ROCKET LAB USA, INC. The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. For additional context with which to understand our financial condition and results of operations, see the audited consolidated financial statements and accompanying notes contained therein as ofDecember 31, 2021 and 2020 and related notes in the Company's Annual Report on Form 10-K as filed with theSEC onMarch 24, 2022 . Certain amounts may not foot due to rounding. Certain information in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described under the sections entitled "Cautionary Note Regarding Forward-Looking Statements" and Part II, Item 1A. "Risk Factors" included in this Quarterly Report on Form 10-Q and under the heading "Risk Factors" in our Annual Report on Form 10-K as filed with theSEC onMarch 24, 2022 . We assume no obligation to update any of these forward-looking statements. Actual results may differ materially from those contained in any forward-looking statements. OverviewRocket Lab is an end-to-end space company with an established track record of mission success. We deliver reliable launch services, spacecraft design services, spacecraft components, spacecraft manufacturing and other spacecraft and on-orbit management solutions that make it faster, easier and more affordable to access space. While our business has historically been centered on the development of small-class launch vehicles and the related sale of launch services, we are currently innovating in the areas of medium-class launch vehicles and launch services, space systems design and manufacturing, on-orbit management solutions, and space data applications. Each of these initiatives addresses a critical component of the end-to-end solution and our value proposition for the space economy:
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Launch Services is the design, manufacture, and launch of orbital rockets to deploy payloads to various Earth orbits and interplanetary destinations.
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Space Systems is the design and manufacture of spacecraft components and spacecraft program management services, space data applications and mission operations.
Electron is our orbital small launch vehicle that was designed from the ground up to accommodate a high launch rate business model to meet the growing and dynamic needs of our customers for small launch services. Since its maiden launch in 2017, Electron has become the leading small spacecraft launch vehicle delivering 110 spacecraft to orbit for government and commercial customers across 21 successful missions throughMarch 31, 2022 . In 2021, Electron was the second most frequently launched rocket by companies operating inthe United States and establishedRocket Lab as the fourth most frequent launcher globally. Our launch services program has seen us develop many industry-leading innovations, including 3D printed electric turbo-pump rocket engines, fullycarbon composite first stage fuel tanks, a private orbital launch complex, a rocket stage that can be configured to convert into a highly capable spacecraft on orbit, and the potential ability to successfully recover a stage from space, providing a path to reusability. InMarch 2021 , we announced plans to develop our reusable-ready medium-capacity Neutron launch vehicle which will increase the payload capacity of our space launch vehicles to approximately 13,000 kg for launches to low Earth orbit and lighter payloads into higher orbits. Neutron will be tailored for commercial andU.S. government constellation launches and capable of human space flight, enabling us to provide crew and cargo resupply to theInternational Space Station . Neutron will also provide a dedicated service to orbit for larger civil, defense and commercial payloads that need a level of schedule control and high-flight cadence not available on large and heavy lift rocket rideshare programs. Neutron is expected to have the capability of launching nearly all of the spacecraft that we expect to be launched through 2029 and we expect to be able to leverage Electron's flight heritage, various vehicle subsystems designs, launch complexes and ground station infrastructure. Our space systems initiative is supported by the design and manufacture of a range of components, software and services for spacecraft, including reaction wheels, star trackers, magnetic torque rods, separation systems, solar solutions, command and control software and batteries, the Photon family of small spacecraft and has additional products in development to serve a wide variety of sub-system functions. We entered this market with our acquisition of leading spacecraft components manufacturer Sinclair Interplanetary, and have since expanded our market participation with the acquisitions ofPlanetary Systems Corporation ,SolAero Holdings, Inc. and aerospace engineering firmAdvanced Solutions, Inc. , which brought incremental vertically-integrated capabilities for our own spacecraft and also enabledRocket Lab to deliver high-volume manufacturing of critical spacecraft components and software solutions at scale prices to the broader spacecraft merchant market. The Photon family of small spacecraft, which are configurable for a range of low Earth orbit, medium Earth orbit, geosynchronous orbit and interplanetary missions enable us to offer an end-to-end mission solution encompassing launch, spacecraft, ground services and mission operations to provide customers with streamlined access to orbit withRocket Lab as a single mission partner. 24
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Table of Contents Recent Developments SolAero Acquisition OnJanuary 18, 2022 , we closed on the acquisition (the "SolAero Acquisition") ofSolAero Holdings, Inc. ("SolAero") pursuant to an Agreement and Plan of Merger (the "SolAero Merger Agreement"), dated as ofDecember 10, 2021 , by and among the Company,Supernova Acquisition Corp. ("SolAero Merger Sub"),SolAero , andFortis Advisors LLC as stockholder representative, which provides for, among other things, the merger of SolAero Merger Sub with and intoSolAero , withSolAero being the surviving corporation of the merger and a direct, our wholly owned subsidiary. Pursuant to the terms of the SolAero Merger Agreement, all of the issued and outstanding shares ofSolAero were cancelled in exchange for aggregate consideration of$80.0 million in cash (the "SolAero Merger Consideration"). In addition,$3.6 million of the SolAero Merger Consideration was placed into escrow by us in order to secure recovery of any Adjustment Amount (as defined in the SolAero Merger Agreement) and as security against indemnity claims. In connection with the SolAero Acquisition, we entered into customary employment or consulting agreements with certain key employees ofSolAero .
