SEC Form 10-Q filed by Virgin Galactic Holdings Inc.
$SPCE
Transportation Services
Consumer Discretionary
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended
OR
| 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
(Exact name of registrant as specified in its charter) | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
(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 | ||||||||||||
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.
| ☒ | 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, 2024, there were 28,875,495 shares of the Company’s common stock outstanding.
VIRGIN GALACTIC HOLDINGS, INC.
TABLE OF CONTENTS
| Page | ||||||||
1
Cautionary Note Regarding Forward-Looking Statements
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 future commercial flights of our spaceflight fleet;
•our ability to successfully develop and test our next-generation vehicles, and the time and costs associated with doing so;
•the safety of our spaceflight systems;
•the development of the markets for commercial spaceflight and commercial research and development payloads;
•our ability to effectively market and sell 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 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 effect of terrorist activity, armed conflict (including any escalation of hostility arising out of the conflicts between Russia and Ukraine, Israel and Hamas, or other geopolitical conflicts), natural disasters or pandemic diseases on the economy generally, on our future financial or operational results, or our access to additional financing;
•consumer preferences and discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions;
•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.
2
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 II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report on Form 10-K"), in Part II, Item 1A. “Risk Factors” in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024 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.
3
PART I. FINANCIAL INFORMATION
VIRGIN GALACTIC HOLDINGS, INC.
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 | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||
| Marketable securities, short-term | ||||||||||||||
| Other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Marketable securities, long-term | ||||||||||||||
| Property, plant and equipment, net | ||||||||||||||
| Other non-current assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Customer deposits | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Non-current liabilities: | ||||||||||||||
| Convertible senior notes, net | ||||||||||||||
| Other non-current liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
Commitments and contingencies (Note 13) | ||||||||||||||
| Stockholders' Equity | ||||||||||||||
Preferred stock, $ | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
Accumulated other comprehensive income | ||||||||||||||
| Total stockholders' equity | ||||||||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited; in thousands, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Spaceline operations | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Operating loss | ( | ( | ( | ( | ||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Other income, net | ||||||||||||||||||||||||||
| Loss before income taxes | ( | ( | ( | ( | ||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||
| Net loss | ( | ( | ( | ( | ||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | |||||||||||||||||||||||||
Unrealized gain on marketable securities | ||||||||||||||||||||||||||
| Total comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Net loss per share: | ||||||||||||||||||||||||||
| Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Weighted-average shares outstanding: | ||||||||||||||||||||||||||
| Basic and diluted | ||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited; in thousands, except share amounts)
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation for equity-classified awards | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to at-the-market offering | — | — | — | |||||||||||||||||||||||||||||||||||
| Transaction costs | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ( | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation for equity-classified awards | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to at-the-market offering | — | — | ||||||||||||||||||||||||||||||||||||
| Transaction costs | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | ( | ( | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation for equity-classified awards | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to at-the-market offering | — | — | — | |||||||||||||||||||||||||||||||||||
| Transaction costs | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
6
VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited; in thousands, except share amounts)
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Stock-based compensation for equity-classified awards | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to at-the-market offering | — | — | — | |||||||||||||||||||||||||||||||||||
| Transaction costs | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | ( | ( | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Stock-based compensation for equity-classified awards | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to at-the-market offering | — | — | — | |||||||||||||||||||||||||||||||||||
| Transaction costs | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||
| Fractional share adjustment due to reverse stock split | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | ( | ( | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation for equity-classified awards | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to at-the-market offering | — | — | ||||||||||||||||||||||||||||||||||||
| Transaction costs | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||
Balance at September 30, 2024 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
7
VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited; in thousands)
| Nine Months Ended September 30, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Stock-based compensation | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Amortization of debt issuance costs | ||||||||||||||
| Other non-cash items | ( | ( | ||||||||||||
| Change in operating assets and liabilities: | ||||||||||||||
Other current and non-current assets | ||||||||||||||
Accounts payable | ( | |||||||||||||
| Customer deposits | ( | ( | ||||||||||||
Other current and non-current liabilities | ( | ( | ||||||||||||
| Net cash used in operating activities | ( | ( | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Purchases of marketable securities | ( | ( | ||||||||||||
| Proceeds from maturities and calls of marketable securities | ||||||||||||||
Other investing activities | ||||||||||||||
Net cash provided by (used in) investing activities | ( | |||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Payments of finance lease obligations | ( | ( | ||||||||||||
| Proceeds from issuance of common stock | ||||||||||||||
| Withholding taxes paid on behalf of employees on net settled stock-based awards | ( | ( | ||||||||||||
| Transaction costs related to issuance of common stock | ( | ( | ||||||||||||
Other financing activities | ( | |||||||||||||
| Net cash provided by financing activities | ||||||||||||||
Net decrease in cash, cash equivalents and restricted cash | ( | ( | ||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
8
(1) Description of Business and Basis of Presentation
Virgin Galactic Holdings, Inc., together with its consolidated subsidiaries ("Virgin Galactic" or the "Company"), is an aerospace and space travel company focused on the development, manufacture and operation of spaceships and related technologies. The Company provides access to space for private individuals, researchers and government agencies. The Company's missions include flying passengers to space, as well as flying scientific payloads and researchers to space in order to conduct experiments for scientific and educational purposes.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Certain information and footnote disclosures, normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), have been condensed or omitted pursuant to such rules and regulations. However, in management's opinion, the condensed consolidated financial statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods presented.
The operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the entire fiscal year. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Statement of Operations Presentation
In July 2023, the Company concluded that technological feasibility had been achieved for its initial spaceship, VSS Unity, and mothership carrier aircraft, VMS Eve, which together comprised the Company’s initial commercial spaceflight system. As a result, future costs associated with this spaceflight system, including the manufacture of related rocket motors, will no longer qualify as research and development activities.
Following the launch of commercial service and achievement of technological feasibility, the Company began presenting the operating expenses supporting the Company’s commercial spaceline activities as spaceline operations expense in the accompanying condensed consolidated statements of operations and comprehensive loss. Expenses incurred prior to the achievement of technological feasibility were classified as research and development and selling, general and administrative expenses. Spaceline operations expense includes costs associated with commercial spaceflight services and production costs that are not eligible for capitalization. Spaceline operations expense also includes costs to support the Company’s Future Astronaut community and costs related to payload cargo and engineering services, which were previously presented as customer experience expense.
