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(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                  

Commission File No. 001-38202

Virgin Galactic Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware						85-3608069
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1700 Flight Way Tustin California						92782
(Address of Principal Executive Offices)						(Zip Code)

(949) 774-7640
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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, $0.0001 par value per share

SPCE

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 ☒ No ☐

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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.

Large accelerated filer			☒			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
						Emerging growth company			☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of October 31, 2022, there were 274,559,169 shares of the Company’s common stock, par value $0.0001, issued and outstanding.

						Page
			Cautionary Note Regarding Forward-Looking Statements			2
			PART I - FINANCIAL INFORMATION
Item 1.			Financial Statements (Unaudited)			4
			Condensed Consolidated Balance Sheets			4
			Condensed Consolidated Statements of Operations and Comprehensive Loss			5
			Condensed Consolidated Statements of Equity			6
			Condensed Consolidated Statements of Cash Flows			8
			Notes to Condensed Consolidated Financial Statements			9
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3.			Quantitative and Qualitative Disclosures about Market Risk			40
Item 4.			Controls and Procedures			41
			PART II - OTHER INFORMATION
Item 1.			Legal Proceedings			42
Item 1A.			Risk Factors			42
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3.			Defaults Upon Senior Securities			42
Item 4.			Mine Safety Disclosures			42
Item 5.			Other Information			42
Item 6.			Exhibits			43
Signatures						45

This Quarterly Report on Form 10-Q contains forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning us and other matters. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of management, as well as assumptions made by, and information currently available to management. Forward-looking statements may be accompanied by words such as “achieve,” “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “future,” “grow,” “increase,” “intend,” “may,” “opportunity,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strategy,” “target,” “will,” “would,” or similar words, phrases, or expressions. These forward-looking statements are subject to various risks and uncertainties, many of which are outside our control. Therefore, you should not place undue reliance on such statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following:

•any delay in completing the flight test program and final development of our spaceflight fleet, which is comprised of our SpaceShipTwo spaceships, VSS Unity and VSS Imagine, and our mothership carrier aircraft, VMS Eve;

•our ability to conduct test flights;

•our ability to operate our spaceflight system after commercial launch;

•the safety of our spaceflight systems;

•the development of the markets for commercial human spaceflight and commercial research and development payloads;

•our ability to effectively market and sell human spaceflights;

•our ability to convert our backlog or inbound inquiries into revenue;

•our anticipated full passenger capacity;

•our ability to achieve or maintain profitability;

•delay in development or the manufacture of spaceflight systems;

•our ability to successfully develop our next generation vehicles, and the time and costs associated with doing so;

•our ability to supply our technology to additional market opportunities;

•our expected capital requirements and the availability of additional financing;

•our ability to attract or retain highly qualified personnel;

•the impact of the COVID-19 pandemic on us, our operations, our future financial or operational results, and our access to additional financing;

•extensive and evolving government regulation that impact the way we operate;

•risks associated with international expansion;

•our ability to maintain effective internal control over financial reporting and disclosure and procedures; and

•our ability to continue to use, maintain, enforce, protect and defend our owned and licensed intellectual property, including the Virgin brand.

Additional factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in Part I, Item 1.“Business,” Part I, Item 1A. “Risk Factors,” and Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Annual Report on Form 10-K") and in Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our information may be incomplete or limited, and we cannot guarantee future results. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Each of the terms the “Company,” “Virgin Galactic,” “we,” “our,” “us” and similar terms used herein refer collectively to Virgin Galactic Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries, unless otherwise stated.

(In thousands, except share data)

									September 30, 2022												December 31, 2021
									(Unaudited)
Assets
Current assets
Cash and cash equivalents									$	394,032											$	524,481
Restricted cash									40,328												25,549
Marketable securities, short-term									606,713												79,418
Inventories									22,851												29,668
Prepaid expenses and other current assets									22,094												19,476
Total current assets									1,086,018												678,592
Marketable securities, long-term									69,072												301,463
Property, plant, and equipment, net									48,874												47,498
Other non-current assets									55,220												41,281
Total assets									$	1,259,184											$	1,068,834
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable									$	19,872											$	9,237
Accrued liabilities									43,389												28,787
Customer deposits									103,971												90,863
Other current liabilities									3,336												2,636
Total current liabilities									170,568												131,523
Non-current liabilities
Convertible senior notes, net									415,188												—
Other long-term liabilities									59,885												43,047
Total liabilities									645,641												174,570
Commitments and contingencies (Note 17)
Stockholders' equity
Preferred stock, $0.0001 par value; 10,000,000 authorized; none issued and outstanding									—												—
Common stock, $0.0001 par value; 700,000,000 shares authorized; 274,481,195 and 258,166,417 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively									27												26
Additional paid-in capital									2,096,901												2,019,750
Accumulated deficit									(1,472,975)												(1,123,643)
Accumulated other comprehensive income									(10,410)												(1,869)
Total stockholders' equity									613,543												894,264
Total liabilities and stockholders' equity									$	1,259,184											$	1,068,834

See accompanying notes to condensed consolidated financial statements.

