Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains statements that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,” “may,” “should,” or similar language are intended to identify forward-looking statements.
It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. Readers of this Quarterly Report are cautioned not to place undue reliance on any such forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified under “Risk Factors” in Item 1A herein and in our other filings with the Securities and Exchange Commission (the “SEC”). Unless otherwise required by law, we do not undertake, and specifically disclaim, any obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise after the date of such statement.
As used in this section, unless the context suggests otherwise, “we,” “us,” “our,” “Company,” “Fast Radius” refer to Fast Radius, Inc., a Delaware corporation (f/k/a ECP Environmental Growth Opportunities Corp. ("ENNV")), collectively with Fast Radius Operations, Inc., a Delaware corporation (“Legacy Fast Radius”) and its consolidated subsidiaries. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q, and Legacy Fast Radius' audited consolidated financial statements and related notes for the year ended December 31, 2021 included in our Current Report on Form 8-K/A filed with the SEC on March 30, 2022.
Overview
We are a leading cloud manufacturing and digital supply chain company. We are headquartered in Chicago with offices in Atlanta, Louisville, and Singapore and micro-factories in Chicago and at the UPS Worldport facility in Louisville, Kentucky.
We have built and are scaling a Cloud Manufacturing Platform which includes both physical infrastructure – Fast Radius micro-factories and third-party supplier factories – and a proprietary software layer. Our Cloud Manufacturing Platform supports engineers, product developers, and supply chain professionals across the product design and manufacturing lifecycle.
We offer a wide and growing range of manufacturing technologies, including additive manufacturing (often referred to as 3D printing), CNC machining, injection molding, sheet metal, urethane casting, and other manufacturing methods. We offer these manufacturing capabilities through our own micro-factories as well as a network of curated third-party suppliers.
Recent Developments
Business combination
On February 4, 2022 (“the Closing Date”), the Company consummated a business combination with Legacy Fast Radius, pursuant to which ENNV Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), merged with and into Legacy Fast Radius, with Legacy Fast Radius surviving the Merger as a wholly owned subsidiary of the Company (the “Business Combination”). After giving effect to the Business Combination, the Company owns, directly or indirectly, all of the issued and outstanding equity interests of Legacy Fast Radius and its subsidiary and the equity holders of Legacy Fast Radius immediately prior to the Business Combination own a portion of the Company’s common stock, par value $0.0001 per share (“Common Stock”).
While the legal acquirer in the Business Combination was ENNV, for financial accounting and reporting purposes under U.S. GAAP (“GAAP”), Legacy Fast Radius was the accounting acquirer and the Business Combination was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the issuance of stock by ENNV for Legacy Fast Radius’ stock) does not result in a new basis of accounting, and the condensed consolidated financial statements of the combined entity represent the continuation of the condensed consolidated financial statements of Legacy Fast Radius in many respects. Accordingly, the consolidated assets, liabilities and results of operations of Legacy Fast Radius became the historical condensed consolidated financial statements of the combined company, and ENNV’s assets, liabilities and results of operations were consolidated with those of Legacy Fast Radius beginning on the acquisition date. Operations prior to the Business Combination are presented as those of Legacy Fast Radius. The net assets of ENNV were recognized at historical cost, with no goodwill or other intangible assets recorded.
Concurrently with the execution of the Merger Agreement, ENNV entered into subscription agreements (collectively, the “Subscription Agreements”), with certain third-party investors, including, among others, UPS, Palantir and the Sponsor (the “PIPE Investors”),
24
pursuant to which the PIPE Investors agreed to subscribe for and purchase, and ENNV agreed to issue and sell, to the PIPE Investors an aggregate of 7,500,000 shares of Common Stock (the “PIPE Shares”) for a purchase price of $10.00 per share, or an aggregate purchase price of $75.0 million, in a private placement (the “PIPE Investment”). Under the Subscription Agreements, ENNV granted certain registration rights to the PIPE Investors with respect to the PIPE Shares. The PIPE Shares were issued concurrently with the closing of the Business Combination on the Closing Date.
Upon consummation of the Business Combination, the closing of the PIPE Investment and payment of certain other amounts that were contingent on the closing of the Business Combination, the most significant change in our reported financial position was an increase in cash and cash equivalents of approximately $73 million, primarily due to $75.0 million in gross proceeds from the PIPE Investment and $29.6 million in proceeds from the Trust Account, partially offset by cash payments that were disbursed at the Closing which included $8.3 million of transaction expenses, $2.5 million in debt repayments, $8.2 million in directors’ and officers’ (“D&O”) insurance premiums, and $12.8 million related to IT and other costs.
In connection with the Business Combination, over 31.5 million ENNV shares were submitted for redemption. As a result, the condition to Fast Radius’ obligation to consummate the Business Combination that the amount of cash available in ENNV’s trust account immediately prior to the effective time of the Business Combination, after deducting the amount required to satisfy payments to ENNV stockholders in connection with the redemptions, the payment of any deferred underwriting commissions being held in ENNV’s trust account and the payment of certain transaction expenses, plus the gross proceeds from the PIPE Investment to be consummated in connection with the closing of the Business Combination, is equal to or greater than $175 million (such condition, the “Minimum Cash Condition”) was not satisfied. Therefore, in connection with the closing of the Business Combination, we waived the Minimum Cash Condition.
