ASTRA SPACE, INC. The following discussion and analysis of the financial condition and results of operations ofAstra Space, Inc. should be read together with our audited consolidated financial statements as of and for the years endedDecember 31, 2021 and 2020 and unaudited interim condensed consolidated financial statements as of and for the three and nine months endedSeptember 30, 2022 and 2021, together with related notes thereto. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those projected in these forward-looking statements as a result of various factors, including those set forth in the risk factors previously disclosed in our annual report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onMarch 31, 2022 , as updated by factors disclosed in the section titled "Risk Factors" in this Quarterly Report on Form 10-Q and our Quarterly Report on Form 10-Q for the quarter endedJune 30, 2022 , filed with theSEC onAugust 4, 2022 and in this Quarterly Report on Form 10-Q. Certain amounts may not foot due to rounding. Unless the context otherwise requires, all references in this section to "the Company" "Astra," "us," "our" or "we" refer toAstra Space, Inc. after the closing of the Business Combination onJune 30, 2021 , andAstra Space Operations, Inc. , formerly known asAstra Space, Inc. , prior to the Business Combination. Overview Our mission is to launch a new generation of launch services and space products to Improve Life on Earth from Space®. These services and products are enabled by new constellations of small satellites in Low Earth Orbit ("LEO"), which have rapidly become smaller, cheaper, and many times more numerous than legacy satellites. Launch vehicles, however, have not evolved in the same way - most rockets remain focused on serving legacy satellites and human spaceflight missions and we aim to provide the world's first mass-produced orbital launch system. We manage our business and report our financial results in two segments: Launch Services and Space Products.
Launch Services
InJuly 2022 , we decided to focus on the development and production of the next version of our launch system, which we unveiled at our inaugural SpaceTech Day onMay 12, 2022 . As a result, we have discontinued the production of launch vehicles supported by our current launch system and do not plan to conduct any further commercial launches in 2022. As part of the development cycle for our new launch system, we expect to conduct test launches of our new launch system in the later part of 2023, and at this time, do not expect that we will be able to conduct paid commercial launches until 2024 using this new launch system. Whether and when we will be able to conduct paid commercial launches in 2024 will depend in part upon the success of these test launches. Our new launch system is intended to support launch vehicles that will serve a market focused on populating mega constellations. We have designed this launch system to support more payload capacity, greater reliability, and a more frequent launch cadence, which we believe will allow us to offer our customers more dependable services. We have begun discussions with customers for whom we agreed to launch payloads on our Rocket 3 series launch vehicles (aka launch system 1.0) and the shift of those flights to our Rocket 4 series (aka Launch System 2). Space Products We have also been focusing on the growth of our space products business with sales of our Astra Spacecraft EngineTM. The Astra Spacecraft Engine is a propulsion engine that assists satellites in achieving and maintaining targeted orbits. Including 14 units in Apollo Fusion's backlog onJuly 1, 2021 , we have received cumulative committed orders for 214 Astra Spacecraft EnginesTM as ofSeptember 30, 2022 , an increase of 107.8% compared toJune 30, 2022 , and 237 Astra Spacecraft Engines™ as ofNovember 2, 2022 , an increase of 130% compared toJune 30, 2022 . We have also completed the delivery of two full programs of our Astra Spacecraft Engines™.
Segments
As discussed in Note 16 - Segments Information to our consolidated financial statements included in Part I, Item 1 of this form 10-Q, our reportable segments changed during the three and nine months endedSeptember 30, 2022 . The segment reporting for prior periods has been reclassified to conform to the current period presentation; however, there were no revenues or cost of revenues associated to these segments in the prior period. We identify our reporting segments based on the organizational units used by management to monitor performance and make operating decisions. The Company previously had one operating and reportable segment. Following the realignment, the Company now has the following two operating and reportable segments: (i) Launch Services and (ii) Space Products. In conjunction with the realignment of our management and internal reporting in the third quarter of 2022, the Company reclassified assets and liabilities, as well as goodwill, to the reporting units. 35
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Table of Contents COVID-19 Impact OnMarch 11, 2020 , theWorld Health Organization declared the novel strain of coronavirus ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. The extent of the impact of the coronavirus pandemic on Astra's operational and financial performance will depend on various future developments, including variants of the disease, the duration and spread of the outbreak and impact on its customers, suppliers, and employees, all of which is uncertain at this time. Astra believes the COVID-19 pandemic may adversely impact future revenue and results of operations, but Astra is unable to predict at this time the size and duration of this adverse impact. Astra has seen some signs of positive effects for its long-term business prospects and partnerships as a result of the pandemic. The COVID-19 pandemic has created an even greater need for broadband internet access, and businesses are thinking differently about how their workforce can stay connected. There have also been recent government and commercial announcements about continuous investments in this area and we believe this will continue to support the growth of the small satellite market for the foreseeable future.
Key Factors Affecting Our Results and Prospects
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including competition from better known and well-capitalized companies, the risk of actual or perceived safety issues and their consequences for our reputation, the potential delisting of our Class A common stock from the NASDAQ Global Select Market, our ability to operate as a going concern and the other factors discussed under "Risk Factors" in our Annual Report on Form 10-K for the period endedDecember 31, 2021 , filed with theSEC onMarch 31, 2022 , as updated by factors disclosed in the section titled "Risk Factors" in this Quarterly Report on Form 10-Q and in our Quarterly Report for the quarter endedJune 30, 2022 , filed with theSEC onAugust 4, 2022 . We believe the factors discussed below are key to our success.
