# Rocket Lab Corp (RKLB) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Rocket Lab Corp's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1819994/000162828025008724/rklb-20241231.htm
Accession: 0001628280-25-008724
Filing date: 2025-02-27
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/RKLB/
All MD&A years: /company/RKLB/mda/
Previous year: /company/RKLB/mda/fy2023/ (FY 2023)
Next year: /company/RKLB/mda/fy2025/ (FY 2025)

Item 7. 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 consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Certain amounts may not foot due to rounding. Certain information in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K 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 Item I, Part 1A. “Risk Factors” included in this Annual Report on Form 10-K. 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, on-orbit management solutions, and space data applications. Each of these initiatives addresses a critical component of the end-to-end solution and our value proposition for the space economy:

•Launch Services is the design, manufacture, and launch of orbital rockets to deploy payloads to various Earth orbits and interplanetary destinations.

•Space Systems is the design and manufacture of spacecraft components and spacecraft program management services, space data applications and mission operations.

Electron is our orbital small launch vehicle that was designed from the ground up to accommodate a high launch rate business model to meet the growing and dynamic needs of our customers for small launch services. Since its maiden launch in 2017, Electron has become the leading small spacecraft launch vehicle delivering over 200 spacecraft to orbit for government and commercial customers across 54 successful missions through December 31, 2024. In 2024, Electron was the second most frequently orbital launched rocket by companies operating in the United States and the second most frequent orbital 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 that 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 space stations. Neutron will also provide a dedicated service to orbit for larger civil, defense and commercial payloads that need a high level of schedule control and high-flight cadence. We expect to be able to leverage Electron’s flight heritage across various vehicle subsystems designs, launch complexes and ground station infrastructure.

Our space systems initiatives are supported by the design and manufacture of our spacecraft family 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 Technologies Corp. and aerospace software firm Advanced Solutions, Incorporated. Each of these strategic acquisitions brought incremental vertically-integrated capabilities for our own spacecraft family 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. Our spacecraft family, 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, full spacecraft manufacturing, 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

Neutron Update

We continue to make significant progress across Neutron’s structures and infrastructure at our LC-3 facility in Virginia. Archimedes engine qualification continues at Rocket Lab’s engine test site at the Stennis Space Center in Mississippi. Performance iterations on the production line have resulted in mass reductions of more than 200kg per engine. We introduced our proposed modified barge, that will be customized to enable landings at sea for our reusable Neutron rocket. Based on our evaluation of progress to date and necessary testing, engineering, qualification and manufacturing and infrastructure milestones still necessary to be achieved, we continue to plan for the debut launch of Neutron in the second half of 2025, although uncertainty remains in the complex development cycle of a new launch vehicle which could result in our targeted timeline for first launch slipping further.

Key Factors Affecting Our Performance

Ability to timely develop and successfully deploy Neutron launch vehicle

Our future results will depend on the success of the development and commercial acceptance of our Neutron medium-capacity launch vehicle. While we have made significant progress across Neutron’s structures and infrastructure to date, including engine testing and initial production execution, the commercial development of a new launch vehicle is inherently time consuming and involves numerous risks throughout the engineering and manufacturing development cycle, any of which could create delays in reaching the initial launch and future launches of the completed vehicle. In addition, even if we succeed in developing Neutron consistent with our targeted timeline, we could be unsuccessful in developing the ability to produce these launch vehicles in quantities and with the necessary quality manufacturing system that ensures each vehicle and engines perform as required. Any delay in the production of the Neutron launch vehicle or in our ability to produce these launch vehicles at our expected rate of production and with a reliable quality management system could have a material impact on customer acceptance as well as our future revenue, financial condition and results of operations. Additionally, delays or setbacks in Neutron development may require more research, development and capital expenditures than we currently anticipate, which could adversely affect our liquidity and capital resources in future periods.

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 54 times delivering over 200 spacecraft to orbit, including one suborbital launch, through December 31, 2024. We have flight hardware and spacecraft that have flown on over 1,800 missions, including legacy missions enabled by Sinclair Interplanetary (acquired April 2020), Advanced Solutions, Incorporated (acquired October 2021), Planetary Systems Corporation (acquired November 2021) and SolAero Technologies Corp. (acquired January 2022). Our growth opportunity is dependent on our ability to expand our addressable launch services market with larger volumetric and higher mass payload 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 improve 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.