The reduction in available cash upon closing of the Business Combination due to those share redemptions reduced our ability to invest in our growth strategy. As our resources are insufficient to satisfy our cash requirements and future growth objectives, we need to seek additional equity or debt financing. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we will be forced to make additional changes to our long-term growth strategy in the discretion of our management and the Board. These changes may include, but are not limited to, decreasing our level of investment in new product launches and related marketing initiatives and scaling back our existing operations, which could have an adverse impact on our business and financial prospects.
In addition, as a consequence of the Business Combination, we became the successor to an SEC-registered and Nasdaq-listed company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have incurred and will continue to incur additional annual expenses as a public company for, among other things, D&O liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees. Our future results of operations and financial position will not be comparable to historical results as a result of the Business Combination.
Restructuring
In June 2022, our Board of Directors approved a cost optimization initiative that includes a workforce reduction of approximately 20% (including the elimination of open roles). The purpose of the workforce reduction is to streamline our operational structure, reducing our operating expenses and managing our cash flows. We have commenced workforce reductions and expect to complete these actions by the end of the third quarter of 2022. We are also conducting a facility rationalization assessment and assessing other operational savings measures. As a result of these actions, we anticipate that we will realize annual run-rate cost savings of over $10 million. To generate these cost savings, we will incur some non-recurring expenses in 2022, specifically expenses associated with actions we’ve implemented in order to retain and motivate key employees. These expenses will offset some of the cost savings in the second half of 2022.
In the second quarter of 2022, we incurred costs of $598 thousand related to these actions, of which approximately $153 thousand were related to non-cash asset impairments and the remainder were cash severance costs. We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified, we may incur additional restructuring and related charges in future periods.
COVID-19 pandemic
In March 2020, the World Health Organization declared the outbreak of the new strain of the coronavirus (“COVID-19”) to be a pandemic. The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Federal and state governments have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, supply chain logistical changes, and closure of non-essential businesses. To protect the health and well-being of its employees, suppliers, and customers, the Company previously made substantial modifications to employee travel policies, implemented office closures as employees were advised to work from home, and cancelled or shifted its conferences and other events to virtual-only. The COVID-19 pandemic has impacted and may continue to impact the Company’s business operations, including its employees, customers, partners, and
25
communities, and there is substantial uncertainty in the nature and degree of the pandemic’s continued effects over time. In particular, the COVID-19 virus continues to surge in various parts of the world, including China, and such surges have impacts on the Company’s suppliers and may cause supply chain issues, parts shortages and delayed shipping times. COVID-19 and other similar outbreaks, epidemics or pandemics could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and prospects as a result of any of the risks described above and other risks that the Company is not able to predict.
If the COVID-19 pandemic continues for a prolonged duration, we or our customers may be unable to perform fully on our contracts, which will likely result in increases in costs and reductions in revenue. These cost increases may not be fully recoverable or adequately covered by insurance. The long-term effects of COVID-19 to the global economy and to us are difficult to assess or predict and may include a further decline in the market prices of our products, risks to employee health and safety, risks for the deployment of our products and services and reduced sales in geographic locations impacted. Any prolonged restrictive measures put in place in order to control COVID-19 or other adverse public health developments in any of our targeted markets may have a material and adverse effect on our business operations and results of operation.
Nasdaq Continued Listing Compliance
On June 9, 2022, we received written notice (the “Notice”) from Nasdaq that, based on the closing bid price of our Common Stock for the last 30 consecutive trading days, we no longer comply with the minimum bid price requirement for continued listing on The Nasdaq Global Market. Nasdaq Listing Rule 5450(a)(1) requires listed securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive trading days. The Notice has no immediate effect on the listing of the Common Stock on The Nasdaq Global Market. Pursuant to the Nasdaq Listing Rules, we have been provided an initial compliance period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price of the Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days prior to December 6, 2022, and we must otherwise satisfy The Nasdaq Global Market’s requirements for listing. There are no assurances that we will be able to regain compliance with The Nasdaq Global Market’s continued listing requirements.
