Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of operations of Astra Space, Inc. should be read together with our audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 and unaudited interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2022 and 2021, together with related notes thereto. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those projected in these forward-looking statements as a result of various factors, including those set forth in the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022, as updated by factors disclosed in the section titled "Risk Factors" in this Quarterly Report on Form 10-Q. Certain amounts may not foot due to rounding. Unless the context otherwise requires, all references in this section to “the Company” “Astra,” “us,” “our” or “we” refer to Astra Space, Inc. after the closing of the Business Combination on June 30, 2021, and Astra Space Operations, Inc, formerly known as Astra Space, Inc, prior to the Business Combination.
Overview
Our mission is to launch a new generation of launch services and space products and services to Improve Life on Earth from Space®. These services and products are enabled by new constellations of small satellites in Low Earth Orbit (“LEO”), which have rapidly become smaller, cheaper, and many times more numerous than legacy satellites. Launch vehicles, however, have not evolved in the same way — most rockets remain focused on serving legacy satellites and human spaceflight missions and we aim to provide the world’s first mass-produced orbital launch system.
In July 2022, we decided to focus on the development and production of the next version of our launch system, which we unveiled at our inaugural SpaceTech Day on May 12, 2022. As a result, we have discontinued the production of launch vehicles supported by our current launch system and do not plan to conduct any further commercial launches in 2022. As part of the development cycle for our new launch system, we expect to conduct test launches of our new launch system in 2023 but are not certain whether we will be able to conduct paid commercial launches in 2023 using this new launch system. Whether we will be able to conduct paid commercial launches in 2023 will depend in part upon the success of these test launches.
Our new launch system is intended to support launch vehicles that will serve a market focused on populating mega constellations. We have designed this launch system to support more payload capacity and a more frequent launch cadence, which we believe will allow us to offer our customers more dependable services. We have begun discussions with customers for whom we agreed to launch payloads on our Rocket 3 series launch vehicles (aka launch system 1.0) and the shift of those flights to our Rocket 4 series (aka launch system 2.0). Please carefully review our Risk Factors contained in this quarterly report on Form 10-Q for information regarding possible risks and uncertainties that our decision to focus on the development of our new launch system may have on our business, results of operations and future prospects.
We have also been focusing on the growth of our space products business with the sale of our Astra Spacecraft Engine. The Astra Spacecraft Engine is a propulsion engine that assists satellites in achieving and maintaining targeted orbits. Including 14 units in Apollo Fusion’s backlog on July 1, 2021, we have received cumulative committed orders for 103 Astra Spacecraft Engines, an increase of 69% compared to March 31, 2022.
While our primary focus remains the development of our launch services offerings and growth of our existing space products, we continue to develop other space products and service offerings to support our overall mission to improve life on Earth from space. We are also focused on adding to our core space technology to support the growth and development of our product and service offerings.
COVID-19 Impact
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. The extent of the impact of the coronavirus pandemic on Astra’s operational and financial performance will depend on various future developments, including variants of the disease, the duration and spread of the outbreak and impact on its customers, suppliers, and employees, all of which is uncertain at this time. Astra believes the COVID-19 pandemic may adversely impact future revenue and results of operations, but Astra is unable to predict at this time the size and duration of this adverse impact. Astra has seen some signs of positive effects for its long-term business prospects and partnerships as a result of the pandemic. The COVID-19 pandemic has created an even greater need for broadband internet access, and businesses are thinking differently about how their workforce can stay connected. There have also been recent government and commercial announcements about continuous investments in this area and we believe this will continue to support the growth of the small satellite market for the foreseeable future.
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Key Factors Affecting Our Results and Prospects
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including competition from better known and well-capitalized companies, the risk of actual or perceived safety issues and their consequences for our reputation and the other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the period ended December 31, 2021, filed with the SEC on March 31, 2022, as updated by factors disclosed in the section titled "Risk Factors" in this Quarterly Report on Form 10-Q. We believe the factors discussed below are key to our success.