9
Reverse Stock Split
On June 14, 2024, the Company effected a 1-for-20 reverse stock split of the Company’s common stock (the "Reverse Stock Split"). As a result of the Reverse Stock Split, every 20 shares of the Company’s common stock issued or outstanding were automatically reclassified into one new share of common stock. Proportionate adjustments were also made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, as well as to the number of shares issuable under the Company’s equity incentive plans and certain existing agreements. The Reverse Stock Split did not decrease the number of authorized shares of common stock or otherwise affect the par value of the common stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to receive fractional shares as a result of the Reverse Stock Split were paid cash in lieu thereof. All shares of the Company’s common stock, per-share data and related information included in the accompanying condensed consolidated financial statements have been retroactively adjusted as though the Reverse Stock Split had been effected prior to all periods presented.
(2) Cash, Cash Equivalents and Marketable Securities
The Company maintains certain cash balances restricted as to withdrawal or use. Restricted cash consists of cash deposits received from future astronauts that are contractually restricted for operational use until the condition of carriage is signed or the deposits are refunded.
The amortized cost, unrealized gains and estimated fair value of the Company's cash, cash equivalents and marketable securities are as follows:
| September 30, 2024 | ||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Fair Value | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||
| Cash and restricted cash | $ | $ | — | $ | ||||||||||||||||
| Money market | — | |||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Fair Value | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||
| Cash and restricted cash | $ | $ | — | $ | ||||||||||||||||
| Money market | — | |||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
Interest receivable of $4.5 million and $4.6 million is included in other current assets in the accompanying condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.
10
The Company recognizes amortization and accretion of purchase premiums and discounts on its marketable securities in interest income in the accompanying condensed consolidated statements of operations and comprehensive loss. The Company recognized $4.0 million and $6.0 million in accretion income, net for its marketable securities for the three months ended September 30, 2024 and 2023, respectively. The Company recognized $14.0 million and $8.5 million in accretion income, net for its marketable securities for the nine months ended September 30, 2024 and 2023, respectively.
The following table presents the contractual maturities of the Company's marketable securities as of September 30, 2024:
| September 30, 2024 | ||||||||||||||
| Amortized Cost | Estimated Fair Value | |||||||||||||
(In thousands) | ||||||||||||||
| Matures within one year | $ | $ | ||||||||||||
| Matures between one to two years | ||||||||||||||
| $ | $ | |||||||||||||
(3) Property, Plant and Equipment, Net
Property, plant and equipment consists of the following:
| September 30, 2024 | December 31, 2023 | |||||||||||||
| (In thousands) | ||||||||||||||
| Land | $ | $ | ||||||||||||
| Buildings | ||||||||||||||
| Flight vehicles and rotables | ||||||||||||||
| Machinery and equipment | ||||||||||||||
| Information technology software and equipment | ||||||||||||||
| Leasehold improvements | ||||||||||||||
| Construction in progress | ||||||||||||||
Less: accumulated depreciation and amortization | ||||||||||||||
| $ | $ | |||||||||||||
11
(4) Leases
The components of expense related to leases are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Variable lease cost | ||||||||||||||||||||||||||
| Short-term lease cost | ||||||||||||||||||||||||||
| Finance lease cost: | ||||||||||||||||||||||||||
Amortization of assets under finance leases | ||||||||||||||||||||||||||
| Interest on finance lease liabilities | ||||||||||||||||||||||||||
| Total finance lease cost | ||||||||||||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||||||||||||
The components of supplemental cash flow information related to leases are as follows:
| Nine Months Ended September 30, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| (In thousands, except term and rate data) | ||||||||||||||
| Cash Flow Information: | ||||||||||||||
| Operating cash flows for operating leases | $ | $ | ||||||||||||
| Operating cash flows for finance leases | $ | $ | ||||||||||||
Financing cash flows for finance leases | $ | $ | ||||||||||||
| Non-cash Activity: | ||||||||||||||
| Assets acquired in exchange for lease obligations: | ||||||||||||||
| Operating leases | $ | $ | ||||||||||||
| Finance leases | $ | $ | ||||||||||||
| Other Information: | ||||||||||||||
Weighted-average remaining lease term: | ||||||||||||||
| Operating leases (in years) | ||||||||||||||
| Finance leases (in years) | ||||||||||||||
Weighted-average discount rates: | ||||||||||||||
| Operating leases | % | % | ||||||||||||
| Finance leases | % | % | ||||||||||||
12
The supplemental balance sheet information related to leases is as follows:
| September 30, 2024 | December 31, 2023 | |||||||||||||
| (In thousands) | ||||||||||||||
| Operating Leases: | ||||||||||||||
| Long-term right-of-use assets | $ | $ | ||||||||||||
| Short-term operating lease liabilities | $ | $ | ||||||||||||
| Long-term operating lease liabilities | ||||||||||||||
| Total operating lease liabilities | $ | $ | ||||||||||||
Right-of-use assets are included in other non-current assets, and lease liabilities are included in other current liabilities and other non-current liabilities in the accompanying condensed consolidated balance sheets.
(5) Other Current Liabilities
The components of other current liabilities are as follows:
| September 30, 2024 | December 31, 2023 | |||||||||||||
| (In thousands) | ||||||||||||||
| Accrued compensation | $ | $ | ||||||||||||
| Accrued manufacturing sub-contractor and contract labor costs | ||||||||||||||
| Other | ||||||||||||||
| $ | $ | |||||||||||||
(6) Convertible Senior Notes
In January 2022, the Company completed an offering of $425 million aggregate principal amount of convertible senior notes (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 2027 Notes mature on February 1, 2027 unless earlier repurchased, redeemed or converted.
The net carrying value of the 2027 Notes is as follows:
| September 30, 2024 | December 31, 2023 | |||||||||||||
| (In thousands) | ||||||||||||||
| Principal | $ | $ | ||||||||||||
| Less: unamortized debt issuance costs | ||||||||||||||
| Net carrying amount | $ | $ | ||||||||||||
During each of the three months ended September 30, 2024 and 2023, the Company recognized $3.2 0.6 million and $0.5 million of amortized debt issuance costs during the three months ended September 30, 2024 and 2023, respectively.
During each of the nine months ended September 30, 2024 and 2023, the Company recognized $9.6 1.7 million and $1.6 million of amortized debt issuance costs during the nine months ended September 30, 2024 and 2023, respectively.
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(7) Stockholders' Equity
In August 2022, 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 $300 million of shares of the Company's common stock from time to time through the Agents, acting as sales agents, or directly to one or more of the Agents, acting as principal(s), through an "at-the-market offering" program (the "2022 ATM Program").
The Company completed the 2022 ATM Program in June 2023, selling a total of 3.0 million shares of common stock and generating $300 million in gross proceeds, before deducting $3.0 million in underwriting discounts, commissions and other expenses.
In June 2023, the Company entered into a distribution agency agreement with the Agents providing for the offer and sale of up to $400 million of shares of the Company's common stock from time to time through the Agents, acting as sales agents, or directly to one or more of the Agents, acting as principal(s), through an "at-the-market offering" program (the "2023 ATM Program").
