation, and that would book up a pretty big capacity of Neutron for many years ahead. So who is the ideal customer of Neutron, and how would they order? **Peter Beck:** That was a bunch of questions in there. I'll start from the top. With Electron, I had to raise capital out of VCs, sell a bunch of launch to show that there was a demand for the product, and it took us years to flush those low-value contracts out. We're just in a different space and different league now. The reality is that if you try and sell a launch to anybody with a rocket that doesn't exist, hasn't proven itself, it's going to be cheap. There's just no fuss on the demand. To me, it just makes no sense to sell something cheap when you know there's no fuss on the demand. I'd much rather turn up with a rocket that's working when there is incredible demand and have it priced at what it's worth, if not even higher. We'll sign a contract with anybody if they want to buy a full-price rocket under standard LSA conditions, because there's a lot of hype out there. You can sign any launch contract you want with zero money down, cancelable at any time, and make a number and the books look good, but it's not real. For us, it's kind of a game of steering because we need our customer on Neutron to be there when the rocket's ready, and they need us to be there with the rocket when their satellite is ready. To your point, there's lots of one-or-two kind of deals you can do, and that's fine, but the majority of the conversations we're having are with folks who want to buy lots of launch, not one or two launches, but lots of launch. It's a wait-and-see on both sides because we don't want to sign a big contract, make a commitment to a customer, bring the rocket to the pad, and then have all our eggs in that basket and that customer's late. We play this game with Electron all the time. So if you're going to make a commitment to somebody, you have to keep it. We need them to be there on time, and we also need to be on time. The best thing to do is just bring the vehicle to market. There's no shortage of demand, and we'll make the best decisions for the business at that time. We can sign whatever multi-year and multi-launch contracts that we want. To the second part of your question, there is really no ideal customer. Well, it's not entirely true—a great customer is a customer that is incredibly predictable, has great large amounts of volume, and as you alluded to, continuous need for replenishment that's very predictable. Wall Street will love that. But Neutron is designed to serve more than just that kind of customer. Neutron is designed to serve government customers. I think most people know that we track the NSSL [National Security Space Launch] program very closely, and there's billions of dollars worth of launch in those various lanes. So that's also a great, steady customer—a little bit less likely to be on time, but certainly a great customer. We're not all in on one particular vertical; it's really a vehicle that can do a lot of things. But I think the important takeaway there is just hurry up and wait, and don't do something that you're going to regret in the future. **Vince:** I appreciate it. This is the ultimate long-term thinking because you could come out with the BS contract as you said and really pump up the stock, and there's no point—in the long term, you just destroy credibility at that point. **Peter Beck:** Right. When it comes time to actually launch them and, oh, they were never launches, then you look a little bit silly. **Matt:** You guys definitely have the financial framework and strength to really wait out and, like you said, prove the launch vehicle, and then people will be showing up at your door knocking, if not banging down the wall I assume, to be able to fly on Neutron. **Peter Beck:** Look, I worry about a lot of things, but of all the things I worry about, Neutron demand is just not one of them. We just need to get that vehicle to the pad and get it dialed in. I'm more worried about how we can scale that quickly to meet the market demand than I am about whether or not there are going to be customers. **Vince:** And we also really appreciate that you said on the conference call—I think it went unnoticed—that you said the delay was due to that you were not just trying to rush out an engine; you were trying to make it very easily producible. So we really appreciate that long-term thinking. **Matt:** I love that. **Peter Beck:** If the goal here was just to make fire, then we could have put a billet copper chamber on the engine test cell, pressure fed it, lit it up, and called it fire. That wouldn't be a big deal. But I think you saw from the images of that engine that's a real engine—that's not a science project. Adam and I joke often that we literally spend all our money on concrete, steel, and factories. You see the rocket, and everybody kind of focuses in on the rocket, but the rocket is really just a tiny element of the program. There's factories and engine test cells—there's just so much dirt moved and concrete in the ground to even just get to building an engine and putting it on the stand. That bit is, I think, less understood. You can rush all that stuff, and make no mistake, we've definitely taken a minimum viable product for what we need there. We're not gold plating factories; we're just doing what we need to do. But there's just so much inertia behind all that stuff before you can even get an engine out the factory door. **Vince:** Awesome. Well, congratulations on having it on the test stand. Will you post the hot fire test as it comes out, or will we have to wait until the next earnings call to see images of that? **Peter Beck:** It sounds like we need to post the engine from what I'm hearing there as we go through. **Matt:** I'd be watching it for sure. **Peter Beck:** To be fair, we often just get busy and get our heads down and just get stuff done. So we'll endeavor to share that a bit. ### Long-Term Vision for Rocket Lab **Matt:** This one's a little bit out of the box. It doesn't necessarily pertain directly to Q1, but if you think about, as you do, steering the ship of what is Rocket Lab, what excites you most about Rocket Lab the next 12 months, five years, 10 years? And hypothetically, what do you see Rocket Lab developing into, and do you have a wave of innovation beyond Neutron? **Peter Beck:** The joke around here is that a Rocket Lab year is like a dog year, so trying to look out 10 