FISKER INC. Overview
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this report.
OVERVIEW
Fisker is building a technology-enabled, asset-light automotive business model
that it believes will be among the first of its kind and aligned with the future
state of the automotive industry. This involves a focus on vehicle development,
customer experience, sales and service intended to change the personal mobility
experience through technological innovation, ease of use and flexibility. The
Company combines the legendary design and engineering expertise of Henrik Fisker
to develop high quality electric vehicles with strong emotional appeal. Central
to Fisker's business model is the Fisker Flexible Platform Agnostic Design
("FF-PAD"), a proprietary process that allows the development and design of a
vehicle to be adapted to any given electric vehicle ("EV") platform in the
specific segment size. The process focuses on selecting industry leading vehicle
specifications and adapting the design to crucial hard points on a third-party
supplied EV platform and outsourced manufacturing to reduce development cost and
time to market. The first example of this is Fisker's work to adapt the Fisker
Ocean design to a base vehicle platform developed by Magna Steyr Fahrzeugtechnik
AG & Co KG , a limited liability partnership established and existing under the
laws of Austria ("Magna Steyr"), an affiliate of Magna International, Inc.
("Magna"). This development with Magna Steyr began in September 2020 and passed
the first and second engineering gateways in November 2020 and March 2021 ,
respectively and we are currently in the prototype building phase for production
in November 2022 . Fisker believes it is well-positioned through its global
premium EV brand, its renowned design capabilities, its sustainability focus,
and its asset-light and low overhead, direct to consumer business model which
enables products like the Fisker Ocean to be priced roughly equivalent to
internal combustion engine-powered SUV's from premium brand competitors.
The Fisker Ocean is targeting a large and rapidly expanding "premium with
volume" segment (meaning a premium automaker producing more than 100,000 units
of a single model such as the BMW X3 Series or Tesla Model Y) of the electric
SUV market. Fisker expects to begin production of the Ocean as early as the
fourth quarter of 2022. The Fisker Ocean , a five-passenger vehicle with
potentially a 250- to over 350-mile range and state-of-the-art advanced driver
assistance capabilities, will be differentiated in the marketplace by its
innovative and timeless design and a re-imagined customer experience delivered
through an advanced software-based user interface. The Fisker Ocean is designed
for a high degree of sustainability, using recycled rubber, eco-suede interior
trim made from recycled polyester, and carpeting from fishing nets and plastic
bottles recycled from ocean waste, among many other sustainable features. The
optional features for the Ocean, including California Mode (patent pending) and
a solar photovoltaic roof resulted in the Fisker Ocean prototype being the most
awarded new automobile at CES 2020 by Time, Newsweek, Business Insider , CNET and
others.
Fisker believes its innovative business model, including
"E-Mobility-as-a-Service" ("EMaaS"), will revolutionize how consumers view
personal transportation and car ownership. Over time, Fisker plans to combine a
customer-focused experience with flexible leasing options, affordable monthly
payments and no fixed lease terms, in addition to direct-to-consumer sales.
Through an innovative partnership strategy, Fisker believes that it will be able
to significantly reduce the capital intensity typically associated with
developing and manufacturing vehicles, while maintaining flexibility and
optionality in component sourcing and manufacturing due to Fisker's FF-PAD
proprietary process. Through Fisker's FF-PAD proprietary process, Fisker is
currently working with Magna to develop a proprietary electric vehicle platform
called FM29 that will underpin Fisker Ocean and at least one additional
nameplate. Fisker intends to cooperate with one or more additional
industry-leading original equipment manufacturers ("OEMs"), technology
companies, and/or tier-one automotive suppliers for access to procurement
networks, while focusing on key differentiators in innovative design, software
and user interface. Multiple platform-sharing partners is intended to accelerate
growth in Fisker's portfolio of electric vehicle offerings. Fisker envisions a
go-to-market strategy with both web- and app-based digital sales, loan financing
approvals, leasing, and service management, with limited reliance on traditional
brick-and-mortar "sales-and-service" dealer networks. Fisker believes that this
customer-focused approach will drive revenue, user satisfaction and higher
margins than competitors.
