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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________________________________________
FORM 10-Q
_____________________________________________
(Mark One)
| | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
| | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ____________
Commission File Number: 001-39524
_____________________________________________
Joby Aviation, Inc.
(Exact Name of Registrant as Specified in its Charter)
_____________________________________________
| | | | | |
Delaware | 98-1548118 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
333 Encinal Street, Santa Cruz, CA | 95060 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (831) 201-6700
_____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.0001 | | JOBY | | New York Stock Exchange |
Warrants to purchase common stock | | JOBY WS | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.(Check one):
| | | | | | | | | | | |
Large accelerated filer | x | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | o |
Emerging growth company | o | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The registrant had 765,085,553 shares of common stock outstanding as of November 4, 2024.
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include, without limitation, statements regarding the future financial position, business strategy and plans and objectives of management of Joby Aviation, Inc. (the “Company,” “Joby,” “we,” “us” or “our”). These statements constitute projections and forecasts and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
These forward-looking statements are based on information available as of the date of this Quarterly Report and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. While we believe these expectations, forecasts, assumptions and judgments are reasonable, our forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. Our business, prospects, financial condition, operating results and the price of our common stock may be affected by a number of factors, whether currently known or unknown, including but not limited to those discussed in this Quarterly Report in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the section titled “Risk Factors” below in Part II, Item 1A and in our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024 . Any one or more of these factors could, directly or indirectly, cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result 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. You should not place undue reliance on these forward-looking statements.
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
JOBY AVIATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share and per share amounts)
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 152,292 | | | $ | 204,017 | |
Short-term investments | 557,692 | | | 828,233 | |
Total cash, cash equivalents and short-term investments | 709,984 | | | 1,032,250 | |
Other receivables | 10,400 | | | 4,659 | |
Prepaid expenses and other current assets | 17,416 | | | 18,842 | |
Total current assets | 737,800 | | | 1,055,751 | |
Property and equipment, net | 111,988 | | | 103,430 | |
Operating lease right-of-use assets | 29,217 | | | 28,286 | |
Restricted cash | 762 | | | 762 | |
Intangible assets | 9,561 | | | 6,585 | |
Goodwill | 14,322 | | | 14,011 | |
Other non-current assets | 60,607 | | | 60,610 | |
Total assets | $ | 964,257 | | | $ | 1,269,435 | |
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 4,940 | | | $ | 3,006 | |
Operating lease liabilities, current portion | 4,846 | | | 4,312 | |
Accrued and other current liabilities | 35,980 | | | 37,818 | |
Total current liabilities | 45,766 | | | 45,136 | |
Operating lease liabilities, net of current portion | 26,883 | | | 26,349 | |
Warrant liability | 42,364 | | | 62,936 | |
Earnout shares liability | 63,922 | | | 95,969 | |
Other non-current liabilities | 4,283 | | | 4,683 | |
Total liabilities | 183,218 | | | 235,073 | |
Commitments and contingencies (Note 6) | | | |
Stockholders’ equity: | | | |
Preferred stock: $0.0001 par value - 100,000,000 shares authorized. No shares issued and outstanding. | — | | | — | |
Common stock: $0.0001 par value - 1,400,000,000 shares authorized; 717,094,083 and 698,262,025 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively. | 71 | | | 70 | |
Additional paid-in capital | 2,389,751 | | | 2,282,475 | |
Accumulated deficit | (1,609,460) | | | (1,247,703) | |
Accumulated other comprehensive income (loss) | 677 | | | (480) | |
Total stockholders’ equity | 781,039 | | | 1,034,362 | |
Total liabilities and stockholders’ equity | $ | 964,257 | | | $ | 1,269,435 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
JOBY AVIATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Revenue: | | | | | | | |
Flight services | $ | 28 | | | $ | — | | | $ | 81 | | | $ | — | |
Operating expenses: | | | | | | | |
Flight services | 15 | | | — | | | 45 | | | — | |
Research and development (including related party purchases of $247 and $421 for the three months ended September 30, 2024 and 2023, respectively, $796 and $1,335 for the nine months ended September 30, 2024 and 2023, respectively.) | 126,139 | | | 100,559 | | | 354,771 | | | 264,926 | |
Selling, general and administrative (including related party purchases of $37 and $69 for the three months ended September 30, 2024 and 2023, respectively, $122 and $232 for the nine months ended September 30, 2024 and 2023, respectively.) | 30,569 | | | 27,608 | | | 92,144 | | | 78,926 | |
Total operating expenses | 156,723 | | | 128,167 | | | 446,960 | | | 343,852 | |
Loss from operations | (156,695) | | | (128,167) | | | (446,879) | | | (343,852) | |
Interest and other income, net | 9,528 | | | 13,611 | | | 33,038 | | | 32,694 | |
Gain (Loss) from change in fair value of warrants and earnout shares | 3,842 | | | 116,109 | | | 52,683 | | | (86,671) | |
Total other income (loss), net | 13,370 | | | 129,720 | | | 85,721 | | | (53,977) | |
Income (Loss) before income taxes | (143,325) | | | 1,553 | | | (361,158) | | | (397,829) | |
Income tax expense | 553 | | | 28 | | | 599 | | | 118 | |
Net income (loss) | $ | (143,878) | | | $ | 1,525 | | | $ | (361,757) | | | $ | (397,947) | |
Net income (loss) per share, basic and diluted | $ | (0.21) | | | $ | 0.00 | | | $ | (0.53) | | | $ | (0.62) | |
Weighted-average common stock outstanding,: | | | | | | | |
Basic | 695,011,457 | | | 672,559,810 | | | 688,718,075 | | | 638,388,011 | |
Diluted | 695,011,457 | | | 691,455,162 | | | 688,718,075 | | | 638,388,011 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
JOBY AVIATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net income (loss) | $ | (143,878) | | | $ | 1,525 | | | $ | (361,757) | | | $ | (397,947) | |
Other comprehensive gain (loss): | | | | | | | |
Unrealized gain on available-for-sale securities | 2,257 | | | 1,799 | | | 1,095 | | | 6,447 | |
Foreign currency translation gain (loss) | 453 | | | (112) | | | 62 | | | (353) | |
Total other comprehensive gain | 2,710 | | | 1,687 | | | 1,157 | | | 6,094 | |
Comprehensive income (loss) | $ | (141,168) | | | $ | 3,212 | | | $ | (360,600) | | | $ | (391,853) | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
JOBY AVIATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity |
| Shares | | Amount | | | | |
Balance at January 1, 2024 | 698,262,025 | | | $ | 70 | | | $ | 2,282,475 | | | $ | (1,247,703) | | | $ | (480) | | | $ | 1,034,362 | |
Net loss | — | | | — | | | — | | | (94,587) | | | — | | | (94,587) | |
Stock-based compensation | — | | | — | | | 35,328 | | | — | | | — | | | 35,328 | |
Issuance of common stock upon exercise of stock options | 1,016,414 | | | — | | | 943 | | | — | | | — | | | 943 | |
Issuance of common stock upon release of restricted stock units | 6,034,056 | | | — | | | — | | | — | | | — | | | — | |
Vesting of early exercised stock options and common stock issued in private placement | — | | | — | | | 186 | | | — | | | — | | | 186 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (1,101) | | | (1,101) | |
Balance at March 31, 2024 | 705,312,495 | | | $ | 70 | | | $ | 2,318,932 | | | $ | (1,342,290) | | | $ | (1,581) | | | $ | 975,131 | |
Net loss | — | | | — | | | — | | | (123,292) | | | — | | | (123,292) | |
Stock-based compensation | — | | | — | | | 28,441 | | | — | | | — | | | 28,441 | |
Issuance of common stock upon exercise of stock options | 424,313 | | | 1 | | | 311 | | | — | | | — | | | 312 | |
Issuance of common stock upon release of restricted stock units | 3,594,727 | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock under the Employee Stock Purchase Plan | 1,227,816 | | | | | 4,942 | | | | | | | 4,942 | |
Issuance of common stock in acquisition | 3,320,235 | | | — | | | 9,472 | | | | | | | 9,472 | |
Vesting of early exercised stock options | — | | | — | | | 30 | | | — | | | — | | | 30 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (452) | | | (452) | |
Balance at June 30, 2024 | 713,879,586 | | | $ | 71 | | | $ | 2,362,128 | | | $ | (1,465,582) | | | $ | (2,033) | | | $ | 894,584 | |
Net loss | — | | | — | | | — | | | (143,878) | | | — | | | (143,878) | |
Stock-based compensation | — | | | — | | | 27,391 | | | — | | | — | | | 27,391 | |
Issuance of common stock upon exercise of stock options | 1,015,276 | | | — | | | 207 | | | — | | | — | | | 207 | |
Issuance of common stock upon release of restricted stock units | 2,199,221 | | | — | | | — | | | — | | | — | | | — | |
