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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
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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
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Virgin Galactic Holdings, Inc. |
(Exact name of registrant as specified in its charter)
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Delaware
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85-3608069 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1700 Flight Way
Tustin California
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92782 |
(Address of Principal Executive Offices) |
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(Zip Code) |
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(575)
424-2100
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(Registrant’s telephone number, including area code)
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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:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which
registered
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Common stock, $0.0001 par value per share
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SPCE
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New York Stock Exchange
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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.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Emerging growth company
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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.
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act): Yes
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No
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As of July 30, 2022, there were 258,715,178 shares of the
Company’s common stock, par value $0.0001, issued and
outstanding.
VIRGIN GALACTIC HOLDINGS, INC.
TABLE OF CONTENTS
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 completing the flight test program and final development
of our spaceflight fleet, which is comprised of our SpaceShipTwo
spaceships, VSS Unity and VSS Imagine, and our mothership carrier
aircraft, VMS Eve;
•our
ability to conduct test flights;
•our
ability to operate our spaceflight system after commercial
launch;
•the
safety of our spaceflight systems;
•the
development of the markets for commercial human spaceflight and
commercial research and development payloads;
•our
ability to effectively market and sell human
spaceflights;
•our
ability to convert our backlog or inbound inquiries into
revenue;
•our
anticipated full passenger capacity;
•our
ability to achieve or maintain profitability;
•delay
in development or the manufacture of spaceflight
systems;
•our
ability to successfully develop our next generation vehicles, and
the time and costs associated with doing so;
•our
ability to supply our technology to additional market
opportunities;
•our
expected capital requirements and the availability of additional
financing;
•our
ability to attract or retain highly qualified
personnel;
•the
impact of the COVID-19 pandemic on us, our operations, our future
financial or operational results, and our access to additional
financing;
•extensive
and evolving government regulation that impact the way we
operate;
•risks
associated with international expansion;
•our
ability to maintain effective internal control over financial
reporting and disclosure and procedures; and
•our
ability to continue to use, maintain, enforce, protect and defend
our owned and licensed intellectual property, including the Virgin
brand.
Additional factors that may cause actual results to differ
materially from current expectations include, among other things,
those set forth in Part I, Item 1.“Business,” Part I, Item 1A.
“Risk Factors,” and Part I, Item 2. “Management's Discussion and
Analysis of Financial Condition and Results of Operations" of our
Annual Report on Form 10-K for the fiscal year ended December 31,
2021 (the “Annual Report on Form 10-K") and in
Part I,
Item 2. “Management's Discussion and Analysis of Financial
Condition and Results of Operations"
in this Quarterly Report on Form 10-Q. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, our information may be incomplete or limited, and we
cannot guarantee future results. Except as required by law, we
assume no obligation to update or revise these forward-looking
statements for any reason, even if new information becomes
available in the future.
Each of the terms the “Company,” “Virgin Galactic,” “we,” “our,”
“us” and similar terms used herein refer collectively to Virgin
Galactic Holdings, Inc., a Delaware corporation, and its
consolidated subsidiaries, unless otherwise stated.
PART I. FINANCIAL INFORMATION
VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
|
December 31, 2021 |
|
|
|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
$ |
329,857 |
|
|
|
|
$ |
524,481 |
|
Restricted cash |
|
|
40,207 |
|
|
|
|
25,549 |
|
Marketable securities, short-term |
|
|
587,716 |
|
|
|
|
79,418 |
|
Inventories |
|
|
33,804 |
|
|
|
|
29,668 |
|
Prepaid expenses and other current assets |
|
|
18,576 |
|
|
|
|
19,476 |
|
Total current assets |
|
|
1,010,160 |
|
|
|
|
678,592 |
|
Marketable securities, long-term |
|
|
164,777 |
|
|
|
|
301,463 |
|
Property, plant, and equipment, net |
|
|
49,183 |
|
|
|
|
47,498 |
|
Other non-current assets |
|
|
44,356 |
|
|
|
|
41,281 |
|
Total assets |
|
|
$ |
1,268,476 |
|
|
|
|
$ |
1,068,834 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable |
|
|
$ |
12,768 |
|
|
|
|
$ |
9,237 |
|
Accrued liabilities |
|
|
36,707 |
|
|
|
|
28,787 |
|
Customer deposits |
|
|
104,596 |
|
|
|
|
90,863 |
|
Other current liabilities |
|
|
2,803 |
|
|
|
|
2,636 |
|
Total current liabilities |
|
|
156,874 |
|
|
|
|
131,523 |
|
Non-current liabilities |
|
|
|
|
|
|
|
Convertible senior notes, net |
|
|
414,563 |
|
|
|
|
— |
|
Other long-term liabilities |
|
|
46,464 |
|
|
|
|
43,047 |
|
Total liabilities |
|
|
617,901 |
|
|
|
|
174,570 |
|
Commitments and contingencies (Note
17)
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 10,000,000 authorized; none
issued and outstanding
|
|
|
— |
|
|
|
|
— |
|
Common stock, $0.0001 par value; 700,000,000 shares authorized;
258,690,646 and 258,166,417 shares issued and outstanding as of
June 30, 2022 and December 31, 2021,
respectively
|
|
|
26 |
|
|
|
|
26 |
|
Additional paid-in capital |
|
|
1,987,614 |
|
|
|
|
2,019,750 |
|
Accumulated deficit |
|
|
(1,327,421) |
|
|
|
|
(1,123,643) |
|
Accumulated other comprehensive income |
|
|
(9,644) |
|
|
|
|
(1,869) |
|
Total stockholders' equity |
|
|
650,575 |
|
|
|
|
894,264 |
|
Total liabilities and stockholders' equity |
|
|
$ |
1,268,476 |
|
|
|
|
$ |
1,068,834 |
|
See accompanying
notes
to condensed consolidated financial statements.
VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Operations and Comprehensive
Loss
(In thousands except for per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
357 |
|
|
$ |
571 |
|
|
$ |
676 |
|
|
$ |
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer experience |
|
122 |
|
|
63 |
|
|
147 |
|
|
63 |
|
|
|
|
|
|
|
Selling, general, and administrative |
|
44,700 |
|
|
36,916 |
|
|
81,707 |
|
|
80,235 |
|
|
|
|
|
|
|
Research and development |
|
62,340 |
|
|
34,619 |
|
|
114,167 |
|
|
69,708 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
2,915 |
|
|
2,871 |
|
|
5,767 |
|
|
5,740 |
|
|
|
|
|
|
|
Total operating expenses |
|
110,077 |
|
|
74,469 |
|
|
201,788 |
|
|
155,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
(109,720) |
|
|
(73,898) |
|
|
(201,112) |
|
|
(155,175) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
1,985 |
|
|
220 |
|
|
2,803 |
|
|
545 |
|
|
|
|
|
|
|
Interest expense |
|
(3,157) |
|
|
(6) |
|
|
(5,631) |
|
|
(13) |
|
|
|
|
|
|
|
Change in fair value of warrants |
|
— |
|
|
(20,363) |
|
|
— |
|
|
(69,082) |
|
|
|
|
|
|
|
Other income, net |
|
194 |
|
|
13 |
|
|
210 |
|
|
40 |
|
|
|
|
|
|
|
Loss before income taxes |
|
(110,698) |
|
|
(94,034) |
|
|
(203,730) |
|
|
(223,685) |
|
|
|
|
|
|
|
Income tax expense |
|
(23) |
|
|
(6) |
|
|
(48) |
|
|
(49) |
|
|
|
|
|
|
|
Net loss |
|
(110,721) |
|
|
(94,040) |
|
|
(203,778) |
|
|
(223,734) |
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
(108) |
|
|
(19) |
|
|
(133) |
|
|
8 |
|
|
|
|
|
|
|
Unrealized loss on marketable securities |
|
(1,862) |
|
|
— |
|
|
(7,642) |
|
|
— |
|
|
|
|
|
|
|
Total comprehensive loss |
|
$ |
(112,691) |
|
|
$ |
(94,059) |
|
|
$ |
(211,553) |
|
|
$ |
(223,726) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.43) |
|
|
$ |
(0.39) |
|
|
$ |
(0.79) |
|
|
$ |
(0.94) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
258,589,270 |
|
|
240,733,497 |
|
|
258,439,051 |
|
|
238,774,515 |
|
|
|
|
|
|
|
See accompanying
notes
to condensed consolidated financial statements.
VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Equity
(In thousands except for per unit and share data)
(Unaudited)
(For the period ended June 30, 2021)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
# of Shares |
|
Par Value |
|
# of Shares |
|
Par Value |
|
Additional Paid-In Capital |
|
Accumulated Deficit |
|
Accumulated
Other Comprehensive
Income (Loss) |
|
Total |
Balance as of December 31, 2020 |
|
— |
|
|
$ |
— |
|
|
236,123,659 |
|
|
$ |
23 |
|
|
$ |
1,297,794 |
|
|
$ |
(770,744) |
|
|
$ |
5 |
|
|
$ |
527,078 |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(129,694) |
|
|
— |
|
|
(129,694) |
|
Other comprehensive income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
26 |
|
|
26 |
|
Stock-based compensation |
|
— |
|
|
— |
|
|
|
|
— |
|
|
22,111 |
|
|
— |
|
|
— |
|
|
22,111 |
|
Issuance of common stock pursuant to stock-based compensation, net
of withholding taxes |
|
— |
|
|
— |
|
|
1,150,771 |
|
|
— |
|
|
323 |
|
|
— |
|
|
— |
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2021 |
|
— |
|
|
— |
|
|
237,274,430 |
|
|
23 |
|
|
1,320,228 |
|
|
(900,438) |
|
|
31 |
|
|
419,844 |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(94,040) |
|
|
— |
|
|
(94,040) |
|
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(20) |
|
|
(20) |
|
Stock-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
14,423 |
|
|
— |
|
|
— |
|
|
14,423 |
|
Issuance of common stock pursuant to stock-based compensation, net
of withholding taxes |
|
— |
|
|
— |
|
|
275,283 |
|
|
— |
|
|
840 |
|
|
— |
|
|
— |
|
|
840 |
|
Common stock issued related to warrants exercised |
|
— |
|
|
— |
|
|
3,387,827 |
|
|
— |
|
|
104,176 |
|
|
— |
|
|
— |
|
|
104,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2021 |
|
— |
|
|
$ |
— |
|
|
240,937,540 |
|
|
$ |
23 |
|
|
$ |
1,439,667 |
|
|
$ |
(994,478) |
|
|
$ |
11 |
|
|
$ |
445,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes
to condensed consolidated financial statements.
VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Equity
(In thousands except for per unit and share data)
(Unaudited)
(For the period ended June 30, 2022)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
# of Shares |
|
Par Value |
|
# of Shares |
|
Par Value |
|
Additional Paid-In Capital |
|
Accumulated Deficit |
|
Accumulated
Other Comprehensive
Loss |
|
Total |
Balance as of December 31, 2021 |
|
— |
|
|
$ |
— |
|
|
258,166,417 |
|
|
$ |
26 |
|
|
$ |
2,019,750 |
|
|
$ |
(1,123,643) |
|
|
$ |
(1,869) |
|
|
$ |
894,264 |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
(93,057) |
|
|
— |
|
|
(93,057) |
|
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(5,805) |
|
|
(5,805) |
|
Stock-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
10,895 |
|
|
— |
|
|
— |
|
|
10,895 |
|
Issuance of common stock pursuant to stock-based compensation, net
of withholding taxes |
|
— |
|
|
— |
|
|
307,471 |
|
|
— |
|
|
(1,882) |
|
|
— |
|
|
— |
|
|
(1,882) |
|
Purchase of capped calls |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(52,318) |
|
|
— |
|
|
— |
|
|
(52,318) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2022 |
|
— |
|
|
— |
|
|
258,473,888 |
|
|
26 |
|
|
1,976,445 |
|
|
(1,216,700) |
|
|
(7,674) |
|
|
752,097 |
|
Net loss |
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
|
(110,721) |
|
|
|
|
(110,721) |
|
Other comprehensive loss |
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
(1,970) |
|
|
(1,970) |
|
Stock-based compensation |
|
— |
|
|
— |
|
|
|
|
— |
|
|
12,083 |
|
|
— |
|
|
|
|
12,083 |
|
Issuance of common stock pursuant to stock-based compensation, net
of withholding taxes |
|
— |
|
|
— |
|
|
216,758 |
|
|
— |
|
|
(914) |
|
|
— |
|
|
|
|
(914) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2022 |
|
— |
|
|
$ |
— |
|
|
258,690,646 |
|
|
$ |
26 |
|
|
$ |
1,987,614 |
|
|
$ |
(1,327,421) |
|
|
$ |
(9,644) |
|
|
$ |
650,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes
to condensed consolidated financial statements.
VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
2022 |
|
2021 |
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
$ |
(203,778) |
|
|
$ |
(223,734) |
|
|
|
Stock-based compensation |
|
|
|
|
22,978 |
|
|
36,535 |
|
|
|
Depreciation and amortization |
|
|
|
|
5,767 |
|
|
5,740 |
|
|
|
Amortization of debt issuance costs |
|
|
|
|
841 |
|
|
— |
|
|
|
Change in fair value of warrants |
|
|
|
|
— |
|
|
69,082 |
|
|
|
Other operating activities, net |
|
|
|
|
241 |
|
|
(17) |
|
|
|
Change in assets and liabilities |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
(4,136) |
|
|
518 |
|
|
|
Other current and non-current assets |
|
|
|
|
1,410 |
|
|
319 |
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
10,109 |
|
|
(751) |
|
|
|
Customer deposits |
|
|
|
|
13,733 |
|
|
(1,252) |
|
|
|
Other current and non-current liabilities |
|
|
|
|
(125) |
|
|
88 |
|
|
|
Net cash used in operating activities |
|
|
|
|
(152,960) |
|
|
(113,472) |
|
|
|
Cash flows from investing activity |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
(6,293) |
|
|
(1,647) |
|
|
|
Purchases of marketable securities |
|
|
|
|
(379,254) |
|
|
— |
|
|
|
Cash used in investing activity |
|
|
|
|
(385,547) |
|
|
(1,647) |
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Payments of lease obligations |
|
|
|
|
(66) |
|
|
(69) |
|
|
|
Proceeds from convertible senior notes |
|
|
|
|
425,000 |
|
|
— |
|
|
|
Debt issuance costs |
|
|
|
|
(11,278) |
|
|
— |
|
|
|
Capped call premium |
|
|
|
|
(52,318) |
|
|
— |
|
|
|
Proceeds from issuance of common stock pursuant to stock options
exercised |
|
|
|
|
49 |
|
|
12,965 |
|
|
|
Transaction costs |
|
|
|
|
— |
|
|
(274) |
|
|
|
Withholding taxes paid on behalf of employees on net settled
stock-based awards |
|
|
|
|
(2,846) |
|
|
(11,803) |
|
|
|
Net cash provided by financing activities |
|
|
|
|
358,541 |
|
|
819 |
|
|
|
Net decrease in cash and cash equivalents |
|
|
|
|
(179,966) |
|
|
(114,300) |
|
|
|
Cash, cash equivalents and restricted cash at beginning of
year |
|
|
|
|
550,030 |
|
|
678,955 |
|
|
|
Cash, cash equivalents and restricted cash ending
balances |
|
|
|
|
$ |
370,064 |
|
|
$ |
564,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
$ |
329,857 |
|
|
$ |
551,624 |
|
|
|
Restricted cash |
|
|
|
|
40,207 |
|
|
13,031 |
|
|
|
Cash, cash equivalents and restricted cash |
|
|
|
|
$ |
370,064 |
|
|
$ |
564,655 |
|
|
|
See accompanying
notes
to condensed consolidated financial statements.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Organization and its wholly owned subsidiaries ("VGH,
Inc.")
Virgin Galactic Holdings, Inc. and its wholly owned subsidiaries
("VGH, Inc."), in this report as "we," "us," "our," the "Company"
and similar terms, are focused on the development, manufacture and
operations of spaceships and related technologies for the purpose
of conducting commercial human spaceflight and flying commercial
research and development payloads into space. The development and
manufacturing activities are located in Tustin, California and
Mojave, California, with plans to operate the commercial
spaceflights out of Spaceport America located in New
Mexico.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
These condensed consolidated financial statements are prepared in
accordance with U.S. generally accepted accounting principles
(“GAAP”) and pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission ("SEC"). All intercompany
transactions and balances between the various legal entities
comprising the Company have been eliminated in
consolidation.
Certain reclassifications of the components of operating loss for
the three and six month period ended June 30, 2021 have been made
to the comparable prior period in the condensed consolidated
statements of operations and comprehensive loss to conform to the
same current period presentations. Specifically, cost of revenue
has been reclassified to customer experience, and gross margin is
no longer presented. Customer experience expenses related to
spaceflight operations include the consumption of a rocket motor
and fuel and other consumables, as well as payroll and benefits for
our pilots and ground crew. Customer experience expenses related to
the payload cargo services, as well as engineering services,
consist of materials and human capital, such as payroll and
benefits, to perform these services. Additionally, customer
experience expenses include costs associated with maintaining and
growing our Future Astronaut community, as well as hospitality,
medical, safety, security, training, and facility costs that are
for the benefit of our astronauts. Additionally, depreciation and
amortization expense are presented separately instead of included
in selling, general, and administrative or research and development
expenses. These reclassifications had no impact on total loss as
previously reported.
(b) Use of Estimates
The preparation of the consolidated financial statements in
conformity with GAAP required us to make estimates and assumptions
that affect the amounts reported in the consolidated financial
statements and accompanying notes. We base these estimates on
historical experience and on various other assumptions that we
believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying
amounts of assets and liabilities that are not readily apparent
from other sources. Actual results may differ materially from these
estimates. Significant estimates inherent in the preparation of the
consolidated financial statements include, but are not limited to,
accounting for revenue, contract assets, contract liabilities,
useful lives of property, plant and equipment, fair value of
investments, accrued liabilities, income taxes including deferred
tax assets and liabilities and impairment valuation, warrants,
stock-based awards and contingencies.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(c) Convertible Senior Notes
On January 1, 2022, the Company adopted ASU 2020-06,
Accounting for Convertible Instruments and Contracts in an Entity's
Own Equity,
which removes from GAAP the liability and equity separation model
for convertible instruments with either cash or beneficial
conversion features. As a result, convertible debt instruments
would only be separated into multiple components if they were
issued at a substantial premium or if embedded derivatives
requiring bifurcation were identified. The convertible senior notes
(the "2027 Notes") were not issued at a substantial premium, and
the Company analyzed the provisions of the notes and did not
identify any material embedded features which would require
bifurcation from the host debt. As such, the notes are accounted
for entirely as a liability net of unamortized issuance costs. The
carrying amount of the liability is classified as long-term as the
instrument does not mature within one year of the balance sheet
date and the holder is not permitted to demand repayment of the
principal within one year of the balance sheet date. However, if
conditions to convertibility are met as described further in
Note 11,
the Company may be required to reclassify the carrying amount of
the liability to current. The embedded conversion features are not
remeasured as long as they do not meet the separation requirement
of a derivative. Issuance costs are amortized on a straight-line
basis, which approximates the effective interest rate method, to
interest expense over the term of the notes. Additionally, ASU
2020-06 requires the application of the if-converted method to
calculate the impact of convertible instruments on diluted earnings
per share, however there was no impact during the current quarter
as the convertible instruments were anti-dilutive.
(d) Capped Call Transactions
In connection with the pricing of our 2027 Notes, the Company
entered into capped call transactions with respect to its common
stock (the "2027 Capped Calls"). The 2027 Capped Calls are
purchased call options that give the Company the option to
purchase, subject to anti-dilution adjustments substantially
identical to those in the 2027 Notes. The Company's capped call
transactions are accounted for as separate transactions from the
2027 Notes and are classified as equity instruments as a reduction
to additional paid-in capital in the condensed consolidated balance
sheets. The instruments are initially recorded at fair value and
not subsequently remeasured so long as they continue to qualify for
equity classification. The capped call transactions have the effect
of reducing the number of shares outstanding if exercised.
Therefore, the capped call transactions are anti-dilutive and not
included in the calculation of diluted shares outstanding for the
purposes of diluted net loss per share. See
Note 11
in our condensed consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-Q for additional
information on the 2027 Capped Calls.
(e) Other Summary of Significant Accounting
Policies
There have been no other significant changes from the significant
accounting policies disclosed in Note 2 of the “Notes to
Consolidated Financial Statements” included in the Company's Annual
Report on Form 10-K.
The interim financial information is unaudited, but reflects all
normal recurring adjustments that are, in the opinion of
management, necessary to fairly present the information set forth
herein. The interim consolidated financial statements should be
read in conjunction with the audited consolidated financial
statements and related notes included in the Company’s Annual
Report on Form 10-K. Interim results are not necessarily indicative
of the results for a full year.
(3) Recent Accounting
Pronouncements
Changes to GAAP are established by the Financial Accounting
Standards Board (“FASB”) in the form of Accounting Standards
Updates (“ASU”). See
Note
2
in our condensed consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-Q for additional
information on recently adopted accounting
pronouncements.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(4) Related Party Transactions
The Company licenses its brand name from certain entities
affiliated with Virgin Enterprises Limited (“VEL”), a company
incorporated in England. VEL is an affiliate of the Company. Under
the trademark license, the Company has the exclusive right to
operate under the brand name “Virgin Galactic” worldwide. Royalty
payables, excluding sponsorship royalties, for the use of license
are the greater of 1% of revenue or $40,000 per quarter, prior to
the commercial launch date. Sponsorship royalties payable are 25%
of sponsorship revenue. We paid license and royalty fees of $40,000
for each of the three months ended June 30, 2022 and 2021. We
paid license and royalty fees of $80,000 for each of the six months
ended June 30, 2022 and 2021.