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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 12 Electron launch vehicles in 2022, approximately 11 Electron launch vehicles in 2023 and approximately 14 Electron launch vehicles in 2024. We launched nine Electron vehicles in 2022, ten Electron vehicles in 2023 and 16 Electron vehicles in 2024. 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.

Revenue Growth

We generated $436.2 million and $244.6 million in revenue for the years ended December 31, 2024 and 2023, respectively, representing a year-on-year increase in revenue of approximately 78%. This year-on-year increase primarily resulted from increased revenues in our organic space system products and services representing growth of $138.1 million and higher launch cadence that delivered growth of $53.5 million.

Revenue and Cost 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.

For the years ended December 31, 2024, 2023 and 2022, our revenue value per launch was $7.8 million, $7.1 million and $6.7 million, respectively. Meanwhile, cost per launch was $5.7 million, $7.0 million and $7.5 million for the years ended December 31, 2024, 2023 and 2022, respectively. Cost per launch for the year ended December 31, 2023 excludes 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. The decrease in cost per launch in the years ended December 31, 2024 and 2023 was driven by efficiencies of scale.

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. As of December 31, 2024, our backlog totaled $1,067.0 million, of which $680.7 million is related to space systems and $386.3 million is related to launch services.

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 based 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 generally 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.

For a description of our revenue recognition policies, see Note 2, Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Cost of Revenues

Cost of revenues consists primarily of direct material and labor costs, manufacturing overhead, freight expense, depreciation and amortization and other personnel-related expenses, which include salaries, bonuses, benefits and stock-based compensation expense, directly associated with generating revenues. We expect our cost of revenues to increase in absolute dollars in future periods as we sell more launch services and space systems. 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 sales and business development, 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, net expense consists primarily include labor, prototype, professional services, materials, facilities 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 capacity Neutron launch vehicle, Electron’s first stage recovery, and spacecraft features and capabilities, as well as 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, risk management and related insurance, travel, allocated overhead and other marketing, communications and administrative expenses. We also expect to further invest in our corporate infrastructure and incur additional expenses associated with operating as a public company, including increased legal and accounting costs, investor relations 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 earned on our cash and cash equivalents, short-term investments balances and marketable securities.

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

The following table sets forth our consolidated statements of operations information and data as a percentage of revenue for each of the periods indicated (in thousands, except percentages):

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2024","","2023","","2022"],["","$","","%","","$","","%","","$","","%"],["Revenues","$","436,214","","","100.0","%","","$","244,592","","","100.0","%","","$","210,996","","","100.0","%"],["Cost of revenues","320,065","","","73.4","%","","193,183","","","79.0","%","","192,006","","","91.0","%"],["Gross profit","116,149","","","26.6","%","","51,409","","","21.0","%","","18,990","","","9.0","%"],["Operating expenses:"],["Research and development, net","174,394","","","40.0","%","","119,054","","","48.7","%","","65,168","","","30.9","%"],["Selling, general and administrative","131,556","","","30.2","%","","110,273","","","45.1","%","","89,026","","","42.2","%"],["Total operating expenses","305,950","","","70.2","%","","229,327","","","93.8","%","","154,194","","","73.1","%"],["Operating loss","(189,801)","","","(43.6)","%","","(177,918)","","","(72.8)","%","","(135,204)","","","(64.1)","%"],["Other income (expense):"],["Interest expense, net","(3,954)","","","(0.9)","%","","(4,248)","","","(1.7)","%","","(7,799)","","","(3.7)","%"],["Loss on foreign exchange","(87)","","","\u2014","%","","(470)","","","(0.2)","%","","(4,435)","","","(2.1)","%"],["Change in fair value of liability classified warrants","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","13,482","","","6.4","%"],["Other income, net","4,431","","","1.0","%","","3,715","","","1.5","%","","1,010","","","0.5","%"],["Total other income (expense), net","390","","","0.1","%","","(1,003)","","","(0.4","%)","","2,258","","","1.1","%"],["Loss before income taxes","(189,411)","","","(43.5)","%","","(178,921)","","","(73.2)","%","","(132,946)","","","(63.0)","%"],["Provision for income taxes","(764)","","","(0.2)","%","","(3,650)","","","(1.5)","%","","(2,998)","","","(1.4)","%"],["Net loss","$","(190,175)","","","(43.7)","%","","$","(182,571)","","","(74.7)","%","","$","(135,944)","","","(64.4)","%"]]
[[/GREPCENT_TABLE]]

