Rocket Lab USA Inc

Comparison of the Three Months Ended March 31, 2024 and 2023

The following table sets forth our consolidated statements of operations information and data as a percentage of revenue for the three months ended March 31, 2024 and 2023 (in thousands, except percentages):

Revenues

Revenue increased by $37.9 million, or 69%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Launch Services revenue was $32.7 million for the three months ended March 31, 2024, an increase of $13.1 million, or 67%, primarily due to a higher launch cadence with four launch missions completed in the three months ended March 31, 2024, versus three launch missions completed in the three months ended March 31, 2023 and higher revenue value per launch. Space systems revenue was $60.0 million for the three months ended March 31, 2024, an increase of $24.8 million, or 70%, primarily due to spacecraft manufacturing growth.

Cost of Revenues

Cost of revenues increased by $20.1 million, or 41%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Launch Services cost of revenues was $24.3 million in the three months ended March 31, 2024, an increase of $3.9 million, or 19%, primarily due to the higher launch cadence referenced above. Space systems cost of revenue was $44.3 million in the three months ended March 31, 2024, an increase of $16.1 million, or 57%, primarily due to spacecraft manufacturing growth. Cost of revenues for the three months ended March 31, 2024 decreased to 74% of total revenue as compared to 88% during the three months ended March 31, 2023.

Research and Development, Net

Research and development expense increased by $14.6 million, or 61%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to Neutron development progress, increased staff cost as a result of hiring and prototype spend focused on expanding our spacecraft and spacecraft components product portfolio.

Selling, General and Administrative

Selling, general and administrative expense increased by $0.3 million, or 1%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due a $0.4 million increase in stock-based compensation.

Interest Expense, Net

Interest expense, net of interest income increased by $0.2 million, or 31%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to an increase of interest expense as a result of increased debt due to the issuance of senior convertible notes.

Gain on Foreign Exchange

Gain on foreign exchange increased by $0.2 million, or 132%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to our New Zealand intercompany loan denominated in New Zealand Dollars.

Other (Expense) Income, Net

Other expense increased by $2.1 million, or 140%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to a loss on extinguishment of debt of $1.3 million in the three months ended March 31, 2024.

Provision for Income Taxes

We recorded income tax expense of $0.0 million for the three months ended March 31, 2024 and income tax expense of $0.5 million for the three months ended March 31, 2023. The effective tax rate was (0.0)% for the three months ended March 31, 2024, compared to (1.2)% for the three months ended March 31, 2023. 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, convertible senior notes, term note debt, research and development grant proceeds, and cash flows from the sale of our products and services. As of March 31, 2024, we had $365.9 million of cash and cash equivalents and $195.2 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 our 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.

Material Cash Requirements

As of March 31, 2024, we had outstanding $421.8 million in aggregate principal amount of indebtedness under our convertible senior notes and equipment financing agreement, of which $11.0 million was scheduled to become due in the following twelve months. As of March 31, 2024, our total minimum lease payments was $107.2 million, of which $10.9 million is due in the following twelve months. For details regarding our indebtedness and lease obligations at March 31, 2024, refer to Note 11, Loan Agreements, and Note 14, Leases, to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Our capital expenditures for the three months ended March 31, 2024 were $19.2 million. 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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increase our investment in marketing, sales and distribution infrastructure for our existing and future products and services;

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develop additional new products and enhancements to existing products;

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obtain, maintain and improve our operational, financial and management performance;

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hire additional personnel;

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obtain, maintain, expand and protect our intellectual property portfolio; and

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continue to operate as a public company.

Indebtedness

As of March 31, 2024, there was $355.0 million outstanding under our 4.250% Convertible Senior Notes due 2029, before unamortized discount and debt issuance costs of $11.2 million. In addition, as of March 31, 2024, there was $66.8 million outstanding under the Trinity Loan Agreement, before unamortized discount and debt issuance costs of $3.1 million.

See Note 11 of Item 1 for additional information on our outstanding loan agreements.

Cash Flows

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

Cash Flows from Operating Activities

Net cash used in operating activities was $2.6 million for the three months ended March 31, 2024 and consisted of $44.3 million in net loss, $23.8 million in non-cash activities and $17.8 million in cash provided by operating assets and liabilities. Included in the non-cash activities are $13.1 million in stock-based compensation expense and $8.3 million in depreciation and amortization. Included in the cash provided by operating assets and liabilities are $11.2 million in contract liabilities, $7.5 million in inventory, $6.7 million in other current liabilities and $3.9 million in accounts receivable, offset by cash used in operating assets and liabilities including $5.3 million in prepaids and other assets and $4.3 million in other non-current assets.

Cash Flows from Investing Activities

Cash used in investing activities for the three months ended March 31, 2024 of $52.3 million was primarily driven by $33.1 million of net cash used in investing activities related to purchases and maturities of marketable securities and $19.2 million of capital equipment and infrastructure investments.

Cash Flows from Financing Activities

Cash provided by financing activities for the three months ended March 31, 2024 of $258.7 million was primarily related to $355.0 million of proceeds from the issuance of convertible senior notes, partially offset by $43.2 million of repayments on Trinity Loan Agreement, $43.2 million purchase of capped calls related to the issuance of convertible senior notes and $11.2 million of debt issuance costs.

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, 2023, as filed with the SEC on February 28, 2024.

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.