UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 4, 2022, the registrant had
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” for purposes of the federal securities laws. The information included in this Quarterly Report on Form 10-Q has been provided by us and our management, and such forward-looking statements include statements relating to the expectations, hopes, beliefs, intentions or strategies regarding the future of Rocket Lab USA, Inc. (the “Company”) and its management team. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “could,” “expect,” “intends,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on Rocket Lab. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described below and under the heading “Risk Factors.”
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by the COVID-19 outbreak and/or any response to such an outbreak and there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission (the “SEC”) as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. All forward-looking statements are qualified in their entirety by this cautionary statement.
You should also note that we may announce material business and financial information to our investors using our website (including at https://investors.rocketlabusa.com), filings with the SEC, webcasts, press releases, and conference calls. We use these mediums, as well as our official corporate accounts on social media outlets such as Twitter, Facebook, LinkedIn and YouTube, to broadcast our launches and other significant events, and to communicate with the public about our company, our products, and other matters. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website and through our other official social media channels. The information contained on, or that can be accessed through, our website or our social media channels is not a part of this Quarterly Report on Form 10-Q.
Unless the context requires otherwise, references in this Quarterly Report to “Rocket Lab,” “Company,” “we,” “us” and “our” refer to Rocket Lab USA, Inc. and our subsidiaries.
ROCKET LAB U.S.A., INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 2022
Table of Contents
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Page |
PART I. |
5 |
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Item 1. |
5 |
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Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 |
5 |
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6 |
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7 |
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9 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
10 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
Item 3. |
40 |
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Item 4. |
40 |
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PART II. |
42 |
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Item 1. |
42 |
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Item 1A. |
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Item 2. |
42 |
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Item 3. |
42 |
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Item 4. |
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Item 5. |
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Item 6. |
42 |
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43 |
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4
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ROCKET LAB U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
(in thousands, except share and per share data)
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September 30, 2022 |
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(unaudited) |
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December 31, 2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities, current |
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Accounts receivable, net |
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Contract assets |
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Inventories |
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Prepaids and other current assets |
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Total current assets |
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Non-current assets: |
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Property, plant and equipment, net |
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Intangible assets, net |
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Goodwill |
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Right-of-use assets - operating leases |
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Right-of-use assets - finance leases |
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Marketable securities, non-current |
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Restricted cash |
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Deferred income tax assets, net |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Trade payables |
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$ |
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$ |
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Accrued expenses |
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Employee benefits payable |
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Contract liabilities |
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Current installments of long-term borrowings |
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Other current liabilities |
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Total current liabilities |
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Non-current liabilities: |
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Long-term borrowings, excluding current installments |
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Non-current operating lease liabilities |
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Non-current finance lease liabilities |
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Deferred tax liabilities |
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Public and private warrant liabilities |
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Other non-current liabilities |
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Total liabilities |
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COMMITMENTS AND CONTINGENCIES (Note 15) |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive income (loss) |
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( |
) |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ROCKET LAB U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(unaudited; in thousands, except share and per share data)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Gross profit (loss) |
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( |
) |
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( |
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Operating expenses: |
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Research and development, net |
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Selling, general and administrative |
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Total operating expenses |
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Operating loss |
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( |
) |
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( |
) |
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( |
) |
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( |
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Other income (expense): |
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Interest expense, net |
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( |
) |
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( |
) |
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( |
) |
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( |
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Gain (loss) on foreign exchange |
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( |
) |
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( |
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( |
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Change in fair value of liability classified warrants |
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( |
) |
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( |
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Other income (expense), net |
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( |
) |
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( |
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Total other income (expense), net |
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( |
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( |
) |
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( |
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Loss before income taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Benefit (provision) for income taxes |
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( |
) |
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( |
) |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Other comprehensive income (loss), net of tax: |
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Foreign currency translation income (loss) |
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( |
) |
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( |
) |
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( |
) |
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Unrealized loss on available-for-sale marketable securities |
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( |
) |
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( |
) |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Net loss per share attributable to Rocket Lab USA, Inc.: |
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Basic and diluted |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Weighted-average common shares outstanding: |
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Basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ROCKET LAB U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(unaudited; in thousands, except share and per share data)
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Redeemable Convertible |
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Common Stock |
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Additional |
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Accumulated |
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Other |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Total |
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December 31, 2021 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Issuance of common stock under equity plans |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Common stock issued upon exercise of Public and Private Warrants |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock for acquisition |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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March 31, 2022 |
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— |
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— |
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( |
) |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Issuance of common stock under equity plans |
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— |
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— |
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— |
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— |
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||||
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock for acquisitions |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
June 30, 2022 |
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— |
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— |
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( |
) |
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|||||
Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Issuance of common stock under equity plans |
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— |
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— |
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— |
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— |
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— |
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|||
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock for acquisition |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
September 30, 2022 |
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— |
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$ |
— |
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$ |
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$ |
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|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
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||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ROCKET LAB U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(unaudited; in thousands, except share and per share data)
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Redeemable Convertible |
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Common Stock |
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Additional |
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Accumulated |
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Other |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Total |
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||||||||
December 31, 2020 |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
|||||
Retroactive application of Exchange Ratio |
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— |
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( |
) |
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— |
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— |
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— |
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|||
December 31, 2020 as adjusted |
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( |
) |
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( |
) |
||||||
Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Exercise of stock options |
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— |
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— |
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— |
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|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Exercise of preferred stock warrants |
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Exchange of preferred stock warrants for common stock warrants |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Conversion of redeemable convertible preferred stock to common stock |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Reverse recapitalization, net of transaction costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Common stock issued upon exercise of warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
September 30, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ROCKET LAB U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(unaudited; in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Loss on disposal of assets |
|
|
|
|
|
|
||
Loss on extinguishment of long-term debt |
|
|
|
|
|
|
||
Amortization of debt issuance costs and discount |
|
|
|
|
|
|
||
Noncash lease expense |
|
|
|
|
|
|
||
Noncash (income) expense associated with liability-classified warrants |
|
|
( |
) |
|
|
|
|
Change in the fair value of contingent consideration |
|
|
|
|
|
|
||
Accretion of marketable securities purchased at a discount |
|
|
( |
) |
|
|
|
|
Deferred income taxes |
|
|
|
|
|
( |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
Contract assets |
|
|
( |
) |
|
|
|
|
Inventories |
|
|
( |
) |
|
|
( |
) |
Prepaids and other current assets |
|
|
( |
) |
|
|
( |
) |
Other non-current assets |
|
|
|
|
|
|
||
Trade payables |
|
|
( |
) |
|
|
( |
) |
Accrued expenses |
|
|
( |
) |
|
|
|
|
Employee benefits payables |
|
|
|
|
|
|
||
Contract liabilities |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
( |
) |
|
Non-current lease liabilities |
|
|
( |
) |
|
|
( |
) |
Other non-current liabilities |
|
|
|
|
|
( |
) |
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Purchases of property, equipment and software |
|
|
( |
) |
|
|
( |
) |
Cash paid for acquisitions, net of acquired cash and restricted cash |
|
|
( |
) |
|
|
|
|
Purchases of marketable securities |
|
|
( |
) |
|
|
|
|
Repayments of marketable securities |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Proceeds from the exercise of stock options and public warrants |
|
|
|
|
|
|
||
Proceeds from Employee Stock Purchase Plan |
|
|
|
|
|
|
||
Proceeds from sale of employees restricted stock units to cover taxes |
|
|
|
|
|
|
||
Minimum tax withholding paid on behalf of employees for restricted stock units |
|
|
( |
) |
|
|
|
|
Tax payment for net settled option shares |
|
|
( |
) |
|
|
|
|
Payment of contingent consideration |
|
|
( |
) |
|
|
|
|
Finance lease principal payments |
|
|
( |
) |
|
|
|
|
Proceeds from long-term revolving line of credit |
|
|
|
|
|
|
||
Proceeds from long-term secured term loan |
|
|
|
|
|
|
||
Repayments on long-term revolving line of credit |
|
|
|
|
|
( |
) |
|
Proceeds from Business Combination and PIPE Investment, net of transaction costs |
|
|
|
|
|
|
||
Repurchase of shares and options from management, net of amount recognized as compensation cost |
|
|
|
|
|
( |
) |
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Net increase (decrease) in cash and cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash paid for income taxes |
|
|
|
|
|
|
||
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Unpaid purchases of property, equipment and software |
|
|
|
|
|
|
||
Unpaid transaction costs |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
|
|
|
|
||
Net exercise of public and private warrants into common stock |
|
|
|
|
|
|
||
Issuance of common stock for payment of accrued bonus |
|
|
|
|
|
|
||
Warrants assumed as part of Business Combination |
|
|
|
|
|
|
||
Prepaid expenses assumed as part of Business Combination |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
ROCKET LAB USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 AND FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(unaudited; in thousands, except share and per share data)
Rocket Lab USA, Inc. (“Rocket Lab” and, together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) is an end-to-end space company with an established track record of mission success headquartered in Long Beach, California and is the parent company for several wholly owned operating subsidiaries located in the United States, New Zealand, Canada and Australia. We deliver reliable launch services, spacecraft design services, spacecraft components, spacecraft manufacturing and other spacecraft and on-orbit management solutions that make it faster, easier and more affordable to access space. We operate one of the only private orbital launch ranges in the world, located in Mahia, New Zealand, enabling a unique degree of operational flexibility and control of customer launch manifests and mission assurance. While our business has historically been centered on the development of small-class launch vehicles and related sale of launch services, we are currently innovating in the areas of medium-class launch vehicles and launch services, space systems design and manufacturing, on-orbit management solutions, and space data applications.