Comparison of the Years Ended December 31, 2024 and 2023

Revenues

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2024","","2023","","$ Change","","% Change"],["Revenues","","$","436,214","","","$","244,592","","","$","191,622","","","78","%"]]
[[/GREPCENT_TABLE]]

Revenue increased by $191.6 million, or 78%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Space systems revenue was $310.8 million for the year ended December 31, 2024, an increase of $138.1 million, or 80%, primarily due to spacecraft manufacturing growth. Launch services revenue was $125.4 million for the year ended December 31, 2024, an increase of $53.5 million, or 74%, primarily due to a higher launch cadence, with 16 launch missions completed in the year ended December 31, 2024, versus ten launch mission completed in the year ended December 31, 2023.

Cost of Revenues

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2024","","2023","","$ Change","","% Change"],["Cost of revenues","","$","320,065","","","$","193,183","","","$","126,882","","","66","%"]]
[[/GREPCENT_TABLE]]

Cost of revenues increased by $126.9 million, or 66%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Space systems cost of revenue was $229.3 million for the year ended December 31, 2024, an increase of $99.9 million, or 77%, primarily due to spacecraft manufacturing growth. Launch Service cost of revenues was $90.8 million for the year ended December 31, 2024, an increase of $27.0 million, or 42%, primarily due to a higher launch cadence referenced above. Cost of revenues for the year ended December 31, 2024 decreased to 73% of total revenue as compared to 79% for the year ended December 31, 2023.

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Research and Development, Net

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2024","","2023","","$ Change","","% Change"],["Research and development, net","","$","174,394","","","$","119,054","","","$","55,340","","","46","%"]]
[[/GREPCENT_TABLE]]

Research and development expense increased by $55.3 million, or 46%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to Neutron development progress, increased staff and staff related expenses as a result of hiring and prototype spend focused on expanding our spacecraft and spacecraft components product portfolio.

Selling, General and Administrative

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2024","","2023","","$ Change","","% Change"],["Selling, general and administrative","","$","131,556","","","$","110,273","","","$","21,283","","","19","%"]]
[[/GREPCENT_TABLE]]

Selling, general and administrative expense increased by $21.3 million, or 19%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to increased staff and staff related expenses to support revenue growth.

Interest Expense, Net

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2024","","2023","","$ Change","","% Change"],["Interest expense, net","","$","(3,954)","","","$","(4,248)","","","$","294","","","(7)","%"]]
[[/GREPCENT_TABLE]]

Interest expense, net of interest income decreased by $0.3 million, or 7%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to an increase of interest income from increased money market account balances and decreased interest expense on secured borrowings, partially offset by interest expense incurred on senior convertible notes.

Loss on Foreign Exchange

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2024","","2023","","$ Change","","% Change"],["Loss on foreign exchange","","$","(87)","","","$","(470)","","","$","383","","","(81)","%"]]
[[/GREPCENT_TABLE]]

Loss on foreign exchange decreased by $0.4 million, or 81%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to fluctuations on the foreign exchange rates of the New Zealand Dollar and Canadian Dollar as compared to the U.S. Dollar.

Other Income, Net

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2024","","2023","","$ Change","","% Change"],["Other income, net","","$","4,431","","","$","3,715","","","$","716","","","19","%"]]
[[/GREPCENT_TABLE]]

Other income increased by $0.7 million, or 19%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to a gain on sale of assets related to the sale of a helicopter and spare parts in 2024, partially offset by a decrease in accretion of marketable securities purchased at a discount.

Provision for Income Taxes

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2024","","2023","","$ Change","","% Change"],["Provision for income taxes","","$","(764)","","","$","(3,650)","","","$","2,886","","","(79)","%"]]
[[/GREPCENT_TABLE]]

We recorded income tax expense of $0.8 million and $3.7 million for the years ended December 31, 2024 and 2023, respectively. The effective tax rate was (0.4)% for the year ended December 31, 2024, compared to (2.0)% for the year ended December 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.

