Form 10-Q Rocket Lab USA, Inc. For: Jun 30

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39560

 

ROCKET LAB USA, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware	98-1550340
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

3881 McGowen Street Long Beach, California	90808
(Address of principal executive offices)	(Zip Code)

 

Registrant’s telephone number, including area code: (714) 465-5737

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		RKLB		The Nasdaq Stock Market LLC

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 8, 2022, the registrant had 469,025,580 shares of common stock, $0.0001 par value per share, outstanding.

 

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” for purposes of the federal securities laws. The information included in this Quarterly Report on Form 10-Q has been provided by us and our management, and such forward-looking statements include statements relating to the expectations, hopes, beliefs, intentions or strategies regarding the future of Rocket Lab USA, Inc. (the “Company”) and its management team. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “could,” “expect,” “intends,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on Rocket Lab. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described below and under the heading “Risk Factors.”

 

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Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by the COVID-19 outbreak and/or any response to such an outbreak and there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission (the “SEC”) as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. All forward-looking statements are qualified in their entirety by this cautionary statement.

You should also note that we may announce material business and financial information to our investors using our website (including at https://investors.rocketlabusa.com), filings with the SEC, webcasts, press releases, and conference calls. We use these mediums, as well as our official corporate accounts on social media outlets such as Twitter, Facebook, LinkedIn and YouTube, to broadcast our launches and other significant events, and to communicate with the public about our company, our products, and other matters. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website and through our other official social media channels. The information contained on, or that can be accessed through, our website or our social media channels is not a part of this Quarterly Report on Form 10-Q.

Unless the context requires otherwise, references in this Quarterly Report to “Rocket Lab,” “Company,” “we,” “us” and “our” refer to Rocket Lab USA, Inc. and our subsidiaries.

 

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ROCKET LAB U.S.A., INC. AND SUBSIDIARIES

FORM 10-Q

June 30, 2022

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		Page
PART I.	FINANCIAL INFORMATION	5
Item 1.	Condensed Consolidated Financial Statements	5
	Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021	6
	Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021	7
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and 2021	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
Signatures		38

 

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ROCKET LAB U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2022 AND DECEMBER 31, 2021

(in thousands, except share and per share data)

 

		June 30, 2022
		(unaudited)				December 31, 2021
Assets
Current assets:
Cash and cash equivalents		$	542,511			$	690,959
Accounts receivable, net			40,183				13,957
Contract assets			4,393				2,490
Inventories			85,683				47,904
Prepaids and other current assets			33,646				19,454
Total current assets			706,416				774,764
Non-current assets:
Property, plant and equipment, net			97,031				65,339
Intangible assets, net			84,503				57,487
Goodwill			58,281				43,308
Right-of-use assets - operating leases			31,365				28,424
Right-of-use assets - finance leases			15,921				—
Restricted cash			4,118				1,116
Deferred income tax assets, net			4,447				5,859
Other non-current assets			2,670				4,550
Total assets		$	1,004,752			$	980,847
Liabilities and Stockholders’ Equity
Current liabilities:
Trade payables		$	14,156			$	3,489
Accrued expenses			11,468				10,977
Employee benefits payable			13,632				8,266
Contract liabilities			90,659				59,749
Current installments of long-term borrowings			2,866				2,827
Other current liabilities			11,320				10,999
Total current liabilities			144,101				96,307
Non-current liabilities:
Long-term borrowings, excluding current installments			98,649				97,297
Non-current operating lease liabilities			30,370				28,302
Non-current finance lease liabilities			15,744				—
Deferred tax liabilities			17				466
Public and private warrant liabilities			—				58,227
Other non-current liabilities			2,417				1,800
Total liabilities			291,298				282,399
COMMITMENTS AND CONTINGENCIES (Note 14)
Stockholders’ equity:
Common stock, $0.0001 par value; authorized shares: 2,500,000,000; issued and outstanding shares: 468,377,065 and 450,180,479 at June 30, 2022 and December 31, 2021, respectively			47				45
Additional paid-in capital			1,081,390				1,002,106
Accumulated deficit			(369,137	)			(305,011	)
Accumulated other comprehensive income			1,154				1,308
Total stockholders’ equity			713,454				698,448
Total liabilities and stockholders’ equity		$	1,004,752			$	980,847

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ROCKET LAB U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(unaudited; in thousands, except share and per share data)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
Revenues		$	55,474			$	11,280			$	96,177			$	29,472
Cost of revenues			50,516				8,817				87,484				25,598
Gross profit			4,958				2,463				8,693				3,874
Operating expenses:
Research and development, net			19,165				8,529				32,642				15,607
Selling, general and administrative			18,952				7,068				42,030				13,692
Total operating expenses			38,117				15,597				74,672				29,299
Operating loss			(33,159	)			(13,134	)			(65,979	)			(25,425	)
Other income (expense):
Interest expense, net			(2,432	)			(275	)			(5,421	)			(402	)
Loss on foreign exchange			(3,876	)			(126	)			(3,896	)			(405	)
Change in fair value of liability classified warrants			—				(2,448	)			13,482				(5,478	)
Other income (expense), net			(23	)			(242	)			3				(133	)
Total other income (expense), net			(6,331	)			(3,091	)			4,168				(6,418	)
Loss before income taxes			(39,490	)			(16,225	)			(61,811	)			(31,843	)
Benefit (provision) for income taxes			2,073				(440	)			(2,315	)			(704	)
Net loss		$	(37,417	)		$	(16,665	)		$	(64,126	)		$	(32,547	)
Other comprehensive income (loss), net of tax:
Foreign currency translation income (loss)			(1,030	)			333				(154	)			1,074
Comprehensive loss		$	(38,447	)		$	(16,332	)		$	(64,280	)		$	(31,473	)
Net loss per share attributable to Rocket Lab USA, Inc.:
Basic and diluted		$	(0.08	)		$	(0.21	)		$	(0.14	)		$	(0.41	)
Weighted-average common shares outstanding:
Basic and diluted			464,719,924				78,961,096				460,630,324				78,893,969