On August 25, 2021 (the “Closing Date”), the Company consummated the previously announced merger pursuant to that certain Agreement and Plan of Merger, dated March 1, 2021, and amended by Amendment No. 1 thereto, dated May 7, 2021 and Amendment No. 2 thereto, dated June 25, 2021 (the “Merger Agreement”), by and among the Company (formerly known as Vector Acquisition Corporation (“Vector”)), the pre-merger Rocket Lab USA, Inc., (“Legacy Rocket Lab”)) and Prestige USA Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Legacy Rocket Lab (“Merger Sub”). Vector filed a notice of deregistration and necessary accompanying documents with the Cayman Islands Registrar of Companies, and a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which Vector was domesticated and continued as a Delaware corporation (the “Domestication”), changing its name to “Vector Acquisition Delaware Corporation” (“Vector Delaware”). As contemplated by the Merger Agreement, Merger Sub merged with and into Vector Delaware, with the separate corporate existence of Merger Sub ceasing and Vector Delaware being the surviving corporation and a wholly owned subsidiary of Legacy Rocket Lab (the “First Merger”) and immediately following the First Merger, Legacy Rocket Lab merged with and into Vector Delaware with Vector Delaware being the surviving corporation in the merger (the “Second Merger,” and, together with the First Merger and the Domestication, the “Business Combination”). The Business Combination was unanimously approved by the boards of directors of each of Vector and Legacy Rocket Lab.
In connection with the closing of the Business Combination, the Company changed its name from Vector Acquisition Corporation to Rocket Lab USA, Inc. The “Post Combination Company” following the Business Combination is Rocket Lab USA, Inc.
The Business Combination
On August 25, 2021, the Company consummated the Business Combination. The following occurred upon the Closing:
10
In addition, if the closing price of the Post Combination Company common stock was equal to or greater than $
Immediately after giving effect to the Business Combination and the PIPE Financing, the following were outstanding: (i)
The Business Combination was accounted for as a reverse recapitalization in accordance with ASC 805, Business Combinations, with no goodwill or other intangible assets recorded. Under this method of accounting, Vector was treated as the “accounting acquiree” and Legacy Rocket Lab as the “accounting acquirer” for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy Rocket Lab issuing shares for the net assets of Vector, followed by a recapitalization. The consolidated assets, liabilities, and results of operations of Legacy Rocket Lab comprise the historical financial statements of the Post Combination Company, and Vector’s assets, liabilities and results of operations are consolidated with Legacy Rocket Lab beginning on the acquisition date. Accordingly, for accounting purposes, the financial statements of the Post Combination Company represent a continuation of the financial statements of Legacy Rocket Lab, and the net assets of Vector are stated at historical cost, with no goodwill or other intangible assets recorded. This determination was primarily based on the following:
11
In accordance with guidance applicable to these circumstances, the equity structure has been recast in all comparative periods up to the Closing Date to reflect the number of shares of the Company’s common stock, $
Post Combination Company common stock and warrants commenced trading on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “RKLB” and “RKLBW,” respectively, on August 25, 2021.
Principals of Consolidation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented in conformity with accounting standards generally accepted in the United States of America (“U.S. GAAP”) and the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information and include the accounts of Rocket Lab USA, Inc. and its wholly owned subsidiaries after elimination of intercompany accounts and transactions. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022, or for any other interim period or for any other future year.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. The Company expects that it will lose its emerging growth company status on December 31, 2022, at which point, it will qualify as a large accelerated filer based on its unaffiliated market capitalization as of June 30, 2022, according to Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, our management evaluates estimates and assumptions including those related to revenue recognition, contract costs, loss reserves, valuation of warrants and stock-based compensation and deferred tax valuation allowances. We based our estimates on historical data and experience, as well as various other factors that our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results could differ from these estimates and assumptions.
12
Other Significant Accounting Policies
There have been no significant changes to the Company’s significant accounting policies during the nine months ended September 30, 2022, except for the addition of an accounting policy with respect to marketable securities below. Refer to Note 2 - Significant Accounting Policies disclosed in the “Notes to Consolidated Financial Statements” in the Company’s Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 24, 2022.
Marketable Securities
Marketable securities consist of investments in commercial paper, corporate debt securities, bank certificates of deposit, U.S. Treasury bills and notes and asset backed securities. The Company’s investment policy requires the selection of high-quality issuers. The Company's marketable securities are classified as available-for-sale and are carried at fair value. The Company classifies all available-for-sale marketable securities with maturities greater than one year from the balance sheet date as non-current assets. Interest receivable on marketable securities is presented in prepaids and other current assets on the condensed consolidated balance sheets.
Any unrealized holding gains or losses on debt securities, including their tax effect, are reported as components of other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss. Realized gains and losses are included in other income (expense), net in the consolidated statements of operations and comprehensive loss, are determined using the specific identification method for determining the cost of securities sold. Interest and dividend income is recorded when earned and included in interest expense/income, net on the consolidated statements of operations and comprehensive loss. Premiums and discounts on marketable securities are amortized and accreted, respectively, to earliest call date and maturity, respectively, and included in other income (expense), net on the consolidated statements of operations and comprehensive loss.
At each balance sheet date, the Company assesses available-for-sale marketable securities in an unrealized loss position to determine whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value. The Company also reviews its available-for-sale securities in an unrealized loss position to determine whether the unrealized loss is the result of a change in creditworthiness or other factors. If declines in the value of available for-sale securities are determined to be credit-related, a loss is recorded in earnings in the current period.
The following table provides information about revenue by recognition model during the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Revenues by recognition model |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Point-in-time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Over-time |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue by recognition model |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled receivables (presented within contract assets) and customer advances and deposits (presented within contract liabilities) on the condensed consolidated balance sheets, where applicable. Amounts are generally billed as work progresses in accordance with agreed-upon milestones. These individual contract assets and liabilities are reported in a net position on a contract-by-contract basis on the condensed consolidated balance sheets at the end of each reporting period.
The following table presents the balances related to enforceable contracts as of September 30, 2022 and December 31, 2021:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Contract balances |
|
|
|
|
|
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Contract assets |
|
|
|
|
|
|
||
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
Changes in contract liabilities for the three months ended September 30, 2022 were as follows:
Contract liabilities, at June 30, 2022 |
|
$ |
|
|
Customer advances received or billed |
|
|
|
|
Recognition of unearned revenue |
|
|
( |
) |
Contract liabilities, at September 30, 2022 |
|
$ |
|
13
Changes in contract liabilities for the nine months ended September 30, 2022 were as follows:
Contract liabilities, at December 31, 2021 |
|
$ |
|
|
Contract liabilities assumed at acquisition |
|
|
|
|
Customer advances received or billed |
|
|
|
|
Recognition of unearned revenue |
|
|
( |
) |
Contract liabilities, at September 30, 2022 |
|
$ |
|
The revenue recognized from the contract liabilities consisted of the Company satisfying performance obligations during the normal course of business.
The amount of revenue recognized from changes in the transaction price associated with performance obligations satisfied in prior years during the three and nine months ended September 30, 2022 and 2021 was not material.
Remaining unsatisfied performance obligations represent the total dollar value of work to be performed on contracts awarded and in progress. The amount of remaining unsatisfied performance obligations increases with new contracts or additions to existing contracts and decreases as revenue is recognized on existing contracts. Contracts are included in the amount of remaining unsatisfied performance obligations when an enforceable agreement has been reached. Remaining unsatisfied performance obligations totaled $
Concentration of Credit Risk
As of September 30, 2022, the Company had a commercial customer that accounted for $
ASI
On October 12, 2021, the Company completed the acquisition of Advanced Solutions, Inc. (“ASI”) pursuant to a membership interest purchase agreement (the “ASI Purchase Agreement”) with ASI Aerospace LLC (“ASI LLC”), Willis Vern Holdings, Inc., the shareholders of ASI LLC, and John A. Cuseo, as shareholder representative. ASI is an engineering company that develops flight software, simulation systems and guidance, navigation and control systems. ASI’s customers include agencies within the Defense Department, Air Force, NASA, other aerospace prime contractors, commercial spacecraft developers and space startups. ASI will be part of the Company’s Space Systems operating segment and continue to serve its current customers and support the Company’s Photon missions, spacecraft components, and space and ground software capabilities.
Acquisition Consideration
The acquisition-date consideration transferred consisted of cash of $
The following table presents estimates of the preliminary fair value of the assets acquired and the liabilities assumed by the Company in the acquisition:
Description |
|
Amount |
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Intangible assets |
|
|
|
|
Employee benefits payable |
|
|
( |
) |
Other assets and liabilities, net |
|
|
|
|
Identifiable net assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase price |
|
$ |
|
|
14
The following is a summary of preliminary identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets:
Type |
|
Estimated |
|
Fair |
|
|
Developed technology |
|
|
$ |
|
||
In-process technology |
|
N/A |
|
|
|
|
Customer relationships |
|
|
|
|
||
Trademark and tradenames |
|
|
|
|
||
Total identifiable intangible assets acquired |
|
|
|
$ |
|
|
Goodwill of $
Compensation Arrangements
In connection with the acquisition, the Company deposited $
The Company recognized $
PSC
On November 30, 2021, the Company completed the acquisition pursuant to an Agreement and Plan of Merger (the “PSC Merger Agreement”), by and among the Company, Platinum Merger Sub, Inc. (“PSC Merger Sub”), Planetary Systems Corporation (“PSC”), and Michael Whalen as shareholder representative, which provides for, among other things, the merger of PSC Merger Sub with and into PSC, with PSC being the surviving corporation of the merger and a direct, wholly owned subsidiary of the Company. Pursuant to the terms of the PSC Merger Agreement, all of the issued and outstanding shares of PSC were cancelled in exchange for aggregate consideration of $
Acquisition Consideration
The acquisition-date consideration transferred consisted of cash of $
15
The following table presents estimates of the preliminary fair value of the assets acquired and the liabilities assumed by the Company in the acquisition:
Description |
|
Amount |
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Inventories |
|
|
|
|
Intangible assets |
|
|
|
|
Employee benefits payable |
|
|
( |
) |
Contract liabilities (1) |
|
|
( |
) |
Other current liabilities |
|
|
( |
) |
Non-current deferred tax liabilities |
|
|
( |
) |
Other assets and liabilities, net |
|
|
|
|
Identifiable net assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase price |
|
$ |
|
|
_________________________
(1) Contract liabilities was recorded under ASC 606 in accordance with ASU No. 2021-08; therefore a reduction in contract liabilities related to the estimated fair values of the acquired contract liabilities was not required.