Results of Operations
Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021
The following table sets forth a summary of our consolidated results of operations, as well as the dollar and percentage change for the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change ($) |
|
|
Change (%) |
|
Revenues |
|
$ |
7,275 |
|
|
$ |
4,867 |
|
|
$ |
2,408 |
|
|
|
49 |
% |
Cost of revenues (1) |
|
|
7,015 |
|
|
|
4,062 |
|
|
|
2,953 |
|
|
|
73 |
% |
Gross Profit |
|
|
260 |
|
|
|
805 |
|
|
|
(545 |
) |
|
|
-68 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing (1) |
|
|
5,877 |
|
|
|
5,283 |
|
|
|
594 |
|
|
|
11 |
% |
General and administrative (1) |
|
|
14,717 |
|
|
|
8,783 |
|
|
|
5,934 |
|
|
|
68 |
% |
Research and development (1) |
|
|
1,897 |
|
|
|
1,541 |
|
|
|
356 |
|
|
|
23 |
% |
Total operating expenses |
|
|
22,491 |
|
|
|
15,607 |
|
|
|
6,884 |
|
|
|
44 |
% |
Loss from Operations |
|
|
(22,231 |
) |
|
|
(14,802 |
) |
|
|
(7,429 |
) |
|
|
50 |
% |
Change in fair value of warrants |
|
|
1,326 |
|
|
|
201 |
|
|
|
1,125 |
|
|
|
560 |
% |
Change in fair value of derivatives |
|
|
- |
|
|
|
6 |
|
|
|
(6 |
) |
|
n/m |
|
Interest income and other income (expense), net |
|
|
31 |
|
|
|
(6 |
) |
|
|
37 |
|
|
|
-617 |
% |
Interest expense, including amortization of debt issuance costs |
|
|
(1,313 |
) |
|
|
(504 |
) |
|
|
(809 |
) |
|
|
161 |
% |
Loss before income taxes |
|
|
(22,187 |
) |
|
|
(15,105 |
) |
|
|
(7,082 |
) |
|
|
47 |
% |
Provision for income taxes |
|
|
- |
|
|
|
- |
|
|
|
— |
|
|
n/m |
|
Net Loss |
|
$ |
(22,187 |
) |
|
$ |
(15,105 |
) |
|
$ |
(7,082 |
) |
|
|
47 |
% |
(1) Includes stock-based compensation, as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues |
|
$ |
27 |
|
|
$ |
3 |
|
|
$ |
24 |
|
|
|
800 |
% |
General and Administrative |
|
|
1,834 |
|
|
|
151 |
|
|
|
1,683 |
|
|
|
1115 |
% |
Selling and Marketing |
|
|
196 |
|
|
|
37 |
|
|
|
159 |
|
|
|
430 |
% |
Research & Development |
|
|
505 |
|
|
|
16 |
|
|
|
489 |
|
|
|
3056 |
% |
Total |
|
$ |
2,562 |
|
|
$ |
207 |
|
|
$ |
2,355 |
|
|
|
1138 |
% |
26
Revenues
Revenues increased 49% from $4.9 million to $7.3 million for the three months ended June 30, 2022 compared to the prior-year period. The increase in 2022 was attributable to sales from new customers and an increase in revenue from existing customers.
Cost of Revenues
Cost of revenues increased 73% from $4.1 million to $7.0 million for the three months ended June 30, 2022 compared to the prior-year period. The increase in cost of revenues was primarily attributable to the increase in revenues. Additionally, cost of revenues was impacted by an investment we made in a new CNC manufacturing facility in 2021, which is currently running at low utilization.
Operating Expenses
Sales and Marketing
Sales and marketing expenses increased 11% from $5.3 million to $5.9 million for the three months ended June 30, 2022 compared to the prior-year period. The increase in sales and marketing expenses in 2022 was attributable to increases in spend related to organizational headcount growth within the function.
General and Administrative
General and administrative expenses increased 68% from $8.8 million to $14.7 million for the three months ended June 30, 2022 compared to the prior-year period. The increase in general and administrative expense in 2022 was attributable to an expense of $2.1 million we recorded for our software subscription agreement with Palantir as well as higher stock compensation expense of $1.7 million. We also recorded an expense of $452 thousand associated with the commitment fee shares issued to Lincoln Park as part of the Purchase Agreement. Additionally, we incurred incremental legal, consulting and accounting costs to support our growth, including costs related to the Business Combination, and new costs associated with being a publicly-traded company.
Research and Development
Research and development expenses increased 23% from $1.5 million to $1.9 million for the three months ended June 30, 2022 compared to the prior-year period. The $1.9 million of research and development expenses for the three months ended June 30, 2022 included $3.2 million of gross research and development expenses, primarily related to our Cloud Manufacturing Platform, that was offset by $1.3 million of internal-use software costs that were capitalized. No software development costs were capitalized in the three months ended June 30, 2021. The increase in gross spend in 2022 is attributable to our continued focus on developing the Cloud Manufacturing Platform.
Change in fair value of warrants
The income recorded in 2022 was attributable to mark to market adjustments on warrant liabilities and was attributable to a decrease in our enterprise valuation.
Interest income and other income
The increase in interest income was primarily attributable to an increase in our average money market account balance in 2022 as compared to 2021 due to the proceeds received from the Business Combination.
Interest expense, including amortization of debt issuance costs
The increase in interest expense was primarily attributable to higher outstanding debt levels in 2022 compared to 2021. Refer to Note 5 for additional information related to indebtedness.