Commencing and Expanding Commercial Operations
We commenced paid commercial launch services in 2022, with our launch onFebruary 10, 2022 , of launch vehicle LV0008. We have made substantial progress towards demonstrating a monthly launch production capability during the first three quarters of 2022, with a goal of reaching an even more frequent launch production capability in the future with our new Launch System 2. As a result, we have decided to focus on the development of our new launch system and thus, have discontinued the production of launch vehicles supported by our current launch system. When we refer to a "commercial launch," we mean a launch conducted under an FAA commercial launch license. We also commenced delivery of space products during the second quarter of 2022. We expect the volume of delivery of our space products would increase in the future as we continue to fulfill our obligations under existing space products contracts and enter into contracts with potential new customers. In lateJuly 2022 , the Company entered into a lease agreement for approximately 60,000 square feet of manufacturing facility inSunnyvale, California having a lease term of 36 months. This new lease facility will enable expansion of our space products production and development capacity, thermal testing capacity.
Lowering Manufacturing Costs and Increasing Payloads
We aim to be a cost-efficient dedicated orbital launch system provider. We plan to increase the maximum payload capacity of our launch vehicle to meet customer needs and demands through a process of iterative development and improvement. We have made significant investment in our manufacturing facility located inAlameda, California . Please see risk factors previously disclosed in our Annual Report on Form 10-K for the period endedDecember 31, 2021 , filed with theSEC onMarch 31, 2022 , as updated by factors disclosed in the section titled "Risk Factors" in this Quarterly Report on Form 10-Q and our Quarterly Report on Form 10-Q for the quarter endedJune 30, 2022 , filed with theSEC onAugust 4, 2022 , for factors that could affect our ability to realize benefits from the investment in our manufacturing facility.
Leveraging Core Technologies
We plan to develop, license or acquire core space technologies that we expect to commercialize and incorporate into our launch vehicles, spacecrafts and other infrastructure that we will use to deliver our product and space service offerings. These core technologies including, among other things, electric propulsion and solar power. For example, we acquired propulsion technology through our merger with Apollo Fusion, which we announced onJune 2, 2021 , and closed onJuly 1, 2021 .
Expand Our Space Services Offerings
As ofSeptember 30, 2022 , we were in the preliminary stages of developing our space services offering, but have since decided to put these development efforts on hold as we focus on our primary objectives of developing our new Launch System 2 and the production and delivery of our Astra Spacecraft Engines™. As a result, we do not expect to generate any revenue and are planning to reduce our investments in our space services offerings for the remainder of 2022 and in 2023. We continue to explore opportunities to develop or 36
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partner in the development of our space services offering as it remains a
significant part of our long-term business strategy. Once developed, we would
expect our space services offering to include providing modular configurable
satellite buses for customers, leveraging both in-house and partner-provided
subsystem components and in-house design and integration services, as well as
operational support of satellites on orbit, to turn-key provision of entire
constellations, offering "concept to constellation" in months instead of years.
Specifically, we would expect our space services to encompass all aspects of
hosted satellite and constellation services, including hosting customer payloads
onto our satellites, and delivering services, such as communication services.
These services are expected to allow customers to focus on developing innovative
payloads rather than having to design or develop complete satellite buses or
satellites or constellations, which we will provide, along with ancillary
services that are likely to include telemetry, tracking and control ("TT&C"),
communications, processing, as well as software development and maintenance.
Impairment of long-lived assets, indefinite-lived intangible assets and goodwill
As of the third quarter of fiscal year 2022, the Company determined that impairment indicators were present based on the existence of substantial doubt about the Company's ability to continue as a going concern, a sustained decrease in the Company's share price and macroeconomic factors. As a result, we performed quantitative impairment testing and recorded a total impairment charge of$133.4 million for the three and nine months endedSeptember 30, 2022 . The total impairment charge reflects a$58.3 million charge in goodwill,$2.1 million charge in indefinite-lived intangible assets and$73 million in long-lived assets of Launch Services related to property, plant and equipment. For further information, refer to Note 1 - Description of Business, Basis of Presentation and Significant Accounting Policies, Note 4 - Supplemental Financial Information, and Note 5 -Goodwill and Intangible Assets to our condensed consolidated financial statements included in Part I, Item 1 of this form 10-Q.
Key Components of Results of Operations
We are an early-stage company and our historical results may not be indicative of our future results for reasons that may be difficult to anticipate. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or future results of operations. Revenues We commenced our first paid commercial launch, which occurred inFebruary 2022 , followed by subsequent paid commercial launches which occurred inMarch 2022 andJune 2022 . These launches represent the start of our paid commercial launch operations. As discussed earlier, we have discontinued the production of launch vehicles supported by our current launch system and do not plan to conduct any further commercial launches in 2022. See "Overview" for more information about our decision to stop producing launch vehicles supported by our current launch system. We also commenced delivery of space products to our customers during the three and nine months endedSeptember 30, 2022 . As we are in the very early stages of developing our space services offering and have decided to put these development activities on hold for the near future, we do not expect to generate revenues by delivering space services to our customers at this time.