The following is a summary of preliminary identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets:
Type |
|
Estimated |
|
Fair |
|
|
Developed technology |
|
|
$ |
|
||
In-process technology |
|
N/A |
|
|
|
|
Customer relationships |
|
|
|
|
||
Backlog |
|
|
|
|
||
Trademark and tradenames |
|
|
|
|
||
Total identifiable intangible assets acquired |
|
|
|
$ |
|
|
Goodwill of $
Compensation Arrangements
In connection with the acquisition, the Company issued
The Company recognized $
16
SolAero
On January 18, 2022, the Company closed on the acquisition (the “SolAero Acquisition”) of SolAero Holdings, Inc. (“SolAero”) pursuant to an Agreement and Plan of Merger (the “SolAero Merger Agreement”), dated as of December 10, 2021, by and among the Company, Supernova Acquisition Corp. (“SolAero Merger Sub”), SolAero, and Fortis Advisors LLC as stockholder representative, which provides for, among other things, the merger of SolAero Merger Sub with and into SolAero, with SolAero being the surviving corporation of the merger and a direct, wholly owned subsidiary of the Company. Pursuant to the terms of the SolAero Merger Agreement, all of the issued and outstanding shares of SolAero were cancelled in exchange for aggregate consideration of $
Acquisition Consideration
The acquisition-date consideration transferred consisted of cash of $
Description |
|
Amount |
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Inventories |
|
|
|
|
Prepaids and other current assets |
|
|
|
|
Property, plant and equipment |
|
|
|
|
Intangible assets |
|
|
|
|
Right-of-use assets - operating leases |
|
|
|
|
Right-of-use assets - finance leases |
|
|
|
|
Restricted cash |
|
|
|
|
Trade payables |
|
|
( |
) |
Accrued expenses |
|
|
( |
) |
Contract liabilities (1) |
|
|
( |
) |
Non-current operating lease liabilities |
|
|
( |
) |
Non-current finance lease liabilities |
|
|
( |
) |
Other assets and liabilities, net |
|
|
( |
) |
Identifiable net assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase price |
|
$ |
|
|
_________________________
(1) Contract liabilities was recorded under ASC 606 in accordance with ASU No. 2021-08; therefore a reduction in contract liabilities related to the estimated fair values of the acquired contract liabilities was not required.
The following is a summary of preliminary identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets:
Type |
|
Estimated |
|
Fair |
|
|
Developed technology |
|
|
$ |
|
||
In-process technology |
|
N/A |
|
|
|
|
Capitalized software |
|
|
|
|
||
Customer relationships |
|
|
|
|
||
Trademark and tradenames |
|
|
|
|
||
Backlog |
|
|
|
|
||
Total identifiable intangible assets acquired |
|
|
|
$ |
|
|
17
Goodwill of $
The Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2022 includes revenues of $
Measurement Period
During the measurement period, the Company will continue to obtain information to assist in determining the fair value of net assets acquired, which may differ materially from these preliminary estimates. Measurement period adjustments, if applicable, will be applied in the reporting period in which the adjustment amounts are determined. Measurement period changes for the ASI, PSC and SolAero acquisitions did not have a material impact to the Condensed Consolidated Financial Statements for the third quarter of 2022.
Unaudited Pro Forma Information
The unaudited consolidated financial information summarized in the following table gives effect to the 2022 and 2021 acquisitions assuming they occurred on January 1, 2021. These unaudited consolidated pro forma operating results do not assume any impact from revenue, cost or other operating synergies that are expected as a result of the acquisitions.
|
|
As Reported |
|
|
Acquisitions Pro-Forma (Unaudited) |
|
|
Consolidated Pro-Forma (Unaudited) |
|
|||
Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|||
Revenues |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Net loss |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Three Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
18
Cash and cash equivalents and marketable securities consisted of the following as of September 30, 2022 and December 31, 2021:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Marketable securities, current |
|
|
|
|
|
|
||
Marketable securities, non-current |
|
|
|
|
|
|
||
Total cash and cash equivalents and marketable securities |
|
$ |
|
|
$ |
|
||
As of September 30, 2022, cash equivalents and marketable securities consisted of the following:
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Cash Equivalents |
|
|
Marketable Securities |
|
||||||
Money market accounts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Certificates of deposit |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Commercial paper |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Corporate debt securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Yankee bonds |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
U.S. government agency bonds |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Mortgage- and asset-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
The following table presents the Company's cash equivalents and marketable securities with unrealized losses by investment category as of September 30, 2022:
|
|
Less than 12 Months |
|
|||||
|
|
Fair Value |
|
|
Unrealized Losses |
|
||
Certificates of deposit |
|
$ |
|
|
$ |
( |
) |
|
Commercial paper |
|
|
|
|
|
( |
) |
|
Corporate debt securities |
|
|
|
|
|
( |
) |
|
Yankee bonds |
|
|
|
|
|
( |
) |
|
U.S. Treasury securities |
|
|
|
|
|
( |
) |
|
U.S. government agency bonds |
|
|
|
|
|
( |
) |
|
Mortgage- and asset-backed securities |
|
|
|
|
|
( |
) |
|
Total |
|
$ |
|
|
$ |
( |
) |
|
The Company has not observed a significant deterioration in credit quality of these securities, which are highly rated with moderate to low credit risk. Declines in value are largely attributable to current global economic conditions. The securities continue to make timely principal and interest payments, and the fair values are expected to recover as they approach maturity. The Company does not intend to sell the securities, and it is not more likely than not that the Company will be required to sell the securities, before the respective recoveries of their amortized cost bases, which may be maturity. As of September 30, 2022, the Company had not recognized an allowance for credit losses on any marketable securities in an unrealized loss position.
The following table summarizes the contractual maturities of the Company’s cash equivalents and marketable securities as of September 30, 2022:
|
|
Amortized Cost |
|
|
Fair Value |
|
||
Due within one year |
|
$ |
|
|
$ |
|
||
Due within one to four years |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
19
As of September 30, 2022 and December 31, 2021 the following financial assets and liabilities are measured at fair value on a recurring basis and are categorized using the fair value hierarchy as follows:
|
|
September 30, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market accounts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable securities, current: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Yankee bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government agency bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable securities, non-current |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Yankee bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage- and asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
|
|
December 31, 2021 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market accounts |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Public and Private Warrants (Note 12) |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
The estimated fair value amounts shown above are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or ability to dispose of the financial instrument.
There were
20
Inventories as of September 30, 2022 and December 31, 2021 consisted of the following:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
||
Prepaids and other current assets as of September 30, 2022 and December 31, 2021 consisted of the following:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Prepaid expenses and deposits |
|
$ |
|
|
$ |
|
||
Government grant receivables |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total prepaids and other current assets |
|
$ |
|
|
$ |
|
||
Property, plant and equipment, net, as of September 30, 2022 and December 31, 2021 consisted of the following:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Buildings and improvements |
|
$ |
|
|
$ |
|
||
Machinery, equipment, vehicles and office furniture |
|
|
|
|
|
|
||
Computer equipment, hardware and software |
|
|
|
|
|
|
||
Launch site assets |
|
|
|
|
|
|
||
Construction in process |
|
|
|
|
|
|
||
Property, plant and equipment—gross |
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment—net |
|
$ |
|
|
$ |
|
||
Depreciation expense recorded in the condensed consolidated statements of operations and comprehensive loss during the three and nine months ended September 30, 2022 and 2021 consisted of the following:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Depreciation expense |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total depreciation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Goodwill
The following table presents the changes in the carrying amount of goodwill for the Space Systems reportable segment for the nine months ended September 30, 2022:
Balance at December 31, 2021 |
|
$ |
|
|
Acquisition |
|
|
|
|
Measurement period adjustment |
|
|
|
|
Balance at September 30, 2022 |
|
$ |
|
21
Intangible Assets
The components of intangible assets consisted of the following as of September 30, 2022:
|
|
September 30, 2022 |
|
|||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net Carrying |
|
|||
Finite-Lived Intangible Assets |
|
|
|
|
|
|
|
|
|
|||
Developed Technology |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Capitalized software |
|
|
|
|
|
( |
) |
|
|
|
||
Customer relationships |
|
|
|
|
|
( |
) |
|
|
|
||
Non-compete agreements |
|
|
|
|
|
( |
) |
|
|
|
||
Capitalized intellectual property |
|
|
|
|
|
( |
) |
|
|
|
||
Trademarks and tradenames |
|
|
|
|
|
( |
) |
|
|
|
||
Backlog |
|
|
|
|
|
( |
) |
|
|
|
||
Patents |
|
|
|
|
|
( |
) |
|
|
|
||
Indefinite-Lived Intangible Assets |
|
|
|
|
|
|
|
|
|
|||
In-process Technology |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Amortization expense recorded in the condensed consolidated statements of operations and comprehensive loss during the three and nine months ended September 30, 2022 and 2021, respectively consisted of the following:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total amortization expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table outlines the estimated future amortization expense related to intangible assets held as of September 30, 2022:
2022 (for the remaining period) |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
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Total |
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$ |
|
22
Hercules Capital Secured Term Loan
On June 10, 2021, the Company entered into a $
As part of the closing of the Business Combination, the Company assumed Public Warrants and Private Warrants to purchase up to
Until settlement, Public Warrants could only be exercised for a whole number of shares.