27
Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021
The following table sets forth a summary of our consolidated results of operations, as well as the dollar and percentage change for the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change ($) |
|
|
Change (%) |
|
Revenues |
|
$ |
13,537 |
|
|
$ |
8,663 |
|
|
$ |
4,874 |
|
|
|
56 |
% |
Cost of revenues (1) |
|
|
12,644 |
|
|
|
7,028 |
|
|
|
5,616 |
|
|
|
80 |
% |
Gross Profit |
|
|
893 |
|
|
|
1,635 |
|
|
|
(742 |
) |
|
|
-45 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing (1) |
|
|
12,213 |
|
|
|
8,752 |
|
|
|
3,461 |
|
|
|
40 |
% |
General and administrative (1) |
|
|
52,942 |
|
|
|
16,495 |
|
|
|
36,447 |
|
|
|
221 |
% |
Research and development (1) |
|
|
5,229 |
|
|
|
2,687 |
|
|
|
2,542 |
|
|
|
95 |
% |
Total operating expenses |
|
|
70,384 |
|
|
|
27,934 |
|
|
|
42,450 |
|
|
|
152 |
% |
Loss from Operations |
|
|
(69,491 |
) |
|
|
(26,299 |
) |
|
|
(43,192 |
) |
|
|
164 |
% |
Change in fair value of warrants |
|
|
6,621 |
|
|
|
(1,052 |
) |
|
|
7,673 |
|
|
|
-729 |
% |
Change in fair value of derivatives |
|
|
30 |
|
|
|
6 |
|
|
|
24 |
|
|
|
400 |
% |
Interest income and other income (expense), net |
|
|
30 |
|
|
|
3 |
|
|
|
27 |
|
|
|
900 |
% |
Interest expense, including amortization of debt issuance costs |
|
|
(3,977 |
) |
|
|
(549 |
) |
|
|
(3,428 |
) |
|
|
624 |
% |
Loss before income taxes |
|
|
(66,787 |
) |
|
|
(27,891 |
) |
|
|
(38,896 |
) |
|
|
139 |
% |
Provision for income taxes |
|
|
- |
|
|
|
- |
|
|
|
— |
|
|
n/m |
|
Net Loss |
|
$ |
(66,787 |
) |
|
$ |
(27,891 |
) |
|
$ |
(38,896 |
) |
|
|
139 |
% |
(1) Includes stock-based compensation, as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues |
|
$ |
142 |
|
|
$ |
7 |
|
|
$ |
135 |
|
|
|
1929 |
% |
General and Administrative |
|
|
19,379 |
|
|
|
370 |
|
|
|
19,009 |
|
|
|
5138 |
% |
Selling and Marketing |
|
|
1,379 |
|
|
|
37 |
|
|
|
1,342 |
|
|
|
3627 |
% |
Research & Development |
|
|
2,030 |
|
|
|
47 |
|
|
|
1,983 |
|
|
|
4219 |
% |
Total |
|
$ |
22,930 |
|
|
$ |
461 |
|
|
$ |
22,469 |
|
|
|
4874 |
% |
Revenues
Revenues increased 56% from $8.7 million to $13.5 million for the six months ended June 30, 2022 compared to the prior-year period. The increase in 2022 was attributable to sales from new customers and an increase in revenue from existing customers.
Cost of Revenues
Cost of revenues increased 80% from $7.0 million to $12.6 million for the six months ended June 30, 2022 compared to the prior-year period. The increase in cost of revenues was primarily attributable to the increase in revenues. Additionally, cost of revenues was impacted by an investment we made in a new CNC manufacturing facility in 2021, which is currently running at low utilization.
Operating Expenses
Sales and Marketing
Sales and marketing expenses increased 40% from $8.8 million to $12.2 million for the six months ended June 30, 2022 compared to the prior-year period. The increase in sales and marketing expenses in 2022 was attributable to increases in spend related to organizational headcount growth within the function. Additionally, we recorded incremental stock compensation expense in the first quarter of 2022 as our outstanding restricted stock units ("RSUs") included a performance condition that became probable upon the closing of the Business Combination.
General and Administrative
General and administrative expenses increased 221% from $16.5 million to $52.9 million for the six months ended June 30, 2022 compared to the prior-year period. The most significant increase in 2022 was attributable to incremental stock compensation expense in the first quarter of 2022 as our outstanding RSUs included a performance condition that became probable upon the closing of the Business Combination and cash bonuses paid to certain employees that were contingent on the closing of the Business Combination. Additionally, we recorded expense of approximately $7.9 million in 2022 related to our software subscription agreement with Palantir. We also recorded an expense of $452 thousand in 2022 associated with the commitment fee shares issued to Lincoln Park as part of the Purchase Agreement. Finally, we incurred incremental legal, consulting and accounting costs to support our growth, including costs related to the Business Combination, and new costs associated with being a publicly-traded company.
28
Research and Development
Research and development expenses increased 95% from $2.7 million to $5.2 million for the six months ended June 30, 2022 compared to the prior-year period. The $5.2 million of research and development expenses for the six months ended June 30, 2022 included $7.3 million of gross research and development expenses, primarily related to our Cloud Manufacturing Platform, that was offset by $2.1 million of internal-use software costs that were capitalized. No software development costs were capitalized in the six months ended June 30, 2021. The increase in gross spend in 2022 is attributable to our continued focus on developing the Cloud Manufacturing Platform. Additionally, we recorded incremental stock compensation expense in the first quarter of 2022 as our outstanding RSUs included a performance condition related to the closing of the Business Combination.
Change in fair value of warrants
The income recorded in 2022 was attributable to mark to market adjustments on warrant liabilities and was attributable to a decrease in our enterprise valuation.