The Business Combination
Fisker was originally incorporated in theState of Delaware inOctober 13, 2017 as a special purpose acquisition company under the nameSpartan Energy Acquisition Corp. ("Spartan"), formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination 21
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with one or more businesses. Spartan completed its IPO inAugust 2018 . InOctober 2020 , Spartan's wholly-owned subsidiary merged with and intoFisker Holdings, Inc. (f/k/aFisker Inc. ) aDelaware corporation ("Legacy Fisker"), with Legacy Fisker surviving the merger as a wholly-owned subsidiary of Spartan (the "Business Combination"). In connection with the consummation of the Business Combination (the "Closing"), Spartan changed its name toFisker Inc. The Business Combination was accounted for as a reverse recapitalization, in accordance with GAAP. Under this method of accounting, Spartan was treated as the "acquired" company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Legacy Fisker issuing stock for the net assets of Spartan, accompanied by a recapitalization, whereby no goodwill or other intangible assets was recorded. Operations prior to the Business Combination are those of Legacy Fisker.
Key Trends, Opportunities and Uncertainties
Fisker is a pre-revenue company and believes that its future performance and success depends to a substantial extent on the ability to capitalize on the following opportunities, which in turn is subject to significant risks and challenges, including those discussed below and in the section of our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onFebruary 28, 2022 titled "Risk Factors."
Partnering with Industry-Leading OEMs and/or Tier-One Automotive Suppliers
Magna Steyr / FM29 Platform (
OnOctober 14, 2020 , Fisker and Spartan entered into a Cooperation Agreement with Magna setting forth certain terms for the development of a full electric vehicle (the "Cooperation Agreement"). That Cooperation Agreement sets out the main terms and conditions of operational phase agreements (the "Operational Phase Agreements") that were subsequently entered into by and between Fisker and Magna (or its affiliates). OnDecember 17, 2020 , Fisker entered into the platform-sharing and initial manufacturing Operational Phase Agreements referenced in the Cooperation Agreement. OnJune 12, 2021 , Fisker entered into the detailed manufacturing agreement referenced in the Cooperation Agreement. We are creating FM29, a unique EV platform, that will have unique Fisker intellectual property. By working with a proven contract manufacturer such as Magna Steyr, we can accelerate our time to market, reduce vehicle development costs, and gain access to an established global supply chain. Our proprietary FF-PAD process is hardware agnostic which will enable us to collaborate with multiple EV platform developers for the production of future vehicles and develop rapid derivatives and improvements to our current FM29 Platform. Since the inception of our Cooperation Agreement, we have added significant certified content and tailored the FM29 platform into a proprietary Fisker platform where we can leverage our intellectual property and technology for certain systems and subsystems in future vehicles and will increase efficiency in vehicle development and speed to bring vehicles to market. 22
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OnMay 13, 2021 , the Company announced it signed framework agreements withHon Hai Technology Group (Foxconn) supporting the joint development and manufacturing of project 'PEAR' (Personal Electric Automotive Revolution), a project to develop a new breakthrough electric vehicle. Under the agreements, the Company and Foxconn will jointly invest into Project PEAR, with each company taking proceeds from the successful delivery of the program. Following an extensive review of manufacturing sites, the two companies will make significant efforts to develop and execute a manufacturing plan capable of supporting the planned start of production. [[Image Removed: fsr-20220331_g1.jpg]] These co-operations allow Fisker to focus on vehicle design, supply chain / procurement, vehicle integration, strong brand affiliation and a differentiated customer experience. Fisker intends to leverage multiple EV platforms and Fisker intellectual property to accelerate its time to market, rapidly expand its product portfolio, reduce vehicle development costs and gain access to an established global supply chain of batteries and other components. Fisker believes that its business model will reduce the considerable execution risk typically associated with new car companies. Through Fisker's proprietary platform, component sourcing and manufacturing partnerships, Fisker believes it will be able to accelerate its time to market and reduce vehicle development costs. Fisker remains on-track forFisker Ocean start-of-production onNovember 17, 2022 and intends to meet timing, cost and quality expectations while optimally matching its cost structure with its projected production ramp by leveraging such partnerships and trained workforces. Remaining hardware agnostic allows for selection of partners, components, and manufacturing decisions to be based on both timeline and cost advantages and enables Fisker to focus on delivering truly innovative design features, a superior customer experience, and a leading user interface that leverages sophisticated software and other technology advancements. Fisker has entered into agreements covering the FM29 platform, development and engineering services, and manufacturing, among others. Extended negotiation of the specific project-related agreements, the sourcing of components or labor at higher than anticipated cost, or any delays in sourcing suppliers of sustainable parts may delay Fisker's commercialization plans or require it to change the anticipated pricing of its vehicles. Such delays could be caused by a variety of factors, some of which may be out of Fisker's control. See "Risk Factors-Risks Related to Fisker-Fisker faces risks related to health epidemics, including the recent COVID-19 pandemic, which could have a material adverse effect on its business and results of operations." 23
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Market Trends and Competition