Commencing and Expanding Commercial Operations
We commenced paid commercial launch services in 2022, with our launch on February 10, 2022, of launch vehicle LV0008. After a nominal first stage flight, the payload fairing did not fully deploy prior to the upper stage ignition due to an electrical issue which, together with a software issue, resulted in the upper stage not reaching orbit and the end of the mission. Through our investigation process, we identified and have since corrected the issues that caused the error in the payload fairing’s deployment and addressed the software issue. On March 15, 2022, we conducted an orbital launch on our launch vehicle LV0009 for three customers of Spaceflight, Inc. and confirmed our first delivery of customer payloads into Earth orbit. On June 12, 2022, we conducted our first launch for NASA’s TROPICS-1 mission on our launch vehicle LV0010. While we had a nominal first stage flight, our upper stage shut down early and we did not deliver the payloads into low Earth orbit. We have been working closely with NASA and the FAA to investigate the failure. We have reviewed all the flight data, and continue to eliminate branches and elements of the fault tree. To conduct our launches, we are required to receive commercial space transportation licenses from the FAA. Any delays in commencing our commercial launch operations, including due to delays or cost overruns in obtaining FAA licenses or other regulatory approvals for future versions of our launch vehicles or at future spaceports, could adversely impact our results and growth plans.
We have made substantial progress towards demonstrating a monthly launch production capability during the first two quarters of 2022, with a goal of reaching an even more frequent launch production capability in the future. We have decided to focus on the development of our new launch system and thus, have discontinued the production of launch vehicles supported by our current launch system. When we refer to a “commercial launch,” we mean a launch conducted under an FAA commercial launch license.
We also commenced delivery of space products during the three months ended June 30, 2022. We expect the volume of delivery of our space products would increase in the future as we continue to fulfill our obligations under existing space products contracts and enter into contracts with potential new customers. In late July 2022, the Company entered into a lease agreement for approximately 60,000 square feet of manufacturing facility in Sunnyvale, California having a lease term of 36 months. This new lease facility will enable expansion of our space products production and development capacity, thermal testing capacity, as well as providing production and engineering space for future space services business.
Lowering Manufacturing Costs and Increasing Payloads
We aim to be a cost-efficient dedicated orbital launch system provider. We plan to increase the maximum payload capacity of our launch vehicle to meet customer needs and demands through a process of iterative development and improvement. We have made significant investment in our manufacturing facility located in Alameda, California. Please see risk factors previously disclosed in our Annual Report on Form 10-K for the period ended December 31, 2021, filed with the SEC on March 31, 2022, as updated by factors disclosed in the section titled "Risk Factors" in this Quarterly Report on Form 10-Q, for factors that could affect our ability to realize benefits from the investment in our manufacturing facility. While we believe that our estimate is reliable, any delays in our achieving full manufacturing capacity could adversely impact our results and growth plans.
Leveraging Core Technologies
We plan to develop, license or acquire core space technologies that we expect to commercialize and incorporate into our launch vehicles, spacecrafts and other infrastructure that we will use to deliver our product and space service offerings. These core technologies including, among other things, electric propulsion and solar power. For example, we acquired propulsion technology through our merger with Apollo Fusion, which we announced on June 2, 2021, and closed on July 1, 2021.
Expand Our Space Services Offerings
We are in the preliminary stages of developing our space services offering, providing modular configurable satellite buses for customers, leveraging both in-house and partner-provided subsystem components and in-house design and integration services, as well as operational support of satellites on orbit, to turn-key provision of entire constellations, offering "concept to constellation" in months instead of years. Specifically, our space services encompass all aspects of hosted satellite and constellation services, including hosting customer payloads onto our satellites, and delivering services, such as communication services. These services are expected to allow customers to focus on developing innovative payloads rather than having to design or develop complete satellite buses or satellites or
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constellations, which we will provide, along with ancillary services that are likely to include telemetry, tracking and control ("TT&C"), communications, processing, as well as software development and maintenance.
On November 4, 2021, we filed an application with the FCC, under which we requested authority to launch and operate a non-geostationary orbit satellite system using V-band frequencies (the "Constellation") as we work to build out our space services offering to enable communications. We anticipate a response within 12 to 30 months from the date of application.
In the future, we would expect to make significant investments in our space services programs. Although we believe that our financial resources will be sufficient to meet our capital needs for at least 12 months from the date of this Quarterly Report on Form 10-Q, our timeline and budgeted costs for these offerings are subject to substantial uncertainty, including due to compliance requirements of U.S. federal export control laws and applicable foreign and local regulations, the impact of political and economic conditions, the need to identify opportunities and negotiate long-term agreements with customers for these services, among other factors.
Key Components of Results of Operations
We are an early-stage company and our historical results may not be indicative of our future results for reasons that may be difficult to anticipate. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or future results of operations.
Revenues
We commenced our first paid commercial launch, which occurred in February 2022, followed by subsequent paid commercial launches which occurred in March 2022 and June 2022. These launches represent the start of our paid commercial launch operations. As discussed earlier, we have discontinued the production of launch vehicles supported by our current launch system and do not plan to conduct any further commercial launches in 2022. See “Overview” for more information about our decision to stop producing launch vehicles supported by our current launch system.