We broke ground on the construction of a state-of-the-art rocket production complex where our Neutron launch vehicle will be manufactured.
The 250,000 square foot Neutron production complex is being constructed on a 28-acre site adjacent to theNASA Wallops Flight Facility and Mid-Atlantic Regional Spaceport onVirginia's Eastern Shore . The complex will support Neutron production, assembly, and integration, and is expected to bring up to 250 highly-skilled roles to the region. Construction will also soon begin on a launch pad for Neutron at the southern end ofWallops Island , near our existing launch pad for the Electron rocket.
Reorganization and Public Company Costs
Rocket Lab USA, Inc. entered into a merger agreement (the "Agreement") withVector Acquisition Corporation ("Vector"), onMarch 1, 2021 , as amended by Amendment No. 1 thereto, datedMay 7, 2021 and Amendment No. 2 thereto, datedJune 25, 2021 . The transactions contemplated by the terms of the Agreement were completed onAugust 25, 2021 (the "Business Combination"), in conjunction with which Vector changed its name toRocket Lab USA, Inc. As a consequence of the Business Combination, we are a Nasdaq listed company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Additionally, we expect our capital and operating expenditures will increase significantly in connection with ongoing activities as we:
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increase our investment in marketing, advertising, sales and distribution infrastructure for our existing and future products and services;
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develop additional new products and enhancements to existing products;
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obtain, maintain and improve our operational, financial and management performance;
• hire additional personnel;
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obtain, maintain, expand and protect our intellectual property portfolio; and
• operate as a public company.
Key Metrics and Select Financial Data
We monitor the following key financial and operational metrics that assist us in evaluating our business, measuring our performance, identifying trends and making strategic decisions.
Launch Vehicle Build-Rate and Launch Cadence
We built approximately eight launch vehicles in 2020 and approximately eight
launch vehicles in 2021. We anticipate we will build approximately twelve to
fifteen launch vehicles in 2022. Although we experienced a negative impact in
2020 and 2021 as a result of the COVID-19 shutdowns and restrictions on our
operations discussed in more detail below under "Key Factors Affecting Our
Performance-Covid-19 Considerations," we believe that the projected growth in
build rate subsequent to such COVID-19 restrictions is a positive indicator of
our ability to scale our manufacturing operations in support of our anticipated
growth rate in revenue in the coming years.
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We launched seven vehicles in 2020 and six vehicles in 2021. We have launched one vehicle through the three months endedMarch 31, 2022 and launched three vehicles throughMay 16, 2022 . The number of launches is an indicator of our ability to convert mission awards into revenue in a timely manner and demonstrate the scalability of our launch operations. Growth rates between launches and total launch service revenue are not perfectly correlated because our total revenue is affected by other variables, such as the revenue per launch, which can vary considerably based on factors such as unique orbit and insertion requirements, payload handling needs, launch location, time sensitivity of mission completion and other factors. Although we experienced a negative impact in 2021 as a result of the COVID-19 shutdowns and restrictions on our operations discussed in more detail below under "Key Factors Affecting Our Performance-Covid-19 Considerations," we believe that the projected growth in launch rate subsequent to such COVID-19 restrictions is a positive indicator of our ability to scale our launch operations in support of our anticipated growth rate in revenue in the coming years.
