00:06:39 · Ty Morse, Chris Power
[00:06:39] S0: Do you wanna go through, like, one of those bets that is extremely risky? [00:06:44] S1: If you were to build a... If you were to just look at building a new $300,000,000 casting facility and you had no contracts, And the CapEx takes two years to get here, which means you're in production in year three, best case. If you are looking at that linearly for castings for turbine blades for argument's sake. You'd have to be damn sure that you... The demand is still gonna be there in year four and... Okay. If you break down the CapEx that is linked to the process that is a subset of the output, output, which is a... Let's call it a Monel casting. And you do the same thing for munitions, 40% of which are castings that are never gonna be additive because it wobbles too much. And there are some unique bits of CapEx for sure, but 80% of it can be shared. And you are willing to have a 20% larger CapEx bill that buys you a 100% flexibility, what you're actually doing is deploying 300,000,000 CapEx against three demand signals, not one linear one. But that is down to the level of detail of, hey, both tonnage of pour by alloy and for, like, a molding line, you know, envelope size of average component by floor space. All this can be done. It's just stupidly detail oriented. It's very precise.
00:06:44 · Chris Power, Ty Morse
[00:06:44] S1: If you were to build a... If you were to just look at building a new $300,000,000 casting facility and you had no contracts, And the CapEx takes two years to get here, which means you're in production in year three, best case. If you are looking at that linearly for castings for turbine blades for argument's sake. You'd have to be damn sure that you... The demand is still gonna be there in year four and... Okay. If you break down the CapEx that is linked to the process that is a subset of the output, output, which is a... Let's call it a Monel casting. And you do the same thing for munitions, 40% of which are castings that are never gonna be additive because it wobbles too much. And there are some unique bits of CapEx for sure, but 80% of it can be shared. And you are willing to have a 20% larger CapEx bill that buys you a 100% flexibility, what you're actually doing is deploying 300,000,000 CapEx against three demand signals, not one linear one. But that is down to the level of detail of, hey, both tonnage of pour by alloy and for, like, a molding line, you know, envelope size of average component by floor space. All this can be done. It's just stupidly detail oriented. It's very precise. [00:08:34] S0: Your previous factories were, like, 20,000 square feet and then a 100,000 square feet, and then you jump to, like, 2,200,000. How do you kind of think through what risk you're willing to take on what timeline in order to just build the capacity that you see demand for a few years out?
00:08:51 · Chris Power
[00:08:51] S1: So I I think there's... People think about risk very poorly, and I'll give you a couple of examples. Firstly, for large companies, CapEx risk is binary. What do I mean by that? What I what I mean is you may think traditionally that if you are building a large circuit board facility to win a large supply chain contract for drones, like from our friends, may need to buy a lot of circuit boards, that you would really like to have the contracts before you bought a billion dollars in CapEx. And if you don't get the contracts, your company's dead. Well, that that is true. What is more real is you have a 0% chance of growing revenue unless you spend a billion in CapEx because no one's going to give you a production contract unless you've already started executing. And the the second instance is you bought all the CapEx, and if you don't close the contract, your company dies. But at least now you have a more than 50% chance of executing the revenue. So it is binary in the sense that you need to deploy billions of dollars ahead of contracts, and it doesn't mean that that is not a company killing event. It just means that you've increased your probability to more than 50%. And if you don't deploy a billion dollars in CapEx, you're 100% dead or you're a $100,000,000 acquisition. And until you're at, I think, roughly 50,000,000,000 in scale, every capex bed is a company killing event. But what is more true is that if you don't do it, you're a 100% dead. And that's how that's how we think about it.
00:10:45 · Ty Morse, Chris Power
[00:10:45] S0: I remember two and a half years ago when I first interviewed you, we were having some conversation afterwards. I asked you, like, what do you think the probability is that Hadrian makes it? And you said something along the lines of 20%. And I I remember thinking that's fucking wild. Like, that's crazy that you think that. But since then, you know, you've continued to... If you're saying like a 50,000,000,000 scale, suddenly you're not going to die every time. Right now, you're still on that like Yeah. Curve. [00:11:10] S1: Yeah. Because each each year to grow, you have a time constant that your CapEx build is two years outside of the revenue curve. So every bet you make, you're dead. So the risk doesn't trade until you stop growing. [00:11:24] S0: How do you think the risk has changed over the past two and a half years from, like, has has the, like, risk of, you know, death gone from, you know, very, very high at eighty percent to, like, thirty percent? No. [00:11:37] S1: Or how does [00:11:38] S0: that change?
00:11:38 · Ty Morse, Chris Power
[00:11:38] S0: that change? [00:11:39] S1: It's straight at eighty percent. Crazy. And it's not because we're risky. It's because the fundamental construct is that if you want to continue having venture returns and a relatively decent cost of capital, which is required for the reindustrialized mission, Therefore, you're always growing your risk balance sheet, let's call it CapEx or r and d, by double the same amount. And the only reason the risk retires is if you slow your growth to 20% because then your cash flows catch up to your CapEx bets. Now you can get extremely good at forecasting, tracking. Like, we're not yellowing a billion dollars of CapEx. It's very intentional. But if you if you deploy 2,000,000,000 in CapEx now, today, that gives you the opportunity to grow to 5,000,000,000 in revenue in 2028. Now if you don't grow to 5,000,000,000 in revenue in 2028, you don't have any venture returns. If we also don't grow 5,000,000,000 revenue by 2028, the CapEx bill is such that, you know, you're turbo fucked. So the only option is to do both at once. So until such time as you're growing 20% year over year, then the risk doesn't retire.
00:11:39 · Chris Power, Ty Morse
[00:11:39] S1: It's straight at eighty percent. Crazy. And it's not because we're risky. It's because the fundamental construct is that if you want to continue having venture returns and a relatively decent cost of capital, which is required for the reindustrialized mission, Therefore, you're always growing your risk balance sheet, let's call it CapEx or r and d, by double the same amount. And the only reason the risk retires is if you slow your growth to 20% because then your cash flows catch up to your CapEx bets. Now you can get extremely good at forecasting, tracking. Like, we're not yellowing a billion dollars of CapEx. It's very intentional. But if you if you deploy 2,000,000,000 in CapEx now, today, that gives you the opportunity to grow to 5,000,000,000 in revenue in 2028. Now if you don't grow to 5,000,000,000 in revenue in 2028, you don't have any venture returns. If we also don't grow 5,000,000,000 revenue by 2028, the CapEx bill is such that, you know, you're turbo fucked. So the only option is to do both at once. So until such time as you're growing 20% year over year, then the risk doesn't retire. [00:13:10] S0: There's this amazing line that Jeff Bezos once talked about where there's this idea of two way doors and one way doors, and two way doors, you can go in and make a decision and then walk that decision back if it doesn't work. One way doors, you basically go and if the thing doesn't work, you've committed. Yep. But Isaiah from Valor has this other idea where he's like, in order to move fast, I've had to sprint through some one way doors.