						Three Months Ended September 30,												Nine Months Ended September 30,
						2022						2021						2022						2021
Revenue						$	767					$	2,580					$	1,443					$	3,151
Operating expenses:
Customer experience						590						207						737						270
Selling, general, and administrative						46,113						48,268						127,820						128,503
Research and development						97,411						34,289						211,578						103,997
Depreciation and amortization						2,214						2,895						7,981						8,635
Total operating expenses						146,328						85,659						348,116						241,405
Operating loss						(145,561)						(83,079)						(346,673)						(238,254)
Interest income						3,524						240						6,327						785
Interest expense						(3,293)						(6)						(8,924)						(19)
Change in fair value of warrants						—						34,432						—						(34,650)
Other income, net						(203)						70						7						110
Loss before income taxes						(145,533)						(48,343)						(349,263)						(272,028)
Income tax expense						(21)						(25)						(69)						(74)
Net loss						(145,554)						(48,368)						(349,332)						(272,102)
Other comprehensive income (loss):
Foreign currency translation adjustment						(180)						3						(313)						11
Unrealized loss on marketable securities						(585)						(437)						(8,227)						(437)
Total comprehensive loss						$	(146,319)					$	(48,802)					$	(357,872)					$	(272,528)
Net loss per share:
Basic						$	(0.55)					$	(0.19)					$	(1.34)					$	(1.11)
Diluted						$	(0.55)					$	(0.32)					$	(1.34)					$	(1.11)
Weighted-average shares outstanding:
Basic						263,907,259						254,749,195						260,255,202						244,157,923
Diluted						263,907,259						255,147,228						260,255,202						244,157,923

See accompanying notes to condensed consolidated financial statements.

						Common Stock
Balance as of						# of Shares						Par Value						Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Income (Loss)						Total
Balance as of December 31, 2020						236,123,659						$	23					$	1,297,794					$	(770,744)					$	5					$	527,078
Net loss						—						—						—						(129,694)						—						(129,694)
Other comprehensive income						—						—						—						—						26						26
Stock-based compensation												—						22,111						—						—						22,111
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes						1,150,771						—						323						—						—						323
Balance as of March 31, 2021						237,274,430						23						1,320,228						(900,438)						31						419,844
Net loss						—						—						—						(94,040)						—						(94,040)
Other comprehensive loss						—						—						—						—						(20)						(20)
Stock-based compensation						—						—						14,423						—						—						14,423
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes						275,283						—						840						—						—						840
Common stock issued related to warrants exercised						3,387,827						—						104,176						—						—						104,176
Balance as of June 30, 2021						240,937,540						23						1,439,667						(994,478)						11						445,223
Net loss						—						—						—						(48,368)						—						(48,368)
Other comprehensive loss						—						—						—						—						(432)						(432)
Stock-based compensation						—						—						12,170						—						—						12,170
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes						685,487						—						1,916						—						—						1,916
Common stock issued related to warrants exercised						2,034,390						—						65,914						—						—						65,914
Issuance of common stock pursuant to an at-the-market offering						13,740,433						2						499,998						—						—						500,000
Transaction costs related to an at-the-market offering						—						—						(6,494)						—						—						(6,494)
Balance as of September 30, 2021						257,397,850						$	25					$	2,013,171					$	(1,042,846)					$	(421)					$	969,929

See accompanying notes to condensed consolidated financial statements.

						Common Stock
Balance as of						# of Shares						Par Value						Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total
Balance as of December 31, 2021						258,166,417						$	26					$	2,019,750					$	(1,123,643)					$	(1,869)					894,264
Net loss						—						—												(93,057)						—						(93,057)
Other comprehensive loss						—						—												—						(5,805)						(5,805)
Stock-based compensation						—						—						10,895						—						—						10,895
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes						307,471						—						(1,882)						—						—						(1,882)
Purchase of capped calls						—						—						(52,318)						—						—						(52,318)
Balance as of March 31, 2022						258,473,888						26						1,976,445						(1,216,700)						(7,674)						752,097
Net loss												—												(110,721)												(110,721)
Other comprehensive loss												—												—						(1,970)						(1,970)
Stock-based compensation												—						12,083						—												12,083
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes						216,758						—						(914)						—												(914)
Balance as of June 30, 2022						258,690,646						26						1,987,614						(1,327,421)						(9,644)						650,575
Net loss						—						—						—						(145,554)						—						(145,554)
Other comprehensive loss						—						—						—						—						(766)						(766)
Stock-based compensation						—						—						11,510						—						—						11,510
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes						202,949						—						(633)						—						—						(633)
Issuance of common stock pursuant to an at-the-market offering						15,587,600						1						99,573						—						—						99,574
Transaction costs related to an at-the-market offering						—						—						(1,163)						—						—						(1,163)
Balance as of September 30, 2022						274,481,195						$	27					$	2,096,901					$	(1,472,975)					$	(10,410)					$	613,543

See accompanying notes to condensed consolidated financial statements.