Warrant Redemption
On December 22, 2021, the Company announced the planned redemption of all of its Public Warrants and Private Warrants. On January 20, 2022, the Company extended the redemption date of its public warrants to January 31, 2022. In connection with the redemption, Public Warrants were to be exercised by holders prior to January 31, 2022 either (i) in cash, at an exercise price of $
During the nine months ended September 30, 2022, an aggregate of
The Public Warrants and Private Warrants were remeasured to fair value as of the exercise or redemption date, resulting in a gain of $
Equity Incentive Plans
The Company has a single active equity incentive plan, the Rocket Lab 2021 Stock Option and Incentive Plan (the “2021 Plan”), with the objective of attracting and retaining available employees and directors by providing stock-based and other performance-based compensation. The 2021 Plan provides for the grant of equity awards to officers, employees, directors and other key employees as well as service providers which include incentive stock options, non-qualified stock options, restricted stock awards, unrestricted stock awards, restricted stock units or any combination of the foregoing any of which may be performance based, as determined by the Company’s Compensation Committee. An aggregate of
23
Prior to the Business Combination, the Company maintained the Rocket Lab 2013 Stock Option and Grant Plan (the “2013 Plan”). The 2013 Plan was terminated in connection with the consummation of the Business Combination, and accordingly, no shares are available for future issuance under the 2013 Plan following the Closing Date. Upon the consummation of the Business Combination, all outstanding stock options under the 2013 Plan, whether vested or unvested, were converted into options to purchase a number of shares of common stock of the Post Combination Company based on the Exchange Ratio, with a corresponding adjustment to the exercise price such that there was no change to the aggregate exercise price for the options. Similarly, upon consummation of the Business Combination, all outstanding restricted stock units under the 2013 Plan, whether vested or unvested, were converted into a number of restricted stock units of the Post Combination Company based on the Exchange Ratio. The 2013 Plan will continue to govern outstanding awards granted thereunder.
Total stock-based compensation recorded in the condensed consolidated statements of operations and comprehensive loss during the three and nine months ended September 30, 2022 and 2021 consisted of the following:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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Stock-based compensation |
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2022 |
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2021 |
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2021 |
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Cost of revenues |
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$ |
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$ |
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$ |
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$ |
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Research and development |
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Selling, general and administrative |
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Total stock-based compensation expense |
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$ |
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$ |
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$ |
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$ |
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Options
Options issued to all optionees under the 2013 Plan vest over
As of September 30, 2022, total estimated unrecognized stock compensation expense related to unvested options granted under the 2013 Plan was $
Restricted Stock Units
During the nine months ended September 30, 2022 and 2021, the Company granted
As of September 30, 2021, upon consummation of the Business Combination, it became probable that the performance condition for the performance-based restricted stock units would be satisfied. Accordingly, the Company recognized $
As of September 30, 2022, the total unrecognized compensation expense related to unvested performance-based restricted stock units granted under the 2013 Plan and 2021 Plan was $
Management Redemption
In connection with the Business Combination, the Company modified
24
2021 Employee Stock Purchase Plan
In August 2021, the 2021 Employee Stock Purchase Plan (the “2021 ESPP”) was approved to reserve
During the nine months ended September 30, 2022,
The Company has operating and finance leases for properties, vehicles and equipment. The Company’s leases have remaining lease terms of
In connection with the SolAero acquisition, the Company assumed finance leases in the aggregate of $
Litigation and Claims
The Company is, and from time to time may be, a party to claims and legal proceedings generally incidental to its business that are principally covered under contracts with its customers and insurance policies. In the opinion of management, there are no legal matters or claims likely to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Other Commitments
The Company has commitments under its lease obligations (see Note 14).
Contingencies
The Company records a contingent liability when it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
On May 23, 2016, the Company entered into a launch services agreement with a customer to provide three commercial dedicated launches which would deliver the customer’s payloads over the period of 2017 through 2020. Per the terms of the agreement, each dedicated launch shall have a firm fixed price below current launch vehicle costs. During the year ended December 31, 2018, the Company determined that it was probable that the costs to provide the services as stipulated by the launch services agreement would exceed the fixed firm price of each launch. As such, the Company recorded a provision for contract loss for these three dedicated launches. During the year ended December 31, 2020, one of the three launches occurred. On April 21, 2021, the launch services agreement was amended, resulting in one additional launch and the potential for price increases on the second and third launches dependent on the customer’s desired payload configuration. The provision for contract losses outstanding as of September 30, 2022, which primarily is related to the remaining three remaining launches, was $
25
Income tax provision and the effective tax rate for the three and nine months ended September 30, 2022 and 2021 were as follows:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Income tax benefit (provision) |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Effective tax rate |
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( |
)% |
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% |
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)% |
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% |
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The tax provisions for the three and nine months ended September 30, 2022 and 2021 were computed using the estimated effective tax rates projected to be applicable for domestic and international taxable jurisdictions for the full year as adjusted for discrete items arising during each quarter.
The effective tax rate differs from the federal statutory rate due primarily to a full valuation allowance against our U.S. deferred tax assets, as well as the impact of discrete items that may occur in any given year but which are not consistent from year-to-year.
The Company is not currently under examination by the IRS, state and local, or foreign tax authorities. Due to its net operating loss carryforwards, the Company remains subject to examination for U.S. federal and state jurisdictions for all years beginning with the year ended March 31, 2016. The Company’s foreign subsidiaries are generally subject to examination within four years from the end of the tax year during which the tax return was filed.
No significant changes in the Company’s unrecognized tax benefits are expected to occur within the next 12 months.
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during each period. While outstanding, each series of preferred stock was considered to be a participating security. Therefore, the Company applies the two-class method in calculating its net loss per share for periods when the Company generates net income. Net losses are not allocated to the preferred stockholders, as they were not contractually obligated to share in the Company’s losses.
The holder of each share of common stock has the right to one vote for each share and is entitled to notice of any stockholders’ meeting and to vote upon certain events.
Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding for the period using the treasury-stock method or the as-converted method, or two-class method for participating securities, whichever is more dilutive. Potentially dilutive shares are comprised of preferred stock, preferred stock warrants, common stock warrants, restricted stock units, stock options, and Earnout Shares issuable upon the achievement of the Stock Price Target (see Note 1). For the three and nine months ended September 30, 2022 and 2021, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss and potentially dilutive shares being anti-dilutive.
The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company for the three and nine months ended September 30, 2022 and 2021:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2021 |
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2022 |
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2021 |
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Numerator |
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Net loss attributable to common stockholders-basic and diluted |
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) |
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$ |
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$ |
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$ |
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Denominator |
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Weighted average common shares outstanding-basic and diluted |
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Net loss per share attributable to common stockholders-basic and diluted |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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) |
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$ |
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) |
The following equity shares were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive:
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September 30, |
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2022 |
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2021 |
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Stock options and restricted stock units |
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26
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. The Company manages its business primarily based upon
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Three Months Ended September 30, |
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Launch |
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Revenues |
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Launch |
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Launch |
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Space |
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Revenues |
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Cost of revenues |
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Gross profit (loss) |
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Management does not regularly review either reporting segment’s total assets or operating expenses. This is because in general, the Company’s long-lived assets, facilities, and equipment are shared by each reporting segment.
There are three members of our board of directors that are affiliated with three separate entities that are invested in our common stock, two of which individually hold greater than
As of September 30, 2022 and December 31, 2021, there are
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. For additional context with which to understand our financial condition and results of operations, see the audited consolidated financial statements and accompanying notes contained therein as of December 31, 2021 and 2020 and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 24, 2022. Certain amounts may not foot due to rounding. Certain information in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described under the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A. “Risk Factors” included in this Quarterly Report on Form 10-Q and under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 24, 2022. We assume no obligation to update any of these forward-looking statements. Actual results may differ materially from those contained in any forward-looking statements.
Overview
Rocket Lab is an end-to-end space company with an established track record of mission success. We deliver reliable launch services, spacecraft design services, spacecraft components, spacecraft manufacturing and other spacecraft and on-orbit management solutions that make it faster, easier and more affordable to access space.
While our business has historically been centered on the development of small-class launch vehicles and the related sale of launch services, we are currently innovating in the areas of medium-class launch vehicles and launch services, space systems design and manufacturing, and on-orbit management solutions. We continue to evaluate opportunities to participate in space data applications and services. Each of these initiatives addresses a critical component of the end-to-end solution and our value proposition for the space economy:
Electron is our orbital small launch vehicle that was designed from the ground up to accommodate a high launch rate business model to meet the growing and dynamic needs of our customers for small launch services. Since its maiden launch in 2017, Electron has become the leading small spacecraft launch vehicle delivering 150 spacecraft to orbit for government and commercial customers across 27 successful missions through September 30, 2022. In 2021, Electron was the second most frequently launched rocket by companies operating in the United States and established Rocket Lab as the fourth most frequent launcher globally. Our launch services program has seen us develop many industry-leading innovations, including 3D printed electric turbo-pump rocket engines, fully carbon composite first stage fuel tanks, a private orbital launch complex, a rocket stage that can be configured to convert into a highly capable spacecraft on orbit, and the potential ability to successfully recover a stage from space, providing a path to reusability.