We also commenced delivery of space products to our customers during the three months ended June 30, 2022. We also expect to generate revenues by delivering space services to our customers in the future.
Cost of Revenues
Cost of revenues consist primarily of direct material, direct labor, manufacturing overhead, other personnel-related expenses, which include salaries, bonuses, benefits and stock-based compensation expense and depreciation expense. Cost of revenues also includes inventory write-downs to reduce the carrying value of inventory related to launch services when the carrying value exceeds its estimated net realizable value. We anticipate recording write-downs to our inventory over the foreseeable future as we continue to ramp production of launch vehicles supported by our new launch system. We expect our cost of revenues to increase in future periods as we sell more launch services and space products. As we grow into our current capacity and execute on cost-reduction initiatives, we expect our gross margins to improve over time.
Operating Expenses
Research and Development Expense
Our research and development expenses consist primarily of internal and external expenses incurred in connection with our research activities and development programs. These expenses include, but are not limited to, development supplies, testing materials, personnel and personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation expense), depreciation expense, amortization of intangible assets, overhead allocation (consisting of various support and facility costs) and consulting fees. Research and development costs are expensed as incurred.
We allocate research and development costs by function rather than by project, as a significant majority of our historical research and development spending was related to the initial development and testing of our underlying technology, including preparation for multiple test launches.
Our current primary research and development objectives focus on the development and finalization of our offerings. The successful development of these offerings involves many uncertainties, including:
•timing in finalizing launch and space systems design and specifications;
•successful completion of analyses and ground test programs to validate that new or changed designs perform as expected;
•successful completion of flight test programs, including flight safety tests;
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•our ability to obtain additional applicable approvals, licenses or certifications from regulatory agencies, if required, and maintaining current approvals, licenses or certifications;
•performance of our manufacturing facilities despite risks that disrupt productions, such as natural disasters and hazardous materials;
•performance of a limited number of suppliers for certain raw materials and components;
•performance of our third-party contractors that support our research and development activities;
•our ability to maintain rights from third parties for intellectual properties critical to research and development activities; and
•our ability to continue funding and maintain our current research and development activities.
A change in the outcome of any of these variables could delay the development of our launch and space systems, which in turn could impact the timing of commercialization of our offerings.
As we are developing and building our launch services, we have expensed all research and development costs associated with developing and building our launch services offering. We expect that our research and development expenses will increase in the short-term as we invest in improving and further reducing the costs of our launch system as well as developing and improving our space services offering.
Sales and Marketing Expense
Sales and marketing expenses consist of personnel and personnel-related expenses (including stock-based compensation expense) for our business development team as well as advertising and marketing expenses. We expect to increase our sales and marketing activities in order to grow our customer base and increase market share. We also expect that our sales and marketing expenses will increase over time as we continue to hire additional personnel to scale the business.
General and Administrative Expense
General and administrative expenses consist primarily of personnel and personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation expense) for personnel in executive, finance, accounting, corporate development and other administrative functions. General and administrative expenses also include legal fees, professional fees paid for accounting, auditing, consulting, tax, and investor relations services, insurance costs, and facility costs not otherwise included in research and development expenses and costs associated with compliance with the rules and regulations of the SEC and the stock exchange. We expect our general and administrative expenses will increase over time as we expand our business operations and product and service offerings.
Income Tax (Benefit) Expense
Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. We maintain a valuation allowance against the full value of our U.S. and state net deferred tax assets because we believe the recoverability of the tax assets is not more likely than not.
Other Income (Expense), Net
Other income (expense), net primarily consists of income from government research and development contracts.
Critical Accounting Estimates
Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Preparation of the financial statements requires our management to make a number of judgments, estimates and assumptions relating to the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements. Our significant accounting policies are described in Note 2 in our Annual Report on Form 10-K for the year ended December 31, 2021, as updated as applicable in Note 1 to the condensed consolidated financial statements herein.
There were no significant changes in our critical accounting estimates during the three and six months ended June 30, 2022 compared to those previously disclosed in “Critical Accounting Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2021 Annual Report on Form 10-K.