The Company has a Transition Services Agreement ("TSA") with Virgin
Orbit, LLC ("VO") based on an allocation methodology that considers
our headcount, unless directly attributable to the business. The
Company is allocated operating expense from VO Holdings, Inc. and
its subsidiaries (“VOH”), a majority owned company of Galactic
Ventures, LLC ("GV"), a wholly-owned subsidiary of Vieco 10, was
the direct parent of the Virgin Galactic Companies. for
operations-related functions based on an allocation methodology
that considers our headcount, unless directly attributable to the
business. Operating expense allocations include use of machinery
and equipment, pilot services, and other general administrative
expenses. We were allocated $34,000 and $31,000 operating expenses,
net, from VOH for the three months ended June 30, 2022 and
2021, respectively. We were allocated $34,000 and $71,000 of
operating expenses, net from VOH for the six months ended
June 30, 2022 and 2021, respectively. The Company has a
receivable from VOH of $47,000 and $43,000 as of June 30, 2022
and December 31, 2021, respectively.
(5) Cash,
Restricted Cash, Cash Equivalents and Marketable
Securities
The amortized cost, unrealized loss and estimated fair value of the
Company's cash equivalents and marketable securities as of
June 30, 2022 and December 31, 2021 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2022 |
|
Amortized Cost |
|
Gross Unrealized Losses |
|
Fair Value |
|
(In thousands) |
Cash, restricted cash and cash equivalents |
|
|
|
|
|
Cash and restricted cash |
$ |
71,797 |
|
|
$ |
— |
|
|
$ |
71,797 |
|
Money market |
206,870 |
|
|
— |
|
|
206,870 |
|
Certificate of deposits |
91,397 |
|
|
— |
|
|
91,397 |
|
Marketable securities |
|
|
|
|
|
US treasuries |
209,596 |
|
|
(345) |
|
|
209,251 |
|
Corporate debt securities |
552,541 |
|
|
(9,299) |
|
|
543,242 |
|
Total cash, cash equivalents and marketable securities |
$ |
1,132,201 |
|
|
$ |
(9,644) |
|
|
$ |
1,122,557 |
|
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021 |
|
Amortized Cost |
|
Gross Unrealized Losses |
|
Fair Value |
|
(In thousands) |
Cash, restricted cash and cash equivalents |
|
|
|
|
|
Cash and restricted cash |
$ |
55,592 |
|
|
$ |
— |
|
|
$ |
55,592 |
|
Money market |
402,889 |
|
|
— |
|
|
402,889 |
|
Certificate of deposits |
91,549 |
|
|
— |
|
|
91,549 |
|
Marketable securities |
|
|
|
|
|
Corporate debt securities |
382,884 |
|
|
(2,003) |
|
|
380,881 |
|
Total cash, cash equivalents and marketable securities |
$ |
932,914 |
|
|
$ |
(2,003) |
|
|
$ |
930,911 |
|
The Company included $3.6 million and $2.3 million of interest
receivable in prepaid expenses and other current assets as of
June 30, 2022 and December 31, 2021,
respectively.
The Company recognized $1.8 million in amortization and accretion
of purchase premiums and discounts on our marketable securities
within interest income, net for the three months ended June 30,
2022. The Company did not recognize any amortization expense for
the three months ended June 30, 2021. The Company recognized $4.0
million in amortization expense for marketable securities within
interest income, net for the six months ended June 30, 2022. The
Company did not recognize any amortization expense for the six
months ended June 30, 2021.
We record gross realized gains and losses as a component of other
income, net in the consolidated statements of operations. For the
three months ended June 30, 2022 and June 2021, the Company did not
recognize any material gross realized gains and losses. For the six
months ended June 30, 2022, the Company recognized
$0.1 million loss in other income, net. For the six months
ended June 30, 2021, the Company did not recognize any material
gross realized gains and losses.
The following table presents the contractual maturities of the
Company's marketable securities as of June 30,
2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2022 |
|
|
Amortized Cost |
|
Estimated Fair Value |
|
|
(In thousands) |
Matures within one year |
|
$ |
592,992 |
|
|
$ |
587,716 |
|
Matures between one to two years |
|
169,145 |
|
|
164,776 |
|
Total |
|
$ |
762,137 |
|
|
$ |
752,492 |
|
(6) Inventory
As of June 30, 2022 and December 31, 2021, inventory is
comprised of the following:
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
June 30, 2022 |
|
December 31, 2021 |
|
|
(Unaudited) |
|
|
|
|
(In thousands) |
Raw materials |
|
$ |
24,651 |
|
|
$ |
21,127 |
|
Spare parts |
|
9,153 |
|
|
8,541 |
|
Total inventory |
|
$ |
33,804 |
|
|
$ |
29,668 |
|
For the three months and six months ended June 30, 2022 and
2021, we did not have any material write-offs of inventory due to
excess and obsolescence.
(7) Property, Plant, and Equipment,
net
As of June 30, 2022 and December 31, 2021, property,
plant, and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
June 30, 2022 |
|
December 31, 2021 |
|
|
(Unaudited) |
|
|
|
(In thousands) |
Land |
|
$ |
401 |
|
|
$ |
— |
|
Buildings |
|
9,117 |
|
|
9,117 |
|
Leasehold improvements |
|
29,306 |
|
|
29,155 |
|
Aircraft |
|
195 |
|
|
195 |
|
Machinery and equipment |
|
39,718 |
|
|
37,002 |
|
IT software and equipment |
|
26,719 |
|
|
23,523 |
|
Construction in progress |
|
3,816 |
|
|
2,901 |
|
|
|
109,272 |
|
|
101,893 |
|
Less accumulated depreciation and amortization
|
|
(60,089) |
|
|
(54,395) |
|
Property, plant, and equipment, net
|
|
$ |
49,183 |
|
|
$ |
47,498 |
|
The following table sets forth the summary of depreciation and
amortization expense for property, plant and equipment,
net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Customer experience |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Selling, general, and administrative |
|
|
1,667 |
|
|
1,284 |
|
|
3,266 |
|
|
2,558 |
|
Research and development |
|
|
1,248 |
|
|
1,587 |
|
|
2,502 |
|
|
3,182 |
|
|
|
|
$ |
2,915 |
|
|
$ |
2,871 |
|
|
$ |
5,767 |
|
|
$ |
5,740 |
|
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(8) Leases
The Company's leases are more fully described in Note 8 of the
"Notes to Consolidated Financial Statements" to its Annual Report
on Form 10-K.
The components of lease expense related to leases for the periods
presented below are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, |
|
|
2022 |
|
2021 |
|
|
(Unaudited and in thousands) |
Lease Cost: |
|
|
|
|
Operating lease expense |
|
$ |
2,092 |
|
|
$ |
1,254 |
|
Short-term lease expense |
|
— |
|
|
8 |
|
|
|
|
|
|
Finance Lease Cost: |
|
|
|
|
Amortization of right-of-use assets
|
|
29 |
|
|
35 |
|
Interest on lease liabilities |
|
4 |
|
|
7 |
|
Total finance lease cost |
|
33 |
|
|
42 |
|
|
|
|
|
|
Variable lease cost |
|
2,106 |
|
|
1,372 |
|
Total lease cost |
|
$ |
4,231 |
|
|
$ |
2,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, |
|
|
2022 |
|
2021 |
|
|
(Unaudited and in thousands) |
Lease Cost: |
|
|
|
|
Operating lease expense |
|
$ |
4,069 |
|
|
$ |
2,514 |
|
Short-term lease expense |
|
— |
|
|
20 |
|
|
|
|
|
|
Finance Lease Cost: |
|
|
|
|
Amortization of right-of-use assets
|
|
58 |
|
|
69 |
|
Interest on lease liabilities |
|
9 |
|
|
14 |
|
Total finance lease cost |
|
67 |
|
|
83 |
|
|
|
|
|
|
Variable lease cost |
|
3,316 |
|
|
2,710 |
|
Total lease cost |
|
$ |
7,452 |
|
|
$ |
5,327 |
|
The components of supplemental cash flow information related to
leases for the period are as follows:
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
|
|
(In thousands, except term and rate data) |
Cash flow information: |
|
|
|
|
Operating cash flows for operating leases |
|
$ |
5,087 |
|
|
$ |
2,712 |
|
Operating cash flows for finance leases |
|
$ |
9 |
|
|
$ |
14 |
|
Financing cash flows for finance leases
|
|
$ |
66 |
|
|
$ |
69 |
|
|
|
|
|
|
Non-cash activity: |
|
|
|
|
Right-of-use assets obtained in exchange for lease
obligations |
|
|
|
|
Operating leases |
|
$ |
4,924 |
|
|
$ |
501 |
|
Finance Leases |
|
$ |
— |
|
|
$ |
19 |
|
|
|
|
|
|
Other Information: |
|
|
|
|
Weighted average remaining lease term: |
|
|
|
|
Operating leases (in years) |
|
11.18 |
|
12.37 |
Finance leases (in years) |
|
1.71 |
|
2.49 |
|
|
|
|
|
Weighted average discount rates: |
|
|
|
|
Operating leases |
|
11.68 |
% |
|
11.65 |
% |
Finance leases |
|
8.12 |
% |
|
8.26 |
% |
The supplemental balance sheet information related to leases for
the period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
June 30, 2022 |
|
December 31, 2021 |
|
|
(Unaudited) |
|
|
|
|
(In thousands) |
Operating leases |
|
|
|
|
Long-term right-of-use assets |
|
$ |
38,776 |
|
|
$ |
35,486 |
|
|
|
|
|
|
Short-term operating lease
liabilities |
|
$ |
2,384 |
|
|
$ |
2,204 |
|
Long-term operating lease
liabilities |
|
43,509 |
|
|
39,965 |
|
Total operating lease liabilities |
|
$ |
45,893 |
|
|
$ |
42,169 |
|
Commitments
The Company has certain non-cancelable operating leases primarily
for its premises. These leases generally contain renewal options
for periods ranging from 3 to 20 years and require the Company to
pay all executory costs, such as maintenance and insurance. Certain
lease arrangements have rent free periods or escalating payment
provisions, and we recognize rent expense of such arrangements on a
straight line basis.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Future minimum lease payments under non-cancelable operating leases
(with initial or remaining lease terms in excess of one year) and
future minimum finance lease payments as of June 30, 2022 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
Finance Leases |
|
(In thousands) |
2022 (for the remaining period) |
|
$ |
3,580 |
|
|
$ |
62 |
|
2023 |
|
7,079 |
|
|
106 |
|
2024 |
|
7,357 |
|
|
30 |
|
2025 |
|
7,282 |
|
|
— |
|
2026 |
|
7,386 |
|
|
— |
|
Thereafter |
|
52,274 |
|
|
— |
|
Total lease payments |
|
$ |
84,958 |
|
|
$ |
198 |
|
Less: |
|
|
|
|
Imputed interest/present value discount |
|
$ |
(39,065) |
|
|
$ |
(13) |
|
Present value of lease liabilities |
|
$ |
45,893 |
|
|
$ |
185 |
|
(9) Accrued Expenses
A summary of the components of accrued liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
June 30, 2022 |
|
December 31, 2021 |
|
|
(Unaudited) |
|
|
|
|
(In thousands) |
Accrued payroll |
|
$ |
3,447 |
|
|
$ |
4,214 |
|
Accrued vacation |
|
6,218 |
|
|
5,372 |
|
Accrued bonus |
|
10,433 |
|
|
12,218 |
|
Accrued interest expense |
|
4,781 |
|
|
— |
|
Other accrued expenses |
|
11,828 |
|
|
6,983 |
|
Total accrued expenses |
|
$ |
36,707 |
|
|
$ |
28,787 |
|
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(10) Commercial Loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
June 30, 2022 |
|
December 31, 2021 |
|
|
(Unaudited) |
|
|
|
|
(In thousands) |
Commercial loan |
|
$ |
310 |
|
|
$ |
310 |
|
Less: Current portion |
|
(310) |
|
|
(310) |
|
Non-current portion |
|
$ |
— |
|
|
$ |
— |
|
On June 18, 2020, we financed the purchase of software licenses
through a loan totaling approximately $0.9 million. The loan
amortized in three equal annual installments of approximately $0.3
million with the final payment due on October 1, 2022 with 0%
interest rate. The loan is secured by a standby letter of credit
issued from our financial institution and restricted cash has been
recorded for the corresponding outstanding balance. The outstanding
balance is recorded in other current-liabilities on the condensed
consolidated balance sheets.