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Comparison of the Years Ended December 31, 2023 and 2022

Revenues

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2023","","2022","","$ Change","","% Change"],["Revenues","","$","244,592","","","$","210,996","","","$","33,596","","","16","%"]]
[[/GREPCENT_TABLE]]

Revenue increased by $33.6 million, or 16%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Launch services revenue was $71.9 million for the year ended December 31, 2023, an increase of $11.2 million, or 18%, primarily due to a higher launch cadence, with ten launch missions completed in the year ended December 31, 2023, versus nine launch mission completed in the year ended December 31, 2022. Space systems revenue was $172.7 million for the year ended December 31, 2023, an increase of $22.4 million, or 15%, primarily due to spacecraft manufacturing growth.

Cost of Revenues

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2023","","2022","","$ Change","","% Change"],["Cost of revenues","","$","193,183","","","$","192,006","","","$","1,177","","","1","%"]]
[[/GREPCENT_TABLE]]

Cost of revenues increased by $1.2 million, or 1%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Launch Service cost of revenues was $63.8 million for the year ended December 31, 2023, a decrease of $3.8 million, or 6%, primarily due to a release of a $4.1 million provision for contract losses and a $2.1 million benefit from non-recurring employee retention credit, offset by the higher launch cadence referenced above. Space systems cost of revenue was $129.4 million for the year ended December 31, 2023, an increase of $5.0 million, or 4%, primarily due to spacecraft manufacturing growth. Cost of revenues for the year ended December 31, 2023 decreased to 79% of total revenue as compared to 91% for the year ended December 31, 2022.

Research and Development, Net

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2023","","2022","","$ Change","","% Change"],["Research and development, net","","$","119,054","","","$","65,168","","","$","53,886","","","83","%"]]
[[/GREPCENT_TABLE]]

Research and development expense increased by $53.9 million, or 83%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to Neutron development progress, increased staff cost as a result of hiring and prototype spend focused on expanding our Photon and spacecraft components product portfolio.

Selling, General and Administrative

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2023","","2022","","$ Change","","% Change"],["Selling, general and administrative","","$","110,273","","","$","89,026","","","$","21,247","","","24","%"]]
[[/GREPCENT_TABLE]]

Selling, general and administrative expense increased by $21.2 million, or 24%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to expanding our business development initiatives which drove higher staff related costs, increased professional services costs associated with our recent transition to large accelerated filer status, a $2.6 million increase in stock-based compensation and facility related expense.

Interest Income (Expense), Net

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2023","","2022","","$ Change","","% Change"],["Interest income (expense), net","","$","(4,248)","","","$","(7,799)","","","$","3,551","","","(46)","%"]]
[[/GREPCENT_TABLE]]

Interest expense, net of interest income decreased by $3.6 million, or 46%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to an increase of interest income on marketable securities and money market funds, partially offset by increased interest expense on our floating rate term loan from Hercules.

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Loss on Foreign Exchange

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2023","","2022","","$ Change","","% Change"],["Loss on foreign exchange","","$","(470)","","","$","(4,435)","","","$","3,965","","","(89)","%"]]
[[/GREPCENT_TABLE]]

Loss on foreign exchange decreased by $4.0 million, or 89%, for the year ended December 31, 2023 as compared to the year ended December 31, 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

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2023","","2022","","$ Change","","% Change"],["Change in fair value of liability classified warrants","","$","\u2014","","","$","13,482","","","$","(13,482)","","","(100)","%"]]
[[/GREPCENT_TABLE]]

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

Other Income (Expense), Net

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2023","","2022","","$ Change","","% Change"],["Other income (expense), net","","$","3,715","","","$","1,010","","","$","2,705","","","268","%"]]
[[/GREPCENT_TABLE]]

Other income increased by $2.7 million, or 268%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to accretion of marketable securities purchased at a discount.

Benefit (Provision) for Income Taxes

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands, except percentages)","","2023","","2022","","$ Change","","% Change"],["Benefit (provision) for income taxes","","$","(3,650)","","","$","(2,998)","","","$","(652)","","","22","%"]]
[[/GREPCENT_TABLE]]

We recorded income tax expense of $3.7 million and 3.0 million for the years ended December 31, 2023 and 2022, respectively. The effective tax rate was (2.0)% for the year ended December 31, 2023, compared to (2.3)% for the year ended December 31, 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.