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ROCKET LAB U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(unaudited; in thousands, except share and per share data)

 

		Redeemable Convertible Preferred Stock									Common Stock								Additional Paid-In				Accumulated				Other Comprehensive
		Shares				Amount					Shares				Amount				Capital				Deficit				Income (Loss)				Total
December 31, 2021			—			$	—					450,180,479			$	45			$	1,002,106			$	(305,011	)		$	1,308			$	698,448
Net loss			—				—					—				—				—				(26,709	)			—				(26,709	)
Issuance of common stock under equity plans			—				—					7,883,569				1				1,019				—				—				1,020
Stock-based compensation			—				—					—				—				14,116				—				—				14,116
Common stock issued upon exercise of Public and Private Warrants			—				—					4,554,830				—				44,844				—				—				44,844
Issuance of common stock for acquisition			—				—					123,934				—				—				—				—				—
Other comprehensive income			—				—					—				—				—				—				876				876
March 31, 2022			—				—					462,742,812				46				1,062,085				(331,720	)			2,184				732,595
Net loss			—				—					—				—				—				(37,417	)			—				(37,417	)
Issuance of common stock under equity plans			—				—					3,594,963				1				3,725				—				—				3,726
Stock-based compensation			—				—					—				—				15,580				—				—				15,580
Issuance of common stock for acquisitions			—				—					2,039,290				—				—				—				—				—
Other comprehensive loss			—				—					—				—				—				—				(1,030	)			(1,030	)
June 30, 2022			—			$	—					468,377,065			$	47			$	1,081,390			$	(369,137	)		$	1,154			$	713,454
		Redeemable Convertible Preferred Stock									Common Stock								Additional Paid-In				Accumulated				Other Comprehensive
		Shares				Amount					Shares				Amount				Capital				Deficit				Income (Loss)				Total
December 31, 2020			31,330,513			$	274,960					8,654,869			$	—			$	19,928			$	(187,691	)		$	1,055			$	(166,708	)
Retroactive application of Exchange Ratio			252,513,251				—					69,755,293				8				(8	)			—				—				—
December 31, 2020 as adjusted			283,843,764				274,960					78,410,162				8				19,920				(187,691	)			1,055				(166,708	)
Net loss			—				—					—				—				—				(15,882	)			—				(15,882	)
Exercise of stock options			—				—					545,527				—				542				—				—				542
Stock-based compensation			—				—					—				—				1,102				—				—				1,102
Other comprehensive income			—				—					—				—				—				—				741				741
March 31, 2021			283,843,764				274,960					78,955,689				8				21,564				(203,573	)			1,796				(180,205	)
Net loss			—				—					—				—				—				(16,665	)			—				(16,665	)
Exercise of stock options			—				—					225,930				—				230				—				—				230
Stock-based compensation			—				—					—				—				1,278				—				—				1,278
Other comprehensive income			—				—					—				—				—				—				333				333
June 30, 2021			283,843,764			$	274,960					79,181,619			$	8			$	23,072			$	(220,238	)		$	2,129			$	(195,029	)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ROCKET LAB U.S.A., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(unaudited; in thousands)

		Six Months Ended June 30,
		2022				2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(64,126	)		$	(32,547	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			13,737				4,847
Stock-based compensation expense			28,827				2,379
Loss on disposal of assets			25				55
Loss on extinguishment of long-term debt			—				496
Amortization of debt issuance costs and discount			1,392				149
Noncash lease expense			1,526				997
Noncash (income) expense associated with liability-classified warrants			(13,482	)			5,478
Deferred income taxes			251				(612	)
Changes in operating assets and liabilities:
Accounts receivable			(12,926	)			(19,580	)
Contract assets			(2,286	)			1,201
Inventories			(16,302	)			(5,347	)
Prepaids and other current assets			(8,090	)			2,796
Other non-current assets			2,089				—
Trade payables			1,992				(3,384	)
Accrued expenses			(3,433	)			2,849
Employee benefits payables			3,925				756
Contract liabilities			4,467				5,006
Other current liabilities			(568	)			(930	)
Non-current lease liabilities			(1,640	)			(1,191	)
Other non-current liabilities			27				—
Net cash used in operating activities			(64,595	)			(36,582	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and software			(19,070	)			(5,699	)
Cash paid for acquisition, net of acquired cash and restricted cash			(65,073	)			—
Net cash used in investing activities			(84,143	)			(5,699	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and public warrants			3,142				772
Proceeds from Employee Stock Purchase Plan			2,091				—
Proceeds from sale of employees restricted stock units to cover taxes			24,002				—
Minimum tax withholding paid on behalf of employees for restricted stock units			(23,741	)			—
Tax payment for net settled option shares			(444	)			—
Payment of contingent consideration			(5,500	)			—
Finance lease principal payments			(116	)			—
Proceeds from long-term revolving line of credit			—				15,000
Proceeds from long-term secured term loan			—				98,895
Repayments on long-term revolving line of credit			—				(15,000	)
Payment of deferred transaction costs associated with planned reverse recapitalization transaction			—				(2,298	)
Net cash provided by (used in) financing activities			(566	)			97,369
Effect of exchange rate changes on cash and cash equivalents			3,858				20
Net increase (decrease) in cash and cash equivalents and restricted cash			(145,446	)			55,108
Cash and cash equivalents, and restricted cash, beginning of period			692,075				53,933
Cash and cash equivalents, and restricted cash, end of period		$	546,629			$	109,041
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest		$	4,771			$	—
Cash paid for income taxes			2,028				—
Unpaid purchases of property, equipment and software			1,027				1,231
Deferred transaction costs in accrued expenses			—				1,096
Right-of-use assets obtained in exchange for new operating lease liabilities			3,783				—
Net exercise of public and private warrants into common stock			44,739				—
Issuance of common stock for payment of accrued bonus			1,441				—

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ROCKET LAB USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2022 AND DECEMBER 31, 2021 AND FOR THE

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(unaudited; in thousands, except share and per share data)

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. For additional context with which to understand our financial condition and results of operations, see the audited consolidated financial statements and accompanying notes contained therein as of December 31, 2021 and 2020 and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 24, 2022. Certain amounts may not foot due to rounding. Certain information in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described under the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A. “Risk Factors” included in this Quarterly Report on Form 10-Q and under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 24, 2022. We assume no obligation to update any of these forward-looking statements. Actual results may differ materially from those contained in any forward-looking statements.