(Unaudited)

									Nine Months Ended September 30,
															2022						2021
Cash flows from operating activities
Net loss															$	(349,332)					$	(272,102)
Stock-based compensation															34,488						48,704
Depreciation, amortization and impairment															12,174						8,635
Amortization of debt issuance costs															1,466						—
Change in fair value of warrants															—						34,650
Non-cash interest and other operating activities, net															6,063						(42)
Change in assets and liabilities
Inventories															6,817						1,178
Other current and non-current assets															2,253						6,342
Accounts payable and accrued liabilities															23,828						1,824
Customer deposits															13,108						2,148
Other current and non-current liabilities															136						3,026
Net cash used in operating activities															(248,999)						(165,637)
Cash flows from investing activity
Capital expenditures															(12,306)						(2,452)
Purchases of marketable securities															(604,945)						(286,132)
Proceeds from maturities and calls of marketable securities															294,612						—
Cash used in investing activity															(322,639)						(288,584)
Cash flows from financing activities
Payments of lease obligations															(132)						(105)
Proceeds from convertible senior notes															425,000						—
Debt issuance costs															(11,278)						—
Capped call premium															(52,318)						—
Repayment of commercial loan															(310)						(310)
Proceeds from issuance of common stock															99,573						500,000
Proceeds from issuance of common stock pursuant to stock options exercised															49						18,856
Transaction costs related to issuance of common stock															(1,137)						(6,753)
Withholding taxes paid on behalf of employees on net settled stock-based awards															(3,479)						(15,779)
Net cash provided by financing activities															455,968						495,909
Net increase (decrease) in cash and cash equivalents															(115,670)						41,688
Cash, cash equivalents and restricted cash at beginning of year															550,030						678,955
Cash, cash equivalents and restricted cash ending balances															$	434,360					$	720,643
Cash and cash equivalents															$	394,032					$	702,565
Restricted cash															40,328						18,078
Cash, cash equivalents and restricted cash															$	434,360					$	720,643

See accompanying notes to condensed consolidated financial statements.

Virgin Galactic Holdings, Inc. and its wholly owned subsidiaries ("we," "us," "our," the "Company" and similar terms) are focused on the development, manufacture and operation of spaceships and related technologies for the purpose of conducting commercial human spaceflight and flying commercial research and development payloads into space. The development and manufacturing activities are located in Tustin, California and Mojave, California, with plans to operate the commercial spaceflights out of Spaceport America located in New Mexico.

These condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). All intercompany transactions and balances between the various legal entities comprising the Company have been eliminated in consolidation.

Certain reclassifications of the components of operating loss for the three and nine month period ended September 30, 2021 have been made to the comparable prior period in the Condensed Consolidated Statements of Operations and Comprehensive Loss to conform to the same current period presentations. Specifically, cost of revenue has been reclassified to customer experience, and gross margin is no longer presented. Customer experience expenses related to spaceflight operations include the consumption of a rocket motor and fuel and other consumables, as well as payroll and benefits for our pilots and ground crew. Customer experience expenses related to the payload cargo services, as well as engineering services, consist of materials and human capital, such as payroll and benefits, to perform these services. Additionally, customer experience expenses include costs associated with maintaining and growing our Future Astronaut community through offerings provided to community members, as well as hospitality, medical, safety, security, training, and facility costs that are for the benefit of our future astronauts. Additionally, depreciation and amortization expense are presented separately instead of included in selling, general, and administrative or research and development expenses. These reclassifications had no impact on total loss as previously reported.

(b)     Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP required us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates. Significant estimates inherent in the preparation of the consolidated financial statements include, but are not limited to, accounting for revenue, contract assets, contract liabilities, useful lives of property, plant and equipment, fair value of investments, accrued liabilities, income taxes including deferred tax assets and liabilities and impairment valuation, warrants, stock-based awards and contingencies.

(c)    Convertible Senior Notes

On January 1, 2022, the Company adopted ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which removes from GAAP the liability and equity separation model for convertible instruments with either cash or beneficial conversion features. As a result, convertible debt instruments would only be separated into multiple components if they were issued at a substantial premium or if embedded derivatives requiring bifurcation were identified. The convertible senior notes (the "2027 Notes") were not issued at a substantial premium, and the Company analyzed the provisions of the notes and did not identify any material embedded features which would require bifurcation from the host debt. As such, the notes are accounted for entirely as a liability net of unamortized issuance costs. The carrying amount of the liability is classified as long-term as the instrument does not mature within one year of the balance sheet date and the holder is not permitted to demand repayment of the principal within one year of the balance sheet date. However, if conditions to convertibility are met as described further in Note 11, the Company may be required to reclassify the carrying amount of the liability to current. The embedded conversion features are not remeasured as long as they do not meet the separation requirement of a derivative. Issuance costs are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the notes. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share, however there was no impact during the current quarter as the convertible instruments were anti-dilutive.

