Interview with Rocket Lab CEO Peter Beck

0:04It is a raging cauldron of hell and conflict sometimes in my head because I'm half entrepreneur who wants to take extreme risk and then half engineer who by nature is extremely conservative. of. That was Rocket Lab founder and CEO Peter Beck. I'm Motley Fool producer Matt Greer. Now, Rocket Lab is an aerospace company with a launch business and a space systems business, and it has become a big business. Motley Fool co-founder and CEO Tom Gardner and Motley Fool analyst Seth Jason recently talked with Peter Beck about the business of Rocket Lab. We're so pleased to be spending this time with Sir Peter Beck, the founder and CEO of Rocket Lab.

0:51Before going into our conversation, I'll just share, I don't know how familiar you are with The Motley Fool, but when we recommend companies and often put our own skin in the game with our members, we do so with a five-year minimum holding period generally and ideally multi-decade holding period. so we like to assess the long-term vision and mission strategy and performance of the business and obviously we don't want to put you in a position where you're having to give any forward-looking statements so just deny any of our long-term questions that you can't answer but just letting you know that we really are most interested in the very long term and our greatest investments which is not unusual for people throughout their lives are the ones that they held the longest period of time now i love my low-cost basis of 25 dollars share right around there for Rocket Lab.

1:35But Seth Jason, who's here, and Lou Whiteman, who can't be here today, have both recommended the stock and owned the stock since it was below$5 a share. So a lot of our Motley Fool members have gotten in some early low positions with the business. But I think, Peter, we'd love to hear you just outline the main components of Rocket Lab, maybe beginning with space systems since it's easy to overlook the segment or many may view Rocket Lab as a launch company. Can you use a walking tour of the business, please? Yeah, totally. Well, I mean, I always like to talk about Rocket Lab as an end-to-end space company because, you know, it's sort of almost sort of bisected into two parts.

2:12Like there's launch, which is, you know, the big roaring stick in the sky, which everybody gets excited about. And then the space systems, which is kind of less visually glamorous, but of course, a huge part of the business. but both of these elements are necessary to deliver on kind of the key goal here in the key mission of being end-to-end and I think ultimately deploying infrastructure or services on orbit and if you're talking about the long term it's my view that the biggest space companies in the future it's going to be a little bit blurry about you know are they a space company or are they something else and you know just take our friends over at SpaceX are they a space company or are they a telecommunications company at this point?

2:54So it gets a little bit blurry. But I think what is absolutely true is that if you have unfettered, rapid and reliable access to space and you can build whatever spacecraft you want to build, then your ability to deploy infrastructure or services from orbit is going to be way better than somebody else who doesn't have those capabilities. So we're just sort of methodically going about making sure we have all those elements to ultimately deliver on that end-to-end space company goal. So I know you want to talk about space systems, but I think it's always good to kind of wrap it in the context of why space systems even exists.

3:33And, you know, space systems was really started very early on in the company's life. And, you know, I often hear people saying, well, you know, launch wasn't big enough, so Rocket Lab pivoted to building spacecraft. And that's just simply not true. In fact, the second electron vehicle that we ever flew had all of the recesses pre-cut into the kick stage for solar panels to turn that into a photon. So it's been part of the plan from day one. But the thing is, the most difficult thing to do and the most transformational thing you can do is have access to orbit. That's the biggest problem you have to solve in all of this.

4:08You know, spacecraft are difficult, but not nearly as difficult as, you know, gaining access to orbit. That's the real disruptor here. It's not anything else. So that's kind of where we started. And then as we started to build our own satellites internally, you know, we placed some orders for some components. And, you know, the lead times associated with them and the costs associated with them really, really took us back. And we're like, well, how can anybody be disruptive in this industry when it takes 12 months to get a star tracker? just a simple star tracker. So, you know, not surprisingly, that led our first acquisition of Sinclair Interplanetary.

4:47And we sort of never looked back from that point. And the best way to describe what we've done there is literally lay a spacecraft out or satellite out on the boardroom table, and then just systematically point to all the bits that really suck, and then go after each one of those, and either build that technology internally, or we'll go and buy the best company that currently makes that technology. And not just stopping there, but actually doing it at scale. So that kind of gives us a really healthy ability to just think of it like a storeroom of parts that you can just go and pull off the shelf to build almost anything you want.

5:22And then the next leg of Space Systems, I mean, well, there's really three kind of internal mandates that I set forward when we started Space Systems officially. And that was, one, everything that goes to space should have a Rocket Lab logo on it. Don't care if we built it, don't care if we launched it, but everything that goes to space should have a Rocket Lab logo on it. Preferably the biggest logo that you can fit on the component. And then secondly, we want to build spacecraft. But not interested in just building boring spacecraft that lead nowhere. They have to be very strategic spacecraft that, you know, ultimately fulfill the end vision.