Overview

Rocket Lab is an end-to-end space company with an established track record of mission success. We deliver reliable launch services, spacecraft design services, spacecraft components, spacecraft manufacturing and other spacecraft and on-orbit management solutions that make it faster, easier and more affordable to access space.

While our business has historically been centered on the development of small-class launch vehicles and the related sale of launch services, we are currently innovating in the areas of medium-class launch vehicles and launch services, space systems design and manufacturing, and on-orbit management solutions. We continue to evaluate opportunities to participate in space data applications and services. Each of these initiatives addresses a critical component of the end-to-end solution and our value proposition for the space economy:

Electron is our orbital small launch vehicle that was designed from the ground up to accommodate a high launch rate business model to meet the growing and dynamic needs of our customers for small launch services. Since its maiden launch in 2017, Electron has become the leading small spacecraft launch vehicle delivering 147 spacecraft to orbit for government and commercial customers across 24 successful missions through June 30, 2022. In 2021, Electron was the second most frequently launched rocket by companies operating in the United States and established Rocket Lab as the fourth most frequent launcher globally. Our launch services program has seen us develop many industry-leading innovations, including 3D printed electric turbo-pump rocket engines, fully carbon composite first stage fuel tanks, a private orbital launch complex, a rocket stage that can be configured to convert into a highly capable spacecraft on orbit, and the potential ability to successfully recover a stage from space, providing a path to reusability.

In March 2021, we announced plans to develop our reusable-ready medium-capacity Neutron launch vehicle which will increase the payload capacity of our space launch vehicles to approximately 13,000 kg for launches to low Earth orbit and lighter payloads into higher orbits. Neutron will be tailored for commercial and U.S. government constellation launches and capable of human space flight, enabling us to provide crew and cargo resupply to the International Space Station. Neutron will also provide a dedicated service to orbit for larger civil, defense and commercial payloads that need a level of schedule control and high-flight cadence. Neutron is expected to have the capability of launching nearly all of the spacecraft configurations that we expect to be launched through 2029 and we expect to be able to leverage Electron’s flight heritage, various vehicle subsystems designs, launch complexes and ground station infrastructure.

Our space systems initiative is supported by the design and manufacture of our Photon family of small spacecraft along with a range of components, software and services for spacecraft, including reaction wheels, star trackers, radios, separation systems, solar solutions, command and control software, high voltage space grade battery solutions, and additional products in development to serve a wide variety of sub-system functions.. We entered this market with our acquisition of leading spacecraft components manufacturer Sinclair Interplanetary, and have since expanded our market participation with the acquisitions of Planetary Systems Corporation, SolAero Holdings, Inc. and aerospace software firm Advanced Solutions, Inc. Each of these strategic acquisitions brought incremental vertically-integrated capabilities for our own Photon family of spacecraft and also enabled Rocket Lab to deliver high-volume manufacturing of critical spacecraft components and software solutions at scale prices to the broader spacecraft merchant market. The Photon family of small spacecraft, which are configurable for a range of low Earth orbit, medium Earth orbit, geosynchronous orbit and interplanetary missions enable us to offer an end-to-end mission solution encompassing launch, spacecraft, ground services and mission operations to provide customers with streamlined access to orbit with Rocket Lab as a single mission partner.

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Recent Developments

SolAero Acquisition

On January 18, 2022, we closed on the acquisition (the “SolAero Acquisition”) of SolAero Holdings, Inc. (“SolAero”) pursuant to an Agreement and Plan of Merger (the “SolAero Merger Agreement”), dated as of December 10, 2021, by and among the Company, Supernova Acquisition Corp. (“SolAero Merger Sub”), SolAero, and Fortis Advisors LLC as stockholder representative, which provides for, among other things, the merger of SolAero Merger Sub with and into SolAero, with SolAero being the surviving corporation of the merger and a direct, our wholly owned subsidiary. Pursuant to the terms of the SolAero Merger Agreement, all of the issued and outstanding shares of SolAero were cancelled in exchange for aggregate consideration of $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 of SolAero.

Neutron Production Complex

We broke ground on the construction of a state-of-the-art rocket production complex where our medium class Neutron launch vehicle will be manufactured.

The 250,000 square foot Neutron production complex is being constructed on a 28-acre site adjacent to the NASA Wallops Flight Facility and Mid-Atlantic Regional Spaceport on Virginia’s Eastern Shore. The complex will support Neutron production, assembly, and integration, and is expected to bring up to 250 highly-skilled roles to the region. Construction will also soon begin on a launch pad for Neutron at the southern end of Wallops Island, near our existing launch pad for the Electron rocket.

CAPSTONE Mission

Our role in the mission for the Cislunar Autonomous Positioning System Technology Operations and Navigation Experiment (“CAPSTONE”) took place over two phases. First, CAPSTONE was successfully launched to low Earth orbit by Electron in June 2022. At approximately 325 kg of payload mass, the mission was Electron’s heaviest lift to date. From there, our Lunar Photon spacecraft provided in-space transportation, power, and communications to CAPSTONE. This was the first use of Lunar Photon, a high energy variant of the Rocket Lab-designed and built Photon spacecraft. After six days of orbit-raising burns by Lunar Photon’s 3D printed HyperCurie engine, CAPSTONE was deployed on its ballistic lunar transfer trajectory to the Moon in July 2022.

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.

