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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, 2023

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 3, 2023, the registrant had 483,326,614 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 a global crises and/or any response to such a crisis 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, 2023

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	5
Item 1.	Condensed Consolidated Financial Statements	5
	Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three and Six Months Ended June 30, 2023 and 2022	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2023 and 2022	7
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2023 and 2022	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
Signatures		37

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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, 2023 AND DECEMBER 31, 2022

(in thousands, except share and per share values)

 

		June 30, 2023
		(unaudited)				December 31, 2022
Assets
Current assets:
Cash and cash equivalents		$	197,160			$	242,515
Marketable securities, current			144,018				229,276
Accounts receivable, net			25,175				36,572
Contract assets			16,714				9,451
Inventories			102,234				92,279
Prepaids and other current assets			63,520				52,201
Assets held for sale			11,384				—
Total current assets			560,205				662,294
Non-current assets:
Property, plant and equipment, net			120,004				101,514
Intangible assets, net			73,309				79,692
Goodwill			71,020				71,020
Right-of-use assets - operating leases			47,586				35,239
Right-of-use assets - finance leases			15,302				15,614
Marketable securities, non-current			73,941				9,193
Restricted cash			3,594				3,356
Deferred income tax assets, net			3,641				3,898
Other non-current assets			12,894				7,303
Total assets		$	981,496			$	989,123
Liabilities and Stockholders’ Equity
Current liabilities:
Trade payables		$	25,867			$	12,084
Accrued expenses			6,492				8,723
Employee benefits payable			14,138				8,634
Contract liabilities			134,574				108,344
Current installments of long-term borrowings			104,381				2,906
Other current liabilities			20,489				22,249
Total current liabilities			305,941				162,940
Non-current liabilities:
Long-term borrowings, excluding current installments			—				100,043
Non-current operating lease liabilities			43,169				34,266
Non-current finance lease liabilities			15,385				15,568
Deferred tax liabilities			237				95
Other non-current liabilities			5,716				3,005
Total liabilities			370,448				315,917
COMMITMENTS AND CONTINGENCIES (Note 16)
Stockholders’ equity:
Common stock, $0.0001 par value; authorized shares: 2,500,000,000; issued and outstanding shares: 482,603,474 and 475,356,517 at June 30, 2023 and December 31, 2022, respectively			48				48
Additional paid-in capital			1,145,225				1,112,977
Accumulated deficit			(532,461	)			(440,955	)
Accumulated other comprehensive (loss) income			(1,764	)			1,136
Total stockholders’ equity			611,048				673,206
Total liabilities and stockholders’ equity		$	981,496			$	989,123

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, 2023 AND 2022

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

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Revenues		$	62,045			$	55,474			$	116,940			$	96,177
Cost of revenues			47,452				50,516				95,990				87,484
Gross profit			14,593				4,958				20,950				8,693
Operating expenses:
Research and development, net			31,035				19,165				54,940				32,642
Selling, general and administrative			28,717				18,952				57,186				42,030
Total operating expenses			59,752				38,117				112,126				74,672
Operating loss			(45,159	)			(33,159	)			(91,176	)			(65,979	)
Other income (expense):
Interest income (expense), net			(745	)			(2,432	)			(1,430	)			(5,421	)
(Loss) gain on foreign exchange			(90	)			(3,876	)			44				(3,896	)
Change in fair value of liability classified warrants			—				—				—				13,482
Other income (loss), net			866				(23	)			2,343				3
Total other income (expense), net			31				(6,331	)			957				4,168
Loss before income taxes			(45,128	)			(39,490	)			(90,219	)			(61,811	)
(Provision) benefit for income taxes			(761	)			2,073				(1,287	)			(2,315	)
Net loss		$	(45,889	)		$	(37,417	)		$	(91,506	)		$	(64,126	)
Other comprehensive loss, net of tax:
Foreign currency translation loss			(1,516	)			(1,030	)			(2,454	)			(154	)
Unrealized loss on available-for-sale marketable securities			(814	)			—				(446	)			—
Comprehensive loss		$	(48,219	)		$	(38,447	)		$	(94,406	)		$	(64,280	)
Net loss per share attributable to Rocket Lab USA, Inc.:
Basic and diluted		$	(0.10	)		$	(0.08	)		$	(0.19	)		$	(0.14	)
Weighted-average common shares outstanding:
Basic and diluted			479,735,858				464,719,924				477,977,551				460,630,324