Change in fair value of Derivatives
The income recorded in 2022 was attributable to mark to market adjustments on embedded derivatives associated with 2021 convertible debt issuances. All outstanding derivative liabilities, along with the related convertible debt instruments, were converted into Common Stock at the closing of the Business Combination. Refer to Note 5 and Note 13 of the consolidated financial statements included elsewhere in this Report for additional information on derivative liabilities.
Interest income and other income
The increase in interest income was primarily attributable to an increase in our average money market account balance in 2022 as compared to 2021 due to the proceeds received from the Business Combination.
Interest expense, including amortization of debt issuance costs
The increase in interest expense was primarily attributable to higher outstanding debt levels in 2022 compared to 2021. Refer to Note 5 for additional information related to indebtedness.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the below non-GAAP financial measures are useful in evaluating our operational performance. We use this non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance.
We define “EBITDA” as net loss plus interest expense, income tax expense, depreciation and amortization expense.
We define “Adjusted EBITDA” as EBITDA adjusted for stock-based compensation, changes in the fair value of warrant liability, changes in the fair value of derivative liabilities, and transaction and related costs.
To provide investors with additional information regarding our financial results, we are presenting EBITDA and Adjusted EBITDA, non-GAAP financial measures, in the table below along with a reconciliation to net loss, the most directly comparable measure calculated and presented in accordance with GAAP.
Adjusted EBITDA
We consider Adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis.
Our definition of Adjusted EBITDA may differ from that used by other companies and therefore comparability may be limited. In addition, other companies may not present Adjusted EBITDA or similar metrics. Thus, our adjusted EBITDA should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP, such as net loss.
In addition, Adjusted EBITDA has limitations as an analytical tool, including:
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash used for capital expenditures for such replacements or for new capital expenditures;
•Adjusted EBITDA does not include the dilution that results from stock-based compensation or any cash outflows included in stock-based compensation, including from our purchases of shares of outstanding common stock;
29
•Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and other companies may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
We provide investors and other users of our financial information with a reconciliation of Adjusted EBITDA to net loss. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view Adjusted EBITDA in conjunction with net loss.
Stock compensation expense is a non-cash expense relating to stock-based awards issued to executive officers, employees, and outside directors, consisting of options and restricted stock units. We exclude this expense because it is a non-cash expense and we assess our internal operations excluding this expense, and we believe it facilitates comparisons to the performance of other companies in our industry.
Change in the fair value of warrant liability is a non-cash gain or loss impacted by the fair value of the issued liability-classified warrants. We believe the assessment of our operations excluding this activity is relevant to our assessment of internal operations and to comparisons with the performance of other companies in our industry.
Change in the fair value of derivative liabilities is a non-cash gain or loss impacted by the fair value of the derivative liabilities. We believe the assessment of our operations excluding this activity is relevant to our assessment of internal operations and to comparisons with the performance of other companies in our industry.
Common stock commitment fee is a non-cash expense related to the issuance of Common Stock in exchange for the Purchase Agreement entered into with Lincoln Park as described in Note 7 to the condensed consolidated financial statements. We believe the assessment of our operations excluding this activity is relevant to our assessment of internal operations and to comparisons with the performance of other companies in our industry.
Restructuring costs are non-recurring expenses, primarily cash severance payments, associated with our cost optimization initiative that includes a workforce reduction of approximately 20% and other related expenses.
Transaction costs are non-recurring costs for advisory, consulting, accounting and legal expenses in connection with the Business Combination as well as certain bonuses to employees that were contingent on the closing of the Business Combination.
The following table provides a reconciliation of net loss, the most closely comparable GAAP financial measure, to EBITDA and Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net loss |
|
$ |
(22,187 |
) |
|
$ |
(15,105 |
) |
|
$ |
(66,787 |
) |
|
$ |
(27,891 |
) |
Interest expense |
|
|
1,313 |
|
|
|
504 |
|
|
|
3,977 |
|
|
|
549 |
|
Income tax expense (benefit), net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Depreciation and amortization |
|
|
714 |
|
|
|
302 |
|
|
|
1,368 |
|
|
|
533 |
|
EBITDA |
|
|
(20,160 |
) |
|
|
(14,299 |
) |
|
|
(61,442 |
) |
|
|
(26,809 |
) |
Stock compensation expense |
|
|
2,562 |
|
|
|
207 |
|
|
|
22,930 |
|
|
|
461 |
|
Change in fair value of warrant liability |
|
|
(1,326 |
) |
|
|
(201 |
) |
|
|
(6,621 |
) |
|
|
1,052 |
|
Change in fair value of derivative liability |
|
|
- |
|
|
|
(6 |
) |
|
|
(30 |
) |
|
|
(6 |
) |
Common stock commitment fee |
|
|
452 |
|
|
|
- |
|
|
|
452 |
|
|
|
- |
|
Restructuring costs |
|
|
598 |
|
|
|
- |
|
|
|
598 |
|
|
|
- |
|
Transaction costs |
|
|
570 |
|
|
|
773 |
|
|
|
5,564 |
|
|
|
3,549 |
|
Adjusted EBITDA |
|
|
(17,304 |
) |
|
|
(13,526 |
) |
|
|
(38,549 |
) |
|
|
(21,753 |
) |
Liquidity and Capital Resources
We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations, including debt and other liabilities, and other commitments, with cash flows from operations and other sources of funding. Our current liquidity needs include the working capital to support the purchase of custom component parts from our third-party supplier partners on behalf of our customers. In many cases, we pay our suppliers prior to being paid by our customers, resulting in a need for working capital. We also consume cash through other growth initiatives, including investing in new micro-factories, sales and marketing expenses and development of our Cloud Manufacturing Platform. Additionally, we will consume cash for additional expenses as a public company for, among other things, D&O liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees. Our ability to
30
maintain, expand and grow our business will depend on many factors, including our working capital needs and the evolution of our operating cash flows.