During the nine months ended September 30, 2024, the Company sold 8.8 million shares of common stock under the 2023 ATM Program and generated $108.7 million in gross proceeds, before deducting $1.0 million in underwriting discounts, commissions and other expenses.
(8) Stock-Based Compensation
The Company maintains two equity incentive plans -- the Second Amended and Restated Virgin Galactic Holdings, Inc. 2019 Incentive Award Plan (the "Second A&R Plan") and the Virgin Galactic Holdings, Inc. 2023 Employment Inducement Incentive Award Plan (the "Inducement Plan").
The Second A&R Plan was adopted by the Company's board of directors and became effective in April 2024, subject to the approval of the Company’s stockholders, and was approved by the Company’s stockholders in June 2024. The Second A&R Plan amended and restated the Amended and Restated Virgin Galactic Holdings, Inc. 2019 Incentive Plan (the “A&R Plan”) and made the following material changes to the A&R Plan: (i) increased the number of shares available by 0.7 million shares with an aggregate of 2.2 million shares reserved for issuance under the Second A&R Plan, (ii) increased the number of shares which may be granted as incentive stock options (“ISOs”) under the Second A&R Plan, such that an aggregate of 2.2 million shares may be granted as incentive stock options under the Second A&R Plan, and (iii) extended the right to grant awards under the plan through June 12, 2034, provided that incentive stock options may not be granted under the Second A&R Plan after April 18, 2034.
Pursuant to the Second A&R Plan and related predecessor plans, the Company has granted time-based stock options, performance-based stock options ("PSOs"), restricted stock units ("RSUs"), and performance stock units ("PSUs"). Pursuant to the Inducement Plan, the Company has granted RSUs.
Liability-Classified Stock Awards
During the nine months ended September 30, 2024, the Company granted 0.3 million RSUs under the A&R Plan that are expected be settled in cash. Changes in the fair value of these liability-classified awards are reported on a quarterly basis through their final vesting. Expense is recognized over the requisite service period of the award, with recognition of a corresponding liability recorded in other current liabilities in the accompanying condensed consolidated balance sheet as of September 30, 2024. Changes in fair value are recognized in stock-based compensation expense.
14
A summary of the components of stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Stock option and PSO expense: | ||||||||||||||||||||||||||
| Spaceline operations | $ | $ | $ | $ | ||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| Total stock option and PSO expense | ||||||||||||||||||||||||||
| RSU and PSU expense: | ||||||||||||||||||||||||||
| Spaceline operations | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| Total RSU and PSU expense | ||||||||||||||||||||||||||
| Total stock-based compensation expense | ||||||||||||||||||||||||||
| Less: stock-based compensation expense for liability-classified awards | ||||||||||||||||||||||||||
| Stock-based compensation expense for equity-classified awards | $ | $ | $ | $ | ||||||||||||||||||||||
As of September 30, 2024, the Company had unrecognized stock-based compensation expense of $1.6 million for stock options, which is expected to be recognized over a weighted-average period of 1.0 year. There was no unrecognized stock-based compensation expense for PSOs. Unrecognized stock-based compensation expense as of September 30, 2024 for RSUs and PSUs totaled $28.8 million and $3.1 million, respectively, which are expected to be recognized over weighted-average periods of 2.3 years and 1.2 years, respectively.
(9) Special Charges
In November 2023, the Company commenced a restructuring plan designed to decrease costs and strategically realign its resources. In connection with this plan, the Company announced a workforce reduction constituting approximately 18 % of its workforce. As a result, the Company recorded $4.4 million in severance and related benefit costs for the involuntarily terminated employees as special charges during the fourth quarter of 2023.
In January 2024, the Company fully paid the $1.4 million liability balance associated with these costs that was accrued at December 31, 2023.
(10) Income Taxes
Income tax expense was $105,000 and $53,000 for the three months ended September 30, 2024 and 2023, respectively. Income tax expense was $219,000 and $215,000 for the nine months ended September 30, 2024 and 2023, respectively. The effective income tax rate was nil for each of the three and nine months ended September 30, 2024 and 2023. The effective tax rate differs from the U.S. statutory rate primarily due to a full valuation allowance against net deferred tax assets where it is more likely than not that some or all of the deferred tax assets will not be realized.
15
(11) Earnings Per Share
The following table presents net loss per share and related information:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||||||
| Basic and diluted: | ||||||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
Weighted-average common shares outstanding | ||||||||||||||||||||||||||
| Basic and diluted net loss per share | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
Basic and diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period. The computation of diluted net loss per share excludes the effect of all potential common shares outstanding as their impact would have been anti-dilutive.
The Company has excluded stock-based awards and shares issuable upon conversion of the 2027 Notes from the diluted loss per share calculation because their effect was anti-dilutive. The total number of shares excluded for each of the three and nine months ended September 30, 2024 were 2.6 2.3
(12) Fair Value Measurements
Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair value. Accordingly, assets and liabilities carried at fair value are classified within the fair value hierarchy in one of the following categories:
• Level 1 inputs — Quoted prices in active markets for identical assets or liabilities.
• Level 2 inputs — Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
The following tables present the Company's financial assets that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy:
September 30, 2024 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Money market | $ | $ | $ | $ | ||||||||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
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| December 31, 2023 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Money market | $ | $ | $ | $ | ||||||||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
The following tables present the Company's financial liabilities that are recorded at amortized cost, segregated among the appropriate levels within the fair value hierarchy:
| September 30, 2024 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| 2027 Notes | $ | $ | $ | $ | ||||||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| 2027 Notes | $ | $ | $ | $ | ||||||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
The estimated fair value of the 2027 Notes, which are classified as Level 2 financial instruments, was determined based on the estimated or actual bid prices of the 2027 Notes in an over-the-counter market on the last business day of the period.
17
(13) Commitments and Contingencies
Leases
Future minimum lease payments under noncancelable operating leases and future minimum finance lease payments as of September 30, 2024 are as follows:
| Operating Leases | Finance Leases | |||||||||||||
| (In thousands) | ||||||||||||||
| 2024 (for the remaining period) | $ | $ | ||||||||||||
| 2025 | ||||||||||||||
| 2026 | ||||||||||||||
| 2027 | ||||||||||||||
| 2028 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total payments | ||||||||||||||
| Less: present value discount/imputed interest | ||||||||||||||
| Present value of lease liabilities | $ | $ | ||||||||||||
Legal Proceedings
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. The Company applies accounting for contingencies to determine when and how much to accrue for and disclose related to legal and other contingencies. Accordingly, the Company discloses contingencies deemed to be reasonably possible and accrues loss contingencies when, in consultation with legal advisors, it is concluded that a loss is probable and reasonably estimable. Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that any monetary liability or financial impact to the Company from these matters, individually and in the aggregate, beyond that provided at September 30, 2024, would not be material to the Company’s consolidated financial position, results of operations or cash flows. However, there can be no assurance with respect to such result, and monetary liability or financial impact to the Company from legal proceedings, lawsuits and other claims could differ materially from those projected.