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 STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

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

 

		Common Stock								Additional Paid-In				Accumulated				Other Comprehensive
		Shares				Amount				Capital				Deficit				Income (Loss)				Total
December 31, 2022			475,356,517			$	48			$	1,112,977			$	(440,955	)		$	1,136			$	673,206
Net loss			—				—				—				(45,617	)			—				(45,617	)
Issuance of common stock under equity plans			2,672,625				—				771				—				—				771
Stock-based compensation			—				—				12,228				—				—				12,228
Issuance of common stock for acquisition			123,933				—				—				—				—				—
Other comprehensive loss			—				—				—				—				(570	)			(570	)
March 31, 2023			478,153,075				48				1,125,976				(486,572	)			566				640,018
Net loss			—				—				—				(45,889	)			—				(45,889	)
Issuance of common stock under equity plans			4,326,466				—				3,561				—				—				3,561
Stock-based compensation			—				—				15,688				—				—				15,688
Issuance of common stock for acquisition			123,933				—				—				—				—				—
Other comprehensive loss			—				—				—				—				(2,330	)			(2,330	)
June 30, 2023			482,603,474			$	48			$	1,145,225			$	(532,461	)		$	(1,764	)		$	611,048
		Common Stock								Additional Paid-In				Accumulated				Other Comprehensive
		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

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, 2023 AND 2022

(unaudited; in thousands)

		For the Six Months Ended June 30,
		2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(91,506	)		$	(64,126	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			13,785				13,737
Stock-based compensation expense			29,300				28,827
Loss on disposal of assets			27				25
Amortization of debt issuance costs and discount			1,431				1,392
Noncash lease expense			2,026				1,526
Noncash income associated with liability-classified warrants			—				(13,482	)
Change in the fair value of contingent consideration			1,600				—
Accretion of marketable securities purchased at a discount			(2,116	)			—
Deferred income taxes			248				251
Changes in operating assets and liabilities:
Accounts receivable, net			11,433				(12,926	)
Contract assets			(7,264	)			(2,286	)
Inventories			(10,611	)			(16,302	)
Prepaids and other current assets			(10,839	)			(8,090	)
Other non-current assets			(5,634	)			2,089
Trade payables			13,234				1,992
Accrued expenses			(2,845	)			(3,433	)
Employee benefits payables			4,116				3,925
Contract liabilities			26,230				4,467
Other current liabilities			(1,881	)			(568	)
Non-current lease liabilities			(1,942	)			(1,640	)
Other non-current liabilities			(241	)			27
Net cash used in operating activities			(31,449	)			(64,595	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and software			(23,246	)			(19,070	)
Cash paid for business combinations and asset acquisitions, net of acquired cash and restricted cash			(16,119	)			(65,073	)
Purchases of marketable securities			(132,000	)			—
Maturities of marketable securities			154,176				—
Net cash used in investing activities			(17,189	)			(84,143	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and public warrants			1,808				3,142
Proceeds from Employee Stock Purchase Plan			2,522				2,091
Proceeds from sale of employees restricted stock units to cover taxes			7,801				24,002
Minimum tax withholding paid on behalf of employees for restricted stock units			(6,968	)			(23,741	)
Tax payment for net settled option shares			—				(444	)
Payment of contingent consideration			(1,000	)			(5,500	)
Finance lease principal payments			(160	)			(116	)
Net cash provided by (used in) financing activities			4,003				(566	)
Effect of exchange rate changes on cash and cash equivalents			(482	)			3,858
Net decrease in cash and cash equivalents and restricted cash			(45,117	)			(145,446	)
Cash and cash equivalents, and restricted cash, beginning of period			245,871				692,075
Cash and cash equivalents, and restricted cash, end of period		$	200,754			$	546,629
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest		$	7,051			$	4,771
Cash paid for income taxes			387				2,028
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unpaid purchases of property, equipment and software			2,143				1,027
Right-of-use assets obtained in exchange for new operating lease liabilities			979				3,783
Unpaid transaction costs			999				—
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, 2023 AND DECEMBER 31, 2022 AND FOR THE

THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

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

Rocket Lab USA, Inc. (“Rocket Lab” and, together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) is an end-to-end space company with an established track record of mission success headquartered in Long Beach, California and is the parent company for several wholly owned operating subsidiaries located in the United States, New Zealand, Canada and Australia. We deliver reliable launch services, spacecraft design services, spacecraft components, spacecraft manufacturing and other spacecraft and on-orbit management solutions that make it faster, easier and more affordable to access space. We operate one of the only private orbital launch ranges in the world, located in Mahia, New Zealand, enabling a unique degree of operational flexibility and control of customer launch manifests and mission assurance. While our business has historically been centered on the development of small-class launch vehicles and related sale of launch services, we are currently innovating in the areas of medium-class launch vehicles and launch services, space systems design and manufacturing, on-orbit management solutions, and space data applications.