(d)    Capped Call Transactions

In connection with the pricing of our 2027 Notes, the Company entered into capped call transactions with respect to its common stock (the "2027 Capped Calls"). The 2027 Capped Calls are purchased call options that give the Company the option to purchase shares of our common stock, subject to anti-dilution adjustments substantially identical to those in the 2027 Notes. The Company's capped call transactions are accounted for as separate transactions from the 2027 Notes and are classified as equity instruments as a reduction to additional paid-in capital in the Condensed Consolidated Balance Sheets. The instruments are initially recorded at fair value and not subsequently remeasured so long as they continue to qualify for equity classification based on the Company's intent and ability for the 2027 Capped Calls to be settled in shares of our common stock. The capped call transactions have the effect of reducing the number of shares outstanding if exercised. Therefore, the capped call transactions are anti-dilutive and not included in the calculation of diluted shares outstanding for the purposes of diluted net loss per share. See Note 11 for additional information on the 2027 Capped Calls.

(e)     Other Summary of Significant Accounting Policies

There have been no other significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "Annual Report on Form 10-K").

The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K. Interim results are not necessarily indicative of the results for a full year.

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASU”). See Note 2 for additional information on recently adopted accounting pronouncements.

(4)    Related Party Transactions

The Company licenses its brand name from certain entities affiliated with Virgin Enterprises Limited (“VEL”), a company incorporated in England. VEL is an affiliate of the Company. Under the trademark license, the Company has the exclusive right to operate under the brand name “Virgin Galactic” worldwide. Royalty payables, excluding sponsorship royalties, for the use of license are the greater of 1% of revenue or $40,000 per quarter, prior to the commercial launch date. Sponsorship royalties payable are 25% of sponsorship revenue. We paid license and royalty fees of $40,000 and $390,000 for the three months ended September 30, 2022 and 2021, respectively. We paid license and royalty fees of $120,000 and $470,000 for the nine months ended September 30, 2022 and 2021, respectively.

The Company has a Transition Services Agreement ("TSA") with Virgin Orbit, LLC ("VO") based on allocated operating expense from Virgin Orbit Holdings, Inc. and its subsidiaries (“VOH”), a majority owned company of Virgin Investments Limited ("VIL"), for operations-related functions based on an allocation methodology that considers our headcount, unless directly attributable to the business. Operating expense allocations include use of machinery and equipment, pilot services, and other general administrative expenses. We were allocated $46,000 and $33,000 operating expenses, net, from VOH for the three months ended September 30, 2022 and 2021, respectively. We were allocated $80,000 and $104,000 of operating expenses, net from VOH for the nine months ended September 30, 2022 and 2021, respectively. The Company has a receivable from VOH of $32,000 and $43,000 as of September 30, 2022 and December 31, 2021, respectively.

			As of September 30, 2022
			Amortized Cost						Gross Unrealized Losses						Fair Value
			(In thousands)
Cash, restricted cash and cash equivalents
Cash and restricted cash			$	8,358					$	—					$	8,358
Money market			384,575						—						384,575
Certificate of deposits			41,427						—						41,427
Marketable securities
US treasuries			149,102						(183)						148,919
Corporate debt securities			536,913						(10,047)						526,866
Total cash, cash equivalents, restricted cash and marketable securities			$	1,120,375					$	(10,230)					$	1,110,145

			As of December 31, 2021
			Amortized Cost						Gross Unrealized Losses						Fair Value
			(In thousands)
Cash, restricted cash and cash equivalents
Cash and restricted cash			$	55,592					$	—					$	55,592
Money market			402,889						—						402,889
Certificate of deposits			91,549						—						91,549
Marketable securities
Corporate debt securities			382,884						(2,003)						380,881
Total cash, cash equivalents and marketable securities			$	932,914					$	(2,003)					$	930,911

The Company included $39.8 million and $1.0 million of current restricted cash held in a money market account as of September 30, 2022 and December 31, 2021, respectively.

The Company included $3.2 million and $2.3 million of interest receivable in prepaid expenses and other current assets as of September 30, 2022 and December 31, 2021, respectively.

The Company recognizes amortization and accretion of purchase premiums and discounts on our marketable securities within interest income, net. The Company recognized $1.5 million and $0.3 million in amortization expense for our marketable securities within interest income, net for the three months ended September 30, 2022 and September 30, 2021, respectively. The Company recognized $5.5 million and $0.3 million in amortization expense for marketable securities within interest income, net for the nine months ended September 30, 2022 and September 30, 2021, respectively.