The Boeing Company and Aurora Flight Sciences Corporation v. the Company
On March 21, 2024, The Boeing Company and Aurora Flight Sciences Corporation, a Boeing Company (collectively, “Boeing”), filed suit against the Company in the Eastern District of Virginia, captioned The Boeing Company and Aurora Flight Sciences Corporation, a Boeing Company v. Virgin Galactic Holdings, Inc., Case No. 1:21-cv-03070. In its complaint, Boeing alleges that the Company breached the parties’ Master Agreement. Boeing further alleges trade secret misappropriation under the Delaware Uniform Trade Secrets Act (“DUTSA”), 6 Del C. § 2001, et. seq., and the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836, et. seq., and filed a motion for preliminary injunction to destroy certain disputed documents. The complaint seeks damages in excess of $25 million, expenses, attorneys’ fees and other equitable relief. On April 12, 2024, the Company filed an answer to Boeing’s complaint and a counterclaim seeking damages relating to Boeing’s breach of the Master Agreement, as well as an opposition to Boeing’s motion for a preliminary injunction.
On April 4, 2024, the Company filed suit against Boeing in the Central District of California. In its complaint, the Company sought: (1) declaratory judgment of no misappropriation of trade secrets under either DUTSA or DTSA by the Company, (2) declaratory judgment of no breach of contract by the Company, and (3) damages related to Boeing’s breach of contract for failure to adequately perform, including incomplete work on design phases of the project. On April 12, 2024, Boeing filed a motion for an anti-suit injunction in connection with the Company’s California suit. On June 6, 2024, the Company voluntarily dismissed the California action without prejudice, electing to pursue its affirmative claims against Boeing by way of the counterclaim filed in the Virginia action, and on that same day the
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Company and Boeing jointly informed the Virginia court that the Company’s voluntary dismissal of the California action without prejudice rendered moot Boeing’s motion for an anti-suit injunction.
A hearing on the motion for a preliminary injunction took place on May 24, 2024. On June 20, 2024, the Court denied the preliminary injunction sought by Boeing, and ordered that the Company could use the disputed documents internally, and with third parties under a non-disclosure agreement, for the purpose of developing a new mothership.
On October 2, 2024, Boeing and the Company executed a “Material Terms of Settlement Agreement,” endorsed by Magistrate Judge Lindsey R. Vaala of the United States District Court for the Eastern District of Virginia, by which they agreed to resolve all disputes between them relating to the lawsuits. The parties entered into a final Settlement Agreement effective October 31, 2024, and the litigation was dismissed in its entirety on November 4, 2024. The Company has reflected a benefit associated with this settlement in research and development expense in the accompanying condensed consolidated statement of operations and comprehensive loss for the three months ended September 30, 2024.
Lavin v. the Company
On May 28, 2021, a class action complaint was filed against the Company in the Eastern District of New York captioned Lavin v. Virgin Galactic Holdings, Inc., Case No. 1:21-cv-03070. In September 2021, the Court appointed Robert Scheele and Mark Kusnier as co-lead plaintiffs for the purported class. Co-lead plaintiffs amended the complaint in December 2021, asserting violations of Sections 10(b), 20(a) and 20A of the Exchange Act of 1934 against the Company and certain of its current and former officers and directors on behalf of a putative class of investors who purchased the Company's common stock between July 10, 2019 and October 14, 2021.
The amended complaint alleges, among other things, that the Company and certain of its current and former officers and directors made false and misleading statements and failed to disclose certain information regarding the safety of the Company's ships and success of its commercial flight program. Co-lead plaintiffs seek damages, interest, costs, expenses, attorneys' fees, and other unspecified equitable relief. The defendants moved to dismiss the amended complaint and, on November 7, 2022, the court granted in part and denied in part the defendants’ motion and gave the plaintiffs leave to file a further amended complaint.
Plaintiffs filed a second amended complaint on December 12, 2022. The second amended complaint contains many of the same allegations as in the first amended complaint. The defendants moved to dismiss the second amended complaint and, on August 8, 2023, the court granted in part and denied in part the defendants’ motion and did not give plaintiffs leave to file a further amended complaint. Plaintiffs moved for reconsideration of the court’s dismissal order and, on December 19, 2023, the court denied plaintiffs’ motion. On March 27, 2024, the defendants moved for judgment on the pleadings as to the remaining Section 10(b) insider trading claim alleged against Branson. On April 2, 2024, the court stayed briefing on defendants’ motion for judgment on the pleadings pending resolution of plaintiffs’ anticipated motion for leave to add a new representative plaintiff, which plaintiffs’ subsequently filed on May 1, 2024. The court granted plaintiffs’ motion on July 2, 2024. On July 8, 2024, defendants withdrew their motion for judgment on the pleadings.
On August 21, 2024, plaintiffs filed a third amended complaint in which Xinqiang Cui, Justin Carlough, Jennifer Ortiz, Richard O’Keefe-Jones, Vipul Gupta, Maria Josephine Rosales, and Hesham Ibrahim (previously named plaintiffs), were designated by plaintiffs as lead plaintiffs (in addition to Robert Scheele and Mark Kusnier), and an additional named plaintiff was added. The third amended complaint contains substantively the same allegations as in the second amended complaint. On September 11, 2024, defendants filed an answer to plaintiffs’ third amended complaint. The Company intends to continue to vigorously defend against this matter.
Spiteri, Grenier, Laidlaw, and St. Jean derivatively on behalf of the Company vs. Certain Current and Former Officers and Directors
On February 21, 2022, March 1, 2022, September 21, 2022, and December 13, 2022, four alleged shareholders filed separate derivative complaints purportedly on behalf of the Company against certain of the Company's current and former officers and directors in the Eastern District of New York captioned Spiteri v. Branson et al., Case No. 1:22-
19
cv-00933 (“Spiteri Action”), Grenier v. Branson et al., Case No. 1:22-cv-01100 (“Grenier Action”), Laidlaw v. Branson et al., Case No. 1:22-cv-05634 (“Laidlaw Action”), and St. Jean v. Branson et al., Case No. 1:22-cv-7551 (“St. Jean Action”), respectively. On May 4, 2022, the Spiteri and Grenier Actions were consolidated and recaptioned In re Virgin Galactic Holdings, Inc. Derivative Litigation, Case No. 1:22-cv-00933 (“Consolidated Derivative Action”). On September 30, 2023, the Laidlaw Action was consolidated into the Consolidated Derivative Action. Collectively, the complaints assert violations of Sections 10(b), 14(a), and 21D of the Exchange Act of 1934 and claims of breach of fiduciary duty, aiding and abetting breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, contribution and indemnification, and unjust enrichment arising from substantially similar allegations as those contained in the securities class action described above. The complaints seek an unspecified sum of damages, interest, restitution, expenses, attorneys’ fees and other equitable relief. The cases are at a preliminary stage.