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Results of Operations
Comparison of the Three and Six Months Ended June 30, 2022 and 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months
Ended June 30, |
|
|
Period over
period change |
|
|
For The Six Months
Ended June 30, |
|
|
Period over
period change |
|
(in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
($) |
|
|
(%) |
|
|
2022 |
|
|
2021 |
|
|
($) |
|
|
(%) |
|
Revenues |
|
$ |
2,682 |
|
|
$ |
— |
|
|
$ |
2,682 |
|
|
n.m. |
|
|
$ |
6,593 |
|
|
$ |
— |
|
|
$ |
6,593 |
|
|
n.m. |
|
Cost of revenues |
|
|
17,445 |
|
|
|
— |
|
|
|
17,445 |
|
|
n.m. |
|
|
|
28,459 |
|
|
|
— |
|
|
|
28,459 |
|
|
n.m. |
|
Gross loss |
|
|
(14,763 |
) |
|
|
— |
|
|
|
(14,763 |
) |
|
n.m. |
|
|
|
(21,866 |
) |
|
|
— |
|
|
|
(21,866 |
) |
|
n.m. |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
40,798 |
|
|
$ |
10,458 |
|
|
$ |
30,340 |
|
|
|
290 |
% |
|
|
78,725 |
|
|
$ |
22,435 |
|
|
$ |
56,290 |
|
|
|
251 |
% |
Sales and marketing |
|
|
4,636 |
|
|
|
1,125 |
|
|
|
3,511 |
|
|
|
312 |
|
|
|
9,400 |
|
|
|
1,189 |
|
|
|
8,211 |
|
|
|
691 |
|
General and administrative |
|
|
20,608 |
|
|
|
18,318 |
|
|
|
2,290 |
|
|
|
13 |
|
|
|
41,594 |
|
|
|
30,931 |
|
|
|
10,663 |
|
|
|
34 |
|
Loss on change in fair value
of contingent consideration |
|
|
1,800 |
|
|
|
— |
|
|
|
1,800 |
|
|
n.m. |
|
|
|
17,300 |
|
|
|
— |
|
|
|
17,300 |
|
|
n.m. |
|
Total operating expenses |
|
|
67,842 |
|
|
|
29,901 |
|
|
|
37,941 |
|
|
|
127 |
|
|
|
147,019 |
|
|
|
54,555 |
|
|
|
92,464 |
|
|
|
169 |
|
Operating loss |
|
|
(82,605 |
) |
|
|
(29,901 |
) |
|
|
(52,704 |
) |
|
|
176 |
|
|
|
(168,885 |
) |
|
|
(54,555 |
) |
|
|
(114,330 |
) |
|
|
210 |
|
Interest (expense) income,
net |
|
|
356 |
|
|
|
(678 |
) |
|
|
1,034 |
|
|
|
(153 |
) |
|
|
530 |
|
|
|
(1,213 |
) |
|
|
1,743 |
|
|
|
(144 |
) |
Other income (expense), net |
|
|
(54 |
) |
|
|
(718 |
) |
|
|
664 |
|
|
|
(92 |
) |
|
|
339 |
|
|
|
(718 |
) |
|
|
1,057 |
|
|
|
(147 |
) |
Loss on extinguishment of
convertible notes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
n.m. |
|
|
|
— |
|
|
|
(131,908 |
) |
|
|
131,908 |
|
|
n.m. |
|
Loss on extinguishment of
convertible notes attributable
to related parties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
n.m. |
|
|
|
— |
|
|
|
(1,875 |
) |
|
|
1,875 |
|
|
n.m. |
|
Loss before taxes |
|
|
(82,303 |
) |
|
|
(31,297 |
) |
|
|
(51,006 |
) |
|
|
163 |
|
|
|
(168,016 |
) |
|
|
(190,269 |
) |
|
|
22,253 |
|
|
|
(12 |
) |
Income tax (benefit) expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
n.m. |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
n.m. |
|
Net loss |
|
$ |
(82,303 |
) |
|
$ |
(31,297 |
) |
|
|
(51,006 |
) |
|
|
163 |
|
|
$ |
(168,016 |
) |
|
$ |
(190,269 |
) |
|
|
22,253 |
|
|
|
(12 |
) |
Adjustment to redemption
value on Convertible
Preferred Stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
n.m. |
|
|
|
— |
|
|
|
(1,011,726 |
) |
|
|
1,011,726 |
|
|
n.m. |
|
Net loss attributable to
common stockholders |
|
$ |
(82,303 |
) |
|
$ |
(31,297 |
) |
|
$ |
(51,006 |
) |
|
|
163 |
% |
|
$ |
(168,016 |
) |
|
$ |
(1,201,995 |
) |
|
$ |
1,033,979 |
|
|
|
(86 |
) |
____________
n.m. = not meaningful.