The imputed interest of this loan was immaterial.
(11) Convertible Senior Notes
2027 Convertible Senior Notes
On January 19, 2022, the Company completed an offering of
$425 million aggregate principal amount of the 2027 Notes. The
2027 Notes are senior, unsecured obligations of the Company, and
bear interest at a fixed rate of 2.50% per year. Interest is
payable in cash semi-annually in arrears on February 1 and August 1
of each year, beginning on August 1, 2022. The 2027 Notes mature on
February 1, 2027 unless earlier repurchased, redeemed or
converted.
The terms of the 2027 Notes are governed by an Indenture by and
between the Company and U.S. Bank National Associations, as Trustee
(the "2027 Indenture"). Upon conversion by the noteholders, the
2027 Notes may be settled in cash, shares of the Company's common
stock or a combination of cash and shares of common stock, par
value $0.0001 per share (the “common stock”), at our election,
based on the conversion rate.
The 2027 Notes are convertible at an initial conversion rate of
78.1968 shares of common stock per $1,000 principal amount of the
2027 Notes, which is equal to an initial conversion price of
approximately $12.79 per share of common stock, subject to
adjustment upon the occurrence of certain events. Noteholders will
have the right to convert their notes during any calendar quarter
(and only during such calendar quarter) commencing after the
calendar quarter ending on June 30, 2022, under the following
circumstances:
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
•during
any calendar quarter after June 30, 2022 (and only during such
calendar quarter) if the last reported sale price of the Company's
common stock for each of at least 20 trading days in a period of 30
consecutive trading days ending on and including the last trading
day of the preceding calendar quarter is more than 130% of the then
applicable conversion price for the Notes per share of common
stock;
•during
the five consecutive business days immediately after any ten
consecutive trading day period in which the trading price per
$1,000 principal amount of 2027 Notes for each day of that period
was less than 98% of the product of the last reported sale price of
our common stock and the then applicable conversion
rate;
•the
Company calls any or all of the 2027 Notes for redemption, holders
may convert all or any portion of their notes at any time prior to
the close of business on the scheduled trading day prior to the
redemption date, even if the 2027 Notes are not otherwise
convertible at such time; or
•specified
distributions to holders of our common stock are made or specified
corporate events occur, as described in the 2027
Indenture.
On and after November 1, 2026, noteholders will have the right to
convert their notes at any time at their election until the close
of business on the second scheduled trading day immediately before
the maturity date. The Company will have the right to elect to
settle conversions in cash, in shares of its common stock or in a
combination of cash and shares of its common stock. During the
three and six months ended June 30, 2022, the conditions
allowing holders of the 2027 Notes to convert were not met, and as
a result, the 2027 Notes were classified as noncurrent liabilities
as of June 30, 2022.
The 2027 Notes will be redeemable, in whole or in part (subject to
certain limitations), for cash at the Company's option at any time,
and from time to time, on or after February 6, 2025 and on or
before the 20th scheduled trading day immediately before the
maturity date, but only if the last reported sale price per share
of the Company's common stock exceeds 130% of the conversion price
for a specified period of time and certain liquidity conditions
have been satisfied. The redemption price will be equal to the
principal amount of the notes to be redeemed, plus accrued and
unpaid interest, if any, to, but excluding, the redemption date.
During the three and six months ended June 30, 2022, the
Company did not redeem any of the 2027 Notes.
Holders of the 2027 Notes who convert their 2027 Notes in
connection with certain corporate events that constitute a
make-whole fundamental change (as defined in the 2027 Indenture) or
in connection with the Company's issuance of a redemption notice
are, under certain circumstances, entitled to an increase in the
conversion rate. Additionally, in the event of a corporate event
that constitutes a fundamental change (as defined in the 2027
Indenture), holders of the 2027 Notes may require the Company to
repurchase all or a portion of their 2027 Notes at a price equal to
the principal amount of the 2027 Notes being repurchased, plus any
accrued and unpaid interest, if any, to, but excluding, the
applicable repurchase date.
The 2027 Notes, net consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2022 |
|
|
|
|
|
(Unaudited) |
|
|
|
Principal |
|
$ |
425,000 |
|
|
|
|
Less: unamortized debt issuance
costs |
|
(10,437) |
|
|
|
|
Net carrying amount |
|
$ |
414,563 |
|
|
|
|
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of June 30, 2022, we recorded $4.8 million of accrued
interest expense on our 2027 Notes within accrued expenses. For the
three months ended June 30, 2022, we recognized $3.2 million
of total interest expense on our 2027 Notes, including $0.4 million
of amortized debt issuance costs. For the six months ended
June 30, 2022, we recognized $5.6 million of total interest
expense on our 2027 Notes, including $0.8 million of amortized debt
issuance cost.
Capped Call Transactions
In connection with the pricing of the 2027 Notes, the Company
entered into capped call transactions with respect to its common
stock. The 2027 Capped Calls are purchased call options that give
the Company the option to purchase, subject to anti-dilution
adjustments substantially identical to those in the 2027 Notes,
approximately 33 million shares of its common stock for
approximately $12.79 per share (subject to adjustment),
corresponding to the approximate initial conversion price of the
2027 Notes, exercisable upon conversion of the 2027 Notes. The 2027
Capped Calls have initial cap prices of $20.06 per share (subject
to adjustment), which represents a premium of 100% over the closing
price of the Company's common stock on January 13, 2022, and will
expire in 2027, if not exercised earlier. The 2027 Capped Calls are
intended to reduce potential dilution to the Company's common stock
upon any conversion of the 2027 Notes and/or offset the potential
cash payments that the Company could be required to make in excess
of the principal amount upon any conversion of the 2027 Notes, as
the case may be, with such reduction and/or offset subject to a
cap, based on the cap price of the 2027 Capped Call transactions.
The 2027 Capped Calls are separate transactions, each between the
Company and the applicable option counterparty, and are not part of
the terms of the 2027 Notes and will not affect any holder's rights
under the 2027 Notes or the 2027 Indenture. Holders of the 2027
Notes will not have any rights with respect to the 2027 Capped Call
transactions.
The Company paid an aggregate amount of $52.3 million for the
2027 Capped Calls. As these transactions meet certain accounting
criteria, the amount paid for the 2027 Capped Calls was recorded as
a reduction to additional paid-in capital in the condensed
consolidated balance sheets. The fair value of the 2027 Capped
Calls is not remeasured each reporting period so long as they
continue to qualify for equity classification, which they did for
the current period.
(12) Income Taxes
Income tax expense was $23,000 and $6,000 for the three months
ended June 30, 2022 and 2021, respectively. Income tax expense
was $48,000 and $49,000 for the six months ended June 30, 2022
and 2021, respectively. The effective income tax rate was nil for
three months ended June 30, 2022 and 2021. The effective
income tax rate was nil for six months ended June 30, 2022 and
2021. Our effective tax rate differs from the U.S. statutory rate
primarily due to a substantially full valuation allowance against
our net deferred tax assets where it is more likely than not that
some or all of the deferred tax assets will not be
realized.
(13) Stockholders' Equity
There have been no significant changes from the Stockholders'
Equity disclosed in Note 12 of the “Stockholders Equity” included
in our Annual Report on Form 10-K.
Stockholders' Agreement
In connection with the closing of the Virgin Galactic business
combination in October 2019 (the "Business Combination"), the
Company entered into a stockholders’ agreement with certain of the
Company’s investors. Pursuant to the terms of the Stockholders’
Agreement, as long as Virgin Investments Limited ("VIL") is
entitled to designate two directors to the Company’s Board of
Directors, the Company must obtain VIL’s prior written consent to
engage in certain corporate transactions and management functions
such as business combinations, disposals, acquisitions, incurring
indebtedness, and engagement of professional advisors, among
others.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Warrants and Warrant Redemption
Public and private placement warrants were initially issued as part
of Social Capital Hedosophia Holdings Corp.'s ("SCH") initial
public offering in 2017 and assumed upon the consumption of the
Business Combination. As of June 30, 2022, and December 31,
2021, there were no public or private placement warrants
outstanding.
The Company remeasured the fair value of the Warrants at each
reporting date with changes recorded in earnings. In connection
with the Company's remeasurement of the Warrants to fair value, the
Company recorded expense of approximately $20.4 million for the
three months ended June 30, 2021 and $69.1 million for the six
months ended June 30, 2021.
At The Market Offering
On July 12, 2021, the Company entered into a distribution agency
agreement with Credit Suisse Securities (USA) LLC, Morgan Stanley
& Co. LLC and Goldman Sachs & Co. LLC (each, an “Agent” and
collectively, the “Agents”) providing for the offer and sale of up
to $500.0 million of shares of the Company’s common stock, par
value $0.0001 per share, through an "at the market offering"
program ("ATM"), from time to time by the Company through the
Agents, acting as the Company’s sales agents, or directly to one or
more of the Agents, acting as principal.
On July 16, 2021, we completed the ATM, generating
$500.0 million in gross proceeds, before deducting
$6.2 million in underwriting discounts and commissions, and
other expenses payable by the Company, through the sale of
13,740,433 shares of common stock.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(14) Net Loss Per Share
The following table presents net loss per share and related
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except for share and per share data) |
Basic and diluted: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(110,721) |
|
|
$ |
(94,040) |
|
|
$ |
(203,778) |
|
|
$ |
(223,734) |
|
Weighted average shares of common
stock outstanding |
|
258,589,270 |
|
|
240,733,497 |
|
|
258,439,051 |
|
|
238,774,515 |
|
Basic and diluted net loss per
share |
|
$ |
(0.43) |
|
|
$ |
(0.39) |
|
|
$ |
(0.79) |
|
|
$ |
(0.94) |
|
Basic and diluted loss per share is computed using the
weighted-average number of common shares of common stock
outstanding during the period. Basic net loss per share is the same
as diluted net loss per share as the inclusion of all potential
common shares outstanding would have been anti-dilutive.