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, equipment financing, research and development grant proceeds, and cash flows from the sale of our products and services. As of December 31, 2024, we had $271.0 million of cash and cash equivalents and $208.6 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 and convertible senior notes, borrowings under our credit and equipment financing 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 primarily for the purposes noted above. We will continue to invest in increasing production and expanding our product offerings through acquisitions.

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Material Cash Requirements

As of December 31, 2024, we had outstanding $58.3 million in aggregate principal amount of indebtedness under our equipment financing agreement, of which $12.0 million was scheduled to become due in the following twelve months. As of December 31, 2024, our total minimum lease payments was $102.3 million, of which $10.9 million is due in the following twelve months. For details regarding our indebtedness and lease obligations at December 31, 2024, refer to Note 12, Loan Agreements, and Note 16, Leases, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Our capital expenditures for the fiscal year ended December 31, 2024 were $67.1 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 or take advantage of opportunistic capital raising or financing transactions primarily for the purposes noted above. 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:

•increase our investment in marketing, advertising, sales and distribution infrastructure for our existing and future products and services;

•develop additional new products and enhancements to existing products;

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

•hire additional personnel;

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

•continue to operate as a public company.

Indebtedness

On February 6, 2024, the Company issued $355.0 million aggregate principal amount of its 4.250% Convertible Senior Notes due 2029 (the “Notes”). The Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of February 6, 2024, between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). As of December 31, 2024, there was $355.0 million outstanding under the Notes, before unamortized discount and debt issuance costs of $9.6 million. As of December 31, 2024, the effective interest rate under the Notes was 5.0%.

On December 29, 2023 (the “Effective Date”), the Company and certain of its subsidiaries (the “Subsidiaries”, together with the Company, the “Borrowers”), entered into a Master Equipment Financing Agreement (the “Loan Agreement”) with Trinity Capital, Inc., a Maryland corporation (the “Lender”) to provide financing for certain equipment and other property (the “Equipment”). The Loan Agreement provides that the Lender shall provide equipment financing in the aggregate of up to $120.0 million (the “Conditional Commitment”), with advances (“Draws”) to be made as follows: (i) $70 million on the Effective Date (the “Effective Date Draw”); and (ii) $40 million to be drawn on the Effective Date (the “Blanket Lien Draw”), with each of the Effective Date Draw and Blanket Lien Draw payable over sixty (60) months beginning January 2024, with the final payments due in January 2029. After the Blanket Lien Draw is repaid in full, Borrowers may make Draws as follows: (x) $30 million to be drawn in not more than three advances of at least $10 million each at the Borrowers’ option no later than the date that is 18 months after the Effective Date; and (y) $20 million to be drawn at Borrower’s option between January 1, 2025 and June 30, 2025 (such date, the “Termination Date”), subject to customary conditions. As of December 31, 2024 the effective interest rate under the Loan Agreement was 14.9%.

As of December 31, 2024, there was $58.3 million principal outstanding under the Loan Agreement, of which $12.0 million is classified as current in the Company’s consolidated balance sheets, with the remainder classified as long-term borrowing.

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Cash Flows

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

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["(in thousands)","2024","","2023","","2022"],["Net cash provided by (used in):"],["Operating activities","$","(48,890)","","","$","(98,867)","","","$","(106,538)"],["Investing activities","(98,327)","","","12,018","","","(346,079)"],["Financing activities","256,682","","","7,369","","","2,041"],["Effect of exchange rate changes","(597)","","","43","","","4,372"],["Net increase (decrease) in cash, cash equivalents, and restricted cash","$","108,868","","","$","(79,437)","","","$","(446,204)"]]
[[/GREPCENT_TABLE]]

Cash Flows from Operating Activities

Net cash used in operating activities for the year ended December 31, 2024 of $48.9 million, which consisted of $190.2 million in operating loss, $95.5 million non-cash expense and $45.8 million in cash provided by operating assets and liabilities. Included in the non-cash activities are $56.8 million in stock-based compensation expense and $33.7 million in depreciation and amortization. Included in the cash provided by operating assets and liabilities are $76.9 million in contract liabilities, $24.8 million in trade payables, $9.1 million in accrued expenses and $7.6 million in prepaids and other assets, offset by cash used in operating assets and liabilities including $50.2 million in contract assets, $12.9 million in other non-current assets and $12.4 million in inventories.