In March 2021, we announced plans to develop our reusable-ready medium-capacity Neutron launch vehicle which will increase the payload capacity of our space launch vehicles to approximately 15,000 kg for launches to low Earth orbit and lighter payloads into higher orbits. Neutron will be tailored for commercial and U.S. government constellation launches and capable of human space flight, enabling us to provide crew and cargo resupply to the International Space Station. Neutron will also provide a dedicated service to orbit for larger civil, defense and commercial payloads that need a level of schedule control and high-flight cadence. Neutron is expected to have the capability of launching nearly all of the spacecraft configurations that we expect to be launched through 2029 and we expect to be able to leverage Electron’s flight heritage, various vehicle subsystems designs, launch complexes and ground station infrastructure.
Our space systems initiative is supported by the design and manufacture of our Photon family of small spacecraft along with a range of components, software and services for spacecraft, including reaction wheels, star trackers, radios, separation systems, solar solutions, command and control software, high voltage space grade battery solutions, and additional products in development to serve a wide variety of sub-system functions. We entered this market with our acquisition of leading spacecraft components manufacturer Sinclair Interplanetary, and have since expanded our market participation with the acquisitions of Planetary Systems Corporation, SolAero Holdings, Inc. and aerospace software firm Advanced Solutions, Inc. Each of these strategic acquisitions brought incremental vertically-integrated capabilities for our own Photon family of spacecraft and also enabled Rocket Lab to deliver high-volume manufacturing of critical spacecraft components and software solutions at scale prices to the broader spacecraft merchant market. The Photon family of small spacecraft, which are configurable for a range of low Earth orbit, medium Earth orbit, geosynchronous orbit and interplanetary missions enable us to offer an end-to-end mission solution encompassing launch, spacecraft, ground services and mission operations to provide customers with streamlined access to orbit with Rocket Lab as a single mission partner.
28
Recent Developments
SolAero Acquisition
On January 18, 2022, we closed on the acquisition of SolAero Holdings, Inc. (“SolAero”). The acquisition aligns with our growth strategy of vertical integration to deliver a comprehensive space solution that spans spacecraft manufacture, satellite subsystems, flight software, ground operations, and launch. As one of only two companies producing high-efficiency, space-grade solar cells in the United States, SolAero’s space solar cells are among the highest performing in the world and support civil space exploration, science, defense and intelligence, and commercial markets. In combining with us, SolAero will tap into our resources and manufacturing capability to boost high-volume production, making high-performing space power technologies available at scale.
Neutron Production Complex
We broke ground on the construction of a state-of-the-art rocket production complex where our medium class Neutron launch vehicle will be manufactured.
The 250,000 square foot Neutron production complex is being constructed on a 28-acre site adjacent to the NASA Wallops Flight Facility and Mid-Atlantic Regional Spaceport on Virginia’s Eastern Shore. The complex will support Neutron production, assembly, and integration, and is expected to bring up to 250 highly-skilled roles to the region. Construction will also soon begin on a launch pad for Neutron at the southern end of Wallops Island, near our existing launch pad for the Electron rocket.
CAPSTONE Mission
Our role in the mission for the Cislunar Autonomous Positioning System Technology Operations and Navigation Experiment (“CAPSTONE”) took place over two phases. First, CAPSTONE was successfully launched to low Earth orbit by Electron in June 2022. At approximately 325 kg of payload mass, the mission was Electron’s heaviest lift to date. From there, our Lunar Photon spacecraft provided in-space transportation, power, and communications to CAPSTONE. This was the first use of Lunar Photon, a high energy variant of the Rocket Lab-designed and built Photon spacecraft. After six days of orbit-raising burns by Lunar Photon’s 3D printed HyperCurie engine, CAPSTONE was deployed on its ballistic lunar transfer trajectory to the Moon in July 2022.
Stennis Space Center
The Archimedes Test Complex will be located within the larger A Test Complex at Stennis Space Center across a 1 million square foot area for 10 years, with an option to extend the lease for an additional 10 years. The Archimedes Test Complex will include exclusive use and development of existing industrial NASA infrastructure and the Stennis Space Center’s A-3 Test Stand to develop and test Neutron’s Archimedes reusable engines.
Key Metrics and Select Financial Data
We monitor the following key financial and operational metrics that assist us in evaluating our business, measuring our performance, identifying trends and making strategic decisions.
Launch Vehicle Build-Rate and Launch Cadence
We built approximately eight launch vehicles in 2020 and approximately eight launch vehicles in 2021. We anticipate we will build approximately twelve launch vehicles in 2022. Although we experienced a negative impact in 2020 and 2021 as a result of the COVID-19 shutdowns and restrictions on our operations discussed in more detail below under “Key Factors Affecting Our Performance—Covid-19 Considerations,” we believe that the projected growth in build rate subsequent to such COVID-19 restrictions is a positive indicator of our ability to scale our manufacturing operations in support of our anticipated growth rate in revenue in the coming years.
We launched seven vehicles in 2020 and six vehicles in 2021. We have launched seven vehicles through the nine months ended September 30, 2022 and launched nine vehicles through November 9, 2022. The number of launches is an indicator of our ability to convert mission awards into revenue in a timely manner and demonstrate the scalability of our launch operations. Growth rates between launches and total launch service revenue are not perfectly correlated because our total revenue is affected by other variables, such as the revenue per launch, which can vary considerably based on factors such as unique orbit and insertion requirements, payload handling needs, launch location, time sensitivity of mission completion and other factors. Although we experienced a negative impact in 2021 as a result of the COVID-19 shutdowns and restrictions on our operations discussed in more detail below under “Key Factors Affecting Our Performance—Covid-19 Considerations,” we believe that the projected growth in launch rate subsequent to such COVID-19 restrictions is a positive indicator of our ability to scale our launch operations in support of our anticipated growth rate in revenue in the coming years.
29
Revenue Growth
Three Months Ended September 30, 2022 and 2021
We generated $63.1 million and $5.3 million in revenue for the three months ended September 30, 2022 and 2021, respectively, representing a year-on-year increase in revenue of approximately 1,093%. This year-on-year increase primarily resulted from $30.6 million in contributions from acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022, higher launch cadence that delivered growth of $21.9 million, and strength in our organic space system products and services representing growth of $5.3 million.
Nine Months Ended September 30, 2022 and 2021
We generated $159.2 million and $34.8 million in revenue for the nine months ended September 30, 2022 and 2021, respectively, representing a year-on-year increase in revenue of approximately 358%. This year-on-year increase primarily resulted from $85.9 million in contributions from acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022, higher launch cadence that delivered growth of $23.5 million, and strength in our organic space system products and services representing growth of $15.1 million.
Revenue and Cost Value Per Launch
Revenue value per launch represents the average revenue per launch contract attributable to launches that occurred during a period, regardless of when the revenue was recognized. Revenue value per launch can be a useful metric to provide insight into general competitiveness and price sensitivity in the marketplace. Revenue value per launch can vary considerably, based on factors such as unique orbit and insertion requirements, payload handling needs, launch location, time sensitivity of mission completion and other factors, and as such may not provide absolute clarity with regards to pricing and competitive dynamics in the marketplace.
Three Months Ended September 30, 2022 and 2021
In the three months ended September 30, 2022 and 2021, our revenue value per launch was $7.7 million and $12.1 million, respectively. Meanwhile, cost per launch was $7.3 million and $21.3 million for the three months ended September 30, 2022 and 2021, respectively. The decrease in cost per launch in the three months ended September 30, 2022 was driven primarily by excess cost incurred on the mission launched in the third quarter of 2021 that includes the cost of a replacement rocket and a higher launch cadence in 2022.
Nine Months Ended September 30, 2022 and 2021
In the nine months ended September 30, 2022 and 2021, our revenue value per launch was $6.9 million and $8.8 million, respectively. The revenue value per launch in 2022 was impacted by a recovery rideshare mission launch in May 2022 which had a lower revenue value per launch. Meanwhile, cost per launch was $7.2 million and $10.1 million for the nine months ended September 30, 2022 and 2021, respectively. The decrease in cost per launch in the nine months ended September 30, 2022 was driven primarily by excess cost incurred on the mission launched in the third quarter of 2021 that includes the cost of a replacement rocket and a higher launch cadence in 2022.
Backlog
Backlog represents future revenues that we would recognize in connection with the completion of all contracts and purchase orders that have been entered into by our customers, excluding any customer options for future products or services that have not yet been exercised. Contracts for launch services and spacecraft builds typically include termination rights that may be exercised by customers upon advanced notice and payment of a specified termination fee. As of September 30, 2022, our backlog totaled $520.6 million, of which $122.4 million is related to Launch and $398.2 million is related to Space Systems. We expect to recognize approximately 42% of our backlog over the next 12 months and the remainder recognized thereafter.
30
Key Factors Affecting Our Performance
COVID-19 Considerations
In December 2019, COVID-19 surfaced in Wuhan, China. In response, the World Health Organization (“WHO”) declared a global emergency on January 30, 2020, and several countries initiated travel restrictions, closed borders and implemented social distancing directives, including “shelter-in-place” orders. On March 11, 2020, the WHO declared the COVID-19 outbreak a pandemic. As a result of the pandemic, the United States and New Zealand governments shut down various sectors of their respective economies. In the United States, we were deemed an essential service and were not required to shut down our United States’ based operations. In New Zealand, we had to delay certain scheduled launches to a later date. In addition to existing travel restrictions, some locales have imposed and continue to impose prolonged quarantines and further restrict travel, which has, at certain times, significantly impacted the ability of our employees to get to their places of work to produce products, made it such that we are unable to obtain certain long lead time components on a timely basis or at a cost-effective price, and significantly hampered our customers from traveling to our launch facilities to prepare payloads for launch. In response to the COVID-19 pandemic, and with the health and safety of all our employees and their families in mind, we took and continue to take precautionary measures intended to help minimize the risks of the virus, including temporarily requiring some employees to work remotely and implementing social distancing protocols for all work conducted onsite. In addition, we suspended non-essential travel worldwide for employees and is discouraging employee attendance at other gatherings.
