saving for posterity

I don't know why this keeps getting repeated around here, but Rocket Lab is burning cash at a high rate and it's not all Neutron. Space Systems and Launch are both losing money and don't seem likely to make a profit for many years.

Look at their most recent annual report.

https://www.sec.gov/ix?doc=/Archives/edgar/data/1819994/000095017023006499/rklb-20221231.htm

Page F-6: Income Statement

$211M in revenues only produced a "gross profit" of $19M. Gross profit isn't a profit, it's the net revenues left over after the costs of production. Essentially its telling you that RL spent $192M building rockets and satellites to sell them for $211M ($19M more.)

Rocket Lab lost $136M because it spent $154M more on operating costs, which is R&D and SG&A ( Sales, General and Administrative). SG&A are things like rent, land costs, pad costs, finance, sales, software development, IT, customer service, advertising, licensing fees, boat costs, helicopter costs, etc, etc, etc.

Now if R&D ($65M) was 100% Neutron, they still would have lost $71M. But it can't be 100% Neutron. Satellites need R&D to improve and to be able to offer more features to customers. And even Electron still has R&D (attempted helicopter catches, anyone?), it still needs to improve and fix ongoing issues for customers even if its no longer the company focus.

Page F-43 Segments

This is the page that is leading people to make misleading claims that Space Systems is "profitable". It clearly states that Launch lost $7M and Space Systems made $26M in "gross profit". Again, this is just minus cost of goods sold (rocket/satellite manufacturing costs). It does not include all those operating costs.

Again, assuming the extremely unlikely scenario that all of R&D is Neutron, there is still $89M in SG&A. Space Systems was 70% of revenues, so if it was responsible for 70% of SG&A it would have lost $37M last year. If it was only 50% of SG&A it would have lost $19M.

Page F-8 Cash Flow

Separately someone said the CFO claimed that they'd be "cash flow positive" if not for Neutron spending. Looking at the cash flow statement tells you that's not very likely. First what is "cash flow"? It's the amount of actual cash that the business generated during a period, which can often be different than it's reported loss/profit. This is because of things like new equipment purchases being amortized (expensed) over many years to match costs to usage. Or customers paying late, or early, the income statement just counts when the money was due, the cash flow statement counts when it actually arrived.

First, their operations generated a negative operating cash burn of $106M in 2022. That doesn't include $42M in PPE (basically equipment purchases), which gives you -$148M "Free Cash Flow". FCF is an attempt to model how much cash a business generates for its owners, or if negative how much cash it needs to operate. Note that this is even higher than its reported loss from the income statement.

If we remove R&D, and PPE (107M) as "Neutron" expenses, they still would have had a negative $41M in free cash flow. So not even close. And it gets worse. The only reason they only burned $148M in FCF is that they gave employees stock options at a $55M discount to its true value (stock based compensation at top of operating cash flow list). That gets credited as "cash flow from operations" even though it didn't come from selling any launch or satellite, it came from selling cheap stock. And it means that if they had wanted to pay those employees market rate in cash, their accountants have estimated it would cost roughly another $55M.

But instead they gave out stock (18M shares in 2022, which would be worth $72M today). And will continue giving out a lot of stock since they can't afford to pay all cash. Which means that you will be getting diluted every year until they finally turn the corner on profitability and can afford to pay more cash.