Cost of Revenues
Cost of revenues consist primarily of direct material, direct labor, manufacturing overhead, other personnel-related expenses, which include salaries, bonuses, benefits and stock-based compensation expense and depreciation expense. Cost of revenues also includes inventory write-downs to reduce the carrying value of inventory related to launch services when the carrying value exceeds its estimated net realizable value. We anticipate recording write-downs to our inventory over the foreseeable future as we continue to ramp production of launch vehicles supported by our new launch system. We expect our cost of revenues to increase in future periods as we sell more launch services and space products. As we grow into our current capacity and execute on cost-reduction initiatives, we expect our gross margins to improve over time.
Operating Expenses
Research and Development Expense
Our research and development expenses consist primarily of internal and external
expenses incurred in connection with our research activities and development
programs. These expenses include, but are not limited to, development supplies,
testing materials, personnel and personnel-related costs (including salaries,
bonuses, benefits, and stock-based compensation expense), depreciation expense,
amortization of intangible assets, overhead allocation (consisting of various
support and facility costs) and consulting fees. Research and development costs
are expensed as incurred.
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We allocate research and development costs by function rather than by project, as a significant majority of our historical research and development spending was related to the initial development and testing of our underlying technology, including preparation for multiple test launches. Our current primary research and development objectives focus on the development and finalization of our offerings. The successful development of these offerings involves many uncertainties, including:
•
timing in finalizing launch and space systems design and specifications;
•
successful completion of analyses and ground test programs to validate that new or changed designs perform as expected;
•
successful completion of flight test programs, including flight safety tests;
•
our ability to obtain additional applicable approvals, licenses or certifications from regulatory agencies, if required, and maintaining current approvals, licenses or certifications;
•
performance of our manufacturing facilities despite risks that disrupt productions, such as natural disasters and hazardous materials;
•
performance of a limited number of suppliers for certain raw materials and components;
•
performance of our third-party contractors that support our research and development activities;
•
our ability to maintain rights from third parties for intellectual properties critical to research and development activities; and
•
our ability to continue funding and maintaining our current research and development activities.
A change in the outcome of any of these variables could delay the development of our launch systems and space products, which in turn could impact the timing of commercialization of our offerings. As we are developing and building our launch services, we have expensed all research and development costs associated with developing and building our launch services offering. We expect that our research and development expenses will increase in the short-term as we invest in improving and further reducing the costs of our launch system.
Sales and Marketing Expense
Sales and marketing expenses consist of personnel and personnel-related expenses (including stock-based compensation expense) for our business development team as well as advertising and marketing expenses. We expect to increase our sales and marketing activities in order to grow our customer base and increase market share in the future.
General and Administrative Expense
General and administrative expenses consist primarily of personnel and personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation expense) for personnel in executive, finance, accounting, corporate development and other administrative functions. General and administrative expenses also include legal fees, professional fees paid for accounting, auditing, consulting, tax, and investor relations services, insurance costs, and facility costs not otherwise included in research and development expenses and costs associated with compliance with the rules and regulations of theSEC and the stock exchange. Income Tax (Benefit) Expense
Our income tax provision consists of an estimate for
Other Income (Expense), Net
Other income (expense), net primarily consists of income from government research and development contracts.
Critical Accounting Estimates
Our financial statements have been prepared in accordance withU.S. generally accepted accounting principles, orU.S. GAAP. Preparation of the financial statements requires our management to make a number of judgments, estimates and assumptions relating to the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements 38
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and the reported amounts of revenue and expenses during the reporting period. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements. Our significant accounting policies are described in Note 2 in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as updated as applicable in Note 1 to the condensed consolidated financial statements herein. Except as outlined below, there were no significant changes in our critical accounting estimates during the three and nine months endedSeptember 30, 2022 compared to those previously disclosed in "Critical Accounting Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the 2021 Annual Report on Form 10-K.