Vesting of early exercised stock options | — | | | — | | | 25 | | | — | | | — | | | 25 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 2,710 | | | 2,710 | |
Balance at September 30, 2024 | 717,094,083 | | | $ | 71 | | | $ | 2,389,751 | | | $ | (1,609,460) | | | $ | 677 | | | $ | 781,039 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
JOBY AVIATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(unaudited)
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity |
| Shares | | Amount | | | | |
Balance at January 1, 2023 | 622,602,815 | | | $ | 61 | | | $ | 1,908,179 | | | $ | (734,653) | | | $ | (8,846) | | | $ | 1,164,741 | |
Net loss | — | | | — | | | — | | | (113,393) | | | — | | | (113,393) | |
Stock-based compensation | — | | | — | | | 14,157 | | | — | | | — | | | 14,157 | |
Issuance of common stock upon exercise of stock options | 945,803 | | | — | | | 614 | | | — | | | — | | | 614 | |
Issuance of common stock upon release of restricted stock units | 5,836,813 | | | — | | | — | | | — | | | — | | | — | |
Vesting of early exercised stock options and common stock issued in private placement | — | | | — | | | 104 | | | — | | | — | | | 104 | |
Issuance of common stock in private placement | 137,174 | | | | | — | | | | | | | — | |
Other comprehensive income | — | | | — | | | — | | | — | | | 3,272 | | | 3,272 | |
Balance at March 31, 2023 | 629,522,605 | | | $ | 61 | | | $ | 1,923,054 | | | $ | (848,046) | | | $ | (5,574) | | | $ | 1,069,495 | |
Net loss | — | | | — | | | — | | | (286,079) | | | — | | | (286,079) | |
Stock-based compensation | — | | | — | | | 15,232 | | | — | | | — | | | 15,232 | |
Issuance of common stock upon exercise of stock options | 914,077 | | | — | | | 679 | | | — | | | — | | | 679 | |
Issuance of common stock upon release of restricted stock units | 2,053,991 | | | — | | | — | | | — | | | — | | | — | |
Vesting of early exercised stock options and common stock issued in private placement | — | | | — | | | 93 | | | — | | | — | | | 93 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 1,135 | | | 1,135 | |
Issuance of common stock under the Employee Stock Purchase Plan | 1,047,001 | | | | | 3,801 | | | | | | | 3,801 | |
Issuance of common stock in private placement | 59,023,275 | | | 6 | | | 280,190 | | | | | | | 280,196 | |
Balance at June 30, 2023 | 692,560,949 | | | $ | 67 | | | $ | 2,223,049 | | | $ | (1,134,125) | | | $ | (4,439) | | | $ | 1,084,552 | |
Net income | — | | | — | | | — | | | 1,525 | | | — | | | 1,525 | |
Stock-based compensation | — | | | — | | | 21,456 | | | — | | | — | | | 21,456 | |
Issuance of common stock upon exercise of stock options | 410,690 | | | 2 | | | 276 | | | — | | | — | | | 278 | |
Issuance of common stock upon release of restricted stock units | 1,720,952 | | | — | | | — | | | — | | | — | | | — | |
Offering costs for issuance of common stock in private placement | — | | | — | | | (298) | | | — | | | — | | | (298) | |
Vesting of early exercised stock options and common stock issued in private placement | — | | | — | | | 134 | | | — | | | — | | | 134 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 1,687 | | | 1,687 | |
Balance at September 30, 2023 | 694,692,591 | | | $ | 69 | | | $ | 2,244,617 | | | $ | (1,132,600) | | | $ | (2,752) | | | $ | 1,109,334 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
JOBY AVIATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
Cash flows from operating activities | | | |
Net loss | $ | (361,757) | | | $ | (397,947) | |
Reconciliation of net loss to net cash used in operating activities: | | | |
Depreciation and amortization expense | 26,095 | | | 22,352 | |
Stock-based compensation expense | 82,780 | | | 69,747 | |
Loss (Gain) from change in the fair value of warrants and earnout shares | (52,683) | | | 86,671 | |
Net accretion of investments in marketable debt securities | (12,955) | | | (14,438) | |
Changes in operating assets and liabilities | | | |
Other receivables and prepaid expenses and other current assets | (2,609) | | | (2,240) | |
Other non-current assets | (783) | | | 901 | |
Accounts payable and accrued and other current liabilities | 5,609 | | | 2,114 | |
Non-current liabilities | 534 | | | 2,352 | |
Net cash used in operating activities | (315,769) | | | (230,488) | |
Cash flows from investing activities | | | |
Purchases of marketable securities | (308,473) | | | (434,129) | |
Proceeds from sales and maturities of marketable securities | 593,064 | | | 733,562 | |
Purchases of property and equipment | (25,197) | | | (22,730) | |
Net cash provided by investing activities | 259,394 | | | 276,703 | |
Cash flows from financing activities | | | |
Proceeds from issuance of common stock in private placement, net | — | | | 280,023 | |
Proceeds from the issuance of common stock under the Employee Stock Purchase Plan | 4,942 | | | 3,801 | |
Proceeds from the exercise of stock options and warrants issuance | 1,492 | | | 1,717 | |
Repayments of tenant improvement loan and obligations under finance lease | (1,784) | | | (690) | |
Net cash provided by financing activities | 4,650 | | | 284,851 | |
Net change in cash, cash equivalents and restricted cash | (51,725) | | | 331,066 | |
Cash, cash equivalents and restricted cash, at the beginning of the period | 204,779 | | | 150,067 | |
Cash, cash equivalents and restricted cash, at the end of the period | $ | 153,054 | | | $ | 481,133 | |
Reconciliation of cash, cash equivalents and restricted cash to balance sheets | | | |
Cash and cash equivalents | $ | 152,292 | | | 480,371 | |
Restricted cash | 762 | | | 762 | |
Cash, cash equivalents and restricted cash | $ | 153,054 | | | $ | 481,133 | |
Non-cash investing and financing activities | | | |
Net assets acquired | $ | 9,472 | | | $ | — | |
Unpaid property and equipment purchases | $ | 4,311 | | | $ | 1,211 | |
Property and equipment purchased through finance leases | $ | 2,537 | | | $ | 4,900 | |
Right of use assets acquired through operating leases | $ | 4,333 | | | $ | — | |
Liability Settled on Sale of Fixed Asset | $ | 200 | | | $ | — | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
JOBY AVIATION, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Company and Nature of Business
Description of Business
Joby Aviation, Inc. (“Joby Aviation” or the “Company”) is a vertically integrated air mobility company that is building a clean, quiet, fully-electric vertical takeoff and landing (“eVTOL”) aircraft to be used to deliver air transportation as a service. The Company is headquartered in Santa Cruz, California.
Merger with RTP
On August 10, 2021 (the “Closing Date”), Reinvent Technology Partners, a Cayman Islands exempted company and special purpose acquisition company (“RTP”), completed the transactions contemplated by that certain Agreement and Plan of Merger (the “Merger Agreement”), dated as of February 23, 2021, by and among RTP, RTP Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of RTP (“RTP Merger Sub”), and Joby Aero, Inc., a Delaware corporation (“Legacy Joby”). On the Closing Date, RTP was domesticated as a Delaware corporation, Merger Sub merged with and into Legacy Joby and the separate corporate existence of Merger Sub ceased (the “Merger”), and Legacy Joby survived as a wholly-owned subsidiary of RTP, which changed its name to Joby Aviation, Inc.
In connection with the execution of the Merger Agreement, RTP entered into separate subscription agreements with a number of investors (each a “PIPE Investor”), pursuant to which the PIPE Investors agreed to purchase, and RTP agreed to sell to the PIPE Investors, shares of Common Stock, in a private placement (“PIPE Financing”). The PIPE Financing closed substantially concurrently with the consummation of the Merger.
The Merger, together with the other transactions described in the Merger Agreement and the PIPE Financing, are referred to herein as the (“Reverse Recapitalization”). The number of Legacy Joby common shares and redeemable convertible preferred shares for all periods prior to the Closing Date have been retrospectively increased using the exchange ratio that was established in accordance with the Merger Agreement. Please refer to Note 3, “Reverse Recapitalization,” in the Company’s annual report on Form 10-K for the year ended December 31, 2023.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented.
The Condensed Consolidated Financial Statements include accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
There have been no changes to the Company’s significant accounting policies described in Note 2 “Summary of Significant Accounting Policies” to the audited Consolidated Financial Statements in the Company’s annual report on Form 10-K for the year ended December 31, 2023, that have had a material impact on the Condensed Consolidated Financial Statements and related notes.
Certain information and footnote disclosures normally included in the Company’s annual audited Consolidated Financial Statements and accompanying notes have been condensed or omitted in these accompanying interim Condensed Consolidated Financial Statements and footnotes. Accordingly, the accompanying interim Condensed Consolidated Financial Statements included herein should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2023.
The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period. In the opinion of management, these unaudited Condensed Consolidated Financial Statements include all adjustments and accruals, consisting only of normal, recurring adjustments that are necessary for a fair statement of the results of all interim periods reported herein.