Fisker anticipates robust demand for theFisker Ocean , based on its award-winning design, its unique sustainability features, the management team's experience and know-how and, in particular, the growing acceptance of and demand for EVs as a substitute for gasoline-fueled vehicles. Many independent forecasts are assuming that EV's as percentage of global auto sales will grow from less than 3% in 2020 to more than 20% in 2030. One such report from RBC, published inOctober 2020 , assumes sales of EV's to grow from less than 2.0 million units globally (less than 3% of total volume) to 25 million units in 2030 (approximately 25% of total volume), a 29% CAGR. The EV market is highly competitive, but Fisker believes it will remain less competitive than the ICE market for some time. For example, there are 79 nameplates sold in the US market within the compact and midsize SUV category currently, while most observers expect no more than 10-20 EV's in those segments at the time Fisker launches, most of which are expected to be priced well aboveFisker Ocean . Fisker believes the market will be broken down into three primary consumer segments: the white space segment, the value segment, and the conservative premium segment. See "Information About Fisker-Sales - Go to Market Strategy." Fisker expects to sell approximately 50% of its vehicles within the white space segment, appealing to customers who want to be part of the new EV movement and value sustainability and environmental, social, and governance ("ESG") initiatives. This is supported by a survey of Fisker's current reservation-holders which found that over 50% currently own non-premium branded vehicles and over 50% currently own non-SUV's (i.e. cars, hatchbacks, minivans, etc.). Fisker believes that it will be well positioned to be the primary alternative to Tesla in this segment with the Ocean priced around the base price of the Model 3 and below the base price of the ModelY. While Fisker will compete with other EV startups, many of them are moving into the higher luxury priced segments due to the lack of volume pricing of components that Fisker expects to obtain through platform sharing partnerships with industry-leading OEMs and/or tier-one automotive suppliers. To expand market share and attract customers from competitors, Fisker must continue to innovate and convert successful research and development efforts into differentiated products, including new EV models. Fisker is also working to quantify the sustainability advancements and claims that the Fisker brand would produce the most sustainable vehicles in the world, which it believes will be an increasingly important differentiator among a growing subset of consumers. To this end, an internal analysis resulted in an announcement inJune 2021 that Fisker aims to produce a 100% climate-neutral vehicle, without the use of purchased carbon offsets, in 2027. In Fisker's pursuit of these objectives, it will be in competition with substantially larger and better capitalized vehicle manufacturers. While Fisker believes that the low-capital-intensity platform sharing partnership strategy, together with direct-to-customer commercialization, provides the Company with an advantage relative to traditional and other established auto manufacturers, Fisker's better capitalized competitors may seek to undercut the pricing or compete directly with Fisker's designs by replicating their features. In addition, while Fisker believes that its strong management team forms the necessary backbone to execute on its strategy, the Company expects to compete for talent, as Fisker's future growth will depend on hiring qualified and experienced personnel to operate all aspects of the business as it prepares to launch commercial operations.
Commercialization
Fisker currently anticipates commencing production of theFisker Ocean in the fourth quarter of 2022, with initial customer deliveries in late 2022 at the earliest. As ofMay 2, 2022 , we are over 45,000 retail reservations and 1,600 fleet reservations. This is after accounting for about 4,100 retail customers who have canceled over time. Fisker plans to initially market its vehicles through its direct-to-consumer sales model, leveraging its proprietary Flexee app, which will serve as a one-stop-shop for all components of its EMaaS business model. Over time, Fisker plans to develop Fisker Experience Centers in select cities inNorth America andEurope , which will enable prospective customers to experience Fisker vehicles through test drives and virtual and augmented reality. Fisker also intends to enter, in each launch market, into third-party service partnerships with credible vehicle service organizations with established service facilities, operations and technicians. These companies' services will be integrated into and booked via the Flexee app in order to create a hassle-free, app-based service experience for Fisker's customers delivered at home, at work, or with a pick-up and delivery service booked online. ForNorth America andUnited Kingdom , as examples, Fisker has entered into non-exclusive Memorandum of Understandings with divisions ofCox Automotive related to fleet management services. Fisker will continue to seek opportunities to build the service partnership model. Over time, Fisker aims to transform the EV sales model through the flexible lease model, under which customers will be able to utilize a vehicle on a month-to-month basis at an anticipated initial cost of$379 per month for the base model, with the ability to terminate the lease or upgrade their vehicle at any time. Development of a fleet of high value, sustainable EVs will allow Fisker to offer these flexible lease options to capture more customers. Fisker intends to require a non-refundable up-front payment of$3,000 under the flexible lease model, which the Company believes will reduce its 24
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cash flow risk and incentivize customers to keep their vehicles for a period of time. Fisker anticipates that, over time, it will acquire a substantial fleet of used EVs available for sale or further flexible lease by Fisker, which it believes will enhance its ability to maintain its premium brand and pricing. Fisker believes its digital, direct-to-consumer sales model reflects today's changing consumer preferences and is less capital intensive and expensive than the traditional automotive sales models. Fisker's commercialization strategy is, however, relatively novel for the car industry, which has historically relied on extensive advertising and marketing, as well as relationships with physical car dealership networks. Should Fisker's assumptions about the commercialization of its vehicles prove overly optimistic or if the Company is unable to develop, obtain or maintain the direct-to-consumer marketing or service technology upon which its prospective customer base would rely, Fisker may incur delays to its ability to commercialize theFisker Ocean . This may also lead Fisker to make changes in its commercialization plans, which could result in unanticipated marketing delays or cost overruns, which could in turn adversely impact margins and cash flows or require Fisker to change its pricing. Further, to the extent that Fisker doesn't generate the margins it expects upon commercialization of theFisker Ocean , Fisker may be required to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous to Fisker and its stockholders.