Potentially dilutive securities that were not included in the
diluted per share calculation because they would be anti-dilutive
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding stock options |
|
4,156 |
|
|
5,194 |
|
|
|
|
|
Issued and outstanding performance stock options |
|
406 |
|
|
— |
|
|
|
|
|
Unvested restricted stock units issued and outstanding |
|
4,488 |
|
|
4,018 |
|
|
|
|
|
Unvested performance stock units issued and outstanding |
|
367 |
|
|
85 |
|
|
|
|
|
Shares related to the 2027 Notes
(1)
|
|
33,234 |
|
|
— |
|
|
|
|
|
Warrants to purchase shares of common stock |
|
— |
|
|
8,000 |
|
|
|
|
|
|
|
42,651 |
|
|
17,297 |
|
|
|
|
|
(1)
The Company uses the if-converted method for calculating any
potential dilutive effect of the conversion options embedded in the
2027 Notes on diluted net loss per share, if
applicable.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(15) Stock-Based Compensation
The Company's 2019 Incentive Award Plan ("2019 Plan") is more fully
described in Note 14 of the "Notes to Consolidated Financial
Statements" on Form 10-K. Under the 2019 Plan, the Company has the
ability to grant incentive stock options, non-qualified stock
options and restricted stock units ("RSUs") to employees, directors
and other service providers. Performance stock units ("PSUs") are
RSUs that vest based on achievement of specified performance
criteria. Performance stock options ("PSOs") are stock options that
vest based on achievement of specified performance
criteria.
Stock Options
Twenty five percent of such stock options cliff vest at the grant
date first anniversary, with the remaining options vesting ratably
over the following three years, subject to continued employment on
each vesting date. Vested options will be exercisable at any time
until ten years from the grant date, subject to earlier expiration
under certain terminations of service and other conditions. The
stock options granted have an exercise price equal to the closing
stock price of our common stock on the grant date.
In 2022, we issued stock options as incentive compensation for
certain key employees. The fair values of these stock options were
estimated using a Black-Scholes model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
2022 |
Expected life (in years)(1)
|
|
6.11 |
Expected volatility(2)
|
|
69.0 |
% |
Risk free interest rate(3)
|
|
2.19 |
% |
Dividend yield(4)
|
|
— |
% |
(1)
The expected life is the period of time that participants are
expected to hold their options before exercised using the
"simplified method" as described in Staff Accounting Bulletin No.
107.
(2)
The expected volatility is a measure of the amount by which a stock
price is expected to fluctuate based primarily on our and our
peers' historical data.
(3)
The risk-free interest rate for the periods within the contractual
term of the options is based on the U.S. Treasury yield curve in
effect at the time of the grant.
(4)
The Company does not currently pay dividends nor has announced
plans to begin paying dividends.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table sets forth the summary of options activity for
the six month ended June 30, 2022 under the 2019 Plan (dollars
in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Weighted Average Exercise Price |
|
Weighted Average Remaining Contractual Life (in years) |
|
Aggregate Intrinsic Value(1)
|
|
Weighted Average Grant Date Fair Value ($) |
|
Options outstanding at December 31, 2021 |
|
4,253,767 |
|
|
$ |
14.09 |
|
|
7.60 |
|
6,187 |
|
|
— |
|
|
Granted |
|
303,030 |
|
|
7.99 |
|
|
|
|
|
|
4.95 |
|
|
Exercised |
|
(4,182) |
|
|
11.79 |
|
|
|
|
|
|
|
|
Forfeited options |
|
(396,160) |
|
|
18.21 |
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2022 |
|
4,156,455 |
|
|
$ |
13.26 |
|
|
7.06 |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2022 |
|
2,182,805 |
|
|
$ |
12.99 |
|
|
6.67 |
|
— |
|
|
— |
|
|
(1)
Aggregate intrinsic value is calculated based on the difference
between our closing stock price at period end and the exercise
price, multiplied by the number of in-the-money options and
represents the pre-tax amount that would have been received by the
option holders, had they all exercised all their options on the
period end date.
Performance Stock Options
Compensation expense on the PSOs will be recognized over the period
between the grant date and the estimated vest date. The number of
PSOs that will vest depends on the attainment of certain stock
price goals. Vested options will be exercisable at any time until
ten years from the grant date, subject to earlier expiration under
certain terminations of service and other conditions. The stock
options granted have an exercise price equal to the closing stock
price of our common stock on the grant date.
In 2022, we issued PSOs as incentive compensation for certain key
employees. The fair values of these stock options were estimated
using a Monte-Carlo simulation with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
2022 |
Expected exercise behavior(1)
|
|
75.0 |
% |
Expected Volatility(2)
|
|
58.0 |
% |
Risk free interest rate(3)
|
|
2.19 |
% |
Dividend yield(4)
|
|
— |
% |
(1)
PSOs are expected to be exercised after 75% of the period between
the vest date and the end of the contractual term has
lapsed.
(2)
The expected volatility is a measure of the amount by which a stock
price is expected to fluctuate based primarily on our and our
peers' historical data.
(3)
The risk-free interest rate for the periods within the contractual
term of the options is based on the U.S. Treasury yield curve in
effect at the time of the grant.
(4)
The Company does not currently pay dividends nor has announced
plans to begin paying dividends.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table sets forth the summary of PSO activity under
the 2019 Plan (dollars in thousands except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Weighted Average Exercise Price |
|
Weighted Average Remaining Contractual Life (in years) |
|
Aggregate Intrinsic Value(1)
|
|
Weighted Average Grant Date Fair Value ($) |
|
PSOs outstanding at December 31, 2021 |
|
— |
|
|
$ |
— |
|
|
0.00 |
|
— |
|
|
|
|
Granted |
|
405,680 |
|
|
8.99 |
|
|
|
|
|
|
4.93 |
|
|
Exercised |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
Forfeited options |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
PSOs outstanding at June 30, 2022 |
|
405,680 |
|
|
$ |
8.99 |
|
|
9.71 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSOs exercisable at s June 30, 2022 |
|
— |
|
|
$ |
— |
|
|
0.00 |
|
— |
|
|
|
|
(1)
Aggregate intrinsic value is calculated based on the difference
between our closing stock price at period end and the exercise
price, multiplied by the number of in-the-money options and
represents the pre-tax amount that would have been received by the
option holders, had they all exercised all their options on the
period end date.
Restricted Stock Units
The RSUs vest over four years with 25% cliff vest at the first year
anniversary of the grant date, with the remaining vesting ratably
over the next three years.
The following table sets forth the summary of RSUs activity during
the six months ended June 30, 2022 under the 2019 Plan
(dollars in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Weighted Average Fair Value |
Outstanding at December 31, 2021 |
|
2,396,732 |
|
|
$ |
27.89 |
|
Granted |
|
3,215,868 |
|
|
8.75 |
|
Vested |
|
(846,876) |
|
|
21.36 |
|
Forfeited |
|
(278,134) |
|
|
18.59 |
|
Outstanding at June 30, 2022 |
|
4,487,590 |
|
|
$ |
21.91 |
|
Performance Stock Units
Between 25% and 200% of the PSUs are eligible to vest based on the
achievement of certain performance-based goals or market-based
goals by specified target dates, subject to continued service
through the applicable vesting date. PSUs with performance-based
goals are amortized over the requisite service period in which it
is probable that the performance goal is achieved. PSUs with
market-based goals will vest based on the Company's common stock
performance following the end of the three year performance
measurement period based on the highest closing price over twenty
consecutive trading days during the performance measurement period.
PSUs with market-based goals cannot vest before the end of the
performance measurement period, thus the requisite service period
is three years.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In 2022, we issued PSUs as incentive compensation for certain key
employees. The fair values of these stock units were estimated
using a Monte-Carlo simulation with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
2022 |
Expected volatility(1)
|
|
95.0 |
% |
Risk free interest rate(2)
|
|
2.13 |
% |
Dividend yield(3)
|
|
— |
% |
(1)
The expected volatility is a measure of the amount by which a stock
price is expected to fluctuate based primarily on our and our
peers' historical data.
(2)
The risk-free interest rate for the periods within the contractual
term of the options is based on the U.S. Treasury yield curve in
effect at the time of the grant.
(3)
The Company does not currently pay dividends nor has announced
plans to begin paying dividends.
The following table sets forth the summary of PSUs activity under
the 2019 Plan (dollars in thousands except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Weighted Average Fair Value |
PSUs outstanding at December 31, 2021 |
|
89,839 |
|
|
$ |
26.47 |
|
Granted |
|
277,552 |
|
|
14.62 |
|
Forfeited |
|
— |
|
|
— |
|
PSUs outstanding at June 30, 2022
|
|
367,391 |
|
|
$ |
18.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Stock option and PSO expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
2,192 |
|
|
1,870 |
|
|
3,917 |
|
|
10,856 |
|
|
|
|
|
|
Research and development |
|
731 |
|
|
825 |
|
|
1,416 |
|
|
1,668 |
|
|
|
|
|
|
Total stock option and PSO
expense |
|
2,923 |
|
|
2,695 |
|
|
5,333 |
|
|
12,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSU and PSU expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
6,458 |
|
|
8,556 |
|
|
12,025 |
|
|
17,609 |
|
|
|
|
|
|
Research and development |
|
2,702 |
|
|
3,172 |
|
|
5,620 |
|
|
6,402 |
|
|
|
|
|
|
Total RSU and PSU
expense |
|
9,160 |
|
|
11,728 |
|
|
17,645 |
|
|
24,011 |
|
|
|
|
|
|
Total stock-based compensation
expense |
|
$ |
12,083 |
|
|
$ |
14,423 |
|
|
$ |
22,978 |
|
|
$ |
36,535 |
|
|
|
|
|
|
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of June 30, 2022, the unrecognized stock-based compensation
related to stock options and PSOs was $20.3 million, and is
expected to be recognized over a weighted-average period of 1.9
years. At June 30, 2022, the unrecognized stock-based
compensation related to RSUs and PSUs was $93.8 million, and is
expected to be recognized over a weighted-average period of 2.8
years.
(16) Fair Value Measurements
We utilize valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs to the extent
possible. We estimate fair value based on assumptions that market
participants would use in pricing an asset or liability in the
principal or most advantageous market. When considering market
participant assumptions in fair value measurements, the following
fair value hierarchy distinguishes between observable and
unobservable inputs, which is categorized in one of the following
levels:
•Level 1
inputs: Unadjusted quoted prices in active markets for identical
assets or liabilities accessible to the
reporting entity at the measurement date;
•Level 2
inputs: Other than quoted prices included in Level 1 inputs
that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the asset or
liability; and
•Level 3
inputs: Unobservable inputs for the asset or liability used to
measure fair value to the extent that observable inputs are not
available, thereby allowing for situations in which there is
little, if any, market activity for the asset or liability at
measurement date.