Cash Flows from Investing Activities

Cash used in investing activities for the year ended December 31, 2024 of $98.3 million was primarily driven by capital equipment and infrastructure investments of $67.1 million and net cash used related to purchases, maturities and sales of marketable securities of $43.8 million. These capital investments included the purchases of equipment, including additive manufacturing or 3D printers and milling machines, and tenant improvements to support Neutron production and space systems infrastructure. Cash used in investing activities was partially offset by $12.5 million of net proceeds on disposal of assets, primarily related to the sale of a helicopter.

Cash Flows from Financing Activities

Cash provided by financing activities for the year ended December 31, 2024 of $256.7 million was primarily related to $355.0 million of proceeds from the issuance of convertible senior notes, partially offset by $51.7 million of repayments on Trinity Loan Agreement, $43.2 million purchase of capped calls related to the issuance of convertible senior notes and $12.2 million of debt issuance costs.

Critical Accounting Policies and Estimates

We believe that the following accounting policies involve a high degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. See Note 2, Significant Accounting Policies to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies. The preparation of our consolidated financial statements in conformity with accounting standards generally accepted in the United States of America (“U.S. GAAP”) requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.

Revenue Recognition

The transaction price represents the amount of consideration to which we expect to be entitled in exchange for transferring the promised products or services to our customers. The consideration promised within a contract may include fixed amounts and variable amounts. Variable consideration may consist of final milestone payments, mission success fees or liquidating damages that are earned or penalized if certain contractual milestones are achieved or are not achieved.

We estimate variable consideration at the most likely amount or expected value, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. We do not have a history of significant changes in our estimates of variable consideration; however, judgment is involved in estimating the amounts on long term contracts and could be subject to change if we encounter significant delays in production.

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For revenue recognized over-time, we use an input method, based on costs incurred relative to total estimated costs at completion to estimate the percentage of completion. The costs incurred are determined by assessing the physical and technical progress on the spacecraft applied to the standard costs. Due to the nature of the work performed under spacecraft construction contracts, the estimation of physical and technical progress requires judgment and is subject to many variables including but not limited to actual progress and costs incurred, labor productivity, changes in cost and availability of materials.

If our actual costs exceed our estimates, our margins and profits are reduced and we could incur a provision for contract loss. A provision for contract loss is when estimates of total costs to be incurred on a contract exceed total estimates of the transaction price. When this occurs, a provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is evident.

Stock-based Compensation

The fair value of stock options under our employee equity incentive plan are estimated as of the grant date using the Black-Scholes option valuation model, which is affected by the fair value per share of common stock, the expected share price volatility of its common shares over the expected term, expected term, risk-free interest rate and expected dividend yield, which are estimated as follows:

•Fair value per share of common stock. The fair value of common stock based on the market price of our common stock underlying the awards on the grant date.

•Expected volatility. Our shares have actively traded for a short period of time subsequent to the Business Combination, the volatility is based on the weighted average historical volatilities of our common stock and a pool of public companies that are comparable to us. Expected volatility represents the estimated volatility of the shares over the expected life of the options.

•Expected term. We determine the expected term of the awards using the simplified method. The simplified method estimates the expected term based on the average of the vesting period and contractual term of the stock option.

•Risk-free interest rate. The risk-free interest rate for periods within the expected life of the option is derived from the U.S. treasury interest rates in effect at the date of grant.

•Estimated dividend yield. We use an expected dividend yield of zero since no dividends are expected to be paid.

The assumptions used in calculating the fair value of stock-based awards represent our best estimates, however, these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change or we use different assumptions, stock-based compensation expense could be materially different in the future.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized by applying the statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

We utilize a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We make estimates, assumptions and judgments to determine its provision for income taxes and also for deferred tax assets and liabilities and any valuation allowances recorded against deferred tax assets. Actual future operating results and the underlying amount and type of income could differ materially from our estimates, assumptions and judgments thereby impacting its consolidated financial position and results of operations.