Goodwill and indefinite-lived intangible assets are not subject to amortization. We perform an annual impairment review of goodwill and indefinite-lived intangible assets during the fourth fiscal quarter of each year, and more frequently if we believe that indicators of impairment exist. We compare the fair value of our reporting unit to the respective carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. We believe that estimating for goodwill and indefinite-lived intangible assets requires significant judgments that are based on several factors including operating results and market conditions. We estimate fair value through various valuation methods, including the use of discounted expected future cash flows of each reporting unit, as well as the use of the relief-from-royalty method to estimate the fair value of our indefinite-lived intangible asset. During the third quarter of fiscal year 2022, we reorganized our reporting structure and determined to perform an interim quantitative impairment test. As a result, for the nine months endedSeptember 30, 2022 , we recognized impairment losses related to goodwill and indefinite-lived intangible assets of$58.3 million and$2.1 million , respectively. Long-lived assets Long-lived assets are primarily comprised of property, plant, and equipment and definite-lived intangible assets. We evaluate long-lived assets for impairment when events or changes in circumstances indicate, in management's judgement, that the carrying amount of such assets may not be recoverable. Long-lived asset recoverability is measured by comparing the carrying amount of the asset group with its estimated future undiscounted pre-tax cash flows over the remaining life of the primary long-lived asset of the asset group. If the carrying amount exceeds the estimated future undiscounted cash flows as part of the recoverability assessment, an impairment charge is recognized equal to the difference between the carrying amount and fair value of the asset group. The impairment charge is allocated to the underlying long-lived assets in the asset group on a relative carrying amount basis; however, carrying amount after allocated impairment is subject to a floor of fair value on an individual asset basis. We believe the accounting estimates used in the long-lived asset impairment assessment are critical accounting estimates because of the judgment required in identifying indicators of impairment, determining asset groups, assessing future undiscounted cash flows of the asset groups, and as applicable, evaluating the fair value of the determined asset groups as well as the underlying long-lived assets, once indicators of impairment have been identified. As a result of the reorganization, together with a sustained decrease in the Company's share price, existence of substantial doubt about the Company's ability to continue as a going concern, and macroeconomic factors we determined that triggers were present indicating long lived assets may not be recoverable. For the nine months endedSeptember 30, 2022 , we concluded that indicators of impairment were present and recorded a non-cash impairment charge on long-lived assets of$70.3 million related to property, plant, and equipment and$2.7 million related to definite-lived intangible assets. 39
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Table of Contents Results of Operations
Comparison of the Three and Nine months ended
For The Three Months Period over For The Nine Months Period over
Ended September 30, period change Ended September 30, period change
(in thousands,
except percentages) 2022 2021 ($) (%) 2022 2021 ($) (%)
Revenues:
Launch services $ - $ - - n.m. $ 5,899 $ - $ 5,899 n.m.
Space products 2,777 - 2,777 n.m. 3,471 - 3,471 n.m.
Total revenues 2,777 - 2,777 - 9,370 - 9,370 -
Cost of revenues:
Launch services - - - n.m. 28,193 - 28,193 n.m.
Space products 1,071 - 1,071 n.m. 1,337 - 1,337 n.m.
Total cost of
revenues 1,071 - 1,071 - 29,530 - 29,530 -
Gross profit
(loss):
Launch services - - - n.m. (22,294 ) - (22,294 ) n.m.
Space products 1,706 - 1,706 n.m. 2,134 - 2,134 n.m.
Total gross profit
(loss) 1,706 - 1,706 - (20,160 ) - (20,160 ) -
____________
n.m. = not meaningful.
Revenues
Revenues were $2.7 million for the three months ended September 30, 2022 . All of
which was related to space products. We commenced delivery of space products to
our customers during the three months ended September 30, 2022 . No revenues were
recognized during the three months ended September 30, 2021 .
Revenues were $9.4 million for the nine months ended September 30, 2022 of which
$5.9 million related to launch services and $3.4 million related to space
products. We commenced paid commercial launch services and delivery of space
products during the nine months ended September 30, 2022 . We launched launch
vehicles LV0008, LV0009 and LV0010 on February 10, 2022 , March 15, 2022 and June
12, 2022 , respectively, all of which were paid launches. The orbital launch of
LV0009 conducted on March 15, 2022 , represents our first paid delivery of
customer payloads into Earth orbit. No revenues were recognized for the nine
months ended September 30, 2021 . We do not anticipate any revenues related to
our launch services business in 2023 as we work to develop and test the next
version of our launch system: Launch System 2.
Cost of Revenues
Cost of revenues were$1.1 million for the three months endedSeptember 30, 2022 which was driven by the cost of space products. The cost of space products does not reflect the actual gross margins as certain inventory values were recorded at net realizable value. No cost of revenues were recognized for the three months endedSeptember 30, 2021 . 40
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Cost of revenues were$29.5 million for the nine months endedSeptember 30, 2022 which was primarily driven by recording of$18.8 million of inventory write-downs and$6.9 million of cost of launch services and space products. The$18.8 million of inventory write-downs was driven by$10.2 million related to the discontinuance of launch vehicles supported by our current launch system,$5.5 million related to the net realizable value write-downs and$3.1 million of other write-downs. The cost of launch services does not reflect the actual gross margins as certain inventory values were recorded at net realizable value. In the first nine months of 2022, we conducted our first paid commercial launch and have not yet achieved economies of scale in our manufacturing processes. We also decided to stop paid commercial launches for the remainder of 2022 so that we can focus on developing our new launch system. As a result, we will continue to incur negative gross margins for the remainder of 2022. No cost of revenues were recognized for the nine months endedSeptember 30, 2021 . For The Three Months Period over For The Nine Months Period over Ended September 30, period change Ended September 30, period change (in thousands, except percentages) 2022 2021 ($) (%) 2022 2021 ($) (%) Operating expenses: Research and development 32,821 21,724 11,097 1 111,546 44,159 67,387 2 Sales and marketing 4,052 1,090 2,962 272 13,452 2,229 11,223 503 General and administrative 19,222 19,730 (508 ) (3 ) 60,816 50,712 10,104 20 Impairment expense 75,116 - 75,116 n.m. 75,116 - 75,116 n.m. Goodwill impairment 58,251 - 58,251 n.m. 58,251 - 58,251 n.m. Loss on change in fair value of contingent consideration 11,949 - 11,949 n.m. 29,249 - 29,249 n.m. Total operating expenses 201,411 42,544 158,867 373 348,430 97,100 251,330 259 Operating loss (199,705 ) (42,544 ) (157,161 )
(373 ) (368,590 ) (97,100 ) (271,490 ) 280 Interest (expense) income,
net 616 18 598 3,322 1,146 (1,194 ) 2,340 (196 ) Other income (expense), net (25 ) 25,895 (25,920 ) (100 ) 314 25,177 (24,863 ) (99 ) Loss on extinguishment of convertible notes - - - n.m. - (131,908 ) 131,908 n.m. Loss on extinguishment of convertible notes attributable to related parties - - - n.m. - (1,875 ) 1,875 n.m. Loss before taxes (199,114 ) (16,631 ) (182,483 )
1,097 (367,130 ) (206,900 ) (160,230 ) 77 Income tax (benefit) expense
- (383 ) 383 n.m. - (383 ) 383 n.m.