Revenues
Revenues were $2.7 million for the three months ended June 30, 2022 of which $2.0 million related to launch services and $0.7 million related to space products. We launched launch vehicle LV0010 on June 12, 2022 which was a paid commercial launch. We also commenced delivery of space products to our customers during the three months ended June 30, 2022. No revenues were recognized during the three months ended June 30, 2021.
Revenues were $6.6 million for the six months ended June 30, 2022 of which $5.9 million related to launch services and $0.7 million related to space products. We commenced paid commercial launch services and delivery of space products during the six months ended June 30, 2022. We launched launch vehicles LV0008, LV0009 and LV0010 on February 10, 2022, March 15, 2022 and June 12, 2022, respectively, all of which were paid launches. The orbital launch of LV0009 conducted on March 15, 2022, represents our first paid delivery of customer payloads into Earth orbit. No revenues were recognized for the six months ended June 30, 2021.
Cost of Revenues
Cost of revenues were $17.4 million for the three months ended June 30, 2022 which was primarily driven by recording of $13.3 million of inventory write-downs and $4.1 million of cost of launch services and space products. The $13.3 million of inventory write-downs was driven by $10.2 million related to the discontinuance of launch vehicles supported by our current launch system and $3.1 million of other write-downs. The cost of launch services does not reflect the actual gross margins as certain inventory values were recorded at net realizable value. No cost of revenues were recognized for the three months ended June 30, 2021.
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Cost of revenues were $28.5 million for the six months ended June 30, 2022 which was primarily driven by recording of $18.8 million of inventory write-downs and $9.6 million of cost of launch services and space products. The $18.8 million of inventory write-downs was driven by $10.2 million related to the discontinuance of launch vehicles supported by our current launch system, $5.5 million related to the net realizable value write-downs and $3.1million of other write-downs. The cost of launch services does not reflect the actual gross margins as certain inventory values were recorded at net realizable value. In the first six months of 2022, we conducted our first paid commercial launch and have not yet achieved economies of scale in our manufacturing processes. We also decided to stop paid commercial launches for the remainder of 2022 so that we can focus on developing our new launch system. As a result, we will continue to incur negative gross margins for the remainder of 2022. No cost of revenues were recognized for the six months ended June 30, 2021.
Research and Development
Research and development costs were $41.0 million for the three months ended June 30, 2022, compared to $10.5 million for the three months ended June 30, 2021. The $30.5 million increase mainly reflected a $14.2 million increase in personnel-related costs due to headcount increases in research and development departments, a $5.9 million increase in research and development materials expense, a $5.2 million increase in stock-based compensation expense, a $3.1 million increase in depreciation and amortization expense, a $2.9 million increase in third party consulting and recruitment costs and a $1.2 million increase in technology licensed and software subscription licenses related expenses with the remainder due to changes in other research and development expenses. These increases were to support our product roadmap and launch services.
Research and development costs were $78.9 million for the six months ended June 30, 2022, compared to $22.4 million for the six months ended June 30, 2021. The $56.5 million increase mainly reflected a $26.0 million increase in personnel-related costs due to headcount increases in research and development departments, a $9.7 million increase in research and development materials expense, a $9.0 million increase in stock-based compensation expense, a $4.8 million increase in third party consulting and recruitment costs, a $4.4 million increase in depreciation and amortization expense and a $1.9 million increase in technology licensed and software subscription licenses related expenses with the remainder due to changes in other research and development expenses. These increases were to support our product roadmap and launch services.
Sales and Marketing
Sales and marketing expenses were $4.6 million for the three months ended June 30, 2022, compared to $1.1 million for the three months ended June 30, 2021. The $3.5 million increase mainly reflected a $1.5 million increase in personnel-related costs, a $1.4 million in stock-based compensation expense and a $0.3 million increase in depreciation expense with the remainder due to changes in other sales and marketing expenses. These increases were to support business development and marketing activities.
Sales and marketing expenses were $9.4 million for the six months ended June 30, 2022, compared to $1.2 million for the six months ended June 30, 2021. The $8.2 million increase mainly reflected a $3.3 million increase in personnel-related costs, a $2.9 million in stock-based compensation expense and a $0.8 million increase in depreciation expense with the remainder due to changes in other sales and marketing expenses. These increases were to support business development and marketing activities.