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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, 2022 and 2021 and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 7, 2023. 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, 2022 as filed with the SEC on March 7, 2023. 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 163 spacecraft to orbit and one suborbital launch for government and commercial customers across 35 successful missions through June 30, 2023. In 2022, Electron was the second most frequently launched rocket by companies operating in the United States and maintained Rocket Lab as the fourth most frequent launcher globally. Our launch services program has seen us develop many industry-leading innovations, including 3D printed electric turbo-pump rocket engines, fully carbon composite first stage fuel tanks, a private orbital launch complex, a rocket stage that can be configured to convert into a highly capable spacecraft on orbit, and the potential ability to successfully recover a stage from space, providing a path to reusability.

In March 2021, we announced plans to develop our reusable-ready medium-capacity Neutron launch vehicle which will increase the payload capacity of our space launch vehicles to approximately 15,000 kg for expendable launches to low Earth orbit and lighter payloads for reusable configurations and into higher orbits. Neutron will be tailored for commercial and U.S. government constellation launches and ultimately configurable for 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 across various vehicle subsystems designs, launch complexes and ground station infrastructure.

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Our space systems initiative is supported by the design and manufacture of our Photon family of 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 spacecraft 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 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.

Recent Developments

HASTE

We introduced the Hypersonic Accelerator Suborbital Test Electron rocket (“HASTE”), a suborbital testbed launch vehicle derived from Rocket Lab’s heritage Electron rocket. HASTE provides reliable, high-cadence flight test opportunities needed to advance hypersonic system technology development. On June 17, 2023, we successfully launched our first HASTE rocket.

Asset Purchase Agreement

On June 2, 2023, Company closed on the purchase of certain assets pursuant to the Virgin APA, including a real property lease for a property located in Long Beach, California and certain production assets, machinery and equipment for a total purchase price consideration of $17.1 million (which includes $1.0 million of transaction costs).

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 2021 and approximately 12 launch vehicles in 2022. We anticipate we will build approximately 15 launch vehicles in 2023. We launched six vehicles in 2021 and nine vehicles in 2022. We have launched six vehicles through the six months ended June 30, 2023 and launched seven vehicles through August 8, 2023. 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. We believe that the growth in our build rate and launch rate is a positive indicator of our ability to scale our launch operations.

Revenue Growth

Three Months Ended June 30, 2023 and 2022

We generated $62.0 million and $55.5 million in revenue for the three months ended June 30, 2023 and 2022, respectively, representing a year-on-year increase in revenue of approximately 12%. This year-on-year increase primarily resulted from a higher revenue per launch that delivered growth of $3.4 million and space systems growth of $3.2 million.

Six Months Ended June 30, 2023 and 2022

We generated $116.9 million and $96.2 million in revenue for the six months ended June 30, 2023 and 2022, respectively, representing a year-on-year increase in revenue of approximately 22%. This year-on-year increase primarily resulted from a higher launch cadence that delivered growth of $16.4 million and space systems growth of $4.3 million.

Revenue and Cost Value Per Launch

Revenue and cost value per launch represents the average revenue and cost per launch contract attributable to launches that occurred during a period, regardless of when the revenue or cost was recognized. Revenue and cost value per launch can be a useful metric to provide insight into general competitiveness and price sensitivity in the marketplace. Revenue and cost 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.

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Three Months Ended June 30, 2023 and 2022

In the three months ended June 30, 2023 and 2022, our revenue value per launch was $7.5 million and $6.3 million, respectively. Meanwhile, cost per launch for the three months ended June 30, 2023 and 2022 was $7.2 million and $7.1 million, respectively, excluding a $4.1 million benefit from non-recurring reversal of provision made for contract losses that were credited to Launch Services cost of revenue in the three months ended June 30, 2023.