The carrying amounts included in the
Condensed
Consolidated Balance Sheets
under current assets and current liabilities approximate fair value
because of the short maturity of these instruments.
The following tables summarize the fair value of assets that are
recorded in the Company’s
Condensed
Consolidated Balance Sheets
as of June 30, 2022 and December 31, 2021 at fair value
on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2022 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
(In thousands) |
|
|
Assets: |
|
|
|
|
|
|
|
|
Money market |
|
$ |
206,870 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
206,870 |
|
Certificate of deposit |
|
91,397 |
|
|
— |
|
|
— |
|
|
91,397 |
|
US treasuries
|
|
209,251 |
|
|
— |
|
|
— |
|
|
209,251 |
|
Corporate debt securities |
|
— |
|
|
543,242 |
|
|
— |
|
|
543,242 |
|
Total assets at fair value |
|
$ |
507,518 |
|
|
$ |
543,242 |
|
|
$ |
— |
|
|
$ |
1,050,760 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
2027 Notes |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
271,201 |
|
|
$ |
271,201 |
|
Total liabilities at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
271,201 |
|
|
$ |
271,201 |
|
The estimated fair value of the 2027 Notes were determined based on
the quoted bid prices of the 2027 Notes in an over-the-counter
market on the last trading day of the reporting
period.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2021 |
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
(In thousands) |
|
|
Assets: |
|
|
|
|
|
|
|
|
Money Market |
|
$ |
402,889 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
402,889 |
|
Certificate of Deposit |
|
91,549 |
|
|
— |
|
|
— |
|
|
91,549 |
|
Corporate debt securities |
|
— |
|
|
380,881 |
|
|
— |
|
|
380,881 |
|
Total assets at fair value |
|
$ |
494,438 |
|
|
$ |
380,881 |
|
|
$ |
— |
|
|
$ |
875,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17) Commitments and
Contingencies
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 June 30, 2022,
would not be material to the Company’s 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.
Lavin v. the Company
On May 28, 2021, a class action complaint was filed against us 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 us and certain of
our current and former officers and directors on behalf of a
putative class of investors who purchased our common stock between
July 10, 2019 and October 14, 2021. The amended complaint alleges,
among other things, that we and certain of our current and former
officers and directors made false and misleading statements and
failed to disclose certain information regarding the safety of its
ships and success of its commercial flight program. Co-lead
plaintiffs seek damages, interest, costs, expenses, attorneys'
fees, and other unspecified equitable relief. Defendants filed a
motion to dismiss on April 4, 2022, and that motion is now fully
briefed. The Company intends to vigorously defend against this
matter.
Spiteri and Grenier, derivatively on behalf of the Company vs.
Certain Current and Former Officers and Directors
On February 21, 2022 and March 1, 2022, two alleged shareholders
filed separate derivative complaints purportedly on behalf of the
Company against certain of our current and former officers and
directors in the Eastern District of New York captioned Spiteri v.
Branson et al., Case No. 1:22-cv-00933, and Grenier v. Branson et
al., Case No. 1:22-cv-01100, respectively. 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, 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.
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Shareholder Litigation Demand
On April 4, 2022, the Company received a litigation demand from an
alleged shareholder requesting that the Company take legal action
against certain of our current and former officers and directors
for breach of fiduciary duty and insider trading arising from
substantially similar allegations as those contained in the
securities class action described above. The Company is evaluating
the litigation demand.
(18) Employee Benefit Plan
The Company has defined contribution plans, under which the Company
pays fixed contributions into a separate entity, and additional
contributions to the plans are based upon a percentage of the
employees’ elected contributions. The Company will have no legal or
constructive obligation to pay further amounts. Obligations for
contributions to defined contribution plans are recognized within
selling, general, and administrative expenses and research and
development in the
Condensed
Consolidated Statements of Operations and Comprehensive
Loss,
as incurred. Defined contributions were $1.1 million and $1.5
million for the three months ended June 30, 2022 and 2021,
respectively. Defined contributions were $2.6 million and $2.6
million for the six months ended June 30, 2022 and 2021,
respectively.
(19) Supplemental Cash Flow
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
(in thousands) |
Supplemental disclosure |
|
|
|
|
Cash payments and refunds for: |
|
|
|
|
Income tax refund |
|
$ |
10 |
|
|
$ |
— |
|
Income tax paid |
|
(53) |
|
|
(58) |
|
|
|
$ |
(43) |
|
|
$ |
(58) |
|
|
|
|
|
|
Schedule for noncash investing activities: |
|
|
|
|
Unpaid property, plant, and equipment received |
|
$ |
1,343 |
|
|
$ |
270 |
|
|
|
$ |
1,343 |
|
|
$ |
270 |
|
|
|
|
|
|
Schedule for noncash financing activities: |
|
|
|
|
Issuance of common stock "cashless" warrants exercised |
|
$ |
— |
|
|
$ |
104,176 |
|
Issuance of common stock through restricted stock units
vested |
|
7,440 |
|
|
27,320 |
|
Unpaid deferred transaction costs |
|
— |
|
|
250 |
|
|
|
$ |
7,440 |
|
|
$ |
131,746 |
|
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(20) Subsequent Events
As of July 30, 2022, we have one subsequent events as noted
below.
Arizona Lease Agreement
On July 14, 2022, the Company entered into an agreement to lease
151,096 square feet of manufacturing and operations facilities in
Mesa, Arizona consisting of two hangars ("Hangar C" and "Hangar
B").
The lease has an initial term of approximately ten years and five
months after the commencement date applicable to Hangar C or Hangar
B, whichever is later, and is expected to commence ten months
following the date of the agreement was entered into with respect
to Hangar C and fifteen months following the date of the agreement
was entered into for Hangar B. The average annual base rent under
the lease is approximately $3.0 million. The Company has four
options to extend the term of the lease, each for an additional
five years.
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. 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”
section of our Annual Report on Form 10-K 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 at the vanguard of a new industry, pioneering a consumer
space experience using reusable spaceflight systems. We believe the
commercial exploration of space represents one of the most exciting
and important technological initiatives of our time. Approximately
630 humans have ever traveled above the Earth’s atmosphere into
space. This industry is growing dramatically due to new products,
new sources of private and government funding, and new
technologies. Demand is emerging from new sectors and demographics,
which we believe is broadening the total addressable market. As
government space agencies have retired or reduced their capacity to
send humans into space, private companies are beginning to make
exciting inroads into the fields of human space exploration. We
have embarked on this journey with a mission to put humans and
research experiments into space and return them safely to Earth on
a routine and consistent basis. We believe that opening access to
space will connect the world to the wonder and awe created by space
travel, offering customers a transformative experience, and
providing the foundation for a myriad of exciting new
industries.
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 tourists, 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, and post-flight
maintenance of our spaceflight system vehicles. Our spaceflight
system is developed using our proprietary technology and processes
and is focused on providing space experiences for private
astronauts, researcher flights and professional astronaut
training.
We intend to offer our customers a
unique, multi-day experience culminating in a spaceflight
that includes several minutes of weightlessness and views of Earth
from space. Our elegant and distinctive spaceflight system – which
takes off and lands on a runway – has been designed for optimal
safety and comfort. As part of our commercial operations, we have
exclusive access to the Gateway to Space facility at Spaceport
America located in New Mexico. Spaceport America is the world’s
first purpose-built commercial spaceport and will be the site of
our initial commercial spaceflight operations. We believe the site
provides us with a competitive advantage as it has a desert climate
with relatively predictable weather conditions preferable to
support our spaceflights and it also has airspace that is
restricted for surrounding general air traffic which facilitates
frequent and consistent flight scheduling.
Our near-term focus is to launch the commercial program for human
spaceflight. In December 2018, we made history by flying our
groundbreaking spaceship, VSS Unity, to space. This represented the
first flight of a spaceflight system built for commercial service
to take humans into space. In February 2019, we flew our second
spaceflight with VSS Unity, which carried a crew member in the
cabin in addition to the two pilots. After relocating our
operations to Spaceport America, we have flown an additional two
spaceflights in May and July of 2021. The May 2021 flight carried
revenue-generating research experiments as part of NASA’s Flight
Opportunities Program. This was the third time Virgin Galactic has
flown technology experiments in the cabin on a spaceflight. This
flight also completed the data submission to the FAA resulting in
the approval
for the expansion of our commercial space transportation operator
license to allow for the carriage of space flight participants.
This marked the first time the FAA licensed a spaceline to fly
customers and was further validation of the inherent safety of our
system.
Our flight in July 2021 was the 22nd
flight of VSS Unity, the fourth rocket powered spaceflight and the
first spaceflight with a full crew of four mission specialists in
the cabin, including our Founder, Sir Richard Branson.
We believe that the market for commercial human spaceflight is
significant and untapped. As of June 30, 2022, we received
reservations for approximately 800 spaceflight tickets and
collected approximately $104.8 million in deposits from future
astronauts. With each ticket purchased, future astronauts will
experience a multi-day journey to prepare their mind and
body for their upcoming flight, which includes a comprehensive
spaceflight training preparation program and culminates with a trip
to space on the final day. Each ticket purchased after our ticket
sale reopening in 2021 also includes a membership in Virgin
Galactic's Future Astronaut community. This membership provides
access to events and experiences, including exclusive weeks 'at
home' with Virgin Galactic Astronaut 001, Sir Richard
Branson.
We have developed an extensive set of integrated aerospace
development capabilities encompassing preliminary vehicle design
and analysis, detail design, manufacturing, ground testing, flight
testing, and maintenance of our spaceflight system. Our fully
reusable spaceflight system consists of two primary components: our
carrier aircraft, which is called the mothership, and our
spaceship.
Our mothership is a twin-fuselage, custom-built aircraft designed
to carry the spaceship up to an altitude of approximately 45,000
feet where it is released for its flight into space. Using the
mothership’s air launch capability, rather than a standard
ground-launch, reduces the energy requirements of our spaceflight
system as the spaceship does not have to ascend through the higher
density atmosphere closest to the Earth’s surface. It is also a
fully reusable part of our spaceflight system. The spaceship is a
vehicle with the capacity to carry pilots and private astronauts,
research experiments, and researchers that travel with their
experiments for human tended research flights into space and return
them safely to Earth. It is powered by a hybrid rocket propulsion
system, which propels the spaceship on a trajectory into space. The
hybrid rocket motor utilizes liquid oxidizer and solid fuel and is
designed to be a simple, safe, reliable propulsion system for the
spaceship. The spaceship’s cabin has been designed to maximize the
future astronaut’s safety, experience and comfort. A dozen windows
line the sides and ceiling of the spaceship, offering customers the
ability to view the blackness of space as well as stunning views of
the Earth below.
Our team is currently in various stages of designing, testing and
manufacturing additional spaceships, motherships, and rocket motors
in order to meet the expected demand for human spaceflight
experiences. Our next generation spaceships will include the
various learnings from our flight test program so we are able to
design and manufacture our future spaceships to allow for greater
predictability, faster turnaround time and easier maintenance.