years is an extraordinarily long time to try and predict. But what I will say is that for me, it's super crystal clear where the space industry is going. The space industry is at a total inflection point. I think one of the analysts asked a really good question on the call: "Why is Raytheon getting out, and a lot of these primes getting out of these contracts and focusing on being a component supplier?" I mean, if you said that five or 10 years ago, they would never say that. These primes—I think the reason why that's occurring is because the cost-plus era of non-delivery is over. When you've got companies like us that will firm, fixed-price a contract, put skin in the game, and actually deliver it, then that is just a totally different way of working with respect to these old primes. So you're just seeing a complete change in the way the space industry is going and being reformulated. To me, it's crystal clear: you need your own rocket; you need the keys to space. That's a fact. If you want to be a large player in this game, having the keys to space is the key enabler. The rocket business is super hard, super lumpy, and you guys see with Electron, as we're just talking about, the launch manifest whack-a-mole—it's super lumpy and incredibly difficult. But once you have the keys to space, you have an ability and a power to develop such a scale that it's pretty hard to imagine. The large space companies of the future are going to look like SpaceX and Rocket Lab. That's a fact. I just don't see any future where those two things aren't true. So as I look out, it's just a careful step after step, methodical execution of the plan. I think people haven't seen what we see, and I think it's slowly being undressed in front of their eyes as you see some of these primes pull back. You start to see the power of having your own launch. Take a look at Starlink as a great example of this. All of the other comms players in the markets are rocks at the bottom of the ocean at this point. If you've got internet from space, how can you compete with somebody who can throw just more spacecraft up at the drop of a hat and continue to iterate and expand the service? There's no way to compete against that. Well, there is—the only way to compete against that is to have your own rocket, have your own ability to build whatever satellite you need to build, and that's how you provide the service. That's always been the vision for the company and where we're trying to go. We're just taking a very methodical path there rather than pushing all the chips into the table and hoping for the best. We're trying to build business lines along the way, and diversification and stability along the way, such that we never ever get into a scenario where we decide one day that we might be an internet from space company and bet the whole company on it. We're not going to do that. We're just going to step by step methodically make sure that it's rigid all the way. ### End-to-End Space Services **Matt:** I'm going to combine my next two because I think it plays really deep into that kind of avenue. Obviously, currently revenues are split into Space Systems and Launch, but there are different business groups that you're kind of growing into—like Operations, Software, Consulting, Contracting. And then specifically, maybe one of the things I wanted to tie out is obviously SOCC, the Satellite Operation Control Center that you guys have in Denver. Do you see a market opportunity for operating other people's satellites as well? **Peter Beck:** Totally. End-to-end is end-to-end. Methane Sat project—never built the satellite, never launched a satellite, but we operate the satellite for them. Another example is the Victus Nox contract that we just won. We're building the satellite, it'll be full of all of our own components, we're launching the satellite off our own rocket, then once the satellite's in orbit, we're providing the service and we're doing all the RPO or proximity operations, and basically just delivering a capability to the government. The government's not in the control room, the government's not building the satellite or procuring a separate launch—it's end-to-end. They're just procuring a capability. To my point before, this is where it's going to go. If you're a company that wants to provide a service to a customer, you don't want to have to become an expert in satellite manufacturing and launch procurement. You just want a service. I think that's ultimately where it's boiling to, and that Victus Nox contract I think is way more significant than people realize, because I don't know of another time when a government has just procured a capability like that where it includes all the satellite, all the launch, and all the operation. ### Acquisitions and Integration Strategy **Matt:** I appreciate that; that's clear. I'll combine my next two questions as well because they're very similar. So obviously you're several years on from the multiple transformative acquisitions that you guys made in 2021 and 2022. What has the group learned? How's the integration gone? Would you have done anything differently? I personally think the synergies and everything that you guys have shown—revenue is obviously showing up, it's two-thirds of what you guys showed in Q1. And then coupling that with the other question, obviously inorganic options were mentioned in the first quarter earnings call. So what are you really looking for? Is it horizontal integration? Is it vertical acquisitions? Are you deepening group expertise that you already have? Are you looking for new expertise? Combining all that, that's a lot of questions, but... **Peter Beck:** It is, but it kind of all drops into the same thing. There's kind of two reasons we will do an acquisition, or maybe three: First, the space supply chain is characterized by a bunch of really good mom-and-pop shops that are at subscale. When you ask for thousands of something, you just kind of simultaneously watch people's heads explode. So if the supply chain cannot provide us the assurity to deliver that we need, then we'll go and vertically integrate. We don't have a particular religion around vertical integration other than if it's too expensive and it's too slow, generally we need to own it because we can make it cheaper and faster. So from an acquisition standpoint, that's one of the lenses we look through. The other lens we look through is: is this going to be strategically important to us in the future