Six Months Ended June 30, 2023 and 2022

In the six months ended June 30, 2023 and 2022, our revenue value per launch was $7.0 million and $6.3 million, respectively. Meanwhile, cost per launch was $7.3 million and $7.2 million for the six months ended June 30, 2023 and 2022, respectively, excluding a $2.1 million benefit from non-recurring employee retention credit to Launch Services cost of revenue and a $4.1 million benefit from non-recurring reversal of provision made for contract losses that were credited to Launch Services cost of revenue in the in the six months ended June 30, 2023.

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 but have not yet been fulfilled, 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. Our backlog increased from $503.6 million as of December 31, 2022 to $534.3 million as of June 30, 2023, of which $161.9 million is related to Launch Services and $372.4 million is related to Space Systems. The increase was a result of bookings during the period, offset by recognizing revenue on contracts during the period.

Key Factors Affecting Our Performance

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 35 times delivering 163 spacecraft to orbit and one suborbital launch through June 30, 2023. 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 in-development 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.

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Estimating future revenues and associated costs and profit is a process requiring a high degree of management judgment, including management’s assumptions regarding our future operational performance as well as general economic conditions. Frequently, the period of performance of a contract extends over a long period of time and, as such, revenue recognition and our profitability from a particular contract may be affected to the extent that estimated costs to complete are revised, delivery schedules are delayed, performance-based milestones are not achieved or progress under a contract is otherwise impeded. Accordingly, our recorded revenues and operating profit from period to period can fluctuate significantly depending on when the point-in-time or over-time contractual obligations are achieved. In the event cost estimates indicate a loss on a contract, the total amount of such loss is recorded in the period in which the loss is first estimated.

Cost of Revenues

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

Because direct labor costs and manufacturing overhead comprise a significant portion 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 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 Income (Expense), Net

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

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, 2023 and 2022

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, 2023 and 2022 (in thousands, except percentages):

		Three Months Ended June 30,
		2023								2022
		$				%				$				%
Revenues		$	62,045				100.0	%		$	55,474				100.0	%
Cost of revenues			47,452				76.5	%			50,516				91.1	%
Gross profit			14,593				23.5	%			4,958				8.9	%
Operating expenses:
Research and development, net			31,035				50.0	%			19,165				34.5	%
Selling, general and administrative			28,717				46.3	%			18,952				34.2	%
Total operating expenses			59,752				96.3	%			38,117				68.7	%
Operating loss			(45,159	)			(72.8	)%			(33,159	)			(59.8	)%
Other income (expense):
Interest income (expense), net			(745	)			(1.2	)%			(2,432	)			(4.4	)%
Loss on foreign exchange			(90	)			(0.1	)%			(3,876	)			(7.0	)%
Other income (loss), net			866				1.4	%			(23	)			—
Total other income (expense), net			31				0.1	%			(6,331	)			(11.4	)%
Loss before income taxes			(45,128	)			(72.7	)%			(39,490	)			(71.2	)%
(Provision) benefit for income taxes			(761	)			(1.2	)%			2,073				3.7	%
Net loss		$	(45,889	)			(73.9	)%		$	(37,417	)			(67.5	)%

Revenues

		Three Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Revenues		$	62,045			$	55,474			$	6,571				12	%

Revenue increased by $6.6 million, or 12%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. Launch Services revenue was $22.5 million for the three months ended June 30, 2023, an increase of $3.4 million, or 18%, primarily due to a higher revenue per launch, with three launch missions completed in the three months ended June 30, 2023 and 2022. Space systems revenue was $39.6 million for the three months ended June 30, 2023, an increase of $3.2 million, or 9%, primarily due to spacecraft manufacturing growth.

Cost of Revenues

		Three Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Cost of revenues		$	47,452			$	50,516			$	(3,064	)			(6	)%

Cost of revenues decreased by $3.1 million, or 6%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. Launch Services cost of revenues was $17.5 million in the three months ended June 30, 2023, a decrease of $4.0 million or 19%, primarily due to the release of $4.1 million provision for contract losses. Space systems cost of revenue was $30.0 million in the three months ended June 30, 2023, an increase of $0.9 million or 3%, primarily due to space systems growth. Cost of revenues for the three months ended June 30, 2023 decreased to 77% of total revenue as compared to 91% during the three months ended June 30, 2022.