Concurrently, we are also researching and developing new products
and technologies to grow our company.
Our operations also include spaceflight opportunities for research
and technology development. Researchers have historically utilized
parabolic aircraft and drop towers to create moments of
microgravity and conduct significant research activities related to
the space environment. In most cases, these solutions offer only
seconds of continuous microgravity time and do not offer access to
the upper atmosphere or space itself. Researchers can also conduct
experiments on sounding rockets or satellites. These opportunities
are expensive, infrequent and may impose highly limiting
operational constraints. Our spaceflight system is intended to
provide the scientific research community access to space for
affordable and repeatable access to microgravity. Our suborbital
platform is an end-to-end offering, which includes not only our
vehicles, but also the hardware such as middeck lockers that we
provide to researchers that request them, along with the processes
and facilities needed for a successful campaign. The platform
offers a routine, reliable and responsive service allowing for
experiments to be repeated rapidly and frequently and with the
opportunity to be tended in-flight by one or more researchers. This
capability will enable scientific experiments as well as
educational and research programs to be carried out by a broader
range of individuals, organizations and institutions than ever
before. Our commitment to advancing research and science has been
present in all of our spaceflights to date. Most recently, in May
of 2021, we carried payloads into space for research purposes
through NASA's Flight Opportunities Program, and our flight in July
of 2021 included research payloads from the University of
Florida.
We have also leveraged our knowledge and expertise in manufacturing
spaceships to occasionally perform engineering services for third
parties, such as research, design, development, manufacturing and
integration of advanced technology systems.
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 and
in Part 1, Item 1A. of our Annual Report on Form 10-K titled “Risk
Factors.”
Impact of COVID-19
The COVID-19 pandemic and the protocols and procedures we
implemented in response to the pandemic caused delays to our
business and operations, which led to accumulated impacts to both
schedule and cost efficiency and some delays in operational and
maintenance activities, including delays in our test flight
program. While we are no longer experiencing delays from these
measures, the longevity and extent of the COVID-19 pandemic remain
uncertain, including due to the emergence and impact of the
COVID-19 variants. Measures we may need to take in the future and
challenges that result from the pandemic could affect our
operations necessary to complete the development of our spaceflight
systems, our scheduled flight test programs and commencement of our
commercial flights. See the section entitled Part II, Item 1A.
"Risk
Factors"
for further discussion of the impacts of the COVID-19 pandemic on
our business. We believe our cash and cash equivalents on hand at
June 30, 2022, and management's operating plan, will provide
sufficient liquidity to fund our operations for at least the next
twelve months from the issuance of these financial statements
included in this Quarterly Report on Form 10-Q.
Commercial Launch of Our Human Spaceflight Program
We are in the final phases of developing our commercial spaceflight
program. Prior to launch of commercial service, we must complete a
period of planned maintenance and enhancements to the vehicles, as
well as subsequent vehicle flight testing. Commercial service is
currently expected to commence in the second quarter of 2023. We
continuously monitor our supply chain for potential risk associated
with the delivery of materials from our suppliers, which in turn
could impact the schedule for completion of the enhancement period
and the start of commercial service. We have identified some areas
of risk for timely delivery and continue to work on mitigating
these identified risks. Any delays in successful completion of our
test flight program, whether due to the supply chain, the impact of
COVID-19 or otherwise, will impact our ability to generate revenue
from human spaceflight.
Customer Demand
While not yet in commercial service for human spaceflight, we have
already received significant interest from potential future
astronauts. Going forward, we expect the size of our backlog and
the number of future astronauts that have flown to space on our
spaceflight system to be an important indicator of our future
performance. As of June 30, 2022, we had reservations for
space flights for approximately 800 future astronauts. In August
2021, following Sir Richard Branson's successful test flight, we
reopened ticket sales to a select group and increased the pricing
of our consumer offerings to a base price of $450,000 per seat. In
February 2022, we opened ticket sales to the general public. We are
reserving our first 100 ticket sales for research and scientific
experiments. As of June 30, 2022, the tickets sold represent
approximately $212.0 million in expected future revenue upon
completion of space flights.
We are the first spaceline to receive FAA approval to carry
commercial customers to space. This was through an update to our
existing commercial spaceflight license which we have held since
2016.
Available Capacity and Annual Flight Rate
We expect to commence commercial operations with a single
spaceship, VSS Unity, and a single mothership carrier aircraft, VMS
Eve, which together comprise our only spaceflight system. As a
result, our annual flight rate will be constrained by the
availability and capacity of this spaceflight system. To reduce
this constraint, we are currently developing our newest spaceship,
VSS Imagine, which is expected to commence test flights in
mid-2023, and private astronaut service as soon as the fourth
quarter of 2023. However, given the variability inherent in-flight
testing, it may be prudent for us to allow for appropriate schedule
which could potentially extend Imagine's window for private
astronaut service into early 2024. We intend to expand our fleet
with our next generation vehicles, our Delta class spaceships and
our next generation motherships, which will allow us to increase
our annual flight rate. We believe that expanding the fleet will
allow us to increase our annual flight rate once commercialization
is achieved.
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 human spaceflight revenue.
Component of Results of Operations
Revenue
To date, we have primarily generated revenue by transporting
scientific commercial research and development payloads using our
spaceflight systems and by providing engineering services. We also
have generated revenues from sponsorship arrangements and fees
related to our Future Astronaut community.
Following the commercial launch of our human spaceflight services,
we expect the significant majority of our revenue to be derived
from ticket sales to fly to space and related services. We also
expect that we will continue to receive a small portion of our
revenue by providing services relating to the research, design,
development, manufacture and integration of advanced technology
systems.
Customer Experience
Customer experience expenses related to spaceflight operations
include the consumption of a rocket motor and fuel and other
consumables, as well as payroll and benefits for our pilots and
ground crew. Customer experience expenses related to the payload
cargo services, as well as engineering services, consist of
materials and human capital, such as payroll and benefits, to
perform these services. Additionally, customer experience expenses
include costs associated with maintaining and growing our Future
Astronaut community, as well as hospitality, medical, safety,
security, training, and facility costs that are for the benefit of
our astronauts.
Selling, General and Administrative
Selling, general and administrative expenses consist of human
capital related expenses for employees involved in general
corporate functions, including executive management and
administration, accounting, finance, tax, legal, information
technology, marketing and commercial, and human resources; rent
relating to facilities, including a portion of the lease with
Spaceport America, and equipment; professional fees; and other
general corporate costs. Human capital expenses primarily include
salaries, cash bonuses, stock-based compensation and benefits. As
we continue to grow as a company, we expect that our selling,
general and administrative costs will increase on an absolute
dollar basis.
Research and Development
Research and development expense represents costs incurred to
support activities that advance our human spaceflight system
towards commercialization, including basic research, applied
research, concept formulation studies, design, development, and
related testing activities. Research and development costs consist
primarily of the following costs for developing our spaceflight
systems:
•flight
testing programs, including rocket motors, fuel, and payroll and
benefits for pilots and ground crew performing test
flights;
•equipment,
material, and labor hours (including from third party contractors)
for developing the spaceflight system’s structure, spaceflight
propulsion system, and flight profiles; and
•rent,
maintenance, and other overhead expenses allocated to the research
and development departments.
As of June 30, 2022, our current primary research and
development objectives focus on the development of our mothership
and spaceship vehicles for commercial spaceflights and developing
our rocket motor, a hybrid rocket propulsion system that will be
used to propel our spaceship vehicles into space. The successful
development of mothership, spaceship and rocket motor involves many
uncertainties, including:
•our
ability to recruit and retain skilled engineering and manufacturing
staff;
•timing
in finalizing spaceflight systems design and
specifications;
•successful
completion of flight test programs, including flight safety
tests;
•our
ability to obtain additional applicable approvals, licenses or
certifications from regulatory agencies, if required, and
maintaining current approvals, licenses or
certifications;
•performance
of our manufacturing facilities despite risks that disrupt
productions, such as natural disasters and hazardous
materials;
•performance
of a limited number of suppliers for certain raw materials and
components;
•performance
of our third-party contractors that support our manufacturing and
research and development activities including the quality of
components and subassemblies;
•our
ability to maintain rights from third parties for intellectual
properties critical to research and development
activities;
•continued
access to launch sites and airspace;
•our
ability to continue funding and maintain our current research and
development activities; and
•the
impact of the ongoing global COVID-19 pandemic.
A change in the outcome of any of these variables could delay the
development of our motherships, spaceships, or rocket motors, which
in turn could impact when we are able to commence our human
spaceflights.
As we are currently still in our final development and testing
stage of our spaceflight system, we have expensed all research and
development costs associated with developing and building our
spaceflight system. We expect that our research and development
expenses will decrease once technological feasibility is reached
for our spaceflight systems as the costs incurred to manufacture
additional spaceship vehicles, built by leveraging the invested
research and development, will no longer qualify as research and
development activities.
Depreciation and Amortization
Depreciation of property, plant, and equipment, net is calculated
using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are amortized over the shorter
period of the estimated life or the lease term. Once we have
completed our test flight program and commenced commercial
operations, we will capitalize the cost to construct any unfinished
and additional spaceships and motherships. As these additional
spaceships and motherships are placed into service, the related
depreciation will be included in the Depreciation and Amortization
line item on the condensed consolidated statements of operations
and comprehensive loss. We have not capitalized any spaceship
development costs to date.
Change in Fair Value of Warrants
Change in fair value of warrants reflects the non-cash change in
the fair value of warrants. Certain warrants issued as part of the
Company's initial public offering in 2017 and assumed upon the
consummation of the Virgin Galactic business combination in October
2019 (the "Business Combination") were recorded at their fair value
on the date of the Business Combination and are remeasured as of
any warrant exercise date and at the end of each reporting period.
No warrants were outstanding during the three and six month period
ended June 30, 2022.
Interest Income
Interest income primarily includes interest earned on our cash and
cash equivalents and marketable securities.
Interest Expense
Interest expense consists of amortization of debt issuance costs
and contractual interest expense for our 2027 Notes, as well as
interest expense related to our finance lease
obligations.
Other Income
Other income consists of
miscellaneous non-operating items, such as gains on
marketable securities and handling fees related to customer
refunds.
Income Tax Provision
We are subject to income taxes in the United States and the United
Kingdom. Our income tax provision consists of an estimate of
federal, state, and foreign income taxes based on enacted federal,
state, and foreign tax rates, as adjusted for allowable credits,
deductions, uncertain tax positions, changes in the valuation of
our deferred tax assets and liabilities, and changes in tax
laws.
Results of Consolidated Operations
The following tables set forth our results of operations for the
periods presented and expresses the relationship of certain line
items as a percentage of revenue for those periods.