Abughazaleh derivatively on behalf of the Company vs. Certain Current and Former Officers and Directors
On February 13, 2023, alleged shareholder Yousef Abughazaleh filed a derivative complaint purportedly on behalf of the Company against certain of the Company's current and former officers and directors in the District of Delaware captioned Abughazaleh v. Branson et al., Case No. 23-156-MN. The complaint asserts violations of Section 14(a) of the Exchange Act of 1934 and SEC Rule 14a-9, and claims of breach of fiduciary duty, contribution and indemnification, and unjust enrichment arising from substantially similar allegations as those contained in the securities class action described above.
The complaint seeks an unspecified sum of damages, interest, restitution, expenses, attorneys’ fees and other equitable relief. The case is at a preliminary stage.
Molnar and Tubbs derivatively on behalf of the Company vs. Certain Current and Former Officers and Directors
On April 9, 2024, alleged shareholders Crystal Molnar and Cleveland Tubbs filed a derivative complaint purportedly on behalf of the Company against certain of the Company's current and former officers and directors in the Central District of California captioned Molnar v. Branson et al., Case No. 8:24-cv-775. The complaint asserts violations of Section 10(b) and 21D of the Exchange Act of 1934, and claims of breach of fiduciary duty and unjust enrichment arising from substantially similar allegations as those contained in the securities class action described above.
The complaint seeks an unspecified sum of damages, restitution, expenses, attorneys’ fees, and other equitable relief. The case is at a preliminary stage.
Gera derivatively on behalf of the Company vs. Certain Current and Former Officers and Directors
On July 11, 2024, alleged shareholder Samhita Gera filed a derivative complaint purportedly on behalf of the Company against certain of the Company’s current and former officers and directors in the Eastern District of New York captioned Gera v. Branson et al., Case No. 24-cv-04795. The complaint asserts violations of Section 14(a) of the Exchange Act of 1934 and SEC Rule 14a-9, and claims of breach of fiduciary duty, contribution and indemnification, and unjust enrichment arising from substantially similar allegations as those contained in the securities class action described above.
The complaint seeks an unspecified sum of damages, interest, restitution, expenses, attorneys’ fees and other equitable relief. The case is at a preliminary stage.
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(14) 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. Royalties payable, excluding sponsorship royalties, are the greater of (a) a low single-digit percentage of gross sales and (b) (i) prior to the first spaceflight for paying astronauts, a mid-five figure amount in dollars and (ii) from the first spaceflight for paying astronauts, a low-six figure amount in dollars, which increases to a low-seven figure amount in dollars over a four-year ramp up and thereafter increases in correlation with the consumer price index. Royalties payable on sponsorships are based on a mid-double-digit percentage of the related gross sales. During the nine months ended September 30, 2024 and 2023, the Company incurred royalty expenses of $1.0 million and $0.3 million, respectively.
(15) Supplemental Cash Flow Information
| Nine Months Ended September 30, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| (In thousands) | ||||||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||
| Cash payments for: | ||||||||||||||
| Income taxes | $ | $ | ||||||||||||
| Interest | ||||||||||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||||
| Unpaid purchases of property, plant and equipment | $ | $ | ||||||||||||
Transfer of inventory to rotables in property, plant and equipment | ||||||||||||||
| Issuance of common stock through RSUs vested | ||||||||||||||
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, all references in this section to the “Company,” "Virgin Galactic," “we,” “us,” or “our” refer to Virgin Galactic Holdings, Inc. and its subsidiaries.
You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as the audited financial statements and the related notes thereto, and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the "Annual Report on Form 10-K"). This discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Risk Factors” sections of our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024 and under the "Cautionary Note Regarding Forward-Looking Statements" section and elsewhere in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We are an aerospace and space travel company offering access to space for private individuals, researchers and government agencies. Our missions include flying passengers to space, as well as flying scientific payloads and researchers to space in order to conduct experiments for scientific and educational purposes. Our operations include the design and development, manufacturing, ground and flight testing, spaceflight operation, and post-flight maintenance of our spaceflight system. Our spaceflight system was developed using our proprietary technology and processes and is focused on providing space experiences for private astronauts, researcher flights and professional astronaut training. We have also leveraged our knowledge and expertise in manufacturing spaceships to occasionally perform engineering services for third parties.
Recent Developments
In June 2024, we completed our second spaceflight of 2024 and seventh commercial spaceflight to date, 'Galactic 07,' carrying one researcher and three private astronauts. Following the 'Galactic 07' flight, we paused Unity spaceflights and expect to re-commence flying with test flights of our new Delta Class spaceships in advance of restarting commercial service, which is expected to begin in 2026.
On June 12, 2024, at the Company’s 2024 annual meeting of stockholders, our stockholders approved, and on June 14, 2024, we effected, a 1-for-20 reverse stock split (the “Reverse Stock Split”), and our common stock began trading on a split-adjusted basis on June 17, 2024. Prior to the Reverse Stock Split, on May 29, 2024, we received a notice from the New York Stock Exchange (the “NYSE”) that we were no longer in compliance with Section 802.01C of the NYSE Listed Company Manual (“Section 802.01C”), which requires listed companies to maintain an average closing price per share of at least $1.00 over a 30 consecutive trading-day period. Following the Reverse Stock Split, on July 1, 2024, we received a letter from the NYSE stating that we regained compliance with Section 802.01C.
All shares of our common stock, per-share data and related information included in this Quarterly Report on Form 10-Q have been retroactively adjusted as though the Reverse Stock Split had been effected prior to all periods presented.
In July 2024, we completed our new manufacturing facility in Mesa, Arizona, where final assembly of our next-generation Delta Class spaceships is scheduled to begin in 2025. After the initial development of our first Delta Class spaceship, we estimate the recurring cost to make each additional spaceship to be between $50 and $60 million.
In October 2024, we settled the lawsuit and all claims between us and The Boeing Company and Aurora Flight Sciences Corporation, a Boeing Company. See Note 13 in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Factors Affecting Our Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below, as well as in Part 1, Item 1A. of our Annual Report on Form 10-K titled “Risk Factors” and in Part II, Item 1A. in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024.
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Customer Demand
We have already received significant interest from potential astronauts. Going forward, we expect the size of our backlog and the number of astronauts that have flown to space on our spaceflight system to be an important indicator of our future performance. As of September 30, 2024, we have reservations for spaceflights for approximately 700 future astronauts, which represent approximately $194 million in expected future spaceflight revenue upon completion of the spaceflights.
