All right. So, welcome everyone. This is a very special interview today with Sir Peter Beck and Adam Spice of Rocket Lab. Sir Peter Beck, you put on a special jacket a few days ago and you seem to be having the same problem as me. It must be something with the washing machine that the clothes seem to shrink a little bit. But you have this jacket when you guys have done something important, and that's what we're here to discuss. So what have you guys done this time?
Yeah. No. Yeah, thanks very much. I only own like five jackets or less, probably less than five jackets. So the blue one comes out when something's important. But as you pointed out, I'm sure it's gone through the wash. Totally sure, because it can't be physical for it to shrink in all directions that much. But anyway, yeah, so obviously we announced our intentions to acquire Iridium, and I think you guys have known our aspirations for a long time and we've made it pretty clear. And I guess I'm keen to hear from you guys. Were you expecting Iridium or were you expecting something else? I mean, we don't raise capital for no reason. What were you guys thinking?
Oh, I was personally not expecting Iridium. I have to admit, sometimes I feel like I have a sense of what's going on behind the scenes, and yeah, I was dead wrong this time, but fun to be surprised.
I would say in retrospect, obvious choice in retrospect, but yeah, I was not expecting it either. I think a lot of us were hypothesizing Equites or Equatus, however that's pronounced. And when your opener to the video, and I don't know if it was on purpose or not, and you said presenting the space application equitous, it was not, it was an equation, but that's perfect. I love it. I think this is even better.
Yeah, I mean, I don't know if you guys know, but on Rocket Lab Week, Scottto, who actually unfortunately couldn't make it today, he actually called that you guys would acquire Mynaric. And I think Iridium came up once on one Rocket Lab Week and everybody was like, oh no, no, no, it's too big, it's not a distressed asset and it doesn't fit the mold. But somehow in retrospect it feels like a perfect acquisition.
No, I was going to say from a fit perspective, I mean, I'm personally very happy that we were able to find a way to get into the applications market that was also incredibly, I'd say, investor friendly. I mean, to be able to essentially double the size of the company immediately upon closing the deal, become meaningfully cash flow positive for essentially single-digit level dilution, to me is kind of a master stroke. So yeah, to align on the very strategic element of getting into the applications and not making it financially punitive. I think those are two things that don't often come in concert, but it certainly did in this case. So yeah, we're pretty happy about that part of it.
Yeah, I mean, it's very much a Rocket Lab deal in that sense. And we've known the guys over at Iridium for many, many years. Something that's less well known is when I closed the B round, Scott Smith, who was the late Scott Smith, who is a COO of Iridium, actually was on our board for probably about five years. So we've known those guys over there for a long time.
That kind of actually touches my first question. And personally, I know there's a lot you probably can't share, but I'd be fascinated to know any kind of backstory you can tell us. How long have you been interested in Iridium? Has it been like the stars kind of aligning recently with so much dynamic things happening in the markets, or have they been in your mind for a long time?
Yeah. Well, I think we've sort of always breadcrumb'd that obviously an application, but also that one expedient way to get into an application is acquisition. And then if you look across the field who is actionable and who has valuable spectrum, there's actually not that many. And for us, we've always got a bunch of things going on in the background, and some of them are relatively small and some of them are big. So it was just the right timing and the right kind of deal that we wanted to do, and everything sort of converged to make it happen.
Yeah. I would add to that a little bit, like in many things in life, timing is everything, right? I think this was probably not a deal that could have been done a year ago just because of our relative valuations, and it's probably not a deal that can be done a year from now given the competitive dynamics around spectrum and kind of where all the various current deals are in their process with regards to spectrum elsewhere in the market. So I think it's just one of those things where the stars literally align for us on this, and what they say, I forget who said it first, where your definition of luck might be when opportunity meets preparedness. I think it's a good example where we were prepared and we were able to take advantage of the opportunity. I think very much like the Virgin Orbit facility deal in Long Beach where we got this amazing asset for pennies on the dollar because nobody else was really ready to pounce on it when it presented itself. So yeah, I think life timing and being ready for opportunities when they present themselves is super important, and we feel good about where we were at.
Yeah, couldn't agree more. It's like you make your own mark. All right, congratulations guys again. So the next question is, Iridium that you bought is a mature company and they had amazing cash flow but relatively modest growth, and following the acquisition do you see a meaningful opportunity to accelerate Iridium's revenue growth? Because we obviously understand that their margins are going to expand because they will have access to better and cheaper launch and better and cheaper satellites and everything. So if you're accelerating their growth, where do you see that growth coming from?