Research and Development, Net

		Three Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Research and development, net		$	31,035			$	19,165			$	11,870				62	%

Research and development expense increased by $11.9 million, or 62%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to Neutron development, increased staff cost as a result of hiring and prototype spend focused on broadening our spacecraft component product portfolio.

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Selling, General and Administrative

		Three Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Selling, general and administrative		$	28,717			$	18,952			$	9,765				52	%

Selling, general and administrative expense increased by $9.8 million, or 52%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to a $3.8 million increase in contingent consideration expense due to an adjustment in the estimated fair value of the earnout payment related to our Planetary Systems Corporation (“PSC”) acquisition, increased costs associated with being a public company including higher staff costs, facility related expense and professional services.

Interest Income (Expense), Net

		Three Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Interest income (expense), net		$	(745	)		$	(2,432	)		$	1,687				(69	)%

Interest expense, net of interest income decreased by $1.7 million, or 69%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to an increase of interest income on marketable securities and money market funds.

Loss on Foreign Exchange

		Three Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Loss on foreign exchange		$	(90	)		$	(3,876	)		$	3,786				(98	)%

Loss on foreign exchange decreased by $3.8 million, or 98%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to our New Zealand intercompany loan denominated in New Zealand Dollar. On July 1, 2022 the Company determined the New Zealand intercompany loan was not expected to be repaid and started recording foreign exchange impact on this intercompany loan to foreign currency translation adjustments.

Other Income (Loss), Net

		Three Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Other income (loss), net		$	866			$	(23	)		$	889				(3,865	)%

Other income increased by $0.9 million, or 3,865%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to accretion of marketable securities purchased at a discount.

Provision for Income Taxes

		Three Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
(Provision) benefit for income taxes		$	(761	)		$	2,073			$	(2,834	)			(137	)%

We recorded income tax expense of $0.8 million for the three months ended June 30, 2023 and income tax benefit of $2.1 million for the three months ended June 30, 2022. The effective tax rate was (1.7)% for the three months ended June 30, 2023, compared to 5.2% for the three months ended June 30, 2022. 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.

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Comparison of the Six Months Ended June 30, 2023 and 2022

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, 2023 and 2022 (in thousands, except percentages):

		Six Months Ended June 30,
		2023								2022
		$				%				$				%
Revenues		$	116,940				100.0	%		$	96,177				100.0	%
Cost of revenues			95,990				82.1	%			87,484				91.0	%
Gross profit			20,950				17.9	%			8,693				9.0	%
Operating expenses:
Research and development, net			54,940				47.0	%			32,642				33.9	%
Selling, general and administrative			57,186				48.9	%			42,030				43.7	%
Total operating expenses			112,126				95.9	%			74,672				77.6	%
Operating loss			(91,176	)			(78.0	)%			(65,979	)			(68.6	)%
Other income (expense):
Interest income (expense), net			(1,430	)			(1.2	)%			(5,421	)			(5.6	)%
Gain (loss) on foreign exchange			44				0.0	%			(3,896	)			(4.1	)%
Change in fair value of liability classified warrants			—				—	%			13,482				14.0	%
Other income, net			2,343				2.0	%			3				—
Total other income, net			957				0.8	%			4,168				4.3	%
Loss before income taxes			(90,219	)			(77.2	)%			(61,811	)			(64.3	)%
Provision for income taxes			(1,287	)			(1.1	)%			(2,315	)			(2.4	)%
Net loss		$	(91,506	)			(78.3	)%		$	(64,126	)			(66.7	)%

Revenues

		Six Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Revenues		$	116,940			$	96,177			$	20,763				22	%

Revenue increased by $20.8 million, or 22%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. Launch Services revenue was $42.1 million for the six months ended June 30, 2023, an increase of $16.4 million, or 64%, primarily due to a higher launch cadence, with six launch missions completed in the six months ended June 30, 2023, versus four launch missions completed in the six months ended June 30, 2022. Space systems revenue was $74.8 million for the six months ended June 30, 2023, an increase of $4.3 million, or 6%, primarily due to spacecraft manufacturing growth.