Net loss $ (199,114 ) $ (16,248 ) $ (182,866 ) 1,125
value on Convertible
Preferred Stock - - - n.m. - (1,011,726 ) 1,011,726 n.m. Net loss attributable to
common stockholders
____________ n.m. = not meaningful. Research and Development Research and development costs were$32.8 million for the three months endedSeptember 30, 2022 , compared to$21.7 million for the three months endedSeptember 30, 2021 . The$11.1 million increase mainly reflected a$4.3 million increase in stock-based compensation expense, a$2.3 million increase in depreciation and amortization expense, a$2.3 million increase in third party consulting and recruitment costs offset by a$1.2 million decrease in technology licensed and software subscription licenses related expenses with the remainder due to changes in other research and development expenses. These increases were to support our product roadmap and launch services. Research and development costs were$111.5 million for the nine months endedSeptember 30, 2022 , compared to$44.2 million for the nine months endedSeptember 30, 2021 . The$67.4 million increase mainly reflected a$24.5 million increase in personnel-related costs due to headcount increases in research and development departments, a$9.7 million increase in research and development materials expense, a$13.3 million increase in stock-based compensation expense, a$7.8 million increase in third party consulting and recruitment costs, a$6.7 million increase in depreciation and amortization expense and a$0.7 million increase in technology licensed and software subscription licenses related expenses with the remainder due to changes in other research and development expenses. These increases were to support our product roadmap and launch services. 41
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Table of Contents Sales and Marketing Sales and marketing expenses were$4.1 million for the three months endedSeptember 30, 2022 , compared to$1.1 million for the three months endedSeptember 30, 2021 . The$3.0 million increase mainly reflected a$1.5 million in stock-based compensation expense,$1.3 million increase in personnel-related costs, with the remainder due to changes in other sales and marketing expenses. These increases were to support business development and marketing activities. Sales and marketing expenses were$13.5 million for the nine months endedSeptember 30, 2022 , compared to$2.2 million for the nine months endedSeptember 30, 2021 . The$11.2 million increase mainly reflected a$4.7 million increase in personnel-related costs, a$4.5 million in stock-based compensation expense and a$0.8 million increase in depreciation expense with the remainder due to changes in other sales and marketing expenses. These increases were to support business development and marketing activities.
General and Administrative
General and administrative expenses were$19.2 million for the three months endedSeptember 30, 2022 , compared to$19.7 million for the three months endedSeptember 30, 2021 . The$0.5 million decrease was primarily due to a$5.7 million decrease in insurance related expenses,$4.3 million decrease from transaction costs incurred and expensed by the Company in relation to the Business Combination, offset by a$5.1 million decrease in stock-based compensation expense, a$1.6 million increase in third party consulting and recruitment costs,$0.7 million increase in employee costs due to increased headcount,$0.3 million increase in accounting, audit and legal related fees which is partially with the remainder due to changes in facilities costs, IT equipment fees, and other services. General and administrative expenses were$60.8 million for the nine months endedSeptember 30, 2022 , compared to$50.7 million for the nine months endedSeptember 30, 2021 . The$10.1 million increase was primarily due to a$11.1 million increase in employee costs due to increased headcount, a$5.3 million increase in stock-based compensation expense, a$4.0 million increase in accounting, audit and legal related fees, a$1.6 million increase in third party consulting and recruitment costs offset by$8.0 million decrease from transaction costs incurred and expensed by the Company in relation to the Business Combination,$2.0 million decrease in insurance related expenses with the remainder due to changes in facilities costs, IT equipment fees, and other services. Impairment Expense Impairment expense was$75.1 million for the three and nine months endedSeptember 30, 2022 and was triggered by the existence of substantial doubt about the Company's ability to continue as a going concern, a sustained decrease in the Company's share price and macroeconomic factors. The impairment expense reflects charges of$70.3 million in property, plant and equipment,$2.7 million in definite-lived intangible assets, and$2.1 million in indefinite-lived intangible assets. No impairment charges were recorded for the three and nine months endedSeptember 30, 2021 .
Goodwill Impairment
Goodwill impairment was$58.3 million for the three and nine months endedSeptember 30, 2022 and was triggered by the existence of substantial doubt about the Company's ability to continue as a going concern, a sustained decrease in the Company's share price and other macroeconomic factors. The expense reflects the full impairment of the Company's goodwill balance. No goodwill impairment was recorded for the three and nine months endedSeptember 30, 2021 .