Regulatory Landscape
Fisker operates in an industry that is subject to and benefits from environmental regulations, which have generally become more stringent over time, particularly across developed markets. Regulations in Fisker's target markets include economic incentives to purchasers of EVs, tax credits for EV manufacturers, and economic penalties that may apply to a car manufacturer based on its fleet-wide emissions ratings. See "Information about Fisker-Government Regulation and Credits." For example, a federal tax credit of$7,500 may be available toU.S. purchasers of Fisker vehicles, which would bring the effective estimated purchase price of the baseFisker Ocean model to approximately$30,000 . OnAugust 5, 2021 ,President Biden announced an executive order aimed at making half of all new vehicles sold in 2030 electric. Fisker recently issued a call to action to implement a program called "75 And More For 55 And Less", which would include a point-of-sale rebate (as opposed to the current tax credit) of$7,500 plus$10 for every mile of EPA-certified driving range, for any EV priced at$55,000 and less. Fisker believes this type of program would focus EV purchase support towards consumers that most require an incentive and would also incentivize all OEM's to focus development efforts on affordable EV's, as Fisker has done. Further, the registration and sale of Zero Emission Vehicles ("ZEVs") inCalifornia will earn Fisker ZEV credits, which it may be able to sell to other OEMs or tier-one automotive suppliers seeking to access the state's market. Several otherU.S. states have adopted similar standards. In theEuropean Union , where European car manufacturers are penalized for excessive fleet-wide emissions on the one hand and incentivized to produce low emission vehicles on the other, Fisker believes it may have the opportunity to monetize the ZEV technology through fleet emissions pooling arrangements with car manufacturers that may not otherwise meet their CO2 emissions targets. While Fisker expects environmental regulations to provide a tailwind to its growth, it is possible for certain regulations to result in margin pressures. For example, regulations that effectively impose EV production quotas on auto manufacturers may lead to an oversupply of EVs, which in turn could promote price decreases. As a pure play EV company, Fisker's margins could be particularly and adversely impacted by such regulatory developments. Trade restrictions and tariffs, while historically minimal between theEuropean Union andthe United States where most of Fisker's production and sales are expected, are subject to unknown and unpredictable change that could impact Fisker's ability to meet projected sales or margins.