We had $37.9 million in cash and cash equivalents as of June 30, 2022. Upon consummation of the Business Combination, we received approximately $73 million in cash, primarily due to $75.0 million in gross proceeds from the PIPE Investment and $29.6 million in proceeds from the Trust Account, partially offset by cash payments that were disbursed at the Closing which included $8.3 million of transaction expenses, $2.5 million in debt repayments, $8.2 million in D&O insurance premiums, and $12.8 million related to IT and other costs. Certain other transaction costs associated with and liabilities assumed as a result of the Business Combination totaling approximately $11 million as of June 30, 2022 have been deferred until later in 2022 or 2023.
In connection with the Business Combination, over 31.5 million shares were submitted for redemption for an aggregate redemption amount of approximately $315 million. The proceeds we received in connection with the Business Combination were significantly less than the originally expected proceeds of $445 million (assuming no redemptions). As discussed below, the reduction in available cash upon closing of the Business Combination due to share redemptions has negatively impacted our growth initiatives, our revenue and net loss projections prepared in connection with ENNV’s evaluation of the Business Combination, and our liquidity, including the likelihood that holders of Warrants will exercise their Warrants and the Company will receive cash proceeds from the Warrants.
Purchase Agreement with Lincoln Park
On May 11, 2022, the Company entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $30.0 million of Common Stock. Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $30.0 million of Common Stock. Such sales of Common Stock by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the Company’s sole discretion, over the 24-month period commencing on the date that is one business day following the satisfaction of certain customary conditions, including effectiveness of a registration statement covering the resale of such shares of Common Stock. Refer to Note 7 for additional information related to the Purchase Agreement. Sales to Lincoln Park, or the possibility that these sales may occur, and any related volatility or decrease in market price of our Common Stock, might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Future Liquidity Requirements
We expect our capital expenditures and working capital requirements to continue to increase in the immediate future as we are still in the growth stage of our business and expect to continue to make substantial investments in our business, including in the expansion of our product portfolio and research and development, sales and marketing teams, in addition to incurring additional costs as a result of being a public company. Our short-term liquidity priorities are to pay off existing indebtedness and liabilities, to fund ongoing working capital needs, and to invest in the Company’s growth strategy.
Based on our results of operations and liquidity as of June 30, 2022, as further described below, we believe our cash and cash equivalents, including the cash we obtained from the Business Combination and the PIPE Investment, as well as potential proceeds available under the Purchase Agreement with Lincoln Park, are not sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report on Form 10-Q. We expect to seek additional capital in 2022 to fund our operations and future growth. While we are facing challenging market conditions, we are actively pursuing alternatives to address our liquidity needs. We are engaged with our financial advisors and Board on this and it remains a top priority. However, there can be no assurance that we will be able to obtain additional debt or equity financing within the necessary timeframe or on terms acceptable to us, if at all. Failure to secure additional funding in a timely manner or at all will impact our liquidity, including the ability to service our debt and other liabilities, and may require us to modify, delay or abandon some of our planned future expansion or development, or to otherwise enact additional operating cost reductions available to management, and could have a material adverse effect on our business, operating results, financial condition, and could force us to limit our business activities. Our estimates of our results of operations, working capital and capital expenditure requirements may be different than our actual needs, and those estimates may need to be revised if, for example, our actual revenue is lower, and our net operating losses are higher, than we project and our cash and cash equivalents position is reduced faster than anticipated.
Projected Revenue and Net Loss
Prior to the Business Combination, Legacy Fast Radius provided certain prospective financial information to ENNV for fiscal years 2021, 2022, 2023, 2024 and 2025 in connection with ENNV’s evaluation of the Business Combination. The prospective financial information was prepared using a number of assumptions, including assumptions about the level of redemptions, which were assumed to be significantly lower, and net cash proceeds resulting from the consummation of the Business Combination, which were assumed to be significantly higher. The prospective financial information included projected revenues and net loss for the year ended December 31,
31
2021, of $23 million and $41 million, respectively. Similarly, the prospective financial information included projected revenues and net loss for the year ended December 31, 2022, of $104 million and $64 million, respectively.
For the year ended December 31, 2021, we recognized $20.0 million in revenue, which was lower than our projected revenue of $23 million primarily due to a significant customer order initially included in our projections for which we later determined that revenue could not be recognized as we were not able to assert that collection from the customer was probable under the requirements of ASC 606. For the year ended December 31, 2021, we had net losses of approximately $67.9 million, which were greater than our projected net loss of $41 million primarily due to certain items that could not be forecasted at the time the projections were presented including mark to market adjustments on outstanding warrant and derivative liabilities, transaction costs related to our Business Combination and interest expense related to indebtedness that had not yet been issued. Additionally, our operating expenses were higher than initially projected as we hired additional personnel to support our growth. Our actual revenue being lower than projected revenue and our net operating losses being higher than projected net operating losses for the year ended December 31, 2021, had a negative impact on our cash and cash equivalents position.