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments with remaining original maturity of three months or less from the date of purchase to be cash and cash equivalents. The recorded carrying amount of cash and cash equivalents approximates their fair value. At September 30, 2024 and December 31, 2023, restricted cash primarily related to a security deposit for a lease obligation of approximately $0.8 million.
New Accounting Pronouncements Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold. The guidance also requires all entities to disclose annually income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative threshold. For public business entities, the guidance is effective for annual periods beginning after 15 December 2024. The Company expects the adoption to have a disclosure only impact on its consolidated financial statements.
In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The guidance also requires all public entities with a single reportable segment have to provide all the disclosures required by ASC 280, including the significant segment expense disclosures. The guidance applies to all public entities and is effective for fiscal years beginning after 15 December 2023, and for interim periods beginning after 15 December 2024. The Company expects the adoption to have a disclosure only impact on its consolidated financial statements.
Note 3. Fair Value Measurements
Assets and liabilities recorded at fair value on a recurring basis in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
•Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
•Level 2 - Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
•Level 3 - Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
The Company’s financial assets consist of Level 1 and 2 assets. The Company classifies its cash equivalents and marketable debt securities within Level 1 or Level 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. The Company’s fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of the Company’s marketable debt securities were derived from non-binding market consensus prices that are corroborated by observable market data and quoted market prices for similar instruments.
The Company’s financial liabilities measured at fair value on a recurring basis consist of Level 1, Level 2 and Level 3 liabilities. The Company’s Public Warrants (as defined in Note 7) are classified as Level 1 because they are directly observable in the market. The Company classifies the Private Placement Warrants (as defined in Note 7) within Level 2, because they were valued using inputs other than quoted prices which are directly observable in the market, including readily available pricing for the Company’s Public Warrants. The Company classifies Delta Warrant and Earnout Shares Liability (as defined in Note 7) within Level 3, because they were valued using unobservable inputs that are significant to
the fair value measurement. The Delta Warrant and Earnout Shares Liability are measured at fair value on a recurring basis. Changes in fair value of Level 3 liabilities are recorded in total other income (loss), net, in the condensed consolidated statements of operations.
The following tables set forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy as of September 30, 2024 and December 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets measured at fair value | | | | | | | |
Money market funds | $ | 142,090 | | | $ | — | | | $ | — | | | $ | 142,090 | |
Cash equivalents | $ | 142,090 | | | $ | — | | | $ | — | | | $ | 142,090 | |
Term deposits | $ | — | | | $ | 30,770 | | | $ | — | | | $ | 30,770 | |
Asset backed securities | — | | | 51,400 | | | — | | | 51,400 | |
Government debt securities | — | | | 155,312 | | | — | | | 155,312 | |
Corporate debt securities | — | | | 320,210 | | | — | | | 320,210 | |
Available-for-sale investments | — | | | 557,692 | | | — | | | 557,692 | |
Total fair value of assets | $ | 142,090 | | | $ | 557,692 | | | $ | — | | | $ | 699,782 | |
| | | | | | | |
Liabilities measured at fair value | | | | | | | |
Common stock warrant liabilities (Public) | $ | 10,867 | | | $ | — | | | $ | — | | | $ | 10,867 | |
Common stock warrant liabilities (Private) | — | | | 7,267 | | | — | | | 7,267 | |
Common stock warrant liabilities (Delta) | — | | | — | | | 24,230 | | | 24,230 | |
Warrant liability | 10,867 | | | 7,267 | | | 24,230 | | | 42,364 | |
Earnout Shares Liability | — | | | — | | | 63,922 | | | 63,922 | |
Total fair value of liabilities | $ | 10,867 | | | $ | 7,267 | | | $ | 88,152 | | | $ | 106,286 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets measured at fair value | | | | | | | |
Money market funds | $ | 197,543 | | | $ | — | | | $ | — | | | $ | 197,543 | |
Cash equivalents | $ | 197,543 | | | $ | — | | | $ | — | | | $ | 197,543 | |
Term deposits | $ | — | | | $ | 42,538 | | | $ | — | | | $ | 42,538 | |
Asset backed securities | — | | | 27,469 | | | — | | | 27,469 | |
Government debt securities | — | | | 265,681 | | | — | | | 265,681 | |
Corporate debt securities | — | | | 492,545 | | | — | | | 492,545 | |
Available-for-sale investments | — | | | 828,233 | | | — | | | 828,233 | |
Total fair value of assets | $ | 197,543 | | | $ | 828,233 | | | $ | — | | | $ | 1,025,776 | |
| | | | | | | |
Liabilities measured at fair value | | | | | | | |
Common stock warrant liabilities (Public) | $ | 21,097 | | | $ | — | | | $ | — | | | $ | 21,097 | |
Common stock warrant liabilities (Private Placement) | — | | | 14,105 | | | — | | | 14,105 | |
Common stock warrant liabilities (Delta) | — | | | — | | | 27,734 | | | 27,734 | |
Warrant liabilities | 21,097 | | | 14,105 | | | 27,734 | | | 62,936 | |
Earnout Shares Liability | — | | | — | | | 95,969 | | | 95,969 | |
Total fair value of liabilities | $ | 21,097 | | | $ | 14,105 | | | $ | 123,703 | | | $ | 158,905 | |
The following is a summary of the Company’s available-for-sale securities (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 |
| Cost or Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for credit losses | | Fair value |
Assets measured at fair value | | | | | | | | | |
Term deposits | $ | 30,770 | | | $ | — | | | $ | — | | | $ | — | | | $ | 30,770 | |
Asset backed securities | 51,261 | | | 139 | | | — | | | — | | | 51,400 | |
Government debt securities | 155,137 | | | 175 | | | — | | | — | | | 155,312 | |
Corporate debt securities | 319,399 | | | 811 | | | — | | | — | | | 320,210 | |
Total | $ | 556,567 | | | $ | 1,125 | | | $ | — | | | $ | — | | | $ | 557,692 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Cost or Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for credit losses | | Fair value |
Assets measured at fair value | | | | | | | | | |
Term deposits | $ | 42,538 | | | $ | — | | | $ | — | | | $ | — | | | $ | 42,538 | |
Asset backed securities | 27,465 | | | 21 | | | (17) | | | — | | | 27,469 | |
Government debt securities | 265,439 | | | 269 | | | (27) | | | — | | | 265,681 | |
Corporate debt securities | 492,761 | | | 299 | | | (515) | | | — | | | 492,545 | |
Total | $ | 828,203 | | | $ | 589 | | | $ | (559) | | | $ | — | | | $ | 828,233 | |
There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the nine months ended September 30, 2024 and 2023.
The following table sets forth a summary of the change in the fair value, which is recognized as a component of total other income (loss), net within the condensed consolidated statement of operations, of the Company’s Level 3 financial liabilities (in thousands):
| | | | | | | | | | | |
| Earnout Shares Liability | | Common Stock Warrant Liabilities Delta |
Fair value as of January 1, 2024 | $ | 95,969 | | | $ | 27,733 | |
Change in fair value | (32,047) | | | (3,503) | |
Fair value as of September 30, 2024 | $ | 63,922 | | | $ | 24,230 | |
| | | |
The fair value of the Earnout Shares Liability and Common stock warrant liabilities (Delta) (see Note 7) are based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.
Note 4. Acquisitions
2024 Acquisitions
On May 31, 2024, the Company completed the acquisition of certain assets of an aerospace company that develops modular autonomy technology for aviation in exchange for 1,944,990 shares of the Company’s common stock with an aggregate acquisition date fair value of $9.5 million. The transaction is expected to contribute to development of autonomous capabilities of the Company’s aircraft and to accelerate the execution of the Company’s contract deliverables with the U.S. Department of Defense. The acquisition was accounted for as a business combination as the assets acquired constituted a business in accordance with ASC 805 Business Combinations.
As part of the acquisition, the Company also issued 1,375,245 shares of the Company common stock subject to lock-up period of twelve month following the acquisition date (“Holdback Equity”). The number of shares of Holdback Equity to be released at the end of the lock-up period depends on the continuing employment of selected employees of the aerospace company, whose employment transitioned to the Company as a result of the acquisition, and the weighted volume average price of the Company’s common stock at the end of the lock-up period. The number of shares of Holdback Equity to be
released may additionally be reduced to satisfy certain indemnification obligations, if any, of the seller. The Company accounted for the Holdback Equity under ASC 718 Compensation — Stock Compensation as a compensation arrangement separate from the business combination and will recognize $8.7 million as stock-based compensation expense over the lock-up period, commencing on the acquisition date.
The purchase consideration of $9.5 million was preliminarily allocated to $7.4 million of total intangible assets comprising of $6.9 million of acquired developed technology and $0.5 million of contractual assets, $1.6 million of acquired fixed assets comprising of aircraft, related equipment and other long lived assets, $0.3 million of acquired goodwill, and $0.2 million of acquired current assets.