The period-to-period comparisons of financial results is
not necessarily indicative of future results.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
(In thousands) |
|
Revenue |
|
$ |
357 |
|
|
$ |
571 |
|
|
$ |
676 |
|
|
$ |
571 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Customer experience |
|
122 |
|
|
63 |
|
|
147 |
|
|
63 |
|
|
Selling, general and administrative |
|
44,700 |
|
|
36,916 |
|
|
81,707 |
|
|
80,235 |
|
|
Research and development |
|
62,340 |
|
|
34,619 |
|
|
114,167 |
|
|
69,708 |
|
|
Depreciation and amortization |
|
2,915 |
|
|
2,871 |
|
|
5,767 |
|
|
5,740 |
|
|
Total operating expenses |
|
110,077 |
|
|
74,469 |
|
|
201,788 |
|
|
155,746 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
(109,720) |
|
|
(73,898) |
|
|
(201,112) |
|
|
(155,175) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
1,985 |
|
|
220 |
|
|
2,803 |
|
|
545 |
|
|
Interest expense |
|
(3,157) |
|
|
(6) |
|
|
(5,631) |
|
|
(13) |
|
|
Change in fair value of warrants |
|
— |
|
|
(20,363) |
|
|
— |
|
|
(69,082) |
|
|
Other income, net |
|
194 |
|
|
13 |
|
|
210 |
|
|
40 |
|
|
Loss before income taxes |
|
(110,698) |
|
|
(94,034) |
|
|
(203,730) |
|
|
(223,685) |
|
|
Income tax expense |
|
(23) |
|
|
(6) |
|
|
(48) |
|
|
(49) |
|
|
Net loss |
|
$ |
(110,721) |
|
|
$ |
(94,040) |
|
|
$ |
(203,778) |
|
|
$ |
(223,734) |
|
|
For the Three and Six Months Ended June 30, 2022 Compared to
the Three and Six Months Ended June 30, 2021
Revenue
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
$
Change |
|
%
Change |
|
Six Months Ended June 30, |
|
$
Change |
|
%
Change |
|
|
|
2022 |
|
2021 |
|
|
|
2022 |
|
2021 |
|
|
|
|
|
(In thousands, except %) |
|
Revenue |
|
$ |
357 |
|
|
$ |
571 |
|
|
$ |
(214) |
|
|
(37) |
% |
|
$ |
676 |
|
|
$ |
571 |
|
|
$ |
105 |
|
|
18 |
% |
|
We recorded $0.4 million of revenue for the three months ended
June 30, 2022, compared to $0.6 million for the three months
ended June 30, 2021. Revenue recorded for the three months
ended June 30, 2022 was primarily attributable to membership
fees related to our Future Astronaut community. Revenue recorded
for the three months ended June 30, 2021 was attributable to
the spaceflight of two payloads in May 2021 and revenue earned from
the completion of certain technical milestones related to payload
services.
We recorded $0.7 million of revenue for the six months ended
June 30, 2022, compared to $0.6 million revenue for the six
months ended June 30, 2021. Revenue recorded for the six
months ended June 30, 2022 was primarily attributable to
membership fees related to our Future Astronaut community as well
as the performance of engineering services. Revenue recorded for
the six months ended June 30, 2021 was attributable to the
spaceflight of two payloads in May 2021 and revenue earned from the
completion of certain technical milestones related to payload
services.
Customer Experience
|
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|
|
|
|
|
Three Months Ended June 30, |
|
$
Change |
|
%
Change |
|
Six Months Ended June 30, |
|
$
Change |
|
%
Change |
|
|
|
2022 |
|
2021 |
|
|
|
2022 |
|
2021 |
|
|
|
|
|
(In thousands, except %) |
|
Customer experience |
|
$ |
122 |
|
|
$ |
63 |
|
|
$ |
59 |
|
|
94 |
% |
|
$ |
147 |
|
|
$ |
63 |
|
|
$ |
84 |
|
|
133 |
% |
|
We recorded $0.1 million of customer experience expenses for the
three months ended June 30, 2022 and 2021. Customer experience
expenses for the three months ended June 30, 2022 was
primarily attributable to costs to maintain our Future Astronaut
community. Customer experience expenses for the three months ended
June 30, 2021 was primarily attributable to incremental costs
related to the completion of payload services and labor costs
provided for engineering services under long-term U.S. government
contracts.
We recorded $0.1 million of customer experience expenses for the
six months ended June 30, 2022 and 2021. Customer experience
expenses for the six months ended June 30, 2022 was primarily
attributable to costs to maintain our Future Astronaut community
and labor costs provided for engineering services. Customer
experience expenses for the six months ended June 30, 2021 was
primarily attributable to incremental costs related to the
completion of payload services and labor costs provided for
engineering services under long-term U.S. government
contracts.
Selling, General and Administrative
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|
|
Three Months Ended June 30, |
|
$
Change |
|
%
Change |
|
Six Months Ended June 30, |
|
$
Change |
|
%
Change |
|
|
|
2022 |
|
2021 |
|
|
|
2022 |
|
2021 |
|
|
|
|
|
(In thousands, except %) |
|
Selling, general and administrative |
|
$ |
44,700 |
|
|
$ |
36,916 |
|
|
$ |
7,784 |
|
|
21 |
% |
|
$ |
81,707 |
|
|
$ |
80,235 |
|
|
$ |
1,472 |
|
|
2 |
% |
|
Selling, general and administrative expenses increased by $7.8
million, or 21%, to $44.7 million for the three months ended
June 30, 2022 from $36.9 million for the three months ended
June 30, 2021. This increase was primarily due to a $6.0
million increase in salary, bonus, and other employee benefits. In
addition, there was a $1.6 million increase in consulting and legal
fees, and a $1.1 million increase in software licensing and IT
expenses. These increases were offset by a $1.7 million decrease in
stock-based compensation.
Selling, general and administrative expenses increased by $1.5
million, or 2%, to $81.7 million for the six months ended
June 30, 2022 from $80.2 million for the six months ended
June 30, 2021. This increase was primarily due to a $7.4
million increase in salary, bonus, and other employee benefits. In
addition there was a $4.6 million increase in consulting and legal
fees, and a $1.8 million increase in software licensing and IT
expenses. These increases were offset by a $12.5 million decrease
in stock-based compensation.
Research and Development
|
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|
|
|
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|
|
|
|
|
|
|
Three Months Ended June 30, |
|
$
Change |
|
%
Change |
|
Six Months Ended June 30, |
|
$
Change |
|
%
Change |
|
|
|
2022 |
|
2021 |
|
|
|
2022 |
|
2021 |
|
|
|
|
|
(In thousands, except %) |
|
Research and development |
|
$ |
62,340 |
|
|
$ |
34,619 |
|
|
$ |
27,721 |
|
|
80 |
% |
|
$ |
114,167 |
|
|
$ |
69,708 |
|
|
$ |
44,459 |
|
|
64 |
% |
|
Research and development expenses increased by $27.7 million, or
80%, to $62.3 million for the three months ended June 30, 2022
from $34.6 million for the three months ended June 30, 2021.
The increase was primarily due to costs associated with developing
our spaceflight system, specifically a $21.2 million increase in
contract labor and materials and a $1.3 million increase in
facilities costs. In addition, there was a $4.8 million increase in
salaries, bonus, and other employee benefits.
Research and development expenses increased by $44.5 million, or
64%, to $114.2 million for the six months ended June 30, 2022
from $69.7 million for the six months ended June 30, 2021. The
increase was primarily due to costs associated with developing our
spaceflight system, specifically a $36.6 million increase in
contract labor and materials and a $2.5 million increase in
facilities costs. In addition, there was a $4.1 million increase in
salaries, bonus and other employee benefits.
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
$
Change |
|
%
Change |
|
Six Months Ended June 30, |
|
$
Change |
|
%
Change |
|
2022 |
|
2021 |
|
|
|
2022 |
|
2021 |
|
|
|
($ in thousands) |
|
|
|
(In thousands, except %) |
|
|
Depreciation and amortization |
2,915 |
|
|
2,871 |
|
|
$ |
44 |
|
|
2 |
% |
|
5,767 |
|
|
5,740 |
|
|
$ |
27 |
|
|
— |
% |
Depreciation and amortization expense was $2.9 million for the
three months ended June 30, 2022, an increase of less than
$0.1 million when compared to 2021.
Depreciation and amortization expense was $5.8 million for the six
months ended June 30, 2022, an increase of less than
$0.1 million when compared to 2021.
Change in the Fair Value of Warrants
|
|
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|
|
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|
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|
|
|
|
|
|
|
Three Months Ended June 30, |
|
$
Change |
|
%
Change |
|
Six Months Ended June 30, |
|
$
Change |
|
%
Change |
|
2022 |
|
2021 |
|
|
|
2022 |
|
2021 |
|
|
|
($ in thousands) |
|
|
|
(In thousands, except %) |
|
|
Change in fair value of warrants
|
$ |
— |
|
|
$ |
(20,363) |
|
|
$ |
20,363 |
|
|
(100) |
% |
|
$ |
— |
|
|
$ |
(69,082) |
|
|
$ |
69,082 |
|
|
(100) |
% |
Change in fair value of warrants reflects the non-cash change in
the fair value of warrants. No warrants were outstanding during the
three and six month period ended June 30, 2022.
Interest Income
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
$
Change |
|
%
Change |
|
Six Months Ended June 30, |
|
$
Change |
|
%
Change |
|
|
|
2022 |
|
2021 |
|
|
|
2022 |
|
2021 |
|
|
|
|
|
(In thousands, except %) |
|
Interest income |
|
$ |
1,985 |
|
|
$ |
220 |
|
|
$ |
1,765 |
|
|
802 |
% |
|
$ |
2,803 |
|
|
$ |
545 |
|
|
$ |
2,258 |
|
|
414 |
% |
|
Interest income increased by $1.8 million, or 802%, to $2.0 million
for the three months ended June 30, 2022 from $0.2 million for
the three months ended June 30, 2021.
Interest income increased by $2.3 million, or 414%, to $2.8 million
for the six months ended June 30, 2022 from $0.5 million for
the six months ended June 30, 2021.
These increases are primarily due to interest earned on marketable
securities.
Interest Expense
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
$
Change |
|
%
Change |
|
Six Months Ended June 30, |
|
$
Change |
|
%
Change |
|
|
|
2022 |
|
2021 |
|
|
|
2022 |
|
2021 |
|
|
|
|
|
(In thousands, except %) |
|
Interest expense |
|
$ |
3,157 |
|
|
$ |
6 |
|
|
$ |
3,151 |
|
|
52,517 |
% |
|
$ |
5,631 |
|
|
$ |
13 |
|
|
$ |
5,618 |
|
|
43,215 |
% |
|
Interest expense increased by $3.2 million, or 52,517%, to $3.2
million for the three months ended June 30, 2022 from less
than $0.1 million for the three months ended June 30,
2021.
Interest expense increased by $5.6 million, or 43,215%, to $5.6
million for the six months ended June 30, 2022 from less than
$0.1 million for the six months ended June 30,
2021.
The increase was attributable to interest expense and amortization
of debt issuance costs related to our senior convertible notes in
January 2022.
Other Income, net