For the six months ended June 30, 2022, we recognized $13.5 million in revenue, and had net losses of approximately $66.8 million. Extrapolating these results for the remainder of fiscal year 2022, we expect that our revenue for fiscal year 2022 will be less than our projected $104 million and our net loss for fiscal year 2022 will be greater than our projected $64 million that we provided to ENNV in connection with ENNV’s evaluation of the Business Combination. The anticipated lower revenue, and anticipated higher net operating loss, for fiscal year 2022 is expected to have a negative impact on our cash and cash equivalents position. Accordingly, in connection with announcing the Company’s financial results for the quarter ended June 30, 2022, we revised our outlook for the year ended December 31, 2022.
The anticipated lower revenue for fiscal year 2022 is due to the combination of receiving lower proceeds than anticipated from the Business Combination, the delay in the closing of the Business Combination until February 4, 2022, and the increased customer acquisition spend of our competitors. We expected to receive higher proceeds from the Business Combination, which we planned to invest in acquiring new customers, expanding our manufacturing capability, expanding our Cloud Manufacturing Platform and making strategic acquisitions. As the proceeds from the Business Combination were significantly lower than expected, and received later than expected, we had to reduce, delay or cancel our investments in these growth initiatives.
The impact of these reductions in our planned growth investments in the six months ended June 30, 2022, coupled with the increased cost associated with acquiring customers as a result of our competitors’ increased customer acquisition spend, had a direct impact to our revenue, which is reflected by our results for the six months ended June 30, 2022. If we had obtained significantly higher proceeds from the Business Combination sooner, we believe we would have been able to further accelerate our growth investments in the six months ended June 30, 2022, and throughout 2022, which we believe would have enabled us to achieve higher revenue for fiscal year 2022.
The anticipated higher net operating loss for fiscal year 2022 is due to the reduction in anticipated revenues as discussed above, partially offset by the reduction in anticipated expenses that would have been incurred to generate those revenues, and higher stock-based compensation expenses that were not included in our projections due to uncertainty around the timing for consummating the Business Combination and modifications to certain awards that impacted their valuation. Additionally, we are incurring higher costs than anticipated as a public company.
Indebtedness and Effect of Resales
As of June 30, 2022, we had $28.7 million in debt, net of discounts and issuance costs, outstanding.
On February 4, 2022, the 2021 SVB Loan was amended to extend the maturity date from the Closing Date to April 3, 2023 and required payment of $2.0 million of the $20.0 million outstanding principal balance upon consummation of the Business Combination. This amendment also added the original $0.8 million fee due at the SPAC closing to the amended loan’s outstanding principal balance, deferring its repayment until maturity. In exchange for the extension of the loan, we will pay an additional fee of $2.1 million due at maturity. We will make six interest-only payments beginning March 1, 2022 and will begin paying $2.4 million in principal beginning September 1, 2022.
Additionally, on February 4, 2022, as part of the closing of the Business Combination, the related party convertible notes that had a carrying value of $12.5 million as of December 31, 2021 were converted into Common Stock.
15,516,639 ENNV liability-classified warrants were also assumed as part of the Business Combination with a carrying and fair value of $1.2 million as of June 30, 2022. Finally, certain other transaction costs associated with, and liabilities assumed as a result of, the Business Combination totaling approximately $11 million as of June 30, 2022 have been deferred until later in 2022 or 2023.
32
The shares of Common Stock registered for potential resale pursuant to the prospectus we filed with the SEC on July 22, 2022 (File No. 333-264427) by the selling securityholders thereunder represented approximately 74.8% of shares outstanding on a fully diluted basis as of June 1, 2022. Given the substantial number of shares of Common Stock registered for potential resale by selling securityholders pursuant to such prospectus, the sale of shares by the selling securityholders thereunder, or the perception in the market that the selling securityholders intend to sell shares, could increase the volatility of the market price of our Common Stock or result in a significant decline in the public trading price of our Common Stock. These sales, or the possibility that these sales may occur, and any related volatility or decrease in market price of our Common Stock, might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Warrant Proceeds
We would receive the proceeds from any exercise of any Warrants that are exercised for cash pursuant to their terms. Assuming the exercise in full of all of the Warrants for cash, we would receive an aggregate of approximately $178.4 million, but would not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. To the extent any Warrants are issued on a “cashless basis,” the amount of cash we would receive from the exercise of the Warrants will decrease. We would expect to use any such proceeds received from Warrants that are exercised for cash in the future for general corporate and working capital purposes, which would increase our liquidity. However, we will only receive such proceeds if and when the Warrant holders exercise the Warrants. The exercise of the Warrants, and any proceeds we may receive from their exercise, are highly dependent on the price of our Common Stock and the spread between the exercise price of the Warrant and the price of our Common Stock at the time of exercise. There is no assurance that the holders of the Warrants will elect to exercise for cash any or all of such Warrants, and we believe that any such exercise currently is unlikely to occur as described below. As of the date of this Quarterly Report on Form 10-Q, we have neither included nor intend to include any potential cash proceeds from the exercise of our Warrants in our short-term or long-term liquidity projections. We will continue to evaluate the probability of warrant exercise over the life of our Warrants and the merit of including potential cash proceeds from the exercise thereof in our liquidity projections.