Available Capacity and Annual Flight Rate
We commenced our commercial operations with VSS Unity and VMS Eve, which together comprised our initial commercial spaceflight system. Our annual flight rate is constrained by the availability and capacity of this commercial spaceflight system. To expand capacity, we are currently developing our next-generation spaceflight vehicles. These next-generation spaceflight vehicles, which include our Delta Class spaceships and additional motherships, are expected to dramatically increase our annual flight rate.
During the third quarter of 2024, we completed a number of significant milestones related to the design phase of our Delta Class spaceships, including the completion of a majority of the manufacturing designs. These achievements will enable us to deploy some of our engineers from the Delta program to the design of our new mothership. We anticipate these additional engineering and design resources, together with the infusion of additional growth capital, could enable us to deploy our new mothership for commercial service in 2028.
Safety Performance of Our Spaceflight Systems
Our spaceflight systems are highly specialized with sophisticated and complex technology. We have built operational processes to ensure that the design, manufacture, performance and servicing of our spaceflight systems meet rigorous quality standards. However, our spaceflight systems are still subject to operational and process risks, such as manufacturing and design issues, human errors, or cyber-attacks. Any actual or perceived safety issues may result in significant reputational harm to our business and our ability to generate spaceflight revenue.
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Results of Operations
The following tables set forth our results of operations for the periods presented. The period-to-period comparisons of financial results are not necessarily indicative of future results.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Revenue | $ | 402 | $ | 1,728 | $ | 6,607 | $ | 3,991 | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Spaceline operations | 19,874 | 25,648 | 69,753 | 26,200 | ||||||||||||||||||||||
| Research and development | 23,937 | 44,848 | 124,441 | 241,292 | ||||||||||||||||||||||
| Selling, general and administrative | 33,978 | 42,218 | 95,793 | 144,020 | ||||||||||||||||||||||
| Depreciation and amortization | 4,341 | 3,286 | 11,296 | 9,723 | ||||||||||||||||||||||
| Total operating expenses | 82,130 | 116,000 | 301,283 | 421,235 | ||||||||||||||||||||||
| Operating loss | (81,728) | (114,272) | (294,676) | (417,244) | ||||||||||||||||||||||
| Interest income | 10,363 | 12,856 | 33,779 | 28,590 | ||||||||||||||||||||||
| Interest expense | (3,233) | (3,221) | (9,690) | (9,648) | ||||||||||||||||||||||
| Other income, net | 163 | 86 | 479 | 164 | ||||||||||||||||||||||
| Loss before income taxes | (74,435) | (104,551) | (270,108) | (398,138) | ||||||||||||||||||||||
| Income tax expense | 105 | 53 | 219 | 215 | ||||||||||||||||||||||
| Net loss | $ | (74,540) | $ | (104,604) | $ | (270,327) | $ | (398,353) | ||||||||||||||||||
For the Three and Nine Months Ended September 30, 2024 Compared to the Three and Nine Months Ended September 30, 2023
Revenue
| Three Months Ended September 30, | $ Change | % Change | Nine Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except %) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 402 | $ | 1,728 | $ | (1,326) | (77) | % | $ | 6,607 | $ | 3,991 | $ | 2,616 | 66 | % | ||||||||||||||||||||||||||||||||||
Revenue for the three months ended September 30, 2024 was primarily attributable to membership fees related to our Future Astronaut community. Revenue for the three months ended September 30, 2023 was primarily attributable to revenue generated from our commercial spaceflights and membership fees related to our Future Astronaut community.
Revenue for the nine months ended September 30, 2024 and 2023 were primarily attributable to revenue generated from our commercial spaceflights and membership fees related to our Future Astronaut community.
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Spaceline Operations
| Three Months Ended September 30, | $ Change | % Change | Nine Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except %) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Spaceline operations | $ | 19,874 | $ | 25,648 | $ | (5,774) | (23) | % | $ | 69,753 | $ | 26,200 | $ | 43,553 | 166 | % | ||||||||||||||||||||||||||||||||||
Spaceline operations expense includes costs to maintain and operate our spaceflight system; non-capitalizable costs to build our new vehicles and manufacture items required to support the making of our vehicles, such as rocket motors and spare parts; the consumption of rocket motors, fuel and other consumables; costs to maintain and support our Future Astronaut community; and costs to provide payload cargo and engineering services.
Following the launch of commercial service and achievement of technological feasibility in July 2023, we began presenting the operating expenses supporting our commercial spaceline activities as spaceline operations expense in the accompanying condensed consolidated statements of operations and comprehensive loss. Prior to achievement of technological feasibility, spaceline operations expense included costs to support our Future Astronaut community and costs related to payload cargo and engineering services, which were previously presented as customer experience expense.
Spaceline operations expense decreased from $25.6 million for the three months ended September 30, 2023 to $19.9 million for the three months ended September 30, 2024. The decrease was primarily driven by a $5.4 million decrease in cash compensation and other employee benefit costs primarily due to a reduction in headcount and labor allocated to capitalizable projects.
Spaceline operations expense for the nine months ended September 30, 2024 and 2023, following achievement of technological feasibility in July 2023, were primarily attributable to costs to maintain and operate our spaceflight system; non-capitalizable costs to build our new vehicles and manufacture items required to support the making of our vehicles; and costs to maintain and support our Future Astronaut community.
Research and Development
| Three Months Ended September 30, | $ Change | % Change | Nine Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except %) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | $ | 23,937 | $ | 44,848 | $ | (20,911) | (47) | % | $ | 124,441 | $ | 241,292 | $ | (116,851) | (48) | % | ||||||||||||||||||||||||||||||||||
Research and development expenses represent costs incurred to support activities that advance our future fleet towards commercialization, including basic research, applied research, concept formulation studies, design, development, and related testing activities. Research and development costs will consist primarily of equipment, material, and labor costs (including from third-party contractors) for designing the spaceflight system’s structure, spaceflight propulsion system, and flight profiles for our next-generation spaceships and motherships, as well as allocated facilities and other supporting overhead costs.
Research and development expenses decreased from $44.8 million for the three months ended September 30, 2023 to $23.9 million for the three months ended September 30, 2024. The decrease was primarily driven by the settlement of certain disputed vendor invoices, resulting in a reversal of $18.6 million of accrued costs, a $6.2 million decrease in cash compensation and other employee benefit costs primarily due to a reduction in headcount and the completion of the modifications of VSS Unity and VMS Eve in July 2023, and a $2.1 million decrease in materials, consulting, and other costs primarily due to the completion of the VSS Unity and VMS Eve modifications. These decreases were partially offset by an $8.1 million increase in sub-contractor and contract labor costs associated with the development of our next-generation spaceflight vehicles.