We launched seven vehicles in 2020 and six vehicles in 2021. We have launched four vehicles through the six months ended June 30, 2022 and launched six vehicles through August 11, 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.

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Revenue Growth

Three Months Ended June 30, 2022 and 2021

We generated $55.5 million and $11.3 million in revenue for the three months ended June 30, 2022 and 2021, respectively, representing a year-on-year increase in revenue of approximately 392%. This year-on-year increase primarily resulted from $27.6 million in contributions from acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022, strength in our organic space system products and services representing growth of $5.1 million, and higher launch cadence that delivered growth of $11.5 million.

Six Months Ended June 30, 2022 and 2021

We generated $96.2 million and $29.5 million in revenue for the six months ended June 30, 2022 and 2021, respectively, representing a year-on-year increase in revenue of approximately 226%. This year-on-year increase primarily resulted from $55.3 million in contributions 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 representing growth of $9.8 million, and higher launch cadence that delivered growth of $1.6 million.

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 June 30, 2022 and 2021

In the three months ended June 30, 2022 and 2021, our revenue value per launch was $6.3 million and $7.2 million, respectively. Meanwhile, cost per launch was $7.1 million and $5.7 million for the three months ended June 30, 2022 and 2021, respectively. The increase in cost per launch in the three months ended June 30, 2022 was driven primarily by stock-based compensation charges.

Six Months Ended June 30, 2022 and 2021

In the six months ended June 30, 2022 and 2021, our revenue value per launch was $6.3 million and $7.6 million, respectively. Meanwhile, cost per launch was $7.2 million and $5.6 million for the six months ended June 30, 2022 and 2021, respectively. The increase in cost per launch in the six months ended June 30, 2022 was driven primarily by stock-based compensation charges.

Backlog

Backlog represents future revenues that we would recognize in connection with the completion of all contracts and purchase orders that have been entered into by our customers, excluding any customer options for future products or services that have not yet been exercised. Contracts for launch services and spacecraft builds typically include termination rights that may be exercised by customers upon advanced notice and payment of a specified termination fee. As of June 30, 2022, our backlog totaled $531.4 million, of which $135.0 million is related to Launch and $396.4 million is related to Space Systems. We expect to recognize approximately 42% of our backlog over the next 12 months and the remainder recognized thereafter.

Key Factors Affecting Our Performance

COVID-19 Considerations

In December 2019, COVID-19 surfaced in Wuhan, China. In response, the World Health Organization (“WHO”) declared a global emergency on January 30, 2020, and several countries initiated travel restrictions, closed borders and implemented social distancing directives, including “shelter-in-place” orders. On March 11, 2020, the WHO declared the COVID-19 outbreak a pandemic. As a result of the pandemic, the United States and New Zealand governments shut down various sectors of their respective economies. In the United States, we were deemed an essential service and were not required to shut down our United States’ based operations. In New Zealand, we had to delay certain scheduled launches to a later date. In addition to existing travel restrictions, some locales have imposed and continue to impose prolonged quarantines and further restrict travel, which has, at certain times, significantly impacted the ability of our employees to get to their places of work to produce products, made it such that we are unable to obtain certain long lead time components on a timely basis or at a cost-effective price, and significantly hampered our customers from traveling to our launch facilities to prepare payloads for launch. In response to the COVID-19 pandemic, and with the health and safety of all our employees and their families in mind, we took and continue to take precautionary measures intended to help minimize the risks of the virus, including temporarily requiring some employees to work remotely and implementing social distancing protocols for all work conducted onsite. In addition, we suspended non-essential travel worldwide for employees and is discouraging employee attendance at other gatherings.

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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 in Auckland, New Zealand, and while some employees were able to continue their work remotely, certain business operations that require direct labor and physical presence, such as vehicle integration and testing, were suspended during this and will be again under any other Level 4 Alerts. On December 2, 2021, New Zealand replaced the Alert Level system with the COVID-19 Protection Framework. The COVID-19 Protection Framework settings allow businesses to open and operate with greater flexibility while minimizing the virus’ spread. The extent of the COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.

Ability to sell additional launch services, space systems service and spacecraft components to new and existing customers

Our results will be impacted by our ability to sell our launch services, space systems services, and spacecraft components to new and existing customers. We have successfully launched Electron 24 times delivering 147 spacecraft to orbit through June 30, 2022. Our spacecraft components have flown on more than 100 spacecraft and our family of Photon spacecraft has been selected for missions to the Moon, Mars and Venus. Our growth opportunity is dependent on our ability to expand our addressable launch services market with larger volumetric and higher mass payloads capabilities of our recently announced medium-capacity Neutron launch vehicle, which will address large commercial and government constellation launch opportunities. Our growth opportunity is also dependent on our ability to win spacecraft constellation missions and expand our portfolio of strategic spacecraft components. Our ability to sell additional products to existing customers is a key part of our success, as follow-on purchases indicate customer satisfaction and decrease the likelihood of competitive substitution. To sell additional products and services to new and existing customers, we will need to continue to invest significant resources in our products and services.

Ability to improve profit margins and scale our business

We intend to continue to invest in initiatives to improve our operating leverage and significantly ramp production. We believe continued reduction in costs and an increase in production volumes will enable the cost of launch vehicles to decline and expand our gross and operating margins. Our ability to achieve our production-efficiency objectives could be negatively impacted by a variety of factors including, among other things, lower-than-expected facility utilization rates, manufacturing and production cost overruns, increased purchased material costs and unexpected supply-chain quality issues or interruptions.

Government expenditures and private enterprise investment into the space economy

Government expenditures and private enterprise investment has fueled the growth in our target markets. We expect the continued availability of government expenditures and private investment for our customers to help fund purchases of our products and services will remain. This is an important factor in our company’s growth prospects.