We record gross realized gains and losses as a component of other income, net in the consolidated statements of operations. For the three months ended September 30, 2022, the Company recognized $0.2 million loss in other income, net, and for the three months ended September 2021, the Company did not recognize any material gross realized gains and losses. For the nine months ended September 30, 2022, the Company recognized $0.3 million loss in other income, net. For the nine months ended September 30, 2021, the Company did not recognize any material gross realized gains and losses.

The following table presents the contractual maturities of the Company's marketable securities as of September 30, 2022:

						As of September 30, 2022
						Amortized Cost						Estimated Fair Value
						(In thousands)
Matures within one year						$	614,641					$	606,713
Matures between one to two years						71,374						69,072
Total						$	686,015					$	675,785

As of September 30, 2022 and December 31, 2021, inventory is comprised of the following:

						As of
						September 30, 2022						December 31, 2021
						(Unaudited)
						(In thousands)
Raw materials						$	13,267					$	21,127
Spare parts						9,584						8,541
Total inventory						$	22,851					$	29,668

For the three months ended September 30, 2022 and 2021,we wrote off $2.2 million and $0.2 million of inventory due to excess and obsolescence, respectively. For the nine months ended September 30, 2022 and September 30, 2021, we wrote off $3.3 million and $0.4 million of inventory due to excess and obsolescence, respectively.

(7)    Property, Plant, and Equipment, net

As of September 30, 2022 and December 31, 2021, property, plant, and equipment, net consisted of the following:

						As of
						September 30, 2022						December 31, 2021
						(Unaudited)
			(In thousands)
Land						$	1,302					$	—
Buildings						9,118						9,117
Leasehold improvements						30,457						29,155
Aircraft						195						195
Machinery and equipment						35,670						37,002
IT software and equipment						28,911						23,523
Construction in progress						3,152						2,901
						108,805						101,893
Less accumulated depreciation and amortization						(59,931)						(54,395)
Property, plant, and equipment, net						$	48,874					$	47,498

									Three Months Ended September 30,												Nine Months Ended September 30,
									2022						2021						2022						2021
									(Unaudited and in thousands)
Customer experience									$	—					$	—					$	—					$	—
Selling, general, and administrative									1,819						1,592						5,085						4,774
Research and development									395						1,304						2,896						3,861
									$	2,214					$	2,895					$	7,981					$	8,635

On July 14, 2022, the Company entered into an agreement to lease 151,096 square feet of manufacturing and operations facilities in Mesa, Arizona consisting of two hangars ("Hangar C" and "Hangar B").

The lease has an initial term of approximately ten years and five months after the commencement date applicable to Hangar C or Hangar B, whichever is later, and is expected to commence ten months following the date of the agreement was entered into with respect to Hangar C and fifteen months following the date of the agreement was entered into for Hangar B. The average annual base rent under the lease is approximately $3.0 million. The Company has four options to extend the term of the lease, each for an additional five years.

The Company's leases are more fully described in Note 8 of the "Notes to Consolidated Financial Statements" to its Annual Report on Form 10-K.

The components of lease expense related to leases for the periods presented below are as follows:

						Three Months Ended September 30,
						2022						2021
						(Unaudited and in thousands)
Lease Cost:
Operating lease expense						$	2,553					$	1,244
Short-term lease expense						—						6
Finance Lease Cost:
Amortization of right-of-use assets						42						34
Interest on lease liabilities						11						6
Total finance lease cost						53						40
Variable lease cost						1,760						1,475
Total lease cost						$	4,366					$	2,765

						Nine Months Ended September 30,
						2022						2021
						(Unaudited and in thousands)
Lease Cost:
Operating lease expense						$	6,622					$	3,758
Short-term lease expense						—						26
Finance Lease Cost:
Amortization of right-of-use assets						100						103
Interest on lease liabilities						20						20
Total finance lease cost						120						123
Variable lease cost						4,654						4,185
Total lease cost						$	11,396					$	8,092

						Nine Months Ended September 30,
						2022						2021
						(In thousands, except term and rate data)
Cash flow information:
Operating cash flows for operating leases						$	7,980					$	4,065
Operating cash flows for finance leases						$	20					$	20
Financing cash flows for finance leases						$	132					$	105
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
Operating leases						$	16,338					$	501
Finance Leases						$	230					$	19
Other Information:
Weighted average remaining lease term:
Operating leases (in years)						10.80						12.30
Finance leases (in years)						2.75						2.29
Weighted average discount rates:
Operating leases						12.14		%				11.66		%
Finance leases						11.26		%				8.22		%

The supplemental balance sheet information related to leases for the period is as follows:

						As of
						September 30, 2022						December 31, 2021
						(Unaudited)
						(In thousands)
Operating leases
Long-term right-of-use assets						$	49,324					$	35,486
Short-term operating lease liabilities						$	3,190					$	2,204
Long-term operating lease liabilities						56,856						39,965
Total operating lease liabilities						$	60,046					$	42,169

The Company has certain non-cancelable operating leases primarily for its premises. These leases generally contain renewal options for periods ranging from 3 to 20 years and require the Company to pay all executory costs, such as maintenance and insurance. Certain lease arrangements have rent free periods or escalating payment provisions, and we recognize rent expense of such arrangements on a straight line basis.

Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum finance lease payments as of September 30, 2022 are as follows:

						Operating Leases						Finance Leases
						(In thousands)
2022 (for the remaining period)						$	2,106					$	47
2023						8,676						170
2024						10,034						94
2025						10,190						64
2026						10,347						35
Thereafter						71,707						2
Total lease payments						$	113,060					$	412
Less:
Imputed interest/present value discount						$	(53,014)					$	(62)
Present value of lease liabilities						$	60,046					$	350

A summary of the components of accrued liabilities are as follows:

						As of
						September 30, 2022						December 31, 2021
						(Unaudited)
						(In thousands)
Accrued payroll						$	8,331					$	4,214
Accrued vacation						6,383						5,372
Accrued bonus						11,578						12,218
Accrued interest expense						1,771						—
Accrued contract labor						7,869						1,147
Other accrued expenses						7,457						5,836
Total accrued expenses						$	43,389					$	28,787

						As of
						September 30, 2022						December 31, 2021
						(Unaudited)
						(In thousands)
Commercial loan						$	—					$	310
Less: Current portion						—						(310)
Non-current portion						$	—					$	—

On June 18, 2020, we financed the purchase of software licenses through a loan totaling approximately $0.9 million. The loan amortized in three equal annual installments of approximately $0.3 million with the final payment due October 1, 2022 with 0% interest rate. The loan is secured by a standby letter of credit issued from our financial institution and restricted cash has been recorded for the corresponding outstanding balance. The outstanding balance is recorded in other current-liabilities on the Condensed Consolidated Balance Sheets.

The imputed interest of this loan was immaterial.

On January 19, 2022, the Company completed an offering of $425 million aggregate principal amount of the 2027 Notes. The 2027 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 2.50% per year. Interest is payable in cash semi-annually in arrears on February 1 and August 1 of each year,

The terms of the 2027 Notes are governed by an Indenture by and between the Company and U.S. Bank National Association, as Trustee (the "2027 Indenture"). Upon conversion by the noteholders, the 2027 Notes may be settled in cash, shares of the Company's common stock or a combination of cash and shares of common stock, par value $0.0001 per share (the “common stock”), at our election, based on the conversion rate.

The 2027 Notes are convertible at an initial conversion rate of 78.1968 shares of common stock per $1,000 principal amount of the 2027 Notes, which is equal to an initial conversion price of approximately $12.79 per share of common stock, subject to adjustment upon the occurrence of certain events. Noteholders will have the right to convert their notes during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on June 30, 2022, under the following circumstances:

•during any calendar quarter after June 30, 2022 (and only during such calendar quarter) if the last reported sale price of the Company's common stock for each of at least 20 trading days in a period of 30 consecutive trading days ending on and including the last trading day of the preceding calendar quarter is more than 130% of the then applicable conversion price for the Notes per share of common stock;

•during the five consecutive business days immediately after any ten consecutive trading day period in which the trading price per $1,000 principal amount of 2027 Notes for each day of that period was less than 98% of the product of the last reported sale price of our common stock and the then applicable conversion rate;

•the Company calls any or all of the 2027 Notes for redemption, holders may convert all or any portion of their notes at any time prior to the close of business on the scheduled trading day prior to the redemption date, even if the 2027 Notes are not otherwise convertible at such time; or

•specified distributions to holders of our common stock are made or specified corporate events occur, as described in the 2027 Indenture.

On and after November 1, 2026, noteholders will have the right to convert their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company will have the right to elect to settle conversions in cash, in shares of its common stock or in a combination of cash and shares of its common stock. During the three and nine months ended September 30, 2022, the conditions allowing holders of the 2027 Notes to convert were not met, and as a result, the 2027 Notes were classified as noncurrent liabilities as of September 30, 2022.

The 2027 Notes will be redeemable, in whole or in part (subject to certain limitations), for cash at the Company's option at any time, and from time to time, on or after February 6, 2025 and on or before the 20th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of the Company's common stock exceeds 130% of the conversion price for a specified period of time and certain liquidity conditions have been satisfied. The redemption price will be equal to the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. During the three and nine months ended September 30, 2022, the Company did not redeem any of the 2027 Notes.

Holders of the 2027 Notes who convert their 2027 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the 2027 Indenture) or in connection with the Company's issuance of a redemption notice are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2027 Indenture), holders of the 2027 Notes may require the Company to repurchase all or a portion of their 2027 Notes at a price equal to the principal amount of the 2027 Notes being repurchased, plus any accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date.