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Research and development expenses decreased from $241.3 million for the nine months ended September 30, 2023 to $124.4 million for the nine months ended September 30, 2024. The decrease was primarily driven by a $48.2 million decrease in materials, consulting, and other costs primarily due to the completion of the VSS Unity and VMS Eve modifications, a $47.8 million decrease in cash compensation and other employee benefit costs primarily due to the completion of the VSS Unity and VMS Eve modifications and a reduction in headcount, the settlement of certain disputed vendor invoices, resulting in a reversal of $18.6 million of accrued costs, an $8.3 million decrease in other operational costs primarily due to a technology license fee expensed in 2023, and a $4.7 million decrease in stock-based compensation. These decreases were partially offset by an $18.6 million increase in sub-contractor and contract labor costs associated with the development of our next-generation spaceflight vehicles.
Selling, General and Administrative
| Three Months Ended September 30, | $ Change | % Change | Nine Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except %) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 33,978 | $ | 42,218 | $ | (8,240) | (20) | % | $ | 95,793 | $ | 144,020 | $ | (48,227) | (33) | % | ||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses consist primarily of compensation and other employee benefit costs for employees involved in general corporate functions, including executive management and administration, accounting, finance, legal, information technology, sales and marketing, and human resources. Non-compensation components of selling, general and administrative expenses include accounting, legal and other professional fees, facilities expenses, and other corporate expenses.
Selling, general and administrative expenses decreased from $42.2 million for the three months ended September 30, 2023 to $34.0 million for the three months ended September 30, 2024. The decrease was primarily driven by a $3.7 million decrease in marketing and promotion expense and a $3.7 million decrease in cash compensation and other employee benefit costs primarily due to a reduction in headcount.
Selling, general and administrative expenses decreased from $144.0 million for the nine months ended September 30, 2023 to $95.8 million for the nine months ended September 30, 2024. The decrease was primarily driven by a $30.7 million decrease in cash compensation and other employee benefit costs primarily due to a reduction in headcount, a $8.7 million decrease in consulting and other professional fees, a $4.2 million decrease in marketing and promotion expense, and a $2.0 million decrease in facility costs.
Depreciation and Amortization
| Three Months Ended September 30, | $ Change | % Change | Nine Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except %) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 4,341 | $ | 3,286 | $ | 1,055 | 32 | % | $ | 11,296 | $ | 9,723 | $ | 1,573 | 16 | % | ||||||||||||||||||||||||||||||||||
Depreciation and amortization expense increased from $3.3 million for the three months ended September 30, 2023 to $4.3 million for the three months ended September 30, 2024. The increase was primarily due to the acquisition of property, plant and equipment.
Depreciation and amortization expense increased from $9.7 million for the nine months ended September 30, 2023 to $11.3 million for the nine months ended September 30, 2024. The increase was primarily due to the acquisition of property, plant and equipment.
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Interest Income
| Three Months Ended September 30, | $ Change | % Change | Nine Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except %) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | $ | 10,363 | $ | 12,856 | $ | (2,493) | (19) | % | $ | 33,779 | $ | 28,590 | $ | 5,189 | 18 | % | ||||||||||||||||||||||||||||||||||
Interest income decreased from $12.9 million for the three months ended September 30, 2023 to $10.4 million for the three months ended September 30, 2024. This decrease was primarily driven by decreased average balances of marketable securities and deposits in interest-bearing accounts.
Interest income increased from $28.6 million for the nine months ended September 30, 2023 to $33.8 million for the nine months ended September 30, 2024. This increase was primarily driven by higher investment returns on marketable securities and higher interest rates on deposits in interest-bearing accounts, partially offset by decreased average balances of marketable securities and deposits in interest-bearing accounts.
Interest Expense
| Three Months Ended September 30, | $ Change | % Change | Nine Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except %) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | $ | 3,233 | $ | 3,221 | $ | 12 | — | % | $ | 9,690 | $ | 9,648 | $ | 42 | — | % | ||||||||||||||||||||||||||||||||||
Interest expense was $3.2 million for each of the three months ended September 30, 2024 and 2023. Interest expense increased from $9.6 million for the nine months ended September 30, 2023 to $9.7 million for the nine months ended September 30, 2024. Interest expense primarily consists of interest expense and amortization of debt issuance costs related to our convertible senior notes.
Income Tax Expense
Income tax expense was immaterial for the three and nine months ended September 30, 2024 and 2023. We have accumulated net operating losses at the U.S. federal and state levels. We maintain a full valuation allowance against our net U.S. federal and state deferred tax assets. The income tax expense is primarily related to corporate income taxes for our operations in the United Kingdom, which operates on a cost-plus arrangement.
Liquidity and Capital Resources
As of September 30, 2024, we had cash, cash equivalents and restricted cash of $204.7 million and marketable securities of $539.2 million. Our principal sources of liquidity have come from sales of our common stock and offering of convertible senior notes ("2027 Notes").
Historical Cash Flows
| Nine Months Ended September 30, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| (In thousands) | ||||||||||||||
| Net cash provided by (used in): | ||||||||||||||
| Operating activities | $ | (271,668) | $ | (352,884) | ||||||||||
| Investing activities | 116,444 | (196,545) | ||||||||||||
| Financing activities | 106,348 | 475,863 | ||||||||||||
Net decrease in cash, cash equivalents and restricted cash | $ | (48,876) | $ | (73,566) | ||||||||||
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Operating Activities
Net cash used in operating activities was $271.7 million for the nine months ended September 30, 2024, and consisted primarily of $270.3 million of net losses, adjusted for non-cash items, which included stock-based compensation expense of $24.0 million and depreciation and amortization expense of $11.3 million, partially offset by $11.7 million of other non-cash items and $25.0 million of cash used from changes in operating assets and liabilities.
Net cash used in operating activities was $352.9 million for the nine months ended September 30, 2023, and consisted primarily of $398.4 million of net losses, adjusted for non-cash items, which primarily included stock-based compensation expense of $35.6 million and depreciation and amortization expense of $9.7 million.
Investing Activities
Net cash provided by investing activities was $116.4 million for the nine months ended September 30, 2024, and consisted primarily of $729.4 million in proceeds from maturities and calls of marketable securities, partially offset by $527.4 million in purchases of marketable securities and $86.1 million in capital expenditures.
Net cash used in investing activities was $196.5 million for the nine months ended September 30, 2023, and consisted of $873.0 million in purchases of marketable securities and $25.9 million in capital expenditures, partially offset by $702.3 million in proceeds from maturities and calls of marketable securities.
Financing Activities
Net cash provided by financing activities was $106.3 million for the nine months ended September 30, 2024, and consisted primarily of net cash proceeds from the sale and issuance of common stock of $107.7 million, partially offset by tax withholdings paid for net settled stock-based awards of $1.2 million.
Net cash provided by financing activities was $475.9 million for the nine months ended September 30, 2023, and consisted primarily of net cash proceeds from the sale and issuance of common stock of $479.0 million, partially offset by tax withholdings paid for net settled stock-based awards of $3.0 million.