Loss on Change in Fair Value of Contingent Consideration
Loss on change in fair value of contingent consideration of$11.9 million and$29.2 million for the three and nine months endedSeptember 30, 2022 , respectively, was due to higher revenues forecasted in estimating the fair value of contingent consideration. No loss on change in fair value of contingent consideration was recorded for the three and nine months endedSeptember 30, 2021 .
Interest (Expense) Income, Net
Interest income was$0.6 million for the three months endedSeptember 30, 2022 , compared to interest expense of less than$0.1 million for the three months endedSeptember 30, 2021 . The$0.6 million increase in interest (expense) income, net was primarily due to the settlement of outstanding debt during the year endedDecember 31, 2021 . Therefore, we did not incur any interest expense during the period and an increase of$0.4 million in interest income related during the three months endedSeptember 30, 2022 . Interest income was$1.1 million for the nine months endedSeptember 30, 2022 , compared to interest expense of$1.2 million for the nine months endedSeptember 30, 2021 . The$1.7 million increase in interest (expense) income, net was primarily due to the settlement of outstanding debt during the year endedDecember 31, 2021 . Therefore, we did not incur any interest expense during the period and an increase of$0.8 million in interest income related to investment in marketable securities during the nine months endedSeptember 30, 2022 . 42
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Table of Contents Other Income (Expense), Net Other expense, net was less than$0.1 million for the three months endedSeptember 30, 2022 , compared to other income, net of$25.9 million for the three months endedSeptember 30, 2021 . The$26.0 million decrease in other income was primarily due to$20.4 million in income from change in fair value of warrant liability,$4.9 million in income from a gain on forgiveness of PPP Note and$0.6 million in income from government research and development contracts for the three months endedSeptember 30, 2021 . Other income, net was$0.3 million for the nine months endedSeptember 30, 2022 , compared to other income, net of$25.2 million for the three months endedSeptember 30, 2021 . The$24.9 million decrease in other income was primarily due to$20.4 million in income from change in fair value of warrant liability,$4.9 million in income from a gain on forgiveness of PPP Note and$0.6 million in income from government research and development contracts for the nine months endedSeptember 30, 2021 offset by$0.8 million due to a nonrecurring payment to one of our investors for the nine months endedSeptember 30, 2021 .
Loss on Extinguishment of Convertible Notes
No loss on extinguishment of convertible notes was recorded for the three months
ended
No loss on extinguishment of convertible notes was recorded for the nine months endedSeptember 30, 2022 . Loss on extinguishment of convertible notes of$131.9 million was recorded for the nine months endedSeptember 30, 2021 due to the settlement of convertible notes onJanuary 28, 2021 .
Loss on Extinguishment of Convertible Notes Attributable to Related Parties
No loss on extinguishment of convertible notes attributable to related parties
was recorded for the three months ended
No loss on extinguishment of convertible notes attributable to related parties was recorded for the nine months endedSeptember 30, 2022 . Loss on extinguishment of convertible notes attributable to related parties of$1.9 million was recorded for the nine months endedSeptember 30, 2021 due to the settlement of convertible notes attributable to related parties onJanuary 28, 2021 . Income Tax (Benefit) Expense
We did not incur income tax expense for the three and nine months ended
We recorded an income tax benefit of
Adjustment to redemption value on Convertible Preferred Stock
No adjustment to redemption value on convertible preferred stock was recorded
for the three months ended
No adjustment to redemption value on convertible preferred stock was recorded for the nine months endedSeptember 30, 2022 . Adjustment to redemption value on Convertible Preferred Stock of$1,011.7 million for the nine months endedSeptember 30, 2021 was recorded due to the re-measurement of Convertible Preferred Stock to its redemption value due to the likelihood of a redemption event becoming probable.
Liquidity and Capital Resources
The following section discusses our principal liquidity and capital resources as
well as our primary liquidity requirements and uses of cash. Our cash and cash
equivalents are maintained in highly liquid investments with remaining
maturities of 90 days or less at the time of purchase. We believe our cash
equivalents are liquid and accessible.
We measure liquidity in terms of our ability to fund the cash requirements of
our research and development activities and our current business operations,
including our capital expenditure needs, contractual obligations and other
commitments. Our current liquidity needs relate to business operations, research
and development activities, mainly in connection with the ongoing development of
our technology, lease obligations and capital expenditures, which primarily
relate to the development of our manufacturing facility.
Given our current liquidity position and historical operating losses, we believe
there is substantial doubt that we can continue as a going concern. Substantial
doubt about an entity's ability to continue as a going concern exists when
conditions and events, considered in the aggregate, indicate that it is probable
that the entity will be unable to meet its obligations as they become due within
one year after the date that the financial statements are issued. See Part II,
Item 1A "Risk Factors" for information about the risks related to our ability to
continue operating as a going concern.