Revenue Growth
Three Months Ended
We generated$40.7 million and$18.2 million in revenue for the three months endedMarch 31, 2022 and 2021, respectively, representing a year-on-year increase in revenue of approximately 124%. This year-on-year increase primarily resulted from acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022 and strength in our organic space system products and services.
Revenue Value Per Launch
Revenue value per launch represents the average revenue per launch contract attributable to launches that occurred during a period, regardless of when the revenue was recognized. Revenue value per launch can be a useful metric to provide insight into general competitiveness and price sensitivity in the marketplace. Revenue value per launch can vary considerably, based on factors such as unique orbit and insertion requirements, payload handling needs, launch location, time sensitivity of mission completion and other factors, and as such may not provide absolute clarity with regards to pricing and competitive dynamics in the marketplace.
Three Months Ended
In the three months endedMarch 31, 2022 and 2021, our revenue value per launch was$6.3 million and$7.8 million , respectively. Meanwhile, cost per launch was$7.5 million and$5.6 million for the three months endedMarch 31, 2022 and 2021, respectively. The increase in cost per launch in the three months endedMarch 31, 2022 was driven by stock-based compensation charges as well as lower manufacturing absorption. Backlog Backlog represents future revenues that we would recognize in connection with the completion of all contracts and purchase orders that have been entered into by our customers, excluding any customer options for future products or services that have not yet been exercised. Contracts for launch services and spacecraft builds typically include termination rights that may be exercised by customers upon advanced notice and payment of a specified termination fee. As ofMarch 31, 2022 , our backlog totaled$545.9 million . We expect to recognize approximately 41% of our backlog over the next 12 months and the remainder recognized thereafter.
Key Factors Affecting Our Performance
COVID-19 Considerations
InDecember 2019 , COVID-19 surfaced inWuhan, China . In response, theWorld Health Organization ("WHO") declared a global emergency onJanuary 30, 2020 , and several countries initiated travel restrictions, closed borders and implemented social distancing directives, including "shelter-in-place" orders. OnMarch 11, 2020 , theWHO declared the COVID-19 outbreak a pandemic. As a result of the pandemic,the United States andNew Zealand governments shut down various sectors of their respective economies. Inthe United States , we were deemed an essential service and were not required to shut down ourUnited States' based operations. InNew Zealand , we had to delay certain scheduled launches to a later date. In addition to existing travel restrictions, some locales have imposed and continue to impose prolonged quarantines and further restrict travel, which has, at certain times, significantly impacted the ability of our employees to get to their places of work to produce products, made it such that we are unable to obtain certain long lead time components on a timely basis or at a cost-effective price, and significantly hampered our customers from traveling to our launch facilities to prepare payloads for launch. In response to the COVID-19 pandemic, and with the health and safety of all our employees and their families in mind, we took and continue to take precautionary measures intended to help minimize the risks of the virus, including temporarily requiring some employees to work remotely and implementing social distancing protocols for all work conducted onsite. In addition, we suspended non-essential travel worldwide for employees and is discouraging employee attendance at other gatherings. 26
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The extent of COVID-19's effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. At this time, it is not possible to determine the magnitude of the overall impact of COVID-19 on our business. However, it could have a material adverse effect on our business, financial condition, liquidity, results of operations and cash flows.Rocket Lab has significant operations inAuckland, New Zealand , and while some employees were able to continue their work remotely, certain business operations that require direct labor and physical presence, such as vehicle integration and testing, were suspended during this and will be again under any other Level 4 Alerts. OnDecember 2, 2021 ,New Zealand replaced the Alert Level system with the COVID-19 Protection Framework. The COVID-19 Protection Framework settings allow businesses to open and operate with greater flexibility while minimizing the virus' spread. The extent of the COVID-19 pandemic's effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.