General and Administrative
General and administrative expenses were $20.6 million for the three months ended June 30, 2022, compared to $18.3 million for the three months ended June 30, 2021. The $2.3 million increase was primarily due to a $5.0 million increase in employee costs due to increased headcount, a $1.7 million increase in insurance related expenses, a $1.1 million increase in technology licensed and software subscription licenses related expenses, a $0.5 million increase in third party consulting and recruitment costs and a $0.4 million increase in accounting, audit and legal related fees which is partially offset by a $2.2 million decrease from transaction costs incurred and expensed by the Company in relation to the Business Combination, a $1.2 million decrease in stock-based compensation expense with the remainder due to changes in facilities costs, IT equipment fees, and other services.
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General and administrative expenses were $41.5 million for the six months ended June 30, 2022, compared to $30.9 million for the six months ended June 30, 2021. The $10.6 million increase was primarily due to a $10.4 million increase in employee costs due to increased headcount, a $3.7 million increase in insurance related expenses, a $2.4 million increase in technology licensed and software subscription licenses related expenses, a $1.1 million increase in third party consulting and recruitment costs and a $1.7 million increase in accounting, audit and legal related fees which is partially offset by a $2.2 million decrease from transaction costs incurred and expensed by the Company in relation to the Business Combination with the remainder due to changes in facilities costs, IT equipment fees, and other services.
Loss on Change in Fair Value of Contingent Consideration
Loss on change in fair value of contingent consideration of $1.8 million and $17.3 million for the three and six months ended June 30, 2022, respectively, was due to higher revenues forecasted in estimating the fair value of contingent consideration. No loss on change in fair value of contingent consideration was recorded for the three and six months ended June 30, 2021.
Interest (Expense) Income, Net
Interest income was $0.4 million for the three months ended June 30, 2022, compared to interest expense of $0.7 million for the three months ended June 30, 2021. The $1.1 million increase in interest (expense) income, net was primarily due to the settlement of outstanding debt during the year ended December 31, 2021. Therefore, we did not incur any interest expense during the period and an increase of $0.4 million in interest income related to investment in marketable securities during the three months ended June 30, 2022.
Interest income was $0.5 million for the six months ended June 30, 2022, compared to interest expense of $1.2 million for the six months ended June 30, 2021. The $1.7 million increase in interest (expense) income, net was primarily due to the settlement of outstanding debt during the year ended December 31, 2021. Therefore, we did not incur any interest expense during the period and an increase of $0.5 million in interest income related to investment in marketable securities during the six months ended June 30, 2022.
Other Income (Expense), Net
Other expense, net was $0.1 million for the three months ended June 30, 2022, compared to $0.7 million for the three months ended June 30, 2021. The $0.6 million decrease in other income (expense), net was primarily due a non-recurring payment to one of Legacy Astra’s investors for the three months ended June 30, 2021. No such payment was made or due during the three months ended June 30, 2022.
Other income, net was $0.3 million for the six months ended June 30, 2022, compared to other expense, net of $0.7 million for the three months ended June 30, 2021. Other income, net for the six months ended June 30, 2022 of $0.3 million was primarily due to a $0.4 million in income from government research and development contracts which is partially offset by other miscellaneous expenses. There was no income from government research and development contracts recorded for the six months ended June 30, 2021. Other expense, net for the six months ended June 30, 2021 of $0.7 million was primarily due to a $0.6 million in expense of a nonrecurring payment to one of Legacy Astra’s investors with the remainder due to other miscellaneous expenses. No such payment was made or due during the six months ended June 30, 2022.
Loss on Extinguishment of Convertible Notes
No loss on extinguishment of convertible notes was recorded for the three months ended June 30, 2022 and 2021.
No loss on extinguishment of convertible notes was recorded for the six months ended June 30, 2022. Loss on extinguishment of convertible notes of $131.9 million was recorded for the six months ended June 30, 2021 due to the settlement of convertible notes on January 28, 2021.
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Loss on Extinguishment of Convertible Notes Attributable to Related Parties
No loss on extinguishment of convertible notes attributable to related parties was recorded for the three months ended June 30, 2022 and 2021.
No loss on extinguishment of convertible notes attributable to related parties was recorded for the six months ended June 30, 2022. Loss on extinguishment of convertible notes attributable to related parties of $1.9 million was recorded for the six months ended June 30, 2021 due to the settlement of convertible notes attributable to related parties on January 28, 2021.
Income Tax (Benefit) Expense
We did not incur income tax expense for the three and six months ended June 30, 2022 and 2021.
Adjustment to redemption value on Convertible Preferred Stock
No adjustment to redemption value on convertible preferred stock was recorded for the three months ended June 30, 2022.