Key trends and economic factors affecting the automotive industry
Recent outbreaks in certain regions, includingChina where lock-downs due to COVID-19 have been imposed in more than 40 cities, may cause intermittent COVID-19-related disruptions in our supply chain. Though we have no operations or suppliers, who will produceFisker Ocean components, located inRussia orUkraine , our FM29 platform used to manufacture theFisker Ocean is located inGraz, Austria and some of our key supplier operations are located in European countries. Actions taken byRussia inUkraine could impact our suppliers, particularly our lower tier suppliers. Globally, prices for commodities remain volatile for base metals (e.g., steel and aluminum), precious metals (e.g., palladium), and raw materials that are used in batteries for electric vehicles (e.g., lithium, cobalt, and nickel for batteries). OurFisker Ocean is comprised mainly of steel which has experienced less volatility compared to aluminum. Further, we have agreed to our pricing in 2021 and early 2022 for our components under our long-term supply contracts, which reduces our exposure to commodity volatility and inflation in 2022. Our battery chemistries consist of a high-capacity pack that uses a lithium nickel manganese cobalt (NMC) cell chemistry with the second high-value pack based on lithium-ion phosphate (LFP) chemistry. We expect most of our vehicles sold in 2022 and 2023 will have premium trim levels, where margins are less sensitive, and NMC battery packs compared to our base model Sport which uses the LFP battery packs that do not contain nickel or cobalt. 25
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Basis of Presentation
Fisker currently conducts its business through one operating segment. As a company with no commercial operations and limited revenues derived from merchandise sales, which is not core to our ongoing business, Fisker's activities to date have been limited and were conducted primarily inthe United States and its historical results are reported underU.S. GAAP and inU.S. dollars. Upon commencement of commercial operations, Fisker expects to expand its global operations substantially, including in theUSA and theEuropean Union , and as a result Fisker expects its future results to be sensitive to foreign currency transaction and translation risks and other financial risks that are not reflected in its historical financial statements. As a result, Fisker expects that the financial results it reports for periods after it begins commercial operations will not be comparable to the financial results included in this report or Fisker's Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onFebruary 28, 2022 . Fisker currently conducts its business through one operating segment. As a pre-revenue company with no commercial operations, Fisker's activities to date have been limited and its historical results are reported underUnited States generally accepted accounting principles("GAAP") and inU.S. dollars. Upon commencement of commercial operations, Fisker expects to expand its global operations substantially, including in theUSA and theEuropean Union , and as a result Fisker expects its future results to be sensitive to foreign currency transaction and translation risks and other financial risks that are not reflected in its historical financial statements. As a result, Fisker expects that the financial results it reports for periods after it begins commercial operations will not be comparable to the financial results included in this Form 10-K or those incorporated by reference from the proxy statement.
Components of Results of Operations
Fisker is an early stage company and its historical results may not be indicative of its future results for reasons that may be difficult to anticipate. Accordingly, the drivers of Fisker's future financial results, as well as the components of such results, may not be comparable to Fisker's historical or projected results of operations.
Revenues
Fisker has not begun commercial operations and currently does not generate any revenue from vehicle sales. Once Fisker commences production and commercialization of its vehicles, it expects that the significant majority of its revenue will be initially derived from direct sales of Fisker Ocean SUVs and, subsequently, from flexible leases of its vehicles. In 2021, Fisker launched its merchandise "Fisker Edition" where it sells direct to consumers Fisker branded apparel and goods. While merchandise sales are not intended to be significant portion of Fisker's results once production of vehicles begins, it will generate revenue pre-production.
Cost of Goods Sold
To date, Fisker has not recorded cost of goods sold from vehicle sales. Once Fisker commences the commercial production and sale of its vehicles, it expects cost of goods sold to include mainly vehicle components and parts, including batteries, direct labor costs, amortized tooling costs and capitalized costs associated with the Magna warrants, and reserves for estimated warranty expenses. Related to the 2021 launch of "Fisker Edition" apparel and goods, Fisker will realize cost of goods sold.
General and Administrative Expense
General and administrative expenses consist mainly of personnel-related expenses for Fisker's executive and other administrative functions and expenses for outside professional services, including legal, accounting and other advisory services. Fisker is rapidly expanding its personnel headcount, in anticipation of the start of production of its vehicles. Accordingly, Fisker expects its general and administrative expenses to increase significantly in the near term and for the foreseeable future. For example, the company expects general and administrative expenses, excluding stock-based compensation expenses (refer to non-GAAP financial measure discussed below), in the year endedDecember 31, 2022 to be in the range of$105-$120 million as compared to$42.4 million in the year endedDecember 31, 2021 . Upon commencement of commercial operations, Fisker also expects general and administrative expenses to include facilities, marketing and advertising costs. 26
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Research and Development Expense
To date, Fisker's research and development expenses have consisted primarily of external engineering services in connection with the design of theFisker Ocean model and development of the first prototype. As Fisker ramps up for commercial operations, it anticipates that research and development expenses will increase for the foreseeable future as the Company expands its hiring of engineers and designers and continues to invest in new vehicle model design and development of technology. For example, the company expects research and development expenses, excluding stock-based compensation expenses (refer to non-GAAP financial measure discussed below), in the year endedDecember 31, 2022 to be in the range of$330-$380 million as compared to$286.9 million in the year endedDecember 31, 2021 .
Income Tax Expense / Benefit
Fisker's income tax provision consists of an estimate forU.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. Fisker maintains a valuation allowance against the full value of itsU.S. and state net deferred tax assets because Fisker believes the recoverability of the tax assets is not more likely than not. Interest Expense
Interest expense consists primarily of interest expense associated with the convertible senior notes.