						As of
						September 30, 2022
						(Unaudited)
Principal						$	425,000
Less: unamortized debt issuance costs						(9,812)
Net carrying amount						$	415,188

In connection with the pricing of the 2027 Notes, the Company entered into capped call transactions with respect to its common stock. The 2027 Capped Calls are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2027 Notes, approximately 33 million shares of its common stock for approximately $12.79 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2027 Notes, exercisable upon conversion of the 2027 Notes. The 2027 Capped Calls have initial cap prices of $20.06 per share (subject to adjustment), which represents a premium of 100% over the closing price of the Company's common stock on January 13, 2022, and will expire in 2027, if not exercised earlier. The 2027 Capped Calls are intended to reduce potential dilution to the Company's common stock upon any conversion of the 2027 Notes and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2027 Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the 2027 Capped Call transactions. The 2027 Capped Calls are separate transactions, each between the Company and the applicable option counterparty, and are not part of the terms of the 2027 Notes and will not affect any holder's rights under the 2027 Notes or the 2027 Indenture. Holders of the 2027 Notes will not have any rights with respect to the 2027 Capped Call transactions.

The Company paid an aggregate amount of $52.3 million for the 2027 Capped Calls. As these transactions meet certain accounting criteria, the amount paid for the 2027 Capped Calls was recorded as a reduction to additional paid-in capital in the Condensed Consolidated Balance Sheets. The fair value of the 2027 Capped Calls is not remeasured each reporting period so long as they continue to qualify for equity classification, which they did for the current period.

(12)    Income Taxes

Income tax expense was $21,000 and $25,000 for the three months ended September 30, 2022 and 2021, respectively. Income tax expense was $69,000 and $74,000 for the nine months ended September 30, 2022 and 2021, respectively. The effective income tax rate was nil for three and nine months ended September 30, 2022 and 2021. Our effective tax rate differs from the U.S. statutory rate primarily due to a substantially full valuation allowance against our net deferred tax assets where it is more likely than not that some or all of the deferred tax assets will not be realized.

(13)    Stockholders' Equity

There have been no significant changes from the Stockholders' Equity disclosed in Note 12 of the “Stockholders Equity” included in our Annual Report on Form 10-K.

In connection with the closing of the Virgin Galactic business combination in October 2019 (the "Business Combination"), the Company entered into a stockholders’ agreement with certain of the Company’s investors. Pursuant to the terms of the Stockholders’ Agreement, as long as VIL is entitled to designate two directors to the Company’s Board of Directors, the Company must obtain VIL’s prior written consent to engage in certain corporate transactions and management functions such as business combinations, disposals, acquisitions, incurring indebtedness, and engagement of professional advisors, among others.

Warrants and Warrant Redemption

Public and private placement warrants were initially issued as part of Social Capital Hedosophia Holdings Corp.'s ("SCH") initial public offering in 2017 and assumed upon the consumption of the Business Combination. As of September 30, 2022, and December 31, 2021, there were no public or private placement warrants outstanding.

The Company remeasured the fair value of the Warrants at each reporting date with changes recorded in earnings. In connection with the Company's remeasurement of the Warrants to fair value, the Company recorded income of approximately $34.4 million for the three months ended September 30, 2021 and expense of $34.7 million for the nine months ended September 30, 2021.

On July 12, 2021, the Company entered into a distribution agency agreement with Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC (each, an “Agent” and collectively, the “Agents”) providing for the offer and sale of up to $500.0 million of shares of the Company’s common stock, par value $0.0001 per share, through an "at the market offering" program ("ATM"), from time to time by the Company through the Agents, acting as the Company’s sales agents, or directly to one or more of the Agents, acting as principal.

We completed available offerings under the 2021 ATM on July 16, 2021, generating $500.0 million in gross proceeds through the sale of 13,740,433 shares of the Company's common stock, before deducting $6.2 million in underwriting discounts, commissions and other expenses payable by the Company.

On August 4, 2022, the Company entered into a distribution agency agreement with Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC providing for the offer and sale of up to $300.0 million of shares of the Company’s common stock, par value $0.0001 per share, through an ATM (the "2022 ATM program").

As of September 30, 2022, we sold a total of 15,587,600 shares of the Company's common stock under the 2022 ATM program, generating $99.6 million in gross proceeds, before deducting $1.2 million in underwriting discounts, commissions and other expenses payable by the Company.

The following table presents net loss per share and related information:

						Three Months Ended September 30,												Nine Months Ended September 30,
						2022						2021						2022						2021
						(In thousands, except for share and per share data)
Numerator:
Net loss attributable to common shareholders						$	(145,554)					$	(48,368)					$	(349,332)					$	(272,102)
Less: revaluation of warrant liability						—						(34,432)						—						—
Adjusted net loss						(145,554)						(82,800)						(349,332)						(272,102)
Denominator:
Weighted average shares of common stock outstanding						263,907,259						254,749,195						260,255,202						244,157,923
Add: dilutive effect of common stock issuable from assumed exercise of warrants						—						398,033						—						—
Weighted average shares outstanding, diluted						263,907,259						255,147,228						260,255,202						244,157,923
Net loss per share:
Basic						$	(0.55)					$	(0.19)					$	(1.34)					$	(1.11)
Diluted						$	(0.55)					$	(0.32)					$	(1.34)					$	(1.11)

Basic and diluted net loss per share was computed using the weighted-average number of common shares of common stock outstanding during the three and nine month periods ended September 30, 2022 and September 30, 2021. Basic net loss per share is the same as diluted net loss per share for the three and nine month periods ended September 30, 2022 and for the nine months ended September 30, 2021 as the inclusion of all potential common shares outstanding would have been anti-dilutive.