No adjustment to redemption value on convertible preferred stock was recorded for the six months ended June 30, 2022. Adjustment to redemption value on Convertible Preferred Stock of $1,011.7 million for the six months ended June 30, 2021 was recorded due to the re-measurement of Convertible Preferred Stock to its redemption value due to the likelihood of a redemption event becoming probable.
Liquidity and Capital Resources
The following section discusses our principal liquidity and capital resources as well as our primary liquidity requirements and uses of cash. Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. We believe our cash equivalents are liquid and accessible.
We measure liquidity in terms of our ability to fund the cash requirements of our research and development activities and our current business operations, including our capital expenditure needs, contractual obligations and other commitments. Our current liquidity needs relate to business operations, research and development activities, mainly in connection with the ongoing development of our technology, lease obligations and capital expenditures, which primarily relate to the development of our manufacturing facility.
The condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q have been prepared on a going concern basis. We have historically funded our operations primarily by equity financings and convertible promissory notes prior to the Business Combination and subsequently funded our operations through cash proceeds obtained as part of the Business Combination and related private placement. As of June 30, 2022, our existing sources of liquidity included cash and cash equivalents of $104.3 million and marketable securities of $96.4 million. We have a limited history of operations and have incurred negative cash flows from operating activities and loss from operations in the past as reflected in the accumulated deficit of $1,576.4 million as of June 30, 2022. We expect to continue to incur operating losses due to the investments it intends to make in its business, including the development of our products and services. Management remains focused on managing its cash expenditures, including but not limited to, reducing its capital expenditures, consulting services and re-focusing its hiring efforts. In addition, Management continues to evaluate opportunities to strengthen our financial position, including through the issuance of additional equity securities or by entering into new financing arrangements, as appropriate. We expect that our existing sources of liquidity will be sufficient to fund operating and capital expenditure requirements through at least 12 months from the date of filing this Quarterly Report on Form 10-Q. The Company’s current liquidity may not be sufficient to meet the required long-term liquidity needs associated with continued use of cash from operating activities at historical levels, in addition to its other liquidity needs associated with its capital expenditures, and other investing requirements and the Company is actively evaluating other sources of liquidity to further support its long-term business operations. For additional information regarding our cash requirements from contractual obligations and lease obligations, see Note 11 — Commitments and Contingencies and Note 9 — Leases in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Committed Equity Purchases
On August 2, 2022, we entered into an $100 million Class A common stock purchase agreement with B. Riley Principal Capital, LLC to support working capital and other general corporate needs. Under the terms of this agreement, we have the right, without obligation, to sell and issue up to $100 million of our Class A common stock over a period of 24 months to B. Riley Principal Capital, LLC at the Company’s sole discretion, subject to certain limitations and conditions. See Note 17 — Subsequent Events in Part I, Item 1 of this Quarterly Report on Form 10-Q for more details.
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Summary Statement of Cash Flows for the Six Months Ended June 30, 2022 and 2021
The following table sets forth the primary sources and uses of cash and cash equivalents for the periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Six Months
Ended June 30, |
|
|
Period over
period change |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
Net cash used in operating activities |
|
$ |
(91,862 |
) |
|
$ |
(34,655 |
) |
|
$ |
(57,207 |
) |
|
|
165 |
% |
Net cash used in investing activities |
|
|
(129,647 |
) |
|
|
(11,996 |
) |
|
|
(117,651 |
) |
|
|
981 |
|
Net cash provided by financing activities |
|
|
817 |
|
|
|
488,427 |
|
|
|
(487,610 |
) |
|
|
(100 |
) |
Net increase (decrease) in cash and cash equivalents |
|
$ |
(220,692 |
) |
|
$ |
441,776 |
|
|
$ |
(662,468 |
) |
|
|
(150 |
)% |
Cash Flows used in Operating Activities
Our cash flows from operating activities are significantly affected by our cash expenditures to support the growth of our business in areas such as research and development and general and administrative and working capital. Our operating cash inflows include cash from milestone billing under certain space products and launch services. These cash inflows are offset by our payments to suppliers for production materials and parts used in our manufacturing process as we ramp up our production for space products, payments to our employees and other operating expenses.