Cost of Revenues

		Six Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Cost of revenues		$	95,990			$	87,484			$	8,506				10	%

Cost of revenues increased by $8.5 million, or 10%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. Launch Services cost of revenues was $37.8 million in the six months ended June 30, 2023, an increase of $9.1 million or 32%, primarily due to the higher launch cadence referenced above, partially offset by a release of $4.1 million provision for contract losses. Space systems cost of revenue was $58.2 million in the six months ended June 30, 2023, a decrease of $0.6 million or 1%, primarily due to the shift of engineering labor to research and development of Neutron. Cost of revenues for the six months ended June 30, 2023 decreased to 82% of total revenue as compared to 91% during the six months ended June 30, 2022.

Research and Development, Net

		Six Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Research and development, net		$	54,940			$	32,642			$	22,298				68	%

Research and development expense increased by $22.3 million, or 68%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to Neutron development, increased staff cost as a result of hiring and prototype spend focused on broadening our spacecraft component product portfolio.

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Selling, General and Administrative

		Six Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Selling, general and administrative		$	57,186			$	42,030			$	15,156				36	%

Selling, general and administrative expense increased by $15.2 million, or 36%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to increased costs associated with being a public company including higher staff costs, facility related expense, professional services, a $2.2 million increase in stock-based compensation and a $1.6 million increase in contingent consideration expense due to an adjustment in the estimated fair value of the earnout payment related to our PSC acquisition.

Interest Income (Expense), Net

		Six Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Interest income (expense), net		$	(1,430	)		$	(5,421	)		$	3,991				(74	)%

Interest expense, net of interest income decreased by $4.0 million, or 74%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to an increase of interest income on marketable securities and money market funds.

Gain (Loss) on Foreign Exchange

		Six Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Gain (loss) on foreign exchange		$	44			$	(3,896	)		$	3,940				(101	)%

Gain on foreign exchange increased by $3.9 million, or 101%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to our New Zealand intercompany loan denominated in New Zealand Dollar. On July 1, 2022 the Company determined the New Zealand intercompany loan was not expected to be repaid and started recording foreign exchange impact on this intercompany loan to foreign currency translation adjustments.

Change in Fair Value of Liability Classified Warrants

		Six Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Change in fair value of liability classified warrants		$	—			$	13,482			$	(13,482	)			(100	)%

Change in fair value of liability classified warrants income was $13.5 million for the six months ended June 30, 2022 as a result of the change in fair value of liability classified warrants assumed in connection with the Business Combination that were redeemed by January 31, 2022. The Company had no liability classified warrants as of June 30, 2023.

Other Income, Net

		Six Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Other income, net		$	2,343			$	3			$	2,340				78,000	%

Other income increased by $2.3 million, or 78,000%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to accretion of marketable securities purchased at a discount.

Provision for Income Taxes

		Six Months Ended June 30,
(in thousands, except percentages)		2023				2022				$ Change				% Change
Provision for income taxes		$	(1,287	)		$	(2,315	)		$	1,028				(44	)%

We recorded income tax expense of $1.3 million for the six months ended June 30, 2023 and income tax expense of $2.3 million for the six months ended June 30, 2022. The effective tax rate was (1.4)% for the six months ended June 30, 2023, compared to (3.7)% for the six months ended June 30, 2022. 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.

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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, 2023, we had $197.2 million of cash and cash equivalents and $218.0 million of marketable securities. Our primary requirements for liquidity and capital are for 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:

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, 2023. As of June 30, 2023, there was $104.4 million outstanding under the Hercules Capital Secured Term Loan, which was classified as current in the Company’s condensed consolidated balance sheets. As of June 30, 2023, the Company had no availability under the Hercules Capital Secured Term Loan.

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Cash Flows

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

		Six Months Ended June 30,
(in thousands)		2023				2022
Net cash provided by (used in):
Operating activities		$	(31,449	)		$	(64,595	)
Investing activities			(17,189	)			(84,143	)
Financing activities			4,003				(566	)
Effect of exchange rate changes			(482	)			3,858
Net decrease in cash, cash equivalents, and restricted cash		$	(45,117	)		$	(145,446	)

Cash Flows from Operating Activities

Net cash used in operating activities was $31.4 million for the six months ended June 30, 2023 and consisted of $91.5 million in operating loss, $46.3 million in non-cash expense and $13.8 million in cash provided by operating assets and liabilities. Included in the non-cash expense are $29.3 million in stock-based compensation expense and $13.8 million in depreciation and amortization. Included in the cash provided by operating assets and liabilities are $26.2 million increase in contract liabilities, $13.2 million increase in trade payables, $11.4 million decrease in accounts receivable, $10.8 million increase in prepaids and other assets and $10.6 million increase in inventory.