Ability to sell additional launch services, space systems service and spacecraft components to new and existing customers
Our results will be impacted by our ability to sell our launch services, space systems services, and spacecraft components to new and existing customers. We have successfully launched Electron 21 times delivering 110 spacecraft to orbit throughMarch 31, 2022 . Our spacecraft components have flown on more than 100 spacecraft and our family of Photon spacecraft has been selected for missions to the Moon, Mars and Venus. Our growth opportunity is dependent on our ability to expand our addressable launch services market with larger volumetric and higher mass payloads capabilities of our recently announced medium-capacity Neutron launch vehicle, which will address large commercial and government constellation launch opportunities. Our growth opportunity is also dependent on our ability to win spacecraft constellation missions and expand our portfolio of strategic spacecraft components. Our ability to sell additional products to existing customers is a key part of our success, as follow-on purchases indicate customer satisfaction and decrease the likelihood of competitive substitution. To sell additional products and services to new and existing customers, we will need to continue to invest significant resources in our products and services.
Ability to improve profit margins and scale our business
We intend to continue to invest in initiatives to improve our operating leverage and significantly ramp production. We believe continued reduction in costs and an increase in production volumes will enable the cost of launch vehicles to decline and expand our gross margins. Our ability to achieve our production-efficiency objectives could be negatively impacted by a variety of factors including, among other things, lower-than-expected facility utilization rates, manufacturing and production cost overruns, increased purchased material costs and unexpected supply-chain quality issues or interruptions.
Government expenditures and private enterprise investment into the space economy
Government expenditures and private enterprise investment has fueled the growth in our target markets. We expect the continued availability of government expenditures and private investment for our customers to help fund purchases of our products and services will remain. This is an important factor in our company's growth prospects.
Components of Results of Operations
Revenue
Our revenues are derived from a combination of long-term fixed price contracts
for launch services and spacecraft builds, and purchase order spacecraft
components sales. Revenues from long-term contracts are recognized using either
the "point-in-time" or "over-time" method of revenue recognition. Point-in-time
revenue recognition results in cash payments being initially accrued to the
balance sheet as deferred revenue as contractual milestones are accomplished and
then recognized as revenue once the final contractual obligation is completed.
Over-time revenue recognition is based on an input measure of progress based on
costs incurred compared to estimated total costs at completion. Each project has
a contractual revenue value and an estimated cost. The over-time revenue is
recognized based on the percentage of the total project cost that has been
realized.
Estimating future revenues and associated costs and profit is a process
requiring a high degree of management judgment, including management's
assumptions regarding our future operational performance as well as general
economic conditions. Frequently, the period of performance of a contract extends
over a long period of time and, as such, revenue recognition and our
profitability from a particular contract may be affected to the extent that
estimated costs to complete are revised, delivery schedules are delayed,
performance-based milestones are not achieved or progress under a contract is
otherwise impeded. Accordingly, our recorded revenues and operating profit from
period to period can fluctuate significantly depending on when the point-in-time
or over-time contractual obligations are achieved. In the event cost estimates
indicate a loss on a contract, the total amount of such loss is recorded in the
period in which the loss is first estimated.
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Table of Contents Cost of Revenues Cost of revenues consists primarily of direct material and labor costs, manufacturing overhead, other personnel-related expenses, which include salaries, bonuses, benefits and stock-based compensation expense, reserves for estimated warranty costs, freight expense and depreciation expense. Cost of revenues also includes charges to write-down the carrying value of inventory when it exceeds its estimated net realizable value, including on-hand inventory that is either obsolete or in excess of forecasted demand. We expect our cost of revenues to increase in absolute dollars in future periods as we sell more launch services, space systems and components. As we grow into our current capacity and execute on cost-reduction initiatives, we expect our cost of revenues as a percentage of revenue to decrease over time. Because direct labor costs and manufacturing overhead comprise more than 60% of cost of revenues, increasing our production rate resulting in greater absorption of these costs is our most critical cost reduction initiative. Increasing our production rate is a cross-functional effort involving manufacturing, engineering, supply chain and finance.
Operating Expenses
Our operating expenses consist of research and development and selling, general and administrative expenses.