Income Tax Expense / Benefit
Fisker's income tax provision consists of an estimate forU.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. Fisker maintains a valuation allowance against the full value of itsU.S. and state net deferred tax assets because Fisker believes the recoverability of the tax assets is not more likely than not. 27
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Results of Operations
Comparison of the Three-Months Ended
The following table sets forth Fisker's historical operating results for the
periods indicated:
Three-Months
Ended March 31,
2022 2021 $ Change % Change
(dollar amounts in thousands)
Revenue $ 12 22 $ (10) (45) %
Cost of goods sold 11 17 (6) (35) %
Gross Margin 1 5 (4) (80) %
Operating costs and expenses:
General and administrative 21,992 $ 5,832 16,160 277 %
Research and development 101,460 27,271 74,189 272 %
Total operating costs and expenses 123,452 33,103 90,349 273 %
Loss from operations (123,451) (33,098) (90,353) 273 %
Other income (expense):
Other income (expense) (371) 75 (446) n.m.
Interest income 265 156 109 70 %
Interest expense (4,383) - (4,383) n.m.
Change in fair value of derivatives - (145,249) 145,249 n.m.
Foreign currency gain 746 1,273 (527) (41) %
Unrealized gain recognized on equity securities 5,120 - 5,120 n.m.
Total other income (expense) 1,377 (143,745) 145,122 n.m.
Net Loss $ (122,074) $ (176,843) $ 54,769 (31) %
n.m. = not meaningful.
Revenue and cost of goods sold
During the three-months endedMarch 31, 2022 , Fisker launched its merchandise "Fisker Edition" where it sells direct to consumers Fisker branded apparel and goods. Sales of branded apparel and goods totaled$12,000 with related costs of goods sold of$11,000 resulting in a gross profit of$1,000 during the three-month period. Merchandise sales are ancillary revenues that will continue in the future but are not expected to constitute a significant portion of operations once Fisker commences production and commercialization of its vehicles.
General and Administrative
General and administrative expenses increased by$16.2 million or 277% from$5.8 million during the three-months endedMarch 31, 2021 to$22.0 million during the three-months endedMarch 31, 2022 , primarily due to increased salaried employee headcount, improved benefits in line with our human capital and ESG goals designed to offer potential employees competitive compensation packages, and stock based compensation. Marketing and advertising efforts resulted in expense of$4.5 million for the first quarter of 2022 compared to minimal efforts in the corresponding first quarter of 2021 as the Company implemented its marketing strategies in the fourth quarter of 2021. General and administrative expenses includes stock-based compensation expense of$1.8 million and$0.2 million for the three-months endedMarch 31, 2022 and 2021, respectively. General and administrative expenses will increase during the remainder of the 2022 fiscal year as the Company continues to increase its workforce, engage with advisors to establish global strategies for direct and indirect taxes, and planning for entity-wide changes in its IT systems. Overall, total headcount for the Company increased to 455 employees as ofMay 2, 2022 , compared to 169 employees as ofMarch 31, 2021 . 28
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Research and Development
Research and development expenses increased by$74.2 million or 272% from$27.3 million during the three-months endedMarch 31, 2021 , to$101.5 million during the three-months endedMarch 31, 2022 . The increase primarily relates to higher headcount and achievement of key milestones in engineering and development of the design of components as the Company moves towards the start of production. In the first quarter of 2022, we continued the development phase of our prototype Fisker Oceans, which includes the purchase and expense of$39.5 million of prototype parts, and testing and validation. The first quarter of 2022 reflects higher research and development expenses as our last major design milestones were met and the Company transitions to prototype production and preparation for start of production. Reductions in research and development efforts for theFisker Ocean over the remainder of 2022 are expected to be offset by increases in the development efforts associated with the Fisker PEAR. Research and development expenses includes stock-based compensation expense of$3.3 million and$0.6 million for the three-months endedMarch 31, 2022 and 2021, respectively.
Interest Expense
Interest expense amounted to$4.4 million during the three-months endedMarch 31, 2022 due to the sale, inAugust 2021 , of$667.5 million principal amount of 2.50% convertible senior notes. No interest expense was recognized during the three-months endedMarch 31, 2021 . Interest expense in the subsequent three-month periods throughout calendar year 2022 will approximate$4.5 million , including accretion of debt issuance costs.