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We have, however, prepared the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q on a going concern basis, assuming that our financial resources will be sufficient to meet our capital needs over the next twelve months. Accordingly, our financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. As ofSeptember 30, 2022 , our existing sources of liquidity included cash and cash equivalents of$67.6 million and marketable securities of$82.9 million . We have a limited history of operations and have incurred negative cash flows from operating activities and loss from operations in the past as reflected in the accumulated deficit of$1,775.5 million as ofSeptember 30, 2022 . We expect to continue to incur operating losses due to the investments we intend to make in its business, including the development of our products and services, although we expect those losses to be offset by revenues recognized through the delivery of our space products in 2023. Management remains focused on managing its cash expenditures, including but not limited to, reducing its capital expenditures, consulting services and re-focusing its hiring efforts. In addition, Management continues to evaluate opportunities to strengthen our financial position, including through the issuance of additional equity securities or by entering into new financing arrangements, as appropriate. The Company believes that it has limited cash resources at the current level to fund commercial scale production and sale of its services and products. However, if we are able to obtain additional financing and assuming our plans to manage capital expenditures are effective, including savings expected to be realized from our approximately 16% reduction in existing headcount implemented onNovember 8, 2022 (of which there can be no assurance), we would expect that our existing sources of liquidity will be sufficient to fund operating and capital expenditure requirements through at least 12 months from the date of filing this Quarterly Report on Form 10-Q. The Company's current liquidity may not be sufficient to meet the required long-term liquidity needs associated with continued use of cash from operating activities at historical levels, in addition to its other liquidity needs associated with its capital expenditures, and other investing requirements and the Company is actively evaluating other sources of liquidity to further support its long-term business operations. For additional information regarding our cash requirements from contractual obligations and lease obligations, see Note 11 - Commitments and Contingencies and Note 9 - Leases in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Committed Equity Purchases
OnAugust 2, 2022 , we entered into an$100 million Class A common stock purchase agreement withB. Riley to support working capital and other general corporate needs. Under the terms of this agreement, we have the right, without obligation, to sell and issue up to$100 million of our Class A common stock over a period of 24 months toB. Riley at the Company's sole discretion, subject to certain limitations and conditions. See Note 13 - Stockholders' Equity in Part I, Item 1 of this Quarterly Report on Form 10-Q for more details.
Summary Statement of Cash Flows for the Nine Months Ended
The following table sets forth the primary sources and uses of cash and cash equivalents for the periods presented below:
For The Nine Months Period over
Ended September 30, period change
(in thousands) 2022 2021 $ %
Net cash used in operating
activities $ (134,615 ) $ (79,576 ) $ (55,039 ) 69 %
Net cash used in investing
activities (124,088 ) (41,280 ) (82,808 ) 201
Net cash provided by financing
activities 1,304 488,897 (487,593 ) (100 )
Net increase (decrease) in cash
and cash equivalents $ (257,399 ) $ 368,041 $ (625,440 ) (170 )%
Cash Flows used in Operating Activities
Our cash flows from operating activities are significantly affected by our cash expenditures to support the growth of our business in areas such as research and development and general and administrative and working capital. Our operating cash inflows include cash from milestone billing under certain space products and launch services contracts. These cash inflows are offset by our payments to suppliers for production materials and parts used in our manufacturing process as we ramp up our production for space products, payments to our employees and other operating expenses. For the nine months endedSeptember 30, 2022 , net cash used in operating activities was$134.6 million . The primary factors affecting the Company's operating cash flows during the period were a net loss of$367.1 million . This is offset by non-cash charges including stock-based compensation expense of$43.6 million , inventory reserves including write-offs and net realizable value write-downs of$18.8 million , loss on change in fair value of contingent consideration of$29.2 million , depreciation and amortization expense of$12.1 million and non-cash lease expense of$1.4 million . Changes in operating working capital items is mainly due to decrease in inventories of$15.5 million , trade accounts receivable of$3.1 million , accrued expense and other current liabilities of$2.1 million , other non-current assets of$1.3 million , and lease liabilities of$1.2 million . Changes in operating working capital items was partially 44
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offset by an increase in other non-current liabilities of
For the nine months endedSeptember 30, 2021 , net cash used in operating activities was$79.6 million . The primary factors affecting the Company's operating cash flows during this period were net loss of$206.5 million and a non-cash gain of$20.4 million due to change in fair value of warrant liability and$4.9 million due to a gain on forgiveness of PPP Note, offset by non-cash charges including a non-cash loss on extinguishment of convertible notes of$133.8 million , stock-based compensation expense of$20.5 million , depreciation and amortization expense of$3.9 million , and amortization of convertible note debt discounts of$0.4 million . Changes in operating working capital items primarily reflect the increase in inventories of$4.2 million , prepaid and other current assets of$13.9 million , accounts payable of$1.3 million , accrued expenses and other current liabilities of$11.3 million and decrease in other non-current liabilities of$0.2 million .
Cash Flows used in Investing Activities
For the nine months endedSeptember 30, 2022 , net cash used in investing activities was$124.1 million , which was comprised mainly of purchases of marketable securities of$136.4 million , purchases of property, plant and equipment of$40.0 million mainly related to the construction of our manufacturing facility at our corporate headquarters inAlameda, California , and acquisition of an indefinite-lived intangible trademark asset of$0.9 million . This was partially offset by maturities of marketable securities of$47.3 million and proceeds from sales of marketable securities of$6.0 million . For the nine months endedSeptember 30, 2021 , net cash used in investing activities was$41.3 million , which was comprised mainly of cash paid as purchase price consideration in the acquisition ofApollo Fusion, Inc. , net of cash acquired of$19.4 million , acquisition of an indefinite-lived intangible trademark asset of$3.2 million and purchases of property, plant and equipment of$18.7 million .