Yeah. Well, I mean, it's like any Rocket Lab deal, right? We're not just going to sit on our hands and just leave it to do its thing. We very much Rocket Lab-ize it and put our magic in there. And part of that magic is scaling. So those guys have built an incredible business, and if you look at the history of Iridium, they are the original entrepreneurs in space and the space hustlers. And it's amazing, and they're a super innovative team in there. And if you just look at what they've got coming down the chute right now, the acquisition of Aireon, the aviation business is a really important element and mission critical. I mean, on the top of my little helicopter dashboard, there's a little box with an Iridium logo in the middle. And every time I jump in the machine, I push that little button and I know that if I have a bad day and end up in the bushes or in the creek or wherever, somebody knows where to find me. So I'm a customer of the aviation product even today. And I think there's huge opportunities there.
But the PNT stuff around GPS-denied areas is really truly unique, and I think if there's one thing that unfortunate conflicts have shown, the importance of GPS can't be understated. So having non-jammable, anti-jam solutions for GPS is extremely valuable. So those guys have made huge leaps and bounds and are probably ahead of the pack in all of that. So that's even before Rocket Lab gets a hold of the reins. And I think the one unique thing of having a self-launching service provider is the ability to try new stuff. And the marginal cost for us to throw up a satellite with a new piece of technology on board or anything is pretty low. Whereas if you're a traditional satellite provider, those barriers are pretty high to just innovate and try really new stuff. So I think the intention here is not just to acquire this thing and sit on it. We're excited about it and we acquired it because we think there's tremendous growth opportunity.
Awesome. Thank you for that answer.
Um, you know, Adam, you mentioned previously the Virgin Orbit deal and kind of buying distressed assets and that being kind of one of the strategies that has brought you a lot of success. I've had some investors kind of reach out and say, you know, Iridium looks like they're trading at a bit of a premium compared to their historical valuation and it's a little bit different perhaps than some other valuations. I'm wondering if you could address the price and maybe just how you landed on the dollar ranges of the deal and thinking behind that.
Sure. Yeah. No, look, you're right. They have been trading at a relative premium to where they've been for the last say 12 months, but I think that's a function of the market recognizing the value in spectrum and the scarcity of it, right? I think when we saw what SpaceX did with the EchoStar spectrum and then of course what Amazon did for Globalstar, it's definitely, it feels very much like a game of musical chairs and the value of spectrum is only going to go up. So I think the thing that's interesting too about this opportunity and where we see a lot of value is there's certainly discreet value in the spectrum, but there's also a lot of value, especially for a company at our stage, not just going out and spending billions of dollars on spectrum sitting on it while we develop the business plans, the channel, the technology and get a position to get Neutron up to scale where we can launch significant amount of infrastructure. Like we really hit the ground running here in a very, very shareholder cash flow friendly way, and I think that's really what separates this asset from the others, right?
And so if you want to try to balance things out, to me it seems like we got tremendous value from, now we have tailwinds, if you will, from the financial contributions of this business versus just picking up headwinds that we'd have to fight for the next three or four, five years as we put this strategic capability into play. So no, I think there's lots of ways to look at it. We looked at it from every angle you can imagine and we came away overwhelmingly convinced that this was absolutely the best way to crack this nut. And I think once this deal closes, I think the shareholders are going to see a very different financially profiled company. I think to the earlier question about growth, that's a very, very good question because one thing that Rocket Lab is known for is delivering outsized growth, right? And our multiples and the way that people look at us is based on, you know, we're a hypergrowth company and the last thing we want to do is materially dilute that, right? So make no mistake about it, our focus is going to be on turning this into a growth engine. We think they've already got things in the irons in the fire that are going to enable that, but we'll add our secret sauce to it. And I have no doubt that this is going to be another growth factor for the company.
So, following onto that, and this one's for you, Adam, as well, taking on the 3.6 billion bridge loan is a departure from kind of Rocket Lab's historical lean net cash sort of position that they've generally utilized to keep the balance sheet pretty clean. Now that you guys have a reoccurring revenue stream, an EBITDA-positive Iridium on the books, when that deal closes, does this signal kind of a shift towards the dilution aspect that Rocket Lab's been utilizing and actually now leaning towards favoring debt for future growth opportunities? And if so, where do you think is the most appropriate sort of leverage targets that investors should expect once that kind of converts to permanent financing?