for stuff that we think we're going to do? Or is it a particularly really good business that we can do a "1 plus 1 equals 3" with? Generally, those are things that are also interesting. I wouldn't say pure financial plays for sure—none of the businesses we acquired were just pure financial plays. But in all those instances, there were capabilities that were too slow or too expensive, and also things that we could do a "1 plus 1 equals 3" with. Sinclair Interplanetary is a great example. Doug used to produce 150 reaction wheels a year. He would close his order book in August. We have one customer now that—this year they'll consume over 2,000 wheels. So we're able to take these technologies, apply the Rocket Lab scale to them, and grow them as well. In that example, that's particularly useful for us because that wheel then is used on all of our platforms. So we get all the advantage of having that wheel at scale on our platforms as well. That's kind of how we look at acquisitions. One of the reasons why we did that convert was to make sure we had plenty of dry powder there because I think this year is going to be really interesting. I think the nuclear winter is continuing, and the real companies will survive. There'll be some real companies that, just through unfortunate circumstances of timing, will find themselves in an issue, and I think there's a real opportunity for a lot of value creation. So we always keep a pretty full pipeline of stuff we're looking at. But just so you realize, and your viewers and investors realize, those lenses of either "it sucks and we need to own it" or "we think it's going to be really strategic for us in the future"—those are kind of the make versus buy decisions we'll have as we go through. ### Competing with SpaceX and Market Differentiation **Vince:** On this channel, there's a lot of retail investors who watch us obviously, and almost all of them really like Rocket Lab. There is the group who is like, "Okay, I'm investing in Rocket Lab," and then there is a much bigger group who is afraid to pull the trigger because of SpaceX. They are worried that Starship development is going too good. They hear stories that once Starship is ready, then there will be a bunch of Falcon 9s that are going to be obsolete, and they will be discounted into oblivion, and how can anybody compete with that? How would you address these investors, and what is Rocket Lab's edge over SpaceX? Is it the end-to-end servicing of the customer and including launches, and thereby maybe securing the schedule? Or are there other advantages? **Peter Beck:** I think probably a similar thing was said when the A380 was produced—that there would be no 737s anymore, and certainly no private jets, and everyone would just be flying around in A380s because the cost per seat was so low. The world doesn't work like that, and physics doesn't work like that. Think of Electron as the private jet. It's expensive, but when you need one and you need to get somewhere, it works extraordinarily well. And the Falcon 9/Neutron is a 737, which is the main staple of all commercial air travel. If you've got a constellation that is your typical constellation, you need to go to multiple planes. So there's no point in putting 15 tons worth of satellites in a rocket that can lift 150 or 100 tons. It's just a whole bunch of dead space, and the cost per kilogram metric in that sense is kind of irrelevant because, at the end of the day, you don't actually sell cost per kilogram—you sell cost per rocket. The cost per satellite, if most of the rocket is empty, is really, really expensive. It's not cheap at all. I think Starship is a great program; it's super exciting to watch. It may or may not be a Howard Hughes moment; we'll wait and see. I think it'd be crazy to second-guess Elon, but it's not super clear to me, other than if you want to go to Mars and do those other things, where the massive commercial advantage comes from. I think it'll be a super great vehicle for lifting heavy stuff, and there's definitely a need for that, and it's going to be great. But it doesn't eliminate the need for the 737s or the medium-class launch, and I say that with some confidence because it's a physics-based bound problem. It's less tied to markets; it's just that there's no point in flying an empty rocket because the cost per rocket or cost per satellite just goes through the roof. More to your question, "How do you compete against SpaceX?"—the companies are significantly different but also significantly similar. It's important to remember that what we're trying to do here is not just provide a launch service to space or build satellites for everybody else. I think right now, in this phase of the company, that's where we're at, but the end point here is an end-to-end company where you're providing services. Launch will become—I fully predict that 50% of Neutron launches will be other people's, and 50% of Neutron launches will be ourselves. That's how I kind of see it rolling out in the future. There's a great example of that already, and it's created a very distinctive change in the industry, and I think that change is here to stay. I think, like I said before, there are going to be big space companies in the future, and they're going to have their own rocket. One's going to be SpaceX, one's going to be Rocket Lab, and we'll see how history kind of dictates that in the future. But I think if you don't have your own launch vehicle of that scale or medium-class launch vehicle, you're kind of done for. **Vince:** I understand. You gave me a totally different angle I never thought about—that the constellation has to be... you can't just, if it's a thousand satellites, fit the 1,000 satellites into one rocket because they need to go to different places, and then the Starship is too much. Then it becomes super expensive to operate. ### Conclusion **Vince:** Thank you so much, Peter. I know our time is running out now. There's rumors that there might be a launch party at the first launch of Neutron for retail investors. Is it something we can count on? **Peter Beck:** Well, it's a rumor I've never heard, but it sounds like a good idea. So maybe we just might make that happen. **Vince:** Awesome! Well, thank you so much. Congratulations on a great quarter, and looking forward to some amazing news from Rocket Lab in the future. **Peter Beck:** Thanks guys. Thanks for your support. **Matt:** Thanks Peter. **Vince:** Cheers. **Peter Beck:** Cheers.