Cash Flows from Financing Activities
For the nine months endedSeptember 30, 2022 , net cash provided by financing activities amounted to$1.3 million and consisted primarily of$1.3 million of proceeds from the sale of shares of the Company's Class A common stock and issuance of shares of Class A common stock under equity plans. For the nine months endedSeptember 30, 2021 , net cash provided by financing activities amounted to$488.9 million and consisted primarily of proceeds from the Business Combination and private offering, net of transaction costs, of$463.6 million , proceeds from the issuance of Series C of$30.0 million and borrowings of$10.0 million , proceeds from the issuance of stock under equity plans of$1.8 million , offset by repayments on borrowings of$16.4 million .
Commitments and Contractual Obligations
We are a party to operating leases primarily for land and buildings (e.g.,
office buildings, manufacturing and testing facilities and spaceport) and
certain equipment (e.g., copiers) under non-cancellable operating leases. The
following table summarizes our lease commitments as of
Minimum Lease
Commitment
(in thousands)
2022 (remainder) $ 1,010
2023 4,069
2024 3,941
2025 3,233
2026 2,075
Thereafter 3,705
Total future undiscounted minimum lease payments
3,156
Total reported lease liability $ 14,877
On July 28, 2022 , the Company entered into a lease agreement for approximately
60,000 square feet of manufacturing facility in Sunnyvale, California having a
lease term of 36 months with an option to extend for a period of an additional
36 months. The undiscounted base rent payments for the first year of this lease
is approximately $1.8 million with a 4% increase in base rent for each
subsequent year. In addition to base rent, the Company will be responsible for
the management fee of 5% of the base rent. In lieu of a cash security deposit,
the Company is required to provide the landlord an irrevocable letter of credit
in the amount of $0.3 million . This
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new lease facility is expected to enable expansion of space product production and development capacity, thermal testing capacity. The Company is finalizing the build-out of this facility and is targeting the completion of that building during the first quarter of 2023. In order to reduce manufacturing lead times and to have access to an adequate supply of components, we enter into agreements with certain suppliers to procure component inventory based on our production needs. A significant portion of our purchase commitments arising from these agreements consist of firm and non-cancelable commitments. As ofSeptember 30, 2022 , we had purchase commitments aggregating$39.0 million for which we were or will become obligated to make payments within 12 months to 60 months from the execution date of the agreements. Of these, there are agreements containing an aggregate of$32.1 million in early termination penalties. For example, one of the supply agreement penalties includes payment of 50% of the remaining purchase commitment at any point during the contract term. In another agreement, we may terminate the supply agreement by paying the balance on the remaining purchase commitment only after the first anniversary of the commencement date. If this agreement is terminated before the first anniversary of the commencement date, we have to pay the entire contract amount of$9.6 million .
Apart from the aforementioned leases and purchase commitments, we do not have any other material contractual obligations, commitments or contingent obligations.
Compliance with the Continued Listing Standards of the NASDAQ Global Select Market ("NASDAQ")
OnOctober 6, 2022 , the Company received a deficiency notice from NASDAQ that it was not in compliance with Rule 5450(a)(1) of the listing requirements because its per share closing bid price has been below$1.00 for the last thirty consecutive business days. This notice has no immediate effect on the listing of the Company's Class A common stock. Pursuant to Rule 5810(c)(3)(A), the Company has 180 calendar days, or untilApril 4, 2023 , to regain compliance with the minimum bid price requirement set forth in Rule 5450(a)(1) (the "Minimum Bid Price Requirement").
Nasdaq's notice stated that if, at any time before
The Company intends to monitor the per share closing bid price of its Class A common stock and consider available options if its Class A common stock does not trade at a level likely to result in the Company regaining compliance with Minimum Bid Price Requirement byApril 4, 2023 . If the Company does not regain compliance with the Minimum Bid Price Requirement byApril 4, 2023 , the Company may be eligible for an additional 180 calendar day compliance period. To qualify, Astra would need to, among other things, meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for NASDAQ, with the exception of the Minimum Bid Price Requirement, and provide written notice to Nasdaq that it intends to cure the deficiency during the second compliance period. If Nasdaq concludes that the Company will not be able to cure the deficiency during the second compliance period, or the Company does not make the required representations, then NASDAQ will give notice that the Company's Class A common stock is subject to delisting and the Company will be able to appeal that delisting before a NASDAQ hearings panel. There can be no assurance that the Company will regain compliance with the Minimum Bid Price Requirement or that it will otherwise remain in compliance with the other listing requirements for NASDAQ. The Company had previously failed to comply with Nasdaq's requirement that its quarterly and annual reports be timely filed when its annual report on Form 10-K for the year endedDecember 31, 2022 , was filed late as a result of the change in the Company's filer status. The Company promptly notified Nasdaq when it became aware that its filer status had changed and its Form 10-K would be late. Please also see Risk Factors in Part II, Item 1A of this quarterly report on Form 10-Q for more information about risks associated with the Company's failure to remain in compliance with the continuing listing standards of NASDAQ. 46
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