We do not expect to rely on the cash exercise of Warrants to fund our operations. Instead, we intend to rely on our primary sources of cash discussed above to continue to support our operations. The exercise price of the Warrants is $11.50 per share and the closing price of our Common Stock was $0.58 as of August 4, 2022. Accordingly, we believe that it is currently unlikely that holders of the Warrants will exercise their Warrants. The likelihood that Warrant holders will exercise the Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Common Stock. If the trading price for our Common Stock remains less than $11.50 per share, we believe holders of the Warrants will be unlikely to exercise their Warrants. There is no guarantee that the Warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the Warrants may expire worthless and we may not receive any proceeds from the exercise of the Warrants. To the extent that any of the Warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the Warrants will decrease.
Other commitments
In May 2021, we entered into a master subscription agreement with Palantir for access to Palantir’s proprietary software for a six-year period for a total of $45.0 million. The non-cancellable future minimum payments due on this firm purchase agreement are $10.1 million after taking into account the $9.4 million payment made to Palantir at Close. Refer to Note 6 of the consolidated financial statements included elsewhere in this Report for additional information on our agreement with Palantir.
Cash Flows
The following table sets forth a summary of cash flows for the six months ended June 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
Net cash used by operating activities |
|
$ |
(60,197 |
) |
|
$ |
(21,191 |
) |
Net cash used by investing activities |
|
$ |
(3,161 |
) |
|
$ |
(2,971 |
) |
Net cash generated by financing activities |
|
$ |
92,520 |
|
|
$ |
17,983 |
|
Net increase (decrease) in cash flows |
|
$ |
29,162 |
|
|
$ |
(6,179 |
) |
Operating Activities
Cash used in operating activities for the six months ended June 30, 2022 and 2021 was $60.2 million and $21.2 million, respectively. The increase in operating cash outflows in 2022 was partly due to higher operating losses in the current year. Additionally, we used a portion of the proceeds from the Business Combination described below in Financing Activities to make cash payments related to various transaction and other costs that became due as a result of the Business Combination.
33
Investing Activities
Cash used in investing activities for the six months ended June 30, 2022 and 2021 was $3.2 million and $3.0 million, respectively. The increase was attributable to capitalized software development costs during the period.
Financing Activities
Cash provided by financing activities for the six months ended June 30, 2022 and 2021 was $92.5 million and $18.0 million, respectively.
In 2022, we received proceeds from the Business Combination of approximately $97.5 million, net of transaction costs. A portion of those proceeds were used to settle debt obligations of $3.8 million and to pay various transaction and other expenses included in Operating Activities above. Additionally, we made payments of approximately $1.4 million related to deferred underwriting fees associated with the ENNV IPO in 2021 that were assumed as a result of the Business Combination. Refer to Note 3 of the condensed consolidated financial statements included elsewhere in this Report for additional information on the Business Combination.
In 2021, we received proceeds of $11.0 million from the issuance of term loans and $7.6 million from the issuance of convertible notes and warrants to a related party that was partially offset by the repayment of outstanding indebtedness of $0.6 million.
Contractual Obligations
Our contractual obligations consist primarily of debt liabilities and operating leases which impact our short-term and long-term liquidity and capital needs. The table below is presented as of June 30, 2022 and reflects interest rates as of that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period |
|
(in thousands) |
|
Total |
|
|
2022 |
|
|
2023-2024 |
|
|
2025-2026 |
|
|
More than 5 years |
|
Contractual obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
3,793 |
|
|
$ |
941 |
|
|
$ |
1,982 |
|
|
$ |
870 |
|
|
$ |
- |
|
Debt |
|
|
30,549 |
|
|
|
11,233 |
|
|
|
19,109 |
|
|
|
207 |
|
|
|
- |
|
Interest on debt |
|
|
1,592 |
|
|
|
1,038 |
|
|
|
548 |
|
|
|
6 |
|
|
|
- |
|
Purchase commitments |
|
|
10,125 |
|
|
|
5,625 |
|
|
|
2,250 |
|
|
|
2,250 |
|
|
|
- |
|
Total contractual obligations |
|
$ |
46,059 |
|
|
$ |
18,837 |
|
|
$ |
23,889 |
|
|
$ |
3,333 |
|
|
$ |
- |
|
Off-Balance Sheet Arrangements
As of June 30, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements, as defined in Regulation S-K, Item 303(a)(4)(ii).
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Our most significant estimates and judgements involve valuation of our equity, including assumptions made in the fair value of stock-based compensation. Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our Current Report on Form 8-K/A filed with the SEC on March 30, 2022. Although we regularly assess these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from management’s estimates if these results differ from historical experience or other assumptions prove not to be substantially accurate, even if such assumptions are reasonable when made.