For the three months ended September 30, 2021, the Company included the potential effect of the warrants to purchase shares of common stock as the effect would be dilutive. Diluted net loss per share for the three months ended September 30, 2021 was computed by dividing the net loss, adjusted for the revaluation of warrant liability for private warrants, by the weighted average number of common shares outstanding for the period, adjusted for the dilutive effect of shares of common stock equivalents resulting from the assumed exercise of the warrants. The treasury stock method was used to calculate the potential dilutive effect of these common stock equivalents for the three months ended September 30, 2021.

Potentially dilutive securities that were not included in the diluted per share calculation for these periods, as they would have an anti-dilutive impact on net loss per share, are as follows (in thousands):

						As of September 30,
						2022						2021
Issued and outstanding stock options						3,794						4,428
Issued and outstanding performance stock options						406						—
Unvested restricted stock units issued and outstanding						4,502						3,442
Unvested performance stock units issued and outstanding						255						90
Shares related to the 2027 Notes (1)						33,234						—
Warrants to purchase shares of common stock						—						8,000
						42,191						15,960

(1) The Company uses the if-converted method for calculating any potential dilutive effect of the conversion options embedded in the 2027 Notes on diluted net loss per share, if applicable.

The Company's 2019 Incentive Award Plan ("2019 Plan") is more fully described in Note 14 of the "Notes to Consolidated Financial Statements" on Form 10-K. Under the 2019 Plan, the Company has the ability to grant incentive stock options, non-qualified stock options and restricted stock units ("RSUs") to employees, directors and other service providers. Performance stock units ("PSUs") are RSUs that vest based on achievement of specified performance criteria. Performance stock options ("PSOs") are stock options that vest based on achievement of specified performance criteria.

Twenty five percent of such stock options cliff vest at the grant date first anniversary, with the remaining options vesting ratably over the following three years, subject to continued employment on each vesting date. Vested options will be exercisable at any time until ten years from the grant date, subject to earlier expiration under certain terminations of service and other conditions. The stock options granted have an exercise price equal to the closing stock price of our common stock on the grant date.

In March 2022, we issued stock options as incentive compensation for certain key employees. The fair values of these stock options were estimated using a Black-Scholes model with the following assumptions:

						2022
Expected life (in years)(1)						6.11
Expected volatility(2)						69.0		%
Risk free interest rate(3)						2.19		%
Dividend yield(4)						—		%

(1) The expected life is the period of time that participants are expected to hold their options before exercised using the "simplified method" as described in Staff Accounting Bulletin No. 107.

(2) The expected volatility is a measure of the amount by which a stock price is expected to fluctuate based primarily on our and our peers' historical data.

(3) The risk-free interest rate for the periods within the contractual term of the options is based on the U.S. Treasury yield curve in effect at the time of the grant.

(4) The Company does not currently pay dividends nor has announced plans to begin paying dividends.

The following table sets forth the summary of options activity for the nine month ended September 30, 2022 under the 2019 Plan (dollars in thousands, except per share data):

						Number of Shares						Weighted Average Exercise Price						Weighted Average Remaining Contractual Life (in years)						Aggregate Intrinsic Value(1)						Weighted Average Grant Date Fair Value ($)
Options outstanding at December 31, 2021						4,253,767						$	14.09					7.60						6,187						—
Granted						303,030						7.99																		4.95
Exercised						(4,182)						11.79
Forfeited options						(758,250)						18.96
Options outstanding at September 30, 2022						3,794,365						$	13.91					6.74						—						—
Options exercisable at September 30, 2022						2,346,118						$	13.96					6.14						—						—

(1) Aggregate intrinsic value is calculated based on the difference between our closing stock price at period end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised all their options on the period end date.

Performance Stock Options

Compensation expense on the PSOs will be recognized over the period between the grant date and the estimated vest date. The number of PSOs that will vest depends on the attainment of certain stock price goals. Vested options will be exercisable at any time until ten years from the grant date, subject to earlier expiration under certain terminations of service and other conditions. The stock options granted have an exercise price equal to the closing stock price of our common stock on the grant date.

In March 2022, we issued PSOs as incentive compensation for certain key employees. The fair values of these stock options were estimated using a Monte-Carlo simulation with the following assumptions:

						2022
Expected exercise behavior(1)						75.0		%
Expected Volatility(2)						58.0		%
Risk free interest rate(3)						2.19		%
Dividend yield(4)						—		%