Shares of small space-rocket launcher Rocket Lab (RKLB 10.50%) slipped 3% on Wednesday after the company -- sort of a small, publicly traded version of SpaceX -- reported modest growth in second-quarter sales, combined with increasing losses on the bottom line.
Rocket Lab grew its sales 12% year over year in Q2 -- and roughly tripled its gross profits in comparison to the year-ago quarter. Operating costs, however, zoomed 57% higher as the company continued to invest heavily in research and development and continued to build out its launch infrastructure. On the bottom line, Rocket Lab lost just shy of $46 million -- $0.10 per share, or a result 25% worse than a year ago.
(And it did this on a share count 3% bigger than a year ago, such that losses were spread across more shares outstanding).
Bad news and good news
So that's the bad news. Now here's the good news.
For one thing, Rocket Lab did a good job of dampening its cash bonfire. Free cash flow in the quarter, while negative at $54.7 million, was 35% less negative than a year ago, when Rocket Lab burned through $83.7 million.
Rocket Lab also successfully launched three of its Electron rockets in the quarter -- a tie for its most active quarter ever. Two rockets carried customer payloads to space (and one of these rockets was recovered for potential later reuse). The third rocket flew as a suborbital hypersonic test flight for the U.S. military's "HASTE" project. Meanwhile, Rocket Lab continued making progress on its new prototype Neutron medium-lift rocket, including beginning construction of a new launch pad to support the rocket at NASA's Wallops Island launch facility in Virginia.
Ten is a magic number
Perhaps the best news of all, though, was in the area of new business. Since releasing first-quarter results, said Rocket Lab, it has booked orders for 10 new launches from its customers, including a five-launch order for fellow space company BlackSky (BKSY 5.14%). When you consider that earlier this year, CEO Peter Beck laid out a goal of launching 15 times over the four quarters of 2023, the fact that Rocket Lab amassed 10 orders in just one quarter is pretty impressive. If Rocket Lab were able to maintain this pace of new order acquisition, that would imply an annualized rate of 40 launches per year.
Which is more than the 39 launches the company has managed to complete since it began launching six years ago.
What the future holds
All of this sounds pretty promising for Rocket Lab, but don't expect it to turn into profits for the company just yet.
Shifting gears from results to guidance, Rocket Lab told investors that third-quarter sales would probably range from $73 million to $77 million -- a galloping rate of 25% growth over last year's Q3 revenue of $60.1 million. As we've come to expect, the bulk of this revenue (about 60%) will come from the company's rapidly expanding "space systems" division rather than from rocket launches per se, despite all the new launch orders that Rocket Lab has been raking in.
For investors, though, that's good news. As data from S&P Global Market Intelligence make clear, launch services continues to be a money loser for Rocket Lab, even on a gross margin basis, while space services is a money maker, generating positive gross profit margins of 17%.
The even better news for investors is that both these gross profit margins are trending generally higher in 2023. Gross margins were 23.5% in Q2 2023 (better than in all of 2022) and will range from 21% to 23% in Q3.
The bad news, though, is that profits still seem pretty distant. Applying the midpoint of projected gross margins to the midpoint of guided revenue, Rocket Lab seems likely to earn only $16.5 million gross next quarter. And this sum will immediately be eaten up by operating expenses of close to $52 million. That leaves essentially no chance for investors to see Rocket Lab turn a profit this year.
For that, we'll simply have to wait. How long? According to analysts, 2025 Rocket Lab will earn its first profit in 2025.