The extent of COVID-19’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. At this time, it is not possible to determine the magnitude of the overall impact of COVID-19 on our business. However, it could have a material adverse effect on our business, financial condition, liquidity, results of operations and cash flows.
Rocket Lab has significant operations in Auckland, New Zealand, and while some employees were able to continue their work remotely, certain business operations that require direct labor and physical presence, such as vehicle integration and testing, were suspended during this and will be again under any other Level 4 Alerts. On December 2, 2021, New Zealand replaced the Alert Level system with the COVID-19 Protection Framework. The COVID-19 Protection Framework settings allow businesses to open and operate with greater flexibility while minimizing the virus’ spread. The extent of the COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.
Ability to sell additional launch services, space systems service and spacecraft components to new and existing customers
Our results will be impacted by our ability to sell our launch services, space systems services, and spacecraft components to new and existing customers. We have successfully launched Electron 27 times delivering 150 spacecraft to orbit through September 30, 2022. Our spacecraft components have flown on more than 100 spacecraft and our family of Photon spacecraft has been selected for missions to the Moon, Mars and Venus. Our growth opportunity is dependent on our ability to expand our addressable launch services market with larger volumetric and higher mass payloads capabilities of our recently announced medium-capacity Neutron launch vehicle, which will address large commercial and government constellation launch opportunities. Our growth opportunity is also dependent on our ability to win spacecraft constellation missions and expand our portfolio of strategic spacecraft components. Our ability to sell additional products to existing customers is a key part of our success, as follow-on purchases indicate customer satisfaction and decrease the likelihood of competitive substitution. To sell additional products and services to new and existing customers, we will need to continue to invest significant resources in our products and services.
Ability to improve profit margins and scale our business
We intend to continue to invest in initiatives to improve our operating leverage and significantly ramp production. We believe continued reduction in costs and an increase in production volumes will enable the cost of launch vehicles to decline and expand our gross and operating margins. Our ability to achieve our production-efficiency objectives could be negatively impacted by a variety of factors including, among other things, lower-than-expected facility utilization rates, manufacturing and production cost overruns, increased purchased material costs and unexpected supply-chain quality issues or interruptions.
Government expenditures and private enterprise investment into the space economy
Government expenditures and private enterprise investment has fueled the growth in our target markets. We expect the continued availability of government expenditures and private investment for our customers to help fund purchases of our products and services will remain. This is an important factor in our company’s growth prospects.
31
Components of Results of Operations
Revenue
Our revenues are derived from a combination of long-term fixed price contracts for launch services and spacecraft builds, and purchase order spacecraft components sales. Revenues from long-term contracts are recognized using either the “point-in-time” or “over-time” method of revenue recognition. Point-in-time revenue recognition results in cash payments being initially accrued to the balance sheet as deferred revenue as contractual milestones are accomplished and then recognized as revenue once the final contractual obligation is completed. Over-time revenue recognition is based on an input measure of progress based on costs incurred compared to estimated total costs at completion. Each project has a contractual revenue value and an estimated cost. The over-time revenue is recognized based on the percentage of the total project cost that has been realized.
Estimating future revenues and associated costs and profit is a process requiring a high degree of management judgment, including management’s assumptions regarding our future operational performance as well as general economic conditions. Frequently, the period of performance of a contract extends over a long period of time and, as such, revenue recognition and our profitability from a particular contract may be affected to the extent that estimated costs to complete are revised, delivery schedules are delayed, performance-based milestones are not achieved or progress under a contract is otherwise impeded. Accordingly, our recorded revenues and operating profit from period to period can fluctuate significantly depending on when the point-in-time or over-time contractual obligations are achieved. In the event cost estimates indicate a loss on a contract, the total amount of such loss is recorded in the period in which the loss is first estimated.
Cost of Revenues
Cost of revenues consists primarily of direct material and labor costs, manufacturing overhead, other personnel-related expenses, which include salaries, bonuses, benefits and stock-based compensation expense, reserves for estimated warranty costs, freight expense and depreciation expense. Cost of revenues also includes charges to write-down the carrying value of inventory when it exceeds its estimated net realizable value, including on-hand inventory that is either obsolete or in excess of forecasted demand. We expect our cost of revenues to increase in absolute dollars in future periods as we sell more launch services, space systems and components. As we grow into our current capacity and execute on cost-reduction initiatives, we expect our cost of revenues as a percentage of revenue to decrease over time.
Because direct labor costs and manufacturing overhead comprise more than 60% of cost of revenues, increasing our production rate resulting in greater absorption of these costs is our most critical cost reduction initiative. Increasing our production rate is a cross-functional effort involving manufacturing, engineering, supply chain and finance.
Operating Expenses
Our operating expenses consist of research and development and selling, general and administrative expenses.
Research and Development, net
Research and development expense consists primarily of personnel-related expenses, consulting and contractor expenses, validation and testing expense, prototype parts and materials and depreciation expense. We intend to continue to make significant investments in developing new products and enhancing existing products, including but not limited to our medium lift Neutron launch vehicle, Electron’s first stage helicopter recovery, Photon spacecraft features and capabilities, as well as on expanding our portfolio of Spacecraft components and subsystems. Research and development expense will be variable relative to the number of products that are in development, validation or testing. However, we expect it to decline as a percentage of total revenue over time.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of personnel-related expenses for our sales, marketing, supply chain, finance, legal, human resources and administrative personnel, as well as the costs of customer service, information technology, professional services insurance, travel, allocated overhead and other marketing, communications and administrative expenses. We will continue to actively promote our products and therefore we expect to incur expenses related to sales and marketing. We also expect to further invest in our corporate organization and incur additional expenses associated with operating as a public company, including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs. As a result, we expect that selling, general and administrative expenses will increase in absolute dollars in future periods but decline as a percentage of total revenue over time.
Interest Expense, Net
Interest expense, net consists primarily of interest expense incurred on debt and interest income earned on our cash and cash equivalents and short-term investments balances.
32
Gain (Loss) on Foreign Exchange
Gain (loss) on foreign exchange relates to currency fluctuations that generate foreign exchange gains or losses on invoices denominated in currencies other than the United States (“U.S.”) Dollar.
Change in Fair Value of Liability Classified Warrants
Change in fair value of liability classified warrants relates to changes in the fair value of warrant liabilities.
Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
The following table sets forth our consolidated statements of operations information and data as a percentage of revenue for the three months ended September 30, 2022 and 2021 (in thousands, except percentages):
|
|
Three Months Ended September 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
||||
Revenues |
|
$ |
63,057 |
|
|
|
100.0 |
% |
|
$ |
5,287 |
|
|
|
100.0 |
% |
Cost of revenues |
|
|
54,590 |
|
|
|
86.6 |
% |
|
|
17,738 |
|
|
|
335.5 |
% |
Gross profit (loss) |
|
|
8,467 |
|
|
|
13.4 |
% |
|
|
(12,451 |
) |
|
|
(235.5 |
)% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development, net |
|
|
17,508 |
|
|
|
27.8 |
% |
|
|
14,189 |
|
|
|
268.4 |
% |
Selling, general and administrative |
|
|
22,961 |
|
|
|
36.4 |
% |
|
|
25,655 |
|
|
|
485.2 |
% |
Total operating expenses |
|
|
40,469 |
|
|
|
64.2 |
% |
|
|
39,844 |
|
|
|
753.6 |
% |
Operating loss |
|
|
(32,002 |
) |
|
|
(50.8 |
)% |
|
|
(52,295 |
) |
|
|
(989.1 |
)% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
(1,486 |
) |
|
|
(2.4 |
)% |
|
|
(2,977 |
) |
|
|
(56.3 |
)% |
Gain (loss) on foreign exchange |
|
|
(51 |
) |
|
|
(0.1 |
)% |
|
|
16 |
|
|
|
0.3 |
% |
Change in fair value of liability classified warrants |
|
|
— |
|
|
|
— |
% |
|
|
(33,947 |
) |
|
|
(642.1 |
)% |
Other income (expense), net |
|
|
622 |
|
|
|
1.0 |
% |
|
|
(450 |
) |
|
|
(8.5 |
)% |
Total other expense, net |
|
|
(915 |
) |
|
|
(1.5 |
)% |
|
|
(37,358 |
) |
|
|
(706.6 |
)% |
Loss before income taxes |
|
|
(32,917 |
) |
|
|
(52.3 |
)% |
|
|
(89,653 |
) |
|
|
(1,695.7 |
)% |
Benefit (provision) for income taxes |
|
|
(1,693 |
) |
|
|
(2.7 |
)% |
|
|
1,684 |
|
|
|
31.9 |
% |
Net loss |
|
$ |
(34,610 |
) |
|
|
(55.0 |
)% |
|
$ |
(87,969 |
) |
|
|
(1,663.8 |
)% |
Revenues
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenues |
|
$ |
63,057 |
|
|
$ |
5,287 |
|
|
$ |
57,770 |
|
|
|
1,093 |
% |
Revenue increased by $57.8 million, or 1,093%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Launch services revenue was $23.0 million for the three months ended September 30, 2022, an increase of $21.9 million, or 1,947%, primarily due to a higher launch cadence, with three launch missions completed in the three months ended September 30, 2022, versus one launch mission completed in the three months ended September 30, 2021. Space systems revenue was $40.1 million for the three months ended September 30, 2022, an increase of $35.9 million, or 862%, with $30.6 million of that growth attributable to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022, and strength in our organic space system products and services that delivered $5.3 million of growth.
Cost of Revenues
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Cost of revenues |
|
$ |
54,590 |
|
|
$ |
17,738 |
|
|
$ |
36,852 |
|
|
|
208 |
% |
Cost of revenues increased by $36.9 million, or 208%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Launch Service cost of revenues was $23.8 million in the three months ended September 30, 2022, an increase of $7.3 million or 44%, primarily due to the higher launch cadence referenced above. Space systems cost of revenue was $30.8 million in the three months ended September 30, 2022, an increase of $29.6 million or 2,429%, primarily due to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022. Cost of revenues for the three months ended September 30, 2022 decreased to 87% of total revenue as compared to 336% during the three months ended September 30, 2021.