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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Cost of Revenues

Cost of revenues consists primarily of direct material and labor costs, manufacturing overhead, other personnel-related expenses, which include salaries, bonuses, benefits and stock-based compensation expense, reserves for estimated warranty costs, freight expense and depreciation expense. Cost of revenues also includes charges to write-down the carrying value of inventory when it exceeds its estimated net realizable value, including on-hand inventory that is either obsolete or in excess of forecasted demand. We expect our cost of revenues to increase in absolute dollars in future periods as we sell more launch services, space systems and components. As we grow into our current capacity and execute on cost-reduction initiatives, we expect our cost of revenues as a percentage of revenue to decrease over time.

Because direct labor costs and manufacturing overhead comprise more than 60% of cost of revenues, increasing our production rate resulting in greater absorption of these costs is our most critical cost reduction initiative. Increasing our production rate is a cross-functional effort involving manufacturing, engineering, supply chain and finance.

Operating Expenses

Our operating expenses consist of research and development and selling, general and administrative expenses.

Research and Development, net

Research and development expense consists primarily of personnel-related expenses, consulting and contractor expenses, validation and testing expense, prototype parts and materials and depreciation expense. We intend to continue to make significant investments in developing new products and enhancing existing products, including but not limited to our medium lift Neutron launch vehicle, Electron’s first stage helicopter recovery, Photon spacecraft features and capabilities, as well as on expanding our portfolio of Spacecraft components and subsystems. Research and development expense will be variable relative to the number of products that are in development, validation or testing. However, we expect it to decline as a percentage of total revenue over time.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of personnel-related expenses for our sales, marketing, supply chain, finance, legal, human resources and administrative personnel, as well as the costs of customer service, information technology, professional services insurance, travel, allocated overhead and other marketing, communications and administrative expenses. We will continue to actively promote our products and therefore we expect to incur expenses related to sales and marketing. We also expect to further invest in our corporate organization and incur additional expenses associated with operating as a public company, including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs. As a result, we expect that selling, general and administrative expenses will increase in absolute dollars in future periods but decline as a percentage of total revenue over time.

Interest Expense, Net

Interest expense, net consists primarily of interest expense incurred on debt and interest income earned on our cash and cash equivalents and short-term investments balances.

Gain (Loss) on Foreign Exchange

Gain (loss) on foreign exchange relates to currency fluctuations that generate foreign exchange gains or losses on invoices denominated in currencies other than the United States (“U.S.”) Dollar.

Change in Fair Value of Liability Classified Warrants

Change in fair value of liability classified warrants relates to changes in the fair value of warrant liabilities.

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Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021

The following table sets forth our consolidated statements of operations information and data as a percentage of revenue for the three months ended June 30, 2022 and 2021 (in thousands, except percentages):

		Three Months Ended June 30,
		2022								2021
		$				%				$				%
Revenues		$	55,474				100.0	%		$	11,280				100.0	%
Cost of revenues			50,516				91.1	%			8,817				78.2	%
Gross profit			4,958				8.9	%			2,463				21.8	%
Operating expenses:
Research and development, net			19,165				34.5	%			8,529				75.6	%
Selling, general and administrative			18,952				34.2	%			7,068				62.7	%
Total operating expenses			38,117				68.7	%			15,597				138.3	%
Operating loss			(33,159	)			(59.8	)%			(13,134	)			(116.5	)%
Other income (expense):
Interest expense, net			(2,432	)			(4.4	)%			(275	)			(2.4	)%
Loss on foreign exchange			(3,876	)			(7.0	)%			(126	)			(1.1	)%
Change in fair value of liability classified warrants			—				—	%			(2,448	)			(21.7	)%
Other expense, net			(23	)			—	%			(242	)			(2.1	)%
Total other expense, net			(6,331	)			(11.4	)%			(3,091	)			(27.3	)%
Loss before income taxes			(39,490	)			(71.2	)%			(16,225	)			(143.8	)%
Benefit (provision) for income taxes			2,073				3.7	%			(440	)			(3.9	)%
Net loss		$	(37,417	)			(67.5	)%		$	(16,665	)			(147.7	)%

 

Revenues

		Three Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Revenues		$	55,474			$	11,280			$	44,194				392	%

Revenue increased by $44.2 million, or 392%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. Launch services revenue was $19.1 million for the three months ended June 30, 2022, an increase of $11.5 million, or 151%, primarily due to a higher launch cadence, with three launch missions completed in the three months ended June 30, 2022, versus one launch mission completed in the three months ended June 30, 2021. Space systems revenue was $36.4 million for the three months ended June 30, 2022, an increase of $32.7 million, or 893%, with $27.6 million of that growth attributable to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022, and strength in our organic space system products and services that delivered $5.1 million of growth.

Cost of Revenues

		Three Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Cost of revenues		$	50,516			$	8,817			$	41,699				473	%

Cost of revenues increased by $41.7 million, or 473%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. Launch Service cost of revenues was $21.4 million in the three months ended June 30, 2022, an increase of $13.6 million or 174%, primarily due to the higher launch cadence referenced above. Space systems cost of revenue was $29.1 million in the three months ended June 30, 2022, an increase of $28.1 million or 2,845%, primarily due to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022. Cost of revenues were also impacted by an increase in stock-based compensation of $5.5 million. Cost of revenues for the three months ended June 30, 2022 increased to 91% of total revenue as compared to 78% during the three months ended June 30, 2021.

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Research and Development, Net

		Three Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Research and development, net		$	19,165			$	8,529			$	10,636				125	%

Research and development expense increased by $10.6 million, or 125%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to a $5.8 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 June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Selling, general and administrative		$	18,952			$	7,068			$	11,884				168	%

Selling, general and administrative expense increased by $11.9 million, or 168%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to a $4.3 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, in addition to a $1.8 million performance reserve payments related to the ASI acquisition, increased expense due to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022, all of which were partially offset by a $2.5 million contingent consideration income due to an adjustment in the estimated fair value of the earnout payment related to our PSC acquisition.

