Rocket Lab USA, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unless otherwise stated, figures are in U.S. dollars; financial statement amounts are rounded to millions. Rocket Lab operates in Launch Services and Space Systems, including launch, spacecraft manufacturing, components, software and mission services.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $63.1M | $5.3M | $159.2M | $34.8M |
| Gross profit (loss) | $8.5M | ($12.5M) | $17.2M | ($8.6M) |
| Gross margin | 13.4% | (235.5%) | 10.8% | (24.7%) |
| Operating loss | ($32.0M) | ($52.3M) | ($98.0M) | ($77.7M) |
| Net loss | ($34.6M) | ($88.0M) | ($98.7M) | ($120.5M) |
| Basic and diluted loss per share | ($0.07) | ($0.39) | ($0.21) | ($0.93) |
Q3 revenue increased 1,093% year over year; nine-month revenue increased 358%. Growth reflected acquisitions, more launches and organic Space Systems demand. Q3 segment revenue was $23.0M for Launch Services and $40.1M for Space Systems; respective gross results were a loss of $0.8M and profit of $9.3M. For the first nine months, segment gross results were a $3.9M Launch Services loss and $21.1M Space Systems profit.
- Cash and liquidity: September 30 cash and cash equivalents were $333.3M, with marketable securities of $179.2M, for combined cash and securities of $512.5M. Current assets were $699.5M and current liabilities $161.3M.
- Cash flow: Nine-month operating cash use was $87.6M, compared with $49.9M in 2021. Investing cash use was $272.9M, including $179.9M in securities purchases, $65.8M in acquisition payments and $27.4M in capital expenditures. Financing provided $1.6M.
- Debt: $102.2M was outstanding on a Hercules secured term loan, due June 2024, secured by substantially all company assets and bearing cash interest at a minimum 8.15% plus 1.25% payment-in-kind interest. The company reported covenant compliance and no remaining availability under the loan.
- Backlog: $520.6M at September 30, comprising $122.4M Launch Services and $398.2M Space Systems; approximately 42% was expected to be recognized within 12 months. Backlog includes contracts that may have customer termination rights.
Changes and notable items
- Q3 gross margin improved to 13.4% from a negative 235.5%; the prior-year quarter included unusually high launch costs, including a replacement rocket. Nine-month gross margin also improved, to 10.8% from negative 24.7%.
- Acquisitions completed in late 2021 and early 2022 materially expanded Space Systems revenue. SolAero contributed $60.1M of revenue and $7.0M of operating loss in the first nine months of 2022.
- Research and development was $50.2M for the first nine months, up 68%, with spending on Neutron and spacecraft components. Selling, general and administrative expense rose 65% to $65.0M, reflecting acquired businesses, public-company costs and acquisition-related compensation.
- The nine-month results included a $13.5M gain from remeasurement of warrant liabilities; the warrants were exercised or redeemed, and no liability-classified warrants remained at quarter-end. This noncash item affects year-over-year comparability.
- Shares outstanding increased to 472.7M from 450.2M at December 31, 2021. Nine-month stock-based compensation expense was $43.3M.
Outlook, risks and contingencies
- Management said existing cash, equivalents and customer receipts should cover working capital and capital expenditure needs for at least 12 months, while noting possible future capital needs and the possibility that additional financing may not be available on acceptable terms.
- The company anticipated building approximately 12 launch vehicles in 2022; it had launched seven through September 30 and nine through November 9. No specific financial guidance was provided in the supplied filing text.
- Rocket Lab is investing in Neutron, including a 250,000-square-foot production complex in Virginia and development of launch and engine-test infrastructure. Development, execution, launch cadence, cost overruns and supply-chain constraints remain key risks.
- Other disclosed risks include customer funding or contract cancellations, government spending and regulation, competition, foreign-exchange movements, inflation and interest rates, product defects or launch failures, cybersecurity, and recruiting and retaining key personnel. The company reported a $3.9M nine-month foreign-exchange loss.
- One commercial customer represented 44% of accounts receivable at quarter-end; Rocket Lab reported receiving $14.6M from that customer on November 3, 2022. The filing reports a $5.7M provision for losses on remaining launches under a below-cost fixed-price contract. Management said no pending legal matter was expected to materially affect the company.
- Disclosure controls and procedures were deemed ineffective at September 30, 2022 because previously identified material weaknesses in internal controls over financial reporting remained. Remediation work was underway, but required sustained testing and validation.
Investor verification priorities
- Track whether launch cadence, launch economics and Launch Services gross profitability improve, and whether Neutron development and facility plans remain on schedule and within cost expectations.
- Assess the quality and conversion timing of the $520.6M backlog, including termination provisions, customer concentration and the collection of receivables.
- Monitor operating cash burn, capital spending, acquisition integration and liquidity relative to management’s stated 12-month outlook; distinguish cash resources from marketable securities.
- Review Hercules loan interest, maturity and secured status, alongside stock-based compensation and share-count dilution.
- Follow remediation and testing of the material weaknesses, and confirm whether disclosure controls are later judged effective.