5:59and then the third one is is like you know building applications or infrastructure and orbit that kind of feeds into so the components bit we're well in hand right now i mean we're we're the largest supplier of in the world of some things like i think we're the largest space grade solar you know cell provider and panel provider in the world now um and we i don't know if we're the largest reaction wheel provider but we must be getting up there um and we just keep scaling these businesses. And then on the spacecraft side, you know, our first spacecraft was the spacecraft called First Light, which was a little photon.

6:33And then we sort of skipped about a decade and went straight to the moon with the next photon. And then, you know, because we're able to successfully build that spacecraft for NASA to go to the moon, we won the Escapade missions to Mars, which are about to launch. And then because we executed those really well, we're able to secure a contract with MDA Global Star on a quite a big comms platform. And then we're able to win, as a prime contractor to SDA, a whole bunch of national security spacecraft. And then along the way, interesting stuff that's very strategic, like the VADA re-entry spacecraft and LOCKSAT and a whole bunch of other stuff that all feeds into the kind of end goal here.

7:14And a few years later, there you go, you kind of, that space systems. When Johann Rall received the letter on Christmas Day 1776, he put it away to read later. Maybe he thought it was a season's greeting and wanted to save it for the fireside. But what it actually was, was a warning, delivered to the Hessian colonel, letting him know that General George Washington was crossing the Delaware and would soon attack his forces. The next day, when Rall lost the Battle of Trenton and died from two colonial Boxing Day musket balls, the letter was found, unopened, in his vest pocket. As someone with 15 ,000 unread emails in his inbox, I feel like there's a lesson there.

7:56Oh well, this is The Constant, a history of getting things wrong. I'm Mark Chrysler. Every episode, we look at the bad ideas, mistakes, and accidents that misshaped our world. Find us at ConstantPodcast.com or wherever you get your podcasts.

8:17Can you talk about the interplay as an entrepreneur and an engineer between the importance of creativity and imagination, discovery and experimentation, and how crucial it is to execute down to a layer of detail and precision that, given the business most people never encounter, would ever encounter anything like what it takes to have the conviction when you put something on the launch pad that it's time to go? Yes, it is a raging cauldron of hell and conflict sometimes in my head because I'm half entrepreneur who wants to take extreme risk and then half engineer who by nature is extremely conservative.

8:58So to your point, you know, finding the balance of putting stuff on the pad that actually works, but moving quickly and being innovative is a fine line to walk. So, and I think it's something that I think it's also a part of the magic of the company. I think if you're just 100 % entrepreneur and you've seen that with maybe other space companies and no engineer, the results are just real bad. And then if you're 100 % engineer and then no entrepreneur, then I think you would never, ever put anything on the pad because you would be unable to take any kind of risk. So I think you have to get that balance right.

9:34And I think it's probably some of the magic of Rocket Lab is, you know, knowing where to be entrepreneurial and take risk and knowing where just to not take risk. It feels to me like most of our questions will weave between engineering and entrepreneurship. So perhaps you can continue to blend those by telling us the process of making acquisitions to be a payload provider, to own the payload, why that's significant and how far you are in that process, how complicated it is to assemble that and why it matters. So, I mean, we've basically got all the bits and pieces of the satellite. There's a few bits there that we haven't quite got, but we've pretty much got everything that we need there.

10:10and you really quickly learn that people don't buy satellites for great reaction wheels and solar panels. People buy satellites for the payload and what it does and you're never going to scale to a giant company if you just provide buses and you really have to provide the end-to-end solution. So you've seen us start to dip our toe into payloads now and ElectroOptical is kind of the first piece of that and if you think about how many providers in the world are there of these deeply complex electro-optical, you know, infrared kind of payloads, you can count them on one hand. So, you know, being able to provide that payload to other people's spacecraft is one thing.

10:50But when you turn up all of a sudden to a customer and you can provide the thing that they actually want to do being the payload, and by the way, all of the bus, all of the operation systems, all the ground segment, and we can launch it for you, it's just a totally different proposition. So, you'll see us acquire more of those payload kind of elements because I think that's kind of the last piece in the puzzle. Something along similar lines, I cover a lot of our AI stocks here and sovereign AI has become a thing for various reasons right now. And it sounds a little bit to hear some of the recent space talk that sort of sovereign space launch is kind of shifting in a similar direction.

11:31and I know I think that your recent acquisitions may be kind of nodding at that and so how do you think about those kinds of markets going forward between sort of Europe, Asia, the U.S. there are some obviously you'll never serve but is that part of the strategic thinking going forward? Yeah so look every nation is and I would say there's been a recent kind of retrenchment in that in the fact that nations have with various world events have decided that actually we need our own stuff. And so there's definitely a, certainly a, you know, a strong, strong desire there. We've always seen it a lot from launch because any kind of, you know, emerging space nation always wants their own rocket because it's just super cool and very, very visible.