For the six months ended June 30, 2022, net cash used in operating activities was $91.9 million. The primary factors affecting the Company’s operating cash flows during the period were a net loss of $168.0 million. This is offset by non-cash charges including stock-based compensation expense of $29.8 million, inventory reserves including write-offs and net realizable value write-downs of $18.8 million, loss on change in fair value of contingent consideration of $17.3 million, depreciation and amortization expense of $7.6 million and non-cash lease expense of $0.7 million. Changes in operating working capital items is mainly due to increased headcount and ramp-up of our production and primarily reflect the increase in trade accounts receivable of $1.6 million, inventories of $13.4 million, other non-current assets of $2.4 million, accounts payable of $6.3 million, accrued expense and other current liabilities of $1.2 million and other non-current liabilities of $4.9 million. Changes in operating working capital items was partially offset by a decrease in prepaid and other current assets of $7.4 million and lease liabilities of $0.6 million.
For the six months ended June 30, 2021, net cash used in operating activities was $34.7 million. The primary factors affecting the Company’s operating cash flows during this period were net loss of $190.3 million, offset by non-cash charges including a non-cash loss on extinguishment of convertible notes of $133.8 million, stock-based compensation expense of $17.8 million, depreciation expense of $1.9 million, and amortization of convertible note debt discounts of $0.4 million. Changes in operating working capital items primarily reflect the increase in inventories of $1.2 million, prepaid and other current assets of $4.9 million, accounts payable of $3.6 million, accrued expenses and other current liabilities of $2.3 million and other non-current liabilities of $2.0 million. This was partially offset by a decrease in lease liabilities of $0.5 million.
Cash Flows used in Investing Activities
For the six months ended June 30, 2022, net cash used in investing activities was $129.6 million, which was comprised mainly of purchases of marketable securities of $102.0 million, purchases of property, plant and equipment of $32.1 million mainly related to the construction of our manufacturing facility and acquisition of an indefinite-lived intangible trademark asset of $0.9 million. This was partially offset maturities of marketable securities of $5.3 million.
For the six months ended June 30, 2021, net cash used in investing activities was $12.0 million, which was comprised mainly of the acquisition of an indefinite-lived intangible trademark asset of $3.2 million and purchases of tooling equipment, manufacturing equipment and furniture and fixtures of $8.8 million.
Cash Flows from Financing Activities
For the six months ended June 30, 2022, net cash provided by financing activities amounted to $0.8 million and consisted primarily of proceeds from employee stock purchase plan of $0.7 million and issuance of stock under equity plans of $0.1 million.
For the six months ended June 30, 2021, net cash provided by financing activities amounted to $488.4 million and consisted primarily of proceeds from Business Combination and private offering, net of transaction costs, of $463.6 million, proceeds from the issuance of Series C of $30.0 million and borrowings of $10.0 million, offset by repayments on borrowings of $16.4 million.
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Commitments and Contractual Obligations
We are a party to operating leases primarily for land and buildings (e.g., office buildings, manufacturing and testing facilities and spaceport) and certain equipment (e.g., copiers) under non-cancellable operating leases. The following table summarizes our lease commitments as of June 30, 2022:
|
|
|
|
|
Year Ended December 31 |
|
Minimum Lease
Commitment |
|
|
|
(in thousands) |
|
2022 (remainder) |
|
$ |
930 |
|
2023 |
|
|
1,790 |
|
2024 |
|
|
1,677 |
|
2025 |
|
|
1,655 |
|
2026 |
|
|
1,642 |
|
Thereafter |
|
|
2,840 |
|
Total future undiscounted minimum lease payments |
|
$ |
10,534 |
|
Less: Imputed Interest |
|
|
2,030 |
|
Total reported lease liability |
|
$ |
8,504 |
|
On July 28, 2022, the Company entered into a lease agreement for approximately 60,000 square feet of manufacturing facility in Sunnyvale, California having a lease term of 36 months with an option to extend for a period of additional 36 months. The undiscounted base rent payments for the first year of this lease is approximately $1.8 million with a 4% increase in base rent for each subsequent year. In addition to base rent, the Company will be responsible for the management fee of 5% of the base rent. In lieu of a cash security deposit, the Company is required to provide the landlord an irrevocable letter of credit in the amount of $0.3 million. This new lease facility will enable expansion of space product production and development capacity, thermal testing capacity, and is expected to provide production and engineering space for our future space services business.
On May 25, 2021, the Company entered a contract with a supplier to purchase components. The Company is obligated to purchase $22.5 million of components over 60 months. The Company may terminate the supply agreement by paying 50% of the remaining purchase commitment at any point during the contract term. The Company made total purchases of $0.8 million under the contract of which $0.4 million related to purchases made during the six months ended June 30, 2022. We also made advance payments of $0.4 million under the contract as of June 30, 2022.
Apart from the aforementioned leases and purchase commitments, we do not have any other material contractual obligations, commitments or contingent obligations.
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