Rocket Lab USA, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Dollar amounts below are in millions unless noted. Rocket Lab provides launch services and spacecraft systems, including spacecraft components, manufacturing and mission operations.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $62.0 | $55.5 | $116.9 | $96.2 |
| Gross profit / margin | $14.6 / 23.5% | $5.0 / 8.9% | $21.0 / 17.9% | $8.7 / 9.0% |
| Operating expenses | $59.8 | $38.1 | $112.1 | $74.7 |
| Operating loss | $(45.2) | $(33.2) | $(91.2) | $(66.0) |
| Net loss | $(45.9) | $(37.4) | $(91.5) | $(64.1) |
| Basic and diluted loss per share | $(0.10) | $(0.08) | $(0.19) | $(0.14) |
- Q2 revenue grew 12% year over year: Launch Services revenue was $22.5 million, up 18%, and Space Systems revenue was $39.6 million, up 9%. Three launches occurred in each quarter; higher revenue per launch and spacecraft manufacturing growth drove the increase.
- First-half revenue grew 22%: Launch Services revenue rose 64% to $42.1 million, with six launches versus four; Space Systems revenue increased 6% to $74.8 million.
- First-half operating cash used was $31.4 million, versus $64.6 million in the prior-year period. Investing cash used was $17.2 million; financing provided $4.0 million. Cash, cash equivalents and restricted cash ended at $200.8 million.
- At June 30, cash and cash equivalents were $197.2 million and marketable securities totaled $218.0 million, or $415.1 million combined. Total current assets were $560.2 million; total current liabilities were $305.9 million.
- Debt: $104.4 million outstanding on the Hercules secured term loan, classified as current and maturing June 1, 2024. The loan is secured by substantially all company assets; no borrowing availability remained. Rocket Lab reported covenant compliance.
Changes, developments and outlook
- Gross margin improved year over year, but operating and net losses widened as R&D and SG&A rose. First-half R&D increased 68% to $54.9 million, primarily from Neutron development, hiring and spacecraft-component prototypes. SG&A increased 36% to $57.2 million, including higher public-company costs and acquisition-related contingent consideration.
- Q2 Launch Services cost of revenue included a $4.1 million benefit from releasing a contract-loss provision after a legacy launch agreement was terminated. First-half Launch Services cost also benefited from a $2.1 million employee retention credit. These items make reported launch economics less representative of recurring costs.
- Backlog was $534.3 million at June 30, up from $503.6 million at year-end: $161.9 million Launch Services and $372.4 million Space Systems. About 57% was expected to be recognized within 12 months. Contracts may include customer termination rights.
- Management anticipated building approximately 15 launch vehicles in 2023. Six vehicles had launched in the first half and seven through August 8, 2023. The filing gives no specific Neutron launch date or quantified financial guidance. Management said existing cash, cash equivalents and customer payments were expected to meet working-capital and capital-expenditure needs for at least 12 months, while noting potential financing needs and that future capital requirements depend on business and investment factors.
- Rocket Lab successfully launched its first HASTE suborbital test vehicle on June 17. On June 2, it acquired certain Virgin Orbit production assets and a Long Beach property lease for $17.1 million. The company also shifted Electron recovery strategy to marine recovery and began selling two helicopters; the helicopters were classified as held for sale at $11.4 million.
Risks, contingencies and controls
- Key stated risks include execution and launch cadence, Neutron development, launch-pad availability, launch or product failures, customer funding or concentration, government contract requirements and funding, supply-chain interruptions, competition, cybersecurity, foreign exchange and the need to maintain or raise capital.
- Northrop Grumman represented 14% of first-half revenue and 16% of accounts receivable at June 30; NASA represented 11% of first-half revenue.
- Management concluded disclosure controls were not effective due to material weaknesses at SolAero involving segregation of duties, privileged system access and IT change management. Remediation was underway and required sustained validation. Management stated the consolidated financial statements fairly presented the company’s financial position and results.
- Management reported no pending legal matter expected to have a material adverse effect. A $9.9 million contract-loss provision remained, primarily relating to a fixed-price solar-panel module agreement. The filing reported no material risk-factor changes from prior filings.
Important facts for investors to verify
- Progress, cost and schedule for Neutron development, and whether the planned 2023 vehicle build rate and launch cadence were achieved.
- Cash use and financing plans ahead of the June 2024 loan maturity, including any refinancing, repayment or capital-raising actions.
- How much gross-margin improvement reflects recurring operating performance versus the $4.1 million provision release and other credits.
- Backlog conversion, customer cancellations or funding risks, and customer concentration.
- Progress in remediating SolAero’s internal-control material weaknesses.