Change in Fair Value of Derivative
During three-months endedMarch 31, 2021 , the Company's public and private warrants were outstanding resulting in a non-cash fair value adjustment of$145.2 million . No gain or loss was recognized during the three-months endedMarch 31, 2022 . The public and private warrants were exercised or redeemed and no longer outstanding by the end of the second quarter of 2021.
Foreign Currency Gain (Loss)
The Company recorded foreign currency gains of$0.7 million during the three-months endedMarch 31, 2022 , compared to gains of$1.3 million during the three-months endedMarch 31, 2021 , due to weakening Euro currency rates. For the remainder of 2022, we expect its EUR denominated transactions associated with our foreign operations and services provided by suppliers will increase and will subject Fisker to greater fluctuation in realized gain and losses from foreign currencies.
Unrealized Gains Recognized on
Unrealized gains recognized on equity securities still held as of
Net Loss
Net loss was
Liquidity and Capital Resources
As of the date of this Form 10-Q, Fisker has yet to generate any revenue from its core business operations. To date, Fisker has funded its capital expenditures and working capital requirements through equity and convertible notes, as further discussed below. Fisker's ability to successfully commence it primary commercial operations and expand its business will depend on many factors, including its working capital needs, the availability of equity or debt financing and, over time, its ability to generate cash flows from operations.
As of
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InAugust 2021 , we entered into a purchase agreement for the sale of an aggregate of$667.5 million principal amount of convertible senior notes due in 2026. The net proceeds from the issuance of the 2026 Notes were$562.2 million , net of debt issuance costs and the 2027 Capped Call Transactions discussed further in Note 8. The 2026 Notes mature onSeptember 15, 2026 , unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The 2026 Notes were not convertible as ofMarch 31, 2022 . Fisker expects its capital expenditures and working capital requirements to increase substantially in 2022, as it progresses toward production of the Fisker Ocean EV model, develop its customer support and marketing infrastructure and expand its research and development efforts. Fisker believes that its cash on hand following the consummation of the Business Combination and issuance of the convertible senior notes will be sufficient to meet its working capital and capital expenditure requirements for a period of at least twelve months from the date of this Form 10-Q and sufficient to fund its operations until it commences production of theFisker Ocean . Fisker may, however, need additional cash resources due to changed business conditions or other developments, including unanticipated delays in negotiations with OEMs and tier-one automotive suppliers or other suppliers, supply chain challenges, disruptions due to COVID-19, competitive pressures, and regulatory developments, among other developments such as the collaboration on "Project PEAR" with Foxconn announced inFebruary 2021 . To the extent that Fisker's current resources are insufficient to satisfy its cash requirements, Fisker may need to seek additional equity or debt financing. If the financing is not available, or if the terms of financing are less desirable than Fisker expects, Fisker may be forced to decrease its level of investment in product development or scale back its operations, which could have an adverse impact on its business and financial prospects.
Cash Flows
The following table provides a summary of Fisker's cash flow data for the
periods indicated:
Three-Months Ended March 31,
2022 2021
(dollar amounts in
thousands)
Net cash used in operating activities (105,988) (28,810)
Net cash used in investing activities (55,750) (65,665)
Net cash provided by financing activities 1,861 88,739
Cash Flows used in Operating Activities
Fisker's net cash flows used in operating activities to date have been primarily comprised of costs related to research and development, payroll and other general and administrative activities. As Fisker continues to accelerate hiring in line with development and production of the Ocean, Fisker expects its cash used in operating activities to increase significantly before it starts to generate any material cash flows from its business. Lease commitments as ofMarch 31, 2022 , will result in cash payments of$6.7 million for the remainder of 2022, and$9.2 million for 2023, and$30.7 million for 2024 and thereafter. Structural improvements are required before Fisker can use its experience centers in theU.S. andEurope for its intended purposes. The timing for completion of the structural improvements is expected in the second half of 2022. In total, Fisker is projecting to use cash in excess of$435 million for combined SG&A and R&D activities during 2022.
