Rocket Lab did even better out of Virgin Orbit’s firesale than it seemed at the time, CEO Peter Beck revealed on a conference call this morning.
Beck also detailed his enthusiasm for nuclear propulsion for future spacecraft.
The call followed the Kiwi-American company’s second-quarter result, which came in above the mid-point of guidance as revenue grew 12 per cent to US$62 million and its net loss widened to US$45m (or 10 cents a share compared with 8 cents per share in the same quarter last year).
The firm forecasts further revenue growth and a narrower operating loss in the third quarter.
Shares, which have been on a roll over the past few months after troughing at US$3.48, rose 5.1 per cent to US$7.00 in after-hours trading (despite its recent recovery, the stock is still some distance from its August 2021 Nasdaq listing price of US$10.00).
The quarter included some unplanned spending in May as Rocket Lab placed a winning US$16.1m bid for key assets from the failed Virgin Orbit - Sir Richard Branson’s venture that launched commercial rockets from beith a modified Boeing 747 (and separate from his Virgin Galactic space tourism company).
Rocket Lab picked up Virgin Orbit’s headquarters and manufacturing centre in Long Beach, California, which neighbours its own corporate headquarters and US production plant.
“We’re excited about our acquisition of Virgin Orbit’s 144,000 square foot Long Beach facility, production lease and production equipment which we’re already hard at work configuring for our Archimedes and Rutherford production,” Beck said on the call. (Archimedes is the engine for Rocket Lab’s much larger Neutron rocket - which the company said today was still on track for its first launch toward the end of next year. The Rutherford engine powers the Electron rockets the firm uses today).
“Overall, we estimate the US$16.1m price paid represented around US$100m of value vs having to purchase new,” Beck told analysts.
The acquired machinery and equipment was worth around US$80m and “tenant leasehold improvements” around US$20m.
“We believe this asset purchase enables significant savings for Neutron and supports future scaling, as we work towards the first launch.”
On the conference call, a Morgan Stanley analyst raised the July 26 news that Nasa could be testing a nuclear rocket in space in less than four years. The space agency and the US Department of Defense’s Defense Advanced Research Projects Agency (Darpa) said Lockheed Martin had been selected to design, build and test a propulsion system that could halve the time it takes astronauts to get to Mars.
Rocket Lab was not a party to the announcement, but it has links to the various players. Nasa is one of the Kiwi-American firm’s biggest customers (one of its contracts with the space agency will see two Rocket Lab-designed and built Photon spacecraft orbit Mars in a mid-decade mission, after riding a - conventionally-powered - Nasa rocket to the Red Planet). Lockheed Martin and Darpa were both early Rocket Lab financial backers.
“How much of a game-changer will nuclear propulsion be in terms of increased speed and efficiency - and how viable is that to the Rocket Lab story?” the Morgan Stanley analyst asked Beck.
“I’m a great fan of nuclear propulsion - in-space nuclear propulsion - because really if you think about it historically, chemical propulsion we haven’t really improved a whole lot since the early sixties,” Beck said.
“We reached chemical equilibrium quite some time ago,” Beck said.
“So there needs to be a major advancement if we truly want to be citizens of the solar system.
“I think nuclear propulsion is one of those things that can really transform that. So I’m very bullish on it.
“Now, it’s definitely complex. And of course the most challenging bit is getting it to orbit in the first place. There’s a significant challenge for that. But once in orbit it’s a really great technique.”
In nuclear-free New Zealand, it could also be something of a political and regulatory challenge, but the US-incorporated Rocket Lab has already said that the Neutron will launch exclusively from the US (On today’s call, Beck reiterated his firm’s commitment to a new manufacturing and launchpad for the Neutron, currently under construction in Virginia, which he called “close to Government clients. CFO Adam Spice noted a US$14m “contra R&D credit related to our Neutron upper stage” from the US Air Force’s Space Force wing, expected to be banked in the third quarter. Space Forc ).
Regardless, any controversy will be a few years down the track.
“We don’t have any active programmes internally, developing any of that technology - but I do think it’s a technology to watch and we’ll certainly be watching it.”
Rocket Lab has staged seven launches so far this year, or one a month, putting it on track to up its frequency over the Covid-impacted 2022 (nine launches) and 2021 (six launches) and 2020 (seven launches).
What cadence does it need to hit its financial marks?
“On the profitability mark for Electron, we see two launches per month, that’s where we really get to the economies of scale and fixed-cost absorption that we need to increment our way towards a target of a 50 per cent non-GAAP gross margin for Electron,” Spice said.
Rocket Lab also needed the savings that would come from its recovery programme - which will ultimately allow it to re-use the Electron’s first stage (the Neutron’s booster will be designed to land itself, SpaceX Falcon 9-style, from the get-go). On July 19, Rocket Lab staged a successful water retrieval of an Electron first-stage as it tested new water-proofing technology. Beck said today the booster splashed down within 400m of its target, with Rocket Lab’s vessel able to retrieve it within 15 to 20 minutes. The firm has yet to say when it will first attempt to launch a recycled rocket.
More broadly, Rocket Lab has long forecast it won’t get into the black until after its larger, crew-capable Neutron rocket goes into high-volume service.
In the meantime, it still has a lot of fuel in the tank from its Nasdaq listing. Rocket Lab started the quarter (the three months to June 30) with US$450m in cash and equivalents, and ended it with US$419m.
Spice said Neutron development was on track for the end of next year.
“As with any rocket development programme, it’s hard to be too precise about when expenses will hit ... we don’t see the spend on Neutron peaking until we get much closer to the inaugural launch,” the CFO said.
Rocket Lab has been charging around US$7m per Electron launch (with a capacity of around 300kg). Spice said earlier that customers would pay US$50-55m per Neutron launch, which will carry a manifest of up to 13 tonnes. That will be a big step up, but still undercut Elon Musk’s SpaceX 16-tonne capacity Falcon 9 which costs around US$67m per mission, according to the Rocket Lab CFO.
“With the overnight earnings call announcing contracts for another 10 launches in the next year, it’s clear that Rocket Lab has the power to attract customers,” said Megan Stals, a markets analyst with Stake.
“Concerns about the company’s ability to work through contracts quickly might temper future stock price gains, given the backlog increased by US$40.1m in the latest quarter. However, it’s clear that investors have reacted positively overall.”
Stals saw no surprises in the result.
“Rocket Lab still consistently operates at a significant loss, but given the increased appetite for risk-on assets in the past few months, the company’s stock price has shot up 77 per cent year to date. It still sits well below its post-IPO highs, and there could be long-term potential for future returns,” she said.
Concerns about the US market bull run coming to an end may put more pressure on firms to produce tangible financial results, giving Rocket Lab less room for error, Stals said. In particular, investors will be watching the development timeline and design changes to its upcoming Neutron rocket.
“But Kiwi investors on Stake are still feeling positive about the company’s prospects. We saw a threefold increase in buys of the stock in the last session leading up to earnings compared to the previous day, Stals said.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
The New Zealand sharemarket reached its highest level in a month.