Interest Expense, Net

		Three Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Interest expense, net		$	(2,432	)		$	(275	)		$	(2,157	)			784	%

Interest expense increased by $2.2 million, or 784%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to the $100.0 million borrowed on June 10, 2021 under the Hercules Capital Secured Term Loan, which bears (i) cash interest at the greater of (a) 8.15% or (b) 8.15% plus the prime rate minus 3.25% and (ii) payment-in-kind interest of 1.25% which is accrued and added to the outstanding principal balance.

Loss on Foreign Exchange

		Three Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Loss on foreign exchange		$	(3,876	)		$	(126	)		$	(3,750	)			2,976	%

 

Loss on foreign exchange increased by $3.8 million, or 2,976%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to fluctuations in the foreign exchange of the New Zealand Dollar and its impact on our New Zealand intercompany loan denominated in New Zealand Dollar.

Change in Fair Value of Liability Classified Warrants

		Three Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Change in fair value of liability classified warrants		$	—			$	(2,448	)		$	2,448				(100	)%

Change in fair value of liability classified warrants expense was $2.4 million for the three months ended June 30, 2021 as a result of the change in fair value of liability classified preferred stock warrants which were exercised in the third quarter of 2021. The Company had no liability classified warrants as of June 30, 2022.

Other Expense, Net

		Three Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Other expense, net		$	(23	)		$	(242	)		$	219				(90	)%

Other expense decreased by $0.2 million, or (90)%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

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Benefit (Provision) for Income Taxes

		Three Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Benefit (provision) for income taxes		$	2,073			$	(440	)		$	2,513				(571	)%

We recorded income tax benefit of $2.1 million for the three months ended June 30, 2022 and a tax provision of $0.4 million for the three months ended June 30, 2021. The effective tax rate was 5.2% for the three months ended June 30, 2022, compared to (2.7)% for the three months ended June 30, 2021. The effective tax rate differs from the federal statutory rate due primarily to a full valuation allowance against our U.S. deferred tax assets, as well as the impact of discrete items that may occur in any given year but which are not consistent from year-to-year.

Comparison of the Six Months Ended June 30, 2022 and 2021

The following table sets forth our consolidated statements of operations information and data as a percentage of revenue for the six months ended June 30, 2022 and 2021 (in thousands, except percentages):

		Six Months Ended June 30,
		2022								2021
		$				%				$				%
Revenues		$	96,177				100.0	%		$	29,472				100.0	%
Cost of revenues			87,484				91.0	%			25,598				86.9	%
Gross profit			8,693				9.0	%			3,874				13.1	%
Operating expenses:
Research and development, net			32,642				33.9	%			15,607				53.0	%
Selling, general and administrative			42,030				43.7	%			13,692				46.5	%
Total operating expenses			74,672				77.6	%			29,299				99.5	%
Operating loss			(65,979	)			(68.6	)%			(25,425	)			(86.4	)%
Other income (expense):
Interest expense, net			(5,421	)			(5.6	)%			(402	)			(1.4	)%
Loss on foreign exchange			(3,896	)			(4.1	)%			(405	)			(1.4	)%
Change in fair value of liability classified warrants			13,482				14.0	%			(5,478	)			(18.6	)%
Other income (expense), net			3				—	%			(133	)			(0.5	)%
Total other income (expense), net			4,168				4.3	%			(6,418	)			(21.9	)%
Loss before income taxes			(61,811	)			(64.3	)%			(31,843	)			(108.3	)%
Provision for income taxes			(2,315	)			(2.4	)%			(704	)			(2.4	)%
Net loss		$	(64,126	)			(66.7	)%		$	(32,547	)			(110.7	)%

Revenues

		Six Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Revenues		$	96,177			$	29,472			$	66,705				226	%

Revenue increased by $66.7 million, or 226%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. Launch services revenue was $25.7 million for the six months ended June 30, 2022, an increase of $1.6 million, or 7%, primarily due to a higher launch cadence, with four launch missions completed in the six months ended June 30, 2022, versus three launch mission completed in the six months ended June 30, 2021. Space systems revenue was $70.5 million for the six months ended June 30, 2022, an increase of $65.1 million, or 1,207%, with $55.3 million of that growth due to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022 and strength in our organic space system products and services that contributed $9.8 million.

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Cost of Revenues

		Six Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Cost of revenues		$	87,484			$	25,598			$	61,886				242	%

Cost of revenues increased by $61.9 million, or 242%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. Launch Service cost of revenues was $28.8 million in the six months ended June 30, 2022, an increase of $5.1 million or 21%, primarily due to the higher launch cadence referenced above. Space systems cost of revenue was $58.7 million in the six months ended June 30, 2022, an increase of $56.8 million or 2,986%, primarily due to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022. Cost of revenues were also impacted by an increase in stock-based compensation of $8.5 million. Cost of revenues for the six months ended June 30, 2022 increased to 91% of total revenue as compared to 87% during the six months ended June 30, 2021.

Research and Development, Net

		Six Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Research and development, net		$	32,642			$	15,607			$	17,035				109	%

Research and development expense increased by $17.0 million, or 109%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to a $10.4 million increase in stock-based compensation, $2.6 million in amortization of purchased intangibles, personnel and prototyping related to Neutron development, and increased labor and prototype spend focused on broadening our spacecraft component product portfolio.

Selling, General and Administrative

		Six Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Selling, general and administrative		$	42,030			$	13,692			$	28,338				207	%

Selling, general and administrative expense increased by $28.3 million, or 207%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to a $7.5 million increase in stock-based compensation, $3.6 million increase related to ASI performance reserve payments, $1.3 million of amortization of purchased intangibles, increased costs associated with being a public company including higher staff costs, facility related expense and third-party services, and increased expense due to the acquisitions that closed in the fourth quarter of 2021 and first quarter of 2022.