Research and Development, net
Research and development expense consists primarily of personnel-related expenses, consulting and contractor expenses, validation and testing expense, prototype parts and materials and depreciation expense. We intend to continue to make significant investments in developing new products and enhancing existing products. Research and development expense will be variable relative to the number of products that are in development, validation or testing. However, we expect it to decline as a percentage of total revenue over time.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of personnel-related expenses for our sales, marketing, supply chain, finance, legal, human resources and administrative personnel, as well as the costs of customer service, information technology, professional services insurance, travel, allocated overhead and other marketing, communications and administrative expenses. We will continue to actively promote our products and therefore we expect to incur expenses related to sales and marketing. We also expect to further invest in our corporate organization and incur additional expenses associated with operating as a public company, including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs. As a result, we expect that selling, general and administrative expenses will increase in absolute dollars in future periods but decline as a percentage of total revenue over time.
Interest Expense, Net
Interest expense, net consists primarily of interest expense incurred on debt and interest income earned on our cash and cash equivalents and short-term investments balances.
Gain (Loss) on Foreign Exchange
Gain (loss) on foreign exchange relates to currency fluctuations that generate foreign exchange gains or losses on invoices denominated in currencies other thanthe United States ("U.S.") Dollar.
Change in Fair Value of Liability Classified Warrants
Change in fair value of liability classified warrants relates to changes in the fair value of warrant liabilities.
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Table of Contents Results of Operations
The following table sets forth our consolidated statements of operations information and data as a percentage of revenue for each of the periods indicated (in thousands, except percentages):
Three Months Ended
March 31, 2022 March 31, 2021
$ % $ %
Revenues $ 40,703 100.0 % $ 18,192 100.0 %
Cost of revenues 36,968 90.8 % 16,781 92.2 %
Gross profit 3,735 9.2 % 1,411 7.8 %
Operating expenses:
Research and development, net 13,477 33.1 % 7,078 38.9 %
Selling, general and
administrative 23,078 56.7 % 6,624 36.4 %
Total operating expenses 36,555 89.8 % 13,702 75.3 %
Operating loss (32,820 ) (80.6 )% (12,291 ) (67.5 )%
Other income (expense):
Interest expense, net (2,989 ) (7.3 )% (127 ) (0.7 )%
Loss on foreign exchange (20 ) 0.0 % (279 ) (1.5 )%
Change in fair value of liability
classified warrants 13,482 33.1 % (3,030 ) (16.7 )%
Other income, net 26 0.1 % 109 0.6 %
Total other income (expense), net 10,499 25.9 % (3,327 ) (18.3 )%
Loss before income taxes (22,321 ) (54.7 )% (15,618 ) (85.8 )%
Provision for income taxes (4,388 ) (10.8 )% (264 ) (1.5 )%
Net loss $ (26,709 ) (65.5 )% $ (15,882 ) (87.3 )%
Comparison of the Three Months Ended
Revenues
Three Months Ended March 31,
(in thousands, except percentages) 2022 2021 $ Change % Change
Revenues $ 40,703 $ 18,192 $ 22,511 124 %
Revenue increased by $22.5 million , or 124%, for the three months ended March
31, 2022 as compared to the three months ended March 31, 2021 . Launch services
revenue was $6.6 million for the three months ended March 31, 2022 , a decrease
of $9.9 million , or 60%, primarily due to a lower launch cadence. Space systems
revenue was $34.1 million for the three months ended March 31, 2022 , an increase
of $32.4 million , or 1,873% primarily due to full quarter contribution from PSC
and ASI acquisitions that closed in the fourth quarter of 2021 and nearly full
quarter contribution from SolAero that closed in the first quarter of 2022 and
strength in our organic space system products and services.
Cost of Revenues
Three Months Ended March 31,
(in thousands, except percentages) 2022 2021 $ Change % Change
Cost of revenues $ 36,968 $ 16,781 $ 20,187 120 %
Cost of revenues increased by $20.2 million , or 120%, for the three months ended
March 31, 2022 as compared to the three months ended March 31, 2021 . Launch
Service cost of revenues was $7.3 million in the three months ended March 31,
2022 , a decrease of $8.5 million or 54%, primarily due to a lower launch
cadence. Space systems cost of revenue was $29.6 million in the three months
ended March 31, 2022 , an increase of $28.7 million or 3,138%, primarily driven
by the acquisitions that closed in the fourth quarter of 2021 and first quarter
of 2022. Cost of revenues were also impacted by an increase in stock-based
compensation of $3.0 million . Cost of revenues for the three months ended March
31, 2022 decreased to 91% of total revenue during the three months ended March
31, 2022 as compared to 92% during the three months ended March 31, 2021 .