The acquired goodwill is not tax deductible. It represents the excess of the purchase consideration over the aggregate preliminary fair value of identifiable assets acquired at the acquisition date and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition.
The fair values of the acquired assets are still provisional and subject to change within the measurement period. The final determination of the fair values of the acquired assets is expected to be completed as soon as practicable, but no later than one year from the acquisition date.
Note 5. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Equipment | $ | 99,752 | | | $ | 84,639 | |
Buildings | 22,186 | | | 21,384 | |
Leasehold improvements | 20,226 | | | 18,771 | |
Molds and tooling | 19,291 | | | 16,306 | |
Computer software | 17,803 | | | 15,114 | |
Land | 6,270 | | | 6,270 | |
Vehicles and aircraft | 2,486 | | | 1,617 | |
Furniture and fixtures | 892 | | | 640 | |
Construction in-progress | 11,372 | | | 6,055 | |
Gross property and equipment | 200,278 | | | 170,796 | |
Accumulated depreciation and amortization | (88,290) | | | (67,366) | |
Property and equipment, net | $ | 111,988 | | | $ | 103,430 | |
Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2024 was $7.5 million and $21.7 million, respectively and $6.2 million and $17.7 million for the three and nine months ended September 30, 2023, respectively. Vehicles and aircraft includes utility automobiles used at the Company’s various facilities and purchased aircraft to support the Company’s air operations and training.
Intangible Assets, Net
The intangible assets consist of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Automation platform software | $ | 7,200 | | | $ | 7,200 | |
Multimodal software technology | — | | | 4,900 | |
System simulation software technology | 4,600 | | | 4,600 | |
Developed Technology | 6,900 | | | — | |
Other intangibles | 3,140 | | | 5,328 | |
Gross intangible assets | 21,840 | | | 22,028 | |
Accumulated amortization | (12,279) | | | (15,443) | |
Intangible assets, net | $ | 9,561 | | | $ | 6,585 | |
Amortization expense related to intangible assets for the three and nine months ended September 30, 2024 was $1.4 million and $4.4 million, respectively and $1.5 million and $4.6 million for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024 the weighted-average amortization period of intangible assets was 2.2 years
The following table presents the estimated future amortization expense of acquired amortizable intangible assets as of September 30, 2024 (in thousands):
| | | | | |
Fiscal Year | Amount |
2024 (remainder) | $ | 1,433 | |
2025 | 4,633 | |
2026 | 2,467 | |
2027 | 1,028 | |
| $ | 9,561 | |
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Prepaid equipment | $ | 4,646 | | | $ | 3,471 | |
Prepaid software | 4,430 | | | 3,809 | |
Prepaid taxes | 3,029 | | | 1,603 | |
Prepaid insurance | 3,198 | | | 6,192 | |
Other | 2,113 | | | 3,767 | |
Total | $ | 17,416 | | | $ | 18,842 | |
Other non-current assets
Other non-current assets consist of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Contractual agreement asset | $ | 59,611 | | | $ | 59,611 | |
Long term prepaid insurance | 293 | | | 413 | |
Other non-current assets | 703 | | | 586 | |
Total | $ | 60,607 | | | $ | 60,610 | |
Accrued and other current liabilities
Accrued and other current liabilities consist of the following (in thousands): | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Vendor related accruals | $ | 14,544 | | | $ | 11,391 | |
Payroll accruals | 9,340 | | | 16,265 | |
Contract liabilities under contracts with customers | 4,160 | | | 2,534 | |
Deferred research and development credits | 2,111 | | | 3,633 | |
Other accruals and current liabilities | 5,825 | | | 3,995 | |
Total | $ | 35,980 | | | $ | 37,818 | |
Note 6. Commitments and Contingencies
Contingencies
As of September 30, 2024, the Company had $13 million of unconditional purchase obligations with remaining terms in excess of one year. These obligations primarily relate to the Company’s purchase agreements for certain aircraft parts through 2028.
The Company is subject to claims and assessments from time to time in the ordinary course of business. Accruals for litigation and contingencies are reflected in the Condensed Consolidated Financial Statements based on management’s assessment, including the advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings and/or the expected resolution of contingencies. Liabilities for estimated losses are accrued if the potential losses from any claims or legal proceedings are considered probable and the amounts can be reasonably estimated. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount can be reasonably estimated. Accruals are based only on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s condensed consolidated results of operations in a given period. As of September 30, 2024, and December 31, 2023, the Company was not involved in any material legal proceedings.
Indemnifications
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.
The Company has indemnified its Board of Directors and officers, to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a director or officer, other than liabilities arising from willful misconduct of the individual. The Company currently has directors’ and officers’ insurance. The Company believes the estimated fair value of these obligations is minimal. The Company did not record any liabilities in connection with these possible obligations as of September 30, 2024 and December 31, 2023.
Note 7. Stock Warrants and Earnout Shares
Private Placement and Public Warrants
In connection with the Merger, each of the 17,250,000 publicly-traded warrants (“Public Warrants”) and 11,533,333 private placement warrants (“Private Placement Warrants” and, together with the Public Warrants, the “Common Stock Warrants”) issued to Reinvent Sponsor, LLC (the “Sponsor”) in connection with RTP’s initial public offering and subsequent overallotment were converted into an equal number of warrants that entitle the holder to purchase one share of the Company’s Common stock, par value $0.0001 (“Common Stock”) at an exercise price of $11.50 per share, subject to adjustments, and will expire five years after the completion of the Merger or earlier upon redemption or the Company’s
liquidation. Once the Common Stock Warrants become exercisable, the Company may redeem the outstanding Common Stock Warrants subject to certain Common Stock price and other conditions as defined in the Warrant Agreement between RTP and Continental Stock Transfer & Trust Company (“Warrant Agreement”) and the Sponsor Agreement by and among the Company, Sponsor and RTP (“Sponsor Agreement”). During the three and nine months ended September 30, 2024, 243 Common Stock Warrants were exercised.
The Private Placement Warrants were initially recognized as a liability on August 10, 2021, at a fair value of $21.9 million. For the three and nine months ended September 30, 2024, the Private Placement Warrant liability was remeasured to fair value as of September 30, 2024, resulting in a loss of $0.7 million and a gain of $6.8 million, respectively, which is included within the gain (loss) from change in the fair value of warrants and earnout shares in the condensed consolidated statements of operations. For the three and nine months ended September 30, 2023, the gain from change in the fair value of private warrants was $16.3 million and a loss of $8.7 million, respectively.
The Public Warrants were initially recognized as a liability on August 10, 2021 at a fair value of $32.8 million. For the three and nine months ended September 30, 2024, the public warrant liability was remeasured to fair value based upon the market price as of September 30, 2024, resulting in a loss of $1.0 million and a gain of $10.2 million, respectively, classified within the gain (loss) from change in the fair value of warrants and earnout shares in the condensed consolidated statements of operations. For the three and nine months ended September 30, 2023, the gain from change in the fair value of public warrants was $24.3 million and a loss of $13.1 million, respectively.
Earnout Shares Liability
In connection with the Reverse Recapitalization and pursuant to the Sponsor Agreement, Sponsor agreed to certain terms of vesting, lock-up and transfer with respect to the 17,130,000 common shares held by it (“Earnout Shares”). The terms of the Sponsor Agreement specify that the Earnout Shares will vest upon achieving certain specified release events. In accordance with ASC 815 Derivatives and Hedging, the Earnout Shares are not indexed to the Common Stock and therefore are accounted for as a liability (“Earnout Shares Liability”) as of the Closing Date and subsequently remeasured at each reporting date with changes in fair value recorded as a component of total other income (loss), net in the condensed consolidated statements of operations.
Under the vesting schedule, 20% of the Earnout Shares vest in tranches when the volume-weighted average price of the Company’s common stock quoted on the NYSE is greater than $12.00, $18.00, $24.00, $32.00 and $50.00 for any 20 trading days within a period of 30 trading days (each such occurrence a “Triggering Event”). After ten years following the consummation of the Merger (the “Earnout Period”), any Earnout Shares which have not yet vested are forfeited. No Earnout Shares vested as of September 30, 2024.
Earnout Shares Liability at the closing of the Merger on August 10, 2021, was $149.9 million based on a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the Earnout Period using the most reliable information available.
During the three and nine months ended September 30, 2024, the Company recognized a gain related to the change in the fair value of the Earnout Shares Liability of $5.4 million and $32.0 million, respectively, included within the gain (loss) from change in fair value of warrants and earnout shares in the condensed consolidated statement of operations. During the three and nine months ended September 30, 2023, the Company recognized a gain related to the change in the fair value of the Earnout Shares Liability of $66.6 million and a loss of $50.6 million, respectively.