Net cash used in operating activities increased by
Cash Flows used in Investing Activities
Fisker's cash flows used in investing activities, historically, have been comprised mainly of purchases of property and equipment. During the three-months endedMarch 31, 2022 , the Company acquired assets related to development of theFisker Ocean and production of its parts that benefit our vehicle program development in future periods that totaled$45.8 million compared to$65.7 during the three-months endedMarch 31, 2021 . Fisker continues to expect 2022 capital expenditures for manufacturing and development, testing and validation, tooling, manufacturing equipment, software licenses, and IT infrastructure to range between$280 million and$290 million of which we expect at least 50% is denominated in foreign currencies, as serial production tooling and equipment begins to be installed at both vehicle assembly and supplier facilities over the remainder of 2022 . 30
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Fisker used cash of
OnJuly 28, 2021 , the Company made a$10 million commitment for a private investment in public equity (PIPE) supporting the planned merger of leading European EV charging network,Allego B.V. ("Allego") withSpartan Acquisition Corp. III (NYSE: SPAQ), a publicly-listed special purpose acquisition company. The merger closed in the first quarter of 2022 which triggered our investment commitment resulting in a$10 million cash payment to acquire 1,000,000 class A common shares of Allego (NYSE: ALLG). Fisker is the exclusive electric vehicle automaker in the PIPE and, in parallel, has agreed to terms on a strategic partnership to deliver a range of charging options for its customers inEurope .
Cash Flows from Financing Activities
Through
Net cash from financing activities was$1.9 million during the three-months endedMarch 31, 2022 , which was entirely due to the proceeds from the exercise of stock options and collection of related statutory withholding taxes due for payment and accrued as ofMarch 31, 2022 . Net cash from financing activities was$88.7 million during the three-months endedMarch 31, 2021 reflecting the proceeds of$88.6 million from public warrant holders who exercised 7,733,400 warrants to acquire a corresponding equal number of Class A common stock.
Off-Balance Sheet Arrangements
Fisker is not a party to any off-balance sheet arrangements, as defined under
Non-GAAP Financial Measure The accompanying table references non-GAAP adjusted loss from operations. This non-GAAP financial measure differs from the directly comparable GAAP financial measure due to adjustments made to exclude stock-based compensation expense. This non-GAAP financial measure is not a substitute for or superior to measures of financial performance prepared in accordance with generally accepted accounting principles inthe United States (GAAP) and should not be considered as an alternative to any other performance measures derived in accordance with GAAP. The Company believes that presenting this non-GAAP financial measure provides useful supplemental information to investors about the Company in understanding and evaluating its operating results, enhancing the overall understanding of its past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by its management in financial and operational-decision making. However, there are a number of limitations related to the use of a non-GAAP measure and its nearest GAAP equivalents. For example, other companies may calculate non-GAAP measures differently, or may use other measures to calculate their financial performance, and therefore any non-GAAP measures the Company uses may not be directly comparable to similarly titled measures of other companies. Therefore, both GAAP financial measures of Fisker's financial performance and the respective non-GAAP measures should be considered together. Please see the reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure in the tables below. Three-Months Ended March 31, 2022 2021 GAAP Loss from operations (123,451) (33,098) Add: stock based compensation 5,065
817
Non-GAAP Adjusted loss from operations$ (118,386) $
(32,281)
Critical Accounting Policies and Estimates
Fisker's financial statements have been prepared in accordance with GAAP. In the
preparation of these financial statements, Fisker is required to use judgment in
making estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the
date of the financial statements, as well as the reported expenses incurred
during the reporting periods. Fisker considers an accounting judgment, estimate
or
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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 the condensed consolidated financial statements.
For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onFebruary 28, 2022 . There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onFebruary 28, 2022 .
Emerging Growth Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 ("JOBS
Act") exempts emerging growth companies from being required to comply with new
or revised financial accounting standards until private companies are required
to comply with the new or revised financial accounting standards. The JOBS Act
provides that a company can choose not to take advantage of the extended
transition period and comply with the requirements that apply to non-emerging
growth companies, and any such election to not take advantage of the extended
transition period is irrevocable.
Prior to December 31, 2021 , Fisker was an "emerging growth company" as defined
in Section 2(a) of the Securities Act of 1933, as amended, and elected to take
advantage of the benefits of the extended transition period for new or revised
financial accounting standards. Fisker has taken advantage of the benefits of
the extended transition period, although it may decide to early adopt such new
or revised accounting standards to the extent permitted by such standards. This
may make it difficult or impossible to compare Fisker's financial results with
the financial results of another public company that is either not an emerging
growth company or is an emerging growth company that has chosen not to take
advantage of the extended transition period exemptions because of the potential
differences in accounting standards used. Effective December 31, 2021 , Fisker
exited its emerging growth company status and met the definition of a large
accelerated filer, as defined under Rule 12b-2 of the Exchange Act. The
accommodations afforded to an emerging growth company will no longer apply.
Recent Accounting Pronouncements
See Note 2 to the condensed consolidated financial statements included elsewhere in this Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and Fisker's assessment, to the extent it has made one, of their potential impact on Fisker's financial condition and its results of operations and cash flows.
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