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Research and Development, Net
Three Months Ended March 31,
(in thousands, except percentages) 2022 2021 $ Change % Change
Research and development, net $ 13,477 $ 7,078 $ 6,399 90 %
Research and development expense increased by $6.4 million , or 90%, for the
three months ended March 31, 2022 as compared to the three months ended March
31, 2021 , primarily due to a $4.6 million increase in stock-based compensation,
Neutron development, and increased labor and prototype spend focused on
broadening our spacecraft component product portfolio.
Selling, General and Administrative
Three Months Ended March 31,
(in thousands, except percentages) 2022 2021
$ Change % Change
Selling, general and administrative
248 %
Selling, general and administrative expense increased by $16.5 million , or 248%,
for the three months ended March 31, 2022 as compared to the three months ended
March 31, 2021 , primarily due to a $3.2 million increase in stock-based
compensation, increased costs associated with being a public company including
higher staff costs, facility related expense and third party services and a $2.5
million contingent consideration expense due to an adjustment in the estimated
fair value of the earnout payment related to our recent PSC acquisition.
Interest Expense, Net
Three Months Ended March 31,
(in thousands, except percentages) 2022 2021 $ Change % Change
Interest expense, net $ (2,989 ) $ (127 ) $ (2,862 ) 2,254 %
Interest expense increased by
Loss on Foreign Exchange
Three Months Ended March 31,
(in thousands, except percentages) 2022 2021 $ Change % Change Loss on foreign exchange$ (20 ) $ (279 )$ 259 (93 )% Loss on foreign exchange decreased by$0.3 million , or 93%, for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , primarily due to fluctuations in the foreign exchange of the New Zealand Dollar and Canadian Dollar as compared to theU.S. Dollar.
Change in Fair Value of Liability Classified Warrants
Three Months Ended March 31,
(in thousands, except percentages) 2022 2021 $ Change % Change Change in fair value of liability classified warrants$ 13,482 $ (3,030 ) $ 16,512 (545 )% Change in fair value of liability classified warrants income increased by$16.5 million , or 545%, for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , primarily as a result of the change in fair value of liability classified warrants assumed in connection with the Business Combination and the preferred stock warrants which were exercised in 2021.
Other Income, Net
Three Months Ended March 31,
(in thousands, except percentages) 2022 2021 $ Change % Change Other income, net $ 26 $ 109$ (83 ) (76 )%
Other income decreased by
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Provision for Income Taxes
Three Months Ended March 31,
(in thousands, except percentages) 2022 2021 $ Change % Change
Provision for income taxes $ (4,388 ) $ (264 ) $ (4,124 ) 1,562 %
We recorded income tax provision of $4.4 million for the three months ended
March 31, 2022 and a tax provision of $0.3 million for the three months ended
March 31, 2021 . The annual effective tax rate was (19.7)% for the three months
ended March 31, 2022 , compared to (1.7)% for the three months ended March 31,
2021 . The annual effective tax rate differs from the federal statutory rate due
primarily to a full valuation allowance in the U.S. and was partially offset by
recurring items such as foreign taxes based on local country statutory rates,
the effect of share-based compensation, and foreign withholding taxes, as well
as by discrete items that may occur in any given year but are not consistent
from year to year.
