Rocket Lab reported mixed Q4 2022 results last night. The company has a lot of growth potential with the development of its Neutron rocket and movement into additional markets.

But, the company is burning cash and will continue to burn cash for a while. The last few quarters have proven that the transition to higher gross margin segments has been lumpier than management expected, and I believe there’s a better place for me to invest my money.

Rocket Lab Results:

• Q4 GAAP EPS of -$0.08 misses by $0.01.

• Revenue of $51.8M beats by $5.1M.

Q1 2023 Guidance:

• Revenue between $51 million and $54 million.

• GAAP Gross Margins between -5% to -3%.

• Non-GAAP Gross Margins between 7% to 9%.

• GAAP Operating Expenses between $44 million to $46 million.

• Non-GAAP Operating Expenses between $33 million to $35 million.

• Expected Interest Expense (Income), net $1 million.

• Adjusted EBITDA loss of $28 million to $30 million.

• Basic Shares Outstanding of 476 million.

This exchange during the Q&A of the conference call really emphasizes how cautious management is about projecting the level of investment Neutron is going to require still. It feels like they are slowly walking back their confidence level, and if we have any production delay, I get the feeling they will have to raise more money or look to get acquired.

Scott Deuschle Crédit Suisse AG, Research Division – Research Analyst

Adam, it looks like the Q1 EBITDA loss you're guiding to is about double the loss in Q4 and pretty close to what the Street was expecting for the full year in '23. So just given the market's focus on profitability, I was wondering if you could give some further context on what's driving that increase and how we should think about the trend from Q1.

Adam C. Spice Rocket Lab USA, Inc. – CFO, Secretary & Treasurer

Sure. Yes, I think that there -- I don't think there's been a tremendous amount of resolution in some of the models that are out there. I think that when we've communicated to investors kind of the level of investment required for the -- sorry, for the Neutron program, when we came out, we said it was going to be roughly a $250 million program to get the first Neutron to the pad at the end of 2024. And we believe we're still on schedule of that. So if you kind of just look at kind of what that -- and we got -- we provided a breakdown of how much of that was going to be in CapEx versus prototyping and then OpEx through headcount and so forth. I think the ability there is to model out what that should be, especially given where we are now as we are in Q1 of 2023 and then anticipated launch date in Q4 of next year.

So I guess it shouldn't be too much of a surprise kind of where we are kind of on that on adjusted EBITDA basis. And I think that at least for internal purposes, it feels like it's pretty consistent with where we thought we'd be given kind of the -- where we are in the life cycle of the program. From a modeling and trending going forward, we're going to see continued uptick in spending related to Neutron. We've -- I think we've crossed the hump or gotten over the hump for a lot of our Photon Space Systems related pure R&D work. There's still more to come, but a lot of it is kind of behind us.

But I think that the -- we'll crest the Neutron spending hump probably sometime in the middle of next year, again, as we get closer and closer to the launch date in Q4. So again, I think the uptick in spending, the current -- or the forecasted Q1 adjusted EBITDA, while we don't give guidance beyond kind of the next quarter, I think that's a number that's going to be -- I don't think we're looking at the low watermark as far as adjusted EBITDA loss in the quarter because, again, spending has continued to ramp up. But I also don't think that we're looking at it -- that it's going to get dramatically higher than where it is.

But we feel like we're kind of in a new range of kind of spending on the program. But we also see revenue increasing over the same time period. So hopefully, a lot of that is because of offsetting. So yes, spending will increase fairly significantly, but we believe that revenue is going to be helpful in growing along with that growth in R&D spend so that we don't kind of balloon that adjusted EBITDA loss on any quarterly basis.

Scott Deuschle Crédit Suisse AG, Research Division – Research Analyst

Okay. So I mean if Q1 is not the low watermark, I mean could full year EBITDA losses be $120 million or more? I'm just trying to put some sort of finer point on it because, to your point, there's not a lot of resolution to Street models.

Adam C. Spice Rocket Lab USA, Inc. – CFO, Secretary & Treasurer

Yes. Again, a lot of it depends on -- a lot of things are still in flux as far as the major prototyping items, when we're going to get invoiced for those types of things. So it's really hard to predict right now like exactly what that -- what the curve is going to look like, what the slope of the line on R&D spending increase related to Neutron. We also have some pretty significant revenue growth coming in the second half of the year related to some of our space systems programs, again, which, depending on how hard they hit up and the related margins that the company does, hopefully moderates quite a bit of that spending increase.

So yes, at this point, I'm not able or kind of willing to go really beyond what the next quarter looks like. But as we spend more time together and we get a little more color and visibility, we'll certainly share that with you and others.

Why I’m Buying 3M (MMM)

Subscribe to to read the rest.