Assumptions used in the valuation are as follows:
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Expected volatility | 72.10 | % | | 75.30 | % |
Risk-free interest rate | 3.66 | % | | 3.90 | % |
Dividend rate | — | % | | — | % |
Expected term (in years) | 6.86 | | 7.61 |
Delta Warrant
In connection with the umbrella agreement that the Company entered with Delta Air Lines, Inc. (“Delta”) on October 7, 2022, the Company sold and issued to Delta, in private placement, 11,044,232 shares of the Company’s Common Stock, at the per-share purchase price of $5.4327, for an aggregate cash consideration of $60.0 million. In addition, the Company issued a warrant for Delta to purchase up to 12,833,333 shares of the Company's common stock in two tranches, subject to certain milestone achievement conditions (“Delta Warrant”).
The first and the second tranches of the warrant permit Delta to purchase up to 7,000,000 and 5,833,333 shares of Common Stock at exercise prices of $10 and $12, respectively, starting from the date the applicable milestones are satisfied and ending on the ten year anniversary of the warrant issuance date. The number of shares and exercise price for both tranches is subject to value cap adjustment if the 30 day volume weighted average price per share of the Company’s stock exceeds 150% of each respective tranche’s exercise price, but disregarding any price increases occurring within 10 business days after a public announcement of the achievement of an applicable milestone, if any.
The Company concluded that no assets or liabilities were transferred by either party beyond the Company’s issuance of common stock and warrants in exchange for the total cash consideration from Delta, that the umbrella agreement does not constitute a funded research and development agreement in the scope of ASC 730 “Research and Development” or a collaborative agreement in the scope of ASC 808 “Collaborative Agreements”, and that the Delta Warrant is a freestanding financial instrument not indexed to the Company’s own stock. Accordingly, the Company recognized the issuance of Common Stock as equity in additional paid-in capital on condensed consolidated balance sheets and the Delta Warrant as liability on the condensed consolidated balance sheets at fair value.
The Delta Warrant issuance was initially recognized as a liability on October 7, 2022, at a fair value of $16.1 million based on a Monte Carlo simulation valuation model using the most reliable information available. During the three and nine months ended September 30, 2024, the Delta Warrant’s liability was remeasured to fair value as of September 30, 2024, resulting in a gain of $0.2 million and $3.5 million, respectively, which is included within the gain (loss) from change in the fair value of warrants and earnout shares in the condensed consolidated statements of operations. During the three and nine months ended September 30, 2023, the Company recognized a gain related to the change in the fair value of the Delta Warrant liability of $8.5 million and a loss of $14.1 million, respectively.
Assumptions used in the valuation of Delta Warrants are as follows:
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Expected volatility | 72.10 | % | | 75.30 | % |
Risk-free interest rate | 3.72 | % | | 3.90 | % |
Dividend rate | — | % | | — | % |
Expected term (in years) | 8.0 | | 8.8 |
Note 8. Stock-based Compensation
Equity Compensation Plans
In November 2016, the Company’s Board of Directors adopted the 2016 Stock Option and Grant Plan (“2016 Plan”) under which officers, employees, directors, consultants and other key persons of the Company or its affiliates may be granted incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units. On August 10, 2021, the Company’s Board of Directors amended the 2016 Plan to provide that no new awards could be granted under the 2016 Plan.
Under the 2016 Plan, stock options were generally granted with an exercise price equal to the estimated fair value of the Company’s common stock, as determined by the Company’s Board of Directors on the date of grant. Options generally have contractual terms of ten years.
Outstanding options generally vest over six years, contain a one year cliff, are exercisable immediately and, upon early exercise, are subject to repurchase by the Company at the original exercise price. If an ISO is granted to an optionee who, at the time of grant, owns more than 10% of the voting power of all classes of capital stock, the term of the ISO is five years. Options issued under the 2016 Plan must be priced at no less than the fair value of the shares on the date of the grant provided, however, that the exercise price of an option granted to a 10% stockholder is not less than 110% of the fair value of the shares on the date of grant. The Board of Directors determines the exercisability provisions of a stock option agreement at its sole discretion.
The fair value of the RSU’s granted under the 2016 Plan was determined by the Company’s Board of Directors on the date of grant. Generally, RSUs granted under the 2016 Plan have a six years vesting period.
On August 10, 2021, the Company adopted the 2021 Equity Incentive Plan (“2021 Plan”). Under the 2021 Plan, the Company can grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards to employees, directors and consultants. The number of shares available for issuance under the 2021 Plan will be increased on the first day of each fiscal year, beginning on January 1, 2022, in an amount equal to the lesser of (i) a number of shares equal to four percent (4%) of the total number of shares of all classes of common stock of the Company outstanding on the last day of the immediately preceding fiscal year, or (ii) such number of shares determined by the Company’s Board of Directors. On January 1, 2024, the number of shares available for issuance under 2021 plan increased by 27,930,481 shares.
The fair value of the RSU’s granted under the 2021 Plan was determined by the Company’s Board of Directors on the date of grant. Generally, RSUs granted under the 2021 Plan have a four year vesting period.
Restricted Stock Units
A summary of RSU activity for the nine months ended September 30, 2024 is as follows (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | |
| | Number of Units | | Weighted-Average Grant Date Fair Value Per Share | | Aggregate Intrinsic Value (in thousands) |
Balances—December 31, 2023 | | 31,076,699 | | $ | 6.41 | | | $ | 206,660 | |
Granted | | 25,650,264 | | $ | 5.49 | | | |
Vested | | (11,828,028) | | $ | 6.33 | | | |
Forfeited | | (1,970,861) | | $ | 6.07 | | | |
Balances—September 30, 2024 | | 42,928,074 | | $ | 5.90 | | | $ | 215,928 | |
The total fair value of RSUs vested for the nine months ended September 30, 2024 and 2023 was $74.9 million and $48.3 million, respectively.
On February 27, 2023, the Company’s Compensation Committee of the Board of Directors (“Compensation Committee”) approved a performance-based bonus program under which RSUs were awarded in connection with the achievement of specified goals in 2023 (“2023 Bonus Plan”). The RSU awards were granted when the achievement of each goal was approved by the Compensation Committee in 2023, and the RSUs vested in equal installments in each of January, February, March and April 2024 provided the employee or consultant continued to be a service provider through the relevant vesting dates. The target bonus opportunity was equal to 30% of the employee’s base salary as of the applicable grant date, with stretch bonus goals that are one-third higher than the target amounts unless otherwise established by the Compensation Committee. In accordance with ASC 718 Compensation - Stock Compensation, awards under 2023 Bonus Plan were classified as a liability until such time that the respective milestones were met, at which point the liability was reclassified to equity. If it was determined that the milestone could not be met, the liability was reversed.
On February 12, 2024, the Compensation Committee approved a performance-based program under which RSUs are awarded. Each RSU represents the right to receive, upon vesting, up to 1.25 shares of the Company’s common stock, based on the achievement of certain specified objectives tied to five goals during 2024 (“2024 Bonus Plan”). Each goal has criteria for achievement of a minimum, target or maximum achievement level, expressed as a percentage, and the amount of the awards that will vest is calculated by summing the actual achievement percentages as of December 31, 2024. The maximum possible amount that will vest is 125%. If exactly the minimum or target levels are achieved, 45% and 100% of the awards, respectively, will vest. The RSUs awarded under the 2024 Bonus Plan will vest in equal installments on each of January 14, 2025, February 10, 2025, March 4, 2025 and April 7, 2025, subject in each case to the participant’s continued status as a service provider through respective vesting date. In accordance with ASC 718 Compensation - Stock Compensation, the Company has determined that 2024 Bonus Plan awards are equity awards with performance condition, and classified them as an equity.
In June 2023, the Compensation Committee approved long-term incentive performance-based RSU awards (“LTI Awards”) to certain employees of the Company. The LTI Awards vest in a single installment on June 21, 2026, provided that (i) certain performance conditions are met on or prior to that date and (ii) the employee continues to be a service provider through the vesting date. The Company considers the probability of achieving each of the performance goals at the end of each reporting period and recognizes expense over the requisite service period when achievement of the goal is determined to be probable, and adjusts the expense if the probability of achieving the goal later changes.
On February 12, 2024, the Compensation Committee approved a long-term performance-based RSU awards (“LPA Awards”) to certain employees of the Company. The LPA Awards have the same performance conditions as the awards granted under the 2024 Bonus Plan and will vest in three equal annual installments on the anniversary of the grant date, provided that performance conditions are satisfied and the employee continues to be a service provider through the respective vesting dates. In accordance with ASC 718 Compensation - Stock Compensation, Management has determined that these LPA awards are equity awards with performance and service conditions, and classified them as an equity.
Employee Stock Purchase Plan
On August 10, 2021, the Company adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”). Under the 2021 ESPP, participating employees may be offered the option to purchase shares of the Company’s Common Stock at a purchase price which equals 85% of the fair market value of the Company’s common stock on the enrollment date or on the exercise date, whichever is lower. Under the terms of 2021 ESPP, if the closing price of the Company’s shares on the exercise date falls below the closing price of the Company’s shares on the enrollment date for an ongoing offering, the ongoing offering will terminate immediately following the purchase of ESPP shares on the exercise date and participants in the terminated offering would automatically be enrolled in the new offering (“ESPP Reset”), potentially resulting in an additional modification to stock-based compensation expense to be recognized over the new offering period.