Liquidity and Capital Resources
Since inception, we have funded our operations with proceeds from sales of our capital stock, bank debt, research and development grant proceeds, and cash flows from the sale of our products and services. As ofMarch 31, 2022 , we had$603.1 million of cash and cash equivalents. Our primary requirements for liquidity and capital are investment in new products and technologies, the expansion of existing manufacturing facilities, working capital, debt service, acquisitions of complementary businesses, products or technologies and general corporate needs. Historically, these cash requirements have been met through the net proceeds we received through private sales of equity securities, borrowings under our credit facilities, net proceeds received in the Business Combination and payments received from customers. We believe that our existing cash and cash equivalents and payments from customers will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months, although we may choose to take advantage of opportunistic capital raising or refinancing transactions at any time. We will continue to invest in increasing production and expanding our product offerings through acquisitions. Our future capital requirements will depend on many factors, including our launch cadence, traction in the market with our space systems offerings, the expansion of sales and marketing activities, the timing and extent of spending to support product development efforts, the introduction of new and enhanced products, the continuing market adoption of our products, the timing and extent of additional capital expenditures to invest in existing and new office spaces and the number of acquisitions of complementary businesses, products or technologies we pursue, if any. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued product innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition. Indebtedness
Hercules Capital Secured Term Loan
OnJune 10, 2021 , the Company entered into a$100 million secured term loan agreement with Hercules Capital, Inc. (the "Hercules Capital Secured Term Loan") and borrowed the full amount under the secured term loan agreement. The term loan has a maturity date ofJune 1, 2024 and is secured by substantially all of the assets of the Company. Payments due for the term loan are interest-only until the maturity date with interest payable monthly in arrears. The outstanding principal bears (i) cash interest at the greater of (a) 8.15% or (b) 8.15% plus the prime rate minus 3.25% and (ii) payment-in-kind interest of 1.25% which is accrued and added to the outstanding principal balance. Prepayment of the outstanding principal is permitted under the loan agreement and subject to certain prepayment fees. In connection with the secured term loan, the Company paid an initial facility charge of$1 million and the Company will be required to pay an end of term charge of$3.25 million upon repayment of the loan. The secured term loan agreement contains customary representations, warranties, non-financial covenants, and events of default. The Company is in compliance with all debt covenants related to its long-term borrowings as ofMarch 31, 2022 . As ofMarch 31, 2022 , there was$100.8 million outstanding under the Hercules Capital Secured Term Loan, of which$2.8 million was classified as current in the Company's condensed consolidated balance sheets, with the remainder classified as a long-term borrowing. As ofMarch 31, 2022 , the Company had no availability under the Hercules Capital Secured Term Loan. 31
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Table of Contents Cash Flows
The following table summarizes our cash flows for the periods presented:
Three Months Ended March 31 ,
(in thousands) 2022 2021
Net cash provided by (used in): Operating activities$ (26,339 ) $ (15,479 ) Investing activities (71,830 ) (4,046 ) Financing activities 14,444 414 Effect of exchange rate changes (574 ) 517 Net decrease in cash, cash equivalents, and restricted cash$ (84,299 )
Cash Flows from Operating Activities
Net cash used in operating activities was$26.3 million for the three months endedMarch 31, 2022 consisted of$26.7 million in operating loss,$6.9 million in non-cash expense and$6.6 million in cash used in operating assets and liabilities. Included in the non-cash expense are$13.5 million in liability-classified warrant income,$12.0 million in stock-based compensation expense and$6.1 million in depreciation and amortization. Included in the cash used in operating assets and liabilities are$9.1 million increase in inventory and a$5.6 million increase in accounts receivable, offset by a$10.7 million increase in contract liabilities.
Cash Flows from Investing Activities
Cash used in investing activities for the three months endedMarch 31, 2022 of$71.8 million was primarily driven by cash paid forSolAero of$65.6 million and capital equipment and infrastructure investments of$6.2 million . These investments included the build-out of secure office and spacecraft manufacturing lab areas in ourLong Beach, California headquarters, which will be used to support classified government programs,Launch Complex 1 in Mahia,New Zealand , where we have now completed our second launch pad and are in process of adding additional support facilities to support launch operations and safety, and our propulsion development and test facility nearAuckland, New Zealand , which consolidates and supports all Curie engine development and hot fire testing.
Cash Flows from Financing Activities
Cash provided by financing activities for the three months endedMarch 31, 2022 of$14.4 million was primarily related to$23.2 million of proceeds from sale of employees restricted stock units to cover taxes, stock options and employee stock purchase plan, offset by$8.8 million of minimum tax withholdings paid on behalf of employees for restricted stock units.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and
estimates as disclosed in our audited financial statements included in our Form
10-K filed with the
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under applicable
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