Virgin Galactic Holdings Inc

Previous wording

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 Report on Form 10-Q for the quarter ended March 31, 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.

Current wording

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.

Previous wording

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 current 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.

Current wording

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.

Previous wording

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 Report on Form 10-Q for the quarter ended March 31, 2024.

Current wording

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.

Previous wording

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 June 30, 2024, we have reservations for spaceflights for approximately 700 future astronauts, which represent approximately $193 million in expected future spaceflight revenue upon completion of the spaceflights.

Current wording

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.

Previous wording

We expect to reach a significant milestone for the design phase of our Delta Class spaceships at the end of summer 2024, completing the majority of manufacturing designs. This will enable us to deploy some of our engineers from the Delta program to the design of our new motherships, which we project to be ready for service in 2028.

Current wording

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.

Previous wording

For the Three and Six Months Ended June 30, 2024 Compared to the Three and Six Months Ended June 30, 2023

Current wording

For the Three and Nine Months Ended September 30, 2024 Compared to the Three and Nine Months Ended September 30, 2023

Previous wording

Revenue for the three and six months ended June 30, 2024 and 2023 were primarily attributable to revenue generated from our commercial spaceflights and membership fees related to our Future Astronaut community.

Current wording

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.

Previous wording

Spaceline operations expense for the three and six months ended June 30, 2024 was 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. Spaceline operations expense for the three and six months ended June 30, 2023 was primarily attributable to incremental costs related to our commercial spaceflight and costs related to our Future Astronaut community.

Current wording

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.

Previous wording

Research and development expenses decreased from $86.6 million for the three months ended June 30, 2023 to $41.5 million for the three months ended June 30, 2024. The decrease was primarily driven by a $22.8 million decrease in materials, consulting, and other costs primarily due to the completion of modifications in 2023 of VSS Unity and VMS Eve, a $20.3 million decrease in cash compensation and other employee benefit costs primarily due to the completion of the modifications in 2023 of VSS Unity and VMS Eve and a reduction in headcount, and a $1.9 million decrease in stock-based compensation.

Current wording

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.

Previous wording

Research and development expenses decreased from $196.4 million for the six months ended June 30, 2023 to $100.5 million for the six months ended June 30, 2024. The decrease was primarily driven by a $48.9 million decrease in materials, consulting, and other costs primarily due to the completion of modifications in 2023 of VSS Unity and VMS Eve, a $42.4 million decrease in cash compensation and other employee benefit costs primarily due to the completion of the modifications in 2023 of VSS Unity and VMS Eve and a reduction in headcount, an $8.3 million decrease in other operational costs primarily due to a technology license fee expensed in 2023, and a $3.8 million decrease in stock-based compensation. These decreases were partially offset by a $10.4 million increase in sub-contractor and contract labor costs associated with the development of our next-generation spaceflight vehicles.

Current wording

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.

Previous wording

Selling, general and administrative expenses decreased from $51.4 million for the three months ended June 30, 2023 to $33.9 million for the three months ended June 30, 2024. The decrease was primarily driven by a $9.1 million decrease in cash compensation and other employee benefit costs primarily due to a reduction in headcount, a $4.3 million decrease in consulting and other professional fees, and a $2.9 million decrease in stock-based compensation.

Current wording

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.

Previous wording

Depreciation and amortization expense increased from $6.4 million for the six months ended June 30, 2023 to $7.0 million for the six months ended June 30, 2024. The increase was primarily due to the acquisition of property, plant and equipment.

Current wording

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.

Previous wording

Interest income increased from $15.7 million for the six months ended June 30, 2023 to $23.4 million for the six months ended June 30, 2024. This increase was primarily driven by higher investment returns on marketable securities and higher interest rates on deposits in interest-bearing accounts.

Current wording

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.

Previous wording

Interest income increased from $8.4 million for the three months ended June 30, 2023 to $11.1 million for the three months ended June 30, 2024. This increase was primarily driven by higher investment returns on marketable securities and higher interest rates on deposits in interest-bearing accounts.

Current wording

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.

Previous wording

Interest expense was $3.2 million for each of the three months ended June 30, 2024 and 2023. Interest expense increased from $6.4 million for the six months ended June 30, 2023 to $6.5 million for the six months ended June 30, 2024. Interest expense primarily consists of interest expense and amortization of debt issuance costs related to our convertible senior notes.

Current wording

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.

Previous wording

Income tax expense was immaterial for the three and six months ended June 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.

Current wording

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.

Previous wording

As of June 30, 2024, we had cash, cash equivalents and restricted cash of $214.8 million and marketable securities of $605.9 million. Our principal sources of liquidity have come from sales of our common stock and offering of convertible senior notes ("2027 Notes").

Current wording

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").

Previous wording

Net cash used in operating activities was $192.4 million for the six months ended June 30, 2024, and consisted primarily of $195.8 million of net losses, adjusted for non-cash items, which primarily included stock-based compensation expense of $16.5 million and depreciation and amortization expense of $7.0 million, partially offset by $9.3 million of other non-cash items and $11.8 million of cash used from changes in operating assets and liabilities.

Current wording

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.

Previous wording

Net cash used in operating activities was $261.4 million for the six months ended June 30, 2023, and consisted primarily of $293.7 million of net losses, adjusted for non-cash items, which primarily included stock-based compensation expense of $24.8 million and depreciation and amortization expense of $6.4 million.

Current wording

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.

Previous wording

Net cash provided by investing activities was $83.7 million for the six months ended June 30, 2024, and consisted primarily of $479.4 million in proceeds from maturities and calls of marketable securities, partially offset by $348.8 million in purchases of marketable securities and $47.5 million in capital expenditures.

Current wording

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.

Previous wording

Net cash provided by investing activities was $48.8 million for the six months ended June 30, 2023, and consisted of $471.3 million in proceeds from maturities and calls of marketable securities, partially offset by $409.9 million in purchases of marketable securities and $12.6 million in capital expenditures.

Current wording

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.

Previous wording

Net cash provided by financing activities was $69.9 million for the six months ended June 30, 2024, and consisted primarily of net cash proceeds from the sale and issuance of common stock of $70.9 million, partially offset by tax withholdings paid for net settled stock-based awards of $0.9 million.

Current wording

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.

Previous wording

Net cash provided by financing activities was $268.0 million for the six months ended June 30, 2023, and consisted primarily of net cash proceeds from the sale and issuance of common stock of $270.5 million, partially offset by tax withholdings paid for net settled stock-based awards of $2.3 million.

Current wording

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.

Previous wording

During the six months ended June 30, 2024, we sold 3.9 million shares of common stock under the 2023 ATM Program and generated $71.6 million in gross proceeds, before deducting $0.7 million in underwriting discounts, commissions and other expenses.

Current wording

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.

Previous wording

As of June 30, 2024, we sold a total of 7.9 million shares of common stock under the 2023 ATM Program, generating $359.1 million in gross proceeds, before deducting $3.6 million in underwriting discounts, commissions and other expenses.

Current wording

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.

Previous wording

During the fiscal quarter ended June 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. "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2023 Annual Report on Form 10-K.

Current wording

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.