Interest Expense, Net

		Six Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Interest expense, net		$	(5,421	)		$	(402	)		$	(5,019	)			1,249	%

Interest expense increased by $5.0 million, or 1,249%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to the $100.0 million borrowed on June 10, 2021 under the Hercules Capital Secured Term Loan, which bears (i) cash interest at the greater of (a) 8.15% or (b) 8.15% plus the prime rate minus 3.25% and (ii) payment-in-kind interest of 1.25% which is accrued and added to the outstanding principal balance.

Loss on Foreign Exchange

		Six Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Loss on foreign exchange		$	(3,896	)		$	(405	)		$	(3,491	)			862	%

Loss on foreign exchange increased by $3.5 million, or 862%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to fluctuations in the foreign exchange of the New Zealand Dollar and its impact on our New Zealand intercompany loan denominated in New Zealand Dollar.

Change in Fair Value of Liability Classified Warrants

		Six Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Change in fair value of liability classified warrants		$	13,482			$	(5,478	)		$	18,960				(346	)%

Change in fair value of liability classified warrants income increased by $19.0 million, or (346)%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 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 the third quarter of 2021. The Company had no liability classified warrants as of June 30, 2022.

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Other Income (Expense), Net

		Six Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Other income (expense), net		$	3			$	(133	)		$	136				(102	)%

Other expense decreased by $0.1 million, or (102)%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Provision for Income Taxes

		Six Months Ended June 30,
(in thousands, except percentages)		2022				2021				$ Change				% Change
Provision for income taxes		$	(2,315	)		$	(704	)		$	(1,611	)			229	%

We recorded income tax provision of $2.3 million for the six months ended June 30, 2022 and a tax provision of $0.7 million for the six months ended June 30, 2021. The effective tax rate was (3.7)% for the six months ended June 30, 2022, compared to (2.2)% for the six months ended June 30, 2021. The effective tax rate differs from the federal statutory rate due primarily to a full valuation allowance against our U.S. deferred tax assets, as well as the impact of discrete items that may occur in any given year but which are not consistent from year-to-year.

Liquidity and Capital Resources

Since inception, we have funded our operations with proceeds from sales of our capital stock, bank debt, research and development grant proceeds, and cash flows from the sale of our products and services. As of June 30, 2022, we had $542.5 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.

Additionally, we expect our capital and operating expenditures will increase significantly in connection with ongoing activities as we:

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Indebtedness

Hercules Capital Secured Term Loan

On June 10, 2021, the Company entered into a $100 million secured term loan agreement with Hercules Capital, Inc. (the “Hercules Capital Secured Term Loan”) and borrowed the full amount under the secured term loan agreement. The term loan has a maturity date of June 1, 2024 and is secured by substantially all of the assets of the Company. Payments due for the term loan are interest-only until the maturity date with interest payable monthly in arrears. The outstanding principal bears (i) cash interest at the greater of (a) 8.15% or (b) 8.15% plus the prime rate minus 3.25% and (ii) payment-in-kind interest of 1.25% which is accrued and added to the outstanding principal balance. Prepayment of the outstanding principal is permitted under the loan agreement and subject to certain prepayment fees. In connection with the secured term loan, the Company paid an initial facility charge of $1 million and the Company will be required to pay an end of term charge of $3.25 million upon repayment of the loan. The secured term loan agreement contains customary representations, warranties, non-financial covenants, and events of default. The Company is in compliance with all debt covenants related to its long-term borrowings as of June 30, 2022. As of June 30, 2022, there was $101.5 million outstanding under the Hercules Capital Secured Term Loan, of which $2.9 million was classified as current in the Company’s condensed consolidated balance sheets, with the remainder classified as a long-term borrowing. As of June 30, 2022, the Company had no availability under the Hercules Capital Secured Term Loan.

Cash Flows

The following table summarizes our cash flows for the periods presented:

		Six Months Ended June 30,
(in thousands)		2022				2021
Net cash provided by (used in):
Operating activities		$	(64,595	)		$	(36,582	)
Investing activities			(84,143	)			(5,699	)
Financing activities			(566	)			97,369
Effect of exchange rate changes			3,858				20
Net increase (decrease) in cash, cash equivalents, and restricted cash		$	(145,446	)		$	55,108

Cash Flows from Operating Activities

Net cash used in operating activities was $64.6 million for the six months ended June 30, 2022 consisted of $64.1 million in operating loss, $32.3 million in non-cash expense and $32.7 million in cash used in operating assets and liabilities. Included in the non-cash expense are $28.8 million in stock-based compensation expense, $13.7 million in depreciation and amortization and $13.5 million in liability-classified warrant income. Included in the cash used in operating assets and liabilities are $16.3 million increase in inventory, $12.9 million increase in accounts receivable and $8.1 million increase in prepaids and other assets.

Cash Flows from Investing Activities

Cash used in investing activities for the six months ended June 30, 2022 of $84.1 million was primarily driven by cash paid for SolAero of $65.1 million and capital equipment and infrastructure investments of $19.1 million. These investments included the build-out of secure office and spacecraft manufacturing lab areas in our Long Beach, California headquarters, which will be used to support classified government programs, Launch Complex 1 in Mahia, New Zealand, where we have now completed our second launch pad and are in process of adding additional support facilities to support launch operations and safety, and our propulsion development and test facility near Auckland, New Zealand, which consolidates and supports all Curie and Rutherford engine testing.

Cash Flows from Financing Activities

Cash used in financing activities for the six months ended June 30, 2022 of $0.6 million was primarily related to $5.5 million payment of contingent consideration related to our ASI acquisition, offset by $5.0 million of net proceeds from our equity offerings which includes proceeds from sale of employees restricted stock units to cover taxes, stock options and employee stock purchase plan and applicable tax withholdings and payments.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates as disclosed in our audited financial statements included in our Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 24, 2022.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign currency exchange rates and interest rates.