33
Research and Development, Net
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Research and development, net |
|
$ |
17,508 |
|
|
$ |
14,189 |
|
|
$ |
3,319 |
|
|
|
23 |
% |
Research and development expense increased by $3.3 million, or 23%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to Neutron development, and increased labor and prototype spend focused on broadening our spacecraft component product portfolio.
Selling, General and Administrative
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Selling, general and administrative |
|
$ |
22,961 |
|
|
$ |
25,655 |
|
|
$ |
(2,694 |
) |
|
|
(11 |
)% |
Selling, general and administrative expense decreased by $2.7 million, or 11%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to a $9.7 million decrease related to a one-time management redemption compensation expense and $3.7 million decrease in stock-based compensation, partially offset by increased costs associated with being a public company including higher staff costs, facility related expense and third-party services, in addition to a $1.8 million performance reserve payments related to the ASI acquisition, increased expense due to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022.
Interest Expense, Net
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Interest expense, net |
|
$ |
(1,486 |
) |
|
$ |
(2,977 |
) |
|
$ |
1,491 |
|
|
|
(50 |
)% |
Interest expense decreased by $1.5 million, or 50%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to an increase of interest income on marketable securities and money market funds.
Gain (Loss) on Foreign Exchange
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Gain (loss) on foreign exchange |
|
$ |
(51 |
) |
|
$ |
16 |
|
|
$ |
(67 |
) |
|
|
(419 |
)% |
Loss on foreign exchange increased by $0.1 million, or 419%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to fluctuations in the foreign exchange of the New Zealand Dollar.
Change in Fair Value of Liability Classified Warrants
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Change in fair value of liability classified warrants |
|
$ |
— |
|
|
$ |
(33,947 |
) |
|
$ |
33,947 |
|
|
|
(100 |
)% |
Change in fair value of liability classified warrants expense was $33.9 million for the three months ended September 30, 2021 as a result of the change in fair value of liability classified warrants assumed in connection with the Business Combination that were redeemed by January 31, 2022 and the preferred stock warrants that were exercised in the third quarter of 2021. The Company had no liability classified warrants as of September 30, 2022.
Other Income (Expense), Net
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Other income (expense), net |
|
$ |
622 |
|
|
$ |
(450 |
) |
|
$ |
1,072 |
|
|
|
(238 |
)% |
Other income increased by $1.1 million, or 238%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.
34
Benefit (Provision) for Income Taxes
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Benefit (provision) for income taxes |
|
$ |
(1,693 |
) |
|
$ |
1,684 |
|
|
$ |
(3,377 |
) |
|
|
(201 |
)% |
We recorded income tax expense of $1.7 million for the three months ended September 30, 2022 and a tax benefit of $1.7 million for the three months ended September 30, 2021. The effective tax rate was (5.1)% for the three months ended September 30, 2022, compared to 1.9% for the three months ended September 30, 2021. The effective tax rate differs from the federal statutory rate due primarily to a full valuation allowance against our U.S. deferred tax assets, as well as the impact of discrete items that may occur in any given year but which are not consistent from year-to-year.
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table sets forth our consolidated statements of operations information and data as a percentage of revenue for the nine months ended September 30, 2022 and 2021 (in thousands, except percentages):
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
||||
Revenues |
|
$ |
159,234 |
|
|
|
100.0 |
% |
|
$ |
34,759 |
|
|
|
100.0 |
% |
Cost of revenues |
|
|
142,074 |
|
|
|
89.2 |
% |
|
|
43,337 |
|
|
|
124.7 |
% |
Gross profit (loss) |
|
|
17,160 |
|
|
|
10.8 |
% |
|
|
(8,578 |
) |
|
|
(24.7 |
)% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development, net |
|
|
50,150 |
|
|
|
31.5 |
% |
|
|
29,797 |
|
|
|
85.7 |
% |
Selling, general and administrative |
|
|
64,991 |
|
|
|
40.8 |
% |
|
|
39,347 |
|
|
|
113.2 |
% |
Total operating expenses |
|
|
115,141 |
|
|
|
72.3 |
% |
|
|
69,144 |
|
|
|
198.9 |
% |
Operating loss |
|
|
(97,981 |
) |
|
|
(61.5 |
)% |
|
|
(77,722 |
) |
|
|
(223.6 |
)% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
(6,907 |
) |
|
|
(4.3 |
)% |
|
|
(3,377 |
) |
|
|
(9.7 |
)% |
Loss on foreign exchange |
|
|
(3,947 |
) |
|
|
(2.5 |
)% |
|
|
(389 |
) |
|
|
(1.1 |
)% |
Change in fair value of liability classified warrants |
|
|
13,482 |
|
|
|
8.5 |
% |
|
|
(39,424 |
) |
|
|
(113.4 |
)% |
Other income (expense), net |
|
|
625 |
|
|
|
0.4 |
% |
|
|
(583 |
) |
|
|
(1.7 |
)% |
Total other income (expense), net |
|
|
3,253 |
|
|
|
2.1 |
% |
|
|
(43,773 |
) |
|
|
(125.9 |
)% |
Loss before income taxes |
|
|
(94,728 |
) |
|
|
(59.4 |
)% |
|
|
(121,495 |
) |
|
|
(349.5 |
)% |
Benefit (provision) for income taxes |
|
|
(4,008 |
) |
|
|
(2.5 |
)% |
|
|
979 |
|
|
|
2.8 |
% |
Net loss |
|
$ |
(98,736 |
) |
|
|
(61.9 |
)% |
|
$ |
(120,516 |
) |
|
|
(346.7 |
)% |
Revenues
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenues |
|
$ |
159,234 |
|
|
$ |
34,759 |
|
|
$ |
124,475 |
|
|
|
358 |
% |
Revenue increased by $124.5 million, or 358%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. Launch services revenue was $48.7 million for the nine months ended September 30, 2022, an increase of $23.5 million, or 93%, primarily due to a higher launch cadence, with seven launch missions completed in the nine months ended September 30, 2022, versus four launch mission completed in the nine months ended September 30, 2021. Space systems revenue was $110.6 million for the nine months ended September 30, 2022, an increase of $101.0 million, or 1,057%, with $85.9 million of that growth due to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022 and strength in our organic space system products and services that contributed $15.1 million.
35
Cost of Revenues
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Cost of revenues |
|
$ |
142,074 |
|
|
$ |
43,337 |
|
|
$ |
98,737 |
|
|
|
228 |
% |
Cost of revenues increased by $98.7 million, or 228%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. Launch Service cost of revenues was $52.6 million in the nine months ended September 30, 2022, an increase of $12.4 million or 31%, primarily due to the higher launch cadence referenced above. Space systems cost of revenue was $89.5 million in the nine months ended September 30, 2022, an increase of $86.4 million or 2,767%, primarily due to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022. Cost of revenues were also impacted by an increase in stock-based compensation of $5.6 million. Cost of revenues for the nine months ended September 30, 2022 decreased to 89% of total revenue as compared to 125% during the nine months ended September 30, 2021.
Research and Development, Net
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Research and development, net |
|
$ |
50,150 |
|
|
$ |
29,797 |
|
|
$ |
20,353 |
|
|
|
68 |
% |
Research and development expense increased by $20.4 million, or 68%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to a $9.8 million increase in stock-based compensation, $2.2 million in amortization of purchased intangibles, personnel and prototyping related to Neutron development, and increased labor and prototype spend focused on broadening our spacecraft component product portfolio.
Selling, General and Administrative
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Selling, general and administrative |
|
$ |
64,991 |
|
|
$ |
39,347 |
|
|
$ |
25,644 |
|
|
|
65 |
% |
Selling, general and administrative expense increased by $25.6 million, or 65%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to a $5.3 million increase related to ASI performance reserve payments, a $3.8 million increase in stock-based compensation, $2.8 million increase of amortization of purchased intangibles, increased costs associated with being a public company including higher staff costs, director and officer insurance, facility related expense and third-party services, and increased expense due to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022.
Interest Expense, Net
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Interest expense, net |
|
$ |
(6,907 |
) |
|
$ |
(3,377 |
) |
|
$ |
(3,530 |
) |
|
|
105 |
% |
Interest expense increased by $3.5 million, or 105%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to the $100.0 million borrowed on June 10, 2021 under the Hercules Capital Secured Term Loan, which bears (i) cash interest at the greater of (a) 8.15% or (b) 8.15% plus the prime rate minus 3.25% and (ii) payment-in-kind interest of 1.25% which is accrued and added to the outstanding principal balance.
Loss on Foreign Exchange
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Loss on foreign exchange |
|
$ |
(3,947 |
) |
|
$ |
(389 |
) |
|
$ |
(3,558 |
) |
|
|
915 |
% |
Loss on foreign exchange increased by $3.6 million, or 915%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to fluctuations in the foreign exchange of the New Zealand Dollar and its impact on our New Zealand intercompany loan denominated in New Zealand Dollar. On July 1, 2022 the Company determined the New Zealand intercompany loan was not expected to be repaid and started recording foreign exchange impact on this intercompany loan to foreign currency translation adjustments.
36
Change in Fair Value of Liability Classified Warrants
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Change in fair value of liability classified warrants |
|
$ |
13,482 |
|
|
$ |
(39,424 |
) |
|
$ |
52,906 |
|
|
|
(134 |
)% |
Change in fair value of liability classified warrants income increased by $52.9 million, or 134%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily as a result of the change in fair value of liability classified warrants assumed in connection with the Business Combination that were redeemed by January 31, 2022 and the preferred stock warrants which were exercised in the third quarter of 2021. The Company had no liability classified warrants as of September 30, 2022.