12:17So we've always been approached a lot with, can you come to our country and build a launch site? And it's like, I don't want to build another launch site ever. So why would I do that? But there's no strategic reason to do it other than a country wants a launch pad. But they have to service that launch pad and that demand with their own sovereign spacecraft. And maybe that will happen or maybe that won't. But certainly, yes, we're definitely seeing a lot of sovereigns looking to create their own capability. And to your point, the Monaric acquisition that hopefully we get through in Germany is it's a fantastic product.

12:52It's a laser terminal. it's incredibly needed across our platforms and many others. So in its own right, it's a great acquisition. But also it really is our first step into Europe and we're not stopping it at just becoming large in the United States. We want to service the globe and the countries that we can work in. So that's kind of the first step into Europe. Just a succinct light question for you about investors in Rocket Lab. If an investor today wanted to align their time horizon with your time horizon as an investor, how long should they be thinking about holding the stock? There's so much of a transactional dynamic in the public markets with a lot of information.

13:34One of the biggest challenges we face at the Motley Fool is to teach the importance of finding something that you want to be an owner of and the benefits of that. So the dream is to align with the CEO's time horizon. Now, some CEOs are very transactional themselves. And, you know, so everybody's at a different pace with a different time horizon on their vision. What's the proper time horizon to align with your vision? Well, I'm not going to provide financial advice here, that's for sure. Darn. But look, I'm trying to build the biggest space company in the world. And gee, I would have hoped to have done it by now.

14:06Everything always takes too long, right? But, you know, you have my commitment that that's my goal. And I'm just, my shoulder is down and I'm running as hard as I can to do that. And so is everybody in the company. How long that takes is how long that takes. But you can see we kind of consistently keep growing and scaling the company and everything just consistently moves up and to the right. And hopefully people see the methodical path that we're trying to walk here. It's like, as I mentioned right at the beginning of the call, there's like$20 billion opportunity in launch, a$30 billion opportunity in spacecraft and a$350-whatever billion opportunity in applications and services.

14:49And the faster you can get there with something that's really disruptive, then the bigger of a space company you can actually build. And in that spirit, can you talk a little bit about the culture at Rocket Lab, a company that's squeezing years of hours into a month, yet also trying to build something that will succeed for generations? How do you align the work, not burn out in the process and match it with something that's designed to sustain as an independent company for decades. Yeah, look, I mean, it's fair to say if you want work-life balance, don't come here. And if you look at our competitors, they don't have work-life balance either.

15:28So if you think you can compete with your competitors and not work as hard, then that's going to be a bad surprise. So we absolutely push hard. And, you know, I would say the culture here is we have a number of really kind of non-negotiable elements. And right at the top is we build beautiful things. And I just absolutely believe that if you build a beautiful thing, that it generally works. When you give someone the freedom to build a beautiful thing, they take so much pride in it. And, you know, they look well past their work and other people's work. And, you know, you can go and look at any rocket lab spacecraft, any rocket lab component, any rocket lab rocket.

16:09And they're just, they're almost so beautiful, they're artistic. And that's the way it should be. And whether it's a piece of code, a piece of software, a boardroom table, whatever it is, it needs to be beautiful. And I think where a lot of space companies have gone wrong is they try and see how crappy they can build stuff and get away with it. Whereas we're the opposite of that. You know, the number one thing that must be always true first in space is it has to work. Everything else is kind of behind that is it has to be second. So, you know, making sure that everything is beautiful is something that everybody is, you know, really focused on.

16:51And it's a self-fulfilling prophecy as well because you attract people that want to build beautiful things that work. and people who want to take shortcuts and not present the best work that they can do don't survive. They either realize that it's not the environment for them or their peers around them don't accept their work. So, you know, it's self-fulfilling. And if you look at the launch companies over the last, call it five or 10 years, it's not a good bet. Generally, they all fail, right? And I'm always asked, well, why did Rocket Labs succeed and all these others failed? And it comes down to really two things.

17:27It comes down to building beautiful things and it comes down to hustle. And when I say hustle, I mean, you know, when you're greeted with a barrier, you have two options, right? Is you can either just throw your arms up and go, well, I don't know what to do. And this seems impenetrable and can't solve it. Or, you know, you try and climb it. And if you can't climb it, you try and go around it. If you can't go around it, you get out your spade and you just start digging until you get under it. So, and that's the rocket lab kind of mentality. So where many, many others would have reached kind of points in both technical or otherwise and given up, I think we just have more tenacity than others.

18:05Sir Peter Beck, the founder and CEO of Rocket Lab, ticker symbol RKLB, naturally will be a very volatile stock. Many of the greatest companies have very volatile stocks as they bring something into the world that others try and figure out how consequential it will be, what risks they will need to endure as a shareholder. And so we're excited to be on that journey with you and your team and your company. And we wish you the very best. And thank you for 60 minutes of your time. No, thanks very much, guys. It's been fun. Yeah.

18:35As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For the Motley Fool Money team, I'm Matt Greer. Thanks for listening, and we will see you tomorrow.