Foreign Currency Exchange Risk

Our reporting currency is the U.S. dollar, and the functional currency of each of our subsidiaries is either its local currency. The assets and liabilities of each of our subsidiaries are translated into U.S. dollars at exchange rates in effect at each balance sheet date and operations accounts are translated using the average exchange rate for the relevant period. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect revenue and other operating results as expressed in U.S. dollars. Foreign currency translation adjustments are accounted for as a component of accumulated other comprehensive income (loss) within stockholders’ equity. Gains or losses due to transactions in foreign currencies are reflected in the condensed consolidated statements of operations under the line item “Gain (Loss) in Foreign Exchange.” Materially all of our revenues are denominated in U.S. dollars and we have not engaged in the hedging of foreign currency risk to date, although we may choose to do so in the future. As such, a 10% or greater move in exchange rates versus the U.S. dollar could have a material impact on our financial results and position.

Interest Rate Risk

We had cash and cash equivalents of $542.5 million as of June 30, 2022, comprised of operating accounts and money market instruments. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

Emerging Growth Company Status

In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate to allow timely decisions regarding required disclosures.

As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were not effective as of June 30, 2022 as a result of the material weaknesses discussed below.

Previously Identified Material Weaknesses in Internal Control over Financial Reporting

In connection with the audit of Rocket Lab as of and for the year ended December 31, 2020, we previously identified material weaknesses in our internal control over financial reporting. The material weaknesses were related to management’s review of schedules and reconciliations, sufficiency of accounting resources and review, oversight of third-party specialists and controls over the segregation of duties and access to relevant financial reporting systems.

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In response to the material weaknesses, management completed the following remediation actions:

We determined that the material weaknesses continued to exist as of December 31, 2021. We have begun the process of, and we are focused on, designing and implementing effective internal controls measures to improve our internal control over financial reporting and remediate the material weakness. Our efforts include a number of actions:

While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our internal controls over financial reporting and will continue to diligently review our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

Other than as discussed above with respect to the remediation efforts for identified material weaknesses, there was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations or financial condition.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 24, 2022.

Item 2. Recent Sales of Unregistered Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

 

Exhibit Number	Description
10.1‡	Employment Agreement, dated April 11, 2022, between Rocket Lab USA, Inc. and Arjun Kampani (incorporated by reference to Exhibit 10.28 to the Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed by Rocket Lab USA, Inc. on May 2, 2022).
10.2*	Rocket Lab USA, Inc. Amended and Restated Non-Employee Director Compensation Policy
31.1*	Certification of Principal Executive Officer pursuant to Exchange Act rules 13a-14 or 15d-14.
31.2*	Certification of Principal Financial Officer pursuant to Exchange Act rules 13a-14 or 15d-14.
32.1*†	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act rules 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350.
101.INS*	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

* Filed herewith.

† The certification furnished in Exhibit 32.1 hereto is deemed to be furnished with this Quarterly Report on Form 10-Q and will not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

‡ Management contract or compensatory plan or arrangement.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		ROCKET LAB USA, INC.
August 11, 2022		By:	/s/ Peter Beck
			Peter Beck
			President, Chief Executive Officer and Chairman
			(Principal Executive Officer)
August 11, 2022		By:	/s/ Adam Spice
			Adam Spice
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

 

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EXHIBIT 10.2

ROCKET LAB USA, INC.

AMENDED AND RESTATED NON-EMPLOYEE DIRECTOR COMPENSATION POLICY

 

The purpose of this Amended and Restated Non-Employee Director Compensation Policy (the “Policy”) of Rocket Lab USA, Inc., a Delaware corporation (the “Company”), is to provide a total compensation package that enables the Company to attract and retain, on a long-term basis, high-caliber directors who are not employees or officers of the Company or its subsidiaries (“Outside Directors”). In furtherance of the purpose stated above, effective as of June 23, 2022 for all Sections other than Section I below and effective as of July 1, 2022 for the cash retainers as set forth in Section I below (as applicable, the “Effective Date”), all Outside Directors shall be paid compensation for services provided to the Company as set forth below:

Audit Committee Chairperson: $20,000

Audit Committee member: $10,000

Compensation Committee Chairperson: $15,000

Compensation Committee member: $7,500

Nominating and Corporate Governance Committee Chairperson: $10,000

Nominating and Corporate Governance Committee member: $4,000

 

All grants of equity retainer awards to Outside Directors pursuant to this Policy will be automatic and nondiscretionary and will be made in accordance with the following provisions:

 

 

 

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The Company will reimburse all reasonable out-of-pocket expenses incurred by Outside Directors in attending meetings of the Board of Directors or any Committee thereof.

The aggregate amount of compensation, including both equity compensation and cash compensation, paid to any Outside Director in a calendar year period shall not exceed (i) $1,000,000 in the first calendar year an individual becomes an Outside Director and (ii) $650,000 in any other year (or in each case, such other limits as may be set forth in Section 3(b) of the 2021 Plan or any similar provision of a successor plan). For this purpose, the “amount” of equity compensation paid in a calendar year shall be determined based on the grant date fair value thereof, as determined in accordance with ASC Topic 718 or its successor provision, but excluding the impact of estimated forfeitures related to service-based vesting conditions.

 

Date Policy Approved: September 22, 2021

Date Policy Amended and Restated: May 12, 2022

 

 

 

 

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EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECURITIES AND EXCHANGE ACT OF 1934

RULE 13A-14 AS ADOPTED PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Peter Beck, certify that:

 

Date: August 11, 2022		By:	/s/ Peter Beck
			Peter Beck
			President and Chief Executive Officer (Principal Executive Officer)

 

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EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECURITIES AND EXCHANGE ACT OF 1934

RULE 13A-14 AS ADOPTED PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Adam Spice, certify that:

 

Date: August 11, 2022		By:	/s/ Adam Spice
			Adam Spice
			Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

 

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Rocket Lab USA, Inc. (the “Company”) for the period ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to their knowledge:

1) the Report which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 11, 2022		By:	/s/ Peter Beck
			Peter Beck
			President and Chief Executive Officer (Principal Executive Officer)
Date: August 11, 2022		By:	/s/ Adam Spice
			Adam Spice
			Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

 

 

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