That's a really good question. You know, I think that Pete and I spent a lot of time kind of wringing our hands over this. I think when you take a pure textbook view of optimizing for cost of capital, having some amount of debt in your capital structure makes sense. But I think we both sleep a lot better at night without layering a lot of debt on our business, right? There's enough volatility and enough risk in running a rocket company and a space company that you don't need to necessarily add financial risk to the mix too, right? So look, our goal, whether it's in the short-term, intermediate, or long-term, would be to have a debt-free company that's throwing off a lot of cash, right? And there are ways to get there. I think to the extent that we feel comfortable in the future that the equity is in the right place and that's the right trade to make to equitize some of the debt, then absolutely we'll consider doing that. But you also, Pete and I are two of the larger shareholders of Rocket Lab, and so we're very sensitive to dilution as well. And we do get some pushback and I'm sure you guys have seen some of the funny memes out there about how I'm all about just diluting, diluting, diluting. We, I think the capital that we've raised, we've found ways to put to productive use, right? And the last thing that Pete and I want to do is be diluted, right? So we're very much aligned with shareholders in that. But to your point, there might be a point in time where when we're comfortable enough with the stability of the cash flow and the growth trajectory of the business that maintaining some debt in the mix is going to be appropriate. So I think it's just we'll evaluate our trajectory as we get closer to deal close and kind of see where all the pieces are lining up.
No, I appreciate that color. It's very clear. Thank you so much.
All right. So the next question is, some investors when they see this acquisition they immediately wonder whether Rocket Lab is becoming a direct competitor to Starlink. And now that Rocket Lab owns its own L-band spectrum and constellation, does that put it in competition with the other constellation operators, or are you still committed to being a neutral supplier to everyone building constellations? And how would you describe Rocket Lab's position relative to Starlink and the Amazon LEO project?
Once again, great question. So firstly, our intention is always to be a supplier to other folks. So this doesn't change that in any way. I mean, we think there's great value there. And Neutron, you've heard me say it, I'm sure if you go back and have a look at videos or whatever, it's like 50% for everybody else and 50% for us. And that's kind of how we like it. And the reason why that's that way is, the more launch opportunities the industry has, it's a self-feeding machine in the fact that the more spacecrafts are built, the more components we sell. So it's a good thing. So no, certainly we're not going to tuck up into a tortoise and just do our own stuff. It's a clear part of our strategy to be a supplier to the industry and help scale everybody else's growth as well.
Now, with respect to the Starlink thing, I mean, we're very mindful about which areas we want to play in and which areas we don't. And I think the L-band spectrum in particular is very unique spectrum. In an Iridium sense, it's global. So it's, to my understanding, the only global L-band spectrum there is that has landing rights everywhere in the world. Doesn't matter what part of the ocean you are in, what part of the sky you're in, or what part of the land you're on, you have connection. And that's very important. The L-band also is like a high-penetrating RF signal. So in bad weather and harsh conditions it's always there, whereas the S-bands and some of the other internet providing bands, they're not as robust in those environments. So I think Rocket Lab has always been really good at playing in the niches and really high-value niches, and you can build a really large and successful business there. And I think that's one of the things that Iridium has also done extremely well is capture really high value from the niches or the areas that they play. Now, and arguably there are some larger consumer opportunities with direct-to-device and things like that that now open up. But I don't think you're going to see Rocket Lab overnight become an internet provider. I think we see more strategic places to play in that sense.
Yeah. And I think that follows up really well with this question. So Rocket Lab generally is good and known for vertical integration and Iridium's model is really relying on the wholesale partners and having them kind of develop their own applications. So how do you reassure those partners that Rocket Lab's focus is either going to stay and focus on the core space infrastructure piece and then leaving the end customer hardware and relationships into their hands and hopefully being able to build on top of that?
Yeah, absolutely. I mean, look, it's a service that just cannot go away. I mean, people's lives, aviation movements, marine movements depend on it every day. So that's just kind of baseline table stakes. And then what other services we can provide to customers on top of that is just all upside and bonus. So if you're a customer of Iridium today, I think you're going to see nothing but improved service in the future.
No. Perfect. Mr. Glacis, if you want to go ahead.
Mr. Glacis, if you want to go ahead.
Oh, sure. I think you have the next one though. Do you want me to skip around?
I think Pete answered in the last question.
Okay, perfect. Thank you so much.
You guys are so organized. You've got like each of you got questions and time slots and you guys are getting serious.
I love it. All right. So, Iridium brings a lot of assets to the table. In broad strokes, how do you see those pieces fitting into Rocket Lab's overall strategy, specifically the use of flat?