Due to the changes in the Company’s stock price, an ESPP Reset occurred in May 2024, resulting in incremental stock-based compensation expense to be recognized over the offering period ending May 2025.
The number of shares of common stock available for issuance under the 2021 ESPP will be increased on the first day of each fiscal year beginning on January 1, 2022, in an amount equal to the lesser of (i) a number of shares of common stock equal to half percent (0.5%) of the total number of shares of all classes of common stock of the Company on the last day of the immediately preceding fiscal year, or (ii) such number of shares determined by the Company’s Board of Directors, On January 1, 2024, the number of shares available for issuance under 2021 ESPP increased by 3,491,310 shares.
Stock-based Compensation Expense
The following sets forth the total stock-based compensation expense for the Company’s stock awards included in the Company’s condensed consolidated statements of operations (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Research and development expenses | | $ | 22,008 | | | $ | 21,455 | | | $ | 65,122 | | | $ | 54,657 | |
Selling, general and administrative expenses | | 5,385 | | | 5,812 | | | 17,658 | | | 15,090 | |
Total stock-based compensation expense | | $ | 27,393 | | | $ | 27,267 | | | $ | 82,780 | | | $ | 69,747 | |
Shares subject to repurchase
The Company allows certain option holders to exercise unvested options to purchase shares of common stock. Common shares received from such early exercises are subject to a right of repurchase at the original issuance price. The Company’s repurchase right with respect to these shares lapses as the shares vest. These awards are typically subject to a vesting period of six years. As of September 30, 2024 and December 31, 2023, 1,314,559 and 1,988,511 shares, respectively, were subject to repurchase at a weighted average price of $0.06 per share and $0.09 per share, respectively, and $0.1 million and $0.2 million, respectively, was recorded within the other non-current liabilities on the Company’s condensed consolidated balance sheets.
In addition, upon completion of the Reverse Recapitalization 2,677,200 Series C Preferred shares which were subject to time-based vesting conditions were converted to restricted common shares. As of September 30, 2024 and December 31, 2023, the number of such shares that were subject to repurchase was 1,226,796 and 1,561,599, respectively.
Note 9. Related Party Transactions
The Company’s Chief Executive Officer and founder has ownership interests in certain vendors providing services to the Company. The services purchased from these vendors include rent of office space and certain utilities and maintenance services related to the property on which the rented premises are located. Expenses and related payments to these vendors totaled $0.1 million and $0.5 million during the three and nine months ended September 30, 2024, respectively and $0.1 million and $0.5 million during the three and nine months ended September 30, 2023, respectively.
Toyota Motor Corporation (“Toyota”) is a beneficial owner of more than 10% of the voting interests of the Company and has the right to designate a director for election to the Company’s Board of Directors. Toyota is developing prototypes and supplying parts and materials for some of the Company’s manufactured subassembly components. The Company made payments to Toyota for these parts and materials totaling $0.1 million and $0.4 million during the three and nine months ended September 30, 2024, respectively and $0.3 million and $1.1 million during the three and nine months ended September 30, 2023. Additionally, the Company identified an embedded finance lease within the Company’s purchase and sale agreement with Toyota for subassembly components in the amount of $4.0 million and $3.8 million as of September 30, 2024 and December 31, 2023, respectively.
Note 10. Net Loss per Share Attributable to Common Stockholders
Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period. Because the Company reported a net loss for the three and nine months ended September 30, 2024 and 2023, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been antidilutive if included in the calculation.
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
Basic net income (loss) per share: | 2024 | | 2023 | | 2024 | | 2023 |
Numerator: | | | | | | | |
Net Income (loss) attributable to common stockholders | $ | (143,878) | | | $ | 1,525 | | | $ | (361,757) | | | $ | (397,947) | |
Denominator: | | | | | | | |
Basic weighted-average shares outstanding | 695,011,457 | | | 672,559,810 | | | 688,718,075 | | | 638,388,011 | |
Basic net income (loss) per share attributable to common stockholders | $ | (0.21) | | | $ | 0.00 | | | $ | (0.53) | | | $ | (0.62) | |
Diluted net income (loss) per share: | | | | | | | |
Numerator | | | | | | | |
Net Income (loss) attributable to common stockholders | $ | (143,878) | | | $ | 1,525 | | | $ | (361,757) | | | $ | (397,947) | |
Less: | | | | | | | |
Income attributable to participating stockholders(1) | — | | | (46) | | | — | | | — | |
Diluted net income (loss) attributable to common stockholders | (143,878) | | | 1,479 | | | (361,757) | | | (397,947) | |
Denominator: | | | | | | | |
Number of shares used in basic net income (loss) per share computation | 695,011,457 | | | 672,559,810 | | | 688,718,075 | | | 638,388,011 | |
Weighted-average dilutive securities | — | | | 18,895,352 | | | — | | | — | |
Diluted weighted-average common stock outstanding | 695,011,457 | | | 691,455,162 | | | 688,718,075 | | | 638,388,011 | |
Diluted net income (loss) per share attributable to common stockholders | $ | (0.21) | | | $ | 0.00 | | | $ | (0.53) | | | $ | (0.62) | |
(1) Participating securities include Earnout shares, unvested early exercised options and unvested restricted stock awards.
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:
| | | | | |
| Three and Nine Months Ended September 30, 2024 |
Common stock warrants | 28,783,069 | |
Unvested restricted stock units | 42,928,074 | |
Options to purchase common stock and unvested restricted stock awards | 13,426,025 | |
Total | 85,137,168 | |
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2023 |
Common stock warrants | 28,783,333 | | | 28,783,333 | |
Unvested restricted stock units | 3,596,979 | | | 29,342,561 | |
Options to purchase common stock and unvested restricted stock awards | 3,959,867 | | | 18,216,147 | |
ESPP | — | | | 1,042,062 | |
Total | 36,340,179 | | | 77,384,103 | |
Note 11. Subsequent Events
On October 1, 2024, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) by and between the Company and Toyota Motor Corporation (the “Toyota”) providing for the issuance and sale by the Company to Toyota in a private placement of up to an aggregate of 99,403,579 shares of common stock, par value $0.0001 per share, at a purchase price of $5.03 per share, upon the terms and conditions set forth in the Stock Purchase Agreement (the “Private Placement”). The Private Placement is structured in two equal tranches of $250.0 million each. The closing of each tranche is subject to the satisfaction of certain closing conditions set forth in the Stock Purchase Agreement. The first tranche is subject to conditions including, but not limited to: (i) the satisfaction of certain regulatory approvals or clearances, including with respect to the Committee on Foreign Investment in the United States and under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder; (ii) the adoption of certain changes to the provisions of the Company’s amended and restated bylaws concerning the ownership of common stock by non-citizens of the United States (the “Foreign Ownership Requirement”); (iii) the authorization by the Company’s board of directors of certain changes to Article XIV of the Company’s amended and restated certificate of incorporation concerning the Foreign Ownership Requirement (the “Charter Amendment”), subject to approval by the stockholders of the Company at the Company’s annual meeting in 2025; (iv) the execution of an amendment and restatement of the Amended and Restated Collaboration Agreement, dated August 30, 2019, between the Company and Toyota; (v) the execution of a services agreement by the Company and Toyota; and (vi) certain other customary closing conditions. The second tranche (the “Additional Closing”) is subject to conditions including, but not limited to: (i) the execution of a strategic alliance agreement relating to, among other things, manufacturing arrangements, by the Company and Toyota; (ii) the approval of the Charter Amendment by the stockholders of the Company at the Company’s annual meeting in 2025; and (iii) certain other customary closing conditions. The agreements to be entered into in connection with such conditions are subject to the receipt of regulatory approvals, the parties negotiating and entering into definitive agreements and the conditions included within the applicable definitive documents.
On October 24, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Morgan Stanley & Co. LLC and Allen & Company LLC, as representatives of the underwriters named therein (collectively, the “Underwriters”), relating to the underwritten public offering by the Company of 40,000,000 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at a price to the public of $5.05 per share. Under the terms of the Underwriting Agreement, the Company also granted the Underwriters a 30-day option (the “Option”) to purchase up to 6,000,000 additional shares of Common Stock (the “Option Shares”). The Shares and Option Shares were delivered against payment therefor on October 28, 2024.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read together with our Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis includes forward looking statements that involve risks and uncertainties. Please see the section of this Quarterly Report on Form 10-Q titled “Special Note Regarding Forward-Looking Statements.”