Other Income (Expense), Net
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Other income (expense), net |
|
$ |
625 |
|
|
$ |
(583 |
) |
|
$ |
1,208 |
|
|
|
(207 |
)% |
Other income increased by $1.2 million, or 207%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Benefit (Provision) for Income Taxes
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Benefit (provision) for income taxes |
|
$ |
(4,008 |
) |
|
$ |
979 |
|
|
$ |
(4,987 |
) |
|
|
(509 |
)% |
We recorded income tax expense of $4.0 million for the nine months ended September 30, 2022 and a tax benefit of $1.0 million for the nine months ended September 30, 2021. The effective tax rate was (4.2)% for the nine months ended September 30, 2022, compared to 0.8% for the nine months ended September 30, 2021. The effective tax rate differs from the federal statutory rate due primarily to a full valuation allowance against our U.S. deferred tax assets, as well as the impact of discrete items that may occur in any given year but which are not consistent from year-to-year.
Liquidity and Capital Resources
Since inception, we have funded our operations with proceeds from sales of our capital stock, bank debt, research and development grant proceeds, and cash flows from the sale of our products and services. As of September 30, 2022, we had $333.3 million of cash and cash equivalents and $179.2 million of marketable securities. Our primary requirements for liquidity and capital are investment in new products and technologies, the expansion of existing manufacturing facilities, working capital, debt service, acquisitions of complementary businesses, products or technologies and general corporate needs. Historically, these cash requirements have been met through the net proceeds we received through private sales of equity securities, borrowings under our credit facilities, net proceeds received in the Business Combination and payments received from customers.
We believe that our existing cash and cash equivalents and payments from customers will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months, although we may choose to take advantage of opportunistic capital raising or refinancing transactions at any time. We will continue to invest in increasing production and expanding our product offerings through acquisitions.
Our future capital requirements will depend on many factors, including our launch cadence, traction in the market with our space systems offerings, the expansion of sales and marketing activities, the timing and extent of spending to support product development efforts, the introduction of new and enhanced products, the continuing market adoption of our products, the timing and extent of additional capital expenditures to invest in existing and new office spaces and the number of acquisitions of complementary businesses, products or technologies we pursue, if any. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued product innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.
37
Additionally, we expect our capital and operating expenditures will increase significantly in connection with ongoing activities as we:
Indebtedness
Hercules Capital Secured Term Loan
On June 10, 2021, the Company entered into a $100 million secured term loan agreement with Hercules Capital, Inc. (the “Hercules Capital Secured Term Loan”) and borrowed the full amount under the secured term loan agreement. The term loan has a maturity date of June 1, 2024 and is secured by substantially all of the assets of the Company. Payments due for the term loan are interest-only until the maturity date with interest payable monthly in arrears. The outstanding principal bears (i) cash interest at the greater of (a) 8.15% or (b) 8.15% plus the prime rate minus 3.25% and (ii) payment-in-kind interest of 1.25% which is accrued and added to the outstanding principal balance. Prepayment of the outstanding principal is permitted under the loan agreement and subject to certain prepayment fees. In connection with the secured term loan, the Company paid an initial facility charge of $1 million and the Company will be required to pay an end of term charge of $3.25 million upon repayment of the loan. The secured term loan agreement contains customary representations, warranties, non-financial covenants, and events of default. The Company is in compliance with all debt covenants related to its long-term borrowings as of September 30, 2022. As of September 30, 2022, there was $102.2 million outstanding under the Hercules Capital Secured Term Loan, of which $2.9 million was classified as current in the Company’s condensed consolidated balance sheets, with the remainder classified as a long-term borrowing. As of September 30, 2022, the Company had no availability under the Hercules Capital Secured Term Loan.
Cash Flows
The following table summarizes our cash flows for the periods presented:
|
|
Nine Months Ended September 30, |
|
|||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(87,592 |
) |
|
$ |
(49,877 |
) |
Investing activities |
|
|
(272,856 |
) |
|
|
(11,447 |
) |
Financing activities |
|
|
1,569 |
|
|
|
801,779 |
|
Effect of exchange rate changes |
|
|
3,091 |
|
|
|
(599 |
) |
Net increase (decrease) in cash, cash equivalents, and restricted cash |
|
$ |
(355,788 |
) |
|
$ |
739,856 |
|
Cash Flows from Operating Activities
Net cash used in operating activities was $87.6 million for the nine months ended September 30, 2022 consisted of $98.7 million in operating loss, $56.8 million in non-cash expense and $45.7 million in cash used in operating assets and liabilities. Included in the non-cash expense are $43.3 million in stock-based compensation expense, $21.6 million in depreciation and amortization and $13.5 million in liability-classified warrant income. Included in the cash used in operating assets and liabilities are $30.8 million increase in accounts receivable, $26.4 million increase in contract liabilities, $17.6 million increase in inventory, and $17.2 million increase in prepaids and other assets.
Cash Flows from Investing Activities
Cash used in investing activities for the nine months ended September 30, 2022 of $272.9 million was primarily driven by purchases of marketable securities of $179.9 million, cash paid for SolAero of $65.1 million and capital equipment and infrastructure investments of $27.4 million. These investments included the build-out of secure office and spacecraft manufacturing lab areas in our Long Beach, California headquarters, which will be used to support classified government programs, Launch Complex 1 in Mahia, New Zealand, where we have now completed our second launch pad and are in process of adding additional support facilities to support launch operations and safety, and our propulsion development and test facility near Auckland, New Zealand, which consolidates and supports all Electron and Photon related engine testing.
38
Cash Flows from Financing Activities
Cash provided by financing activities for the nine months ended September 30, 2022 of $1.6 million was primarily related to $7.3 million of net proceeds from our equity offerings which includes proceeds from sale of employees restricted stock units to cover taxes, stock options and employee stock purchase plan and applicable tax withholdings and payments, offset by $5.5 million payment of contingent consideration related to our ASI acquisition.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates as disclosed in our audited financial statements included in our Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 24, 2022.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.
39
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign currency exchange rates and interest rates.
Foreign Currency Exchange Risk
Our reporting currency is the U.S. dollar, and the functional currency of each of our subsidiaries is either its local currency. The assets and liabilities of each of our subsidiaries are translated into U.S. dollars at exchange rates in effect at each balance sheet date and operations accounts are translated using the average exchange rate for the relevant period. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect revenue and other operating results as expressed in U.S. dollars. Foreign currency translation adjustments are accounted for as a component of accumulated other comprehensive income (loss) within stockholders’ equity. Gains or losses due to transactions in foreign currencies are reflected in the condensed consolidated statements of operations under the line item “Gain (Loss) in Foreign Exchange.” Materially all of our revenues are denominated in U.S. dollars and we have not engaged in the hedging of foreign currency risk to date, although we may choose to do so in the future. As such, a 10% or greater move in exchange rates versus the U.S. dollar could have a material impact on our financial results and position.
Interest Rate Risk
As of September 30, 2022, we had cash and cash equivalents of $333.3 million, comprised primarily of operating accounts and money market instruments and $179.2 million invested in marketable securities, comprised of commercial paper, corporate debt securities, bank certificates of deposit, U.S. Treasury bills and notes and asset backed securities. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
Impact of Inflation
We do not believe that inflation has had a material effect on our business, results of operations, or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures it could diminish our credit availability and liquidity, leading to us not being able to fully offset such higher costs. Our inability or failure to do so could harm our business, financial condition, and results of operations.
Emerging Growth Company Status
In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate to allow timely decisions regarding required disclosures.
As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were not effective as of September 30, 2022 as a result of the material weaknesses discussed below.
40
Previously Identified Material Weaknesses in Internal Control over Financial Reporting
In connection with the audit of Rocket Lab as of and for the year ended December 31, 2020, we previously identified material weaknesses in our internal control over financial reporting. The material weaknesses were related to management’s review of schedules and reconciliations, sufficiency of accounting resources and review, oversight of third-party specialists and controls over the segregation of duties and access to relevant financial reporting systems.
In response to the material weaknesses, management completed the following remediation actions:
We determined that the material weaknesses continued to exist as of December 31, 2021. We have begun the process of, and we are focused on, designing and implementing effective internal controls measures to improve our internal control over financial reporting and remediate the material weakness. Our efforts include a number of actions:
While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our internal controls over financial reporting and will continue to diligently review our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
Other than as discussed above with respect to the remediation efforts for identified material weaknesses, there was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
41
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations or financial condition.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 24, 2022.
Item 2. Recent Sales of Unregistered Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
|
|
Exhibit Number
|
Description
|
31.1* |
Certification of Principal Executive Officer pursuant to Exchange Act rules 13a-14 or 15d-14. |
|
|
31.2* |
Certification of Principal Financial Officer pursuant to Exchange Act rules 13a-14 or 15d-14. |
|
|
32.1*† |
|
|
|
101.INS* |
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
|
|
101.SCH* |
Inline XBRL Taxonomy Extension Schema Document |
|
|
101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB* |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
104* |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
† The certification furnished in Exhibit 32.1 hereto is deemed to be furnished with this Quarterly Report on Form 10-Q and will not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.
‡ Management contract or compensatory plan or arrangement.
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
ROCKET LAB USA, INC. |
|
|
|
|
|
November 9, 2022 |
|
By: |
/s/ Peter Beck
|
|
|
|
Peter Beck |
|
|
|
President, Chief Executive Officer and Chairman |
|
|
|
(Principal Executive Officer) |
|
|
|
|
November 9, 2022 |
|
By: |
/s/ Adam Spice
|
|
|
|
Adam Spice |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial and Accounting Officer) |
43