Funding Requirements
We expect our expenditures to fluctuate in connection with our ongoing activities, particularly as we continue to advance the development of our next-generation spaceflight system and leverage investments in capital expenditures.
As our fleet of spaceships expands, we expect our expenditures to increase as we scale our commercial operations. Specifically, our long-term expenditures will increase as we:
•scale up our manufacturing processes and capabilities to support expanding our fleet with additional spaceships, carrier aircraft and rocket motors in connection with commercialization;
•hire additional personnel in manufacturing operations, testing programs, maintenance operations and guest services as we increase the volume of our spaceflights;
•scale up required operational facilities, such as hangars and warehouses; and
•establish our astronaut campus in New Mexico.
We expect our arrangements with third-party providers to manufacture key subassemblies for our next-generation spaceships and for the design and manufacture of our next-generation carrier aircraft will require significant capital expenditures. Certain estimated amounts in connection with third-party arrangements are subject to future negotiations and cannot be estimated with reasonable certainty.
We believe that our current capital is adequate to sustain our operations for at least the next twelve months. Changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. While we have completed our initial commercial launch with a single spaceship, we are currently developing our next-generation spaceflight vehicles. We anticipate the costs to manufacture additional vehicles will begin to decrease as we continue to scale up our manufacturing processes and capabilities.
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Issuances of Common Stock
In August 2022, we 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 $300 million of shares of our common stock from time to time through the Agents, acting as sales agents, or directly to one or more of the Agents, acting as principal(s), through an "at-the-market offering" program (the "2022 ATM Program").
We completed the 2022 ATM Program in June 2023, selling a total of 3.0 million shares of common stock and generating $300 million in gross proceeds, before deducting $3.0 million in underwriting discounts, commissions and other expenses.
In June 2023, we entered into a distribution agency agreement with the Agents providing for the offer and sale of up to $400 million of shares of our common stock from time to time through the Agents, acting as sales agents, or directly to one or more of the Agents, acting as principal(s), through an "at-the-market offering" program (the "2023 ATM Program").
During the nine months ended September 30, 2024, we sold 8.8 million shares of common stock under the 2023 ATM Program and generated $108.7 million in gross proceeds, before deducting $1.0 million in underwriting discounts, commissions and other expenses.
As of September 30, 2024, we sold a total of 12.8 million shares of common stock under the 2023 ATM Program, generating $396.2 million in gross proceeds, before deducting $3.9 million in underwriting discounts, commissions and other expenses.
Liquidity Outlook
For at least the next twelve months, we expect our principal demand for funds will be for our ongoing activities described above. We expect to meet our short-term liquidity requirements primarily through our cash, cash equivalents and marketable securities on hand. We believe we will have sufficient liquidity available to fund our business needs, commitments and contractual obligations for the next twelve months.
Beyond the next twelve months, our principal demand for funds will be to sustain our operations, operate our spaceline at Spaceport America in New Mexico, and expand our fleet of spaceships, motherships, and supporting facilities. We expect to generate revenue from our spaceflight program, which is expected to restart in 2026. To the extent this source of capital as well as sources of capital described above are insufficient to meet our needs, we may need to seek additional debt or equity financing.
The commercial launch of our spaceflight program and the anticipated expansion of our fleet have unpredictable costs and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control, that may affect the timing and magnitude of these anticipated expenditures. Some of these risk and uncertainties are described in more detail in our Annual Report on Form 10-K under the heading Item 1A. “Risk Factors—Risks Related to Our Business.”
Contractual Obligations and Commitments
Except as set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We believe that the estimates, assumptions and judgments involved in the accounting policies referred to below have the greatest potential impact on our financial statements and, therefore, we consider these to be our critical accounting policies. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.
During the fiscal quarter ended September 30, 2024, there were no significant changes to our critical accounting policies and estimates compared to those previously disclosed in "Critical Accounting Policies and Estimates" included in Part II, Item 7.
29
"Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2023 Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
During the fiscal quarter ended September 30, 2024, there were no significant changes to our market risks compared to those previously disclosed in Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" included in our 2023 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are from time to time subject to various claims, lawsuits and other legal and administrative proceedings arising in the ordinary course of business. Some of these claims, lawsuits and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions or relief. However, we do not consider any such claims, lawsuits or proceedings that are currently pending, individually or in the aggregate, to be material to our business or likely to result in a material adverse effect on our future operating results, financial condition or cash flows. See Note 13 in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Item 1A. Risk Factors
Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described as risk factors, any one or more of which could, directly or indirectly, cause our actual operating results and financial condition to vary materially from past, or anticipated future, operating results and financial condition. For a discussion of our potential risks and uncertainties, see the risk factors previously disclosed in Part I, Item 1. “Business,” Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K, in Part II, Item 1A. “Risk Factors” in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024 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. There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended September 30, 2024, none of our officers or directors adopted terminated
Item 6. Exhibits
The following documents are filed as part of this report:
(1) Exhibits. The following exhibits are filed, furnished or incorporated by reference as part of this Quarterly Report on Form 10-Q.
| Incorporated by Reference | ||||||||||||||||||||
| Exhibit No. | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed/Furnished Herewith | ||||||||||||||
| 3.1 | 8-K | 001-38202 | 3.1 | 10/29/2019 | ||||||||||||||||
3.1(a) | 8-K | 001-38202 | 3.1 | 6/14/2024 | ||||||||||||||||
| 3.2 | 8-K | 001-38202 | 3.1 | 3/14/2024 | ||||||||||||||||
| 10.1 | * | |||||||||||||||||||
31
| Incorporated by Reference | ||||||||||||||||||||
| Exhibit No. | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed/Furnished Herewith | ||||||||||||||
| 31.1 | * | |||||||||||||||||||
| 31.2 | * | |||||||||||||||||||
| 32.1 | ** | |||||||||||||||||||
| 32.2 | ** | |||||||||||||||||||
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | * | ||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | * | ||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | * | ||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | * | ||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | * | ||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | ||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | * | ||||||||||||||||||
* Filed herewith.
** Furnished herewith.
(1) Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Regulation S-K, Item (601)(b)(10). Additionally, certain schedules and exhibits have been omitted pursuant to Regulation S-K, Item 601(a)(5). The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Virgin Galactic Holdings, Inc. | ||||||||
| Date: November 6, 2024 | /s/ Michael Colglazier | |||||||
Name: | Michael Colglazier | |||||||
Title: | Chief Executive Officer (Principal Executive Officer) | |||||||
| Date: November 6, 2024 | /s/ Douglas Ahrens | |||||||
Name: | Douglas Ahrens | |||||||
Title: | Chief Financial Officer (Principal Financial and Accounting Officer) | |||||||
33