Overview
We have spent more than a decade designing and testing a piloted all-electric, vertical take-off and landing (“eVTOL”) aircraft that we intend to operate as part of a fast, quiet and convenient service in cities around the world. The aircraft is quiet when taking off, near silent when flying overhead and is designed to transport a pilot and four passengers at speeds of up to 200 mph, with a range optimized for urban routes of up to 100 miles on a single charge and an expected payload of 1,000 pounds. According to our modeling, more than 99% of urban routes in cities such as New York City and Los Angeles are significantly shorter than this, enabling higher utilization through faster turnaround times of our aircraft. By combining the freedom of air travel with the efficiency of our aircraft, we expect to deliver journeys that are up to 10 times faster than driving, and it is our goal to steadily drive down end-user pricing in the years following commercial launch to make the service widely accessible. The low noise enabled by the all-electric powertrain will allow the aircraft to operate around dense, urban areas while blending into the background noise of cities. With more than 1,000 successful test flights already completed, and as the first eVTOL aircraft developer to receive a signed, stage 4 G-1 certification basis which was subsequently published in final form in the Federal Register, we believe we are well positioned to be the first eVTOL manufacturer to earn airworthiness certification from the Federal Aviation Administration (“FAA”).
We do not currently intend to sell these aircraft to independent third parties or individual consumers as a primary business model. Instead, we plan to manufacture, own and operate our aircraft, building a vertically integrated transportation company that will deliver transportation services to our customers, including government agencies such as the U.S. Air Force (“USAF”) through sales or contracted operations, and to individual end-users through a convenient app-based aerial ridesharing service. We delivered our first aircraft for initial service operations with the U.S Department of Defense (“DOD”) in September 2023 and are targeting initial commercial passenger operations as early as the end of 2025. We believe this vertically-integrated business model will generate the greatest economic returns over time, while providing us with end-to-end control over the customer experience to optimize for customer safety, comfort and value. There may be circumstances in which it is either required (for example, due to operating restrictions on foreign ownership in other countries) or otherwise desirable to sell aircraft in the future. We do not expect this would change our core focus on building a vertically integrated transportation company.
Since our inception in 2009, we have been primarily engaged in research and development of eVTOL aircraft. We have incurred net operating losses and negative cash flows from operations in every year since our inception. As of September 30, 2024, we had an accumulated deficit of $1,609.5 million. We have funded our operations primarily with proceeds from the issuance of stock, convertible notes and the proceeds from our merger in August 2021 with Reinvent Technology Partners (“RTP”), a special purpose acquisition company, through which we became a publicly-traded company.
Key Factors Affecting Operating Results
For a more comprehensive discussion of the risks and uncertainties that could impact the Company’s business, please see the section entitled “Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2023.
Development of the Global Urban Air Mobility (“UAM”) market
Our revenue will be directly tied to the continued development of short distance aerial transportation. While we believe the global market for UAM will be large, it remains undeveloped and there is no guarantee of future demand. We delivered our first aircraft for initial service operations with the DOD in September 2023 and are targeting commercial passenger operations as early as the end of 2025. Our business will require significant investment leading up to launching these services, including, but not limited to, final engineering designs, prototyping and testing, manufacturing, software development, certification, pilot training, infrastructure and commercialization.
We believe one of the primary drivers for adoption of our aerial ridesharing service is the value proposition and time savings offered by aerial mobility relative to traditional ground-based transportation. Additional factors impacting the pace of adoption of our aerial ridesharing service may include but are not limited to: perceptions about eVTOL quality, safety, performance and cost; perceptions about the limited range over which eVTOL may be flown on a single battery charge;
volatility in the cost of oil and gasoline; availability of competing forms of transportation, such as ground, air taxi or ride-hailing services; the development of adequate infrastructure; consumers’ perception about the safety, convenience and cost of transportation using eVTOL relative to ground-based alternatives; and increases in fuel efficiency, autonomy, or electrification of cars. In addition, macroeconomic factors could impact demand for UAM services, particularly if end-user pricing is at a premium to ground-based transportation alternatives or more permanent work-from-home behaviors persist. We anticipate initial operations with our U.S. government customers to be followed by operations in selected high-density metropolitan areas where traffic congestion is particularly acute and operating conditions are suitable for early eVTOL operations.
Competition
We believe that the primary sources of competition for our service are ground-based mobility solutions, other eVTOL developers/operators and local/regional incumbent aircraft charter services. While we expect to be first to market with an eVTOL facilitated aerial ridesharing service, we expect this industry to be dynamic and increasingly competitive; and our competitors could get to market before us, either generally or in specific markets. Even if we are first to market, we may not receive any competitive advantage or may be overtaken by other competitors. If new or existing aerospace companies launch competing solutions in the markets in which we intend to operate or obtain large-scale capital investment, we may face increased competition. Additionally, our competitors may benefit from our efforts in developing consumer and community acceptance for eVTOL aircraft and aerial ridesharing, making it easier for them to obtain the permits and authorizations required to operate an aerial ridesharing service in the markets in which we intend to launch or in other markets. If we do not capture the first mover advantage that we anticipate, it may harm our business, financial condition, operating results and prospects. For a more comprehensive discussion, please see the section entitled “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2023.
Government Certification
We signed a revised, stage 4 “G-1” certification basis for our aircraft with the FAA in July 2022, which was published in final form in the Federal Register in March 2024. This agreement lays out the specific requirements that need to be met by our aircraft for it to be certified for commercial operations. Reaching this milestone marks a key step towards certifying any new aircraft in the U.S. We think of the FAA type certification process in five stages and have made significant progress towards certification. We have completed or substantially completed three of these five stages.
In 2022, we received our Part 135 operating certificate, which is required for us to operate an on-demand air service and allows us to operate the service with conventional aircraft. In October 2024, the FAA published the Special Federal Aviation Regulations (“SFARs”), which include operational regulations related to eVTOLs. We will need to comply with these SFARs as we add our aircraft to our Part 135 operating certificate. If the FAA requires further modifications to our existing G-1 certification basis, makes subsequent modifications to the SFARs, or if there are other regulatory changes or revisions, this could delay our ability to obtain type certification, and could delay our ability to launch our commercial passenger service.
We expect the FAA type certificate will be reciprocated in certain international markets pursuant to bilateral agreements between the FAA and its counterpart civil aviation authorities. In 2022, we applied for aircraft certification in the United Kingdom and Japan. In 2023, we signed an agreement with Road and Transport Authority of Dubai (“RTA”) for Joby to provide air taxi services in Dubai. The RTA agreement includes a roadmap for local approval by the UAE General Civil Aviation Authority that could precede type certification by the FAA. These arrangements provide a means of efficient international expansion as we develop commercial operations around the world.
In addition to certifying our aircraft, we will also need to obtain authorizations and certifications related to the production of our aircraft and the deployment of our aerial ridesharing service. We anticipate being able to meet the requirements of such authorizations and certifications. If we fail to obtain any of the required authorizations or certifications, or do so in a timely manner, or if any of these authorizations or certifications are modified, suspended or revoked after we obtain them, we may be unable to launch our commercial service or do so on the timelines we project, which would have adverse effects on our business, prospects, financial condition and/or results of operations.
U.S. Government Contracts
In December 2020, we became the first company to receive airworthiness approval for an eVTOL aircraft for a flight clearance from the USAF to conduct a government test, and in the first quarter of 2021 we officially began on-base operations under contract pursuant to the USAF’s Agility Prime program. Our multi-year relationship with the DOD and other U.S. government agencies provides us with a compelling opportunity to more thoroughly understand the operational capabilities and maintenance profiles of our aircraft in advance of commercial launch. In addition to the operational
learnings and advanced research support, our contracts, which we expanded in July 2022 and again in April 2023, have a total potential value of more than $124 million through 2027. We are actively pursuing additional contracts and relationships with government agencies. Our U.S. government contracting parties may modify, curtail or terminate its contracts with us without prior notice, either at its convenience or for default based on performance, or may decline to accept performance or exercise subsequent option years. We may also be unable to secure additional contracts or continue to grow our relationship with the U.S. government and/or DOD.
Vertically-Integrated Business Model
Our business model is to serve as a vertically-integrated eVTOL transportation service provider. Present projections indicate that payback periods on aircraft will result in a viable business model over the long-term as production volumes scale and unit economics improve to support sufficient market adoption. As with any new industry and business model, numerous risks and uncertainties exist. Our projections are dependent on certifying and delivering aircraft on time and at a cost that will allow us to offer our service at prices that a sufficient number of customers will be willing to pay for the time and efficiency savings they receive from utilizing our eVTOL services. Our aircraft include parts and manufacturing processes unique to eVTOL aircraft, in general, and our product design, in particular. We have used our best efforts to estimate costs in our planning projections; however, the variable cost associated with assembling our aircraft at scale remains uncertain at this stage of development. Our vertically-integrated business model also relies, in part, on developing and certifying component parts rather than sourcing already certified parts from third-party suppliers. While we believe this model will ultimately result in a more performant aircraft and better operating economics, the increased time and effort required to develop and certify these components may result in delays compared to alternative approaches. Our vertically-integrated approach is also dependent on recruiting, developing and retaining the right talent at the right time to support engineering, certification, manufacturing, and go-to-market operations. As we progress through the certification process, we will have an increasing need to accelerate hiring in selected areas. If we are unable to add sufficient headcount it could impact our ability to meet our expected timelines for certification and entry into service.