Cash Flows from Investing Activities

Cash used in investing activities for the six months ended June 30, 2023 of $17.2 million was primarily driven by capital equipment and infrastructure investments of $23.2 million and $16.1 million cash paid in connection with the assets acquired pursuant to the Virgin APA. These investments included the purchases of equipment, including printers and milling machines, and tenant improvements to support Neutron production and Space Systems infrastructure. Cash used in investing activities was partially offset by $22.2 million of net cash provided by investing activities related to purchases and maturities of marketable securities.

Cash Flows from Financing Activities

Cash provided by financing activities for the six months ended June 30, 2023 of $4.0 million was primarily related to $5.2 million of net proceeds from our equity offerings which includes proceeds from sale of employees restricted stock units to cover taxes, stock options and employee stock purchase plan and applicable tax withholdings and payments, offset by $1.0 million payment of contingent consideration related to an acquisition.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates as disclosed in our audited financial statements included in our Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 7, 2023.

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, interest rates and inflation.

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 or the U.S. dollar. 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. Increases or decreases in the relative value of the U.S. dollar to other currencies may positively or negatively affect revenue and other operating results as expressed in U.S. dollars. Foreign currency translation adjustments are accounted for as a component of accumulated other comprehensive income (loss) within stockholders’ equity. Gains or losses due to transactions in foreign currencies are reflected in the condensed consolidated statements of operations under the line item “Gain (Loss) in Foreign Exchange.” Materially all of our revenues are denominated in U.S. dollars and we have not engaged in the hedging of foreign currency risk to date, although we may choose to do so in the future. As such, a 10% or greater move in exchange rates versus the U.S. dollar could have a material impact on our financial results and position.

Interest Rate Risk

As of June 30, 2023, we had cash and cash equivalents of $197.2 million, comprised primarily of operating accounts and money market instruments and $218.0 million invested in marketable securities, comprised of commercial paper, corporate debt securities, bank certificates of deposit, U.S. Treasury bills and notes and asset backed securities. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

Impact of Inflation

We do not believe that inflation has had a material effect on our business, results of operations, or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures it could diminish our margin thereby limiting our profits, especially if we are not able to fully offset such higher costs. Our inability or failure to do so could harm our business, financial condition, and results of operations.

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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, concluded that, as of June 30, 2023, due to material weaknesses in internal control over financial reporting at its wholly owned subsidiary, SolAero, which the Company acquired on January 18, 2022, the Company’s disclosure controls and procedures were not effective. In accordance with interpretive guidance issued by SEC staff, the Company excluded SolAero from its assessment of disclosure controls and procedures and internal control over financial reporting during the first year after completion of the acquisition. As of June 30, 2023, the SolAero subsidiary is included in the above assessment regarding the effectiveness of the Company’s disclosure controls and procedures. Notwithstanding the ineffective disclosure controls and procedures as a result of the identified material weaknesses in its SolAero subsidiary, management has concluded that the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States of America.

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, 2022, we previously identified material weaknesses related to systematic controls over segregation of duties for recording journal entries, limiting privileged-level access and change management for general IT systems at SolAero. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in annual or interim financial statements will not be prevented or detected on a timely basis. At December 31, 2022 and for the period from acquisition through December 31, 2022, total assets and total revenues subject to SolAero’s internal control over financial reporting represented 14% and 38% of consolidated total assets and total revenues, as of and for the year ended December 31, 2022.

Management has established a remediation plan and has implemented or is in the process of implementing the following items:

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 integration of SolAero, identified material weaknesses and remediation efforts, 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

Other than the risk factors previously disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2023, 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, 2022, as filed with the SEC on March 7, 2023.

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

Insider Trading Arrangements

During the three months ended June 30, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

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Item 6. Exhibits

 

Exhibit Number	Description
10.1	Asset Purchase Agreement, dated May 23, 2023, by and among Virgin Orbit Holdings, Inc. (the “Seller”), each of the affiliates of the Seller listed on Schedule I thereto, and Rocket Lab USA, Inc., as the buyer (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on May 25, 2023).
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 8, 2023		By:	/s/ Peter Beck
			Peter Beck
			President, Chief Executive Officer and Chairman
			(Principal Executive Officer)
August 8, 2023		By:	/s/ Adam Spice
			Adam Spice
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

 

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