Yeah. So, I mean, one of the nice things about the constellation is it's very fresh. So there's a lot of time still within the constellation before it even needs refreshed, but also the way that they've architected it is it's all software defined, so they can do a lot of stuff now. There is a point in time of course that the constellation will need to be refreshed, and at that point in time then obviously you realize the full power of a self-licking ice cream, if you will, with respect to the ability to build satellites and launch them. But I'd say it's also early days yet as to, we've got a book of ideas. Iridium's got a book of ideas and which opportunities we pursue and what particular infrastructure is required to pursue them to most utilize the spectrum. I think we're a little bit premature to be starting to talk too much about that.
All right. It would be great to be able to take a peek at that book. My god, I can only imagine.
The next question is kind of along those lines. We had an audience member who really wanted to dive in a little bit closer and consider whether or not you're considering to build a meaningful physical AI robotics drone vertical now that Rocket Lab will own Iridium's proprietary network. An industrial IoT backbone with beyond visual line of sight and command and control capability. I mean, what are the chances of Rocket Lab expanding into those realms?
It's not one I've thought of to be honest. That's a very specific application. But look, I mean, I think the point is valid that with the spectrum and the capabilities and the resources, there's endless things you can do. But you guys have always seen that we're very strategic about the things that we do and we never kind of go out on a land of hopes and dreams. We're always very sort of buttoned up about the things that we think are going to be valuable and or proven. But yeah, look, the point's made that there's a tremendous amount of opportunities in a whole bunch of different verticals that are now opened up, and that really just, I think we said it in the investor presentation, but a massive new TAM has just been opened up, and that TAM has a tremendous number of verticals, also horizontals.
Yeah. I think it's fair. You know, in our discussions with the management team at Iridium, there are a lot of things that they had thought about doing, applications that they had thought about getting into. They got a lot of good ideas, but often the business case wouldn't close because of the cost of launch, you know, the cost of building the spacecraft. And I think that whole dynamic has changed now because they've got access to a very vertically integrated company, you know, not the least of which is getting prioritized launch. Pete mentioned earlier as well, you know, our cost to put up R&D test beds is super low, right? If you look at the variable cost of launching an Electron and putting a hosted payload, you know, on a Photon bus, is like very, very low. So, I think you're going to see a lot of ideas start to percolate up through the organization. And Pete has already put the challenge out to, you know, to the team well before this deal was announced of like, hey, bring me your out-of-the-box breakthrough ideas and we're incentivizing people to do that. So ideas like you just mentioned, there could very well be things that come up through that process. So yeah, we're absolutely encouraging kind of outside-of-the-box thinking. We've already seen some of that from the Iridium team. So I think you'll see us go in some very interesting, unpredictable areas as a result of owning this capability.
That's perfect. Exciting times, definitely.
Yeah. As Adam said, we run like a CEO venture capital fund. So anybody in the company can come and pitch an idea and if it's good enough then we fund it just like a VC.
All right. I also have a question from a subscriber that is similar to the one here but I promised I will ask the question. So what's the addressable opportunity in precision agriculture and industrial logistics for the combined company and what competitive edge does vertical integration give you against Starlink, OneWeb, and other terrestrial IoT players? And believe it or not we have a lot of ranchers who follow Rocket Lab. So this is an interesting question.
Yeah, yeah, yeah, no it is, it is an interesting question. I mean, I couldn't have a number off the top of my head, but needless to say that, you know, Iridium is highly embedded into a lot of those applications already. And as we've talked about in the past, I think a lot of those applications are likely to be improved with the continued rollout and improvement and innovation that we're able to bring to the asset. So, you know, unfortunately I can't really respond exactly to that question with sensible figures or if I was to respond, I think it would probably be wrong. But all I'd say is I think that the probability of those services and those verticals improving is greatly, greatly possible. Yeah. I would add to that. I don't know if you recall, Pete, but maybe five years ago when we were first talking about what are some of the more interesting applications in space, we actually spent some time looking at those agricultural verticals and the one thing that we took away with is it can be a very interesting business but the channel is incredibly challenging to establish, right? It's kind of farmer by farmer, mountainside by mountainside type of go-to-market strategy. And the one thing we get with Iridium is a very, very established channel that would take many, many years to build otherwise. You're talking about a network of up to 500 VARs, right? So I think once we really kind of get in under the hood and start the integration planning and the longer-term business strategy mapping, I think we could find opportunities like that where we can leverage that extensive channel for things just like you mentioned to the extent that they haven't looked into that already. But yeah, no, that's a market ironically that we looked at probably five years ago and now who knows, maybe this deal brings that back full circle.