The success of our business is also dependent, in part, on the utilization rate of our aircraft, which is the amount of time our aircraft spend in the air carrying passengers. We intend to maintain a high daily aircraft utilization rate, and reductions in utilization will adversely impact our financial performance. High daily aircraft utilization is achieved in part by reducing turnaround times at skyports. Aircraft utilization is reduced by delays and cancellations from various factors, many of which are beyond our control, including adverse weather conditions, security requirements, air traffic congestion and unscheduled maintenance events.
Components of Results of Operations
Revenue
Flight services
Flight services revenue primarily includes consideration received for our performance of customer-directed flights and on-base operations for various DOD agencies. We recognize revenue as we fulfill our performance obligations in an amount that reflects the consideration we expect to receive.
Operating expenses
Flight services
Flight services expenses consist primarily of costs related to flight, flight support, and maintenance personnel, expenses associated with support aircraft such as rent and fuel, depreciation of capitalized ground support equipment, and our aircraft electricity cost, as directly attributed to our performance of the flight services. Flight services expenses do not include the costs of manufacturing our aircraft and aircraft parts as such costs are expensed when incurred as Research and Development Expenses (see below).
Research and Development Expenses
Research and development expenses consist primarily of personnel expenses, including salaries, benefits, and stock-based compensation, costs of consulting, equipment and materials, depreciation and amortization and allocations of overhead, including rent, information technology costs and utilities. Research and development expenses are partially offset by payments we received in the form of government grants, including those received under the Agility Prime program.
We expect our research and development expenses to increase as we increase staffing to support aircraft engineering and software development, build aircraft, and continue to explore and develop next generation aircraft and technologies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of personnel expenses, including salaries, benefits, and stock-based compensation, related to executive management, finance, legal, and human resource functions. Other costs include business development, contractor and professional services fees, audit and compliance expenses, insurance costs and general corporate expenses, including allocated depreciation, rent, information technology costs and utilities.
We expect our selling, general and administrative expenses to increase as we hire additional personnel and consultants to support our operations and comply with applicable regulations, including the Sarbanes-Oxley Act (“SOX”) and other SEC rules and regulations.
Gain (Loss) from changes in Fair Value of Warrants and Earnout Shares Liabilities
Publicly-traded warrants (“Public Warrants”), private placement warrants issued to Sponsor (“Private Placement Warrants”) and warrants issued to Delta Air Lines, Inc. (“Delta Warrants”) and shares of common stock owned by Sponsor subject to certain terms on vesting, lock-up and transfer (“Earnout Shares”) are recorded as liabilities and subject to remeasurement to fair value at each balance sheet date. We expect to incur an incremental income (expense) in the condensed consolidated statements of operations for the fair value adjustments for these outstanding liabilities at the end of each reporting period.
2024 Acquisitions
On May 31, 2024, the Company completed the acquisition of certain assets of an aerospace company that develops modular autonomy technology for aviation in exchange for 1,944,990 shares of the Company’s common stock with an aggregate acquisition date fair value of $9.5 million. The transaction is expected to contribute to development of autonomous capabilities of the Company’s aircraft and to accelerate the execution of the Company’s contract deliverables with the U.S. Department of Defense. The acquisition was accounted for as a business combination as the assets acquired constituted a business in accordance with ASC 805 Business Combinations.
As part of the acquisition, the Company also issued 1,375,245 shares of the Company common stock subject to lock-up period of twelve month following the acquisition date (“Holdback Equity”). The number of shares of Holdback Equity to be released at the end of the lock-up period depends on the continuing employment of selected employees of the aerospace company, whose employment transitioned to the Company as a result of the acquisition, and the weighted volume average price of the Company’s common stock at the end of the lock-up period. The number of shares of Holdback Equity to be released may additionally be reduced to satisfy certain indemnification obligations, if any, of the seller. The Company accounted for the Holdback Equity under ASC 718 Compensation — Stock Compensation as a compensation arrangement separate from the business combination and will recognize $8.7 million as stock-based compensation expense over the lock-up period, commencing on the acquisition date.
The purchase consideration of $9.5 million was preliminarily allocated to $7.4 million of total intangible assets comprising of $6.9 million of acquired developed technology and $0.5 million of contract assets, $1.6 million of acquired fixed assets comprising of aircraft, related equipment and other long lived assets, $0.3 million of acquired goodwill, and $0.2 million of acquired current assets.
The acquired goodwill is not tax deductible. It represents the excess of the acquisition price over the preliminary fair value of identifiable assets acquired at the acquisition date and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition.
The fair values of the acquired assets are still provisional and subject to change within the measurement period. The final determination of the fair values of the acquired assets is expected to be completed as soon as practicable, but no later than one year from the acquisition date.
Interest and Other Income, Net
Interest income consists primarily of interest earned on our cash and cash equivalents and investments in marketable securities.
Provision for Income Taxes
Our provision for income taxes consists of an estimate of federal, state, and foreign income taxes based on enacted federal, state, and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax
assets and liabilities, and changes in tax law. Due to the level of historical losses, we maintain a valuation allowance against U.S. federal and state deferred tax assets as it has been concluded it is more likely than not that these deferred tax assets will not be realized.
Results of Operations
Comparison of the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023
The following table summarizes our historical results of operations for the periods indicated (in thousands, except percentage):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2024 | | 2023 | | ($) | | (%) |
Revenue: | | | | | | | |
Flight services | $ | 28 | | | $ | — | | | 28 | | | 100% |
Operating expenses: | | | | | | | |
Flight services | 15 | | | — | | | 15 | | | 100% |
Research and development | 126,139 | | | 100,559 | | | 25,580 | | | 25 | % |
Selling, general and administrative | 30,569 | | | 27,608 | | | 2,961 | | | 11 | % |
Total operating expenses | 156,723 | | | 128,167 | | | 28,556 | | | 22 | % |
Loss from operations | (156,695) | | | (128,167) | | | (28,528) | | | 22 | % |
Interest and other income, net | 9,528 | | | 13,611 | | | (4,083) | | | (30) | % |
Gain (Loss) from change in fair value of warrants and earnout shares | 3,842 | | | 116,109 | | | (112,267) | | | (97) | % |
Total other income, net | 13,370 | | | 129,720 | | | (116,350) | | | (90) | % |
Loss before income taxes | (143,325) | | | 1,553 | | | (144,878) | | | n.m. |
Income tax expenses | 553 | | | 28 | | | 525 | | | n.m. |
Net loss | $ | (143,878) | | | $ | 1,525 | | | (145,403) | | | n.m. |
Revenue
Flight Services
Flight services revenue primarily includes consideration for our performance of customer-directed flights and on-base operations for various DOD agencies. We recognize revenue as we fulfill our performance obligations in an amount that reflects the consideration we expect to receive.
Operating expenses
Flight services
Flight services expenses consist primarily of costs related to flight, flight support, and maintenance personnel, expenses associated with support aircraft such as rent and fuel, depreciation of capitalized ground support equipment, and our aircraft electricity cost, as directly attributed to our performance of the flight services. Flight services expenses do not include the costs of manufacturing our aircraft and aircraft parts as such costs are expensed when incurred as Research and Development Expenses.
Research and Development Expenses
Research and development expenses increased by $25.6 million, or 25%, to $126.1 million during the three months ended September 30, 2024 from $100.6 million during the three months ended September 30, 2023. The increase was primarily attributable to increases in personnel to support aircraft engineering, software development, prototype manufacturing, and certification, as well as increased quantity of materials used in prototype development and testing, partially offset by increase in expense reduction due to higher grants earned as part of our government contracts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $3.0 million, or 11%, to $30.6 million during the three months ended September 30, 2024 from $27.6 million during the three months ended September 30, 2023. The increase was primarily attributable to increased headcount to support operations growth, including IT, legal, facilities, HR, and finance, as well as an increase in professional services cost related to legal, accounting and recruiting support.
Total Other Income, Net
Total other income, net decreased by $116.4 million or 90% , to a gain of $13.4 million during the three months ended September 30, 2024 from a gain of $129.7 million during the three months ended September 30, 2023. The decrease was primarily driven by a $112.3 million change in the fair value of warrants and earnout shares from a gain of $116.1 million during the three months ended September 30, 2023 to a gain of $3.8 million during the three months ended September 30, 2024.
Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023
The following table summarizes our historical results of operations for the periods indicated (in thousands, except percentage):
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2024 | | 2023 | | ($) | | (%) |
Revenue: | | | | | | | |
Flight services | $ | 81 | | | $ | — | | | 81 | | | 100% |
Operating expenses: | | | | | | | |
|